<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3751 41-1771946
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) No.)
</TABLE>
607 WEST TRAVELERS TRAIL
BURNSVILLE, MINNESOTA 55337
(612) 894-9229
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
--------------------------
<TABLE>
<S> <C>
DANIEL L. HANLON DAVID P. HANLON
CO-FOUNDER AND CO-CHIEF EXECUTIVE OFFICER CO-FOUNDER AND CO-CHIEF EXECUTIVE OFFICER
</TABLE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
607 WEST TRAVELERS TRAIL
BURNSVILLE, MINNESOTA 55337
(612) 894-9229
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
COPIES TO:
GALE R. MELLUM JONATHAN B. ABRAM
Faegre & Benson LLP Dorsey & Whitney LLP
2200 Norwest Center 20th Floor, Pillsbury Building
90 South Seventh Street 220 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO 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 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 PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.01 par value...................... 4,600,000 Shares $8.00 $36,800,000 $11,152
</TABLE>
(1) Includes 600,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) of the Securities Act of 1933, as amended.
--------------------------
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>
SUBJECT TO COMPLETION, DATED MAY 23, 1997
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 A
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
4,000,000 SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by
Excelsior-Henderson Motorcycle Manufacturing Company (the "Company"). Prior to
this offering, there has been no public market for the Common Stock of the
Company. See "Underwriting" for the factors considered in determining the
initial public offering price. It is currently estimated that the initial public
offering price for the Common Stock will be between $7.00 and $8.00 per share.
The Company has applied for quotation of the Common Stock on the Nasdaq National
Market under the symbol "BIGX."
------------------------
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
---------------------
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 DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Share.................... $ $ $
Total(3)..................... $ $ $
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting offering expenses payable by the Company estimated at
$321,500.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
600,000 additional shares of Common Stock solely to cover over-allotments,
if any. If this option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
The shares of Common Stock are offered by the Underwriters subject to prior
sale, when, as and if delivered to and accepted by them, and are subject to the
right of the Underwriters to withdraw, cancel, or modify such offer and to
reject any order in whole or in part. It is expected that delivery of the shares
of Common Stock will be made on or about , 1997.
------------------------
<TABLE>
<S> <C>
JOHN G. KINNARD AND COMPANY, MILLER, JOHNSON & KUEHN,
INCORPORATED INCORPORATED
</TABLE>
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
**[First Page Gatefold-Front]**
<PAGE>
**[Second Page Gatefold-Front]**
<PAGE>
**[Third Page Gatefold-Front]**
<PAGE>
No dealer, salesperson or any other person has been authorized to give any
information or to make any representations not contained in this Prospectus and,
if given or made, such information or representations must not be relied upon as
having been authorized by the Company or any of the Underwriters. This
Prospectus does not constitute an offer of any securities other than those to
which it relates or an offer to sell, or a solicitation of an offer to buy, to
any person in any jurisdiction where such an offer or solicitation would be
unlawful. Neither the delivery of this Prospectus nor any sale made hereunder
shall, under any circumstances, create any implication that the information
contained herein is correct as of any time subsequent to the date hereof.
------------------------
Until , 1997 (25 days after the date of this Prospectus), all
dealers effecting transactions in the Common Stock, whether or not participating
in this distribution, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................................................................... 3
Forward-Looking Statements............................................................. 4
Risk Factors........................................................................... 6
Use of Proceeds........................................................................ 12
Dividend Policy........................................................................ 12
Dilution............................................................................... 13
Capitalization......................................................................... 14
Selected Financial Data................................................................ 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................................ 16
Business............................................................................... 19
Management............................................................................. 27
Principal Shareholders................................................................. 32
Certain Transactions................................................................... 32
Description of Capital Stock........................................................... 33
Shares Eligible for Future Sale........................................................ 35
Underwriting........................................................................... 36
Legal Matters.......................................................................... 37
Experts................................................................................ 37
Available Information.................................................................. 37
Index to Financial Statements.......................................................... F-1
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK OF
THE COMPANY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING BIDS, THE IMPOSITION OF
PENALTY BIDS, THE PURCHASE OF SECURITIES TO COVER SYNDICATE SHORT POSITIONS AND
OVERALLOTMENTS IN CONNECTION WITH THE OFFERING. FOR A DISCUSSION OF THESE
ACTIVITIES, SEE "UNDERWRITING."
------------------------
THE FOLLOWING TRADEMARKS OF THE COMPANY ARE USED IN THIS PROSPECTUS:
EXCELSIOR-HENDERSON-TM-, SUPER X-TM- AND X-TWIN-TM-.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS. UNLESS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I)
ASSUMES NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) REFLECTS A
2-FOR-3 REVERSE STOCK SPLIT EFFECTED ON MAY 22, 1997 AND (III) ASSUMES PRO FORMA
ISSUANCE OF 3,066,527 SHARES OF COMMON STOCK UPON THE CONVERSION OF THE
OUTSTANDING SHARES OF THE COMPANY'S SERIES A CONVERTIBLE PREFERRED STOCK (THE
"PREFERRED STOCK"), WHICH UNDER THE TERMS OF THE PREFERRED STOCK, WILL OCCUR
AUTOMATICALLY UPON THE CLOSING OF THIS OFFERING. SEE "DESCRIPTION OF CAPITAL
STOCK."
FORWARD-LOOKING STATEMENTS ARE MARKED BY AN ASTERISK (*) AND ARE INTENDED TO
BE COVERED BY CERTAIN SAFE HARBOR PROVISIONS OF THE FEDERAL SECURITIES LAWS, SEE
"FORWARD-LOOKING STATEMENTS."
THE COMPANY
Excelsior-Henderson Motorcycle Manufacturing Company (the "Company"), a
development stage company, plans to manufacture, market and sell premium
heavyweight cruiser and touring motorcycles with a brand that evokes an
authentic American motorcycling heritage and lifestyle.* The Company's
motorcycles will feature current technology but will reflect distinctive
designs, styling and names reminiscent of the motorcycles produced in the early
part of this century by Excelsior Supply Company ("Excelsior Supply") under the
brand names Excelsior and Henderson. During the early 1900s, Excelsior Supply
was one of the "Big Three" motorcycle manufacturers, along with Harley-Davidson
and Indian. The motorcycles manufactured by Excelsior Supply were considered to
be among the best motorcycles of their time, set many performance records and
were among the originators of the classic American heavyweight cruiser
motorcycle design. The Company intends to commence mass production of its
initial motorcycle, a heavyweight cruiser named the Excelsior-Henderson Super X
(the "Super X"), in late 1998.*
The Company's strategy is to market a brand that is based on the authentic
American motorcycling heritage of Excelsior Supply and to manufacture products
that represent a distinct alternative to the products of Harley-Davidson. To
create a strong brand identity for its motorcycles and related products and to
establish the authenticity of the Company's brand, the Company intends to foster
among consumers and dealers a culture and lifestyle that are reminiscent of the
classic American motorcycling heritage.* Such heritage refers to the "soul" of
the traditional American motorcycling experience, fostered by motorcycle events,
motorcyclists and media, which associates riding motorcycles with individuality
and freedom. Owner customization of motorcycles is also an important part of
this heritage, and the Company intends to design its motorcycles and to make
custom parts and accessories available to facilitate customization.* In
addition, the Company intends to sponsor and promote a motorcycle owners' group,
rallies and a magazine for owners and enthusiasts.*
The Company plans to manufacture and market only heavyweight cruiser and
touring motorcycles. Heavyweight motorcycles are defined as motorcycles with an
engine displacement of 651cc or greater and represent approximately half of
retail motorcycle unit sales in the overall U.S. market. The market segment of
cruiser and touring models comprise approximately 80% of retail unit sales in
the U.S. heavyweight motorcycle market. Based on information in
Harley-Davidson's public reports, in 1996 U.S. registrations of new heavyweight
motorcycles increased by approximately 9.6% (to 165,700 units) over 1995
registrations, and U.S. registrations of new heavyweight motorcycles have
increased by 59% from 1992 through 1996. In 1996, Harley-Davidson reported a 48%
market share of new U.S. heavyweight motorcycle registrations. Trade
publications and dealers have reported that there are substantial waiting lists
at the dealers for certain models of Harley-Davidson's motorcycles.
The Super X is a new motorcycle featuring modern engineering and performance
whose design is inspired by the classic American heavyweight styling features of
the motorcycles produced by Excelsior Supply and Henderson, including a large
displacement "X-twin" engine, a sleekly styled, teardrop shaped fuel tank, full
valanced fenders, a curved front frame that follows the contour of the front
fender, a low
3
<PAGE>
slung seat in which a rider will sit into the bike, a leading link front
suspension with fork tubes that pass through the front fender, a tank-mounted
instrument panel, wide profile tires and modern, high gloss, single and two-tone
paint finishes. The Super X design incorporates a proprietary long-stroke engine
designed to produce a distinctive sound, as well as a proprietary transmission
and electronic fuel injection system and computer controlled-engine management
system. The Company has developed several generations of prototypes of the Super
X and first unveiled a running prototype at the Sturgis Motorcycle Rally in
Sturgis, South Dakota in August 1996.
The Company is building its nationwide dealer network and plans to have
dealers in the major population centers and in the major motorcycling markets.*
The Company will also have dealers along the major motorcycle traveling routes,
providing a nationwide network of dealers to serve the Company's customers.* The
Company has identified a dealer profile for the dealers it believes will be
successful in selling its products and is currently soliciting dealers in the
key areas who meet this profile. The Company began signing agreements with its
initial dealers in the second quarter of 1997.* Prior to production, the Company
expects to select 80 to 100 dealers from the over 3,000 authorized dealers of
new motorcycles in the United States, and will then add dealers as its
production increases.*
The Company intends to manufacture its motorcycles in a 160,000 square foot
manufacturing and administrative facility under construction in Belle Plaine,
Minnesota.* The Company has signed a Construction Agreement and a Lease
Agreement with a real estate development company, which has commenced
construction of the facility. The facility has been designed initially to have a
production capacity of 20,000 motorcycles per year. The Company anticipates
relocating its operations to the facility during late 1997.*
The Company, which was incorporated in Minnesota in December 1993 under the
name "Hanlon Manufacturing Company," changed its name to Excelsior-Henderson
Motorcycle Manufacturing Company in March 1996. The Company currently is located
at 607 West Travelers Trail, Burnsville, Minnesota 55337. Its telephone number
is (612) 894-9229.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF
THE SAFE HARBOR PROVISIONS OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT"), RELATING TO FUTURE EVENTS OR THE FUTURE
FINANCIAL PERFORMANCE OF THE COMPANY. CERTAIN OF THESE FORWARD-LOOKING
STATEMENTS ARE INDICATED BY AN ASTERISK WITHIN THIS PROSPECTUS. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT FORWARD-LOOKING STATEMENTS ARE ONLY PREDICTIONS OR
STATEMENTS OF INTENTION SUBJECT TO RISKS AND UNCERTAINTIES AND THAT ACTUAL
EVENTS OR RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED. BECAUSE ACTUAL
RESULTS MAY DIFFER, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS. IN EVALUATING SUCH STATEMENTS,
PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS
IDENTIFIED IN THIS PROSPECTUS, INCLUDING THE RISKS, UNCERTAINTIES AND OTHER
MATTERS SET FORTH UNDER THE CAPTION "RISK FACTORS" AND THE MATTERS SET FORTH
UNDER THE CAPTIONS "MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION" AND "BUSINESS," AS WELL AS THOSE DISCUSSED
ELSEWHERE IN THIS PROSPECTUS.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the
Company......................... 4,000,000 shares
Common Stock to be outstanding
after the offering.............. 12,944,758 shares(1)
Use of Proceeds................... Proceeds will be used primarily for completing and
equipping the Company's manufacturing and administrative
facility, designing and developing a motorcycle
production line, acquiring tooling and motorcycle
components and supplies, finalizing engineering and
design of the Super X and funding marketing costs,
general operating expenses and working capital. See "Use
of Proceeds."
Nasdaq National Market Symbol..... BIGX
</TABLE>
- ------------------------
(1) Does not include 983,806 shares of Common Stock that are issuable upon the
exercise of outstanding options and warrants exercisable at $.90 to $4.50
per share as of May 1, 1997. See "Management-- Executive Compensation" and
"Description of Capital Stock--Options and Warrants."
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
CUMULATIVE FOR CUMULATIVE FOR
THE PERIOD THE PERIOD
FROM INCEPTION FROM INCEPTION
(DECEMBER 22, THREE MONTHS ENDED (DECEMBER 22,
YEAR ENDED DECEMBER 31, 1993) TO MARCH 31, 1993) TO
-------------------------------------- DECEMBER 31, ----------------------- MARCH 31,
1994 1995 1996 1996(1) 1996 1997 1997(1)
---------- ------------ ------------ -------------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Total preoperating
expenses........ $ 383,845 $ 1,270,112 $ 2,681,669 $ 4,336,801 $ 502,905 $ 1,078,554 $ 5,415,355
Interest income
(expense),
net............. (5,346) 36,221 170,138 201,013 17,774 88,794 289,807
---------- ------------ ------------ -------------- ---------- ----------- --------------
Net loss.......... $ (389,191) $ (1,233,891) $ (2,511,531) $ (4,135,788) $ (485,131) $ (989,760) $ (5,125,548)
---------- ------------ ------------ -------------- ---------- ----------- --------------
---------- ------------ ------------ -------------- ---------- ----------- --------------
Net loss per
common and
common
equivalent share
(pro
forma)(2)....... $ (.07) $ (.18) $ (.31) $ (.65) $ (.06) $ (.11) $ (.77)
Weighted average
common and
common
equivalent
shares
outstanding (pro
forma)(2)....... 5,329,678 6,774,031 8,174,856 6,409,967 7,643,006 9,203,700 6,698,055
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1997
---------------------------
ACTUAL AS ADJUSTED(3)
----------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................................................... $ 7,932,590 $ 35,511,090
Total assets....................................................................................... 9,024,919 36,603,419
Total stockholders' equity......................................................................... 8,656,567 36,235,067
</TABLE>
- ------------------------------
(1) The Company was incorporated and began operations on December 22, 1993.
(2) See Note 2 to Financial Statements for an explanation of the determination
of weighted average common and common equivalent shares outstanding.
(3) Adjusted to reflect the sale of the shares offered hereby and application of
the net proceeds therefrom. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE SHARES BEING OFFERED BY THIS PROSPECTUS INVOLVES A HIGH
DEGREE OF RISK. IN ADDITION, THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS
WITHIN THE MEANING OF THE SAFE HARBOR PROVISIONS OF SECTION 27A OF THE
SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN SUCH FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH IN THE FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS
PROSPECTUS. ACCORDINGLY, PROSPECTIVE INVESTORS SHOULD CONSIDER CAREFULLY THE
FOLLOWING RISK FACTORS, IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS
PROSPECTUS CONCERNING THE COMPANY AND ITS BUSINESS, BEFORE PURCHASING THE SHARES
OFFERED HEREBY. FORWARD-LOOKING STATEMENTS ARE MARKED BY AN ASTERISK (*), SEE
"FORWARD-LOOKING STATEMENTS."
LACK OF SALES; EXPECTATION OF LOSSES
The Company has not had sales to date and does not anticipate motorcycle
sales until late 1998.* As of March 31, 1997, the Company had an accumulated
deficit of $5.1 million. The Company expects operating losses to increase as its
product development, marketing and sales, manufacturing and administrative
functions expand prior to and during the initial stage of motorcycle sales.*
There can be no assurance that the Company will generate motorcycle sales or
become profitable. The report of independent public accountants on the Company's
Financial Statements for the years ended December 31, 1994, 1995, and 1996 and
cumulative for the period from inception (December 22, 1993) to December 31,
1996, includes an explanatory paragraph relating to the uncertainty of the
Company's ability to continue as a going concern. See Financial Statements and
the Notes thereto.
MARKET ACCEPTANCE
The Company's success depends upon market acceptance of its brand of
products. Market acceptance depends upon the ability of the Company to establish
its intended brand image and a reputation for high quality and to differentiate
its brand of products from its competitors. There can be no assurance that the
Company's products will be perceived as being of high quality and differentiated
from such other products, or that the Company will be successful in establishing
its intended brand image. See "Business--Products" and "Business--Industry and
Market."
COMPETITION
The Company will operate in a highly competitive environment and compete
against established motorcycle manufacturers such as Harley-Davidson, BMW,
Ducati, Honda, Kawasaki, Moto-Guzzi, Suzuki, Triumph and Yamaha.
Harley-Davidson, which is expected to be the Company's primary competitor in the
U.S. market, has stated in its public reports that it had a 48% share of the
U.S. market for new heavyweight motorcycle registrations in 1996 and that it
will double its 1995 production capacity by the year 2003. The Company also
expects that other manufacturers will attempt to enter the industry, including
Polaris Industries Inc., a manufacturer of snowmobiles, personal watercraft and
all-terrain vehicles, which announced that it would begin manufacturing a
cruiser motorcycle to be available in limited quantities in spring 1998. Also,
the Company is aware of several attempts to revive the "Indian" motorcycle. The
Company's established competitors have greater resources than the Company.
Finally, a number of small companies build motorcycles from non-proprietary
parts. No assurance can be given that the Company will be able to compete
effectively. See "Business--Industry and Market" and "Business-- Competition."
MANUFACTURING RISK; NO MANUFACTURING HISTORY
Production of the Super X and any additional motorcycles the Company may
produce is dependent upon completing the construction of the Company's
manufacturing facility, establishing a motorcycle
6
<PAGE>
production line, engaging reliable suppliers to manufacture components for the
Company's products, hiring additional engineering and manufacturing personnel
and completing the design of the Super X for mass production. Factors that may
affect the successful completion of such items include delays in the
construction of the Company's manufacturing and administrative facility,
problems in establishing the motorcycle production line, the inability of the
Company to locate competent suppliers or obtain adequate quantities of
components and supplies at reasonable costs, the inability of the Company to
hire additional qualified personnel and the inability of the Company's
engineering and manufacturing staff to design, engineer and produce the Super X.
In addition, for the Company to be successful, its products must be manufactured
to meet high quality standards in production volumes. Although the Company has
produced prototypes of the Super X, it has never attempted to manufacture
motorcycles in large quantities. The transition to mass production will involve
various risks and uncertainties that may not be apparent at this time and there
can be no assurance that the Company will be able to successfully react to
unanticipated difficulties. See "Business--Manufacturing".
FINANCING RISK; POSSIBLE NEED FOR ADDITIONAL FINANCING
The Company is dependent upon receiving the proceeds of this offering,
equipment financing from the State of Minnesota and commercial asset-backed and
working capital financing, in addition to its available cash resources, to begin
production of the Super X.* If the Company's estimates of the amount of
financing needed to commence production of the Super X are incorrect due to
unanticipated additional costs of constructing and equipping the Company's
manufacturing facility, unanticipated problems in the development of the Super X
for production, increased labor costs, increased costs of motorcycle parts and
raw materials, increased marketing and dealer network development expenses,
increased rates of consumption of available cash resources, the unavailability
of the State of Minnesota equipment financing or commercial asset-backed and
working capital financing, or other unanticipated events, then the Company may
need additional equity or debt financing in excess of the proceeds of this
offering prior to or shortly after commencement of production of the Super X.
There can be no assurance that the Company will be able to obtain such
additional financing, or that, if available, such additional financing will be
on terms acceptable to the Company or its shareholders. Significant additional
dilution may be incurred by investors in this offering as a result of additional
equity financing. New investors may seek and obtain significantly better terms
than those granted to present investors. Any need for such additional financing
would delay production of the Super X. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DEPENDENCE ON SUPPLIERS
The Company will rely on outside vendors to supply most of the proprietary
and non-proprietary components that will be used to manufacture its motorcycle
products. For certain of the components the Company intends to rely on single
sources of supply. Such reliance involves a number of significant risks,
including the unavailability of or interruptions in delivery of such components,
manufacturing delays caused by such unavailability or interruptions and
fluctuations in the quality and price of such components. Any significant
adverse variation in the quantity, quality or cost of such components
manufactured by outside vendors, especially single-source vendors, could
materially and adversely affect the Company's results of operations. See
"Business--Manufacturing."
The Company anticipates that it will purchase certain of its components from
foreign vendors. In addition to the risks of dependence on suppliers described
above, the risks of dependence on foreign suppliers include currency
fluctuations affecting the value of goods purchased, trade restrictions, changes
in tariffs and difficulty of enforcing supply arrangements.
7
<PAGE>
DISTRIBUTION NETWORK; ABILITY TO SUPPORT DEALERS
The Company has not had a dealer network to date. Prior to production, the
Company will need to attract successful dealers to sell its brand of products.
There can be no assurance that the Company will be able to attract the number of
dealers the Company may need or that such dealers will be successful in selling
its brand of products. See "Business-- Distribution."
In addition, the Company will be required to support its dealers through,
among other things, making floor plan financing available through third parties,
continuing education about the Company's brand of products, supplying parts and
accessories, and training repair personnel. The Company does not have any
history in such dealer support and there can be no assurance that the Company
will be able to successfully support its dealer network. If the Company is
unable to provide such support, the Company may lose dealers and, consequently,
distribution of its products would be adversely affected.
DISCRETIONARY PRODUCT
Purchases of motorcycles, such as the premium heavyweight motorcycles that
the Company plans to produce, are discretionary for consumers. The success of
the Company will be influenced by a number of economic factors affecting
discretionary consumer income, such as employment levels, business conditions,
interest rates and taxation rates, which are beyond the Company's control.
Adverse economic changes affecting these factors may restrict consumer spending
and thereby adversely affect the Company's growth and profitability.
SINGLE PRODUCT
Until the Company commences the manufacturing of other motorcycles, the
Company's success will depend entirely on the success of a single product, the
Super X. If the Super X is not accepted by its intended market, the future
operations of the Company would be materially adversely affected.
RISK OF DEFECTS
The Company's products may encounter unanticipated defects. Such defects
could give rise to recalls of the Company's products and adversely affect their
market appeal. Such recalls or other defects would be costly to the Company and
could have a material adverse effect on the Company's brand, future financial
condition, and subsequent results of operations.
PRODUCT LIABILITY RISK
Given the nature of the Company's products, the Company expects that it will
be subject to potential product liability claims that could, in the absence of
sufficient insurance coverage, have a material adverse impact on the Company.
Although the Company intends to obtain adequate insurance coverage prior to
commencing mass production, there can be no assurance that the Company will be
able to secure or maintain adequate liability insurance to cover all product
liability claims. Particularly as a new market entrant, any large product
liability suits occurring early in the Company's operations may significantly
adversely affect the Company's ability to market its motorcycle products.
DEPENDENCE UPON KEY PERSONNEL; MANAGEMENT OF GROWTH
The success of the Company is materially dependent upon the services and
efforts of its Co-Founders, Daniel and David Hanlon, and other members of its
executive management team. In addition, as a development stage company, the
Company has had in the past and expects in the future to have management
turnover as the Company develops its management team. The unavailability or loss
of the services of any of these individuals could adversely affect the Company's
success. The Company is still in the process of filling key management roles.
The Company does not have any employment or non-
8
<PAGE>
competition agreements with any members of its executive management team but has
entered into confidentiality and non-solicitation agreements with such persons.
While the Company maintains life insurance on its Co-Founders, it does not
maintain life insurance on any other member of its executive management team.
See "Management--Confidentiality Agreements; Life Insurance."
As the Company moves closer to mass production of the Super X, there will be
increasing demands on the Company's management, operational and financial
resources. Successful management of growth will require the Company to
constantly improve its management abilities and production processes and there
can be no assurance that the Company will be able to manage the expected level
of growth effectively. In addition, mass production of the Super X will depend
on the ability of the Company to hire additional qualified personnel and the
ability of the Company's management to integrate such persons into the Company.
Competition is intense for highly skilled workers, and there can be no assurance
that the Company will be successful in attracting, training and retaining such
personnel.
TRADEMARK STATUS
The Company believes that it has the exclusive right to use the trademarks
"Excelsior-Henderson," "Super X" and "X-twin," among others, and certain related
word and design trademarks in the United States and in certain foreign countries
in connection with the manufacture or sale of motorcycles. Given the Company's
actual and intended use of these trademarks to enhance the Company's brand name
and marketing appeal of its motorcycles, a successful challenge to its use of
certain of these trademarks in connection with motorcycles and ancillary
products would adversely affect the Company's business. Although the Company
intends to vigorously defend its intellectual property rights, if necessary,
such litigation could be costly and consume resources of the Company, which
could adversely affect operating results. See "Business--Intellectual Property
Rights."
REGULATORY APPROVAL RISKS
The Company will be required to obtain approvals and make certifications
regarding compliance with federal, state and local regulations regarding the
noise, emissions and safety characteristics of its motorcycles. In addition, the
Company's manufacturing facility will be required to comply with environmental
and safety standards. The potential delays and costs that could result from
obtaining such regulatory approvals and complying with, or failing to comply
with, such regulations could result in a delay in motorcycle production and
adversely affect operating results. See "Business--Government Regulation."
CONTROL BY CO-FOUNDERS AND EXISTING MANAGEMENT
Co-Founders Daniel Hanlon and David Hanlon together beneficially own
3,260,000 shares of Common Stock of the Company. In addition, the directors and
other executive officers of the Company own an additional 520,575 shares of
Common Stock (including options which vest within 60 days of May 1, 1997).
Following this offering, the Co-Founders, and other directors and executive
officers will in the aggregate control 29.1% of the voting power of the Company
(assuming the exercise of options). As a result, such persons will be able to
greatly influence the outcome of shareholder votes, including votes concerning
the election of directors and changes in control. See "Principal Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company has outstanding 8,944,758
shares of Common Stock (including the 3,066,527 shares of Common Stock issuable
upon the conversion of the Company's Preferred Stock), which does not include:
(i) the shares offered hereby or (ii) 983,806 shares of Common Stock that are
issuable upon the exercise of outstanding options and warrants as of May 1,
1997. See "Dilution" and "Description of Capital Stock."
9
<PAGE>
Sales of substantial amounts of the Company's Common Stock could adversely
affect prevailing market prices of the Company's Common Stock and could impair
the Company's ability to raise additional capital. Substantially all of the
shares of Common Stock currently outstanding are freely tradeable under Rule 144
of the Securities Act ("Rule 144"), or under other exemptions. Of the shares of
Common Stock currently outstanding, approximately 661,400 shares are not subject
to the lock-up agreements described below. Of these shares, approximately
271,900 shares are currently eligible for sale without restriction pursuant to
Rule 144(k) and approximately 389,500 shares are currently eligible for sale
subject to the volume, manner of sale and notice restrictions of Rule 144.
Approximately 8,283,400 shares of the Common Stock currently outstanding and to
be issued upon conversion of the Preferred Stock are subject to lock-up
agreements of varying periods; accordingly, none of these shares will be
eligible for sale until the expiration of the lock-up agreements. Approximately
1,616,300 of these shares will be eligible for sale 90 days after the closing of
this offering (approximately 56,400 of which will be subject to the requirements
of Rule 144 described above); approximately 3,507,100 of these shares will be
eligible for sale 180 days after the closing of this offering (approximately
440,600 of which will be subject to the requirements of Rule 144 described above
and 3,066,527 of which represents the shares of Common Stock issuable upon
conversion of the Company's Preferred Stock); and approximately 3,160,000 of
these shares will become eligible for sale 365 days after the closing of this
offering (all of which will be subject to the requirements of Rule 144 described
above). See "Shares Eligible for Future Sale."
NO PRIOR MARKET FOR COMMON STOCK; NEGOTIATED OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to this offering there has been no public market for shares of the
Company's Common Stock and there can be no assurance that an active trading
market will develop or be sustained. The initial public offering price for the
Common Stock will be determined by negotiations between the Company and the
representatives of the Underwriters and may be greater than the market price for
the Common Stock following this offering. The initial public offering price
should not be considered an accurate indication of the actual value of the
Company, as it bears no relationship to the Company's assets, book value,
earnings, net worth or other financial criteria. The market price of the
Company's Common Stock could be subject to significant fluctuations in response
to variations in quarterly operating results and other factors, such as
announcements of progress towards the Company's production and marketing goals,
new products introduced by the Company or its competitors, changes in financial
estimates by securities analysts and other events. Moreover, the stock market
has experienced extreme volatility that has often been unrelated and
disproportionate to the operating performance of affected companies. Broad
market fluctuations, as well as economic conditions generally and in the
Company's industry specifically, may adversely affect the market price of the
Company's Common Stock. There can be no assurance that the market price of the
Common Stock will not decline below the initial public offering price. The
Company makes no representations, express or implied, as to the value of the
shares. There can be no assurance that the purchasers will be able to resell the
shares at the initial public offering price or at any price. See "Underwriting."
DILUTION
Purchasers of the shares will experience an immediate and substantial
dilution of $4.71 in pro forma net tangible book value per share of Common Stock
from the assumed initial public offering price of $7.50 per share. See
"Dilution."
NO DIVIDENDS
The Company does not anticipate generating cash flows from operations in the
near future. If such cash flows from operations do occur, the Company presently
intends to use those cash flows to finance further growth of the Company's
business. Accordingly, investors should not purchase the shares with a view
towards receipt of dividends.
10
<PAGE>
ANTI-TAKEOVER CONSIDERATIONS
As a Minnesota corporation, the Company is subject to certain anti-takeover
provisions of the Minnesota Business Corporation Act (the "MBCA"). Certain
provisions of the MBCA could have the effect of delaying, deferring or
preventing a change in control of the Company, may discourage bids for the
Company's Common Stock at a premium over the then prevailing market price of the
Common Stock, and may adversely affect the market price of, and the voting and
other rights of the holders of, the Common Stock. See "Description of Capital
Stock-- Anti-Takeover Provisions of the Minnesota Business Corporation Act;
Restated Articles of Incorporation."
LIMITATION OF LIABILITY OF DIRECTORS TO SHAREHOLDERS
The Company has included in its Bylaws a provision to indemnify its
directors and officers and advance litigation expenses to the fullest extent
permitted or required by Minnesota law, including circumstances in which
indemnification is otherwise discretionary. Such indemnification may be
available for liabilities arising in connection with this offering. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to such indemnification provisions, the Company has been advised that, in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
The Company has adopted in its Articles of Incorporation a provision that
limits the personal liability of a director for breach of the director's
fiduciary duty, except under certain circumstances involving any breach of the
director's duty of loyalty to the Company or its shareholders, acts or omissions
not made in good faith or that involve intentional misconduct or a knowing
violation of law, any unlawful acts under Sections 302A.559 or 80A.23 of the
Minnesota Statutes, or any transaction from which a director derives an improper
personal benefit.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Common Stock
offered hereby are estimated to be approximately $27.6 million ($31.8 million,
assuming the Underwriters' over-allotment option is exercised in full) assuming
an initial public offering price of $7.50 per share, and after deducting the
estimated underwriting discounts and commissions and offering expenses payable
by the Company.
The net proceeds of this offering will be used by the Company primarily for
completing and equipping the Company's manufacturing and administrative
facility, designing and developing a motorcycle production line, acquiring
tooling, motorcycle components and supplies, finalizing engineering and design
of the Super X and funding marketing costs, general operating expenses and
working capital. Pending such uses, the Company intends to invest such net
proceeds from this offering in short-term investment-grade, interest-bearing
securities.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock. The Company currently intends to retain any earnings for use in its
business and therefore does not anticipate paying any cash dividends in the
foreseeable future.
12
<PAGE>
DILUTION
As of March 31, 1997, the pro forma net tangible book value of the Company
was $8.5 million, or $.95 per share of Common Stock. "Pro forma net tangible
book value" per share of Common Stock represents the total amount of tangible
assets of the Company, less the total amount of liabilities of the Company,
divided by the number of shares of Common Stock outstanding, including the
issuance of 3,066,527 shares of Common Stock issuable upon conversion of the
Preferred Stock. Assuming the offering was completed at March 31, 1997 at the
assumed initial public offering price of $7.50 per share, and after deducting
the underwriting discount and selling commissions and estimated offering
expenses, the pro forma net tangible book value of the Common Stock of the
Company as of March 31, 1997, would have been $36.1 million, or $2.79 per share.
The increase in pro forma net tangible book value of approximately $1.84 per
share of Common Stock would be due solely to the purchase of shares in this
offering by investors and immediate dilution of $4.71 per share would be
incurred by investors in this offering. "Dilution" is determined by subtracting
net tangible book value per share after the offering from the offering price, as
illustrated by the following table:
<TABLE>
<S> <C> <C>
Price per share(1)............................................ $ 7.50
Pro forma net tangible book value per share at March 31,
1997...................................................... $ .95
Increase per share attributable to new investors............ 1.84
---------
Pro forma net tangible book value per share after this
offering.................................................... 2.79
---------
Pro forma net tangible book value dilution per share to new
investors(2)................................................ $ 4.71
---------
---------
</TABLE>
- ------------------------
(1) Offering price before deduction of underwriting discounts and selling
commissions and estimated offering expenses. If the Underwriters'
over-allotment option is exercised in full, the pro forma net tangible book
value per share after this offering would be $2.97, the increase per share
attributable to new investors would be $2.02, and the dilution per share to
new investors would be $4.53.
(2) Does not include 950,474 shares of Common Stock that are issuable upon the
exercise of outstanding options and warrants exercisable at $.90 to $4.50
per share. See "Management--Executive Compensation" and "Description of
Capital Stock--Options and Warrants."
The following table summarizes, on a pro forma basis, the difference between
the number of shares of Common Stock purchased from the Company by the existing
shareholders and by new investors in this offering, the total consideration paid
to the Company and the average price paid per share. The table assumes that no
shares are purchased in this offering by existing shareholders. To the extent
existing shareholders purchase in this offering, their percentage ownership,
total consideration and average consideration per share will be greater than is
shown.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Common Shareholders(1).................... 5,878,231 45.4 $ 3,872,550 8.5% $ .66
Existing Preferred Shareholders.................... 3,066,527 23.7 11,500,000 25.4 3.75
New Investors...................................... 4,000,000 30.9 30,000,000 66.1 7.50
------------ ----- ------------- -----
Total............................................ 12,944,758 100.0% $ 45,372,550 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------------------
(1) Does not include 950,474 shares of Common Stock that are issuable upon the
exercise of outstanding options and warrants exercisable at $.90 to $4.50
per share. See "Management--Executive Compensation" and "Description of
Capital Stock--Options and Warrants."
13
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1997 (i) the capitalization
of the Company, (ii) the pro forma capitalization of the Company giving effect
to the conversion of all outstanding shares of Preferred Stock into Common
Stock, and (iii) such pro forma capitalization as adjusted to reflect the
application of the estimated net proceeds from the sale by the Company of
4,000,000 shares of Common Stock pursuant to this offering at an assumed initial
public offering price of $7.50 per share. See "Use of Proceeds." The information
set forth below should be read in conjunction with the Financial Statements and
Notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
MARCH 31, 1997(1)
-------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Stockholders' equity:
Series A Convertible Preferred Stock, par value of $.01; 6,666,666
shares authorized; 3,066,527 issued and outstanding (actual);
(none pro forma and pro forma as adjusted)...................... $ 30,665 $ -- $ --
Common Stock, par value of $.01; 16,666,666 shares authorized;
5,878,231 issued and outstanding (actual); 8,944,758 issued and
outstanding (pro forma); 12,944,758 issued and outstanding (pro
forma as adjusted).............................................. 58,782 89,447 129,448
Additional paid-in capital........................................ 13,692,668 13,692,668 41,231,167
Deficit accumulated during the development stage.................. (5,125,548) (5,125,548) (5,125,548)
------------- ------------- -------------
Total stockholders' equity and capitalization................... $ 8,656,567 $ 8,656,567 $ 36,235,067
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
- ------------------------
(1) Does not include 950,474 shares of Common Stock that are issuable upon the
exercise of outstanding options and warrants exercisable at $.90 to $4.50
per share. See "Management--Executive Compensation" and "Description of
Capital Stock--Options and Warrants."
14
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for the years ended December 31, 1994, 1995
and 1996 and cumulative for the period from inception (December 22, 1993) to
December 31, 1996, and the balance sheet data as of December 31, 1995 and 1996
are derived from and are qualified by reference to, and should be read in
conjunction with the more detailed Financial Statements of the Company and the
Notes thereto, which have been audited by Arthur Andersen LLP, independent
public accountants, whose report is included elsewhere in this Prospectus, and
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations," which follows this section. The balance
sheet data at December 31, 1994 are derived from audited financial statements
not included in this Prospectus. The statement of operations data for the three
months ended March 31, 1996 and 1997 and cumulative for the period from
inception (December 22, 1993) to March 31, 1997, and the balance sheet data at
March 31, 1997 are derived from the unaudited financial statements of the
Company included elsewhere in this Prospectus, which statements reflect, in the
opinion of management of the Company, all adjustments, consisting solely of
normal recurring adjustments, necessary for a fair presentation of the financial
data for such periods. The results of operations for the three months ended
March 31, 1997 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1997, or for any other interim
period.
<TABLE>
<CAPTION>
CUMULATIVE FOR
THE PERIOD CUMULATIVE FOR
FROM INCEPTION THE PERIOD
(DECEMBER 22, FROM INCEPTION
1993) THREE MONTHS ENDED (DECEMBER 22,
YEAR ENDED DECEMBER 31, TO MARCH 31, 1993)
--------------------------------------- DECEMBER 31, ------------------------- TO
1994 1995 1996 1996 1996 1997 MARCH 31, 1997
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
PREOPERATING
EXPENSES:
Research and
development..... $ 110,082 $ 702,345 $ 1,271,276 $ 2,083,703 $ 252,157 $ 477,108 $ 2,560,811
Marketing......... 32,133 106,974 694,239 833,346 95,426 283,376 1,116,722
General and
administrative... 241,630 460,793 716,154 1,419,752 155,322 318,070 1,737,822
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
Total
preoperating
expenses...... 383,845 1,270,112 2,681,669 4,336,801 502,905 1,078,554 5,415,355
INTEREST INCOME..... -- 43,522 174,226 217,748 18,335 90,482 308,230
INTEREST EXPENSE.... (5,346) (7,301) (4,088) (16,735) (561) (1,688) (18,423)
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
Net loss............ $ (389,191) $ (1,233,891) $ (2,511,531) $(4,135,788) $ (485,131) $ (989,760) $(5,125,548)
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
Net loss per common
and common
equivalent share
(pro forma) (1)... $ (.07) $ (.18) $ (.31) $ (.65) $ (.06) $ (.11) $ (.77)
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
Weighted average
common and common
equivalent shares
outstanding
(pro forma) (1)... 5,329,678 6,774,031 8,174,856 6,409,967 7,643,006 9,203,700 6,698,055
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
---------- ------------ ------------ ---------------- ----------- ----------- ----------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------- MARCH 31,
1994 1995 1996 1997
-------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......................... $188,025 $1,550,914 $9,038,639 $7,932,590
Total assets............................ 373,926 1,882,588 10,023,400 9,024,919
Note payable............................ 25,015 24,351 70,086 67,002
Total stockholders' equity.............. 254,123 1,728,858 9,631,327 8,656,567
</TABLE>
- ------------------------------
(1) See Note 2 to Financial Statements for determination of weighted average
common and common equivalent shares outstanding.
15
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company plans to manufacture, market and sell premium heavyweight
cruiser and touring motorcycles with a brand that evokes an authentic American
motorcycling heritage and lifestyle.* The Company is in the development stage
and its operations are subject to all of the risks inherent in the establishment
of a new business enterprise, including the risk that full-scale operations may
not occur. The Company does not anticipate having motorcycle sales until late
1998.* The Company's deficit accumulated during the development stage was $5.1
million at March 31, 1997. Historic spending levels are not indicative of
anticipated future spending levels because the Company is entering a period in
which it will increase spending on product research and development, marketing
and dealer network development, and increase staffing and other general
operating expenses. For these reasons, the Company believes its expenses,
losses, and deficit accumulated during the development stage will increase
significantly before any material product sales are generated.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $477,000 for the three months ended March 31, 1997 from $252,000
for the three months ended March 31, 1996. The increases were primarily due to
increased product design and development costs, as well as the costs of building
prototypes.
MARKETING EXPENSES. Marketing expenses increased to $283,000 for the three
months ended March 31, 1997 from $95,000 for the three months ended March 31,
1996. The increases were primarily due to staffing increases, increased
advertising and promotion costs and expenses associated with the Company's
promotional event at the 1997 Daytona Bike Week.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $318,000 for the three months ended March 31, 1997 from $155,000
for the three months ended March 31, 1996. The increases were primarily due to
staffing increases and other general operating expenses.
INTEREST INCOME. Interest income increased to $90,000 for the three months
ended March 31, 1997 from $18,000 for the three months ended March 31, 1996. The
increase generally reflects interest earned on increased average levels of cash,
cash equivalents and short-term investments held by the Company resulting from
the proceeds of the sale of the Company's Preferred Stock during 1996.
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $1.3 million in 1996 from $702,000 in 1995 and $110,000 in 1994.
The increases were primarily due to increases in expenses for product design and
development, as well as expenses for developing prototypes.
MARKETING EXPENSES. Marketing expenses increased to $694,000 in 1996 from
$107,000 in 1995 and $32,000 in 1994. The increases were primarily due to
staffing increases, increased advertising and promotion costs and, during 1996,
expenses associated with the unveiling of the prototype Super X at the Sturgis
Motorcycle Rally in Sturgis, South Dakota.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased to $716,000 in 1996 from $461,000 in 1995 and $242,000 in 1994. The
increases were primarily due to staffing increases and other general operating
expenses.
16
<PAGE>
INTEREST INCOME. Interest income increased to $174,000 in 1996 from $44,000
during 1995. The Company did not earn any interest income during 1994. The
increase generally reflects interest earned on increased average levels of cash,
cash equivalents and short-term investments held by the Company resulting from
the proceeds of the sale of the Company's Preferred Stock during 1996 (See Note
4 of Notes to Financial Statements) and from the proceeds of the sales of Common
Stock during 1994, 1995 and 1996 (See Statements of Stockholders' Equity in the
Financial Statements).
NET OPERATING LOSS CARRYFORWARDS
In accordance with Section 382 of the Internal Revenue Code of 1986, as
amended, a change in equity ownership of greater than 50% of the Company within
a three-year period results in an annual limitation on the Company's ability to
utilize its net operating loss ("NOL") carryforwards that accrued during the tax
periods prior to the change in ownership. As of December 31, 1996, the Company
had an NOL carryforward of approximately $3,228,000, which begins to expire in
2011. The sale of the shares in this offering will not directly result in such
limitation; however, the NOL carryforwards may become subject to such a
limitation due to subsequent changes in the equity ownership of the Company.
LIQUIDITY AND CAPITAL RESOURCES
Prior to production of the Super X, the Company has planned capital
expenditures of $10.5 million to construct its new manufacturing and
administrative facility and $18.0 million to equip the manufacturing and
administrative facility. As of March 31, 1997, the Company had cash, cash
equivalents and short-term investments of $8.2 million and working capital of
$7.9 million.
On April 21, 1997, the Company signed a Construction Agreement and a Lease
Agreement (the "Lease Agreement") with a real estate development company to
commence construction of its approximately 160,000 square foot manufacturing and
administrative facility, with an estimated cost of $10.5 million, exclusive of
equipment costs. The project is being financed by the real estate development
company with $2.3 million of tax increment financing bonds to be issued by the
City of Belle Plaine, Minnesota, $5.75 million (including a $750,000 deposit) of
mortgage-backed debt to be arranged by the developer and the balance of
approximately $3.2 million was provided by the Company during April 1997. To
finance repayment of the tax increment financing, the Company has guaranteed the
underlying real estate tax payments on the property. The Company anticipates
recording the transaction as a capital lease upon completion and acceptance of
the facility.
The lease for the facility has an initial term of 20 years with two
additional 10-year renewal options. Rent for the first 20 years will be equal to
the debt service on the $5.75 million mortgage-backed debt, using a 20 year
amortization, plus a 10 percent premium (escalating during the lease term to
roughly offset inflation). Rent for the 10 year renewal options is based on the
greater of fair market value at the date of renewal or formula rent, as defined
in the Lease Agreement. The Lease Agreement contains an option to purchase the
facility at the five year anniversary for $6.25 million less any principal
reduction in the $5.0 million debt (and application of the $750,000 deposit).
In addition, the Minnesota Department of Trade and Economic Development,
through the Minnesota Agriculture and Economic Development Board, has offered to
loan approximately $7.0 million for equipment financing through its Small
Business Development Loan Program. Although the relevant approvals for such
financing have been obtained, the bonds for the financing have not yet been sold
and there can be no assurance that such bonds will ever be sold. If the bonds
are not sold, then the Company may need to obtain the funds anticipated from
such financing from other sources.
The Company will use the net proceeds of $27.6 million from this offering to
complete and equip the facility; design and develop a motorcycle production
line; acquire tooling, components and supplies; finalize engineering and design
of the Super X; and fund marketing costs, general operating expenses and working
capital.* In addition, as the Company moves closer to production of the Super X,
the Company
17
<PAGE>
will seek commercial asset-backed and working capital financing to finance its
operations.* However, there can be no assurance that such commercial financing
will be available to the Company.
The Company believes that its available cash resources, together with the
proceeds to be received from this offering, the proceeds anticipated to be
received from the Minnesota Department of Trade and Economic Development and
commercial asset-backed and working capital financing, will allow the Company to
begin production of the Super X.* However, if any of the anticipated sources of
funds are not available, the Company may have to look to other means of
financing. In addition, if the Company's estimates of the amount of financing
needed to commence production of the Super X are incorrect due to unanticipated
additional costs of constructing and equipping the Company's manufacturing
facility, unanticipated problems in the development of the Super X for
production, increased labor costs, increased costs of motorcycle parts and raw
materials, increased marketing and dealer network development expenses,
increased rates of consumption of available cash resources, or other
unanticipated events, then the Company may need additional equity or debt
financing in excess of the proceeds of this offering prior to or shortly after
commencement of production of the Super X.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"), which
changes the way companies calculate their earnings per share ("EPS"). SFAS 128
replaces primary EPS with basic EPS. Basic EPS is computed by dividing reported
earnings by weighted average shares outstanding, excluding potentially dilutive
securities. Fully diluted EPS, termed diluted EPS under SFAS 128, is also to be
disclosed. The Company is required to adopt SFAS 128 for its year-end 1997
financial statements, at which time all prior year EPS data is to be restated in
accordance with SFAS 128. See Note 7 to Financial Statements for the pro forma
analysis of EPS data.
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BUSINESS
The Company, which is in the development stage, plans to manufacture, market
and sell premium heavyweight cruiser and touring motorcycles with a brand that
evokes an authentic American motorcycling heritage and lifestyle.* The Company's
motorcycle products will feature current technology but will reflect distinctive
designs, styling and names reminiscent of the motorcycles produced in the early
part of this century by Excelsior Supply under the brand names Excelsior and
Henderson. The Company intends to commence mass production of its initial
motorcycle, a heavyweight cruiser named the Excelsior-Henderson Super X, in late
1998.* The Company has developed several generations of prototypes of the Super
X and first unveiled a running prototype at the Sturgis Motorcycle Rally in
Sturgis, South Dakota in August 1996. The Company's 160,000 square foot
manufacturing and administrative facility is under construction in Belle Plaine,
Minnesota, and the Company anticipates relocating its operations to the facility
during late 1997.*
In 1993, Co-Founders Dan and Dave Hanlon developed a business plan to pursue
a market opportunity they believed existed in the heavyweight motorcycle market.
They believed that many purchasers of heavyweight motorcycles wanted an
authentic American alternative to the motorcycles produced by Harley-Davidson.
After researching the market, they believed that the combination of Excelsior
Supply's status as one of the original Big Three motorcycle manufacturers,
available brand name and rich heritage would serve as an excellent marketing
brand and design inspiration for the heavyweight motorcycles they planned to
introduce. Since that time, the Company's strategy has been to establish itself
within the motorcycle industry by marketing a brand that is based on an
authentic American heritage and to manufacture products and accessories that
represent a distinct alternative to the products of Harley-Davidson.*
THE EXCELSIOR-HENDERSON HERITAGE
It has been estimated that in the early part of this century, there were
over 200 American motorcycle manufacturing companies. Until 1931, the "Big
Three" motorcycle manufacturers were Excelsior Supply, Harley-Davidson and
Indian, with an estimated 90% combined market share. Excelsior Supply ceased
operations in 1931 during the Great Depression and Indian ceased operations in
1953. Harley-Davidson has been the only significant manufacturer of American
heavyweight cruiser and touring motorcycles since 1953. See "Competition."
Founded as a bicycle supply company in Chicago in 1876, Excelsior Supply was
owned by bicycle producer Ignatz Schwinn from 1911 until it ceased production.
Excelsior Supply produced, among others, a Big X motorcycle and a Super X
motorcycle, featuring large "X-twin" engines. In 1917, Excelsior Supply
purchased Henderson and continued to manufacture a Henderson DeLuxe Four, which
featured an inline four cylinder engine.
The motorcycles manufactured by Excelsior Supply and Henderson were a
significant force on the racetrack and on the road. These motorcycles set many
performance records, including the first motorcycle to circle the world and the
first to break the 100 m.p.h. speed barrier. Also, many police departments used
motorcycles manufactured by Excelsior Supply, as did the U.S. government during
World War I. Several famous personalities of the time owned motorcycles produced
by Excelsior Supply, including aviator Charles Lindbergh and automobile
manufacturer Henry Ford.
In 1929, Excelsior Supply restyled its Super X and Henderson DeLuxe Four
motorcycles into its "Streamline" product line. Several motorcycle historians
have cited these "Streamline" models as among the originators of the classic
American heavyweight motorcycle style. For the Excelsior Supply Super X, this
classic style included a large displacement "X-twin" engine, a teardrop shaped
split fuel tank, full valanced fenders, a curved front frame that followed the
contour of the front fender, a low slung seat in which the rider sat into the
bike, a leading link front suspension with fork tubes that passed through the
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front fender, a tank-mounted instrument panel, balloon tires and premium single
and two-tone paint finishes.
INDUSTRY AND MARKET
The heavyweight motorcycle category consists of motorcycles with an engine
displacement of 651cc or greater. Within the heavyweight category, there are
four types of motorcycles: (i) STANDARD, which emphasize simplicity and cost;
(ii) PERFORMANCE, which emphasize handling and speed; (iii) TOURING, which
emphasize comfort and amenities for long-distance travel; and (iv) CRUISER,
which feature the distinctive styling of classic American motorcycles built
during the early years of the motorcycling industry and are designed to
facilitate customization by individual owners. Touring and cruiser motorcycles
are the only types of heavyweight motorcycles that the Company plans to design
and market. According to statistics in Harley-Davidson's public reports, in
1996, touring and cruiser models represented approximately 80% of retail unit
sales in the U.S. heavyweight market. Heavyweight motorcycles, in turn,
represented approximately half of retail motorcycle unit sales in the overall
United States market in 1996. U.S. registrations of new heavyweight motorcycles
increased in 1996 by approximately 9.6% (to 165,700 units) over 1995
registrations, and U.S. registrations of new heavyweight motorcycles have
increased by 59% from 1992 through 1996. In 1996, Harley-Davidson reported an
approximate 48% market share of U.S. and a 25% market share of worldwide
(including U.S.) new heavyweight motorcycle registrations representing
approximately $874 million in domestic motorcycle revenue and approximately $1.2
billion in worldwide (including U.S.) motorcycle revenue. Trade publications and
dealers have reported that there are substantial waiting lists at the dealers
for certain models of Harley-Davidson motorcycles.
As recreational products, the Company's motorcycles and related products are
in a growing consumer market. According to U.S. Government reports, from 1992
through 1995 spending on recreational products grew at over five percent per
year and in the last three years has grown at three times the rate of overall
consumer spending. Based on industry information, the Company believes that the
typical customer for heavyweight American touring and cruiser motorcycles is a
male between the ages of 35 and 65, with a household income of approximately
$65,000. These customers are generally experienced motorcycle riders who
purchase motorcycles for recreational purposes rather than for transportation.
According to U.S. Department of Commerce demographic surveys, the number of
Americans that will fall into the targeted age bracket is projected to increase
by approximately 11% over the next five years and by 19% over the next ten
years. The 35 to 65 year old age group also leads all age groups in annual
spending per consumer on recreational products and generally has greater
disposable income than other age groups.
The Company believes that customers in its target market purchase
motorcycles based on a number of factors including styling, quality, reliability
and product features. The Company also believes that such purchasers are seeking
motorcycles and related products with a brand appeal associated with an
authentic classic American motorcycling heritage and lifestyle.
STRATEGY AND DEVELOPMENT PLAN
The Company's strategy is to establish its brand based on the authentic
American motorcycling heritage of Excelsior Supply and Henderson and to offer
products and accessories that represent a distinct alternative to the products
of Harley-Davidson.* In conjunction with this strategy, the Company has
undertaken marketing efforts to re-establish the legacy of Excelsior Supply and
Henderson in the motorcycling community and build demand for the Company's brand
and motorcycle products. In addition, the Company has secured its trademarks and
begun using them on its products, raised approximately $13.5 million in private
equity, constructed working prototypes of the Super X, displayed the Super X at
rallies and has commenced construction of its manufacturing and administrative
facility. The Company also has hired, and continues to add to, its engineering
and manufacturing staff, which has been working with design and engineering
firms to develop the Super X for mass production.
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Prior to the commencement of mass production, the Super X will be subject to
continuing track and road testing to ensure reliability, durability, rider
ergonomics and to ensure product and manufacturing process optimization.* In
addition, the Company will have to complete certain certifications with
government entities prior to retail sales.* In addition to completing
construction of the manufacturing and administrative facility, the Company must
acquire equipment and fixtures for its production line, finalize agreements with
vendors to supply motorcycle components and continue training and manufacturing
system development.* The Company will need to sign up additional dealers and
begin targeted local market promotional and advertising programs with its
dealers.* The Company plans to conduct a nationwide marketing campaign, which
will include participating in additional rallies, consumer events and trade
shows, and promoting the Company's brand of motorcycle products at
Excelsior-Henderson dealer events.* Finally, the Company will be required to
hire additional management, engineering and manufacturing, and marketing staff
as needed to complete the above tasks.*
PRODUCTS
The Company plans to produce premium heavyweight cruiser and touring
motorcycles.* The Company currently is developing its first motorcycle, the
Super X, for mass production in late 1998. After commencement of mass production
of the Super X, the Company intends to expand its product line by developing
additional models of motorcycles, including a heavyweight touring motorcycle and
an entry-level cruiser, each with classic American heavyweight styling.* The
Company also sells, and will continue to sell, a wide variety of apparel
products such as hats, T-shirts and jackets to build brand image and support the
lifestyle of American motorcycling. The Company also intends to sell additional
motorcycle parts and accessories to its customers to customize the Company's
motorcycles.*
The Super X is a new motorcycle featuring modern engineering and performance
and a design inspired by the classic American heavyweight styling features of
the original Excelsior Supply Super X, including a large displacement "X-twin"
engine, a sleekly styled, teardrop shaped fuel tank, full valanced fenders, a
curved front frame that follows the contour of the front fender, a low slung
seat in which a rider will sit into the bike, a leading link front suspension
with fork tubes that pass through the front fender, a tank-mounted instrument
panel, wide profile tires and modern, high gloss, single and two-tone paint
finishes. The Super X will also incorporate a proprietary long-stroke engine
designed to produce a distinctive sound, as well as a proprietary transmission
and electronic fuel injection system and computer controlled-engine management
system.
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The following projected specifications of the Super X are subject to further
testing and are therefore subject to change:
<TABLE>
<S> <C>
Wheelbase 65 Inches
Length 95 Inches
Weight 675 lbs.
Seat Height 26.5 Inches
Engine Size 85 Cubic Inches (1386cc)
Engine Design 50 DEG. "X-twin"
Engine Cooling Air and Oil
Fuel
Distribution Electronic Fuel Injection
Valves 4 Valves Per Cylinder, Dual Overhead Cam
Frame Double Wishbone, Full Travel Suspension with Leading
Link Front End
Transmission 5 Speed, Constant Mesh
Fuel Capacity 5 Gallons
Load Capacity 675 lbs.
</TABLE>
[INSERT PHOTO OF SUPER X]
MARKETING
Since inception, the Company's marketing goal has been to re-establish the
legacy of Excelsior Supply and Henderson in the motorcycling community and build
demand for the Company's brand of motorcycle products. The Company's marketing
strategy is to establish its brand through association with the heritage of
Excelsior Supply and Henderson and to create opportunities for the public to
experience such heritage.*
The Company's marketing campaign has generated many news articles and other
forms of publicity, including articles in most of the national and international
motorcycle publications, as well as many articles and news telecasts in the
non-motorcycle media. To establish the Company's brand among the motorcycling
public, the Company implemented a marketing campaign for the August 1996 Sturgis
Motorcycle Rally in Sturgis, South Dakota and first unveiled four prototype
Super X motorcycles publicly. The Company was also an official sponsor of the
1996 Sturgis Rally. The Company also held marketing events at the Daytona Beach
1997 Bike Week by displaying prototypes of the Super X and opening the week with
the first Annual Excelsior-Henderson Motorcycle Parade. In addition, the Company
was the
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exclusive sponsor of a two-year exhibition, "Excelsior-Henderson, the Lost
Legend," featuring the largest collection of vintage Excelsior Supply and
Henderson Motorcycles ever assembled, at the American Motorcyclist Association
Motorcycle Heritage Museum. In the period leading up to the first sale of the
Super X, the Company will continue its marketing efforts including, among other
things, attending additional rallies, consumer events and trade shows, promoting
the Excelsior-Henderson brand of motorcycle products at dealer events, informing
the media about the Super X and the Company, and advertising in trade and
consumer publications.*
To create a strong brand identity for its motorcycles and related products
and to establish the authenticity of the Company's brand, the Company intends to
foster among consumers and dealers a culture and lifestyle that are reminiscent
of the classic American motorcycling heritage.* Such heritage refers to the
"soul" of the traditional American motorcycling experience, fostered by
motorcycle events, motorcyclists and media, which associates riding motorcycles
with individuality and freedom. Owner customization of motorcycles is also an
important part of this heritage, and the Company intends to design its
motorcycles to facilitate individual customization by owners and to make custom
parts and accessories available to owners.* In addition, the Company intends to
sponsor and promote a motorcycle owners' group, rallies and a magazine for
owners and enthusiasts.* The Company also sells a wide variety of apparel
products such as hats, T-shirts and jackets with the Company's logos and intends
to license certain of its trademarks on a broad range of consumer items to
increase public exposure and familiarization with its brand and products.
DISTRIBUTION
The Company is building its nationwide dealer network. Through researching
the U.S. motorcycle market, the Company has identified the key areas in which it
believes it must have dealer presence. In addition, the Company has identified a
dealer profile for the dealers it believes will be successful in selling its
products and is currently soliciting dealers in the key areas who meet this
profile. The Company began signing agreements with its initial dealers in the
second quarter of 1997. Prior to production, the Company expects to select 80 to
100 dealers from the over 3,000 authorized dealers of new motorcycles in the
United States, and will then add dealers as its production increases.* The
Company's sales team is led by the Company's Co-Founders and a national sales
manager who previously has introduced new product lines for a recreational
products manufacturer through an independent dealer network.
The Company's network will have dealers in the major population centers and
in the major motorcycling markets.* The Company will also have dealers along the
major motorcycle traveling routes, providing a nationwide network of dealers to
serve the Company's customers. Within the industry, a significant percentage of
dealers handle more than one line of motorcycle, and the Company expects that
its dealers will also sell other motorcycle product lines.* The Company intends
to select dealers who will have a strong commitment to the Company's brand of
products and its success. The Company will allocate its brand of products
through a process of determining how many of its motorcycles a particular dealer
can sell in its market, rather than allocating to dealers on a pro-rata basis.
The Company believes that this will allow it to have the right number of dealers
nationwide who are comfortable with selling the number of motorcycles allocated.
The Company intends to select dealers who have an established reputation for
excellence, professional appearance, profitable operations, a sales floor
sufficient to display the Company's motorcycles and related products, the
ability to maintain adequate inventories of motorcycles, parts, supplies and
other merchandise, a knowledgeable sales staff, the ability to provide
full-service maintenance and who can add value by promoting lifestyle motorcycle
products and events (E.G., customized after-market parts, motorcycle apparel and
accessories, customer appreciation and promotional events, rallies, etc.).* The
Company will provide support for its dealers and customers by maintaining
adequate quantities of repair parts and accessories, training for service
technicians and warranty coverage.*
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MANUFACTURING
The Company will assemble its motorcycles using proprietary and
non-proprietary components in the Company's new manufacturing facility. The
manufacturing operations will consist of three main manufacturing processes:
welding, painting and assembly.
WELDING. The welding area will consist of several robotic welding cells and
ancillary equipment, which will be used to manufacture the frame, swing cage,
and rigid front fork assembly. The resulting accuracy and consistency from using
robotics are intended to ease the task of assembling motorcycles in volume.*
Components completed in the welding area will be fed directly into the paint
area.
PAINTING. The paint area will be equipped and built to the highest industry
standards.* The Company believes that a high quality finish is extremely
important in marketing its motorcycles, and intends to perform all facets of the
finish work in-house. The paint area will have a comprehensive range of
processes to ensure the corrosion resistance and surface durability required for
the major cosmetic components of the Company's motorcycles.* From the paint
area, components will be fed directly into the assembly area.
ASSEMBLY. The assembly area will be equipped with a moving assembly track.
In this area, the engine and transmission unit will be assembled and tested.
After the powertrain has been successfully tested, it will be transferred to the
chassis section. The whole motorcycle will then be assembled as the powertrain
is built into the chassis. Once assembled, the motorcycle will be subjected to a
final test and will then be packed and shipped.
The Company will obtain its proprietary and non-proprietary components from
established original equipment manufacturers. The Company will strive to engage
original equipment manufacturers who have established records of producing
reliable products for the motorcycle industry in a timely manner and will
constantly review such vendors to ensure strict quality control.* For the
critical components, the Company has identified vendors and is in the process of
establishing relationships with such vendors.
Allan Hurd, the Company's Senior Vice President of Engineering and
Manufacturing, previously worked for Triumph Motorcycles, where he was part of
the management team that designed, developed and produced new motorcycles under
the Triumph name after the original Triumph ceased production. Mr. Hurd was
directly responsible for establishing and operating all aspects of motorcycle
production, including motorcycle design and development, factory development and
layout, manufacturing equipment specification and acquisition and motorcycle
production.
After relocating to its new facility, currently anticipated to occur in late
1997, the Company believes it will take at least nine months of preparation
before mass production of the Super X commences.* The facility has been designed
with the capacity to produce approximately 20,000 motorcycles per year before
on-site expansion is necessary. The facility has been designed to provide an
optimum production environment for the Company's employees through the use of
natural lighting and climate-controlled heating and air conditioning. The
Company believes that such an environment will help optimize employee
productivity.*
INTELLECTUAL PROPERTY RIGHTS
The Company believes that it has the exclusive right to use the trademarks
"Excelsior-Henderson," "Super X" and "X-twin", among others, and certain related
word and design trademarks in the United States in connection with the
manufacture and sale of motorcycles and related structural parts. In addition,
the Company believes that it has the right to use certain of these marks on
ancillary merchandise and apparel.
The Company also believes that it has the exclusive right to use certain of
its trademarks in certain foreign countries in connection with the manufacture
and sale of motorcycles and related structural parts. In some instances, these
rights may be dependent on pending applications to register the marks in a
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foreign country. A failure to obtain such registrations could impair the
Company's rights to use a mark in a particular country.
The Company owns copyrights for its designs used as trademarks and generates
documents in the course of its operations that are protected by copyright. The
Company intends to register its copyrights in its designs and its promotional
materials and other works with the U.S. Copyright Office as such registrations
become appropriate.
The Company owns no patents, nor has it filed or been assigned any patent
applications. At an appropriate point in the design process of its motorcycles,
the Company may file patent applications with the U.S. Patent and Trademark
Office to cover certain features or aspects of its motorcycles.
There are no claims of infringement against the Company and the Company is
not and has not been involved in any court proceedings regarding its
intellectual property rights. From time to time, the Company has been involved
in INTER PARTES opposition proceedings in the USPTO to protect its trademark
rights. All such proceedings have been resolved to the Company's satisfaction,
and there are no material proceedings pending. There are no outstanding claims
by the Company against anyone for violation of the Company's intellectual
property rights.
COMPETITION
In the U.S. heavyweight motorcycle market, Harley-Davidson, Honda, Suzuki,
Kawasaki and Yamaha have the largest market share. Other manufacturers of
heavyweight motorcycles include BMW, Buell, Ducati, Moto-Guzzi, and Triumph. The
Company's primary competitor in the U.S. heavyweight market is expected to be
Harley-Davidson, which has been the only significant American heavyweight
cruiser and touring motorcycle manufacturer since 1953. According to its public
reports, in 1996 Harley-Davidson had a market share of 48% of new U.S.
heavyweight motorcycle registrations. In response to demand for its products,
Harley-Davidson has tripled its production capabilities over the past decade and
forecasts doubling its 1995 production capacity by the year 2003. Several of the
major foreign manufacturers compete against Harley-Davidson in the domestic
market by selling motorcycles with a "nostalgic" American design.
Due to recent growth in the market for heavyweight motorcycles, the Company
expects that other manufacturers will attempt to enter the market. In 1997,
Polaris Industries Inc., a manufacturer of snowmobiles, personal watercraft and
all-terrain vehicles, announced that it would begin manufacturing a cruiser
motorcycle to be available in limited quantities in Spring 1998. Over the years,
the Company has also been aware of several efforts to revive the "Indian" name
on new motorcycles. Finally, a number of small companies build and sell
motorcycles from non-proprietary parts.
The U.S. and worldwide heavyweight motorcycle markets are highly competitive
and all of the Company's existing major competitors have resources that are
substantially greater than those of the Company, have larger overall sales
volumes and are more diversified than the Company.
GOVERNMENT REGULATION
Commercial sales of the Company's motorcycles depends upon compliance with
certain government regulations and the Company is designing its motorcycles to
comply with all such regulations.* The Company's motorcycles will be subject to
the emissions and noise standards of the U.S. Environmental Protection Agency
and the more stringent emissions standards of the State of California Air
Resources Board. The Company's motorcycles also will be subject to the National
Traffic and Motor Vehicle Safety Act and the rules promulgated thereunder by the
National Highway Traffic Safety Administration. Furthermore, the European Union
and other foreign governmental entities have regulations to which the Company's
motorcycles will be subject. Finally, federal, state and local authorities have
adopted various standards relating to air, water and noise pollution that will
affect the Company's manufacturing
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operations. The Company expects that its facilities will comply with all such
regulations and standards.* The potential delays and costs that could result
from obtaining such regulatory approvals and complying with, or failing to
comply with, such regulations could result in a delay in motorcycle production.
FACILITIES
To build its 160,000 square foot manufacturing and administrative facility
in Belle Plaine, Minnesota, the Company has engaged the services of a project
construction company. The facility will be owned by an affiliate of the project
construction company and the Company has signed a lease with such affiliate that
will become effective upon completion and acceptance of the facility. The lease
has an initial term of twenty years with two additional ten year renewal options
and contains an option to purchase the facility at the five year anniversary for
$6.25 million.
The Company presently leases 12,895 square feet of space that it uses for
offices, a shop area, a museum and retail display showroom and a warehouse. The
lease for this facility expires on December 31, 1997, or, at the Company's
option, on October 31 or November 30, 1997 with 90 days' written notice. The
monthly rent is $8,400 through June 30, 1997 and $9,100 through December 31,
1997.
EMPLOYEES
As of May 1, 1997, the Company had 22 full-time employees, of whom 10 work
in engineering and manufacturing. The Company is not subject to any collective
bargaining agreement. The Company anticipates adding supervisory, engineering
and manufacturing, marketing and administrative staff as the Company moves from
the development stage to the production stage.* The timing and extent of the
Company's hiring will depend on the pace of development of the Super X and the
construction of the Company's manufacturing and administrative facility.
LITIGATION
The Company is not involved in any material legal proceedings and management
is not aware of any material threatened litigation.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------------- --- ---------------------------------------------------
<S> <C> <C>
Daniel L. Hanlon.................. 40 Co-Founder, Co-Chairman of the Board and Co-Chief
Executive Officer
David P. Hanlon................... 44 Co-Founder, Co-Chairman of the Board and Co-Chief
Executive Officer
Allan C. Hurd..................... 49 Senior Vice President of Engineering and
Manufacturing
Thomas M. Rootness................ 49 Senior Vice President of Finance and Administration
and Chief Financial Officer
John B. Donahue................... 53 Director
Wayne M. Fortun................... 47 Director
David R. Pomije................... 40 Director
</TABLE>
DANIEL L. HANLON, a Co-Founder of the Company, is Co-Chief Executive Officer
and Co-Chairman of the Board of the Company. Immediately prior to founding the
Company in 1993, Mr. Hanlon worked as founder, President and Chief Executive
Officer of EverGreen Solutions Inc., a manufacturer of degradable packaging
materials, from 1990 to December 1993. Prior to 1990, Mr. Hanlon served as
Controller of Midwest Importers, in sales branch management positions with
Knutson Mortgage and Marquette banks, and in various accounting and strategic
planning positions with EcoLab Inc. and Honeywell Inc. Mr. Hanlon received his
B.A. and M.B.A. degrees from the University of St. Thomas, St. Paul, Minnesota.
Mr. Hanlon has been an avid automotive and motorcycle enthusiast for over 20
years and currently owns one heavyweight American motorcycle. Mr. Hanlon is a
brother of David P. Hanlon.
DAVID P. HANLON, a Co-Founder of the Company, is Co-Chief Executive Officer
and Co-Chairman of the Board of the Company. From 1984 to November 1993, Mr.
Hanlon was the General Manager of the Michigan District for Rollins Leasing
Corporation. Prior to 1984, Mr. Hanlon worked for three years as the District
Manager of Gelco Truck Leasing in the Memphis, Tennessee district. Mr. Hanlon
attended the University of St. Thomas, St. Paul, Minnesota and studied Business
Administration. Mr. Hanlon has been an avid motorcycle builder and rider for
over 23 years and owns four heavyweight American motorcycles. Mr. Hanlon is a
brother of Daniel L. Hanlon.
ALLAN C. HURD has been Senior Vice President of Engineering and
Manufacturing since May 1997 and was Vice President of Manufacturing and
Operations from May 1996 to May 1997. From 1987 through May 1996, Mr. Hurd was
employed by Triumph Motorcycles, LTD ("Triumph"), a motorcycle manufacturer
located in England. At Triumph, Mr. Hurd was part of the management team
responsible for establishing and operating all aspects of motorcycle production,
including motorcycle design and development, factory development and layout,
manufacturing equipment specification and acquisition and motorcycle production.
From March 1991 to May 1996, Mr. Hurd was Production Engineering Manager, from
July 1989 to February 1991, he was Design and Production Coordinating Manager
and from May 1987 to July 1989, he was Chief Production Engineer. Mr. Hurd has a
degree in Engineering from Kingston-upon-Hull College of Technology and is a
member of the Institute of Electrical Engineers (Manufacturing Section) and the
Institute of Management. Mr. Hurd owns several European motorcycles.
THOMAS M. ROOTNESS has been Senior Vice President of Finance and
Administration since May 1997, has been Chief Financial Officer since March 1996
and was Vice President of Finance from March 1996 to
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May 1997. From September 1993 to March 1996, Mr. Rootness was Chief Financial
Officer, Treasurer and Executive Vice President of Luigino's Inc., a large,
multi-national manufacturer of frozen food entrees. From January 1992 to August
1993, Mr. Rootness was General/Plant Manager of the LaBounty Manufacturing
division of The Stanley Works after The Stanley Works purchased LaBounty
Manufacturing, Inc., a heavy construction equipment manufacturer and was the
Chief Financial Officer of LaBounty Manufacturing from August 1990 until such
purchase. Prior to 1990, Mr. Rootness served as President and Chief Financial
Officer of National Screenprint, Inc., President, Chief Executive Officer and a
director of The Barbers Hairstyling for Men and Women, Inc., a publicly traded
company, and as President, Chief Operating Officer and a director of Dahlberg,
Inc., at the time a publicly traded company. Mr. Rootness is a Certified Public
Accountant and received a Bachelor of Arts in Accounting from the University of
Minnesota-Duluth in 1969. Mr. Rootness owns four heavyweight American
motorcycles.
JOHN B. DONAHUE was elected as a director of the Company in April 1997. Mr.
Donahue is an owner and President of Donahue Harley-Davidson and Delano Sports
Center, a motorcycle and recreational product dealership in suburban
Minneapolis, Minnesota. In 1995, Mr. Donahue was President of the Harley-
Davidson Dealers Council, and has been on the Harley-Davidson Dealer Advisory
Council since 1992. In addition, Mr. Donahue was on the Arctic Cat Advisory
Board from 1984 to 1993 and the Kawasaki National Dealer Advisory Board from
1975 to 1980. Mr. Donahue has been involved with motorcycles since 1956.
WAYNE M. FORTUN was elected as a director of the Company in April 1997. Mr.
Fortun has been the Chief Executive Officer of Hutchinson Technology
Incorporated since May 1996, President, Chief Operating Officer and a director
since 1983. Hutchinson Technology, a publicly traded company, is the world's
leading supplier of suspension assemblies for rigid magnetic disk drives. Mr.
Fortun is also a director of G&K Services, Inc., a publicly held company, which
provides and maintains commercial, institutional and industrial garments and
other textile products for a variety of businesses and institutions. Mr. Fortun
owns two heavyweight American motorcycles.
DAVID R. POMIJE was elected as a director of the Company in April 1997.
Since April 1995, Mr. Pomije has been the Chairman of the Board and Chief
Executive Officer of Funco, Inc., which he founded in 1988. From 1988 to April
1995, Mr. Pomije also served as President, Chief Financial Officer and
Secretary. Funco, a publicly traded company, is a specialty retailer of
interactive entertainment products.
COMMITTEES
The Audit Committee of the Board of Directors consists of Messrs. Fortun and
Donahue. The Compensation Committee of the Board of Directors consists of
Messrs. Pomije and Donahue.
CONFIDENTIALITY AGREEMENTS; LIFE INSURANCE
The Company does not have any employment or non-competition agreements with
any members of its executive management team but has entered into
confidentiality and non-solicitation agreements with such persons. Such
agreements provide that the executive will not solicit any other employee of the
Company to leave the Company during the executive's employment with the Company
and for one year following such employment, will not compete with the Company
during the executive's employment and will protect the proprietary information
of the Company during and following such executive's employment.
The Company is the owner and beneficiary of $2,000,000 of term life
insurance policies covering the lives of each of the Co-Founders, Daniel L.
Hanlon and David P. Hanlon. The Company does not maintain any life insurance
policies on any other executive officer.
28
<PAGE>
DIRECTOR COMPENSATION
The Company's 1995 Option Plan provides that a new outside director of the
Company will be issued an option to purchase 10,000 shares of Common Stock upon
joining the Board of Directors, with an exercise price equal to the fair market
value of a share on the date of grant. Such options will vest one year from the
date of grant and expire ten years from the date of grant. In addition, outside
directors who have been in office more than six months receive an option to
purchase 6,666 shares of Common Stock at each annual meeting of the Company's
shareholders with an exercise price equal to the fair market value of a share on
the date of grant. Such options vest at the next annual meeting of shareholders
and expire ten years from the date of grant. Messrs. Donahue, Fortun and Pomije
were each granted an option to purchase 10,000 shares of Common Stock of the
Company upon joining the Board of Directors. Such options have an exercise price
of $4.50, vest one year from the date of grant and expire ten years from the
date of grant.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
earned by the executive officers of the Company for the fiscal years ended
December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL -------------
COMPENSATION SHARES
------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY(1) OPTIONS(2) COMPENSATION(3)
- ---------------------------------------------------------- --------- ------------- ------------- ----------------
<S> <C> <C> <C> <C>
Daniel L. Hanlon, 1996 $ 75,865 -- $ --
Co-Founder, Co-Chairman and Co-Chief Executive Officer 1995 65,000 --
1994 55,000 --
David P. Hanlon, 1996 75,865 -- --
Co-Founder, Co-Chairman and Co-Chief Executive Officer 1995 65,000 --
1994 55,000 --
Allan C. Hurd, 1996 50,080 66,666 10,000
Senior Vice President of Engineering and Manufacturing
Thomas M. Rootness, 1996 69,420 66,666 24,800
Senior Vice President of Finance and Administration and
Chief Financial Officer
</TABLE>
- ------------------------
(1) Messrs. Hurd and Rootness were not employed for all of 1996, if they would
have been employed for a full year, the respective salaries would have been
$93,000 and $95,000.
(2) Includes options issued to purchase Common Stock of the Company granted
under the 1995 Stock Plan. See "1995 Stock Plan."
(3) Represents payments made to reimburse moving and temporary living expenses.
29
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table summarizes option grants made during 1996 to the
executive officers of the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF PERCENTAGE OF ANNUAL RATES OF STOCK
SHARES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED(2) FISCAL YEAR SHARE DATE 5% 10%
- ------------------------------------------ ----------- ----------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allan C. Hurd............................. 66,666 25% $ 1.88 5/15/06 $ 203,610 $ 324,215
Thomas M. Rootness........................ 66,666 25 1.88 3/31/06 203,610 324,215
</TABLE>
- ------------------------
(1) The potential realizable value is based on a 10-year term of each option at
the time of grant. Assumed stock price appreciation of 5% and 10% is
mandated by rules of the Securities and Exchange Commission and is not
intended to forecast actual future financial performance or possible future
appreciation. The potential realizable value is calculated by assuming that
the deemed fair value of the Company's Common Stock for financial statement
presentation purposes on the date of grant appreciates at the indicated rate
for the entire term of the option and that the option is exercised at the
exercise price and sold on the last day of its term at the appreciated
price.
(2) Options granted pursuant to the Company's 1995 Stock Plan are exercisable at
an exercise price equal to the fair market value as determined by the Board
of Directors on the date of grant. Each option becomes exercisable as to
16,666 shares on each of the first and second anniversaries of the date of
grant, 13,333 shares on the third anniversary of the date of grant and
10,000 shares on each of the fourth and fifth anniversaries (except with
respect to Mr. Rootness, for whom the option became exercisable with respect
to 20,000 shares in June 1996) of the date of grant. Each option has a
maximum term of 10 years, subject to earlier termination in the event of the
optionee's cessation of service with the Company.
AGGREGATED OPTION
EXERCISES IN FISCAL 1996
AND FISCAL YEAR-END OPTION VALUES
The purpose of the following table is to report exercise of stock options by
the executive officers during 1996 and the value of their unexercised stock
options as of December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FISCAL YEAR-END AT FISCAL YEAR-END(1)
ACQUIRED VALUE ------------------------------ ------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ----------- --------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Allan C. Hurd......................... -- $ -- -- 66,666 $ -- $ 125,000
Thomas M. Rootness(2)................. 20,000 -- -- 46,666 -- 87,500
</TABLE>
- ------------------------
(1) Value is based on the fair market value of a share of Common Stock on
December 31, 1996, which was $1.88, as previously determined by the Board of
Directors.
(2) Mr. Rootness exercised an option to purchase 20,000 shares of Common Stock
on June 13, 1996. The exercise price of such option was $1.88 per share, the
fair market value of a share of Common Stock on the date of grant, as
determined by the Board of Directors. Value Realized is based on the
attributed fair market value of a share of Common Stock on the date of
exercise, which was $1.88 on June 13, 1996, as previously determined by the
Board of Directors.
30
<PAGE>
1995 STOCK PLAN
In December 1995, the Board of Directors of the Company adopted the
Company's 1995 Stock Plan (the "1995 Stock Plan"), which was approved by the
shareholders of the Company on March 18, 1996. The Board of Directors approved
an amendment and restatement of the 1995 Stock Plan in January 1997. The purpose
of the 1995 Stock Plan is to attract, motivate and retain employees, directors,
advisors and officers to produce a superior return to the shareholders of the
Company by offering such persons an opportunity to realize stock appreciation,
by facilitating stock ownership, and by rewarding them for achieving a high
level of corporate financial performance. The 1995 Stock Plan is also intended
to facilitate recruiting and retaining experienced and knowledgeable advisors
and independent contractors by permitting such persons to acquire a proprietary
interest in the Company.
The 1995 Stock Plan is administered by the Compensation Committee of the
Board of Directors (the "Committee"), which is appointed by the Board of
Directors and consists of Messrs. Pomije and Donahue. Subject to the provisions
of the 1995 Stock Plan, the Committee has the exclusive power to make awards
under the 1995 Stock Plan, to determine when and to whom awards will be granted,
and the form, amount and other terms and conditions of each award.
The types of awards that may be granted under the 1995 Stock Plan include
incentive and non-qualified stock options and restricted and unrestricted stock.
Subject to certain restrictions applicable to incentive stock options, awards
will be exercisable by the recipients at such times as are determined by the
Committee.
Options may be granted to recipients at such exercise prices as the
Committee may determine but not less than 85% of their fair market value as of
the date the option is granted. Stock options may be granted and exercised at
such times as the Committee may determine, except that, unless applicable
federal tax laws are modified, (1) no incentive stock option may be granted at
less than fair market value, (2) no incentive stock options may be granted more
than ten years after the effective date of the 1995 Stock Plan, (3) an incentive
stock option shall not be exercisable more than ten years after the date of
grant and (4) the aggregate fair market value of the shares of Common Stock with
respect to which incentive stock options may first become exercisable in any
calendar year for any employee may not exceed $100,000 under the 1995 Stock Plan
or any other plan of the Company. Additional restrictions apply to an incentive
stock option granted to an individual who beneficially owns more than ten
percent of the combined voting power of all classes of stock of the Company.
At December 15, 1995, the effective date of the 1995 Stock Plan, the total
number of shares of Company Common Stock available for distribution under the
1995 Stock Plan was 666,666 (subject to adjustment for future stock splits,
stock dividends and similar changes in the capitalization of the Company). At
May 1, 1997, options to purchase an aggregate of 501,933 shares of Common Stock
were outstanding and held by the directors, executive officers, employees,
consultants to, and independent contractors of, the Company, 20,000 shares were
issued and outstanding pursuant to the exercise of an option and an aggregate of
144,733 shares of Common Stock were available for future grants of awards under
the 1995 Stock Plan. Options outstanding have per share exercise prices of $1.88
to $4.50, and expire from five to ten years from the date of grant of the option
(unless exercised prior to that time).
The 1995 Stock Plan will remain in effect until all stock subject to it is
distributed or all awards have expired or lapsed, whichever occurs later. The
1995 Stock Plan also gives the Board the right to terminate, suspend or modify
the 1995 Stock Plan, except that amendments to the 1995 Stock Plan are subject
to shareholder approval if needed to comply with certain provisions of the
federal securities laws or the Internal Revenue Code of 1986, as amended, their
successor provisions, or any other applicable law or regulation.
In addition to the options granted under the 1995 Stock Plan, the Company
has issued options to purchase 17,666 shares of Common Stock of the Company at
exercise prices ranging from $0.90 to $1.88 per share to three independent
contractors of the Company for consulting services. There are currently
31
<PAGE>
8,000 shares of Common Stock issued and outstanding pursuant to the exercise of
one of these options. Such options expire on dates ranging from August 1, 2000
to June 19, 2005 and are fully exercisable. The foregoing options were not
granted under the 1995 Stock Plan.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, the
number of shares of Common Stock beneficially owned by each person who is a
beneficial owner of more than 5% of the Common Stock issued and outstanding, by
each officer, by each director, and by all officers and directors as a group,
and as adjusted to reflect the sale of the shares offered hereby. All persons
have sole voting and dispositive power over such shares unless otherwise
indicated.
<TABLE>
<CAPTION>
PERCENT
NAME AND ADDRESS NUMBER PRIOR TO PERCENT AFTER
OF BENEFICIAL OWNER: OF SHARES OFFERING OFFERING
- ----------------------------------------------------------------------------- ---------- ----------- ---------------
<S> <C> <C> <C>
Directors and executive officers
Daniel L. Hanlon(1)(2)..................................................... 1,791,998 19.9% 13.8%
David P. Hanlon(1)(3)...................................................... 1,468,000 16.3 11.3
Allan C. Hurd(4)........................................................... 16,666 * *
Thomas M. Rootness(4)...................................................... 36,666 * *
John B. Donahue(5)......................................................... 17,800 * *
Wayne M. Fortun(5)......................................................... 6,666 * *
David R. Pomije............................................................ 442,777 4.9 3.4
Directors and Officers, as a group (7 persons)(6).......................... 3,780,575 42.0 29.1
Other beneficial owners:
Heartland Small Cap Contrarian Fund, a series of Heartland Group,
Inc.(7).................................................................. 460,000 5.1 3.5
</TABLE>
- ------------------------
* Less than one percent.
(1) The address of Daniel and David Hanlon is 607 West Travelers Trail,
Burnsville, MN 55337.
(2) Includes 30,665 shares of Common Stock held in trusts for which Mr. Hanlon's
spouse acts as custodian.
(3) Includes 1,333 shares of Common Stock owned by Mr. Hanlon's son.
(4) Includes options to purchase 16,666 shares of Common Stock exercisable
within 60 days of April 30, 1997.
(5) Includes options to purchase 6,666 shares of Common Stock exercisable within
60 days of April 30, 1997.
(6) Includes options to purchase up to 46,664 shares of Common Stock exercisable
within 60 days of April 30, 1997.
(7) The address of Heartland Small Cap Contrarian Fund is 790 N. Milwaukee
Street, Milwaukee, WI 53202.
CERTAIN TRANSACTIONS
John B. Donahue, a director of the Company, is the owner of Donahue
Harley-Davidson and Delano Sports Center (the "Dealer"), which executed the
Company's standard form Authorized Dealership Agreement (the "Dealership
Agreement") on May 16, 1997. Pursuant to the Dealership Agreement, the Dealer is
an authorized dealer of the Company for the sale and service of the Company's
products.
In April 1997, Daniel L. Hanlon and David P. Hanlon, the Co-Founders and
Co-Chief Executive Officers of the Company, concluded discussions commenced in
February 1997, by selling 40,000 shares of Common Stock and 33,333 shares of
Common Stock, respectively, to David R. Pomije, a director of the Company. Mr.
Pomije paid a purchase price of $6.00 per share.
32
<PAGE>
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's Articles of Incorporation, as amended, authorize the issuance
of up to 23,333,332 shares of capital stock. The shares are classified into two
classes, consisting of 16,666,666 shares of Common Stock, $.01 par value, and
6,666,666 shares of Preferred Stock, $.01 par value.
The Board of Directors is authorized to establish one or more series of
Preferred Stock by resolution, set forth the designation of each such series and
fix the relative rights and preferences of each such series, including but not
limited to fixing the relative voting rights, if any, of each such series of
Preferred Stock to the full extent permitted by law.
COMMON STOCK
At May 1, 1997, there were 5,878,231 shares of Common Stock issued and
outstanding and held by approximately 400 shareholders. Holders of Common Stock
are entitled to one vote per share for the election of directors and on all
matters submitted to a vote of shareholders, and there are no cumulative voting
rights for the election of directors. Holders of Common Stock are entitled to
receive dividends as and when declared by the Board of Directors out of funds
legally available therefor. Holders of Common Stock are not entitled to
preemptive rights. In the event of the liquidation, dissolution or winding up of
the Company, the holder of each share of Common Stock is entitled to share
equally in any balance of the Company's assets available for distribution to
shareholders after the holders of Series A Preferred (described below) have
received the full distribution to which such holders are entitled. Outstanding
shares of Common Stock are not subject to any further call or assessment.
The shares of Common Stock currently outstanding were issued and sold by the
Company in private transactions in reliance upon exemptions from registration
under the Act and are, therefore, restricted securities which may not be sold
publicly unless the shares are registered under the Act or are sold under Rules
144 or 144A or under similar exemptions. See "Description of Capital
Stock--Shares Eligible for Future Sale."
PREFERRED STOCK
Pursuant to the Company's Articles of Incorporation, the Board of Directors
has the authority, without further action by the shareholders, to issue up to
6,666,666 shares of preferred stock in one or more classes or series and to fix
the designations and the voting, powers, preferences, and relative,
participating, optional or other special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, redemption and
liquidation preferences, purchase, retirement or sinking fund for the purchase,
retirement or redemption of such shares, conversion rights, voting rights, any
or all of which may be greater than the rights of the Common Stock. Of such
6,666,666 shares, the Company has designated 3,342,666 as Series A Convertible
Preferred Stock (of which 3,066,527 are currently outstanding) and the remaining
3,324,000 shares are undesignated as to class. The Board of Directors, without
shareholder approval, can issue preferred stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of the
holders of Common Stock. Preferred stock could thus be issued quickly with terms
calculated to delay or prevent a change in control of the Company or make
removal of management more difficult. Additionally, the issuance of preferred
stock may have the effect of decreasing the market price of the Common Stock,
and may adversely affect the voting and other rights of the holders of Common
Stock. The Company has no present plans to issue any additional shares of
preferred stock.
Pursuant to the Company's Amended Certificate of Designation of Series of
Preferred Stock, all of the 3,066,527 shares of outstanding Series A Convertible
Preferred Stock will automatically be converted into 3,066,527 shares of Common
Stock upon the closing of this offering.
33
<PAGE>
OPTIONS AND WARRANTS
At May 1, 1997, the Company had outstanding options to purchase up to an
aggregate of 501,933 shares of Common Stock to directors, officers, non-employee
consultants and contractors of the Company at exercise prices ranging from $0.90
to $4.50 per share, of which options for 28,000 shares of Common Stock have been
exercised.
At May 1, 1997, the Company had outstanding warrants to purchase up to an
aggregate of 472,207 shares of Common Stock, which were issued as compensation
to placement agents and substantial investors in previous rounds of financing at
exercise prices ranging from $1.88 to $4.50 per share.
REGISTRATION RIGHTS
Under the terms of agreements between the Company and the holders of
warrants to purchase up to 472,207 shares of Common Stock issued in connection
with previous financings, if the Company proposes to register any of its
securities under the Act, either for its own account or for the account of other
security holders exercising registration rights, such holders are entitled to
notice of such registration and are entitled to include shares of Common Stock
of the Company held by such holders therein. Furthermore, such holders may,
under certain circumstances, require the Company to file additional registration
statements at the Company's expense. These rights are subject to certain
conditions and limitations, among them the right of the underwriters of a public
offering to limit the number of shares included in such registration in certain
circumstances.
ANTI-TAKEOVER PROVISIONS OF THE MINNESOTA BUSINESS CORPORATION ACT; RESTATED
ARTICLES OF INCORPORATION
Certain provisions of Minnesota law and the Company's Restated Articles of
Incorporation described below could have an anti-takeover effect. These
provisions are intended to provide management flexibility to enhance the
likelihood of continuity and stability in the composition of the Company's Board
of Directors and in the policies formulated by the Board and to discourage an
unsolicited takeover of the Company, if the Board determines that such a
takeover is not in the best interests of the Company and its shareholders.
However, these provisions could have the effect of discouraging certain attempts
to acquire the Company which could deprive the Company's shareholders of
opportunities to sell their shares of Common Stock at prices higher than
prevailing market prices.
Section 302A.671 of the Minnesota Statutes applies, with certain exceptions,
to any acquisitions of voting stock of the Company (from a person other than the
Company, and other than in connection with certain mergers and exchanges to
which the Company is a party) resulting in the beneficial ownership of 20% or
more of the voting stock then outstanding. Section 302A.671 requires approval of
the granting of voting rights for the shares received pursuant to any such
acquisition by a majority vote of the shareholders of the Company. In general,
shares acquired without such approval are denied voting rights and are
redeemable at their then fair market value by the Company within 30 days after
the acquiring person has failed to deliver a timely information statement to the
Company or the date the shareholders voted not to grant voting rights to the
acquiring person's shares.
Section 302A.673 of the Minnesota Statutes generally prohibits any business
combination by the Company, or any subsidiary of the Company, with any
shareholder which purchases 10% or more of the Company's voting shares (an
"interested shareholder") within four years following such interested
shareholder's share acquisition date, unless the business combination is
approved by a committee of all of the disinterested members of the Board of
Directors of the Company before the interested shareholder's share acquisition
date.
In addition, the existence of undesignated Preferred Stock in the Restated
Articles of Incorporation allows the Board of Directors of the Company, without
further shareholder action, to issue Preferred Stock with, among others, rights
to vote for the election of directors of the Company and in amounts that could
have the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from acquiring, control of the Company.
34
<PAGE>
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota, National Association, will serve as the transfer
agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, the Company has outstanding 8,944,758
shares of Common Stock (including the 3,066,527 shares of Common Stock issuable
upon conversion of the Company's Preferred Stock), which does not include: (i)
the shares offered hereby, or (ii) 983,806 shares of Common Stock that are
issuable upon the exercise of outstanding options and warrants as of May 1,
1997. The securities currently outstanding were issued and sold by the Company
in private transactions in reliance upon exemptions from registration under the
Act and are, therefore, restricted securities which may not be sold publicly
unless the shares are registered under the Act or are sold under Rules 144 or
other exemptions. Provided the Company meets the reporting requirements of Rule
144 and there is an active trading market in the Common Stock (which there
presently is not) a person (or persons whose sales are aggregated) who
beneficially owns unregistered securities last acquired privately from the
Company, or an affiliate of the Company at least one year previously and
affiliates of the Company who beneficially own shares last acquired (whether or
not such shares were acquired privately) from the Company or an affiliate of the
Company at least one year previously, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of one percent of the
then outstanding shares of the Company's Common Stock or the average weekly
trading volume in the Company's Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain manner of
sale and notice requirements and the availability of current public information
about the Company. A person who has not been an affiliate of the Company at any
time during the three months preceding a sale, and who beneficially owns shares
last acquired from the Company or an affiliate of the Company at least two years
previously, is entitled to sell all such shares under Rule 144(k) without regard
to any of the limitations of Rule 144.
Substantially all of the shares of Common Stock currently outstanding are
freely tradeable under Rule 144 of the Securities Act ("Rule 144"), or under
other exemptions. Of the shares of Common Stock currently outstanding,
approximately 661,400 shares are not subject to the lock-up agreements described
below. Of these shares, approximately 271,900 shares are currently eligible for
sale without restriction pursuant to Rule 144(k) and approximately 389,500
shares are currently eligible for sale subject to the volume, manner of sale and
notice restrictions of Rule 144. Approximately 8,283,400 shares of the Common
Stock currently outstanding and to be issued upon conversion of the Preferred
Stock are subject to lock-up agreements of varying periods; accordingly, none of
these shares will be eligible for sale until the expiration of the lock-up
agreements. Approximately 1,616,300 of these shares will be eligible for sale 90
days after the closing of this offering (approximately 56,400 of which will be
subject to the requirements of Rule 144 described above); approximately
3,507,100 of these shares will be eligible for sale 180 days after the closing
of this offering (approximately 440,600 of which will be subject to the
requirements of Rule 144 described above and 3,066,527 of which represents the
shares of Common Stock issuable upon conversion of the Company's Preferred
Stock); and approximately 3,160,000 of these shares will become eligible for
sale 365 days after the closing of this offering (all of which will be subject
to the requirements of Rule 144 described above).
The officers and directors of the Company have agreed to a lock-up
prohibiting the offer, sale or other disposition of their shares until 180 days
after closing of this offering without the prior written consent of John G.
Kinnard & Company, Incorported. Additionally, the Co-Founders, Dan and Dave
Hanlon, have agreed to a lock-up prohibiting the offer, sale or other
disposition of their shares (1,791,998 and 1,468,000 shares, respectively) until
365 days after closing of this offering without the prior written consent of
John G. Kinnard & Company, Incorporated (except for 50,000 shares of each
Co-Founder which will become freely tradable upon the expiration of a 180 day
lock-up, subject to the requirements of Rule 144 described above). These lock-up
agreements have been reflected in the preceding paragraph.
The Company cannot predict the effect, if any, that sales of restricted
securities or the availability of such securities for sale could have on the
market price if any were to develop. Nevertheless, sales of substantial amounts
of the Company's Common Stock could adversely affect prevailing market prices of
the Company's Common Stock and the Company's ability to raise additional capital
by occurring at a time when it would be beneficial for the Company to sell
securities. There has been no previous public market, active or otherwise, for
any of the Company's securities and there can be no assurance that a liquid
market will ever develop.
35
<PAGE>
UNDERWRITING
The Company has entered into an Underwriting Agreement (the "Underwriting
Agreement") with the underwriters listed in the table below (the
"Underwriters"), for whom John G. Kinnard & Company, Incorporated and Miller,
Johnson & Kuehn, Incorporated are acting as representatives (the
"Representatives"). Subject to the terms and conditions set forth in the
Underwriting Agreement, the Company has agreed to sell to the Underwriters, and
each of the Underwriters has severally agreed to purchase, the number of shares
of Common Stock set forth opposite each Underwriter's name in the table below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
John G. Kinnard & Company, Incorporated..........................................
Miller, Johnson & Kuehn, Incorporated............................................
----------
Total.......................................................................... 4,000,000
----------
----------
</TABLE>
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters have agreed to purchase all of the Common Stock being sold pursuant
to the Underwriting Agreement, if any is purchased (excluding shares covered by
the over-allotment option granted therein). In the event of a default by any
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
purchase commitments of the nondefaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.
The Representatives have advised the Company that the Underwriters propose
to offer the Common Stock directly 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 of not more than $ per share.
Additionally, the Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After
the public offering, the public offering price and other selling terms may be
changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable by the
Representatives within 30 days after the date of the Underwriting Agreement, to
purchase up to an additional 600,000 shares of Common Stock at the same price
per share to be paid by the Underwriters for the other shares offered hereby. If
the Underwriters purchase any of such additional shares pursuant to this option,
each Underwriter will be committed to purchase such additional shares in
approximately the same proportion as set forth in the table above. The
Underwriters may exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the distribution of the Common
Stock offered hereby.
In connection with the offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
These transactions may include stabilizing bids, the imposition of penalty bids,
the purchase of securities to cover syndicate short positions and overallotments
in connection with the offering. The Underwriters may overallot the offering
creating a syndicate short position. A "stabilizing bid" is a bid for or the
purchase of the Common Stock on behalf of the
36
<PAGE>
Underwriters to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
Representatives to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the offering if the Common
Stock originally sold by such Underwriter or syndicate member is purchased by
the Representatives in a syndicate covering transaction and has therefore not
been effectively placed by such Underwriter or syndicate member. These
activities may have the effect of stabilizing or maintaining the market price of
the Common Stock at a level above that which might otherwise prevail in the open
market. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company, certain shareholders and its officers and directors have agreed
that they will not sell, offer to sell, issue distribute or otherwise dispose of
any shares of Common Stock for periods of 90, 180 or 365 days after the date of
this Prospectus without the prior written consent of John G. Kinnard & Company,
Incorporated, except that the Company may issue shares pursuant to the
over-allotment option. See "Shares Eligible for Future Sale."
Prior to the offering of the shares, there has been no public market for the
Common Stock. The initial public offering price for the Common Stock has been
determined by negotiation between the Company and the Representatives. Among the
factors considered in determining the initial public offering price were
prevailing market and economic conditions, estimates of the business potential
and prospects of the Company, the present state of the Company's business
operations, an assessment of the Company's management and the consideration of
the above factors in relation to the market valuations of companies in related
businesses.
The Company has agreed to indemnify the Underwriters and their controlling
persons 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
The validity of the shares offered by this Prospectus will be passed upon
for the Company by Faegre & Benson LLP, Minneapolis, Minnesota. Gale Mellum, a
partner in Faegre & Benson LLP, was a member of the Company's Advisory Board and
as such has been granted an option to purchase up to 6,666 shares of Common
Stock of the Company at $1.88 per share. Mr. Mellum and other partners of Faegre
& Benson LLP are the general partners of F&B Investors, which owns 37,333 shares
of Common Stock of the Company. Mr. Mellum is also the Corporate Secretary of
the Company. Dorsey & Whitney LLP, Minneapolis, Minnesota, has acted as counsel
to the Underwriters in connection with certain legal matters relating to the
offering of the shares.
EXPERTS
The financial statements of the Company as of December 31, 1995 and 1996,
and for each of the three years in the period ended December 31, 1996 and
cumulative for the period from inception (December 22, 1993) to December 31,
1996, included in this Prospectus and elsewhere in the registration statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance on the authority of said firm as experts in giving said report.
Reference is made to said report which includes an explanatory paragraph that
describes the going concern assumption discussed in Note 1 to the financial
statements.
AVAILABLE INFORMATION
The Company is subject to the information requirements of Section 15(d) of
the Securities Exchange Act of 1934, as amended, and in accordance therewith
files reports and other information with the Securities and Exchange Commission
(the "Commission"). Such reports and other information may be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza,
37
<PAGE>
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as the
following regional offices: 75 Park Place, 14th Floor, New York, New York 10007,
and Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such materials may be obtained at prescribed rates
from the Public Reference Section of the Commission at Judiciary Plaza, Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a
Web site that contains reports and other information regarding the Company at:
http://www.sec.gov.
The Company has also filed with the Commission a Registration Statement on
Form S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended, with respect to the
shares offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information pertaining to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, copies of which may be
inspected without charge at the public reference facilities maintained by the
Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of which may be obtained from the Commission upon payment
of the prescribed fees.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Balance Sheets as of December 31, 1995 and 1996, March 31, 1997 (unaudited) and Pro
Forma March 31, 1997 (unaudited).................................................... F-3
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996,
Cumulative for the Period From Inception (December 22, 1993) To December 31, 1996,
Three Months Ended March 31, 1996 and 1997 (unaudited), and Cumulative for the
Period From Inception (December 22, 1993) To March 31, 1997 (unaudited)............. F-4
Statements of Stockholders' Equity for the Periods Ended December 31, 1993, 1994, 1995
and 1996, the Three Months Ended March 31, 1997 (unaudited), and Pro Forma Three
Months Ended March 31, 1997 (unaudited)............................................. F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996,
Cumulative for the Period From Inception (December 22, 1993) To December 31, 1996,
Three Months Ended March 31, 1996 and 1997 (unaudited), and Cumulative for the
Period From Inception (December 22, 1993) To March 31, 1997 (unaudited)............. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Excelsior-Henderson Motorcycle Manufacturing Company:
We have audited the accompanying balance sheets of Excelsior-Henderson
Motorcycle Manufacturing Company (a Minnesota corporation in the development
stage) as of December 31, 1995 and 1996, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996 and cumulative for the period from inception
(December 22, 1993) to December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Excelsior-Henderson
Motorcycle Manufacturing Company as of December 31, 1995 and 1996, and the
related statements of operations, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996 and cumulative for the
period from inception (December 22, 1993) to December 31, 1996, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company is a development stage
enterprise with no significant operating results to date. The factors discussed
in Note 1 to the financial statements raise a substantial doubt about the
ability of the Company to continue as a going concern. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
January 17, 1997 (except with
respect to Notes 4 and 6, as
to which the date is May 15, 1997)
F-2
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31 PRO FORMA
---------------------------- MARCH 31, MARCH 31,
1995 1996 1997 1997
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED;
SEE NOTE 8)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................... $ 788,419 $ 5,376,601 $ 4,168,785 $ 4,168,785
Short-term investments............................. 912,630 4,044,992 4,044,992 4,044,992
Other current assets............................... 3,595 9,119 87,165 87,165
------------- ------------- ------------- -------------
Total current assets........................... 1,704,644 9,430,712 8,300,942 8,300,942
PROPERTY AND EQUIPMENT, net of accumulated
depreciation of $26,755 and $76,250 at December 31,
1995 and 1996, and $93,296 at March 31, 1997....... 85,960 229,082 253,612 253,612
INTELLECTUAL PROPERTY, to be amortized............... 88,641 135,384 156,609 156,609
OTHER ASSETS......................................... 3,343 228,222 313,756 313,756
------------- ------------- ------------- -------------
$ 1,882,588 $ 10,023,400 $ 9,024,919 $ 9,024,919
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................... $ 117,334 $ 123,236 $ 140,474 $ 140,474
Accrued liabilities................................ 12,045 198,751 160,876 160,876
Note payable....................................... 24,351 70,086 67,002 67,002
------------- ------------- ------------- -------------
Total current liabilities...................... 153,730 392,073 368,352 368,352
------------- ------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY:
Series A Convertible Preferred Stock, par value of
$.01; 6,666,666 shares authorized; 3,066,527
issued and outstanding at December 31, 1996 and
March 31, 1997 (none pro forma).................. -- 30,665 30,665 --
Common stock, par value of $.01; 16,666,666 shares
authorized; 5,816,898, 5,870,231 and 5,878,231
issued and outstanding (8,944,758 pro forma)..... 58,169 58,702 58,782 89,447
Additional paid-in capital......................... 3,294,946 13,677,748 13,692,668 13,692,668
Deficit accumulated during the development stage... (1,624,257) (4,135,788) (5,125,548) (5,125,548)
------------- ------------- ------------- -------------
Total stockholders' equity..................... 1,728,858 9,631,327 8,656,567 8,656,567
------------- ------------- ------------- -------------
$ 1,882,588 $ 10,023,400 $ 9,024,919 $ 9,024,919
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FOR THE FOR THE
PERIOD FROM PERIOD FROM
INCEPTION THREE MONTHS ENDED INCEPTION
(DECEMBER 22, (DECEMBER 22,
YEAR ENDED DECEMBER 31 1993) TO MARCH 31 1993) TO
---------------------------------------- DECEMBER 31, ------------------------ MARCH 31,
1994 1995 1996 1996 1996 1997 1997
---------- ------------ ------------ ------------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
PREOPERATING EXPENSES:
Research and development.... $ 110,082 $ 702,345 $ 1,271,276 $ 2,083,703 $ 252,157 $ 477,108 $ 2,560,811
Marketing................... 32,133 106,974 694,239 833,346 95,426 283,376 1,116,722
General and
administrative............ 241,630 460,793 716,154 1,419,752 155,322 318,070 1,737,822
---------- ------------ ------------ ------------- ---------- ----------- -------------
Total preoperating
expenses.............. 383,845 1,270,112 2,681,669 4,336,801 502,905 1,078,554 5,415,355
INTEREST INCOME............... -- 43,522 174,226 217,748 18,335 90,482 308,230
INTEREST EXPENSE.............. (5,346) (7,301) (4,088) (16,735) (561) (1,688) (18,423)
---------- ------------ ------------ ------------- ---------- ----------- -------------
Net loss................ $ (389,191) $ (1,233,891) $ (2,511,531) $(4,135,788) $ (485,131) $ (989,760) $(5,125,548)
---------- ------------ ------------ ------------- ---------- ----------- -------------
---------- ------------ ------------ ------------- ---------- ----------- -------------
Net loss per common and common
equivalent share (pro forma)
(Note 2).................... $ (.07) $ (.18) $ (.31) $ (.65) $ (.06) $ (.11) $ (.77)
---------- ------------ ------------ ------------- ---------- ----------- -------------
---------- ------------ ------------ ------------- ---------- ----------- -------------
Weighted average common and
common equivalent shares
outstanding (pro forma)
(Note 2).................... 5,329,678 6,774,031 8,174,856 6,409,967 7,643,006 9,203,700 6,698,055
---------- ------------ ------------ ------------- ---------- ----------- -------------
---------- ------------ ------------ ------------- ---------- ----------- -------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE
-------------------- -------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
---------- -------- --------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION, December 22,
1993............................. -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock, $0.01
per share...................... -- -- 3,366,667 33,667 16,833 -- 50,500
Excess of par value over issuance
price.......................... -- -- -- (28,617) (16,833) -- (45,450)
Net loss......................... -- -- -- -- -- (1,175) (1,175)
---------- -------- --------- --------- ------------ ------------ ------------
BALANCE, December 31, 1993......... -- -- 3,366,667 5,050 -- (1,175) 3,875
Proceeds from sales of common
stock, $0.75 per share, net of
offering costs of $23,059...... -- -- 86,667 29,483 12,458 -- 41,941
Proceeds from sales of common
stock, $0.90 per share, net of
offering costs of $14,919...... -- -- 594,433 5,944 514,127 -- 520,071
Issuance of common stock in
settlement of construction
payable, $0.90 per share....... -- -- 5,567 56 4,954 -- 5,010
Issuance of common stock from
conversion of promissory note
to investor, $0.60 per share,
net of conversion costs of
$2,583......................... -- -- 125,000 1,250 71,167 -- 72,417
Net loss......................... -- -- -- -- -- (389,191) (389,191)
---------- -------- --------- --------- ------------ ------------ ------------
BALANCE, December 31, 1994......... -- -- 4,178,334 41,783 602,706 (390,366) 254,123
Proceeds from sales of common
stock, $1.88 per share, net of
offering costs of $363,874..... -- -- 1,605,231 16,053 2,630,073 -- 2,646,126
Issuance of common stock for
research and development
services, $1.88 per share...... -- -- 33,333 333 62,167 -- 62,500
Net loss......................... -- -- -- -- -- (1,233,891) (1,233,891)
---------- -------- --------- --------- ------------ ------------ ------------
BALANCE, December 31, 1995......... -- -- 5,816,898 58,169 3,294,946 (1,624,257) 1,728,858
Proceeds from sales of Series A
Convertible Preferred Stock,
$3.75 per share, net of
offering costs of $1,186,000... 3,066,527 30,665 -- -- 10,283,335 -- 10,314,000
Issuance of common stock for
marketing services, $1.88 per
share.......................... -- -- 33,333 333 62,167 -- 62,500
Proceeds from exercise of stock
options, $1.88 per share....... -- -- 20,000 200 37,300 -- 37,500
Net loss......................... -- -- -- -- -- (2,511,531) (2,511,531)
---------- -------- --------- --------- ------------ ------------ ------------
BALANCE, December 31, 1996......... 3,066,527 30,665 5,870,231 58,702 13,677,748 (4,135,788) 9,631,327
Proceeds from exercise of stock
options, $1.88 per share
(unaudited).................... -- -- 8,000 80 14,920 -- 15,000
Net loss (unaudited)............. -- -- -- -- -- (989,760) (989,760)
---------- -------- --------- --------- ------------ ------------ ------------
BALANCE, March 31, 1997
(unaudited)...................... 3,066,527 30,665 5,878,231 58,782 13,692,668 (5,125,548) 8,656,567
Effects of conversion of Series A
Convertible Preferred Stock to
common stock
(Note 8) (unaudited)........... (3,066,527) (30,665) 3,066,527 30,665 -- -- --
---------- -------- --------- --------- ------------ ------------ ------------
BALANCE, pro forma, March 31, 1997
(unaudited)...................... -- $ -- 8,944,758 $ 89,447 $ 13,692,668 $(5,125,548) $ 8,656,567
---------- -------- --------- --------- ------------ ------------ ------------
---------- -------- --------- --------- ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FOR THE FOR THE
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(DECEMBER 22, THREE MONTHS ENDED (DECEMBER 22,
YEAR ENDED DECEMBER 31 1993) TO MARCH 31 1993) TO
----------------------------------- DECEMBER 31, ---------------------- MARCH 31,
1994 1995 1996 1996 1996 1997 1997
--------- ----------- ----------- ------------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES:
Net loss......................... $(389,191) $(1,233,891) $(2,511,531) $(4,135,788) $(485,131) $ (989,760) $(5,125,548)
Adjustments to reconcile net loss
to net cash used in operating
activities-
Depreciation................. 5,194 21,561 49,495 76,250 6,750 17,046 93,296
Change in current assets and
liabilities:
Other current assets....... (4,375) 780 (5,524) (9,119) (5,853) (78,046) (87,165)
Accounts payable........... 72,548 39,611 5,902 123,236 (10,516) 17,238 140,474
Accrued liabilities........ 17,065 (5,020) 186,706 198,751 (2,045) (37,875) 160,876
--------- ----------- ----------- ------------- --------- ----------- -------------
Net cash used in
operating activities... (298,759) (1,176,959) (2,274,952) (3,746,670) (496,795) (1,071,397) (4,818,067)
--------- ----------- ----------- ------------- --------- ----------- -------------
INVESTING ACTIVITIES:
Purchases of short-term
investments, net............... -- (912,630) (3,132,362) (4,044,992) (12,000) -- (4,044,992)
Property and equipment
additions...................... (29,788) (77,917) (192,617) (300,322) (39,691) (41,576) (341,898)
Payments made for intellectual
property....................... (29,151) (55,490) (46,743) (135,384) (8,035) (21,225) (156,609)
Change in other assets........... (3,343) -- (224,879) (228,222) -- (85,534) (313,756)
--------- ----------- ----------- ------------- --------- ----------- -------------
Net cash used in investing
activities............... (62,282) (1,046,037) (3,596,601) (4,708,920) (59,726) (148,335) (4,857,255)
--------- ----------- ----------- ------------- --------- ----------- -------------
FINANCING ACTIVITIES:
Proceeds from notes payable...... 100,015 30,055 75,025 205,095 -- -- 205,095
Repayment of notes payable....... -- (30,719) (29,290) (60,009) (2,331) (3,084) (63,093)
Proceeds from issuance of Series
A Convertible Preferred Stock,
net of offering expenses....... -- -- 10,314,000 10,314,000 -- -- 10,314,000
Proceeds from issuance of common
stock, net of offering
expenses....................... 564,479 2,708,626 100,000 3,373,105 62,500 15,000 3,388,105
--------- ----------- ----------- ------------- --------- ----------- -------------
Net cash provided by
financing activities..... 664,494 2,707,962 10,459,735 13,832,191 60,169 11,916 13,844,107
--------- ----------- ----------- ------------- --------- ----------- -------------
Net increase (decrease) in
cash and cash
equivalents.............. 303,453 484,966 4,588,182 5,376,601 (496,352) (1,207,816) 4,168,785
CASH AND CASH EQUIVALENTS:
Beginning of period.............. -- 303,453 788,419 -- 788,419 5,376,601 --
--------- ----------- ----------- ------------- --------- ----------- -------------
End of period.................... $ 303,453 $ 788,419 $ 5,376,601 $ 5,376,601 $ 292,067 $ 4,168,785 $ 4,168,785
--------- ----------- ----------- ------------- --------- ----------- -------------
--------- ----------- ----------- ------------- --------- ----------- -------------
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid.................... $ 4,656 $ 7,301 $ 4,088 $ 16,045 $ 561 $ 1,687 $ 17,732
Noncash transactions:
Conversion of note payable into
common stock................. 75,000 -- -- 75,000 -- -- 75,000
Issuance of common stock for
services..................... -- 62,500 62,500 125,000 62,500 -- 125,000
Issuance of common stock in
settlement of construction
payable...................... 5,010 -- -- 5,010 -- -- 5,010
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
1. NATURE OF BUSINESS:
Excelsior-Henderson Motorcycle Manufacturing Company (the Company) is a
development stage company incorporated on December 22, 1993 in the state of
Minnesota, formerly known as Hanlon Manufacturing Company, for the purpose of
developing, manufacturing, selling and distributing motorcycles.
The Company is subject to all of the risks inherent in the establishment of
a new business enterprise, including the absence of any material operating
history. The Company has sustained operating losses since inception and
currently requires substantial working capital for motorcycle development,
acquisition of manufacturing facilities, development of a dealer network and
consumer awareness. Even if the Company is successful in completing the above
activities, significant revenues might not be realized. The aforementioned
factors raise substantial doubt about the Company's ability to continue as a
going concern. The Company's ability to continue motorcycle development and
operate as a going concern is contingent upon obtaining additional financing
that might not be available to it. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
CASH EQUIVALENTS
Cash equivalents consist of money market instruments and certificates of
deposit with original maturities of three months or less. Cash equivalents are
recorded at cost, which approximates fair value.
SHORT-TERM INVESTMENTS
The Company's short-term investments, U.S. government securities, are
considered to be available-for-sale and are carried at cost, which approximates
fair value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives of three to five years.
Additions and improvements are capitalized, while maintenance and repairs which
do not improve or extend the useful lives of the respective assets are charged
to operations as incurred.
INTELLECTUAL PROPERTY
Intellectual property represents amounts incurred to prepare and file for
United States and international trademark applications. These amounts are
presented at cost in the accompanying balance sheets and will be amortized over
5 to 17 years, beginning at the earlier of commencement of operations or receipt
of trademark protection.
F-7
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
OTHER ASSETS
Other assets consist primarily of deferred costs associated with the
construction of the Company's manufacturing and administrative facility (see
Note 6). These amounts are presented at cost in the accompanying balance sheets,
will be capitalized as part of property and equipment, and will be depreciated
over the life of the facility.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to expense as incurred.
INCOME TAXES
The Company follows the liability method of accounting for income taxes.
Deferred taxes are based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities, given
the provisions of the enacted tax laws.
NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE (PRO FORMA)
Net loss per common and common equivalent share (pro forma) was computed by
dividing net loss by the weighted average number of shares outstanding of common
and common stock equivalents (pro forma). As discussed in Note 8, the Series A
Convertible Preferred Stock is reflected pro forma from the date of issuance.
Common and common equivalent shares issued during the 12-month period prior to
the initial filing date of the proposed initial public offering have been
included in the calculation as if they were outstanding for all periods
presented using the treasury stock method.
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of expenses during the reporting period.
Ultimate results could differ from those estimates.
INTERIM FINANCIAL INFORMATION (UNAUDITED)
The accompanying balance sheet as of March 31, 1997; the statements of
operations and cash flows for the three months ended March 31, 1996 and 1997,
and cumulative for the period from inception (December 22, 1993) to March 31,
1997; and the statement of stockholders' equity for the three months ended March
31, 1997 are unaudited. However, in the opinion of management, these statements
include all adjustments, consisting solely of normal recurring adjustments,
necessary for the fair presentation of results for these interim periods. The
results of operations for the three months ended March 31, 1997 are not
necessarily indicative of results to be expected for the entire year, or for any
other interim period.
F-8
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
3. NOTE PAYABLE:
Note payable as of March 31, 1997 consists of a promissory note due to a
bank with interest at 9.9%. The note requires combined monthly payments of
principal and interest of $1,590, is collateralized by certain assets of the
Company and is due on demand no later than July 2, 2001.
4. STOCKHOLDERS' EQUITY:
AUTHORIZED SHARES
The Company's Articles of Incorporation, as amended, authorize the aggregate
issuance of 23,333,332 shares of stock. The shares are classified into two
classes consisting of 6,666,666 shares of Preferred Stock, $.01 par value, of
which 3,342,666 shares have been designated as Series A Convertible Preferred
Stock and 3,324,000 shares undesignated as to class, and 16,666,666 shares of
$.01 par value common stock.
REVERSE STOCK SPLIT
On May 15, 1997, the Company's board of directors approved a 2-for-3 reverse
stock split of the Company's outstanding stock. All share and per share data
have been restated for all periods presented to reflect the reverse stock split.
SERIES A CONVERTIBLE PREFERRED STOCK
During 1996, the Company completed a restricted offering to the public of
3,066,527 shares of Series A Convertible Preferred Stock, par value $.01 per
share, at an offering price of $3.75 per share. The Company received net
proceeds of approximately $10,314,000 from the restricted offering, with the
proceeds to be used for further industrial design, engineering and testing of
the Company's Super X motorcycle; manufacturing site analysis and development;
motorcycle production line design, product development and tooling costs;
marketing; general operating expenses; and working capital.
The Series A Convertible Preferred Stock has certain preferential
liquidation, conversion and dividend rights as follows:
a. In the event of liquidation of the Company, the holders of the Series A
Convertible Preferred Stock are entitled to receive $3.75 per share
unless a greater amount would be distributed or paid with respect to each
common share assuming the conversion of all outstanding Series A
Convertible Preferred Stock.
b. Each Series A Convertible Preferred Stock is convertible, at the option
of the holder, at any time into one share of common stock, subject to
adjustment, with automatic conversion upon the closing of a registered
public offering meeting certain minimum parameters.
c. Holders of Series A Convertible Preferred Stock are entitled to receive
dividends if, as and when declared by the board of directors.
STOCK-BASED COMPENSATION
In 1995, the Company implemented a stock option plan (the Plan). Under the
terms of the Plan, the Company is authorized to issue incentive stock options to
employees, directors, advisors and officers. The
F-9
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
4. STOCKHOLDERS' EQUITY: (CONTINUED)
incentive options allow the holder to purchase shares of the Company's common
stock at fair market value (as determined by the board of directors) on the date
of the grant. For options granted to holders of more than 10% of the outstanding
common stock, the option price at the date of the grant must be at least equal
to 110% of the fair market value of the stock. 666,666 shares have been reserved
for issuance under the Plan. The stock options expire between a range of four
and ten years from the date of grant and vest at various rates over five years.
Nonqualified stock options have also been granted to outside service
providers under the Plan and as stand-alone agreements. The stock options have
been granted at fair market value as determined by the board of directors at the
date of the grant. The stock options expire between a range of four and ten
years from the date of grant and vest at various rates over two years.
Information regarding stock options is as follows:
<TABLE>
<CAPTION>
DECEMBER 31
----------------------------------------------
1995 1996 MARCH 31, 1997
---------------------- ---------------------- ----------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ----------------------------------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of period... -- $ -- 17,667 $ 1.49 410,934 $ 1.86
Granted.......................... 17,667 1.49 413,267 1.88 142,000 3.75
Exercised........................ -- -- (20,000) 1.88 (8,000) 1.88
Canceled......................... -- -- -- -- (66,667) 1.88
--------- ----- --------- ----- --------- -----
Outstanding, end of period......... 17,667 $ 1.49 410,934 $ 1.86 478,267 $ 2.42
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Exercisable, end of period......... -- $ -- 148,267 $ 1.83 156,933 $ 1.83
--------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- -----
Weighted average fair value of
options granted.................. $ .66 $ 1.08 $ 2.37
--------- --------- ---------
--------- --------- ---------
</TABLE>
Options outstanding at March 31, 1997 have an exercise price per share
ranging between $0.90 and $3.75, have a weighted average exercise price of $2.42
and a weighted average remaining contractual life of 8.25 years.
The Company accounts for the options under APB Opinion No. 25, under which
no compensation cost has been recognized. Had compensation cost for the options
been determined consistent with Statement of Financial Accounting Standards
(SFAS) No. 123, "Accounting for Stock-Based
F-10
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
4. STOCKHOLDERS' EQUITY: (CONTINUED)
Compensation," the Company's net loss and net loss per common share would have
been the following pro forma amounts:
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FOR THE FOR THE
PERIOD PERIOD
FROM FROM
INCEPTION THREE INCEPTION
(DECEMBER 22, MONTHS (DECEMBER 22,
YEAR ENDED 1993) TO ENDED 1993) TO
DECEMBER 31, DECEMBER 31, MARCH 31, MARCH 31,
1996 1996 1996 1997
------------ ------------- ----------- -------------
<S> <C> <C> <C> <C>
Net loss:
As reported.......................................... $2,511,531 $ 4,135,788 $ 485,131 $ 5,125,548
Pro forma............................................ 2,696,083 4,326,441 558,212 5,350,077
Net loss per common share:
As reported.......................................... $.31 $.65 $.06 $.77
Pro forma............................................ $.33 $.67 $.07 $.80
</TABLE>
Pro forma net loss and pro forma net loss per common share for the year
ended December 31, 1995 and for the three months ended March 31, 1997 would have
been substantially unchanged from reported amounts.
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1995, 1996 and 1997, respectively: risk-free
interest rates of 5.78%, 5.95% and 6.15%; expected lives of 5, 7 and 9 years;
and expected volatility of 40% for all three years.
WARRANTS
In connection with its 1995 sale of common stock, the Company issued
warrants to purchase 209,540 shares of common stock at a price of $1.88 per
share exercisable through August 2, 2000.
In connection with its 1996 sale of Series A Convertible Preferred Stock,
the Company issued warrants to purchase 262,667 shares of Series A Convertible
Preferred Stock at $4.50 per share, exercisable through September 2001.
5. INCOME TAXES:
As of December 31, 1996, the Company had net operating loss carryforwards of
approximately $3,228,000 for federal income tax purposes that are available to
offset future taxable income through the year 2011. A valuation allowance equal
to the full amount of the related deferred tax asset has been established due to
the uncertainty of realization of the deferred tax asset. Certain restrictions,
caused by the change in ownership resulting from sales of the Company's stock,
may limit annual utilization of these net operating loss carryforwards.
F-11
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
6. COMMITMENTS AND CONTINGENCIES:
MANUFACTURING AND ADMINISTRATIVE FACILITY
On April 21, 1997, the Company signed a construction agreement and a lease
agreement with a real estate development company to commence construction of a
manufacturing and administrative facility with an estimated cost of $10,500,000,
exclusive of equipment costs. The project is being financed with $2,300,000 of
tax increment financing bonds to be issued by the City of Belle Plaine,
Minnesota and $5,750,000 (including a $750,000 deposit) of mortgage-backed debt
to be arranged by the developer, with the balance of approximately $3,200,000
provided by the Company. To finance repayment of the tax increment financing
bonds, the Company has guaranteed the underlying real estate tax payments on the
property. The Company anticipates recording the transaction as a capital lease
upon completion and acceptance of the facility.
The lease for the facility has an initial term of 20 years with two
additional 10-year renewal options. Rent for the first 20 years will be equal to
the debt service on the $5,750,000 mortgaged-backed debt, using a 20-year
amortization, plus a 10% premium (escalating during the lease term to roughly
offset inflation). Rent for the 10-year renewal options is based on the greater
of fair market value at the date of renewal or formula rent, as defined in the
lease agreement. The lease contains an option to purchase the facility at the
five-year anniversary for $6,250,000, less any principal reduction in the
$5,000,000 debt and application of the $750,000 deposit.
OPERATING LEASES
The Company leases office space and certain office equipment under
noncancelable operating leases. Future minimum payments under these leases as of
March 31, 1997 for 1997 are $80,000. Under the terms of these leases, the
Company is also responsible for certain operating expenses. Total lease expense
was $12,000, $19,000, $33,000, $64,000, $5,000, $25,000 and $89,000 for the
years ended December 31, 1994, 1995 and 1996, cumulative for the period from
inception to December 31, 1996, for the three months ended March 31, 1996 and
1997, and cumulative for the period from inception to March 31, 1997,
respectively.
LIFE INSURANCE
The Company is the owner and beneficiary of four $1,000,000 term life
insurance policies, covering the lives of its founders.
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT:
In March 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," which changes the way companies calculate their earnings
per share (EPS). SFAS No. 128 replaces primary EPS with basic EPS and fully
diluted EPS with diluted EPS. Basic EPS is computed by dividing reported loss by
the weighted average shares outstanding, excluding potentially dilutive
securities while diluted EPS includes the dilutive securities. The Company is
required to adopt SFAS No. 128 in fiscal 1998,
F-12
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INCLUDING DATA APPLICABLE TO THE UNAUDITED PERIODS)
7. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT: (CONTINUED)
at which time, all prior period EPS data is to be restated. If the Company had
adopted SFAS No. 128, the effect on reported loss per share data would have been
as follows:
<TABLE>
<CAPTION>
CUMULATIVE FOR THREE MONTHS ENDED CUMULATIVE FOR
THE PERIOD FROM THE PERIOD FROM
YEAR ENDED INCEPTION INCEPTION
DECEMBER 31 (DECEMBER 22, MARCH 31 (DECEMBER 22,
------------------------------- 1993) TO -------------------- 1993) TO
1994 1995 1996 DECEMBER 31, 1996 1996 1997 MARCH 31, 1997
--------- --------- --------- ----------------- --------- --------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Primary EPS, as reported........... $ .07 $ .18 $ .31 $ .65 $ .06 $ .11 $ .77
Effect of SFAS No. 128............. .04 .07 .12 .22 .02 .06 .28
--- --- --- --- --- --- ---
Basic EPS, as restated............. $ .11 $ .25 $ .43 $ .87 $ .08 $ .17 $ 1.05
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
</TABLE>
Diluted EPS under SFAS No. 128 would have been equal to primary EPS as
reported.
8. EVENTS SUBSEQUENT TO DATE OF REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS:
PRO FORMA BALANCE SHEET AND STATEMENT OF STOCKHOLDERS' EQUITY AS OF MARCH
31, 1997 (UNAUDITED)
As discussed in Note 4, the Series A Convertible Preferred Stock will be
automatically converted into shares of common stock concurrent with the closing
of the Company's initial public offering. The Company's unaudited pro forma
balance sheet and statement of stockholders' equity as of and for the three
months ended March 31, 1997 give effect to the conversion.
INITIAL PUBLIC OFFERING
The Company intends to offer 4,000,000 shares of its common stock (excluding
the underwriters' overallotment option to purchase an additional 600,000 shares
of common stock) to the public. The net proceeds from the offering will be used
primarily to complete and equip the facility; design and develop a motorcycle
production line; acquire tooling, components and supplies; finalize engineering
and design of the Super X; and fund marketing costs, general operating expenses
and working capital.
F-13
<PAGE>
**[First Page Gatefold-Back]**
<PAGE>
**[Second Page Gatefold-Back]**
<PAGE>
**[Third Page Gatefold-Outside Back Cover]**
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Expenses in connection with the issuance and distribution of the shares of
Common Stock being registered hereunder other than underwriting commissions and
expenses, are estimated below.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 11,152
NASD filing fee................................................... 4,180
Nasdaq Stock Market listing fee................................... 51,362
Legal fees and expenses........................................... 100,000
Accounting fees and expenses...................................... 70,000
Blue Sky fees and expenses........................................ 6,000
Printing expenses................................................. 60,000
Transfer agent fees and expenses.................................. 15,000
Miscellaneous expenses............................................ 3,806
---------
Total............................................................. $ 321,500
---------
---------
</TABLE>
Except for the SEC, NASD and Nasdaq fees, all of the foregoing expenses have
been estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 4.01 of the Company's By-Laws, the Company indemnifies its
directors and officers and advances litigation expenses to the fullest extent
required or permitted by Minnesota Statutes Section 302A.521. Section 302A.521
requires the Company to indemnify a person made or threatened to be made a party
to a proceeding, by reason of the former or present official capacity of the
person with respect to the Company, against judgments, penalties, fines,
including without limitation, excise taxes assessed against the person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorneys' fees and disbursements, if, with respect to the acts or
omissions of the person complained of in the proceeding, such person (1) has not
been indemnified by another organization or employee benefit plan for the same
judgments, penalties, fines, including without limitation, excise taxes assessed
against the person with respect to an employee benefit plan, settlements, and
reasonable expenses, including attorneys' fees and disbursements, incurred by
the person in connection with the proceeding with respect to the same acts or
omissions; (2) acted in good faith; (3) received no improper personal benefit,
and statutory procedure has been followed in the case of any conflict of
interest by a director; (4) in the case of a criminal proceeding, had no
reasonable cause to believe the conduct was unlawful; and (5) in the case of
acts or omissions occurring in the person's performance in the official capacity
of director or, for a person not a director, in the official capacity of
officer, committee member, employee or agent, reasonably believed that the
conduct was in the best interests of the Company, or in the case of performance
by a director, officer, employee or agent of the Company as a director, officer,
partner, trustee, employee or agent of another organization or employee benefit
plan, reasonably believed that the conduct was not opposed to the best interests
of the Company. In addition, Section 302A.521, subd. 3, requires payment by the
Company upon written request, of reasonable expenses in advance of final
disposition in certain instances.
The Articles of Incorporation of the Company eliminate the personal
liability of a director to the Registrant or its shareholders for monetary
damages for breach of fiduciary duty as a director, except under certain
circumstances involving any breach of the director's duty of loyalty to the
Company or its shareholders, acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, for any unlawful acts
under Sections 302A.559 or 80A.23 of Minnesota Statutes, or for any transaction
from which a director derives an improper personal benefit.
II-1
<PAGE>
Under the terms of the Underwriting Agreement to be filed as Exhibit 1, the
Agent will have agreed to indemnify, under certain conditions, the Company, its
directors, and persons who control the Company within the meaning of the
Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the Company has sold the following securities
pursuant to exemptions from registration under the Securities Act of 1933, as
amended (the "Securities Act"). All such sales were made in reliance upon the
exemptions from registration provided under Sections 3(b) and 4(2) of the
Securities Act and related state securities laws. Unless otherwise stated, all
shares were issued directly by the Company, no underwriters were involved, and
no discount, commission or other transaction related remuneration was paid.
1. From March 28, 1994 to July 18, 1994, the Company issued approximately
86,666 shares of Common Stock at a price of $.75 per share and an aggregate
price of $65,000 to persons unaffiliated with the Company.
2. From September 15, 1994 to December 14, 1994, the Company issued
approximately 600,000 shares of Common Stock at a price of $.90 per share and an
aggregate price of $540,000 to persons unaffiliated with the Company.
3. On December 14, 1994, the Company issued 125,000 shares of Common Stock
in exchange for the forgiveness of a loan of $75,000 made to the Company by a
person unaffiliated with the Company at a price of $.60 per share.Such share
price had been negotiated as a part of such loan prior to the date of issuance.
4. From January 30, 1995 to July 31, 1995, the Company issued approximately
1,605,333 shares of Common Stock to persons unaffiliated with the Company at a
price of $1.88 per share and an aggregate purchase price of $3,010,000.The
Company paid a 10% cash commission, 2% nonaccountable expense commission, and 1%
management commission pursuant to that issuance to certain placement agents.
5. On August 3, 1995, the Company granted Warrants to purchase
approximately 93,700 shares of Common Stock at an exercise price of $1.88 per
share to two shareholders of the Company in connection with the offering
described in 4 above.
6. On August 3, 1995, the Company granted Warrants to purchase
approximately 115,840 shares of Common Stock to certain placement agents at an
exercise price of $1.88 per share in connection with the offering described in 4
above.
7. On September 30, 1995, the Company granted options to purchase an
aggregate of approximately 10,666 shares of Common Stock at an exercise price of
$1.88 per share to certain advisors of the Company.
8. On December 15, 1995, the Company issued, in exchange for services
valued at $62,500, 33,333 shares of Common Stock at a price of $1.88 per share
to an independent contractor of the Company.
9. On January 1, 1996, the Company granted options to purchase an aggregate
of 39,996 shares of Common Stock at an exercise price of $1.88 per share to
certain advisors of the Company.
10. On January 1, 1996, the Company granted options to purchase an aggregate
of 133,332 shares of Common Stock at an exercise price of $1.88 per share to two
executive officers of the Company.
11. On January 2, 1996, the Company issued, in exchange for services valued
at $62,500, 33,333 shares of Common Stock at a price of $1.88 per share to an
independent contractor of the Company.
12. On January 19, 1996, the Company granted an option to purchase 12,133
shares of Common Stock at an exercise price of $1.88 per share to an advisor of
the Company.
II-2
<PAGE>
13. On January 29, 1996, the Company granted options to purchase an
aggregate of 65,666 shares of Common Stock at an exercise price of $1.88 per
share to certain advisors of the Company.
14. On March 29, 1996, the Company granted an option to purchase 12,133
shares of Common Stock at an exercise price of $1.88 per share to an advisor of
the Company.
15. On March 31, 1996, the Company granted an option to purchase 66,666
shares of Common Stock at an exercise price of $1.88 per shares to an executive
officer of the Company.
16. On May 15, 1996, the Company granted an option to purchase 66,666 shares
of Common Stock at an exercise price of $1.88 per share to an executive officer
of the Company.
17. On June 13, 1996, the Company issued 20,000 shares of Common Stock to an
executive officer of the Company pursuant to the partial exercise of an option
to purchase Common Stock held by such executive officer at an exercise price of
$1.88 per share for an aggregate purchase price of $37,600.
18. On June 13, 1996, the Company granted options to purchase 16,666 shares
of Common Stock at an exercise price of $1.88 per share to two executive
officers of the Company.
19. From January 1, 1997 to March 17, 1997 the Company granted options to
purchase approximately 52,000 shares of Common Stock at an exercise price of
$3.75 per share to thirteen employees and two former employees of the Company.
20. On January 1, 1997, the Company granted options to purchase an aggregate
of 90,000 shares of Common Stock at an exercise price of $3.75 per share to
three executive officers of the Company.
21. On March 10, 1997, the Company issued 8,000 shares of Common Stock to a
former service provider of the Company pursuant to the exercise of a warrant to
purchase Common Stock held by such service provider at an exercise price of
$1.88 per share for an aggregate purchase price of $15,000.
22. On April 21, 1997, the Company granted options to purchase an aggregate
of 6,666 shares of Common Stock at an exercise price of $4.50 per share to two
employees of the Company.
23. On May 1, 1997, the Company granted options to purchase an aggregate of
30,000 shares of Common Stock at an exercise price of $4.50 per share to three
outside directors of the Company.
II-3
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Articles of Incorporation of Company, as Amended.
3.2 Amended and Restated Certificate of Designation of Series A Convertible Preferred Stock.(2)
3.3 By-Laws of the Company.(3)
4.1 Specimen of Common Stock Certificate (to be filed by amendment).
5.1 Opinion and Consent of Faegre & Benson LLP (to be filed by amendment).
10.1 Lease Agreement between Kraus-Anderson, Incorporated and the Company dated March 1, 1994.(1)
10.2 First Amendment to Lease between Kraus-Anderson, Incorporated and the Company dated January 18, 1996.(1)
10.3 Second Amendment to Lease between Kraus-Anderson, Incorporated and the Company dated December 6, 1996.(2)
10.4 Contract for Private Development by and among City of Belle Plaine, Minnesota and Belle Plaine Economic
Development Authority Belle Plaine, Minnesota and the Company dated as of December 31, 1996.(2)
10.5 Assignment, Assumption and Amendment of Development Contract by and among the City of Belle Plaine,
Minnesota, Belle Plaine Economic Authority, Belle Plaine, Minnesota, the Company, and Ryan Belle
Plaine, LLC dated April 21, 1997.(4)
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company dated April 21, 1997.(4)
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC and the Company dated April 21, 1997.(4)
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company dated April 21, 1997.(4)
10.9 Amended and Restated 1995 Stock Option Plan.(4)
10.10 Form of Authorized Dealership Agreement
11.1 Statement Re: Computation of Pro Forma Per Share Loss.
23.1 Consent of Faegre & Benson LLP (included in Exhibit No. 5.1 to the Registration Statement) (to be filed
by amendment).
23.2 Consent of Arthur Andersen LLP.
24.1 Powers of Attorney.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
(1) Incorporated by reference to the like numbered Exhibit to the Company's
Annual Report on Form 10-KSB for the period ended December 31, 1996 (No.
333-05060C).
II-4
<PAGE>
(2) Incorporated by reference to the like numbered Exhibit to Amendment No. 1 to
the Company's Registration Statement on Form SB-2 filed with the Commission
on July 23, 1996 (Registration No. 333-05060C).
(3) Incorporated by reference to the like numbered Exhibit to the Company's
Quarterly Report on Form 10-QSB for the period ended March 31, 1997 (No.
333-05060C).
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers, and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company 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 Company 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 Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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 under 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, 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-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing of Form S-1 and has authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Minneapolis, State of Minnesota, on May 23, 1997.
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
/s/ DANIEL L. HANLON
-----------------------------------------
Daniel L. Hanlon
CO-CHIEF EXECUTIVE OFFICER
/s/ DAVID P. HANLON
-----------------------------------------
David P. Hanlon
CO-CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
indicated on May 23, 1997.
SIGNATURE TITLE
- ------------------------------ --------------------------
Co-Founder, Co-Chief
/s/ DANIEL L. HANLON Executive Officer, and
- ------------------------------ Co-Chairman of the Board
Daniel L. Hanlon (Principal Executive
Officer)
/s/ DAVID P. HANLON Co-Founder, Co-Chief
- ------------------------------ Executive Officer, and
David P. Hanlon Co-Chairman of the Board
Senior Vice President of
Finance and
/s/ THOMAS M. ROOTNESS Administration and Chief
- ------------------------------ Financial Officer
Thomas M. Rootness (Principal Financial and
Accounting Officer)
JOHN B. DONAHUE* Director
WAYNE M. FORTUN* Director
DAVID R. POMIJE* Director
- ------------------------
* Daniel L. Hanlon, by signing his name hereto, does hereby sign this document
on behalf of each of the above named Directors of the Registrant pursuant to
powers of attorney duly executed by such persons.
/s/ DANIEL L. HANLON
--------------------------------------
Daniel L. Hanlon, ATTORNEY IN FACT
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION PAGE
- ----------- ------------------------------------------------------------------------- ------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement........................................... Filed Electronically
3.1 Restated Articles of Incorporation of Company, as Amended................ Filed Electronically
3.2 Amended and Restated Certificate of Designation of Series A Convertible
Preferred Stock........................................................ Incorporated by Reference
3.3 By-Laws of the Company................................................... Incorporated by Reference
10.1 Lease Agreement between Kraus-Anderson, Incorporated and the Company
dated March 1, 1994.................................................... Incorporated by Reference
10.2 First Amendment to Lease between Kraus-Anderson, Incorporated and the
Company dated January 18, 1996......................................... Incorporated by Reference
10.3 Second Amendment to Lease between Kraus-Anderson, Incorporated and the
Company dated December 6, 1996......................................... Incorporated by Reference
10.4 Contract for Private Development by and among City of Belle Plaine,
Minnesota and Belle Plaine Economic Development Authority Belle Plaine,
Minnesota and the Company dated as of December 31, 1996................ Incorporated by Reference
10.5 Assignment, Assumption and Amendment of Development Contract by and among
the City of Belle Plaine, Minnesota, Belle Plaine Economic Authority,
Belle Plaine, Minnesota, the Company, and Ryan Belle Plaine, LLC dated
April 21, 1997......................................................... Incorporated by Reference
10.6 Lease Agreement between Ryan Belle Plaine, LLC and the Company dated
April 21, 1997......................................................... Incorporated by Reference
10.7 Construction Agreement by and between Ryan Belle Plaine, LLC and the
Company dated April 21, 1997........................................... Incorporated by Reference
10.8 Guaranty by Ryan Companies US, Inc. in favor of the Company dated April
21, 1997............................................................... Incorporated by Reference
10.9 Amended and Restated 1995 Stock Option Plan.............................. Incorporated by Reference
10.10 Form of Authorized Dealership Agreement.................................. Filed Electronically
11.1 Statement Re: Computation of Pro Forma Per Share Loss.................... Filed Electronically
23.2 Consent of Arthur Andersen LLP........................................... Filed Electronically
24.1 Powers of Attorney....................................................... Filed Electronically
27.1 Financial Data Schedule.................................................. Filed Electronically
</TABLE>
<PAGE>
EXHIBIT 1.1
4,000,000 SHARES
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
COMMON STOCK
UNDERWRITING AGREEMENT
_________________, 1997
JOHN G. KINNARD AND COMPANY, INCORPORATED
MILLER, JOHNSON & KUEHN, INCORPORATED
As Representatives of the Several Underwriters
c/o John G. Kinnard and Company, Incorporated
920 Second Avenue South
Minneapolis, Minnesota 55402
Ladies and Gentlemen:
Excelsior-Henderson Motorcycle Manufacturing Company, a Minnesota
corporation (the "Company") proposes to sell to the several underwriters named
in Schedule I hereto (the "Underwriters"), for whom you are acting as
representatives (the "Representatives"), an aggregate of Four Million
(4,000,000) shares (the "Firm Shares") of Common Stock, $.01 par value, of the
Company (the "Common Stock"). In addition, to cover overallotments in
connection with the sale of the Firm Shares, the Company proposes to grant to
the Underwriters an option to purchase an additional number of shares not
exceeding 600,000 in the aggregate. The shares subject to the option are herein
called the "Option Shares." The Firm Shares and any Option Shares purchased
pursuant to this Underwriting Agreement are herein called the "Shares." As used
in this Agreement, the term "Underwriter" includes any party substituted for an
Underwriter under Section 8 hereof.
As Representatives, you have advised the Company that (i) you are
authorized to enter into this Underwriting Agreement on behalf of the
Underwriters and (ii) the Underwriters are willing, acting severally and not
jointly, to purchase the numbers of the Firm Shares, aggregating in total
4,000,000 shares, set forth opposite their respective names in Schedule I, plus
their pro rata portion of the Option Shares purchased if you elect to exercise
the overallotment option in whole or in part for the accounts of the
Underwriters.
<PAGE>
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-_____) and a
related preliminary prospectus for the registration of the Shares under the
Securities Act of 1933, as amended (the "Act"). If the Company has elected to
rely upon Rule 462(b) under the Act to increase the size of the offering
registered under the Act, the Company will prepare and file with the Commission
a registration statement with respect to such increase pursuant to Rule 462(b).
The registration statement, as amended, including a registration statement (if
any) filed pursuant to Rule 462(b) under the Act and the information (if any)
deemed to be part thereof pursuant to Rules 430A and 434(d) under the Act, is
herein called the "Registration Statement." The prospectus included in the
Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any prospectus
(including any term sheet meeting the requirements of Rule 434 under the Act
provided by the Company for use with a prospectus subject to completion within
the meaning of Rule 434 in order to meet the requirements of Section 10(a) of
the Act) filed by the Company with the Commission pursuant to Rule 424(b) (and
Rule 434, if applicable) under the Act or any other such prospectus provided to
the Underwriters by the Company for use in connection with the offering of the
Shares (whether or not required to be filed by the Company with the Commission
pursuant to Rule 424(b) under the Act) differs from the prospectus on file at
the time the Registration Statement is or was declared effective by the
Commission, the term "Prospectus" shall refer to such differing prospectus
(including any term sheet within the meaning of Rule 434 under the Act) from and
after the time such prospectus is filed with the Commission or transmitted to
the Commission for filing pursuant to Rule 424(b) (and Rule 434, if applicable)
or from and after the time it is first provided to the Underwriters by the
Company for such use. The term "Preliminary Prospectus" as used herein means
any preliminary prospectus included in the Registration Statement prior to the
time it becomes or became effective under the Act and any prospectus subject to
completion as described in Rule 430A or 434 under the Act. Copies of the
Registration Statement, including all exhibits and schedules thereto, any
amendments thereto and all Preliminary Prospectuses have been delivered to you.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) The Registration Statement has been declared effective under
the Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. No stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or
threatened by the Commission.
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(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in
all material respects to the requirements of the Act and the rules and
regulations of the Commission promulgated thereunder, and did not
contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; provided, however, the Company makes no
representation or warranty as to information contained in or omitted
in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through
the Representatives, expressly for use in the preparation thereof.
(iii) As of the time the Registration Statement was declared
effective by the Commission, upon the filing or first delivery to the
Underwriters of the Prospectus and at the First Closing Date and
Second Closing Date (each as hereinafter defined), (A) the
Registration Statement and Prospectus conformed or will conform in all
material respects to the requirements of the Act and the rules and
regulations of the Commission promulgated thereunder, (B) the
Registration Statement did not or will not include an untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and (C) the Prospectus did not or will not include an
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they are or were made,
not misleading; provided, however, that the Company makes no
representation or warranty as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with,
written information furnished to the Company by or on behalf of any
Underwriter through the Representatives, expressly for use in the
preparation thereof.
(iv) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Minnesota. The Company owns no capital stock or other equity or
ownership or proprietary interest in any corporation, partnership,
association, trust or other entity. The Company has the power and
authority to own or lease its properties and conduct its business as
described in the Prospectus, and is duly qualified to transact
business in all jurisdictions in which the conduct of its business or
its ownership or leasing of property requires such qualification and
the failure so to qualify would have a material adverse effect on the
condition
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(financial or otherwise), business, property, prospects, net worth or
results of operations of the Company.
(v) The Company has the authorized and outstanding
capitalization as set forth under the heading "Capitalization" in the
Prospectus. The outstanding shares of capital stock of the Company
have been duly authorized and validly issued and are fully paid and
nonassessable. The Shares to be issued and sold by the Company to the
Underwriters pursuant to this Agreement have been duly authorized and,
when issued and paid for as contemplated herein, will be validly
issued, fully paid and nonassessable. Except as described in the
Prospectus, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the voting or
transfer of, any shares of capital stock of the Company pursuant to
the Company's Restated Articles of Incorporation (as amended), Bylaws
or any agreement or other instrument to which the Company is a party
or by which the Company is bound. Neither the filing of the
Registration Statement nor the offering or the sale of the Shares as
contemplated by this Agreement gives rise to any rights for, or
relating to, the registration of any shares of capital stock or other
securities of the Company, except such rights which have been validly
waived or satisfied. Except as described in the Prospectus, there are
no outstanding options, warrants, agreements, contracts or other
rights to purchase or acquire from the Company any shares of its
capital stock. The outstanding capital stock of the Company conforms,
and the Shares to be issued by the Company to the Underwriters will
conform, to the description thereof contained in the Prospectus.
(vi) The financial statements (together with the notes thereto)
included in the Registration Statement and Prospectus comply in all
material respects with the requirements of the Act and present fairly
the financial position, results of operations and changes in
shareholders' equity and cash flows of the Company on the basis stated
in the Registration Statement, at the indicated dates and for the
indicated periods. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently
applied throughout the periods involved, and all adjustments necessary
for a fair presentation of results for such periods have been made,
except as otherwise stated therein; and the supporting schedules
included in the Registration Statement present fairly the information
required to be stated therein. No other financial statements or
schedules are required to be included in the Registration Statement.
The summary and selected consolidated financial data included in the
Registration Statement present fairly the information shown therein on
the basis stated in the Registration Statement and have been compiled
on a basis consistent with the financial statements presented
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therein. Arthur Andersen LLP, which has expressed its opinion with
respect to the financial statements filed with the Commission as part
of the Registration Statement, are independent public accountants as
required by the Act and the rules and regulations of the Commission
promulgated thereunder.
(vii) There is no action, suit or proceeding pending or, to the
knowledge of the Company, threatened or contemplated against the
Company before any court or administrative or regulatory agency,
authority or body, or any arbitrator, which might result, individually
or in the aggregate, in a material adverse change in the condition
(financial or otherwise), business, property, prospects, net worth or
results of operations of the Company, except as set forth in the
Registration Statement and the Prospectus.
(viii) The Company has good and marketable title to all
properties and assets reflected as owned in the financial statements
described above or in the Prospectus, in each case free and clear of
all liens, encumbrances, claims, security interests or defects, except
such as are described in the Prospectus or as do not substantially
affect the value of such properties and assets and do not materially
interfere with the use made and proposed to be made of such properties
and assets by the Company; and any real property and buildings held
under lease by the Company are held under valid, subsisting and
enforceable leases with only such exceptions with respect to any
particular lease as are not material and do not interfere in any
material respect with the use made and proposed to be made of such
property and buildings by the Company.
(ix) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, (A) there has not
been any material adverse change in or affecting, or any event,
occurrence or development in the business of the Company that, taken
together with other events, occurrences and developments with respect
to such business, would have or would reasonably be expected to have a
material adverse effect on, the general affairs, condition (financial
or otherwise), business, key personnel, property, prospects, net worth
or results of operations of the Company (whether or not occurring in
the ordinary course of business), (B) the Company has not entered
into any transaction not in the ordinary course of business that is
material to the Company, other than transactions described or
contemplated in the Registration Statement and the Prospectus, (C) the
Company has not incurred any material liabilities or obligations,
direct or contingent, other than described or contemplated in the
Registration Statement and the Prospectus, (D) the Company has not
sustained any material loss or interference with its business or
properties from fire, flood, windstorm, accident or other calamity,
whether or not covered by insurance, (E) there has not
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been any change in the capital stock of the Company (other than upon
the exercise of options and warrants described in the Registration
Statement and the Prospectus), or any material increase in the short-
term or long-term debt (including capitalized lease obligations) of
the Company, and (F) there has not been any issuance of warrants,
options, convertible securities or other rights to purchase or acquire
any capital stock of the Company.
(x) The Company is not in violation of or in default under (A)
its Restated Articles of Incorporation (as amended) or Bylaws, (B) any
statute, rule, regulation, order, judgment, decree or authorization of
any governmental or administrative agency, court or other body having
jurisdiction over the Company or any of its properties, or (C) any
indenture, mortgage, deed of trust, loan agreement, lease, franchise,
license or other agreement or instrument to which the Company is a
party or by which it is bound or to which any property or assets of
the Company are subject, which violation or default would have a
material adverse effect on the business, condition (financial or
otherwise), results of operations, shareholders' equity or prospects
of the Company or the ability of the Company to consummate the
transactions contemplated hereby.
(xi) The Company has the power and authority to enter into this
Agreement and to consummate the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Company. The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated (A) will
not result in a breach or violation of any provision of the Restated
Articles of Incorporation (as amended) or Bylaws of the Company or any
statute, rule, regulation, order, judgment, decree or authorization of
any governmental or administrative agency, court or other body having
jurisdiction over the Company or any of its properties, and (B) will
not conflict with, result in a breach or violation of, or constitute,
either by itself or upon notice or passage of time or both, a default
under any indenture, mortgage, deed of trust, loan agreement, lease,
franchise, license or other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any
property or assets of the Company are subject. No approval, consent,
order, authorization, designation, declaration or filing by or with
any governmental or administrative agency, court or other body is
required for the execution and delivery by the Company of this
Agreement and the consummation of the transactions herein
contemplated, except as may be required under the Act or any state
securities or blue sky laws.
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<PAGE>
(xii) The Company holds and is operating in compliance with all
licenses, authorizations, approvals, certificates and permits from
governmental and regulatory authorities, foreign and domestic, which
are necessary to the conduct of its business as described in the
Prospectus.
(xiii) No labor disturbance or dispute by the employees or
consultants or contractors to the Company exists or, to the Company's
knowledge, is threatened that could reasonably be expected to have a
material adverse effect on the conduct of the Company's business as
described in the Prospectus or on the condition (financial or
otherwise), property, prospects, net worth or results of operations of
the Company.
(xiv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A)
transactions are executed in accordance with management's general or
specific authorization; (B) transactions are recorded as necessary to
permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain
accountability for assets; (C) access to assets is permitted only in
accordance with management's general or specific authorization; and
(D) the recorded accountability for assets is compared with existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(xv) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(xvi) The Company's application for listing on the Nasdaq
National Market ("Nasdaq") has been approved, and, on the date the
Registration Statement became effective, the Company's Registration
Statement on Form 8-A or other applicable form under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), became
effective.
(xvii) The Company has obtained and delivered to the
Representatives written agreements, in form and substance satisfactory
to the Representatives, of (A) each of its directors and executive
officers (other than Daniel Hanlon and David Hanlon), that no offer,
sale, contract to sell, or other disposition of any Common Stock of
the Company will be made for a period of 180 days after the First
Closing Date, directly or indirectly, by such holder otherwise than
with the prior written consent of John G. Kinnard and Company,
Incorporated ("Kinnard") and (B) each of Daniel Hanlon and David
Hanlon, that no offer, sale, contract to sell, or other
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<PAGE>
disposition of any Common Stock of the Company will be made for a
period of 365 days after the First Closing Date, directly or
indirectly, by such individual otherwise than with the prior written
consent of Kinnard, except that each of Daniel Hanlon and
David Hanlon may sell, offer, pledge or otherwise dispose of up to
50,000 shares of Common Stock following the date 180 days after the
First Closing Date without any prior consent from Kinnard.
(xviii) The Company has not released and will not release
holders of the Company's Series A Convertible Preferred Stock from
their existing 180 day lock-up agreements otherwise than with the
prior written consent of Kinnard.
(xix) The Company has not distributed and will not distribute
any prospectus or other offering material in connection with the
offering and sale of the Shares other than any Preliminary Prospectus
or the Prospectus or other materials permitted by the Act to be
distributed by the Company.
(xx) The Company has filed all federal, state, local and
foreign tax returns or reports required to be filed by it and has paid
in full all taxes indicated by said returns or reports and all
assessments received by it to the extent that such taxes have become
due and payable, except where the Company is contesting in good faith
such taxes and assessments.
(xxi) The Company maintains insurance of the type and in the
amounts generally deemed adequate for its business and consistent with
insurance coverage maintained by similar companies and businesses,
including without limitation, product liability insurance and
insurance covering all real and personal property owned or leased by
it, all of which is in full force and effect.
(xxii) The Company owns or is licensed to use all patents,
patent applications, inventions, trademarks, tradenames, applications
for registration of trademarks, copyrights, know-how, trade secrets,
licenses and rights in any thereof that are material to the business
of the Company as now conducted and as proposed to be conducted, in
each case as described in the Prospectus (the "Proprietary Rights").
The Company does not have knowledge of, and the Company has not given
or received any notice of any pending conflicts with or infringement
of, the rights of others with respect to any Proprietary Rights or
with respect to any license of Proprietary Rights. No action, suit,
arbitration or legal, administrative or other proceeding, or domestic
or foreign governmental investigation is pending, or to the best of
the Company's knowledge, threatened, which involves any Proprietary
Rights. The Company is not subject to any judgment, order, writ,
injunction or decree of any court or any federal, state, local,
foreign or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or any arbitrator, or
has entered into or is a party to any contract which
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<PAGE>
restricts or impairs the use of any such Proprietary Rights. To the
best of the Company's knowledge, no Proprietary Rights used by the
Company conflict with or infringe upon any proprietary rights of or
available to any third party. The Company has not received written
notice of any pending conflict with or infringement upon such third-
party proprietary rights. The Company has not entered into any
consent, indemnification, forbearance to sue or settlement agreement
with respect to Proprietary Rights other than in the ordinary course
of business. No claims have been asserted by any person with respect
to the validity of or the Company's ownership or right to use the
Proprietary Rights and, to the best knowledge of the Company, there is
no reasonable basis for any such claim to be successful. The
Proprietary Rights are valid and enforceable and no registration
relating thereto has lapsed, expired or been abandoned or cancelled or
is the subject of cancellation or other adversarial proceedings, and
all applications therefor are pending and are in good standing. The
Company has complied with its respective contractual obligations
relating to the protection of the Proprietary Rights used pursuant to
licenses. To the best knowledge of the Company, no person is
infringing on or violating the Proprietary Rights owned or used by the
Company.
(xxiii) To the Company's knowledge, none of the Company's
officers, directors or security holders has any affiliations with the
National Association of Securities Dealers, Inc., except as set forth
in the Registration Statement or as otherwise disclosed in writing to
the Representatives.
(xxiv) The Company intends to apply the proceeds from the sale
of the Shares by it to the purposes and substantially in the manner
set forth in the Prospectus.
(xxv) No person is entitled, directly or indirectly, to
compensation from the Company or the Underwriters for services as a
finder in connection with the transactions contemplated by this
Agreement.
(xxvi) The conditions for use of a registration statement on
Form S-1 for the distribution of the Shares have been satisfied with
respect to the Company.
(xxvii) The Company has not sold any securities in violation of
Section 5 of the Act.
(xxviii) The Company has complied and will comply with all
provisions of Florida Statutes Section 517.075 (Chapter 92-198, Laws
of Florida). Neither the Company, nor any affiliate thereof, does
business
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with the government of Cuba or with any person or affiliate located in
Cuba.
(b) Any certificate signed by any officer of the Company and
delivered to the Representatives or counsel to the Underwriters shall be
deemed to be a representation and warranty of the Company to each
Underwriter as to the matters covered thereby.
2. PURCHASE AND SALE; DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties, and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company agrees to sell to each of the Underwriters, and each of the
Underwriters agree, severally and not jointly, to purchase, at a purchase
price equal to ninety-three percent (93%) of the per share price to public
of $______, the respective amount of Firm Shares set forth opposite such
Underwriter's name in Schedule I hereto. The Underwriters will
collectively purchase all of the Firm Shares if any are purchased.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriters to purchase an
aggregate of up to 600,000 Option Shares, at the same purchase price as the
Firm Shares, for use solely in covering any overallotments made by the
Underwriters in the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised at any time (but not more than once)
within 30 days after the date on which the Registration Statement was
declared effective under the Act, as described in Section 1(a)(i) hereof
(the "Effective Date") upon notice (confirmed in writing) by the
Representatives to the Company setting forth the aggregate number of Option
Shares as to which the Underwriters are exercising the option and the date
on which certificates for such Option Shares are to be delivered. Option
Shares shall be purchased severally for the account of each Underwriter in
proportion to the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto.
(c) The Company will deliver the Firm Shares to the Representatives
at the offices of Dorsey & Whitney LLP, 220 South Sixth Street,
Minneapolis, Minnesota 55402, unless some other place is agreed upon, at
10:00 a.m. Minneapolis time, against payment of the purchase price as set
forth in Section 2(a), on the third full business day after commencement of
the offering or, if the offering commences after 4:30 p.m., on the fourth
full business day after commencement of the offering, or such earlier time
as may be agreed upon by the Representatives and the Company, such time and
place being herein referred to as the "First Closing Date."
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(d) The Company will deliver the Option Shares being purchased by the
Underwriters to the Representatives at the offices of Dorsey & Whitney LLP
as set forth in Section 2(c) above, unless some other place is agreed upon,
at 10:00 a.m. Minneapolis time, against payment of the purchase price at
the same place, on the date determined by the Representatives and of which
the Company has received notice as provided in Section 2(b), which shall
not be earlier than two nor later than three full business days after the
exercise of the option as set forth in Section 2(b), or at such other time
not later than ten full business days thereafter as may be agreed upon by
the Representatives and the Company, such time and date being herein
referred to as the "Second Closing Date."
(e) Certificates for the Shares to be delivered will be registered in
such names and issued in such denominations as the Underwriters shall
request at least two business days prior to the First Closing Date or the
Second Closing Date, as the case may be. The certificates will be made
available to the Underwriters in definitive form for the purpose of
inspection and packaging at least 24 hours prior to each respective closing
date.
(f) Payment to the Company for the Shares sold shall be made by wire
transfer to the account designated by the Company or by certified or
official bank check or checks in Clearing House funds, payable to the order
of the Company.
(g) The Underwriters will make a public offering of the Shares
directly to the public (which may include selected dealers who are members
in good standing of the National Association of Securities Dealers, Inc.
("NASD") or foreign dealers not eligible for membership in the NASD but who
have agreed to abide by the interpretation of the NASD's Board of Governors
with respect to free-riding and withholding) as soon as the Underwriters
deem practicable after the Registration Statement becomes effective at the
public offering price set forth in Section 2(a) above subject to the terms
and conditions of this Agreement and in accordance with the Prospectus;
concessions from the public offering price may be allowed selected dealers
who are members of the NASD as the Underwriters determine and the
Underwriters will furnish the Company with such information about the
distribution arrangements as may be necessary for inclusion in the
Registration Statement. It is understood that the public offering price
and concessions may vary after the public offering. The Underwriters shall
offer and sell the Shares only in jurisdictions in which the offering of
Shares has been duly registered or qualified, or is exempt from
registration or qualification, and shall take reasonable measures to effect
compliance with applicable state securities laws.
(h) It is understood that the Representatives, individually and not
as Representatives, may (but shall not be obligated to) make payment on
behalf
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of any Underwriter or Underwriters for the Shares to be purchased by such
Underwriter or Underwriters. No such payment by the Representatives shall
relieve such Underwriter or Underwriters from any of its or their other
obligations hereunder.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees with
the several Underwriters that:
(a) If the Company has elected to rely on Rule 430A under the Act,
the Company will prepare and file a Prospectus (or term sheet within the
meaning of Rule 434 under the Act) containing the information omitted
therefrom pursuant to Rule 430A under the Act with the Commission within
the time period required by, and otherwise in accordance with the
provisions of, Rules 424(b), 430A and 434, if applicable, under the Act; if
the Company has elected to rely upon Rule 462(b) under the Act to increase
the size of the offering registered under the Act, the Company will prepare
and file a registration statement with respect to such increase with the
Commission within the time period required by, and otherwise in accordance
with the provisions of, Rule 462(b) under the Act; the Company will prepare
and file with the Commission, promptly upon the request of the
Representatives, any amendments or supplements to the Registration
Statement or Prospectus (including any term sheet within the meaning of
Rule 434 under the Act) that, in the opinion of the Representatives, may be
necessary or advisable in connection with distribution of the Securities by
Underwriters; and the Company will not file any amendment or supplement to
the Registration Statement or Prospectus (including any term sheet within
the meaning of Rule 434 under the Act) to which the Representatives shall
reasonably object by notice to the Company after having been furnished with
a copy a reasonable time prior to the filing.
(b) The Company will advise the Representatives promptly of (i) any
request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, (ii)
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus,
(iii) the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, or (iv) the institution or threatening of any
proceedings for that purpose, and the Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the
use of the Prospectus or suspending such qualification and to obtain as
soon as possible the lifting thereof, if issued.
(c) The Company will endeavor to qualify the Shares for sale under
the securities laws of such jurisdictions as the Representatives may
reasonably have designated in writing and will, or will cause counsel for
the Company to, make such applications, file such documents, and furnish
such information as may be reasonably requested by the Representatives,
provided
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that the Company shall not be required to qualify as a foreign corporation
or to file a general consent to service of process in any jurisdiction
where it is not now so qualified or required to file such a consent. The
Company will, from time to time, prepare and file such statements, reports
and other documents as are or may be required to continue such
qualifications in effect for so long a period as the Representatives may
reasonably request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many copies of
any Preliminary Prospectus as the Representatives may reasonably request
and, during the period when delivery of a prospectus is required under the
Act, the Company will furnish the Underwriters with as many copies of the
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may, from time to time, reasonably request. The Company
will deliver to the Representatives, at or before the First Closing Date,
three signed copies of the Registration Statement and all amendments
thereto including all exhibits filed therewith, and will deliver to the
Representatives such number of copies of the Registration Statement,
without exhibits, and of all amendments thereto, as the Representatives may
reasonably request.
(e) If, during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, any event shall occur as a result
of which the Prospectus as then amended or supplemented would include an
untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a
purchaser, not misleading, or if for any other reason it shall be necessary
at any time to amend or supplement the Prospectus to comply with any law,
the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein in light of
the circumstances in which they are made, when it is so delivered, not
misleading, or so that the Prospectus will comply with law. In case any
Underwriter is required to deliver a prospectus in connection with sales of
any Shares at any time nine months or more after the effective date of the
Registration Statement, upon the request of the Representatives but at the
expense of such Underwriter, the Company will prepare and deliver to such
Underwriter as many copies as the Representatives may request of an amended
or supplemented Prospectus complying with Section 10(a)(3) of the Act.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later
than 16 months after the effective date of the Registration Statement, an
earnings
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statement (which need not be audited) in reasonable detail, covering a
period of at least 12 consecutive months beginning after the effective date
of the Registration Statement, which earnings statement shall satisfy the
requirements of Section 11(a) of the Act and Rule 158 thereunder and will
advise you in writing when such statement has been so made available.
(g) The Company will, for a period of five years after the First
Closing Date, deliver to the Representatives copies of its annual report
and copies of all other documents, reports and information furnished by the
Company to its security holders or filed with any securities exchange
pursuant to the requirements of such exchange or with the Commission
pursuant to the Act or the Exchange Act.
(h) No offering, sale or other disposition of any Common Stock or
other capital stock of the Company, or warrants, options, convertible
securities or other rights to acquire such Common Stock or other capital
stock (other than pursuant to employee stock option plans, outstanding
options or on the conversion of convertible securities outstanding on the
date of this Agreement) will be made for a period of 180 days after the
date of this Agreement, directly or indirectly, by the Company otherwise
than hereunder or with the prior written consent of the Representatives.
(i) The Company will apply the net proceeds from the sale of the
Shares to be sold by it hereunder substantially in accordance with the
purposes set forth under "Use of Proceeds" in the Prospectus and will file
such reports with the Commission with respect to the sale of the Shares and
the application of the proceeds therefrom as may be required in accordance
with Rule 463 under the Act.
(j) The Company will use its best efforts to maintain the designation
of the Common Stock on the Nasdaq National Market.
(k) Subject to the provisions set forth below, the Company shall be
responsible for and pay all costs and expenses incident to the performance
of its obligations under this Agreement including, without limiting the
generality of the foregoing, (i) all costs and expenses in connection with
the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits), Preliminary Prospectuses,
the Prospectus and any amendments thereof or supplements to any of the
foregoing; (ii) all costs and expenses in connection with the issuance and
delivery of the Shares, including taxes, if any; (iii) the cost of all
certificates representing the Shares; (iv) the fees and expenses of the
Transfer Agent for the Shares; (v) the fees and disbursements of counsel
for the Company; (vi) all fees and other charges of the independent public
accountants of the Company; (vii) the cost of furnishing and delivering to
the Underwriters and dealers participating in the offering copies of the
Registration Statement (including appropriate
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exhibits), Preliminary Prospectuses, the Prospectus and any amendments of,
or supplements to, any of the foregoing; (viii) the NASD filing fee; and
(ix) all accountable fees and expenses of counsel for the Company and
counsel for the Representatives incurred in qualifying the Shares for sale
under the laws of such jurisdictions upon which the Representatives and the
Company may agree (including filing fees).
(l) The Company will not take, directly or indirectly, any action
designed to or which might reasonably be expected to cause or result in, or
which has constituted, the stabilization or manipulation of the price of
any security of the Company to facilitate the sale or resale of the Shares,
and will not effect any sales of any security of the Company which are
required to be disclosed in response to Item 701 of Regulation S-X of the
Commission which have not been so disclosed in the Registration Statement.
4. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The respective obligations of the Underwriters to purchase and pay for
the Shares as provided herein shall be subject to the accuracy of the
representations and warranties of the Company, in the case of the Firm Shares as
of the date hereof and the First Closing Date (as if made on and as of the First
Closing Date), and in the case of the Option Shares, as of the date hereof and
the Second Closing Date (as if made on and as of the Second Closing Date), to
the performance by the Company (in the case of the First Closing Date) of its
obligations hereunder, and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Shares
and on or before the Second Closing Date in the case of the Option Shares:
(a) All filings required by Rules 424, 430A and 434 under the Act
shall have been timely made; no stop order suspending the effectiveness of
the Registration Statement, as amended from time to time, or any part
thereof shall have been issued and no proceedings for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to the reasonable satisfaction of the Representatives.
(b) The Representatives shall have received the opinion of Faegre &
Benson LLP, counsel for the Company, dated as of the First Closing Date or
the Second Closing Date, as the case may be, addressed to the Underwriters
and satisfactory in form and substance to the Representatives and their
counsel, substantially to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Minnesota, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
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Statement and the Prospectus. The Company is duly qualified and in
good standing as a foreign corporation in each jurisdiction where the
conduct of its business makes such qualification necessary and the
failure to so qualify would have a material adverse effect on the
business, properties, condition (financial or otherwise), results of
operations, shareholders' equity or prospects of the Company.
(ii) The Company has authorized and outstanding capital stock
as described in the Prospectus. The outstanding shares of the
Company's capital stock have been duly authorized and validly issued
and are fully paid and nonassessable. The Shares to be issued and sold
by the Company pursuant to this Agreement have been duly authorized
and, when issued and paid for as contemplated herein, will be validly
issued, fully paid and nonassessable. No preemptive rights pursuant
to corporate law or, to the knowledge of such counsel, other
preemptive or similar subscription rights of shareholders of the
Company, or of holders of warrants, options, convertible securities or
other rights to acquire shares of capital stock of the Company, exist
with respect to any of the Shares or the issue and sale thereof. To
the knowledge of such counsel, no rights to register outstanding
shares of the Company's capital stock, or shares issuable upon the
exercise of outstanding warrants, options, convertible securities or
other rights to acquire shares of such capital stock, exist which have
not been validly exercised or waived with respect to the Registration
Statement. The capital stock of the Company, including the Shares,
conforms in all material respects to the description thereof contained
in the Prospectus.
(iii) The Registration Statement has become effective under the
Act and, to the knowledge of such counsel, no stop order or
proceedings with respect thereto have been instituted or are pending
or threatened by the Commission.
(iv) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the Act and the rules and
regulations thereunder (except that such counsel need express no
opinion as to the financial statements or related schedules included
therein).
(v) To such counsel's knowledge, there are no statutes,
regulations or legal or governmental proceedings required to be
described in the Prospectus that are not described as required and no
franchises, leases, contracts, agreements or documents of a character
required to be disclosed in the Registration Statement or Prospectus
or to be filed as exhibits to the Registration Statement which are not
disclosed or filed, as required.
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<PAGE>
(vi) The statements (A) in the Prospectus under the caption
"Description of Securities" and (B) in the Registration Statement in
Item 14, insofar as such statements constitute a summary of matters of
law, are accurate summaries and fairly present the information called
for with respect to such matters.
(vii) The execution, delivery and performance of this Agreement
and the consummation of the transactions herein contemplated do not
and will not conflict with or result in a violation of or default
under the Amended Articles of Incorporation or Bylaws of the Company,
or (assuming compliance with all applicable state securities and blue
sky laws) under any statute, rule or regulation of the United States
or the State of Minnesota applicable to the Company or any permit,
order, judgment or decree known to such counsel, or any indenture,
mortgage, loan agreement or other material agreement, instrument or
obligation known to such counsel to which the Company is a party or by
which it or its material properties are bound.
(viii) The Company has the corporate power and authority to enter
into this Agreement and to authorize, issue and sell the Shares as
contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(ix) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or
other governmental body is necessary in connection with the execution,
delivery and performance of this Agreement and the consummation of the
transactions herein contemplated (other than as may be required by
state securities and blue sky laws, as to which such counsel need
express no opinion) except such as have been obtained or made,
specifying the same.
(x) To such counsel's knowledge, there are no material legal
or governmental proceedings, pending or threatened, before any court
or administrative body or regulatory agency to which the Company is a
party or to which any of the properties of the Company is subject.
(xi) The form of certificate for the Shares is in due and
proper form and complies with all applicable statutory requirements.
In rendering the opinions described above, counsel for the Company may
rely, as to matters of fact with respect to the Company, upon
representations of the Company contained in this Agreement and certificates
of officers of the Company provided that copies of such certificates are
delivered to the Representatives.
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In addition to the matters set forth above, each such opinion shall
also include a statement to the effect that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any of the statements
contained in the Registration Statement or Prospectus and such counsel
makes no representation that it has independently verified the accuracy,
completeness or fairness of such statements, in connection with such
counsel's representation and inquiry of the Company in the preparation of
the Registration Statement and Prospectus, nothing came to the attention of
such counsel which caused it to conclude that, as of the time the
Registration Statement became effective and as of the First Closing Date or
the Second Closing Date, as the case may be, the Registration Statement or
any further amendment thereto (other than the financial statements and
related schedules included therein, as to which such counsel need express
no opinion) contained or contains an untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as of the
date of the Prospectus or any amendment or supplement thereto and as of the
First Closing Date or the Second Closing Date, as the case may be, the
Prospectus or any amendment or supplement thereto (other than the financial
statements and related schedules included therein, as to which such counsel
need express no opinion) contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary to
make the statements therein, in light of the circumstances in which they
were made, not misleading.
(c) The Representatives shall have received on the First Closing Date
or the Second Closing Date, as the case may be, the opinion of Faegre &
Benson LLP, special intellectual property counsel for the Company, dated
the First Closing Date or the Second Closing Date, as the case may be,
addressed to the Underwriters, and satisfactory in form and substance to
the Representatives and their counsel, substantially to the effect that:
(i) To the best of such counsel's knowledge, the statements in
the Registration Statement and the Prospectus under the caption
"Intellectual Property Rights" are accurate and complete statements or
summaries of the matters therein set forth.
(ii) To the best of such counsel's knowledge, the Company owns
or is licensed to use all Proprietary Rights.
(iii) To the best of such counsel's knowledge, there are no
pending legal proceedings relating to the Proprietary Rights, and no
such proceedings are threatened or contemplated.
(iv) To the best of such counsel's knowledge after due inquiry,
the Company is not infringing or otherwise violating, and the conduct
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of the business of the Company as intended to be conducted as
described in the Prospectus will not infringe or otherwise violate,
any patents, trade secrets, trademarks, service marks, copyrights or
other proprietary information or know-how of any persons, and no
person is infringing or otherwise violating any of the Proprietary
Rights in a way which could materially affect the ownership or use
thereof by the Company.
(v) Nothing has come to the attention of such counsel that
causes such counsel to believe that the discussion of the Proprietary
Rights set forth in (A) the Registration Statement or any amendment
thereof, at the time the Registration Statement became effective and
as of the First Closing Date or the Second Closing Date, as the case
may be, contained or contains any untrue statement of a material fact
or omitted or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or
(B) the Prospectus as amended or supplemented, as of the date of the
Prospectus or any such amendment of supplement and as of the First
Closing Date or the Second Closing Date, as the case may be, contained
or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(d) The Representatives shall have received on the First Closing Date
or the Second Closing Date, as the case may be, the opinion of Merchant &
Gould, P.A., special intellectual property counsel for the Company, dated
the First Closing Date or the Second Closing Date, as the case may be,
addressed to the Underwriters, and satisfactory in form and substance to
the Representatives and their counsel, substantially to the effect that:
(i) To the best of such counsel's knowledge, the statements in
the Registration Statement and the Prospectus under the caption
"Business-Intellectual Property Rights" are accurate and complete
statements or summaries of the matters therein set forth.
(ii) To the best of such counsel's knowledge, the Company owns
or is licensed to use all Proprietary Rights.
(iii) To the best of such counsel's knowledge, there are no
pending legal proceedings relating to the Proprietary Rights, and no
such proceedings are threatened or contemplated.
(iv) To the best of such counsel's knowledge after due inquiry,
the Company is not infringing or otherwise violating, and the conduct
of the business of the Company as intended to be conducted as
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<PAGE>
described in the Prospectus will not infringe or otherwise violate,
any patents, trade secrets, trademarks, service marks, copyrights or
other proprietary information or know-how of any persons, and no
person is infringing or otherwise violating any of the Proprietary
Rights in a way which could materially affect the ownership or use
thereof by the Company.
(v) Nothing has come to the attention of such counsel that
causes such counsel to believe that the discussion of the Proprietary
Rights set forth in (A) the Registration Statement or any amendment
thereof, at the time the Registration Statement became effective and
as of the First Closing Date or the Second Closing Date, as the case
may be, contained or contains any untrue statement of a material fact
or omitted or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or
(B) the Prospectus as amended or supplemented, as of the date of the
Prospectus or any such amendment of supplement and as of the First
Closing Date or the Second Closing Date, as the case may be, contained
or contains any untrue statement of a material fact or omitted or
omits to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(e) The Representatives shall have received from Dorsey & Whitney
LLP, counsel for the Underwriters, an opinion dated the First Closing Date
or the Second Closing Date, as the case may be, with respect to such
matters as the Representatives may reasonably request, and such counsel
shall have received such documents and information as they may reasonably
request to enable them to pass upon such matters.
(f) The Representatives shall have received on each of the date
hereof, the First Closing Date and the Second Closing Date, as the case may
be, a signed letter, dated as of the date hereof, the First Closing Date or
the Second Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, from Arthur Andersen LLP, to the
effect that they are independent public accountants with respect to the
Company within the meaning of the Act and the related rules and
regulations, stating that in their opinion the financial statements and
schedules examined by them and included in the Registration Statement
comply in form in all material respects with the applicable accounting
requirements of the Act and the related rules and regulations, and
containing such other statements and information of the type ordinarily
included in accountants' "comfort letters" to underwriters with respect to
the financial statements and certain financial information contained in the
Registration Statement and the Prospectus.
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(g) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
contemplated or referred to in the Prospectus, the Company shall not have
incurred any direct or contingent liabilities or obligations material to
the Company, or entered into any material transactions, except liabilities,
obligations or transactions in the ordinary course of business, or declared
or paid any dividends or made any distribution of any kind with respect to
its capital stock; and there shall not have been any change in the capital
stock (other than a change in the number of outstanding shares of Common
Stock due to the exercise of options or warrants described in the
Registration Statement and the Prospectus), or any change in the short-term
debt or long-term debt (including capitalized lease obligations) of the
Company, or any issuance of options, warrants, convertible securities or
other rights to purchase the capital stock of the Company or any change or
any development involving a prospective change in or affecting the general
affairs, management, financial position, shareholders' equity or results of
operations of the Company, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in the judgment of the Representatives
makes it impracticable or inadvisable to proceed with the public offering
or the delivery of the Shares being delivered on the terms and in the
manner contemplated in the Prospectus.
(h) The Representatives shall have received a written agreement from
each of the officers and directors of the Company (other than Daniel Hanlon
and David Hanlon), that no offer, sale, contract to sell, or other
disposition of any Common Stock of the Company will be made for a period of
180 days after the First Closing Date, directly or indirectly, by such
holder otherwise than with the prior written consent of Kinnard.
(i) The Representatives shall have received a written agreement from
each of Daniel Hanlon and David Hanlon that no offer, sale, contract to
sell, or other disposition of any Common Stock of the Company will be made
for a period of 365 days after the First Closing Date, directly or
indirectly, by such individual otherwise than with the prior written
consent of Kinnard, except that each such individual may sell,
offer, pledge or otherwise dispose of up to 50,000 shares of Common Stock
following the date 180 days after the First Closing Date without any prior
consent from Kinnard.
(j) The Representatives shall have received from the Secretary of the
Company a certificate of incumbency, dated as of the First Closing Date or
Second Closing Date, as the case may be, certifying the names, titles and
signatures of the officers authorized to execute, deliver and perform this
Agreement. Attached to such certificate shall be a copy of the Bylaws of
the Company and the resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement.
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Such certificate shall also certify that such resolutions, the Restated
Articles of Incorporation of the Company and the Bylaws of the Company have
been validly adopted and have not been amended or modified, except as
described in the Prospectus.
(k) The Representatives shall have received from the Company a
certificate, dated as of the First Closing Date or Second Closing Date, as
the case may be, of the chief executive officer, the chief operating
officer and the chief financial officer of the Company to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of each Closing
Date. The Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at, or
prior to, such date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceeding for that
purpose has been instituted or is pending or, to the knowledge of such
officers, is contemplated under the Act.
(iii) Neither the Registration Statement nor the Prospectus nor
any amendment thereof or supplement thereto included any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented prospectus which has not been so set forth;
provided, however, that such certificate does not require any
representation concerning statements in, or omissions from, the
Registration Statement or Prospectus or any amendment thereof or
supplement thereto, which are based solely upon and conform to written
information furnished to the Company by any of the Underwriters
specifically for use in the preparation of the Registration Statement
or the Prospectus or any such amendment or supplement.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as contemplated or referred to in the Prospectus, the Company has not
incurred any direct or contingent liabilities or obligations material
to the Company, or entered into any material transactions, except
liabilities, obligations or transactions in the ordinary course of
business, or declared or paid any dividend or made any distribution of
any kind with respect to its capital stock, and there has not been any
change in the capital stock (other than a change in the number of
outstanding
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shares of Common Stock due to the exercise of options or warrants
described in the Registration Statement and the Prospectus), short-
term debt, or long-term debt (including capitalized lease obligations)
of the Company, or any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of the
Company or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in the
ordinary course of business) in or affecting the general affairs,
condition (financial or otherwise), business, key personnel, property,
prospects, net worth or results of operations of the Company.
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company
has not sustained any material loss of, or damage to, its business or
properties, whether or not covered by insurance.
(vi) Except as is otherwise expressly stated in the Registration
Statement and Prospectus there are no material actions, suits or
proceedings pending before any court or governmental agency, authority
or body, or, to such officers' knowledge, threatened, to which the
Company is a party or of which the business or property of the Company
is the subject.
(l) The Shares shall have been approved for listing on the Nasdaq
National Market.
(m) The Company shall have furnished to the Underwriters, dated as of
the date of each closing date, such further certificates and documents as
the Representatives shall have reasonably required.
(n) All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Representatives and their legal counsel. All statements
contained in any certificate, letter or other document delivered pursuant
hereto by, or on behalf of, the Company shall be deemed to constitute
representations and warranties of the Company.
(o) The Representatives may waive in writing the performance of any
one or more of the conditions specified in this Section 4 or extend the
time for their performance.
5. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Act against any losses, claims, damages or
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liabilities, joint or several, to which such Underwriter or each such
controlling person may become subject, under the Act, the Exchange Act, the
common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of, or are based
upon: (i) any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or any amendment thereof, or
the omission or alleged omission to state in the Registration Statement or
any amendment thereof a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto, or the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any application or other statement executed by
the Company or based upon written information furnished by the Company and
filed in any jurisdiction in order to qualify the Shares under, or exempt
the Shares or the sale thereof from qualification under, the securities
laws of such jurisdiction, or the omission or alleged omission to state in
such application or statement a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; and will reimburse each
Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by such Underwriter or controlling person
(subject to the limitations of Section 5(c) below) in connection with
investigating or defending against any such loss, claim, damage, liability
or action; provided, however, that the Company will not be liable in any
such case 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, omission or alleged omission, made in reliance upon and in
conformity with information furnished to the Company by, or on behalf of,
any Underwriter in writing specifically for use in the preparation of the
Registration Statement or any such post effective amendment thereof, any
such Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto. This indemnity agreement is in addition to any
liability that the Company may otherwise have.
(b) Each Underwriter severally, but not jointly, agrees to indemnify
and hold harmless the Company, each of the Company's directors, each of the
Company's officers who has signed the Registration Statement, and each
person who controls the Company within the meaning of Section 15 of the
Act against any losses, claims, damages or liabilities, joint or several,
to which the Company or any such director, officer, or controlling person
may become subject, under the Act, the Exchange Act, the common law or
otherwise, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of, or are based upon: (i) any untrue
statement or alleged
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untrue statement of a material fact contained in the Registration Statement
or any amendment thereof, or the omission or alleged omission to state in
the Registration Statement or any amendment thereof, a material fact
required to be stated therein or necessary to make the statements therein
not misleading; (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading; or (iii) any untrue statement or
alleged untrue statement of a material fact contained in any application or
other statement executed by the Company or by any Underwriter or based upon
written information furnished by the Company or the Underwriters and filed
in any jurisdiction in order to qualify the Shares under, or exempt the
Shares or the sale thereof from qualification under, the securities laws of
such jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; in each of the above cases to
the extent, but only the extent, that such untrue statement, alleged untrue
statement, omission or alleged omission, was made in reliance upon and in
conformity with information furnished to the Company by, or on behalf of,
any Underwriter in writing specifically for use in the preparation of the
Registration Statement or any such post-effective amendment thereof, any
such Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other statement executed by
the Company or by any Underwriter and filed in any jurisdiction; and each
Underwriter will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, or controlling person in
connection with investigating or defending against any such loss, claim,
damage, liability or action. This indemnity agreement is in addition to
any liability which the Underwriters may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
5 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party
under this Section 5, notify in writing the indemnifying party of the
commencement thereof. The omission to so notify the indemnifying party
will not relieve it from any liability under this Section 5 as to the
particular item for which indemnification is then being sought, unless such
omission so to notify prejudices the indemnifying party's ability to defend
such action. In case any such action is brought against any indemnified
party and the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof
with counsel who shall be
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reasonably satisfactory to such indemnified party; and after notice from
the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party will not be liable to
such indemnified party under this Section 5 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, that if, in the reasonable judgment of the indemnified party or
parties, it is advisable for such party or parties and any controlling
persons to be represented by separate counsel, any indemnified party shall
have the right to employ separate counsel to represent it and other parties
and their controlling persons who may be subject to liability arising out
of any claim in respect of which indemnity may be sought by any party
hereunder, in which event the fees and expenses of such separate counsel
shall be borne by the indemnifying party. In such event, the indemnifying
party will not be obligated to pay the fees and expenses of more than one
counsel for the indemnified parties with respect to such claim. Any such
indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the prior
written consent of such indemnifying party.
6. CONTRIBUTION.
(a) If the indemnification provided for in Section 5 is unavailable
under applicable law to any indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, and
the Underwriters from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the parties
in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The Company and the Underwriters agree that
contribution determined by per capita allocation (even if the Underwriters
were considered a single person) would not be equitable. The respective
relative benefits received by the Company and the Underwriters shall be
deemed to be in the same proportion as the total net proceeds from the
offering of the Shares (before deducting expenses) received by the Company
bears to the total underwriting discount received by the Underwriters, in
each case as set forth in the Prospectus. The relative fault of the
parties shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the parties and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The amount
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paid or payable by a party as a result of the losses, claims, damages and
liabilities referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such party in connection with
investigating or defending any action or claim. Notwithstanding the
provisions of this Section 6, no Underwriter shall be required to
contribute any amount in excess of the amount by which the total price at
which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any untrue or
alleged untrue statement or omission or alleged omission in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto. The Underwriters' obligation to
contribute pursuant to this Section 6 are several and not joint in
proportion to their respective Underwriting Obligations. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section 6, each
person who controls an Underwriter within the meaning of the Act or the
Exchange Act shall have the same rights to contribution as such
Underwriter, each person who controls the Company within the meaning of the
Act or the Exchange Act shall have the same rights to contribution as the
Company and each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company.
(b) Promptly after receipt by a party to this Agreement of notice of
the commencement of any action, suit, or proceeding, such person will, if a
claim for contribution in respect thereof is to be made against another
party (the "Contributing Party"), notify the Contributing Party of the
commencement thereof, but the omission so to notify the Contributing Party
will not relieve the Contributing Party from any liability which it may
have to any party other than under this Section 6, unless such omission so
to notify prejudices the Contributing Party's ability to defend such
action. Any notice given pursuant to Section 5 hereof shall be deemed to
be like notice hereunder. In case any such action, suit or proceeding is
brought against any party, and such person notifies a Contributing Party of
the commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing
Party similarly notified.
7. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective the later of (i) the date
and time that this Agreement is executed and delivered by the parties
hereto and (ii) at 10:00 a.m. Minneapolis time, on the first full business
day following the Effective Date, or at such earlier time after the
Effective Date as the Representatives in their discretion shall first
release the Shares for offering to the public. For purposes of this
Section 7, the Shares shall be deemed to have
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<PAGE>
been released to the public upon release by the Representatives of the
publication of a newspaper advertisement relating to the Shares or upon
release of a telegram or a letter offering the Shares for sale to
securities dealers, whichever shall first occur.
(b) The Representatives shall have the right to terminate this
Agreement by giving notice to the Company as hereinafter specified at any
time prior to the First Closing Date, and the option referred to in Section
2(b), if exercised, may be canceled at any time by the Representatives by
giving such notice to the Company at any time prior to the Second Closing
Date, if (i) the Company shall have failed, refused or been unable, at or
prior to the First Closing Date, to perform any material agreement on its
part to be performed hereunder; (ii) any other condition of the
Underwriters' obligations hereunder is not fulfilled; (iii) trading in
securities generally on the New York Stock Exchange, American Stock
Exchange or the Nasdaq Stock Market shall have been suspended, or minimum
or maximum prices for trading shall have been required or established by
the Commission or by any such exchange or the Nasdaq Stock Market; (iv) a
banking moratorium shall have been declared by federal, New York or
Minnesota authorities; (v) there shall have been such a material adverse
change in general economic, monetary, political or financial conditions, or
the effect of international conditions on the financial markets in the
United States shall be such as, in the judgment of the Representatives,
makes it impracticable or inadvisable to proceed with the completion of the
sale of and payment for the Shares; (vi) there shall have been the
enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority, which in the judgment of the Representatives materially and
adversely affects or will materially and adversely affect the business or
operations of the Company; or (vii) there shall be an outbreak of major
hostilities (or an escalation thereof) in which the United States is
involved or a formal declaration of war by the United States of America
shall have occurred or any other substantial national or international
calamity or any other event or occurrence of a similar character shall have
occurred since the execution of this Agreement that, in the judgment of the
Representatives, makes it impracticable or inadvisable to proceed with the
completion of the sale of and payment for the Shares. Any such termination
shall be without liability of any party to any other party, except as
provided in Sections 5 and 6 hereof; provided, however, that the Company
shall remain obligated to pay costs and expenses to the extent provided in
Section 3(k) hereof.
(c) If the Representatives elect to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 7, they shall notify the Company by telegram or telephone,
confirmed by letter sent to the address specified in Section 10 hereof. If
the Company shall elect to prevent this Agreement from becoming effective,
it shall notify the
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<PAGE>
Representatives promptly by telegram or telephone, confirmed by letter sent
to the address specified in Section 10 hereof.
(d) If the Company shall fail at the First Closing Date to sell and
deliver the number of Shares which it is obligated to sell hereunder, then
this Agreement shall terminate without any liability on the part of any
Underwriter. No action taken pursuant to this Section 7(d) shall relieve
the Company from liability, if any, in respect of such default.
8. DEFAULT OF UNDERWRITER.
If on the First Closing Date or the Second Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), you, as
Representatives of the Underwriters, shall use your best efforts to procure
within 36 hours thereafter one or more of the other Underwriters, or any others,
to purchase from the Company such amounts as may be agreed upon, and upon the
terms set forth herein, of the Firm Shares or Option Shares, as the case may be,
which the defaulting Underwriter or Underwriters failed to purchase. If during
such 36 hours you, as Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or Option Shares, as
the case may be, agreed to be purchased by the defaulting Underwriter or
Underwriters, then (A) if the aggregate number of Shares with respect to which
such default shall occur does not exceed 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase or (B) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except for expenses to be borne by the Company,
and the Underwriters as provided in Section 3(k) hereof and the indemnity and
contribution agreements in Sections 5 and 6 hereof. In the event of a default
by any Underwriter or Underwriters, as set forth in this Section 8, the First
Closing Date or Second Closing Date, as the case may be, may be postponed for
such period, not exceeding seven days, as you, as Representatives, may determine
in order that the required changes, not including a reduction in the number of
Firm Shares, in the Registration Statement or in the Prospectus or in any other
documents or arrangements may be effected. The term "Underwriter" includes any
person substituted for a defaulting Underwriter. Any action taken under this
Section 8
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<PAGE>
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
9. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS.
The respective indemnity and contribution agreements of the Company
and the Underwriters contained in Sections 5 and 6, respectively, the
representations and warranties of the Company set forth in Section 1 hereof, and
the covenants of the Company set forth in Section 3 hereof, respectively, shall
remain operative and in full force and effect, regardless of any investigation
made by, or on behalf of, the Underwriters, the Company, any of its officers and
directors, or any controlling person referred to in Sections 5 and 6, and shall
survive the delivery of and payment for the Shares. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement. Any successor of any party or of any such controlling person,
or any legal representatives of such controlling person, as the case may be,
shall be entitled to the benefit of the respective indemnity and contribution
agreements.
10. NOTICES.
All notices or communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to the Representatives
or any of the Underwriters, shall be mailed, delivered, or telecopied and
confirmed, to John G. Kinnard and Company, Incorporated, 920 Second Avenue
South, Minneapolis, Minnesota 55402, Attention: Jerry Johnson, with a copy to
Jonathan B. Abram, Esq., Dorsey & Whitney LLP, 220 South Sixth Street,
Minneapolis, Minnesota 55402; if sent to the Company, shall be mailed,
delivered, or telecopied, and confirmed, to Excelsior-Henderson Motorcycle
Manufacturing Company, 607 West Travelers Trail, Burnsville, Minnesota 55337,
Attention: Daniel Hanlon, with a copy to Gale R. Mellum, Esq., Faegre & Benson
LLP, 2200 Norwest Center, 90 South Seventh Street, Minneapolis, Minnesota 55402.
11. INFORMATION FURNISHED BY THE UNDERWRITER.
The statements relating to the stabilization activities of the
Underwriters and the statements in paragraphs three and eight under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitute
the only information furnished by, or on behalf of, the Underwriters in writing
specifically for use in the preparation of the Registration Statement or any
post-effective amendment thereof, any Preliminary Prospectus or the Prospectus
or any amendment thereof or supplement thereto, or in any application or other
statement executed by the Company or by any Underwriter and filed in any
jurisdiction as referred to in Section 5 hereof.
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<PAGE>
12. PARTIES.
This Agreement shall inure to the benefit of and be binding upon the
Underwriters and the Company, their respective successors and assigns and the
officers, directors and controlling persons referred to in Sections 5 and 6.
Nothing expressed in this Agreement is intended or shall be construed to give
any person or corporation, other than the parties hereto, their respective
successors and assigns and the controlling persons, officers and directors
referred to in Sections 5 and 6 any legal or equitable right, remedy or claim
under, or in respect of, this Agreement or any provision herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of the parties hereto and their
respective executors, administrators, successors, assigns and such controlling
persons, officers and directors, and for the benefit of no other person or
corporation. No purchaser of any Shares from the Underwriters shall be
construed a successor or assign merely by reason of such purchase.
13. GOVERNING LAW.
This Agreement shall be construed and enforced in accordance with the
laws of the State of Minnesota without regard to its conflict of law provisions.
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<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed counterpart of this
Agreement, whereupon it will become a binding agreement between the Company and
each of the Underwriters in accordance with its terms.
Very truly yours,
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
--------------------------
Daniel L. Hanlon
Co-Founder and Co-Chief
Executive Officer
--------------------------
David P. Hanlon
Co-Founder and Co-Chief
Executive Officer
The foregoing Underwriting Agreement
is hereby confirmed and accepted by us
for ourselves and as Representatives of the
Underwriters referred to in the foregoing
Agreement as of the date first above written.
JOHN G. KINNARD AND COMPANY,
INCORPORATED
MILLER, JOHNSON & KUEHN, INCORPORATED
By: John G. Kinnard and Company, Incorporated
- --------------------------
By:
Its:
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<PAGE>
SCHEDULE I
NAME OF UNDERWRITER NUMBER OF FIRM SHARES
- ------------------- ---------------------
John G. Kinnard and Company,
Incorporated
Miller, Johnson & Kuehn,
Incorporated
Total 4,000,000
---------
---------
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<PAGE>
ARTICLES OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
The undersigned, Daniel L. Hanlon, Co-Founder, Co-Chairman of the Board and
Co-Chief Executive Officer of Excelsior-Henderson Motorcycle Manufacturing
Company, a Minnesota corporation, (the "Corporation"), hereby certifies that:
(i) The name of the Corporation is Excelsior-Henderson Motorcycle
Manufacturing Company.
(ii) Article 5 of the Corporation's Restated Articles of Incorporation
has been amended to read in its entirety as follows:
"ARTICLE 5
CAPITAL
The total authorized number of shares of the Corporation is 23,333,332.
The shares are classified into two classes, consisting of 6,666,666 shares of
undesignated Preferred Stock, of the par value of $.01 per share, and 16,666,666
shares of Common Stock, of the par value of $.01 per share.
The Board of Directors is authorized to establish one or more series of
Preferred Stock by resolution adopted and filed in the manner provided by law,
setting forth the designation of each such series, and fixing the relative
rights and preferences of each such series, including, but not limited to,
fixing the relative voting rights, if any, of each such series of Preferred
Stock to the full extent permitted by law."
(iii) The foregoing amendment has been adopted pursuant to Chapter 302A
of the Minnesota Statutes.
IN WITNESS WHEREOF, I have subscribed my name this 21st day of May, 1997.
/s/ Daniel L. Hanlon
------------------------------------------------
Daniel L. Hanlon, Co-Founder Co-Chairman of the
Board and Co-Chief Executive Officer
<PAGE>
RESTATED
ARTICLES OF INCORPORATION
OF
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
I, the undersigned, Daniel L. Hanlon, the President of
Excelsior-Henderson Motorcycle Manufacturing Company, a Minnesota corporation,
do hereby certify that the following Restated Articles of Incorporation
correctly set forth without change the corresponding provisions of the Articles
of Incorporation as previously amended and were adopted pursuant to Chapter 302A
of the Minnesota Statutes on March 18, 1996 to read in their entirety as
follows:
ARTICLE 1
NAME
The name of the Corporation is Excelsior-Henderson Motorcycle Manufacturing
Company.
ARTICLE 2
REGISTERED OFFICE
The location and post office address of the registered office of the
Corporation shall be 607 West Travelers Trail, Burnsville, Minnesota 55337. The
registered office may be changed in the manner provided by law
ARTICLE 3
DURATION
The duration of the Corporation shall be perpetual.
ARTICLE 4
PURPOSES AND POWERS
4.1 PURPOSES. The Corporation shall have general business purposes in
accordance with the laws of the State of Minnesota.
4.2 POWERS. The Corporation shall have and may exercise all the powers granted
or available under the laws of the State of Minnesota and laws amendatory
thereof and supplementary thereto, including all powers necessary or
convenient to effect any or all of the business purposes for which the
Corporation is incorporated.
<PAGE>
ARTICLE 5
CAPITAL
The total authorized number of shares of the Corporation is 35,000,000.
The shares are classified into two classes, consisting of 10,000,000 shares of
undesignated Preferred Stock, of the par value of $.01 per share, and 25,000,000
shares of Common Stock, of the par value of $.01 per share.
The Board of Directors is authorized to establish one or more series of
Preferred Stock by resolution adopted and filed in the manner provided by law,
setting forth the designation of each such series, and fixing the relative
rights and preferences of each such series, including, but not limited to,
fixing the relative voting rights, if any, of each such series of Preferred
Stock to the full extent permitted by law.
ARTICLE 6
SHAREHOLDER ACTION
6.1 MAJORITY VOTE. The shareholders shall take action by the affirmative vote
of the holders of the greater of (1) a majority of the voting power of the
shares present and entitled to vote on that item of business, or (2) a
majority of the voting power of the minimum number of shares entitled to
vote that would constitute a quorum for the transaction of business at the
meeting, except where the Articles of Incorporation or By-Laws of the
Corporation, or the laws of the State of Minnesota, require a larger
proportion or number.
6.2 ACTION WITHOUT MEETING. An action required or permitted to be taken at a
meeting of the shareholders may be taken without a meeting by written
action signed by all shareholders entitled to vote.
6.3 NO CUMULATIVE VOTING. There shall be no cumulative voting for directors.
6.4 NO PRE-EMPTIVE RIGHTS. There shall be no pre-emptive rights regarding the
issuance of shares of the Corporation.
ARTICLE 7
BOARD ACTION
7.1 MAJORITY VOTE. The Board of Directors shall take action by the affirmative
vote of a majority of directors present at a duly held meeting, except
where the Articles of Incorporation or By-Laws of the Corporation, or the
laws of the State of Minnesota, require a larger proportion or number.
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<PAGE>
ARTICLE 8
DIRECTOR LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty by such director as a director; provided, however, that this Article 8
shall not eliminate or limit the liability of a director to the extent provided
by applicable law (i) for any breach of the director's duty of loyalty to the
Corporation or its shareholders, (ii) for acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 302A.599 or 80A.23 of Minnesota Statutes, or (iv) for any transaction
from which the director derived an improper personal benefit. If the Minnesota
Business Corporation Act is hereafter amended to authorize the further
elimination or limitation of the liability of directors, then the liability of
directors of the Corporation, in addition to the limitation on personal
liability provided herein, shall be limited to the fullest extent permitted by
the amended Minnesota Business Corporation Act. Any repeal or modification of
this Article 8 by the shareholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of
directors of the Corporation existing at the time of such repeal or
modification.
ARTICLE 9
AMENDMENTS
9.1 ARTICLES OF INCORPORATION. After the issuance of shares by the
Corporation, the Articles of Incorporation may be amended when the proposed
amendment is approved by the affirmative vote of the holders of the greater
of (1) a majority of the voting power of the shares present and entitled to
vote on that item of business, or (2) a majority of the voting power of the
minimum number of the shares entitled to vote that would constitute a
quorum for the transaction of business at the meeting, except that if the
proposed amendment would require a larger majority, or if it would reduce
an applicable larger majority, for approving shareholder action, the
amendment must
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<PAGE>
receive the larger of the majority required for passage prior to, or which
would be required after, the enactment of the proposed amendment.
9.2 BY-LAWS. The Board of Directors shall have the power and authority to
adopt, amend, or repeal By-Laws of the Corporation, subject to the power of
the shareholders to adopt, amend, or repeal By-Laws; provided, however,
that after the adoption of the initial By-Laws, the Board shall not adopt,
amend, or repeal any By-Laws fixing a quorum for meetings of shareholders,
prescribing procedures for removing directors or filing vacancies in the
Board, or fixing the number of directors or their classifications,
qualifications, or terms of office, but may adopt or amend By-Laws to
increase the number of directors.
IN WITNESS WHEREOF, I have subscribed my name this 29th day of March, 1996.
/s/ Daniel L. Hanlon
-----------------------------
Daniel L. Hanlon
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<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
[LOGO]
AUTHORIZED DEALERSHIP AGREEMENT
<PAGE>
TABLE OF CONTENTS
PAGE
1. APPOINTMENT
1.1 Appointment........................................ 1
1.2 Area of Primary Responsibility..................... 1
1.3 Term and Renewal................................... 1
1.4 Non-Exclusive Territory............................ 2
1.5 Reservation of Product Rights...................... 2
1.6 Approved Location.................................. 2
2. EXCELSIOR-HENDERSON UNDERTAKINGS
2.1 Product and Prices................................. 2
2.2 Shipping of the Products........................... 2
2.3 Sales Literature................................... 3
3. ACCEPTANCE OF ORDERS AND SHIPMENT OF PRODUCTS
3.1 Acceptance......................................... 3
3.2 Inconsistent Terms in an Order..................... 3
3.3 Allocation of Products............................. 3
3.4 Motorcycle Stock Orders............................ 4
3.5 Discharge of Excelsior-Henderson's Obligation...... 4
3.6 Claims for Incomplete Delivery..................... 4
3.7 Return or Diversion on Failure to Accept........... 4
4. PAYMENTS FOR PRODUCTS
4.1 Terms of Payment................................... 4
4.2 Retention of Title................................. 5
4.3 No Setoffs or Deductions........................... 5
5. DEALER'S UNDERTAKINGS
5.1 Sale of Products................................... 5
5.2 Marketing Efforts.................................. 5
5.3 Operating Standards................................ 6
5.4 Signage............................................ 6
5.5 Employees.......................................... 6
5.6 Training........................................... 6
5.7 Condition of Approved Location and Hours of
Operation......................................... 6
5.8 Pre-delivery Inspection............................ 6
5.9 Product Inventory.................................. 7
5.10 Service and Repairs................................ 7
5.11 Tools.............................................. 7
5.12 Spare Parts........................................ 7
5.13 Safety Recalls..................................... 7
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<PAGE>
5.14 Maintenance of Records............................. 7
5.15 Access to Premises and Records..................... 8
5.16 Compliance with Law................................ 8
5.17 Expenses........................................... 8
5.18 Forecast........................................... 8
5.19 Purchaser Registration............................. 8
5.20 Purchaser Manuals and Guides....................... 8
5.21 Product Liability Insurance........................ 8
6. CONFIDENTIAL INFORMATION.................................. 9
7. TRADEMARKS, PATENTS AND COPYRIGHTS
7.1 Ownership.......................................... 9
7.2 Display............................................ 9
7.3 Consent to Use Trademarks.......................... 10
7.4 Enforcement........................................ 10
7.5 Dealer............................................. 10
7.6 Preservation of Markings........................... 10
8. LIMITED PRODUCT WARRANTY
8.1 Limited Customer Warranty.......................... 10
8.2 Customer Warranties................................ 11
8.3 Performance of Warranty Work; Compensation......... 11
8.4 Warranty Procedure................................. 11
9. INDEMNIFICATION........................................... 11
10. INDEPENDENT CONTRACTOR RELATIONSHIP....................... 12
11. FORCE MAJEURE AND AVAILABILITY OF MATERIALS
11.1 Force Majeure...................................... 12
11.2 Availability of Materials.......................... 12
12. TERMINATION OF AGREEMENT
12.1 Termination with Cause............................. 13
12.2 Withdrawal from Market............................. 15
12.3 Survival of Obligations............................ 15
12.4 Repurchase of Products and Related Items........... 15
12.5 No Claim for Compensation.......................... 17
12.6 Further Obligations After Termination.............. 17
13. ENTIRE AGREEMENT; AMENDMENT............................... 17
14. NOTICES................................................... 18
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<PAGE>
15. SEVERABILITY.............................................. 18
16. ASSIGNMENT................................................ 18
17. NO IMPLIED WAIVERS........................................ 19
18. CAPTIONS AND SECTION REFERENCES........................... 19
19. GENDER.................................................... 19
20. GOVERNING LAW............................................. 19
21. ARBITRATION............................................... 19
APPENDIX A .................................................... A-1
APPENDIX B Annual Performance Goals........................... B-1
APPENDIX C Area of Primary Responsibility..................... C-1
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<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
AUTHORIZED DEALERSHIP AGREEMENT
THIS AUTHORIZED DEALERSHIP AGREEMENT ("Agreement") is made and entered into
as of the ___ day of _________, 199__ by and between Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation (hereafter
"Excelsior-Henderson"), and ____________________________________ whose legal
address and business locations are described in detail in Appendix A hereto
(hereinafter "Dealer").
RECITALS
A. Excelsior-Henderson manufactures and sells motorcycles, together
with related parts, accessories and clothing (hereinafter called the
"Products"). A summary description of Excelsior-Henderson's current line of
Products is attached as part of Appendix A hereto. Excelsior-Henderson is
the exclusive owner of all manufacturing, distribution and trademark rights
with respect to the Products.
B. Excelsior-Henderson desires to appoint Dealer as an authorized
non-exclusive dealer for the resale of the Products at Dealer's address
described in Appendix A hereto, or such other location as Excelsior-Henderson
may approve from time to time in accordance with the provisions of this
Agreement (hereinafter called the "Approved Location").
C. Dealer desires to act as an authorized dealer for the Products in
accordance with the terms and conditions of this Agreement and the sales
policies which Excelsior-Henderson may establish from time to time.
AGREEMENT
In consideration of the mutual obligations contained herein and other
consideration, the receipt and sufficiency of which is acknowledged, the
parties agree as follows:
1. APPOINTMENT
1.1 APPOINTMENT. Subject to the terms and conditions of this
Agreement, Excelsior-Henderson hereby appoints Dealer as an authorized dealer
of the Products and grants to Dealer the non-exclusive right to sell the
Products from the Approved Location, and Dealer hereby accepts such
appointment upon the terms and conditions of this Agreement.
1.2 AREA OF PRIMARY RESPONSIBILITY. Excelsior-Henderson and Dealer
agree that Dealer's Area of Primary Responsibility for the sale and service
of the Products shall be the counties described in Appendix C hereto
1.3 TERM AND RENEWAL. The initial term of this Agreement is for a
period of five (5) years from the date of this Agreement. Upon expiration of
the initial term, this Agreement shall
<PAGE>
renew automatically for successive one (1) year terms, unless either party
gives written notice to the other of its intent not to renew at least 90 days
prior to the expiration date of the then current term. Such written notice
not to renew may be given for any cause described in Section 12 and shall
cause this Agreement to terminate effective as of the end of the then current
term. At Excelsior-Henderson's option, Dealer may be required, as a
condition to any renewal, to execute Excelsior-Henderson's then current
standard Dealership Agreement and any related agreements, which shall
supersede this Agreement (except that the term thereof shall be modified if
necessary to be consistent with the terms of this Section 1.3).
1.4 NON-EXCLUSIVE TERRITORY. Dealer acknowledges that Dealer's rights
as an authorized dealer of the Products are non-exclusive and
Excelsior-Henderson retains and reserves to itself all rights with respect to
marketing, distribution and sale of the Products and the Trademarks.
Excelsior-Henderson reserves the right to appoint other authorized dealers
for the Products, either within Dealer's Area of Primary Responsibility or
elsewhere, as Excelsior-Henderson, in its sole discretion, may from time to
time determine in order to implement its marketing plans or as it may deem
desirable to provide Products and service to owners or potential owners of
the Products.
1.5 RESERVATION OF PRODUCT RIGHTS. Excelsior-Henderson reserves the
right to change the composition, design and packaging of any Product at any
time without notice to Dealer, or to discontinue particular Product lines
from time to time as Excelsior-Henderson shall deem necessary or appropriate,
in its sole discretion.
1.6 APPROVED LOCATION. Dealer is authorized to sell the Products only
from the Approved Location. Dealer shall not sell Products from any other
location, or move its place of business for sale of the Products to another
location, without the prior written consent of Excelsior-Henderson, which
consent shall not be unreasonably withheld.
2. EXCELSIOR-HENDERSON UNDERTAKINGS
2.1 PRODUCT AND PRICES. Excelsior-Henderson shall sell the Products to
Dealer at such prices as are established by Excelsior-Henderson and
communicated to Dealer from time to time. Any price increase by
Excelsior-Henderson shall not affect any accepted orders for any Products
outstanding on the date Excelsior-Henderson gives Dealer notice of such price
increase. Unless otherwise specified by Excelsior-Henderson, all prices shall
be F.O.B. Belle Plaine, Minnesota or such other F.O.B. point as
Excelsior-Henderson may designate from time to time.
2.2 SHIPPING OF THE PRODUCTS. Subject to the provisions of this Agreement
and to production schedules and the needs of other customers, Excelsior-
Henderson shall ship to Dealer the Products set forth in an accepted order.
Excelsior-Henderson may from time to time designate the point from which any
shipments and deliveries of the Products shall be made to Dealer. Excelsior-
Henderson may ship the Products by such mode of transportation and on such route
as it selects from time to time. Procedures for shipping and delivery shall be
according to such terms and conditions as Excelsior-Henderson may adopt from
time to time. Freight, delivery and all related charges for Products shipped to
Dealer shall be Dealer's sole responsibility, unless otherwise agreed in
writing. Any carrier of Products for delivery to Dealer shall be deemed
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Dealer's agent, regardless of whether the carrier is selected by
Excelsior-Henderson or Dealer, and regardless of whether shipping is paid for
by Dealer or Excelsior-Henderson.
2.3 SALES LITERATURE. Excelsior-Henderson shall develop and offer to
furnish Dealer at its cost the following materials: (i) Excelsior-Henderson's
then current price list, mailers, brochures, catalogs, technical
specifications, service manuals and business forms relating to the Products,
and (ii) such packaging, artwork, advertising, display and promotional
materials as Excelsior-Henderson deems appropriate. Unless supplied by
Excelsior-Henderson, Dealer agrees to prepare and furnish, at its own cost,
such packaging, artwork, advertising, display and promotional materials as
are necessary for the promotion of the Products in Dealer's Area of Primary
Responsibility; provided, however, that prior to display or use thereof,
Dealer shall submit such material to Excelsior-Henderson for prior review and
written approval and shall make any changes or modifications required by
Excelsior-Henderson and, further provided, that it shall be Dealer's
responsibility to comply with all applicable laws pertaining to the
marketing, trademark, unfair competition or otherwise regulating the
marketing or selling of the Products. Dealer acknowledges that the purpose
of Excelsior-Henderson's review of such materials is to enable
Excelsior-Henderson to protect its Trademarks, reputation and the goodwill
associated with Excelsior-Henderson and the Products, and Excelsior-Henderson
shall not be obligated, and does not undertake, to review all advertisements
or promotional materials submitted by Dealer to Excelsior-Henderson and used
by Dealer with respect to the Products. Any review or approval by
Excelsior-Henderson of any advertisements or promotional materials submitted
to it by Dealer shall not be considered an endorsement by Excelsior-Henderson
of the content thereof. Dealer shall bear sole responsibility and be solely
liable for any and all claims arising out of advertisements or promotional
materials developed and used by Dealer.
3. ACCEPTANCE OF ORDERS AND SHIPMENT OF PRODUCTS
3.1 ACCEPTANCE. Excelsior-Henderson will not be bound by any order for
the Products placed by Dealer until such order has been accepted by
Excelsior-Henderson. Excelsior-Henderson may at its sole discretion accept
or reject any order in whole or in part for any reason. Upon
Excelsior-Henderson's acceptance of an order submitted by Dealer, such order
shall constitute a binding agreement of Excelsior-Henderson to sell and ship,
and of Dealer to purchase and tender payment for, the Products specified.
Excelsior-Henderson's acceptance of Dealer's order shall be evidenced by
either an invoice or shipment to Dealer, unless otherwise specified by
Excelsior-Henderson.
3.2 INCONSISTENT TERMS IN AN ORDER. In the event any terms or
conditions contained in an order from Dealer are inconsistent with, or in
addition to, the terms of this Agreement, such inconsistent or additional
terms or conditions shall be null and void and shall not be binding on
Excelsior-Henderson in the event that the order containing such inconsistent
or additional terms or conditions is accepted by Excelsior-Henderson.
3.3 ALLOCATION OF PRODUCTS. Dealer acknowledges that Dealer is not
entitled to any priority in the supply of Products over Excelsior-Henderson's
other authorized dealers and customers. If at any time orders for Products
exceed Excelsior-Henderson's supply, Excelsior-
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Henderson may in its sole discretion allocate the supply of available
Products among its dealers and customers, including Dealer, in any manner
Excelsior-Henderson deems reasonable.
3.4 MOTORCYCLE STOCK ORDERS. Excelsior-Henderson will not accept orders
from Dealer for a specific retail customer. Excelsior-Henderson will accept
only stock orders for motorcycles from Dealer. Dealer will be responsible for
providing the customers' specific motorcycle, parts and accessory needs from its
inventory.
3.5 DISCHARGE OF EXCELSIOR-HENDERSON'S OBLIGATION. Excelsior-Henderson's
obligation to ship the Products shall be fully and completely discharged, and
all risk of loss or damage shall immediately pass to Dealer, at the time the
Products are delivered F.O.B. Belle Plaine, Minnesota, or such other delivery
point(s) as Excelsior-Henderson may designate from time to time; provided,
however, that Excelsior-Henderson shall retain legal title to all Products as
provided in Section 4.2 until full payment is received.
3.6 CLAIMS FOR INCOMPLETE DELIVERY. All claims for incomplete delivery
of Products invoiced to Dealer must be made promptly and in accordance with
such procedures and within such limits as Excelsior-Henderson may from time
to time specify.
3.7 RETURN OR DIVERSION ON FAILURE TO ACCEPT. If Dealer should fail or
refuse or for any reason be unable to accept delivery of any Products ordered
by Dealer, or if Dealer should request diversion of a shipment from
Excelsior-Henderson, Dealer shall be responsible for and pay
Excelsior-Henderson promptly on demand the amount of all costs and expenses
incurred by Excelsior-Henderson in filling and shipping Dealer's order,
diversion (including but not limited to return to the original place of
shipment), demurrage and storage, plus restocking charges as determined by
Excelsior-Henderson. Excelsior-Henderson may direct that such Products be
returned to another destination, but the cost to Dealer for return to such
other destination shall not be greater than the cost of returning such
Products to their original place of shipment.
4. PAYMENTS FOR PRODUCTS
4.1 TERMS OF PAYMENT. All Products will be sold to Dealer upon such
payment terms as Excelsior-Henderson may in its sole discretion establish
from time to time. Excelsior-Henderson reserves the right to vary payment
terms at any time and from time to time upon written notice to Dealer.
Without limiting the generality of the foregoing, Excelsior-Henderson may
require, in its sole discretion and at any time, cash payment or satisfactory
security before delivery or as a condition to Excelsior-Henderson's
acceptance of a Dealer order for Products. In all events, time shall be of
the essence with regard to Dealer's payment obligations to
Excelsior-Henderson. Any amount not paid by Dealer when due shall accrue
interest at the lower of 1.5% per month or the highest legal rate allowed
under applicable law. All payments due hereunder shall be tendered in United
States currency. In the event Excelsior-Henderson engages legal counsel to
collect any debt owing from Dealer to Excelsior-Henderson under this
Agreement, Dealer shall pay Excelsior-Henderson's reasonable attorneys' fees,
in addition to any other expenses of collection. Excelsior-Henderson may set
off the amount of any moneys owed by Dealer to Excelsior-Henderson against
any moneys owed by Excelsior-Henderson to Dealer.
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4.2 RETENTION OF TITLE. Excelsior-Henderson shall retain title to all
Products delivered to Dealer until Dealer has paid Excelsior-Henderson the
full invoice price due with respect to a particular Product. Dealer agrees
to execute any documents, financing statements or similar instruments as
Excelsior-Henderson may from time to time require in order to protect
Excelsior-Henderson's interest in such Products and to give third parties
public notice of such interest. Any deposits, proceeds of sale or insurance
proceeds received by Dealer with respect to any such Products shall be deemed
to be held by Dealer as trustee of an express trust for the benefit of
Excelsior-Henderson, and Dealer agrees to segregate all such proceeds in a
separate trust account and not to commingle such funds with other funds of
Dealer. Notwithstanding Excelsior-Henderson's retention of title to the
Products, all risk of damage or loss with respect to the Products shall pass
to Dealer upon delivery of the Products to Dealer F.0.B. Belle Plaine,
Minnesota or such other delivery point as Excelsior-Henderson may designate
from time to time. Dealer will maintain insurance covering the Products
against loss or damage by fire, theft, collision and against such other risks
as Excelsior-Henderson may from time to time require, with loss payable to
Dealer and Excelsior-Henderson as their respective interests may appear.
Dealer shall furnish certificates and other evidences of insurance to
Excelsior-Henderson upon Excelsior-Henderson's request. Dealer's policy or
policies of insurance covering the Products shall provide that
Excelsior-Henderson shall receive written notice prior to any cancellation or
non-renewal of such policies. Excelsior-Henderson shall be entitled, at any
time and without notice, to enter into Dealer's premises and reclaim any
Products for which Dealer is delinquent in any payment due with respect to
such Products, or if for any reason Excelsior-Henderson deems itself to be
insecure with respect to its interest in the Products.
4.3 NO SETOFFS OR DEDUCTIONS. All obligations of Dealer to
Excelsior-Henderson under this Agreement shall be absolute and independent of
any other obligations imposed by this Agreement or by law, and shall not be
subject to any setoff, deduction or counterclaim.
5. DEALER'S UNDERTAKINGS
5.1 SALE OF PRODUCTS. Dealer agrees that it shall purchase
Excelsior-Henderson Products for resale only from Excelsior-Henderson and
pursuant to the terms of this Agreement. Dealer shall not sell the Products
for resale to non-retail customers other than United States authorized
Excelsior-Henderson dealers. Excelsior-Henderson reserves the right to
establish from time to time such policies and position statements it believes
are necessary or advisable to carry out the purpose or intent of this part of
this Agreement. Dealer, for itself and its representatives and employees,
agrees to conduct all of its business activities relating to the sale or
distribution of the Products in a lawful manner, consistent with the highest
standards of fair trade, fair competition and business ethics.
5.2 MARKETING EFFORTS. Dealer agrees to use its best efforts to
diligently and faithfully promote and develop demand for the Products within
Dealer's Area of Primary Responsibility and to solicit purchases of the Products
so as to maintain a substantial volume of sales of the Products and to meet the
sales goals set forth in Appendix B and as established by Excelsior-Henderson
each year during the term of this Agreement based upon demographic and market
information relating to Dealer's Area of Primary Responsibility, while
preserving the goodwill that is presently associated with the name and
reputation of Excelsior-Henderson and the Products.
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5.3 OPERATING STANDARDS. Dealer shall operate its dealership at all
times according to Excelsior-Henderson's Dealer Operating Standards, as the
same may be revised and updated by Excelsior-Henderson from time to time.
Excelsior-Henderson's current Dealer Operating Standards are attached as part
of Appendix A hereto. Dealer shall promptly comply with any revised or
updated Dealer Operating Standards upon receipt of written notice from
Excelsior-Henderson of such revisions or updates.
5.4 SIGNAGE. At all times when this Agreement remains in effect,
Dealer shall prominently display signage at the Approved Location of a type,
size and quality specified in the Dealer Operating Standards in an
agreed-upon location or locations, which signage shall contain the
Excelsior-Henderson name and logo and shall identify Dealer as an authorized
independent dealer of Excelsior-Henderson motorcycles, parts and accessories.
Dealer expressly warrants as a condition precedent to Excelsior-Henderson's
entering into this Agreement that there are no contractual, lease, zoning or
other restrictions applicable to Dealer which would prevent Dealer from
displaying Excelsior-Henderson signage in accordance with the Dealer
Operating Standards.
5.5 EMPLOYEES. Dealer shall at all times maintain an adequate staff of
qualified and experienced employees for sales, servicing, supply and
administration of the Products, all as determined by Excelsior-Henderson from
time to time. Dealer's employees shall deal with customers in a courteous
and professional manner and shall conduct themselves at all times according
to the highest ethical standards. Dealer shall be solely responsible for all
wages, taxes, benefits, unemployment insurance and all other obligations and
claims relating to Dealer's hiring, employment and termination of Dealer's
employees. Dealer shall bear sole responsibility for, and shall be solely
liable for, the quality of Dealer's employees and for the actions or
omissions of its employees, whether in connection with the sales, service or
repair of Products or otherwise.
5.6 TRAINING. Excelsior-Henderson may from time to time require that
Dealer or designated members of Dealer's staff attend and complete training
courses or seminars relating to sales or service of the Products. Dealer
shall bear the full travel and lodging costs of attendance at such training
courses or seminars.
5.7 CONDITION OF APPROVED LOCATION AND HOURS OF OPERATION. Dealer
shall at all times maintain the Approved Location in a clean, orderly and
professional state. Dealer shall maintain such hours of operation as
Excelsior-Henderson shall from time to time determine to be competitive with
other motorcycle dealers within Dealer's Area of Primary Responsibility.
Dealer's initial hours of operation shall be as described in Appendix A
hereto.
5.8 PRE-DELIVERY INSPECTION. Dealer shall cause each new or used
Excelsior-Henderson motorcycle sold by Dealer to undergo a thorough
inspection by a qualified mechanic prior to delivery to the purchaser. No
new or used Excelsior-Henderson motorcycle shall be sold by Dealer unless and
until such inspection has been completed and the motorcycle has been found to
be safe and in proper working condition. The inspection shall be conducted
according to a pre-delivery inspection form included within the Dealer
Operating Standards, as the same may be revised and updated from time to
time. All Dealer demonstration motorcycles shall also undergo such
inspection before being used by Dealer or its customers.
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5.9 PRODUCT INVENTORY. Dealer shall maintain at all times an adequate
and representative inventory of Excelsior-Henderson motorcycles, parts,
service tools and other Products, all subject to availability from
Excelsior-Henderson, as described more particularly by Excelsior-Henderson in
the Dealer Operating Standards, as the same may be revised and updated from
time to time.
5.10 SERVICE AND REPAIRS. Dealer acknowledges that top quality repair
and maintenance service is essential to the maintenance of the goodwill and
reputation of Excelsior-Henderson. Dealer shall provide efficient, courteous
and professional repair and maintenance service for all Excelsior-Henderson
motorcycle owners at fair and competitive rates regardless of whether such
motorcycles were purchased from Dealer and regardless of whether such
motorcycles are covered by Excelsior-Henderson's warranty. Dealer shall
adhere to the highest standards of ethics and honesty in conducting its
repair operations. All service shall be performed in accordance with
Excelsior-Henderson service standards as communicated from time to time by
Excelsior-Henderson to Dealer. Excelsior-Henderson may from time to time
inspect and evaluate Dealer's service performance, and Dealer agrees to
implement any changes or improvements to its service operations which may be
recommended by Excelsior-Henderson from time to time. Notwithstanding the
foregoing, Dealer, as an independent contractor, shall bear sole
responsibility for, and shall be solely liable for, the manner of performance
by Dealer of any and all service and repairs of any Excelsior-Henderson
Products or motorcycles.
5.11 TOOLS. Dealer shall purchase all specialized tools, equipment,
manuals and other materials which Excelsior-Henderson shall from time to time
specify as being necessary for the proper assembly, maintenance and repair of
the Products.
5.12 SPARE PARTS. Dealer shall use its best efforts to promote the
sale of Excelsior-Henderson brand spare parts and accessories (whether
manufactured by Excelsior-Henderson or authorized suppliers of
Excelsior-Henderson brand parts). Dealer agrees to maintain an adequate
inventory of Excelsior-Henderson parts consistent with the volume or
anticipated volume of Dealer's sales and service. Dealer shall in no event
sell or use in its repair and service of Excelsior-Henderson motorcycles any
parts which have not been expressly approved in writing by
Excelsior-Henderson. Dealer shall not identify any parts as being
Excelsior-Henderson parts unless such parts are in fact genuine
Excelsior-Henderson brand parts. In no event shall Dealer sell or offer for
sale any parts for use with Excelsior-Henderson motorcycles which are not in
full compliance with all requirements, standards and specifications required
by applicable law.
5.13 SAFETY RECALLS. In the event Excelsior-Henderson notifies Dealer
of any Product recall, Dealer shall carry out the recall in accordance with
the terms of the recall notice regardless of whether any recalled Product was
purchased from Dealer. All recall work shall be performed at no charge to
customers unless otherwise indicated by Excelsior-Henderson, and shall be
considered as warranty service work performed by Dealer for compensation and
all other purposes.
5.14 MAINTENANCE OF RECORDS. Dealer shall keep and maintain detailed and
accurate records of all Dealer sales and service activities, inventories and
warranty claims, on such forms
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and such manner as Excelsior-Henderson shall specify from time to time.
Records shall be maintained for so long as Excelsior-Henderson may from time
to time specify.
5.15 ACCESS TO PREMISES AND RECORDS. Dealer shall permit
Excelsior-Henderson, through its authorized representatives, to have full
access to Dealer's place of business during normal business hours for
purposes of inspection and assuring Dealer's compliance with the terms of
this Agreement. Excelsior-Henderson shall also have the right from time to
time during normal business hours to enter Dealer's premises in order to
inspect and photocopy any of Dealer's books and records relating to the
Products sold or serviced by Dealer. Excelsior-Henderson's rights under this
Section 5.15 shall survive any termination or expiration of this Agreement.
5.16 COMPLIANCE WITH LAW. Dealer shall be solely responsible for
ascertaining all applicable laws, regulations, ordinances, licensing
requirements, and other governmental requirements ("Laws") which must be
complied with in connection with the operation of Dealer's business and the
sale of the Products, and shall comply fully with such laws. Without
limiting the foregoing, Dealer shall take all action necessary to comply with
all applicable Laws in Dealer's jurisdiction relating to Dealer licensing,
salesperson licensing, title registration, odometer certification, model year
requirements, advertising, and sales taxes, each with respect to both new and
used Products.
5.17 EXPENSES. Unless otherwise expressly agreed in writing, Dealer
shall pay any and all of its costs and expenses of operating as a dealer
under this Agreement and shall be solely responsible for the acts and
expenses of its employees and representatives.
5.18 FORECAST. Dealer shall submit to Excelsior-Henderson quarterly
and annual written forecasts of its purchases and sales of the Products in a
format approved by Excelsior-Henderson and containing marketing information
about the Products and competitive goods, as well as such other data and
details as Excelsior-Henderson may from time to time reasonably request.
5.19 PURCHASER REGISTRATION. Dealer agrees that it shall promptly
provide written notice to Excelsior-Henderson of the names and addresses of
all persons or entities that purchase any Excelsior-Henderson motorcycles
from Dealer on such forms as are specified by Excelsior-Henderson from time
to time so that Excelsior-Henderson may notify purchasers of
Excelsior-Henderson motorcycles and other Products of significant information
as required by law or otherwise.
5.20 PURCHASER MANUALS AND GUIDES. Dealer shall provide to the
purchasers of the Products any applicable owners manual, warranty guides and
other manuals or guides prepared for use with such Products. In addition,
Dealer shall provide to each purchaser of Excelsior-Henderson motorcycles a
copy of the Motorcycle Safety Foundation Manual.
5.21 PRODUCT LIABILITY INSURANCE. Dealer shall at all times maintain
in full force and effect policies of insurance providing coverage in the
amount of $1,000,000 per occurrence and in the aggregate for product
liability claims and claims of negligence in the service and repair of
Excelsior-Henderson motorcycles and other Products. Dealer shall furnish
certificates and other evidences of such insurance to Excelsior-Henderson
upon request. Excelsior-Henderson makes
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no representation to Dealer that such amount of insurance is adequate to
protect Dealer from such claims and Dealer is advised to exercise its own
business judgment in consultation with its professional advisors in
determining an adequate amount of such insurance. Dealer shall bear sole
responsibility for, and shall be solely liable for, any failure to maintain
such policies of insurance in full force and effect.
6. CONFIDENTIAL INFORMATION
Dealer shall treat as confidential and prevent unauthorized duplication
or disclosure of any confidential information concerning the Products or the
business affairs of Excelsior-Henderson which Dealer may acquire during the
course of its activities under this Agreement (or any prior agreements
between Excelsior-Henderson and Dealer) and shall not use such confidential
information for any purpose other than in furtherance of Dealer's obligations
under this Agreement. In addition, Dealer shall take all necessary
precautions to prevent any such disclosure by its employees and
representatives. Dealer further acknowledges and agrees that any right,
title and interest in and to the aforesaid confidential information is vested
in Excelsior-Henderson and that such information is the sole property of
Excelsior-Henderson. For purposes of this Agreement, the term "confidential
information" means any information concerning the business of
Excelsior-Henderson or the Products which is not in the public domain and
shall include, but is not limited to, the terms of this Agreement. The
obligations of confidentiality provided hereunder shall survive for a period
of five (5) years after the expiration, cancellation or termination of this
Agreement, for any reason; provided, however, that with respect to any item
of confidential information which is a trade secret under applicable law, the
obligations of confidentiality hereunder shall survive the expiration of such
five (5) year period and remain in full force and effect for so long as such
confidential information remains a trade secret under applicable law.
7. TRADEMARKS, PATENTS AND COPYRIGHTS
7.1 OWNERSHIP. Dealer acknowledges and agrees that Excelsior-Henderson
is the exclusive owner of the various trademarks, service marks, trade names
and other word and design marks described on Appendix A hereto, including
copyrights, which Excelsior-Henderson uses in connection with the Products
and the servicing thereof and the services or products licensed by
Excelsior-Henderson (referred to in this Agreement as "licensed products") or
which Excelsior-Henderson otherwise claims (referred to in this Agreement as
the "Trademarks"). Dealer further acknowledges the great value of the
goodwill associated with the Trademarks and the fact that they have a
secondary meaning in the mind of the public. Dealer, during the term of this
Agreement and thereafter, shall neither have nor claim any rights in respect
to the Trademarks or otherwise attach the title or any rights of
Excelsior-Henderson in and to the Trademarks.
7.2 DISPLAY. Dealer is granted the non-exclusive, non-transferable
license to display the Trademarks solely in the conduct of its authorized
Excelsior-Henderson dealership business but only in the manner approved by
Excelsior-Henderson from time to time. The right to use the Trademarks in
connection with the Products is limited to the Products purchased from
Excelsior-Henderson or licensed products purchased from an authorized
licensee of Excelsior-Henderson, and Dealer shall use the Trademarks only in
connection with services which are authorized and conform to quality
standards established by Excelsior-Henderson from time to time. Such
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Trademarks may be used as part of the name under which Dealer's authorized
Excelsior-Henderson dealership business is conducted only with the express
written approval of Excelsior-Henderson and within such guidelines as
Excelsior-Henderson may establish from time to time. This license or any
approval previously granted by Excelsior-Henderson shall terminate
automatically upon the termination of this Agreement for any reason, or may
be cancelled or withdrawn by Excelsior-Henderson at any time without cause.
Moreover, Dealer shall discontinue immediately the display or use of any
Trademarks or change the manner in which such Trademarks are displayed or
used whenever requested to do so by Excelsior-Henderson. The Trademarks may
not be used by any business owned or controlled in whole or in part by Dealer
or any of its owner(s) without Excelsior-Henderson's prior written consent.
Dealer shall acquire no rights in the Trademarks by virtue of any such use,
but such use shall inure to the benefit of Excelsior-Henderson.
7.3 CONSENT TO USE TRADEMARKS. Dealer agrees that it has no right
whatsoever to object to or otherwise prevent Excelsior-Henderson's allowing
any other dealer to display the trademarks or use them as part of any
business name.
7.4 ENFORCEMENT. If Dealer shall refuse or neglect to keep and perform
its obligations under this Section 7, Dealer shall reimburse
Excelsior-Henderson for all costs, reasonable attorneys' fees and other
expenses incurred by Excelsior-Henderson in connection with any action to
require Dealer to comply therewith.
7.5 DEALER. As used in this Section 7 with respect to restrictions on
Dealer, the term "Dealer" shall also include any affiliates of or other
companies owned by Dealer and all managers and/or owner(s) of Dealer.
7.6 PRESERVATION OF MARKINGS. Dealer agrees that it will in no way
alter, deface, remove, cover up or mutilate in any manner whatsoever, any
trademark, serial or model number, the word "patent" and/or the patent
number, copyright symbol, brand or name which Excelsior-Henderson may attach
or affix to or make a part of any of the Products, spare parts, components
and/or assemblies of the Products, or any packaging or sales literature
relating thereto.
8. LIMITED PRODUCT WARRANTY
8.1 LIMITED CUSTOMER WARRANTY. All of the Products supplied to Dealer
from Excelsior-Henderson shall be warranted by Excelsior-Henderson solely as
provided in Excelsior-Henderson's written warranty to customers which may be
revised and amended from time to time by Excelsior-Henderson.
EXCELSIOR-HENDERSON'S WRITTEN LIMITED CUSTOMER WARRANTY AS REVISED AND
AMENDED FROM TIME TO TIME SHALL BE EXCLUSIVE AND EXCELSIOR-HENDERSON
EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT
NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE. IN NO EVENT WILL EXCELSIOR-HENDERSON BE LIABLE TO
DEALER, ITS CUSTOMERS OR ANY OTHER PARTY FOR ANY SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE, WHETHER BASED IN CONTRACT,
TORT OR OTHERWISE, THAT ARISE IN CONNECTION WITH THE
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PRODUCTS OR IN CONNECTION WITH EITHER EXCELSIOR-HENDERSON'S FAILURE TO
DELIVER OR ITS LATE DELIVERY OF THE PRODUCTS (INCLUDING, BUT NOT LIMITED TO,
LOSS OF USE OF THE PRODUCTS AND LOSS OF PROFITS).
8.2 CUSTOMER WARRANTIES. Dealer shall provide each customer purchasing
Products from Dealer with a copy of Excelsior-Henderson's then current
limited customer warranty at the time of sale. Dealer shall not make any
statement or representation purporting to grant to the customer any warranty
on behalf of Excelsior-Henderson other than Excelsior-Henderson's then
current limited customer warranty and Dealer shall bear sole responsibility
for, and shall be solely liable for, any other statements, representations or
warranties (whether oral or written) made by Dealer or on Dealer's behalf
with respect to any of the Products. If Dealer should elect to give its
customers any Dealer warranty with respect to the Excelsior-Henderson
Products in addition to Excelsior-Henderson's limited customer warranty, such
Dealer warranty shall provide in a clear and conspicuous manner that such
warranty is being provided by Dealer and not by Excelsior-Henderson.
8.3 PERFORMANCE OF WARRANTY WORK: COMPENSATION. Dealer shall perform
all warranty service work requested for Excelsior-Henderson Products,
regardless of whether such Products were purchased from Dealer.
Excelsior-Henderson shall provide compensation to Dealer for labor and
Excelsior-Henderson parts used in the performance of Excelsior-Henderson
warranty work in such reasonable amounts, and subject to such terms and
conditions, as Excelsior-Henderson may from time to time establish. Dealer
shall not charge any customer for any work covered by an Excelsior-Henderson
warranty and reimbursed from Excelsior-Henderson to Dealer. Dealer shall use
Excelsior-Henderson parts in work performed under the Excelsior-Henderson
customer warranty or otherwise reimbursed by Excelsior-Henderson. The
determination whether any work is covered under the Excelsior-Henderson
limited customer warranty shall be made solely by Excelsior-Henderson.
Notwithstanding the foregoing, Dealer, as an independent contractor, shall
bear sole responsibility for and shall be solely liable for, the manner of
performance by Dealer of any and all warranty service and repairs.
8.4 WARRANTY PROCEDURE. Dealer shall follow and comply with all
procedures, instructions, guidelines and policies communicated from time to
time by Excelsior-Henderson to Dealer regarding warranty work to be performed
by Dealer under the Excelsior-Henderson limited customer warranty, including
without limitation procedures, forms and standards for submission and
approval of warranty claims.
9. INDEMNIFICATION
Dealer shall indemnify and hold harmless Excelsior-Henderson and its
officers, directors, agents, employees, shareholders, legal representatives,
successors and assigns, and each of them, from and against any and all
claims, actions and suits, whether groundless or otherwise, and from and
against any and all liabilities, judgments, losses, damages, costs, charges,
attorneys' fees, and other expenses of every nature, kind and character
incurred or suffered by reason of Dealer's business, all actions with respect
to Dealer's sale, distribution, service or repair of the Products and/or
Dealer's failure to perform or fulfill any of its obligations set forth in
this Agreement (including, but not limited to, claims by Dealer's customers,
employees or agents), except for
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claims, actions and suits covered under Excelsior-Henderson's warranty as set
forth in Section 8 hereof and except for claims, actions or suits arising
solely from the negligent acts or omissions of Excelsior-Henderson.
Excelsior-Henderson may undertake the responsibility of defending any claims
with counsel chosen by Excelsior-Henderson in its sole discretion, or upon
Excelsior-Henderson's request, Dealer shall assume responsibility for such
defense; in either event, Dealer shall pay all expenses, fees and costs
associated with such defense and judgments, fines, penalties or interest
imposed on or against Excelsior-Henderson as a result thereof, including
without limitation, the expenses, fees and costs of defense counsel chosen by
Excelsior-Henderson in its sole discretion. Dealer further agrees that the
provisions contained in this Section 9 and any other provisions in this
Agreement concerning indemnification obligations of Dealer shall survive the
termination or expiration of this agreement and shall be liberally construed
in favor of Excelsior-Henderson.
10. INDEPENDENT CONTRACTOR RELATIONSHIP
Dealer shall be deemed to be an independent contractor and shall bear
all of its own expenses in connection with this Agreement. Dealer
acknowledges that it is not a partner, joint venturer, franchisee, employee
or agent of Excelsior-Henderson. Dealer shall have no authority, whether
express or implied, to assume or create any obligation on behalf of
Excelsior-Henderson nor shall Dealer issue or cause to be issued any
quotations or draft any letters or documents over the name of
Excelsior-Henderson.
11. FORCE MAJEURE AND AVAILABILITY OF MATERIALS
11.1 FORCE MAJEURE. Except for Dealer's monetary obligations to
Excelsior-Henderson hereunder, neither party will be in default in the
performance of its obligations under this Agreement if such performance is
prevented or delayed because of war, hostilities, revolution, civil
commotion, riot, strike, labor dispute, lack or failure of transportation
facilities, failure of equipment, lack of necessary products or materials,
epidemic, fire, wind, earthquake, storm or flood, application of any law,
order, proclamation, regulation or ordinance of any government, or of any
subdivision thereof, because of acts of God or for any other cause, whether
similar or dissimilar to those enumerated, that is beyond the reasonable
control and without the fault or negligence of the party whose performance is
affected.
11.2 AVAILABILITY OF MATERIALS. All deliveries by Excelsior-Henderson
are contingent on Excelsior-Henderson receiving timely shipment of necessary
products, materials, parts and components for the production, assembly or
supply of the Products, and Excelsior-Henderson may delay, reduce or cancel
deliveries to Dealer to the extent such deliveries are affected by delay,
reduction or cancellation of shipments of necessary products, materials,
parts and components to Excelsior-Henderson.
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<PAGE>
12. TERMINATION OF AGREEMENT
12.1 TERMINATION WITH CAUSE. At any time either party may terminate
this Agreement for cause, as follows:
(a) The non-breaching party may cancel or terminate this Agreement
upon ninety (90) days' written notice if any of the following events occur:
(1) Dealer fails to meet the sales goals established pursuant to
Section 5.2 hereof;
(2) Dealer defaults in its payment obligations to Excelsior-
Henderson within the time periods provided in Section 4
hereof;
(3) Dealer fails to comply with Excelsior-Henderson's Dealer
Operating Standards with respect to the condition of its
facilities, service, personnel or inventories; or
(4) a party breaches any other material provision contained in
this Agreement;
provided that the breaching party has not (i) cured the breach during the
thirty (30) day period following such notice, or (ii) taken substantial
steps, during such thirty (30) day period, to cure a non-monetary breach
which in good faith could not be totally cured within such thirty (30) day
period. In the event termination is delayed pursuant to (ii) above due to
the breaching party's taking substantial steps to cure a non-monetary
breach, termination shall become effective immediately and without further
notice if such party ceases diligent efforts to cure such breach, or in any
case if such breach is not cured or is not curable within ninety (90) days
following the date of the termination notice.
(b) Notwithstanding the provisions of subsection (a) above,
Excelsior-Henderson may cancel or terminate this Agreement upon giving
written notice with no opportunity for Dealer to cure in the following
circumstances:
(1) If Dealer becomes insolvent by any definition, makes any
assignment for the benefit of its creditors, or is placed in
receivership, liquidation or bankruptcy (voluntary or
involuntary).
(2) On the commencement of the winding up of Dealer.
(3) If the management or control, or both, of Dealer's business
is vested by law, decree, ordinance of other governmental
action, in or made subject to the control or direction of
any government agent, officer, appointee or designee, or
of any other person, firm or company not a party to this
Agreement.
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<PAGE>
(4) If Excelsior-Henderson shall have given Dealer notice of a
default under subsection (a) above and Dealer shall commit
substantially the same default within a period of twelve
(12) consecutive months after the date of Dealer's initial
default.
(5) If Dealer's default is material and results from intentional
misconduct or grossly negligent acts or omissions.
(6) If Excelsior-Henderson should terminate any other agreement
between the parties as a result of a Dealer default
thereunder.
(7) If Dealer should attempt to assign any of its rights under
this Agreement in contravention of Section 16 hereof.
(8) If Dealer has engaged in any deceptive, unethical or illegal
trade practice in connection with the sale of the Products.
(9) If Dealer should violate any federal, state or local laws,
rules or regulations applicable to Dealer's operation of the
dealership, including without limitation dealership
licensing laws, the National Traffic and Motor Vehicle
Safety Act of 1966, as amended, or the Clean Air Act.
(10) If Dealer should enter into any contract, conspiracy,
combination or agreement, whether written or oral, for the
purpose of fixing prices of Excelsior-Henderson Products or
other illegal practices.
(11) If Dealer should attempt to sell Excelsior-Henderson
Products from any location other than the Approved Location
without the express written consent of Excelsior-Henderson,
which consent shall not be unreasonably withheld.
(c) Notwithstanding the provisions of subsections (a) or (b) above,
Excelsior-Henderson may cancel or terminate this Agreement upon fifteen
(15) days' written notice, with no opportunity for Dealer to cure, in the
following circumstances:
(1) Dealer's abandonment of the operations of the dealership or
failure to operate as a going concern during hours and days
of operation customary for retail businesses in Dealer's
market area. For purposes of this subparagraph (1), if
Dealer fails to open for business for any period of seven
(7) or more consecutive days, Dealer shall be deemed to have
abandoned the dealership.
(2) If Dealer submits or makes to Excelsior-Henderson any false
or fraudulent statement, application (including Dealer's
initial Dealership Application), reimbursement request or
report, including
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<PAGE>
without limitation false or fraudulent claims with respect
to any warranty matters.
(3) If Dealer's motor vehicle dealership license is suspended,
revoked or not renewed by any applicable licensing
authority.
(4) If Dealer or any principal owner of Dealer should be
convicted or plead no contest to a felony or any crime
involving fraud or dishonesty.
In the event Excelsior-Henderson gives notice of termination under any
subsection of this Section 12.1, the grounds specified by Excelsior-Henderson
in such notice of termination shall not be exclusive and shall not preclude
Excelsior-Henderson from later proving that additional grounds for
termination existed at the time such notice was given.
12.2 WITHDRAWAL FROM MARKET. In addition to the foregoing,
Excelsior-Henderson may cancel this Agreement upon 180 days' notice to Dealer
at any time that Excelsior-Henderson withdraws from distribution of the
Products, either within Dealer's Area of Primary Responsibility or generally.
12.3 SURVIVAL OF OBLIGATIONS. The expiration, cancellation or
termination of this Agreement, for whatever reason, will not discharge or
relieve either party from any obligation which accrued prior to such
expiration, cancellation or termination, will not relieve any party that has
breached this Agreement from liability for damages resulting from such breach
and will not destroy or diminish the binding force and effect of any of the
provisions of this Agreement that expressly, or by reasonable implication,
come into or continue in effect on or after cancellation or termination
hereof.
12.4 REPURCHASE OF PRODUCTS AND RELATED ITEMS.
(a) Upon any termination or expiration without renewal of this
Agreement, upon written request from either party hereto to the other
delivered within five (5) days following such termination or expiration,
Dealer shall sell, and Excelsior-Henderson shall purchase from Dealer,
all of the Products in Dealer's inventory, all approved signage bearing
the Trademarks, and all special tools and equipment designed
specifically for use in connection with the Products and the purchase of
which was required by Excelsior-Henderson hereunder. In the case of
Excelsior-Henderson motorcycles, Excelsior-Henderson shall be obligated
to repurchase only those motorcycles which are new, of the then current
model year, unused, undamaged, and in first class, salable condition.
In the case of Excelsior-Henderson parts, Excelsior-Henderson shall be
obligated to repurchase only those parts which are new, listed in
Excelsior-Henderson's then current price book, in original packaging,
unused, undamaged and in first class, salable condition. In the case of
signs, tools and equipment, Excelsior-Henderson shall be obligated to
purchase only signs approved by Excelsior-Henderson bearing the
Excelsior-Henderson Trademarks, and such special tools and equipment
designed specifically for service with the Products, the purchase of
which was required by Excelsior-Henderson and which are in good repair
and
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<PAGE>
working condition. In the event either party exercises its option
hereunder, Dealer shall promptly supply to Excelsior-Henderson a list of
all of the Products, tools, signs and equipment subject to repurchase by
Excelsior-Henderson hereunder.
(b) The purchase price for any Excelsior-Henderson motorcycles or
parts purchased by Excelsior-Henderson pursuant to Section 12.5(a) shall be
equal to 100% of the net cost (including transportation costs) to Dealer
for such motorcycles and parts. The purchase price for signs, tools and
equipment shall be the price paid by Dealer less all depreciation
computed on a straight-line basis over a five (5) year useful life.
(c) In the event of any repurchase by Excelsior-Henderson pursuant
to this Section 12.4, Dealer shall permit Excelsior-Henderson's personnel
and representatives to enter Dealer's premises and inspect and count all
Products, signs, tools and equipment proposed to be repurchased hereunder.
(d) Dealer shall store, at Dealer's sole expense, all Products and
other items which Excelsior-Henderson becomes obligated to repurchase
pursuant to this Section 12.4 until receipt of shipping instructions
from Excelsior-Henderson. Dealer shall have sole responsibility for
packing such Excelsior-Henderson Products suitably for shipping and for
paying all freight and insurance charges from Dealer to
Excelsior-Henderson's central distribution or such other location within
the United States as Excelsior-Henderson shall designate.
(e) Dealer shall bear all risk of loss or damage to any of the
Products or other items which Excelsior-Henderson becomes obligated to
purchase hereunder until such items have been delivered to the
destination designated by Excelsior-Henderson and have been inspected
and accepted by Excelsior-Henderson, and in no event shall
Excelsior-Henderson be required first to claim against any carrier or
insurer with respect to any such loss or damage for items lost or
damaged in transit.
(f) Dealer represents and warrants that all Products and other items
tendered to Excelsior-Henderson for repurchase pursuant to this Section
12.4 shall be sold to Excelsior-Henderson free and clear of any liens,
encumbrances, security interests or claims and attachments whatsoever at
the time of purchase by Excelsior-Henderson. Dealer shall, at Dealer's
sole expense, take such actions and execute such documents as are
necessary to vest in Excelsior-Henderson clear title, free of liens,
encumbrances, security interests, claims and attachments, including
without limitation compliance with all applicable bulk sales laws.
Dealer understands and agrees that Excelsior-Henderson shall have no
obligation to purchase any Products or other items hereunder unless
Dealer can convey clear title as provided herein.
(g) All payments due from Excelsior-Henderson to Dealer hereunder
shall be made promptly after all items tendered for repurchase have been
delivered to Excelsior-Henderson, inspected and accepted by
Excelsior-Henderson with clear title as provided in subsection (f)
above, and, in the case of Excelsior-Henderson motorcycles, after
Excelsior-Henderson shall have received the manufacturer's certificate
of origin or other
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<PAGE>
applicable certificates of title. Excelsior-Henderson shall have the
right to set off and deduct from any amounts due Dealer in connection
with such repurchase any sums due and owing from Dealer to
Excelsior-Henderson or any of its affiliates for any reason.
12.5 NO CLAIM FOR COMPENSATION. Dealer expressly acknowledges that
Dealer's sole source of compensation under this Agreement will be from the
revenue, if any, derived from its resale of the Products. In the event this
Agreement expires or is canceled or terminated pursuant to the provisions of
this Section 12, Dealer will not assert or claim nor have any right to
receive, and Excelsior-Henderson will have no obligation to pay, any
compensation, indemnity or reimbursement for any of the following: loss of
profit, loss of goodwill, loss of clientele, costs of advertising,
promotional materials or samples, termination of employees, employees'
salaries, the losses associated with buildings, stocks, machinery,
transportation, or other similar assets or expenditures in which Dealer
invests or expends funds in connection herewith, or for any other reason
whatsoever.
12.6 FURTHER OBLIGATIONS AFTER TERMINATION. In the event of a
termination or expiration of this Agreement in any manner, the following
further provisions shall take effect:
(a) All rights granted to Dealer under or pursuant to this Agreement
shall cease, and, where legally possible, revert to Excelsior-Henderson.
(b) Dealer shall cease to hold itself out in any way as a dealer of
Excelsior-Henderson Products.
(c) Dealer shall cease to use the Trademarks and shall refrain from
using any colorable imitation thereof. Dealer shall immediately cease to
use and destroy any stationery, order sheets, advertising materials and
other printed matter bearing the Trademarks and shall remove all signs
containing same.
(d) Dealer shall immediately return to Excelsior-Henderson any
originals and copies of all confidential information, technical data or
material, including but not limited to brochures, letters, price or
customer lists and memoranda, service records, warranty information or
other information pertaining to the Products.
(e) At Excelsior-Henderson's option, all sums owed by each party
hereto to the other shall become due and payable immediately upon
expiration or other termination of this Agreement. Excelsior-Henderson,
at its option, may offset any sums due or to become due to Excelsior-
Henderson from Dealer against any sums owed by Excelsior-Henderson to
Dealer.
13. ENTIRE AGREEMENT; AMENDMENT
This Agreement, including all Appendices hereto, contains the entire
understanding between the parties with respect to the subject matter hereof
and supersedes all prior and contemporaneous written or oral negotiations and
agreements between them regarding the subject matter hereof. Except as
expressly contained herein, neither party has made or relied upon any
representations, warranties, assurances, "side deals" or understandings.
Without limiting the
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<PAGE>
generality of the foregoing, Dealer acknowledges that Excelsior-Henderson has
made no forecasts, guarantees, representations or assurances regarding
Dealer's potential sales, profits or earnings capability as a dealer of the
Products under this Agreement. This Agreement may be amended only by a
writing signed by both of the parties. With respect to any consents,
approvals, waivers or amendments which may be granted by Excelsior-Henderson
to Dealer hereunder, including without limitation consents to assignment or
to a change in the Approved Location, no such consent, approvals, waivers or
amendments shall be valid or binding upon Excelsior-Henderson unless in
writing and signed by an officer of Excelsior-Henderson of at least Vice
President. Under no circumstances may Dealer rely upon any oral
representations or assurances from Excelsior-Henderson personnel with respect
to consents, approvals, waivers or amendments.
14. NOTICES
All notices and other communications hereunder shall be in writing and
shall be deemed to have been given only if and when (i) personally delivered
or (ii) five (5) business days after mailing, postage prepaid, certified or
registered mail, or (iii) when delivered (and receipted for) by an express
delivery service, or (iv) when first sent by telex, telecopy or other means
of instantaneous communication, provided such communication is properly
confirmed by personal delivery, certified or registered mail or an express
delivery service as provided above, to the respective addresses shown in
Appendix A hereto. Either party may change the address for the giving of
notices and communications to it by written notice to the other party in
conformity with the foregoing. In the event Excelsior-Henderson cannot
effect notice to Dealer because Dealer has abandoned its place of business or
refuses to accept such notice, such notice may be served by
Excelsior-Henderson through the Department of Motor Vehicles (or its
equivalent) in the state in which the Approved Location is located.
15. SEVERABILITY
If any provision of this Agreement should be held invalid or
unenforceable for any reason whatsoever or to violate any law, this Agreement
shall be considered divisible as to such provisions and such provisions shall
be deemed amended to comply with such law, or if it cannot be so amended
without materially altering the tenor of the Agreement, then such
provision(s) shall be deemed deleted from the Agreement in such jurisdiction,
and in either case, the remainder of this Agreement shall be valid and
binding.
16. ASSIGNMENT
The parties acknowledge that this Agreement constitutes a personal services
contract between Excelsior-Henderson and Dealer. Dealer may not transfer or
assign this Agreement or any of its rights hereunder without Excelsior-
Henderson's prior written consent, which consent shall not be unreasonably
withheld, and any attempted assignment shall be void and shall constitute
grounds for termination by Excelsior-Henderson pursuant to Section 12.1(b)(7)
hereof. This Agreement shall be binding upon and shall inure to the benefit of
Excelsior-Henderson and its successors and assigns, and shall be binding upon
and inure to the benefit of Dealer and its permitted assignees. For purposes of
this Section 16, any transfer of any shares of stock or other
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<PAGE>
ownership interest in Dealer to any party other than the current owners or
shareholders listed in Appendix A shall be deemed as an assignment of
Dealer's rights under this Agreement.
17. NO IMPLIED WAIVERS
The failure of either party at any time to require performance by the
other party of any provision hereof shall not affect in any way the right to
require such performance at any later time nor shall the waiver by either
party of a breach of any provision hereof be taken or held to be a waiver of
such provision.
18. CAPTIONS AND SECTION REFERENCES
The captions of the sections and subsidiary sections of this Agreement
are included for reference purposes only and are not intended to be a part of
the Agreement or in any way to define, limit or describe the scope or intent
of the particular provision to which they refer. Any reference in this
Agreement to a section or subsection shall be deemed to include a reference
to any subsidiary sections whenever the context requires.
19. GENDER
Masculine, feminine and neuter terms shall be interchangeable (and shall
include a corporation, a partnership, or another entity), and shall be
singular and plural, where the context makes a change of gender or number
appropriate.
20. GOVERNING LAW
The parties acknowledge that this Agreement shall take effect upon
execution by Excelsior-Henderson at its offices in Minneapolis, Minnesota.
The parties further acknowledge that the mutual performance hereof by
Excelsior-Henderson and Dealer constitutes a substantial contact with that
State. Accordingly, the parties invoke the protection of the laws of
Minnesota with respect to the protection of their rights and enforcement of
their obligations hereunder and they mutually stipulate that this Agreement
is in all respects (including, but not limited to, all matters of
interpretation, validity, performance and the consequences of breach) to be
construed, governed and enforced in accordance with the internal laws
(excluding all conflict of laws rules) of Minnesota, as from time to time
amended and in effect, and any applicable federal laws of the United States
of America, as from time to time amended and in effect.
21. ARBITRATION
(a) The parties agree to use every reasonable effort to settle any
dispute or disagreement between them relative to this Agreement by
amicable means and if appropriate utilize assistance of their respective
chief executive officers and not to resort to legal action unless and
until the parties have in good faith attempted to settle such dispute or
disagreement in the foregoing manner.
(b) If this method of resolution should have proved to be
impracticable or unsuccessful, any controversy or claim arising out of or
relating to this Agreement shall be
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<PAGE>
submitted to and be finally resolved by arbitration pursuant to the
provisions of the United States Arbitration Act (9 US C. SECTION 1 ET
SEQ.), to be conducted by the American Arbitration Association ("AAA"),
with such arbitration to be held in Minneapolis, Minnesota in accordance
with the AAA's Commercial Arbitration Rules then in effect. Each party
hereby irrevocably agrees that service of process, summons, notices or
other communications related to the arbitration procedure shall be
deemed served and accepted by the other party if given in accordance
with Section 14. The arbitrator shall render a judgment of default
against any party who fails to appear in a properly noticed arbitration
proceeding. The arbitration shall be conducted by one arbitrator, as
selected by the AAA. Any award or decision rendered in such arbitration
shall be final and binding on both parties, and judgment may be entered
thereon in any court of competent jurisdiction if necessary. Judgments
rendered in any arbitration proceedings shall be limited to actual
damages sustained by the party in whose favor such judgment is rendered,
and no consequential, punitive, exemplary, special or multiplied damages
shall be awarded. Each party shall bear its own costs and expenses of
such arbitration proceeding. Notwithstanding the foregoing, the
following categories of claims and disputes shall not be subject to
mandatory arbitration pursuant to the provisions of this Section 21: (i)
any claim by Excelsior-Henderson for moneys owed by Dealer in connection
with any sale of Products and (ii) any claim or dispute arising under
the Lanhan Act, or under any state law or common law alleging
infringement or misuse of the Trademarks. In case any dispute arises
involving the claims described in (i) and (ii) of the preceding sentence
which also involve matters subject to mandatory arbitration hereunder,
unless both parties agree otherwise the matters subject to mandatory
arbitration shall be severed from the claims which are not subject to
mandatory arbitration, and claims subject to mandatory arbitration shall
be decided by arbitration as provided herein, while the claims not
subject to arbitration will be decided in the appropriate judicial forum.
(c) Notwithstanding subsections (a) and (b) of this Section to the
contrary, any party may seek injunctive relief against the other party at
any court of proper jurisdiction with respect to any and all preliminary
injunctive or restraining procedures pertaining to this Agreement or the
breach thereof. Any provisions to the contrary herein notwithstanding, the
law applicable in the jurisdiction of such court shall apply with respect,
but limited to, all such preliminary injunctive or restraining procedures.
(d) Any judicial proceeding challenging the validity of the parties'
agreement to arbitrate pursuant to this Section 21 shall be brought in a
state or federal court located in Minneapolis, Minnesota and each of the
parties hereby submits to the personal jurisdiction and consents to
venue in any such court for such proceeding, and hereby waives to the
fullest extent possible any defense of FORUM NON CONVENIENS.
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<PAGE>
Each of the parties has executed this Agreement through their duly authorized
officers or agents whose signatures appear below, effective as of the date shown
at the beginning of this Agreement.
EXCELSIOR-HENDERSON MOTORCYCLE DATE:
MANUFACTURING COMPANY -----------------------------
BY: BY:
-------------------------------- -------------------------------
Daniel L. Hanlon David P. Hanlon
Co-Founder Co-Founder
DEALERSHIP
DATE:
- ----------------------------------- ------------------------------
(PRINT NAME OF DEALERSHIP)
BY:
--------------------------------
TITLE:
-----------------------------
EXCELSIOR-HENDERSON:
DISTRICT SALES MANAGER DATE:
------------------------------
- -----------------------------------
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<PAGE>
APPENDIX A
TO
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
AUTHORIZED DEALERSHIP AGREEMENT
1. NAME AND LEGAL FORM OF DEALER:
a. Full Legal Name of Dealer:
---------------------------------------------
------------------------------------------------------------------------
b. Legal Form: (check one)
/ / individual (sole proprietor) / / corporation
/ / partnership / / limited liability company
/ / other (specify)
-------------
c. State of incorporation (or if other than a corporation, state of legal
domicile):
------------------------------------------------------------------------
d. List all owners, nature of ownership, interest and percentage interest
(continue on separate sheet if necessary):
Nature of Interest
Ownership (Corporate Stock, Partnership
Name Percentage Interest, Other (Explain))
------------------- ----------------- -----------------------------
1.
----------------- ----------------- -----------------------------
2.
----------------- ----------------- -----------------------------
3.
----------------- ----------------- -----------------------------
4.
----------------- ----------------- -----------------------------
5.
----------------- ----------------- -----------------------------
2. APPROVED LOCATION (STREET ADDRESS):
----------------------------------------------------------------------------
----------------------------------------------------------------------------
----------------------------------------------------------------------------
A-1
<PAGE>
3. INITIAL HOURS OF OPERATION:
---------------------- ---------------------
SUMMER HOURS WINTER HOURS
---------------------- ---------------------
Monday a.m. to p.m. a.m. to p.m.
---- ---- ---- ----
Tuesday a.m. to p.m. a.m. to p.m.
---- ---- ---- ----
Wednesday a.m. to p.m. a.m. to p.m.
---- ---- ---- ----
Thursday a.m. to p.m. a.m. to p.m.
---- ---- ---- ----
Friday a.m. to p.m. a.m. to p.m.
---- ---- ---- ----
Saturday a.m. to p.m. a.m. to p.m.
---- ---- ---- ----
Sunday a.m. to p.m. a.m. to p.m.
---- ---- ---- ----
4. EXCELSIOR-HENDERSON TRADEMARKS:
EXCELSIOR-HENDERSON
EXCELSIOR
HENDERSON
SUPER X
X
X Twin
5. ADDRESSES FOR NOTICES:
Excelsior-Henderson: Excelsior-Henderson Motorcycle Manufacturing Company
607 West Travelers Trail
Burnsville, Minnesota 55337
Attention: National Sales Manager
Dealer:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
A-2
<PAGE>
6. EXCELSIOR-HENDERSON DEALER OPERATING STANDARDS:
(1) SALES
(a) The Showroom
Well displayed and lit with a floor size to accommodate an
"Excelsior-Henderson display" of at least ___ motorcycles
(supply permitting) and/or of at least ______ sq. ft.,
accessories and Excelsior-Henderson apparel.
------------------------------------------------------------
------------------------------------------------------------
------------------------------------------------------------
Floor, walls, ceiling and windows to be well maintained and
of good, clean appearance.
Adequate heating, lighting and ventilation.
Effective use of point of sale materials as and when supplied
by Excelsior-Henderson.
(b) Corporate Signage
A variety of sign sizes and prices have been developed to provide
choices for the Excelsior-Henderson dealers.
Signage requirements will be discussed individually with each
dealer in order to select an option which meets local planning
regulations and which best complements the existing individual
identity of that dealer.
The selections are:
OUTSIDE SIGNAGE (required)
(see sign order materials from XXXX)
INTERNAL SIGNAGE (optional)
(see sign order materials from XXXX)
A-3
<PAGE>
(2) SERVICE
(a) Service Department and Staffing
Service Department of sufficient size to support the new
Excelsior-Henderson models in addition to other motorcycle
brands sold by the dealer.
Service Department to be sufficiently equipped and capable of
undertaking the following functions to a level expected on
modern day, hi-tech, large capacity motorcycles including:
*to be determined
(b) Service Equipment
Dealers with existing motorcycle dealerships will already
possess the great majority of Excelsior-Henderson's equipment
requirements. For reference purposes we have specified each
item:
*to be determined
(c) Tools
(i) Technician's Tools
*to be determined
(ii) Dealership Tools
*to be determined
(iii) Special Excelsior-Henderson Service Tools
*to be determined
(iv) Optional Special Excelsior-Henderson Tools
*to be determined
A-4
<PAGE>
(3) PARTS
Sufficient space must be allocated within the premises for the stocking and
retailing of genuine Excelsior-Henderson spare parts.
There will be an initial dealer parts kit that each dealer is required to
purchase that reflects fast moving, routine service and repair work items.
The volume of fast moving items must be kept at a sufficient level within
the dealership to ensure a high level of customer service satisfaction for
Excelsior-Henderson owners.
(4) PRE-DELIVERY INSPECTION
Pre-Delivery inspections must include the completion of a PDI inspection
sheet supplied by and as subsequently amended by Excelsior-Henderson.
A-5
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
PRE DELIVERY INSPECTION
To be Developed
A-6
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
LIMITED WARRANTY
To be Developed
A-7
<PAGE>
APPENDIX B
TO
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
AUTHORIZED DEALERSHIP AGREEMENT
#
----------------------------- -------------
DEALER'S NAME DEALER NUMBER
ANNUAL PERFORMANCE GOALS
Dealer and Excelsior-Henderson mutually agree that Dealer will sell at retail
the following volume of new and unused Excelsior-Henderson Products during the
applicable selling season defined as January 1, 1998 through December 31, 1998.
-------------------------------------
NUMBER OF NEW MOTORCYCLE UNITS
-------------------------------------
WHOLESALE VALUE OF CLOTHING
-------------------------------------
WHOLESALE VALUE OF PARTS
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
- ------------------------------------ DATE:
DISTRICT SALES MANAGER -----------------------
DEALER
- ------------------------------------ DATE:
-----------------------
B-1
<PAGE>
APPENDIX C
TO
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
AUTHORIZED DEALERSHIP AGREEMENT
AREA OF PRIMARY RESPONSIBILITY
STATE COUNTY/COUNTIES
#1
-----------------------------
#2
-----------------------------
#3
-----------------------------
#4
-----------------------------
#5
-----------------------------
#6
-----------------------------
#7
-----------------------------
#8
-----------------------------
#9
-----------------------------
#10
-----------------------------
DEALER SIGNATURE DATE
--------------------------- ---------------------------
DISTRICT SALES MANAGER DATE
---------------------- ---------------------------
C-1
<PAGE>
EXHIBIT 11.1
EXCELSIOR-HENDERSON MOTORCYCLE MANUFACTURING COMPANY
(A DEVELOPMENT STAGE COMPANY)
STATEMENT RE: COMPUTATION OF PRO FORMA PER SHARE LOSS
<TABLE>
<CAPTION>
CUMULATIVE
FOR THE
PERIOD FROM
INCEPTION
(DECEMBER 22, THREE MONTHS ENDED
YEAR ENDED DECEMBER 31 1993) TO MARCH 31
----------------------------------------- DECEMBER 31, -------------------------
1994 1995 1996 1996 1996 1997
----------- ------------ ------------ ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
NET LOSS...................... $ (389,191) $ (1,233,891) $ (2,511,531) $(4,135,788) $ (485,131) $ (989,760)
----------- ------------ ------------ ------------- ----------- -----------
----------- ------------ ------------ ------------- ----------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Common shares outstanding... 3,531,511 4,975,864 5,859,977 4,780,915 5,844,839 5,872,200
Conversion of Series A
Convertible Preferred
Stock..................... -- -- 1,025,023 339,196 -- 3,066,667
Common stock equivalents
calculated pursuant to
Securities and Exchange
Commission Staff Bulletin
No. 83(1)................. 1,798,167 1,798,167 1,289,856 1,289,856 1,798,167 264,833
----------- ------------ ------------ ------------- ----------- -----------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING
(PRO FORMA)................. 5,329,678 6,774,031 8,174,856 6,409,967 7,643,006 9,203,700
----------- ------------ ------------ ------------- ----------- -----------
----------- ------------ ------------ ------------- ----------- -----------
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE (PRO
FORMA)...................... $ (.07) $ (.18) $ (.31) $ (.65) $ (.06) $ (.11)
----------- ------------ ------------ ------------- ----------- -----------
----------- ------------ ------------ ------------- ----------- -----------
<CAPTION>
CUMULATIVE
FOR THE
PERIOD FROM
INCEPTION
(DECEMBER 22,
1993) TO
MARCH 31,
1997
-------------
<S> <C>
NET LOSS...................... $(5,125,548)
-------------
-------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Common shares outstanding... 4,863,242
Conversion of Series A
Convertible Preferred
Stock..................... 544,957
Common stock equivalents
calculated pursuant to
Securities and Exchange
Commission Staff Bulletin
No. 83(1)................. 1,289,856
-------------
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING
(PRO FORMA)................. 6,698,055
-------------
-------------
NET LOSS PER COMMON AND COMMON
EQUIVALENT SHARE (PRO
FORMA)...................... $ (.77)
-------------
-------------
</TABLE>
- ------------------------
(1) Reflects the issuance of Series A Convertible Preferred Stock, stock
options granted and warrants issued to purchase common stock within the
12-month period prior to the Company's proposed initial public offering at
a price less than the proposed public offering price using the treasury
stock method.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota,
May 23, 1997
<PAGE>
EXHIBIT 24.1
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation, does hereby make,
constitute and appoint Daniel L. Hanlon and David P. Hanlon, and either of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Company to
a Registration Statement or Registration Statements, on Form S-1 or other
applicable form, and all amendments, including post-effective amendments,
thereto, to be filed by said Company with the Securities and Exchange
Commission, Washington, D.C., in connection with the registration under the
Securities Act of 1933, as amended, of shares of Common Stock of said Company to
be issued pursuant to a public offering, and to file the same, with all exhibits
thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of May, 1997.
/s/ John B. Donahue
-------------------------------------------------
John B. Donahue
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation, does hereby make,
constitute and appoint Daniel L. Hanlon and David P. Hanlon, and either of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Company to
a Registration Statement or Registration Statements, on Form S-1 or other
applicable form, and all amendments, including post-effective amendments,
thereto, to be filed by said Company with the Securities and Exchange
Commission, Washington, D.C., in connection with the registration under the
Securities Act of 1933, as amended, of shares of Common Stock of said Company to
be issued pursuant to a public offering, and to file the same, with all exhibits
thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 19th day of May, 1997.
/s/ David R. Pomije
-------------------------------------------------
David R. Pomije
<PAGE>
EXCELSIOR-HENDERSON MOTORCYCLE
MANUFACTURING COMPANY
Power of Attorney
of Director and/or Officer
The undersigned director and/or officer of Excelsior-Henderson
Motorcycle Manufacturing Company, a Minnesota corporation, does hereby make,
constitute and appoint Daniel L. Hanlon and David P. Hanlon, and either of them,
the undersigned's true and lawful attorneys-in-fact, with power of substitution,
for the undersigned and in the undersigned's name, place and stead, to sign and
affix the undersigned's name as such director and/or officer of said Company to
a Registration Statement or Registration Statements, on Form S-1 or other
applicable form, and all amendments, including post-effective amendments,
thereto, to be filed by said Company with the Securities and Exchange
Commission, Washington, D.C., in connection with the registration under the
Securities Act of 1933, as amended, of shares of Common Stock of said Company to
be issued pursuant to a public offering, and to file the same, with all exhibits
thereto and other supporting documents, with said Commission, granting unto said
attorneys-in-fact, and either of them, full power and authority to do and
perform any and all acts necessary or incidental to the performance and
execution of the powers herein expressly granted.
IN WITNESS WHEREOF, the undersigned has hereunto set the undersigned's
hand this 20th day of May, 1997.
/s/ Wayne M. Fortun
-------------------------------------------------
Wayne M. Fortun
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 4,168,785
<SECURITIES> 4,044,992
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8,300,942
<PP&E> 346,908
<DEPRECIATION> 93,296
<TOTAL-ASSETS> 9,024,919
<CURRENT-LIABILITIES> 368,352
<BONDS> 0
0
30,665
<COMMON> 58,782
<OTHER-SE> 8,567,120
<TOTAL-LIABILITY-AND-EQUITY> 9,024,919
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,078,554
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,688
<INCOME-PRETAX> (989,760)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (989,760)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
