<PAGE>
As filed with the Securities and Exchange Commission on June 12, 1997
Registration No. 333-
- --------------------------------------------------------------------------------
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
COYOTE SPORTS, INC.
----------------------------------------------------
(Name of small business issuer in its charter)
Nevada 3949 88-0326730
- ------------------------------ ---------------------------- -------------------
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
2291 Arapahoe Avenue, Boulder, Colorado 80302, (303) 417-0942
-----------------------------------------------------------------
(Address and telephone number of principal executive
offices and principal place of business)
Mel S. Stonebraker, President
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
(303) 417-0942
--------------------------------------------------------------
(Name, address and telephone number of agents for service)
Copies to:
----------
David J. Cook, Esq.
Laurie P. Glasscock, Esq.
Julie A. Johnson, Esq.
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, Colorado 80302
(303) 546-1300
Ward E. Terry, Jr., Esq.
Daniel B. Markofsky, Esq.
Clanahan, Tanner, Downing & Knowlton, P.C.
1600 Broadway
Suite 2400
Denver, CO 80202
(303) 830-9111
-------------------------
Approximate date of proposed sale to the public: As soon as practicable after
the effective date of this Registration Statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, 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. [_]
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
================================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE PRICE PER OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED SHARE /(1)/ PRICE /(1)/ FEE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 1,322,500/(2)/ $ 6.50 $ 8,596,250 $ 2,578.88
- --------------------------------------------------------------------------------------------------------------------------------
Warrants 1,322,500/(3)/ $ .20 $ 264,500 $ 79.35
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, underlying Warrants 661,250/(4)/ $ 9.75 $ 6,447,188 $ 1,934.16
- --------------------------------------------------------------------------------------------------------------------------------
Representative's A Warrants 115,000/(5)/ -0- $ 100 $ -
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Representative's 115,000/(6)/ $ 6.50 $ 747,500 $ 224.25
A Warrants
- --------------------------------------------------------------------------------------------------------------------------------
Representative's B Warrants 115,000/(5)/ -0- $ 100 $ -
- --------------------------------------------------------------------------------------------------------------------------------
Warrants Underlying Representative's B 115,000/(7)/ $ .20 $ 23,000 $ 6.90
Warrants
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Warrants 57,500/(8)/ $ 9.75 $ 560,625 $ 168.19
Underlying Representative's B Warrants
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock, Selling Stockholders 50,000/(9)/ -0- -0- $ -
- --------------------------------------------------------------------------------------------------------------------------------
Warrants, Selling Stockholders 200,000/(9)/ -0- -0- $ -
- --------------------------------------------------------------------------------------------------------------------------------
Common Stock Underlying Warrants, Selling 100,000/(9)/ $ 9.75 $ 975,000 $ 292.50
Stockholders
- --------------------------------------------------------------------------------------------------------------------------------
Total - - $17,614,263 $ 5,284.23
================================================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457 of the rules and regulations promulgated
under the Securities Act of 1933, as amended.
(2) These shares will be offered to the public in the registrant's public
offering (including 172,500 shares that the representative of the
underwriters (the "Representative") has the option of purchasing from the
registrant to cover over-allotments, if any).
(3) These Warrants will be offered to the public in the registrant's public
offering (including 172,500 Warrants that the Representative has the option
of purchasing from the registrant to cover over-allotments, if any.)
(4) These shares of Common Stock are issuable upon exercise of the Warrants. An
indeterminate number of additional shares of Common Stock are registered
hereunder which may be issued as provided in the Warrants in the event that
the provisions against dilution in the Warrants become operative.
(5) The registrant will issue to the Representative at the closing of the
registrant's public offering 115,000 warrants to purchase 115,000 shares of
Common Stock (the "Representative's A Warrants") and 115,000 warrants to
purchase 115,000 Warrants (the "Representative's B Warrants").
(6) These shares of Common Stock are issuable upon exercise of the
Representative's A Warrants. An indeterminate number of additional Shares
are registered hereunder which may be issued as provided in the
Representative's A Warrants in the event that the provisions against
dilution in the Representative's A Warrant's become operative.
(7) These Warrants are issuable upon exercise of the Representative's B
Warrants.
(8) These shares of Common Stock are issuable upon exercise of the Warrants
issuable upon exercise of the Representative's B Warrants. An indeterminate
number of additional shares of Common Stock are registered hereunder which
may be issued as provided in the Warrants issuable upon exercise of the
Representative's B Warrants in the event that the provisions against
dilution in such Warrants become operative.
(9) These Shares and Warrants are to be issued upon the effective date of this
offering in connection with the 1997 Private Placement.
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>
COYOTE SPORTS INC.
Form SB-2 Cross Reference Sheet
<TABLE>
<CAPTION>
Item Number and Description Caption or Location in Prospectus
--------------------------- ---------------------------------
<S> <C> <C>
Item 1. Front of Registration Statement and Outside Facing Page of Registration Statement; Outside Front
Front Cover Page of Prospectus................. Cover Page of Prospectus
Item 2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front and Outside Back Cover Pages of Prospectus
Item 3. Summary Information and Risk Factors........... Prospectus Summary; Risk Factors
Item 4. Use of Proceeds................................ Prospectus Summary; Use of Proceeds; Risk Factors
Item 5. Determination of Offering Price................ Risk Factors; Underwriting
Item 6. Dilution....................................... Risk Factors; Dilution
Item 7. Selling Security Holders....................... Private Placement
Item 8. Plan of Distribution........................... Prospectus Summary; Underwriting
Item 9. Legal Proceedings.............................. Business - Litigation
Item 10. Directors, Executive Officers, Promoters and Management; Principal Shareholders; Certain
Control Persons................................ Transactions
Item 11. Security Ownership of Certain Beneficial Owners Principal Stockholders
and Management.................................
Item 12. Description of Securities...................... Description of Securities; Capitalization
Item 13. Interest of Named Experts and Counsel.......... Experts
Item 14. Disclosure of Commission Policy on Management--Statement as to Indemnification;
Indemnification for Securities Act Liabilities. Underwriting
Item 15. Organization Within Last Five Years............ The Company; Certain Transactions
Item 16. Description of Business........................ Prospectus Summary; Risk Factors; Business
Item 17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis or Plan of
Operation...................................... Operation
Item 18. Description of Property........................ Business - Facilities
Item 19. Certain Relationships and Related Transactions. Certain Transactions
Item 20. Market for Common Equity and Related Inside Front Cover Page of Prospectus; Risk Factors;
Stockholder Matters............................ Underwriting; Dividend Policy
Item 21. Executive Compensation......................... Management
Item 22. Financial Statements........................... Prospectus Summary; Financial Statements; Selected
Financial Data
Item 23. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure......... Experts
</TABLE>
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED ___________, 1997
[1 LOGO] 1,150,000 Shares of Common Stock and [2 LOGOS]
1,150,000 Warrants to Purchase 575,000 Shares of Common Stock
COYOTE SPORTS, INC.
Coyote Sports, Inc. (the "Company" or "Coyote") is offering 1,150,000
shares of common stock of the Company (the "Shares"), and 1,150,000 redeemable
Class A common stock purchase warrants (the "Warrants"). The Shares and Warrants
offered hereby (sometimes collectively referred to as the "Securities") may only
be purchased together in this offering on the basis of one Share and one
Warrant. Two Warrants entitle the holder to purchase one share of Common Stock
at a price equal to $________ (between 125 to 150% of the public offering price
of the Shares) (the "Warrant Exercise Price") during the three-year period
commencing on the date of this Prospectus. The Warrants are subject to
redemption by the Company on 45 days prior written notice under certain
conditions. See "Description of Securities."
It is currently anticipated that the offering price of the Shares will be
between $4.50 and $6.50 per Share, and that the offering price of the Warrants
will be between $.10 and $.20 per Warrant. Prior to the offering of the
Company's securities as described herein, there has been no public market for
the Shares or the Warrants and there can be no assurance that any such market
will develop. The initial offering price has been determined by negotiation
between the Company and Cohig & Associates, Inc., the Representative of the
Underwriters (the "Representative"). For a discussion of the factors considered
in determining the initial public offering price, see "Underwriting."
Application has been made to have the Shares and the Warrants approved for
quotation on The Nasdaq SmallCap Market.
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CAREFULLY
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE 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>
===============================================================================
Price to Underwriting Proceeds to
Public Discounts (1) Company(2)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share.............. $ $ $
- -------------------------------------------------------------------------------
Per Warrant............ $ $ $
- -------------------------------------------------------------------------------
Total(3)............... $ $ $
===============================================================================
</TABLE>
(1) The Company has agreed to pay the Representative a non-accountable expense
allowance equal to 3% of the gross offering proceeds, and to issue to it,
the Representative's Warrants (as defined herein). The Company has also
agreed to indemnify the Underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(2) Before deducting estimated offering expenses of $630,000, including the
non-accountable expense allowance.
(3) The Company has granted the Representative separate options, exercisable
within 45 days from the date of this Prospectus, to purchase up to an
additional 172,500 Shares and/or 172,500 Warrants on the same terms as set
forth above solely to cover over-allotments, if any. If the over-allotment
options are exercised in full, the total Price to Public, Underwriting
Discounts and Proceeds to Company will be $_________, $_________ and
$________ respectively. See "Underwriting."
The Shares and Warrants are being offered severally by the Underwriters,
subject to prior sale, when, as and if delivered to and accepted by the
Underwriters, and subject to their right to reject orders in whole or in part
and certain other conditions. It is expected that delivery of the certificates
representing the Shares and the Warrants will be made on or about ________,
1997.
COHIG & ASSOCIATES, INC.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The date of this Prospectus is , 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 laws of such State.+
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
<PAGE>
[INSIDE FRONT COVER - ARTWORK TO FOLLOW]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its security holders with annual reports
containing audited financial statements and quarterly reports for the first
three quarters of each fiscal year containing unaudited interim financial
information.
On the effective date of the Registration Statement of which this
Prospectus forms a part, the Company will become a "reporting company" under the
Exchange Act. The Company intends to register the Common Stock and the Warrants
under the Exchange Act as of the effective date of the Registration Statement.
The Company is a "small business issuer" as defined under Regulation S-B adopted
under the Securities Act of 1933, as amended (the "Securities Act"), and will
file reports with the Commission pursuant to the Exchange Act on forms
applicable to small business issuers.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and the notes thereto appearing elsewhere
in this Prospectus. Coyote conducts all of its operations through its
subsidiaries, Apollo Sports Technologies, Limited. ("Apollo"), Apollo Golf, Inc.
("Apollo U.S."), Reynolds Cycle Technology, Limited. ("Reynolds"), ICE*USA LLC
("ICE"), Cape Composites, Inc., a wholly-owned subsidiary of Sierra Materials,
LLC (which collectively shall be referred to herein as "Sierra Materials") and
Pentiumatics Sdn., Bhd. ("Pentiumatics"). As used in this Prospectus, unless the
context otherwise requires, the term Company includes Coyote and all of its
subsidiaries. Unless otherwise indicated, all share and per share data and
information contained in this Prospectus relating to the number of shares of
Common Stock outstanding (i) reflects a 3,450 to one forward stock split
effected June 11, 1997; (ii) assumes the issuance upon consummation of this
offering of an aggregate of 50,000 Shares and Warrants to purchase 100,000
Shares in connection with a private placement financing in April 1997 (see
"Private Placement"); (iii) assumes no exercise of the overallotment option
(172,500 Shares and/or 172,500 Warrants); (iv) does not include up to 500,000
shares of Common Stock reserved for issuance upon exercise of options available
for grant under the Company's 1997 Stock Option Plan (the "Option Plan") and (v)
does not include up to 172,500 Shares reserved for issuance to the
Representative pursuant to this offering (the "Representative's Warrants"). See
"Description of Securities" and "Underwriting."
The Company
Coyote Sports, Inc. designs, engineers, manufactures, markets and
distributes brand name sports equipment and recreational products worldwide. The
Company's products include steel and graphite golf shafts, premium grade cycle
tubing, aluminum and composite ski poles and javelins. The Company produces
graphite and other advanced composite materials for use in the production of
golf shafts, fishing poles, ski poles, hockey sticks and other third party
manufactured products. The Company will be producing aluminum extruded
alloys for such products as cycle tubing, ski poles and tennis rackets. The
Company manufactures its Apollo golf shafts in its manufacturing facility in
Oldbury, England, its Reynolds cycle tubing in Tyseley, England, its ICE ski
poles and graphite and other advanced composite materials in California and will
be manufacturing extruded aluminum alloys in Southeast Asia.
During the year ended December 31, 1996, the greatest portion of the
Company's sales were derived from its Apollo steel golf shafts and Reynolds'
cycle tubing. Apollo is the only manufacturer of seamless steel golf shafts in
the world. Management believes that the physical integrity of the seamless golf
shaft is superior to the welded golf shafts made by its competitors. Seamless
tubes can be manufactured using a greater variety of high carbon alloys which
the Company believes increase golf shafts strength and consistency and permits
greater design versatility. Apollo has a strong OEM customer base, including in
alphabetical order, such brand names as Callaway Golf, Inc., Cobra Golf, Inc.,
Focus Golf, Harris International, Karsten, Knight Golf, MacGregor Golf, Mizuno
Golf Company, Northwestern Golf, Titleist and Wilson Sporting Goods Company.
Reynolds ranks as one of the leading suppliers of premium brand cycle tubing
serving such customers as GT Bicycle, Inc., Kona Bicycles USA, Raleigh Bicycle
Company, Ltd. and Trek Bicycle Corp. Twenty-seven of the last 35 Tour de France
races were won with bicycles made from Reynolds' tubing.
Coyote's business objective is to become a leading provider of sports
equipment and recreational products. Coyote management intends to build a
consolidated group of companies engaged in related and complementary businesses
that work together to compete effectively in the sports and recreation industry.
The Company intends to continue to purchase undervalued companies within the
sports and recreation industry with experienced management, that have
well-established brand names and product lines, and strong engineering and
design capabilities. Management intends to strengthen and foster the growth of
these companies through the introduction of additional manufacturing
capabilities and techniques, expanded sales and marketing efforts and vertical
integration of company-wide manufacturing and distribution capabilities. Since
September 1996, Coyote has acquired sole ownership of four companies and has a
controlling interest in two other companies in furtherance of this strategy.
The Company's strategies to achieve its objective and facilitate its growth
is to: (i) continue to evaluate and acquire businesses compatible with the
Company's objective; (ii) expand further into the graphite golf shaft market;
(iii) increase the production of steel golf shafts to the optimal manufacturing
plant production output so as to realize cost efficiencies; (iv) shift the
manufacturing mix to products with higher value to increase per unit
profitability;(v) introduce aluminum alloy cycle tubing and other products
through a new manufacturing facility in Southeast Asia; (vi)
-3-
<PAGE>
increase the capacity of the Company's graphite and other advanced composite
materials manufacturing facility; and (vii) expand product offerings into new
and existing markets.
The Company was incorporated in Nevada on October 24, 1994. The Company's
principal offices are located at 2291 Arapahoe Avenue, Boulder, Colorado 80302,
and its telephone number is (303) 417-0942.
The Offering
Securities offered .......................... 1,150,000 Shares and Warrants.
Two Warrants will entitle the
holder to purchase one share of
Common Stock at the Warrant
Exercise Price during the
three-year period commencing on
the date of this Prospectus. The
Warrants will be redeemable
under certain circumstances in
the Company's discretion if the
closing high bid price of the
Shares exceeds the Warrant
Exercise Price by at least 50%
during a period of at least 20
of the 30 trading days
immediately preceding notice of
the Company's intent to redeem
the Warrants. See "Description
of Securities."
Common Stock outstanding before offering..... 3,450,000 Shares
Common Stock outstanding after offering...... 4,650,000 Shares/(1)/
Warrants to be outstanding after offering.... 1,637,500/(2)/
Exercise Price of Warrants................... $__________ (between 125% to
150%) of the initial public
offering price of the Shares,
subject to adjustment in certain
circumstances. See "Description
of Securities-- Warrants."
Use of Proceeds.............................. Acquisitions, loan repayment,
capital equipment for Sierra
Materials and Pentiumatics, debt
repayment for Sierra Materials,
repayment of stockholder notes,
marketing and working capital.
See "Use of Proceeds."
Proposed NASDAQ SmallCap symbols.............
Common Stock........................ "COYT"
Warrants............................ "COYTW"
- --------------------
(1) Does not include 172,500 shares assuming the exercise of the overallotment
option. Does not include (i) up to 659,375 shares issuable upon exercise of
the Warrants, (ii) up to 115,000 shares issuable upon exercise of the
Representative's A Warrants, and (iii) up to 57,500 shares issuable upon
exercise of the Representative's B Warrants (collectively referred to
herein as the "Additional Securities"). See "Description of Securities" and
"Underwriting".
(2) Includes the (i) 1,322,500 Warrants to be issued in this offering assuming
the exercise of the overallotment option; (ii) up to 115,000 Warrants to be
issued to the Representative; and (iii) 200,000 Warrants to be issued in
connection with the Private Placement.
Risk Factors
This offering involves a high degree of risk and immediate substantial
dilution. Prospective investors should carefully consider the matters set forth
under "Risk Factors" and "Dilution."
-4-
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share and share data)
The following historical summary consolidated statement of operations data
for each of the years in the two-year period ended December 31, 1996 and the
historical summary balance sheet data as of December 31, 1996 are taken or
derived from the historical consolidated financial statements of the Company
included elsewhere herein, which were audited by KPMG Peat Marwick LLP as set
forth in their report thereon also included herein. The historical summary
consolidated statements of operations data for the three months ended March 31,
1996 and 1997 are taken or derived from the unaudited consolidated financial
statements of the Company included elsewhere herein. In the opinion of
management, such unaudited interim consolidated financial statements reflect all
adjustments (including only normal recurring accruals) which in the opinion of
management are necessary for a fair presentation of the results for these
periods. The operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. The following summary unaudited pro forma financial data are
taken or derived from the unaudited pro forma condensed combined financial
statements of the Company included elsewhere herein. The pro forma data are not
necessarily indicative of the results of the operations or financial position
that would have been obtained had the acquisitions occurred as of the beginning
of the periods covered thereby nor do they purport to be indicative of the
future results of operations or financial position of the Company. The summary
financial and operating data should be read in conjunction with the financial
statements, including notes thereto, included elsewhere in the Prospectus and
the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
-------------------------------- -------------------------------
Pro forma/(1)/ Pro forma/(2)/
1995 1996 1996 1996 1997 1997
----- -------- -------- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales.......................... $ - 5,453 23,522 10 5,376 6,309
Cost of goods sold................. - (3,029) (14,536) (12) (3,157) (3,893)
----- -------- -------- ----- ------- -------
Gross profit (loss)................ - 2,424 8,986 (2) 2,219 2,416
Selling, general and
administrative expenses....... (371) (3,139) (9,892) (98) (2,717) (2,954)
----- -------- -------- ----- ------- -------
Operating loss..................... (371) (715) (906) (100) (498) (538)
Other income (expense)............. - 92 (106) - (116) (118)
Income tax benefit (expense)....... - - (248) - 111 111
Minority interest.................. - (6) (6) - 6 18
----- -------- -------- ----- ------- -------
Net loss........................... $ (371) (629) (100) (497)
====== ====== ====== ======
Net loss per share................. $(0.11) $(0.18) $(0.03) $(0.14)
====== ====== ====== ======
Pro forma net loss................. (1,266) (527)
======== =======
Pro forma net loss per share/(3)/.. $ (0.37) $ (0.15)
======== =======
Shares used in computing
net loss per share and
pro forma net loss per
share/(3)/...................... 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000
</TABLE>
-5-
<PAGE>
<TABLE>
<CAPTION>
December 31, March 31, 1997
--------------------------------
1996 Actual As Adjusted/(2)(4)/
---- ------ ----------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash.............................................. $ 305 $ 1,293 $ 6,511
Working capital................................... 2,269 1,660 6,877
Total assets...................................... 12,108 15,463 20,680
Total liabilities................................. 6,563 10,226 9,813
Minority interests in net assets of subsidiaries... 210 203 203
Total stockholders' equity........................ 5,335 5,034 10,664
</TABLE>
- --------------------
(1) Pro forma financial information is based upon the historical consolidated
financial statements of the Company for the year ended December 31, 1996,
the historical combined financial statements of TI Apollo, Apollo U.S.,
TI Reynolds and a manufacturing facility for the nine months ended
September 30, 1996 (collectively, the "Apollo Entities"), and the
historical financial statements of Sierra Materials for the period March 1,
1996 to December 31, 1996.
(2) Pro forma financial information is based upon the historical consolidated
financial statements of the Company and the historical financial statements
of Sierra Materials.
(3) Calculated as described in Note 1 of Notes to Consolidated Financial
Statements.
(4) Pro forma as adjusted amounts reflect the sale of 1,150,000 Shares of
Common Stock and 1,150,000 Warrants (excluding any Shares and Warrants
which may be sold as a result of the exercise of the overallotment option)
as contemplated by this Prospectus at an assumed price of $5.50 per Share
of Common Stock, net of $1,279,750 of estimated offering expenses and
underwriting discounts and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."
-6-
<PAGE>
RISK FACTORS
The purchase of the Shares and the Warrants is speculative and involves a
high degree of risk and immediate and substantial dilution. Prospective
investors should carefully consider all of the information contained in this
Prospectus and, in particular, the following factors which could adversely
affect the operations and prospects of the Company, before making a decision to
purchase any Shares or Warrants.
Risk Factors Related to the Business of the Company
- ---------------------------------------------------
Forward Looking Statements. The following cautionary statements are made
pursuant to the Private Securities Litigation Reform Act of 1995 in order for
the Company to avail itself of the "safe harbor" provisions of that Act. The
discussions and information in this Prospectus may contain both historical and
forward-looking statements. To the extent that the Prospectus contains
forward-looking statements regarding the financial condition, operating results,
business prospects or any other aspect of the Company, please be advised that
the Company's actual financial condition, operating results and business
performance may differ materially from that projected or estimated by the
Company in forward-looking statements. The Company has attempted to identify, in
context, certain of the factors that it currently believes may cause actual
future experience and results to differ from the Company's current expectations.
The differences may be caused by a variety of factors, including but not limited
to adverse economic conditions, general decreases in consumer spending for
sports equipment and recreational products, intense competition, including entry
of new competitors, increased or adverse governmental regulation, inadequate
capital, unexpected costs, lower sales and net income than forecasted, loss
of significant customers, price increases for raw materials, inability to raise
prices, the risk of litigation and administrative proceedings involving the
Company and its employees, higher than anticipated labor costs, labor disputes,
the possible fluctuation and volatility of the Company's operating results and
financial condition, adverse publicity and news coverage, adverse currency
exchange rates, inability to carry out marketing and sales plans, loss of key
executives, changes in interest rates, inflationary factors, and other specific
risks that may be alluded to in this Prospectus.
Recent Operating Losses and Accumulated Deficit. Coyote has acquired an interest
in seven companies since inception, one of which was recently dissolved. Of
these, Apollo, Apollo U.S., Reynolds and ICE were the only companies with
business operations during the year ended December 31, 1996, and which had been
acquired as of that date. The Company, on a consolidated historical basis,
incurred a net loss of $629,044 for the year ended December 31, 1996. Subsequent
to December 31, 1996, the Company acquired two additional entities, Sierra
Materials and Pentiumatics, in exchange for cash and the assumption of
indebtedness. Sierra Materials operated at a loss for the year ended December
31, 1996. Pentiumatics was acquired by the Company in April 1997 and has had no
prior business operations. From inception through March 31, 1997, the Company
had an accumulated deficit of $1,513,808. In order to become profitable, the
Company must increase sales while effectively managing costs. The Company plans
to attain profitability, in part, through more efficient utilization of existing
plant capacities at Apollo and Reynolds, expanding manufacturing capacity at
Sierra Materials, commencing manufacturing at Pentiumatics following
confirmation of the completion of such subsidiary's purchase of land, building,
and plant equipment and machinery, and by acquiring companies whose businesses
would be complementary to, and compatible with, the existing business of the
Company's subsidiaries. There can be no assurance that the Company will be able
to achieve these goals or attain profitability. See "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business."
Expansion Strategy; Acquisitions and their Integration; Additional Capital
Requirements. Since inception, the Company has acquired an equity interest in
seven companies. In May 1997, the Company and its partner dissolved one of the
companies whose objective was to evaluate the business opportunities in
marketing and selling sporting apparel. An important part of the Company's
growth strategy is to increase sales through product innovation and pursuing
growth opportunities in domestic and international markets, including growth
through acquisitions. In most cases, the Company will not be required to obtain
stockholder approval in order to complete its acquisitions. Acquisitions involve
numerous risks, including potential difficulties in the assimilation of acquired
operations, diversion of management's attention away from normal operating
activities, negative financial impact based on the amortization of any acquired
intangible assets, potential loss of key employees of the acquired operation and
potential
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financial risks resulting from pre-acquisition liabilities that may exceed any
indemnities provided by the seller of the acquired company. The successful
integration of any such acquisition is critical to the future financial
performance of the Company. Complete integration of any acquisitions could take
several fiscal quarters to accomplish and would require, among other
considerations, assimilation of the acquired companies, their management,
personnel and procedures as part of the Company's existing consolidated group
and coordination of the respective companies' sales and marketing and research
and development efforts. There can be no assurance that present and potential
customers of the Company and any acquired entity would continue purchasing from
the Company. In addition, the process of combining two organizations could cause
the interruption of, or loss of momentum in, the activities of either or both
companies' businesses, which could have an adverse impact on their combined
operations. The Company believes that there may be other acquisition
opportunities which could complement its existing businesses. While the Company
regularly evaluates acquisition and business combination opportunities, there
are no commitments or agreements with respect to any potential additional
acquisition as of the date of this Prospectus. There can be no assurance that
the recent acquisitions or any other business that the Company may acquire in
the future will be effectively and profitably integrated into the Company.
Although the Company plans to allocate $1,600,000 from the proceeds of this
offering for acquisitions, the Company may require additional capital beyond
that amount in order to carry out its acquisition strategy. The Company's
ability to execute its growth strategy depends to a significant degree on its
ability to obtain additional debt or equity financing. Other than the proceeds
from this offering, the Company has no commitments for additional borrowings or
sales of equity securities, and there can be no assurance that the Company will
be successful in consummating any such future financing arrangements on terms
favorable to the Company or that any such acquisition will not force the Company
to acquire additional debt. Factors which could affect the Company's access to
the capital markets, or the cost of such capital, include changes in interest
rates, general economic and market conditions, the perception in the capital
markets of the Company's present businesses, results of operations, leverage,
financial condition and business prospects or concerns in the capital markets
regarding the potential for growth in the particular industries in which the
Company's subsidiaries conduct their businesses. Expansion or acquisition costs
could adversely affect the Company's liquidity and financial stability. See
"Business" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
MANAGEMENT OF GROWTH. The Company has experienced significant growth in the past
two years and expects such growth to continue. The Company's growth may place
significant strains on the Company's future management, staff, working capital,
and operating and financial control systems. There can be no assurance that the
Company's management, staff, working capital and systems will be adequate to
support its future anticipated growth. The failure to continue to upgrade
operating and financial control systems, to recruit qualified staff or to
respond effectively to difficulties encountered during expansion could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Dependence on Foreign Manufacturing Operations; Country Risks and Exchange Rate
Fluctuations. For the year ended December 31, 1996, and the three months ended
March 31, 1997, substantially all of the Company's revenues were from products
manufactured in foreign countries. The Company's business is highly dependent
upon steel golf shaft and cycle tubing products that are manufactured in England
utilizing raw materials furnished by a foreign supplier. In the future, the
Company expects that an expanded number of its products will be manufactured in
Southeast Asia. The Company's business is subject to the risks generally
associated with doing business abroad, such as delays in shipment, foreign
governmental regulation, adverse fluctuations in foreign exchange rates,
embargoes, tariffs, exchange controls, trade disputes, expropriation, changes in
economic conditions and governmental instability in the countries in which the
Company's manufacturing plants are located. The Company's business is also
subject to the risks associated with the enactment of additional United States
or foreign legislation and regulations relating to exports or imports, including
quotas, duties, taxes or other charges or restrictions that could be imposed
upon the import or export of the Company's products in the future which, if
imposed, could have a material adverse effect on the Company's business, results
of operations and financial condition. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
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Dependence on Economic Conditions and Consumer Trends. The Company's business is
subject to economic cycles and changing consumer trends. Purchases of
discretionary sports equipment and recreational products tend to decline in
periods of economic uncertainty. The Company's products are generally used by
its customers in manufacturing finished goods for sale. Any significant decline
in general economic conditions or uncertainties regarding future economic
prospects that affect consumer spending could have a material adverse effect on
the Company's business, results of operations and financial condition. In the
past ten years, there has been increased consumer spending on golf, cycle and
skiing products. There can be no assurance that consumer spending for golf,
cycle and skiing products will continue. Any general decline in the size of the
market for golf shafts, cycle tubing or ski poles, whether from general economic
conditions, or otherwise or any adverse change in the sale of products
manufactured for the Company's customers could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business."
Seasonality and Dependence on Customers' Markets. Golf equipment, cycle tubing
and ski poles are seasonal products. The Company's results of operations may be
materially adversely affected by quarter-to-quarter changes in unit sales to
individual customers. Such changes may result from either decisions by the
customer to increase or decrease purchases or from the traditional volatility in
consumer demand for products. The Company believes that this volatility is
likely to continue in the future as customers seek to gain competitive advantage
through increased technology, innovation and design. The mix of products may
also contribute to quarterly or other periodic fluctuations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Limited Supply of Carbon Fiber. The business of the Company's subsidiary, Sierra
Materials, is dependent on the availability of carbon fiber raw materials. There
are a limited number of carbon fiber suppliers worldwide. In recent years,
carbon fiber has, from time to time, been subject to limited supply. Sierra
Materials is, and expects to remain throughout 1997, on allocation from its
suppliers for carbon fiber materials used in its products. Although it is
anticipated in the future that the supply of carbon fiber will increase, there
can be no assurance that the carbon fiber supply currently committed to Sierra
Materials will be available when required or that Sierra Materials' allocation
will be sufficient to meet currently projected demand or additional
opportunities. Because Sierra Materials purchases large volumes of carbon fiber,
any decrease in the supply or increase in the cost of Sierra Materials' carbon
fiber could have a material adverse effect on the business, results of
operations and financial condition of Sierra Materials. See "Business--Sierra
Materials."
Dependence on Key Personnel. The Company's success depends to a considerable
extent on the performance of its senior management team. The loss of the
services of a limited number of key management personnel, particularly Mel S.
Stonebraker, Chief Executive Officer, James M. Probst, Chief Operating Officer,
or certain key employees of the Company or its subsidiaries, could have a
material adverse effect on the Company. Although the Company has employment
agreements with Messrs. Stonebraker and Probst which extend through the year
2000, and which contain a non-competition clause prohibiting such employees from
competing for nine months after termination, such agreements are difficult to
enforce against employees. The Company has key-person life insurance policies in
the amounts of $1,000,000 each on the lives of Messrs. Stonebraker and Probst.
See "Management- Employment Agreements."
Environmental Considerations. The Company's operations are subject to
governmental, environmental and health and safety laws and regulations,
including the laws of the United Kingdom and Southeast Asia, that impose
workplace standards and limitations on the discharge of pollutants into the
environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials,
substances and wastes. The environmental laws in the United Kingdom are
presently being redrafted and, although no assurance can be given, the Company
believes that its facilities in the United Kingdom will be in compliance with
the new legislation as anticipated to be enacted. The nature of the Company's
heavy industrial manufacturing and assembly operations in Oldbury and Tyseley,
England, its manufacturing facility in California and its future operations in
Southeast Asia could expose the Company to the risk of claims with respect to
environmental matters. Although compliance with governmental requirements
relating to the protection of the environment has not had a material adverse
effect on the Company's business results of operations or financial condition to
date, there can be no assurance that material costs or
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liabilities will not be incurred in connection with such environmental matters
in the future. The Company's Oldbury facility has a permit to discharge waste
effluent into a settling pond located on-site. The Company believes it is in
compliance with the discharge permit. In addition, expenditures for upgrades to
Apollo's effluent treatment system, if required, may be material. The Company
holds an indemnity from the seller of this property for certain remediation
attributable to the settling pond which is limited to five years and 500,000
Pounds Sterling. The existence of the settling pond on future events, such as
changes in existing laws and regulations or enforcement policies or the
discovery of contamination on sites owned or operated by the Company, may give
rise to additional compliance costs or operational interruptions which could
have a material adverse effect on the Company's business, results of operations
and financial condition. See "Business--Governmental Regulation."
Financing and Liquidity. The Company's capital requirements have been and will
continue to be significant. To date, the Company has funded its capital
requirements primarily with equity investments from the Company's founders and
the gross proceeds of $1,500,000 obtained by the Company pursuant to the Private
Placement. Part of the net proceeds to be received by the Company from this
offering will be used to repay the principal amount of $1,500,000 and to repay
in full debt of approximately $115,000 to a stockholder. The Company anticipates
that the proceeds to the Company from this offering, together with projected
cash flows from operations, will be sufficient to satisfy its contemplated cash
requirements for at least twelve months following the consummation of this
offering. However, the Company's growth strategies include acquisition which, in
particular, could create cash requirements beyond those presently contemplated.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Competition. The sports equipment and recreational products industry is highly
competitive. The Company faces competition, from companies, many of which have
greater financial and management resources, research and development facilities
and manufacturing and marketing capabilities, including brand name recognition,
than the Company. There can be no assurance that technological and other
developments by the Company's competitors or potential competitors will not make
the Company's products less competitive in the market. The Company's ability to
compete effectively will depend upon its ability to attract and retain qualified
personnel, innovate its manufacturing techniques and processes, make adequate
provision for its raw material requirements and supplies through long-term
supply agreements, maintain and expand its technological capabilities, continue
the process of vertically integrating its manufacturing and distribution
capabilities through further acquisitions of companies whose businesses
complement those of the Company, market and sell existing products to new
customers, develop new products for existing and new customers, service its
products and further develop its sales force. Golf product sales are driven, in
significant part, by technological improvements and innovations which will
require that the Company maintain its ability to compete in this area. No
assurance can be given that the Company will be able to compete effectively. See
"Business."
Control by Management and Principal Stockholders. Following the completion of
this offering, the Company's executive officers and directors and founding
stockholders together will beneficially own 3,450,000 shares (74.2% of the
shares outstanding after this offering assuming the overallotment option is not
exercised). As a consequence, management and the existing stockholders will be
in control of the Company, including the ability to elect all of the persons
serving on the Company's Board of Directors, following completion of this
offering. This concentration of ownership may have the effect of delaying or
preventing a change in control of the Company. See "Principal Stockholders."
Labor Unions; Risk of Work Stoppage. The Company's employees at its Oldbury and
Tyseley, England facilities are represented by several trade unions for
collective bargaining purposes. Approximately 223 of Apollo's employees and
approximately 19 additional Reynolds employees are covered by different trade
union agreements, representing individual trade unions, regarding such issues as
grievance procedures and safety. These union agreements may be renegotiated at
various times in the future, depending on a variety of circumstances. Although
the Company believes its relations with its employees are good, there can be no
assurance that the Company will not experience work stoppages or slowdowns in
the future. Any such work stoppage or slowdown could have a material adverse
effect on the business results of operations and financial condition of the
Company's Apollo and Reynolds subsidiaries. In addition, there is no assurance
that the Company's non-union facilities will not at sometime in the future
become subject to labor disputes and union organizational efforts. See
"Business--Employees."
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Dependence on Proprietary Technology. The Company relies primarily on trademark
and trade secret laws and confidentiality procedures to protect its proprietary
processes and product designs. Although the Company intends to protect its
intellectual property, there can be no assurance that the steps that are taken
by the Company in this regard will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. Furthermore, litigation may be necessary to enforce the Company's
intellectual property rights, to protect the Company's trade secrets, to
determine the validity and scope of the proprietary rights of others or to
defend against claims of infringement could have a material adverse effect on
the Company's business, results of operations and financial condition. Such
litigation could result in substantial costs and diversion of resources and
personnel. See "Business --Proprietary Information."
Product Liability Risk; Limited Insurance Coverage and Uninsured Risks. Due to
the nature of the Company's golfing, cycling and skiing products, the Company is
subject to product liability claims involving personal injuries allegedly
related to Apollo's golf shafts, Reynolds' cycle tubing and ICE ski poles. The
Company's Apollo, Reynolds and ICE subsidiaries currently carry occurrence-based
product liability insurance policies. The Company believes that its insurance
has been and continues to be adequate to cover product liability claims.
Nevertheless, any future claims are subject to the uncertainties related to
litigation, and the ultimate outcome of such proceedings or claims cannot be
predicted. Due to the uncertainty with respect to the nature and extent of
manufacturers' and distributors' liability for personal injuries, there is no
assurance that the product liability insurance of the Company's subsidiaries is
or will be adequate to cover such claims. Further, there can be no assurance
that insurance will remain available or, if available, that it will not be
prohibitively expensive. Although the Company believes it has adequate insurance
coverage against hazards and risks which are typical in the businesses conducted
by its subsidiaries and that such coverage is in reasonable amounts, there can
be no assurance that due to certain unforseen circumstances that such insurance
will be adequate in every instance. In addition, certain hazards and risks may
be specifically excluded from coverage under the policies maintained by the
Company or otherwise may be unavailable to the Company or other companies within
the industry. The loss of insurance coverage or claims exceeding that coverage
or uninsured risks or hazards could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Industrial Injuries. The Company is subject to the normal kind of claims from
employees in heavy industrial manufacturing operations. Several employees at
Apollo's heavy industrial manufacturing facility have filed claims concerning a
variety of work related ailments, including a condition which results from
prolonged exposure to machinery which vibrates. The Company is intent on
remedying this exposure by replacing certain equipment. Apollo's Employers
Liability Insurance Policy and related insurance company are involved with
processing and settlement of these claims. No assurance can be given that these
claims can be settled at reasonable cost to the Company or that repair or
replacement of certain machinery will not cost more than expected or be required
in a manner other than as contemplated by management. See
"Business--Governmental Regulations."
Substantial Purchase Obligation. ICE was formed on September 18, 1996, by the
transfer of certain assets from Expedition Trading Company ("Expedition") which
also acquired a 20% membership interest in ICE. Expedition is entitled to
receive 7% of gross sales from ICE from 1997 through 2002, with a minimum
payment of $100,000 per year and a maximum payment of $200,000 per year. In
2003, ICE must pay Expedition $1.5 million less all amounts previously paid to
date under the agreement. Expedition retains a security interest in all of the
ICE assets. No assurance can be given that ICE can be profitable in the future
with the burden of the Expedition payment or that the Company will be able to
meet its substantial payment obligation to Expedition in 2003. Failure to meet
that obligation would cause a default under the agreement and possible loss of
the ICE assets, including its trade name, customer lists, and proprietary
information which the Company will have developed over the period of time prior
to 2003. (See "Business--ICE" and "Business--Acquisition History.")
Risk Factors Related to this Offering
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Offering Prices. The offering price of the Shares and Warrants and the Warrant
Exercise Price and other terms of the Warrants being offered hereby were
determined by negotiation between the Company and the Underwriter and are not
necessarily related to the Company's assets, book value or financial condition,
and may not be indicative of the actual value of the Company. See
"Underwriting."
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Dilution. At March 31, 1997, after giving effect to a 3,450 for 1 forward
stock split, the Company had net tangible book value of $4,049,128 or $1.17 per
Share based upon 3,450,000 shares of Common Stock outstanding. Net tangible book
value per share is determined by dividing the number of outstanding shares of
Common Stock into the net tangible book value of the Company (total assets less
total liabilities and intangible assets). After giving effect to the receipt of
the net proceeds therefrom, the adjusted net tangible book value at March 31,
1997, would have been $9,679,024 or $2.08 per Share. This represents an
immediate increase of $0.91 per Share to current stockholders and an immediate
dilution of $3.57 per Share or 63% to the investors in this offering. See
"Dilution."
Broad Discretion in Application of Proceeds; Unspecified Acquisitions. Of the
approximate $5,217,750 net proceeds from this offering, management intends to
allocate $1,600,000 to acquisitions, $1,955,000 to debt repayment (including
$115,000 to a stockholder) and $1,300,000 to capital equipment purchases. The
remaining $362,750 will be used for working capital and other general corporate
purposes. Management believes that the availability of proceeds from this would
enhance the Company's ability to expand its business more rapidly by taking
advantage of opportunities to acquire competitive or complementary businesses,
on a favorable basis. Although the Company is not currently a party to any
commitment or agreement with respect to any prospective acquisition, it has
explored and continues to evaluate, possible opportunities that complement the
Company's businesses. Accordingly, management will have broad discretion
concerning the exact nature of the application of net proceeds of this offering.
In addition, in the future the Company intends to use its Common Stock or
Preferred Stock to acquire additional companies which will dilute the ownership
interest of public stockholders. See "Use of Proceeds."
Need for Current Prospectus and State Blue Sky Registrations. Holders of
Warrant will have the right to exercise the Warrants for the purchase of shares
of the Company's Common Stock (the "shares") only if there is a current and
effective registration statement and prospectus covering the Warrants and the
shares issuable upon their exercise, and only if the shares are qualified for
sale under the securities laws of the applicable state or states. While the
Company has undertaken plans to do so, there can be no assurance that a current
Registration Statement and Prospectus will be in effect when any of the Warrants
are attempted to be exercised. Although the Company will seek to qualify for
sale of the shares of Common Stock underlying the Warrants in those states in
which the Securities are to be offered, no assurance can be given that such
qualifications will be granted. The Warrants may be deprived of any value if a
Prospectus covering the shares issuable upon the exercise thereof is not kept
effective and current, or if such underlying shares are not, or cannot be,
registered in the applicable states. See "Description of Securities."
Potential Adverse Effect of Warrant Redemption. The Warrants may be redeemed by
the Company, after 12 months from the date of this Prospectus, at a price of
$.10 per Warrant upon 45 days' notice, if (a) the closing high bid price of the
Common Stock has equaled or exceeded ____% (between 125% to 150%) of the then
current Warrant Exercise Price, for a period of 20 or more of the 30 consecutive
trading days immediately preceding such notice, (b) the Company has in effect a
current registration statement with the applicable regulatory authorities
registering the common stock issuable upon exercise of the Warrants, and (c) the
Representative consents in writing to the redemption if the redemption is
proposed to occur within the 18 month period immediately following the Effective
Date. Warrantholders shall have exercise rights until the close of the business
day preceding the date fixed for redemption. Redemption of the Warrants could
force the holders to exercise the Warrants and pay the Warrant Exercise Price at
a time when it may be disadvantageous for holders to do so, to sell the Warrants
at the then current market price when they might otherwise wish to hold the
Warrants, or to accept the redemption price, which is likely to be substantially
less than the market value of the Warrants at the time of redemption. In
addition, such Warrants may only be redeemed or exercised if the underlying
shares have been qualified for sale, or there is an exemption from applicable
qualification requirements, under the securities laws of the state of residence
of the holder of the Warrant. See "Description of Securities."
Underwriters' Influence on the Market. A significant number of Shares and
Warrants may be sold to customers of the Underwriters. Such customers may
subsequently engage in transactions for the sale or purchase of such Securities
through or with the Underwriters. Although they have no legal obligation to do
so, the Underwriters from time to time in the future may make a market in and
otherwise effect transactions in the Securities. To the extent the
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Underwriters do so, they may be a dominating influence in any market that might
develop and the degree of participation by the Underwriters may significantly
affect the price and liquidity of the Company's Securities. Such market making
activities, if commenced, may be discontinued at any time or from time to time
by the Underwriters without obligation or prior notice. Depending on the nature
and extent of the Underwriters' market making activities and retail support of
the Company's Securities at such time, the Underwriters' discontinuance could
adversely affect the price and liquidity of the Company's Securities.
Lack of Dividends. The Company has not paid any dividends since inception.
Possible Loss of NASDAQ Listing. In order to continue to be listed on NASDAQ,
the Company must satisfy certain maintenance standards which relate to the
Company's assets, capital surplus and public trading price of its Securities. As
a result, there can be no assurance that the Company's Securities will continue
to be listed on NASDAQ. If the Company's Shares and Warrants are delisted from
NASDAQ trading, subsequent trading in those Securities would thereafter be
limited to being conducted in the over-the-counter market on an electronic
bulletin board established for securities that do not meet NASDAQ listing
requirements, or which are commonly referred to as the "pink sheets." As a
result, an investor would find it substantially more difficult to dispose of, or
to obtain accurate quotations as to the price of the Shares and Warrants. The
Company's Securities could become subject to the "penny stock" rules as a
consequence of any such delisting.
Shares Eligible for Future Sale. As of March 31, 1997, 3,450,000 shares of the
Company's Common Stock, were issued and outstanding, all of which are
"restricted securities" and under certain circumstances may, in the future, be
sold in compliance with Rule 144 adopted under the Securities Act. Holders of
3,450,000 shares of restricted stock, including all officers and directors of
the Company who hold such restricted stock, have agreed that they will not,
without the written consent of the Representative, offer to sell, contract to
sell, or otherwise sell or dispose of their stock for one year following this
offering. In general, under Rule 144, subject to the satisfaction of certain
other conditions, a person, including an affiliate of the Company, who has
beneficially owned restricted shares of Common Stock for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of (i) 1% of the total number of outstanding shares of
the same class, or (ii) if the Common Stock is quoted on NASDAQ or a stock
exchange, the average weekly trading volume during the four calendar weeks
immediately preceding the sale. A person who presently is not and who has not
been an affiliate of the Company for at least three months immediately preceding
the sale and who has beneficially owned the shares of Common Stock for at least
two years is entitled to sell such shares under Rule 144 without regard to any
of the volume limitations described above.
The Company is authorized to issue an additional options to purchase up to
500,000 shares of Common Stock under the Company's Option Plan. The Company
plans to register for sale under the Securities Act all shares issuable upon
exercise of options granted under the Option Plan. Following completion of the
offering, assuming no exercise of the over-allotment option, the Company will
have outstanding Warrants exercisable to purchase, in the aggregate, 675,000
shares of Common Stock at a price of $______ per share, excluding Warrants
issuable upon exercise of the Representative's A Warrants and Representative's B
Warrants. See also "Underwriter's Warrant" below. The Company has undertaken to
register for sale under the Securities Act all shares issuable upon exercise of
those Warrants. No prediction can be made to the effect, if any, that sales of
shares of Common Stock or the availability of such shares for sale will have on
the market prices prevailing from time to time. Nevertheless, the possibility
that substantial amounts of Common Stock may be sold in the public market in the
future may adversely affect prevailing market prices of the Common Stock and
could impair the Company's ability to raise capital in the future through the
sale of equity securities. Actual sales or the prospect of future sales of
shares of Common Stock under Rule 144 may have a depressive effect upon the
price of the Common Stock and the market for such securities.
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Rights to Acquire Shares. A total of 818,750 shares of Common Stock have been
reserved to be issued in connection with the Private Placement and this
offering. In addition, the Company's Option Plan includes options to purchase
500,000 shares of Common Stock, none of which are currently exercisable. Holders
of options and warrants will have the opportunity to profit from an increase in
the market price of the Company's Common Stock with possible dilution to the
holders of Common Stock. The existence of such options and warrants may
adversely affect the terms upon which the Company can obtain additional
financing, and the holders of such options and warrants can be expected to
exercise or convert those securities at a time when the Company, in all
likelihood, would be able to obtain additional capital by offering shares of its
Common Stock on terms more favorable to the Company than those provided by the
exercise or conversion of such options or warrants.
Underwriter's Warrants. In connection with the offering, the Company will sell
to the Underwriter, for a nominal cost, warrants (the "Representative's
Warrants") to purchase up to 115,000 Shares and 115,000 Warrants. The
Representative's Warrants will be exercisable commencing one year after the date
of this Prospectus and for four years thereafter, at an exercise price equal to
the initial public offering price of the Shares and Warrants. Holders of the
Representative's Warrants are given the opportunity to profit from a rise in the
market price of the Shares and Warrants with a resulting dilution of the
percentage ownership of the then stockholders. Furthermore, the Company will
grant certain registration rights with respect to the Representative's Warrants
and such registration could result in substantial expense to the Company. See
"Underwriting--Representative's Warrants."
No Prior Public Market; Determination of Offering Price; Possible Volatility of
Stock Price. Prior to this offering, there has been no public market for the
Company's Shares or Warrants and there can be no assurance that an active
trading market for the Shares or Warrants will develop or be sustained after
this offering. In the event that the Company's Shares are thinly traded,
stockholders may not be able to sell a significant amount of Shares or Warrants
at the price quoted, or at all. The initial public offering price for the Shares
and Warrants will be determined by negotiation between the Company and the
Representative based on several factors and may bear no relationship to the
market price of the Shares and Warrants subsequent to this offering. Following
this offering, the market price for the Shares and Warrants may be highly
volatile depending on various factors, including the general economy, stock
market conditions, announcements by the Company or its competitors and
fluctuations in the Company's operating results. In addition, the securities
market historically has experienced volatility which has affected the market
price of securities of many companies and which has sometimes been unrelated to
the operating performance of such companies. The trading price of the Shares or
Warrants could also be subject to significant fluctuations in response to
variations in quarterly results of operations, announcements of new products by
the Company or its competitors, changes in earnings estimates by analysts,
governmental regulatory action, other developments or disputes with respect to
proprietary rights, general trends in the industry and overall market
conditions, and other factors. See "Underwriting."
Anti-takeover Considerations. The Board of Directors, without any action by the
Company's stockholders, is authorized under the terms of its Restated Articles
of Incorporation, to designate shares of preferred stock in such classes or
series as it deems appropriate and to establish the rights, preferences and
privileges of such shares, including dividend, liquidation and voting rights.
This ability of the Board of Directors would permit the Company to adopt a
stockholders' rights plan which would deter a hostile takeover or issue shares
which could entrench the Board of Directors and deter an unsolicited tender
offer. Either event may deprive current stockholders of the ability to sell
shares at a premium over the market price or adversely affect the voting power
and other rights of holders of Common Stock. These provisions could have the
effect of discouraging, delaying, deferring or preventing a change in control of
the Company. See "Description of Securities."
USE OF PROCEEDS
The net proceeds to the Company from this offering, after deduction of
estimated offering expenses and underwriting discounts of $1,279,750 will be
approximately $5,217,750, assuming a per Share offering price of $5.50 and a per
Warrant offering price of $.15 ($6,094,912 if the over-allotment options on the
Shares and Warrants are exercised in full). Management anticipates that the net
proceeds will be applied with the following priority during the next twelve
month period:
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<PAGE>
<TABLE>
<CAPTION>
Description of Use Amount Percent
------------------ ------ -------
<S> <C> <C>
Acquisitions/(1)/ $1,600,000 30.7%
Repayment of Loan/(2)/ 1,540,000 29.5%
Capital Equipment--Sierra Materials/(3)/ 1,000,000 19.2%
Capital Equipment--Reynolds/(4)/ 300,000 5.7%
Repayment of Debt--Sierra Materials/(5)/ 300,000 5.7%
Repayment of notes to stockholder/(6)/ 115,000 2.2%
Working Capital/(7)/ 362,750 7.0%
</TABLE>
- --------------------
(1) The Company intends to use a substantial portion of the net proceeds for
the acquisition or development of products or businesses which are
complementary with the Company's current products and businesses, if such
acquisition or development arises. While the Company regularly evaluates
acquisition and business combination opportunities, as of the date of this
Prospectus, there are no substantive commitments or agreements with respect
to any potential acquisition.
(2) In April 1997, as a result of the Private Placement, the Company obtained
two loans in the aggregate principal amount of $1,500,000 from unaffiliated
third parties. The loans are due on the earlier of December 31, 1997, or
five days subsequent to the Company's completion of an initial public
offering. The interest rate on each of the loans is 8% per annum. The notes
are secured by a Stock Pledge Agreement for the Company's shares in Apollo
and Apollo U.S. and by personal guarantees by Mel Stonebraker and James
Probst.
(3) The Company intends to purchase certain capital equipment necessary for an
additional production line.
(4) The Company intends to use these funds to purchase certain equipment for a
new aluminum and steel cycle tubing manufacturing operation in Southeast
Asia.
(5) The Company intends to use these funds to repay certain liabilities of
Sierra Materials.
(6) The Company has outstanding notes payable to Mel Stonebraker in the amount
of $112,861 at December 31, 1996. The notes are unsecured and bear interest
at rates ranging from 12% to 25% per annum which approximates Mr.
Stonebraker's cost of the money lent to the Company. Interest is payable
monthly on the notes and any principal amounts outstanding are due in
August 1998.
(7) Part of the working capital may be used for Apollo marketing and sales and
for the proposed Pentiumatics manufacturing facility following such time as
the Company has confirmed that Pentiumatics has acquired the land, building
and plant equipment and machinery pursuant to an existing agreement.
The amounts set forth above represent the Company's present intentions for
the use of the proceeds from this offering. However, actual expenditures could
vary considerably depending upon many factors, including, without limitation,
changes in the economic conditions, unanticipated complications, delays and
expenses, or development of Pentiumatic's manufacturing facility and completion
of the acquisition of the land, building, plant equipment and machinery pursuant
to an existing agreement. Any reallocation of the net proceeds of this offering
will be made at the discretion of the Board of Directors but will be in
furtherance of the Company's strategy to achieve growth and profitable
operations, including through the acquisition of products or businesses which
are complementary to the Company's current products and businesses. Although the
Company anticipates that the proceeds from this offering will be sufficient for
twelve months, the Company's working capital requirements are a function of its
future sales growth and expansion plans, neither of which can be predicted with
any reasonable degree of certainty, especially growth resulting from business
acquisitions. The Company may need to seek funds through loans or other
financing arrangements in the future, and there can be no assurance that the
Company will be able to make such arrangements in the future should the need
arise. See "Risk Factors."
Pending use of the net proceeds of the offering, the funds may be invested
temporarily in certificates of deposit, short-term government securities or
similar investments. Any income from these short-term investments will be used
for working capital.
-15-
<PAGE>
CAPITALIZATION
The following table sets forth, cash, short term debt and capitalization of
the Company as of March 31, 1997, (i) giving effect to the 3,450 to 1 forward
stock split and pro forma to give effect to the sale of the Shares and Warrants
offered hereby and the initial application of the estimated net proceeds
therefrom. See "Use of Proceeds." For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and thereto included in this Prospectus.
<TABLE>
<CAPTION>
March 31, 1997
-------------------------------
Actual Pro forma
(Unaudited) (Unaudited)
---------- -----------
<S> <C> <C>
Cash........................................................... $ 1,293,212 6,510,962
Short term debt and current portion of long term debt/(1)/..... 3,360,700 3,360,700
=========== ==========
Long term debt, excluding current portion/(3)/................. 1,216,662 804,516
Minority interests in net assets of subsidiaries............... 203,356 203,356
Stockholders' equity:
Preferred stock, $.001 par value, 4,000,000
shares authorized, no shares issued or
outstanding.............................................. - -
Common Stock, $.001 par value,
25,000,000 shares authorized, 3,450,000
shares issued and outstanding; 4,650,000 shares
issued and outstanding, as adjusted...................... 3,450 4,650
Additional paid-in capital..................................... 6,342,211 11,970,907
Accumulated deficit............................................ (1,513,808) (1,513,808)
Foreign currency translation adjustment........................ 202,000 202,000
----------- ----------
Total stockholders' equity..................................... 5,033,853 10,663,749
----------- ----------
Total capitalization........................................... $ 6,453,871 11,671,621
=========== ==========
</TABLE>
/(1)/ Does not include two notes in the total principal amount of $1,500,000
which were issued by the Company in April, 1997. See disucssion under
"Private Placement".
/(2)/ Such obligations are in connection with the Company's acquisition of
intangible assets by ICE. See Financial Statements included herein.
/(3)/ Notes payable to stockholder and partial repayment of Sierra Material's
indebtedness.
DIVIDEND POLICY
The Company has paid no dividends since inception. The payment of dividends
on the Shares rests with the discretion of the Board of Directors. There are no
restrictions on payment of dividends under any agreements to which the Company
is a party. Payment of dividends is contingent upon, among other things, future
earnings, if any, and the financial condition of the Company, capital
requirements, general business conditions, and other factors which cannot now be
predicted. There can be no assurance that the future operations of the Company
will be profitable or that dividends will ever be paid by the Company.
-16-
<PAGE>
DILUTION
The following gives effect to the issuance of the Shares and Warrants
offered hereby at an assumed Price to Public of $5.50 for the Shares and $.15
for the Warrants. The net tangible book value of the Company's Common Stock at
March 31, 1997 was $4,049,128 or $1.17 per share. "Net tangible book value"
represents the tangible assets less total liabilities of the Company, and "net
tangible book value per share" was determined by dividing the net tangible book
value of the Company by the number of shares of Common Stock outstanding on
March 31, 1997, as adjusted for the June 11, 1997 stock split. See
"Capitalization." "Pro forma net tangible book value dilution per share"
represents the difference between the Price to Public per Share and Warrant and
the net tangible book value per share after this offering. Without taking into
account any changes in the Company's net tangible book value per share after
March 31, 1997 other than to give effect to the sale of the Shares offered
hereby (net of underwriting discounts and estimated offering expenses of
$1,279,750), the net tangible book value of the Company at March 31, 1997 would
have been $9,679,024 or $2.08 per share. This represents an immediate increase
in net tangible book value to the existing stockholders of $0.91 per share and
an immediate net tangible book value dilution to purchasers of the Shares of
$3.57 per share, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed Price to Public per Share and Warrant..................... $5.65
Net tangible book value per share of Common Stock before
offering(1)....................................................... $1.17
Increase per share of Common Stock attributable to new
investors......................................................... 0.91
Adjusted net tangible book value per Share of Common Stock
after offering.................................................... 2.08
Dilution in net tangible book value per Share of Common Stock
to new investors.................................................. $3.57
=====
Dilution per share of Common Stock as a percentage of offering
price............................................................. 63%
</TABLE>
- --------------------
(1) Assumes no exercise of the Warrants, the Representative's Warrants or the
warrants to be issued in connection with the Private Placement.
The following table summarizes as of March 31, 1997, the difference between
existing stockholders and the new investors with respect to the number of shares
of Common Stock purchased from the Company, the total consideration paid and the
average price paid per share to the Company hereby (before deducting
underwriting discounts and estimated offering expenses):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------------------------------ -------------------------------------------
Number Percent Amount Percent
----------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Existing stockholders............ 3,450,000 74.2% $ 1,000 -%
New stockholders/(1)/............ 1,200,000 25.8% 6,325,000 100
----------------- -------------------- ------------------- -------------------
Total............................ 4,650,000 100.0% 6,326,000 100
================= ==================== =================== ===================
<CAPTION>
Average
Price per
Share and Warrant
-----------------
<S> <C>
Existing stockholders............ $ -
New stockholders/(1)/............ 5.65
Total............................
</TABLE>
- --------------------
(1) Assumes Price to Public of $5.50 per Share and $0.15 per Warrant with
1,150,000 Shares sold and 50,000 Shares which will be issued in connection
with this offering in connection with the 1997 Private Placement.
-17-
<PAGE>
SELECTED FINANCIAL DATA
(In thousands, except per share and share data)
The following historical selected consolidated statement of operations data
for each of the years in the two-year period ended December 31, 1996 and the
historical selected balance sheet data as of December 31, 1996 are taken or
derived from the historical consolidated financial statements of the Company
included elsewhere herein, which were audited by KPMG Peat Marwick LLP as set
forth in their report thereon also included herein. The historical selected
consolidated statement of operations data for the three months ended March 31,
1996 and 1997 are taken or derived from the unaudited consolidated financial
statements of the Company included elsewhere herein. In the opinion of
management, such unaudited interim consolidated financial statements reflect all
adjustments (including only normal recurring accruals) which in the opinion of
management are necessary for a fair presentation of the results for these
periods. The operating results for the three months ended March 31, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. The following selected unaudited pro forma financial data are
taken or derived from the unaudited pro forma combined financial statements of
the Company included elsewhere herein. The pro forma data are not necessarily
indicative of the results of the operations or financial position that would
have been obtained had the acquisitions occurred as of the beginning of the
periods covered thereby nor do they purport to be indicative of the future
results of operations or financial position of the Company. The selected
financial and operating data should be read in conjunction with the financial
statements, including notes thereto, included elsewhere in the Prospectus and
the discussion under "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Year Ended December 31, Three Months Ended March 31,
------------------------------------------- -------------------------------------------
Pro forma/(1)/ Pro forma/(2)/
1995 1996 1996 1996 1997 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Net sales........................ $ - 5,453 23,522 10 5,376 6,309
Cost of goods sold............... - (3,029) (14,536) (12) (3,157) (3,893)
--------- ------- -------- ------- ------- -------
Gross profit (loss).............. - 2,424 8,986 (2) 2,219 2,416
Selling, general and
administrative expenses..... (371) (3,139) (9,892) (98) (2,717) (2,954)
--------- ------- -------- ------- ------- -------
Operating loss................... (371) (715) (906) (100) (498) (538)
Other income (expense)........... - 92 (106) - (116) (118)
Income tax benefit (expense)..... - - (248) - 111 111
Minority interest................ - (6) (6) - 6 18
--------- ------- -------- ------- ------- -------
Net loss......................... $ (371) (629) ( 100) (497)
========= ======= ======= =======
Net loss per share............... $ (0.11) $ (0.18) $(0.03) $(0.14)
========= ======= ======= =======
Pro forma net loss............... (1,266) (527)
======== =======
Pro forma net loss per share(3).. $ (0.37) $ (0.15)
======== =======
Shares used in computing
net loss per share and
pro forma net loss per
share(3)...................... 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000
</TABLE>
-18-
<PAGE>
<TABLE>
<CAPTION>
March 31, 1997
December 31, ------------------------------
1996 Actual As Adjusted/(2)(4)/
---- --------- -------------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash ............................................... 305 1,293 6,511
Working capital .................................... 2,269 1,660 6,877
Total assets ....................................... 12,108 15,463 20,680
Total liabilities .................................. 6,563 10,226 9,813
Minority interests in net assets of subsidiaries ... 210 203 203
Total stockholders' equity.......................... 5,335 5,034 10,664
</TABLE>
- ---------
(1) Pro forma financial information is based upon the historical consolidated
financial statements of the Company for the year ended December 31, 1996,
the historical combined financial statements of TI Apollo Limited, Apollo
Golf, Inc., TI Reynolds 531 Limited and a manufacturing facility for the
nine months ended September 30, 1996 (collectively, the "Apollo entities"),
and the historical financial statements of Sierra Materials for the period
March 1, 1996 to December 31, 1996.
(2) Pro forma financial information is based upon the historical consolidated
financial statements of the Company and the historical financial statements
of Sierra Materials.
(3) Calculated as described in Note 1 to Consolidated Financial Statements.
(4) Pro forma as adjusted amounts reflect the sale of 1,150,000 Shares of
Common Stock as contemplated by this Prospectus at an assumed price of
$5.50 per Share of Common Stock and $0.15 per Warrant, net of $1,279,750 of
estimated offering expenses and underwriting discounts and the application
of the estimated net proceeds therefrom. See "Use of Proceeds" and
"Capitalization."
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto and the Pro Forma
Consolidated Statements of Operations and Notes thereto, which appear elsewhere
in this Prospectus. Certain statements contained in this Prospectus are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements are subject to risks,
uncertainties and other factors which could cause actual results to differ
materially from future results expressed or implied by such forward-looking
statements. Such risks and uncertainties include, but are not limited to,
competitive pressures, changing economic conditions and other factors, some of
which may be outside of the control of the Company. See "Risk Factors."
Overview
Coyote designs, engineers, manufactures, markets and distributes brand name
sports equipment and recreational products. The Company's products include steel
and graphite golf shafts, premium grade cycle tubing, aluminum and composite ski
poles and javelins. The Company produces graphite and other advanced composite
materials for use in the production of golf shafts, fishing poles, ski poles,
hockey sticks and other third party manufactured products. The Company will be
producing aluminum extruded alloys for such products as cycle tubing, ski poles
and tennis rackets. The Company manufactures its Apollo golf shafts in its
manufacturing facility in Oldbury, England, its Reynolds cycle tubing in
Tyseley, England, its ICE ski poles and graphite and other advanced composite
materials in California and intends to manufacture extruded aluminum alloys in
Southeast Asia.
During the year ended December 31, 1996, the greatest portion of the
Company's sales were derived from its Apollo steel golf shafts and Reynolds'
cycle tubing. Apollo is the only manufacturer of seamless steel golf shafts in
the world. Management believes that the physical integrity of the seamless golf
shaft is superior to a welded golf shaft made by its competitors. Seamless tubes
can be manufactured using a greater variety of high carbon alloys which the
Company believes increase golf shaft strength and consistency and permits
greater design versatility. Apollo has a strong OEM customer base, including in
alphabetical order, such brand names as Callaway Golf, Inc., Cobra Golf, Inc.,
Focus Golf, Harris International, Karsten, Knight Golf, MacGregor Golf Company,
Mizuno Golf Company, Northwestern Golf, Titleist and Wilson Sporting Goods
Company. Reynolds ranks as one of the leading suppliers of premium brand cycle
tubing serving such customers as GT Bicycle, Inc., Kona Bicycles USA, Raleigh
Bicycle Company, Ltd. and Trek Bicycle Corp. Twenty-seven of the last 35 Tour de
France races were won with bikes made from Reynolds' tubing.
Source of Sales
Apollo's steel golf shaft business and Reynold's cycle tubing business
accounted for approximately 91% of the Company's sales for the year ended
December 31, 1996. In March 1997, the Company acquired an 80% interest in Sierra
Materials which manufactures advanced composite materials. In April 1997, the
Company purchased all of the outstanding stock of Pentiumatics, a Southeast
Asian company which expects to manufacture extruded aluminum alloys. The
combination of these two acquisitions are anticipated to lessen the Company's
dependence on the sale of golf and cycle products as its principal source of its
sales. During the year ended December 31, 1997 and thereafter, management
believes that the golf and cycle businesses will represent a progressively lower
percentage of its total sales. The Company's future acquisitions strategy is to
focus on the sports equipment and recreation industry with no single product
line representing a majority of its total sales.
Apollo Golf Shafts
The steel golf shaft market has three significant manufacturers: True
Temper (U.S.A.), Apollo (UK) and FM Precision (U.S.A.). Nippon Steel has
progressively withdrawn from the market and Apollo has purchased equipment from
Nippon Steel at favorable prices. There are large capital entry barriers
associated with the
-20-
<PAGE>
manufacturing of steel golf shafts and the Company does not anticipate
additional capacity coming on line from any new competitors. The Company's
assets in the UK used to manufacture steel golf shafts have been appraised in
excess of the book value reflected in the Company's financial statements.
Currently, Apollo has a small market share of the graphite golf shaft business.
The Company's future plans are to increase sales in the graphite golf shaft
business utilizing Apollo's strong sales and distribution channels. Initially,
the Company plans to expand its presence in the graphite golf shaft business by
purchasing finished graphite golf shafts from an independent graphite
manufacturer for resale to the retail after market. Additionally, the Company
will act as sales agent for this same third party manufacturer for sales to
original equipment manufacturers ("OEMs"). The Company has signed a long-term
supply agreement for graphite golf shafts with a Southeast Asian company and
believes that with Apollo's established sales and distribution channel that it
will increase sales in this segment by providing competitive pricing, quality
and service.
Graphite golf shafts are manufactured by approximately 30 companies
worldwide and competition is intense. The industry is maturing and management
anticipates a consolidation will occur and as such, the number of competitors
will be reduced. Management anticipates that technology, price, quality and
service will be determining factors in effectively competing in this market. The
major competitors today are Aldila, UST, Unifiber, Fujikura, Grafalloy and True
Temper.
The Company's results of operations could be materially adversely affected
by the traditional volatility in consumer demand for specific golf club brands.
The Company also believes that while it will often be impossible to predict such
shifts in advance, the Company's broad range of customers should reduce the
extent of the impact on the Company's financial results. Traditionally, the
Company has focused its attention on the OEM market. The Company plans to
continue devoting a majority of its research and development efforts on
developing new innovations for the OEM market which today represents a large
portion of the Company's sales. The Company believes that its strong presence in
the OEM market has helped to position it as a leader in the design, development
and manufacture of golf shafts. The Company believes that its strong historical
position with respect to OEM manufacturers gives it credibility in the retail
after market as well. Expanding the Company's market share in the retail after
market is a significant component of its growth strategy.
Apollo has a strong OEM customer base, including in alphabetical order,
such brand names as Callaway Golf, Inc., Cobra Golf, Inc., Focus Golf, Harris
International, Karsten, Knight Golf, MacGregor Golf Company, Mizuno Golf
Company, Northwestern Golf, Titleist and Wilson Sporting Goods Company. For the
year ended December 31, 1996, Apollo had approximately 730 customers in the
U.S.A. and 70 in Europe. No one customer accounted for more than 10% of the
Company's sales for the year ended December 31, 1996. Accordingly, the Company
is not economically dependent on any one key customer.
Reynolds Cycle Tubing
The Reynolds cycle tubing business is seasonal and had only a small impact
on the financial results of the Company for the period from acquisition
(September 18, 1996) through December 31, 1996. The Company plans to expand the
Reynolds cycle tubing business through its proposed investment in a
manufacturing operation in Southeast Asia and the introduction of an aluminum
cycle tubing product line. The cycle industry has been targeted for future
possible acquisitions. See "Use of Proceeds."
ICE Ski Poles
The ICE ski pole business represented approximately 7% of the Company's
total sales during the period from acquisition (September 18, 1996) through
December 31, 1996. In the future, the Company expects winter sports products to
become a larger portion of its business and as such, ICE expects that its
products will be in greater demand. By expanding its product line of winter
sports products, management expects more even cash flows throughout the year.
-21-
<PAGE>
Effects on Results of Operations
The acquisition of Apollo and Sierra Materials, both of which require
significant machinery and equipment to manufacture their respective products,
will result in depreciated charges to operations of approximately $600,000 per
year.
ICE's intangible assets were recorded at approximately $815,000, net of the
minority interest in ICE. The Company is amortizing these assets, using the
straight-line method, over a 15-year period which will result in a non-cash
charge to operations of approximately $55,000 per year.
Results of Operations
Prior to 1996, the Company was a development stage enterprise as it was
devoting most of its activities to financial planning and identifying and
evaluating acquisitions. Management's Discussion and Analysis includes primarily
discussions of operations subsequent to the acquisition of Apollo, Reynolds,
Apollo U.S., and ICE. Accordingly, as discussed in greater detail below, these
acquisitions have resulted in material increases in the Company's net sales,
cost of goods sold and selling, general and administrative costs for the three
months ended March 31, 1997 in comparison to the three months ended March 31,
1996 and for the year ended December 31, 1996 compared to the year ended
December 31, 1995. The businesses were acquired in September 1996. The operating
results of these acquired entities are reflected only in the three months ended
March 31, 1997 and not for the three months ended March 31,1996 and from October
1, 1996 to December 31, 1996 for the year ended December 31, 1996. The Company
also made an acquisition on March 27, 1997, of Sierra Materials, a manufacturer
of graphite and other advanced composite materials for use in the sports
equipment and recreation industries. The effects of this acquisition are
included in the interim consolidated balance sheet of the Company as of March
31, 1997. The results of operations of Sierra Materials is not reflected in the
interim consolidated statement of operations for the three months ended March
31, 1997.
For the three months ended March 31, 1997 compared to the three months
ended March 31, 1996.
During the three months ended March 31, 1997, the Company's net sales
totaled $5,375,918 with a gross profit of $2,218,577 (41%).
During the three months ended March 31, 1997, the Company's selling,
general and administrative expenses increased to $2,716,666 from $98,217 for the
three months ended March 31, 1996. This increase resulted from the acquisition
of Apollo, Reynolds and Apollo U.S. (91%), the acquisition of ICE (5%) and an
increase in corporate expenses associated with the acquisitions (4%).
During the three months ended March 31, 1997, the Company recorded interest
expense of $93,368. The increase in interest expense is principally the result
of the Company's credit facilities in the United States and the United Kingdom.
The Company has increased its outstanding debt during the three months ended
March 31, 1997, to meet its working capital needs for the 1997 golf season.
During the three months ended March 31, 1997, the Company recorded an
income tax benefit of $111,000 generated by an operating loss in the United
Kingdom.
-22-
<PAGE>
For the year ended December 31, 1996 compared to year ended December 31,
1995.
During the year ended December 31, 1996, the Company's net sales totaled
$5,453,117 with a gross margin of $2,424,361 (44%). The Company's net sales and
gross margin included the following product mix: Apollo (primarily golf shafts)
(91%), ICE ski poles (7%) and other sporting goods (2%).
During the year ended December 31, 1996, the Company's selling, general and
administrative expenses increased to $3,139,140 from $370,873 for the year ended
December 31, 1995, or $2,768,267. This increase resulted from the acquisition of
Apollo, Reynolds and Apollo U.S., (91%) and the acquisition of ICE (5%) and an
increase in corporate expenses associated with the acquisitions (4%).
During the year ended December 31, 1996, the Company recorded interest
expense of $34,897. This interest expense resulted from a bank credit facility
arrangement which bears interest at 1.5% over the bank's prime rate and a line
of credit that was repaid prior to December 31, 1996, which bore interest at
12%. Given the variable nature of the Company's debt facilities, the
amount of interest fluctuates as rates change.
During the year ended December 31, 1996, the Company recorded a net gain on
forward exchange contracts of $126,570. This gain resulted from movements in the
respective exchange rates of the United States Dollar and the British Pound
Sterling, relative to the Company's underlying forward exchange contracts.
Management may or may not continue to execute forward exchange contracts in the
function currency of countries in which the Company does business and the
financial impact of such contracts cannot be estimated by management.
Inflation has not had a significant impact on the Company's operations
during the two year period ended December 31, 1996.
The following table sets forth, for the periods indicated, certain
statement of operations data as a percentage of net sales. The 1996 data is
attributable to Apollo, Reynolds and Apollo U.S. and the pro forma 1996 data
reflects the pro forma combined results of the Company and Apollo, Reynolds, and
Apollo U.S. as though the acquisitions were effective January 1, 1996. The 1997
data is attributable to Apollo, Reynolds, Apollo U.S., and ICE and the pro forma
1997 data reflects the combined results of the Company and Sierra Materials as
though the acquisition was effective January 1, 1997.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 Three Months Ended March 31, 1997
---------------------------- ---------------------------------
Historical Pro Forma Historical Pro Forma
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales........................................... 100% 100% 100% 100%
Cost of goods sold.................................. (56) (62) (59) (61)
Gross profit................................... 44 38 41 39
Selling, general and administrative expenses........ (57) (42) (50) (47)
Operating loss...................................... (13) (4) (9) (8)
Interest expense.................................... (1) (1) (2) (2)
Gains on forward exchange contracts, net............ 2 1 - -
Loss before income taxes and minority interest...... (12) (4) (11) (10)
Income tax benefit (expense)........................ - (1) 2 2
Minority interest................................... - - - -
Net loss....................................... (12)% (5)% (9)% (8)%
</TABLE>
-23-
<PAGE>
Recent Accounting Pronouncements
In February of 1997, the Financial Accounting Standards Board (the "FASB")
issued Statements of Financial Accounting Standards, No.128, Earnings per Share,
(Statement No. 128) and No. 129, Disclosure of Information about Capital
Structure, (Statement No. 129), effective for years ending after December 15,
1997. Statement No. 128 specifies the computation, presentation, and disclosure
requirements for earnings per share ("EPS") for entities with publicly held
common stock or potential common stock. The Company has adopted Statement No.
128. The effect of such adoption did not have a significant impact on
the earnings per share of the Company. Statement No. 129 specifies and
aggregates various disclosures which were previously required for certain
entities. The Company has adopted the disclosure requirements under this
statement.
Seasonality
Because the Company's customers have historically built inventory in
anticipation of purchases by golfers in the spring and summer, the principal
selling season for golf shafts, the Company's primary product, the Company's
operating results have been affected by seasonal demand for golf clubs, which
has generally resulted in higher sales in the spring and summer months. The
success of certain customers' products, patterns of product introduction, and
customer acceptance thereof, coupled with a generally increasing overall demand
for golf shafts, may mitigate the impact of this seasonality. The Company
acquisitions strategy will in part be driven by its intention to moderate
seasonality and balanced cash flows.
Liquidity and Capital Resources
The Company incurred a loss of $629,044 in the year ended December 31, 1996
and $370,873 in the year ended December 31, 1995. Notes payable to banks as of
December 31, 1996 contractually terminated at March 31, 1997 and May 31, 1997
and were subsequently extended by such lenders. Subsequent to December 31, 1996,
the Company acquired two additional entities in exchange for the assumption of
indebtedness and entered into two new debt agreements which contractually
terminate in 1997. Management believes that the combination of positive cash
flows from operations, extending the due dates of debt agreements and the sale
of the Shares will provide sufficient cash to meet its obligations as they come
due. However, there can be no assurance that operations will generate positive
cash flows, that the debt agreements will be extended, and that the Shares will
be sold. If the Company is unable to secure additional financing or refinance
existing debt, cash flows from operations might not be sufficient to cover the
Company's financial obligations during 1997.
As of December 31, 1996, the Company had $305,006 in cash. Working capital
as of December 31, 1996, totaled $2,268,507.
Net cash used in operating activities was $344,954 and $1,117,303 in 1995
and 1996, respectively. The primary uses of cash was to fund the Company's
losses, to fund the build-up of inventory for the 1997 golf season, and to
reduce outstanding payables and accruals. Cash received from the collection of
receivables from sales prior to acquisition was also used to fund these uses of
cash.
Net cash used in investing activities of $5,045,652 was principally the
acquisition of businesses in 1996. Capital expenditures in 1997 are expected to
be approximately $1,750,000 and will be primarily used for the acquisition of
businesses which meet the Company's business objective. See "Use of Proceeds."
Net cash provided by financing activities was $350,555 and $6,226,044 in
1995 and 1996, respectively. The primary source of cash was capital
contributions by one of the Company's stockholders. The Company also increased
certain amounts payable to banks to finance its seasonal fluctuations in
working capital demand.
The Company continues to consider the acquisition of additional businesses
complementary to the Company's business. The Company could require additional
debt or equity financing, if it were to engage in a material acquisition in the
future.
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<PAGE>
BUSINESS
Overview
Coyote designs, engineers, manufactures, markets and distributes brand name
sports equipment and recreational products. The Company's products include steel
and graphite golf shafts, premium grade cycle tubing, aluminum and composite ski
poles and javelins. The Company produces graphite and other advanced composite
materials for use in the production of golf shafts, fishing poles, ski poles,
hockey sticks and other manufactured third party products. The Company intends
to produce aluminum extruded alloys for such products as cycle tubing, ski poles
and tennis rackets. The Company manufactures its Apollo golf shafts in its
manufacturing facility in Oldbury, England, its Reynolds cycle tubing in
Tyseley, England, its ICE ski poles and graphite and other advanced composite
materials in California and intends to manufacture extruded aluminum alloys in
Southeast Asia.
During the year ended December 31, 1996, the greatest portion of the
Company's sales were derived from its Apollo steel golf shafts and Reynold's
cycle tubing. Apollo is the only manufacturer of seamless steel golf shafts in
the world. Management believes that the physical integrity of the seamless golf
shaft is superior to a welded golf shaft made by its competitors. Seamless tubes
can be manufactured using a greater variety of high carbon alloys which the
Company believes increase golf shaft strength and consistency and permits
greater design versatility. Apollo has a strong OEM customer base, including in
alphabetical order, such brand names as Callaway Golf, Inc., Cobra Golf, Inc.,
Focus Golf, Harris International, Karsten, Knight Golf, MacGregor Golf,
Mizuno Golf Company, Northwestern Golf, Titleist and Wilson Sporting Goods
Company. Reynolds ranks as one of the leading suppliers of premium brand cycle
tubing serving such customers as GT Bicycle, Inc., Kona Bicycles USA, Raleigh
Bicycle Company, Ltd. and Trek Bicycle Corp. Twenty-seven of the last 35 Tour de
France races were won with bikes made from Reynolds' tubing.
Coyote's business objective is to become a leading provider of sports
equipment and recreational products. Coyote management intends to build a
consolidated group of companies engaged in related and complementary businesses
that work together to compete effectively in the sports and recreation industry.
The Company intends to purchase companies which it believes are undervalued
within the sports and recreation industry with experienced management, that have
well-established brand names and product lines, and strong engineering and
design capabilities. Management intends to strengthen and foster the growth of
these companies through the introduction of additional manufacturing
capabilities and techniques, expanded sales and marketing efforts and vertical
integration of company wide manufacturing and distribution capabilities. Since
September 1996, Coyote has acquired sole ownership of four companies and a
controlling interest in two other companies in furtherance of this strategy.
The Apollo Group--Golf Products
Acquisition Opportunities
- -------------------------
Management perceives that the acquisition of Apollo presents the Company
with a number of opportunities: (i) to be a participant in the growing market
for golf equipment spawned by the recent popularity in this sport; (ii) to
capture a larger share of the golf shaft market by concentrating its marketing
efforts on the unique features and advantages of the seamless golf shaft in
comparison to its competitors' welded golf shafts which historically has not
been well communicated to its customers; (iii) to increase manufacturing
capability and profitability through more efficient utilization of plant
capacity; and (iv) to penetrate the growing graphite golf shaft business by
using its strong OEM customer base, its well recognized brand name and
established sales and distribution channels to increase sales and profitability.
History and Market
- ------------------
In 1913, Accles and Pollock of England, the predecessor to Apollo, secured
the first patent for seamless tapered steel golf shafts. Unfortunately, the
Royal and Ancient, golf's governing body in the United Kingdom, banned the use
of steel golf shafts and Accles and Pollock had to sell overseas. As steel golf
shafts grew in popularity, the future King of England agreed to play a round
with them in 1929. Subsequently, the Royal and Ancient found the
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<PAGE>
golf shafts to be acceptable after all. Apollo remains the only steel golf shaft
manufacturer using a seamless tube, preferring its strength, versatility and
consistency.
Most golf clubs have golf shafts constructed from steel or graphite.
Although some other materials are used, they represent an insignificant percent
of the total world-wide market. Apollo sells its golf shafts to golf club
manufacturers, after market catalogs and custom club makers. According to
management estimates, based on invitations to bid, steel golf shafts represent a
total worldwide wholesale market of approximately 31 million units, representing
$74 million in gross sales. The market for steel golf shafts has decreased over
the last ten years due to the introduction of graphite golf shafts. In spite of
this market decrease, Apollo's unit sales have remained relatively constant, and
as a result management believes that Apollo's market share has significantly
increased. Management believes that the decline in the steel golf shaft market
has stopped and that both the size and the overall value of the steel golf shaft
segment will grow over the next few years. This is largely due to the
introduction of new innovative steel golf shaft products.
Graphite golf shafts were introduced in the early 1970's as the first major
change in golf shaft technology since steel replaced wood in the 1930's.
According to the Company's internally prepared market study, graphite golf
shafts accounted for approximately 44% of all golf shaft unit sales in calendar
1996. Management believes that the exploitation of the graphite golf shaft
market segment is a major opportunity for Apollo. According to management
estimates, graphite golf shafts represent a total worldwide wholesale market of
approximately 25 million units, representing approximately $164 million in gross
revenues.
Apollo manufactures, in its 132,000 square foot Oldbury, England facility,
seven to eight million steel golf shafts a year, representing, in management's
estimate, approximately 23% of the world's supply of steel golf shafts by units.
Approximately 58% of Apollo's steel golf shaft products are sold in the United
States through Apollo U.S., which management believes represents approximately
15% of the U.S. market. Approximately 42% are sold in Europe and the rest of the
world, which management believes represents approximately 66% of the steel golf
shaft market in Europe and the rest of the world.
Sales of golf equipment is highly seasonal with models traditionally
introduced in October and phased out by September of the following year. Selling
concentration is weighted towards the first half of the year, when component
purchase decisions are made for the following season. Larger manufacturers place
orders by schedule for future delivery, but as much as 40% of Apollo
U.S.'s sales can be generated by spot sales for immediate delivery to small and
medium sized assemblers.
Historically, Apollo focused almost exclusively on the steel golf shaft
market. Today, Apollo is positioning itself to penetrate the larger, in sales,
graphite golf shaft market. To leverage its sales and distribution channels,
Apollo has contracted with a third party manufacturer to supply graphite golf
shafts made and engineered to Apollo's specifications and under Apollo's
supervision and quality control.
According to the National Golf Foundation, U.S. golfers spend more than $15
billion a year on equipment, related merchandise and playing fees. World demand
for golf shafts is forecast to grow from 55.6 million golf shafts in 1996 to
59.0 million golf shafts in 1998 in line with the increase in golfer population
in the U.S.A. The European golfer population has grown 56% from 1.6 million in
1988 to 2.5 million in 1995) and is forecast to grow to 2.9 million by 1998.
According to the United States Golf Association, golf is played today by people
from all walks of life. Approximately, 43% of all golfers come from households
headed by professionals or managers and another approximately 38% come from
homes headed by blue-collar and clerical workers. The remaining approximately
19% consists of retirees and other persons. The U.S. golfer population currently
stands at approximately 25 million players, of which approximately 11 million
are core golfers, those that play 8 or more rounds per year. Of these core
golfers, approximately 5 million play 25 or more rounds per year. Approximately
48% of all golfers are between the ages of 18 and 39. Senior golfers (over age
50) make up approximately 26% of the golf population.
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<PAGE>
Apollo Products
- ---------------
Apollo is the only manufacturer of seamless steel golf shafts in the world.
Management believes that the physical integrity and consistency of the golf
shaft is superior using a seamless tube. For this reason, a seamless tube is
usually specified for safety-critical applications, such as power generation
plants. Seamless tubes provide a more homogeneous shaft which produces a more
consistent product and reduces the potential for structural defects. Seamless
tubing also gives more opportunities to use a greater variety of high carbon,
high strength alloy steels as compared to welded shafts. Apollo also uses high
carbon alloys to maximize strength for golf shafts which are not obtainable in a
welded form.
Apollo manufactures a variety of unique steel golf shafts tailored to each
customer's needs and specifications. Its golf shafts are used by some of the
most well known golf club manufacturers. The Company's steel golf shafts are
generally designed and engineered by Apollo in partnership with its club
manufacturer customers. Although the majority of the Company's sales have been
concentrated among its top ten golf club manufacturer customers, no one customer
accounted for more than 10% of the Company's sales for the year ended December
31, 1996.
Apollo also manufactures unique products to meet the needs of the after
market catalog and custom club maker market. For this market, Apollo
manufactures eleven varieties of steel golf shafts and markets five varieties of
graphite golf shafts. Each variety is available in differing flexes, kick
points, torques and weights. Apollo provides a range of innovative, high-quality
products designed to maximize the performance of golfers at every skill level.
Apollo supplies high performance alloy steel tubing for use by Reynolds in the
manufacture of cycle frame tubesets and specialized tubing for other uses, such
as wheelchairs and javelins.
Apollo Engineering, Design and Manufacturing
- --------------------------------------------
The larger golf club manufacturers each require exclusively designed golf
shafts for their club systems which comprise golf shafts, heads and grips
designed to work together. Apollo also designs specialty putter golf shafts
which involve a high level of manufacturing complexity. Apollo's activities in
the areas of product and process development are managed by an industry
recognized expert, Graeme Horwood, Technical Director. Apollo has an advanced
test and inspection facility, which uses "in-house" designed test equipment and
a computer aided design package for golf shaft design. Apollo U.S. has its own
test and inspection laboratory which is located alongside the graphite golf
shaft finishing line. Apollo takes raw graphite shafts manufactured to Apollo's
specifications and paints and labels the golf shafts at its graphite shaft
finishing facility to meet the customers' specifications. Considerable technical
support is provided to sales by product development engineers, involving
frequent customer visits and presentations. Development of manufacturing
processes is crucial to new product initiatives and is carried out by a senior
development engineer with the support of two development engineers and a design
engineer. The Company's manufacturing processes involves a number of specialized
processes requiring specific know-how.
Apollo manufactures its steel golf shafts in a 132,000 sq. ft. facility in
Oldbury, England. The Company owns the land, building and equipment used in
manufacturing its steel golf shafts. In the manufacturing process, the tube is
drawn down to produce the blank for forming the golf shaft through a series of
highly productive draw benches. Intermediate heat treatment, lubrication and
cleaning processes are crucial to achievement of final golf shaft
characteristics. High quality golf shafts are subjected to a final draw pass on
benches customized by Apollo's own engineers to guarantee close control of
weight and weight distribution. Premium golf shafts are manufactured to within
weight tolerance of +/- 2 grams. Tube lengths are precision cut to produce
blanks for step forming. Sophisticated heat treatment is conducted in a furnace,
which creates the resilience required for the application, while keeping the
component straight. Golf shaft straightness is crucial and automatic
straightening machines are an important feature of the process. Final production
operations include polishing, nickel/chromium plating, inspection and packing.
All other manufacturers of steel golf shafts in the world produce steel
golf shafts using a weld mill. A weld mill starts with a flat sheet of steel
which is then rolled into the shape of a tube which is then welded, producing a
tube
-27-
<PAGE>
shaped product with a seam. Management believes that Apollo's seamless golf
shaft production methods provides a more uniform and consistent product.
Apollo Sales and Marketing
- --------------------------
Apollo ranks as one of the three leading steel golf shaft manufacturers in
the world and is the only one which has a manufacturing facility located in
Europe. Management believes that Apollo dominates the European market for steel
golf shafts. The market for golf clubs, and therefore golf shafts, is driven not
only by the growth in the golfing population, but also by the frequency of club
purchases, which is determined principally by product innovation. In the United
States and Europe, the Company sells and market its steel golf shafts through a
salaried sales force directly to golf club manufacturers and custom club makers.
Apollo U.S., responsible for U.S. sales, has expanded its sales force to
strengthen its sales and marketing efforts for steel golf shafts and to expand
into the marketing and sale of graphite golf shafts. Apollo's investment in
promotional activities has succeeded in strengthening its image with new
products. Current strategy focuses on the use of Apollo golf shafts by European
and U.S. Tour professionals. Apollo's Tour professional conversion program
includes one European consultant and two U.S. consultants who follow the
professional circuits in order to promote the use of Apollo golf shafts.
Competition
- -----------
The steel golf shaft market has three significant competitors consisting of
True Temper (U.S.A.), FM Precision (U.S.A.) and Apollo (UK). Nippon Golf Shaft
has progressively withdrawn from the market and Apollo has purchased from it
equipment at economical prices. There are large capital entry barriers
associated with the manufacture of steel golf shafts and Apollo does not
anticipate additional capacity coming on line.
Graphite golf shafts are manufactured by approximately 30 companies
worldwide and competition is intense. The industry is maturing and management
anticipates a consolidation will occur over the next three years. In the end,
management believes that the number of competitors will be reduced significantly
as consolidation within the industry takes place. Technology, price, quality and
service will be determining factors. The major competitors today are Aldila,
UST, Unifiber, Fujikura, Grafalloy and True Temper.
Reynolds Cycle Technology Limited--Cycle Products
Acquisition Opportunities
- -------------------------
Management perceives that the acquisition of Reynolds presents the Company
with a number of opportunities. Reynolds is one of the oldest established
premium brands in cycling and its name recognition provides an opportunity to
introduce new products, principally aluminum and steel cycle tubesets, priced
for the Asian market, into new and existing markets.
History and Market
- ------------------
Reynolds has been manufacturing steel tubing for high end bicycle frames
for 99 years. Reynolds' origins date back to 1841 when it was established as the
Patent Butted Tube Company. Since then, Reynolds' cycle tubing has been used in
the winning bike in 27 of the last 35 Tour De France races. Currently, Reynolds'
has under contract the U.S.A. National Road Racing Team (U.S.A. Olympic Team),
the Saturn Racing Team and the Shaklee Racing Team. Using Reynolds' cycle
tubing, these teams have consistently finished within the top five places in the
U.S.A. and within the top ten places worldwide. Through Reynolds' strong brand
name recognition and reputation for innovation Reynolds has established itself
as a supplier to many major OEM customers including, alphabetically, such brands
as GT Bicycle, Inc., Kona Bicycles USA, Raleigh Bicycle Company, Ltd., and Trek
Bicycle Corp.
According to the 1995 Interbike industry report, more than 100 million
Americans of all ages rode bicycles in 1993, which was up from approximately 72
million in 1983. The worldwide cycle industry produces approximately
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108 million bicycles annually. Of those, 86% (93 million) are utility, low price
point bikes sold primarily in low income countries for transportation at under
$200 per cycle. Approximately 9% (10 million) of all bicycles sold are in the
$200 to $400 range. While in general these bikes use lower cost steel and are
sold through mass merchants for recreational use, there are some examples of
branded components appearing on the higher end of these models. Approximately 5%
(5 million) of all bicycles sold are sold for greater than $400, mainly through
specialist dealer networks. The latter models are Reynolds' targeted market
since these bikes are sold on a combination of performance, tensile strength,
endurance, brand and price to sports and recreation enthusiasts with above
average income and education levels. Both bicycle brands and branded components
tend to predominate in this segment, as potential purchasers will research
competing specifications. In addition, the specialist dealer network also sells
high margin aftermarket accessories (for example, stems, seat posts, and
wheels). These items often provide over 40% of the cycle revenue to the
specialist dealer and is an area that Reynolds can extend its brand to other
specialty components. Geographically, the major markets for the top 5% of
bicycles sold are Western Europe and the U.S., while the largest producers are
physically are in Taiwan and Italy. Based on average values, management believes
that the tubeset market has annual revenue of approximately $50 to $100 million
worldwide. This includes steel, aluminum, titanium and carbon fiber. Steel and
aluminum tubesets account for approximately 90% of such annual revenues.
Reynolds' Products
- ------------------
Reynolds produces cycle tubing for a wide variety of cycle applications.
The tubing is used for road racing bicycles, road track bicycles and time trial
bicycles, competition touring bicycles, all-terrain bicycles and tandems.
Reynolds shares its research and development function with its main steel
tubing supplier, Apollo. Through this joint effort, the Reynolds' 853(TM) "Air
Hardened" product was developed. This product gives an exceptional weight to
strength and stiffness ratio not normally seen with conventional steel alloys
achieved by a unique air hardening process that concentrates the strength and
stiffness in the frame geometry, the joint, where it is most needed. Reynolds'
cycle tubes are all manufactured from high quality alloy steels, which also
contributes to the high strength and stiffness to weight ratio. In addition to
the 853(TM) product, Reynolds' also manufactures its 531(TM) range, 753(TM) and
653(TM) all-terrain bicycles, Reynolds produces the chrome molybdenum 501(TM)
and 500(TM) series tubesets. The higher the number the higher the tensile
strength and stiffness to weight ratio. As a consequence, the 853(TM) gives the
greatest tensile strength and stiffness to weight ratio and the greatest
performance features to other tubesets in Reynolds' product line.
Reynolds' Engineering, Design and Manufacturing
- -----------------------------------------------
Reynolds' currently manufactures its tubesets in a 20,000 square foot
facility in Tyseley, England. The Company designs unique tubesets or various
pieces of a frame set to the specifications of its customers. Typically, the
tubesets are bid and specified twelve months before the actual production of the
cycle takes place. For example, in early 1997, the design and engineering team
at Reynolds' was prototyping tubes sets for 1998 models. Once specified into a
specific bike model, manufacturing the tubeset is accomplished by a series of
cold forming, butting, heat treating and manipulations. The engineers at
Reynolds work closely with the design teams of its customers to ensure
compliance with tight tolerances and quality specifications.
In the future, through use of proceeds, the Company plans to expand its
manufacturing into Southeast Asia for both aluminum and steel. This will provide
a competitive platform to increase market share with the U.S. OEM customers and
the Taiwanese frame makers.
Reynolds' Sales and Marketing
- -----------------------------
In the U.S. and Europe, sales and marketing is accomplished using a
salaried sales force located in Elk Grove Village, Illinois for its U.S. sales
and in its Tyseley, England factory for its European sales. The design engineers
work closely with the Reynolds' sales staff and the OEM customers. Reynolds
markets its product line through advertising in several cycling trade journals.
Reynolds plans to introduce a line of aluminum cycle tubes in
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<PAGE>
1998, through the Company's Southeast Asia facility, which it proposes to
acquire, targeting its marketing at the premium branded aluminum cycle tube
market. The sales and marketing for Taiwan will be done from the Company's
proposed Southeast Asia facility.
Reynolds ranks as one of the leading suppliers of premium branded cycle
tubing. Twenty-seven of the last 35 Tour De France races were won with bikes
made from Reynolds' tubing. Currently, Reynolds' has under contract the U.S.A.
National Road Racing Team (U.S.A. Olympic Team), the Saturn Racing Team and the
Shaklee Racing Team. Using Reynolds' cycle tubing these teams have consistently
finished within the top five places in the U.S.A. and within the top ten places
worldwide.
Reynolds Competition
- --------------------
The majority of branded cycle tubing is supplied by six manufacturers
worldwide. Easton is a U.S. based manufacturer, specializing in aluminum;
Columbus is an Italian-based manufacturer, primarily using steel; Dedacciai is
an Italian-based manufacturer, primarily using steel; True Temper, is a U.S.
based manufacturer, primarily using steel; Tange, is a Japanese based
manufacturer, primarily using steel; and Reynolds, a U.K. based manufacturer
primarily using steel and is planning to introduce an aluminum cycle tubing
product line.
Sierra Materials--Advanced Composite Materials
Acquisition Opportunities
- -------------------------
Management perceives that the acquisition of Sierra Materials presents the
Company with a number of opportunities. Sierra Materials as a manufacturer of
graphite and other advanced composite materials as a supplier of a product that
is essential to ever expanding uses by manufacturers. The entire production
capacity of Sierra Materials is currently being sold and management believes
that the additional manufacturing capacity planned will result in increased
sales and profitability.
Overview and Markets
- --------------------
Sierra Materials is a supplier of graphite and other advanced composite
materials for use in the sports and recreational markets. A composite material
is a structural system comprised of different types or forms of materials. In
common usage today, the term "composite" refers to a matrix of one type of
material, such as an epoxy resin, reinforced with a fibrous form of another
material, such as carbon fiber, fiberglass, or Kevlar(TM). Nature has
successfully used this structural concept in its own composite structural
material - wood. Wood is comprised of a fibrous material (cellulose) which
reinforces a matrix of lignin (sap). The most common type of composite used
commercially today is glass fiber reinforced plastic ("GFRP"). Commonly referred
to as fiberglass, GFRP has been used for decades in boats, pickup truck caps and
sporting goods, among other items.
Advanced composites is a term given to high performance fibers and polymers
(resins). Fibers which fall into this category include carbon fiber, boron,
Kevlar(TM) and Spectra(TM), along with high strength glass fibers and some
ceramics. Sierra Materials is a manufacturer of unidirectional pre-impregnated
tape (pre-preg) made primarily from carbon fiber and fiberglass; solvent coated
fabrics, primarily woven fiberglass and Kevlar(TM); and carbon fiber laminates
and molded products. The Company's finished composite materials are principally
sold in rolls, sheets or in granular or chopped forms and are subsequently
incorporated by Sierra Materials' customers into manufactured components.
Advanced composites have been used for years in military and aerospace
applications. Now that these advanced materials have been proven in the
demanding environments of military and aerospace applications, an increasing
number of manufacturers are implementing composite materials in their products.
Commercial aircraft, including the new Boeing 777, are using composite materials
in primary structural elements such as the tail wings and floor beams.
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<PAGE>
Sierra Materials' composite materials are capable of being incorporated in
a wide range of recreational product applications. Uses of advanced composites
currently being employed include fishing rods, hockey sticks, skis, ski poles,
snow boards, water skis, surfboards, sailboats, and tennis racquets. Commercial
applications other than sporting goods include automotive components such as
drive shafts and body panels; medical devices, such as prosthetics; industrial
uses, such as tanks and containers; electronic components, such as circuit
boards and antennae; infrastructure projects such as reinforcements; and
security systems, such as body armor and armored vehicles.
Over the last two decades, there has been significant growth in the use of
graphite and other advanced composite materials as a result of improvements in
applications engineering, advances in composites technology and declining costs
to the customer in manufacturing final products.
Sierra Materials Products
- -------------------------
Sierra Materials produces three primary types of finished advanced
composite materials, consisting of unidirectional pre-impregnated tape, made
primarily from carbon fiber and fiberglass; solvent coated impregnated tape,
primarily woven fiberglass and Kevlar(TM); and carbon fiber laminates and molded
products. Sierra Materials' current customer base is comprised exclusively of
commercial product manufacturers. The majority of Sierra Materials' customers
are manufacturers of sporting goods. Because carbon fiber is as strong and
durable as metal but much lighter and more versatile, it is used in many
sporting goods applications where weight and performance are critical factors.
Some typical uses for products made of carbon fiber which combine the features
of strength, durability and lightness, include backpack frames, snowshoes,
sailboat masts, golf shafts, bicycles, hockey sticks, ski poles, tennis rackets,
tent poles, and other products where weight and strength are primary concerns.
Sierra Materials Engineering, Design and Manufacturing
- ------------------------------------------------------
The most common method of advanced composites fabrication involves the use
of "prepreg." This is a term given to preimpregnated materials, either
unidirectional fiber tape or woven fabrics impregnated with uncured resins. The
raw graphite comes into the factory in the form of a spool of yarn, where each
strand of yarn has between 12,000 to 50,000 fibers, depending on the
specifications ordered. The unidirectional fiber tape is manufactured by
spreading these thousands of fibers (carbon or fiberglass) onto a resin coated
paper then by using pressure and heat, impregnating the fibers with the resin.
The resin impregnated fibers (pre-preg) are left on the paper and rolled to
meet specific customer requirements for size and weight. The solvent coated
impregnated tape is manufactured by starting with a woven fabric material, made
primarily of fiberglass, carbon fiber or Kevlar(TM). The woven material is then
impregnated with a solvent based resin, using pressure and heat, and put into
rolls sized to meet specific customer needs for size and weight.
In 1997, the limiting factor affecting Sierra Materials' revenue growth and
earnings potential is expected to be the availability of carbon fiber yarn. In
1995, recreational products companies were fully embracing carbon fiber as the
material of choice. Aircraft orders were up significantly, and signs of an
impending shortage of fiber began to appear. However, the fiber manufacturers
which had been burdened by overcapacity in the past were hesitant to invest once
again in new plant and equipment. No plans for additional capacity were
announced until late 1996. At present, most of the new capacity will not
be available to meet anticipated customer demand for carbon fiber
until sometime in 1998.
In 1997, management estimates that up to 30% of total carbon fiber demand
will go unfilled. Aerospace programs which command higher margins are being
supplied first, with any remaining capacity going to commercial and recreational
suppliers.
In December 1996, Sierra Materials negotiated a purchase order with Akzo
Nobel Fortafil Fibers for 250,000 pounds of carbon fiber for delivery in 1997.
Additionally, Hexcel Corp. (which acquired the Hercules fiber manufacturing
operations in 1996) has agreed to supply 50,000 pounds of carbon fiber in 1997.
Between these two suppliers, Sierra Materials anticipates that there should be
sufficient material to meet 1997 sales projections, although
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there can be no assurance that this will be the case if Sierra Materials
experiences stronger demand for its material than it anticipates.
Sierra Materials Sales and Marketing
- ------------------------------------
According to Company management, in 1993, sales of carbon fiber prepreg
were valued at approximately $190 million in the United States, with annual
growth estimates averaging 15% over the next 5 years. This growth is being
fueled by two primary industries; the aerospace industry which accounts for
approximately 78% of total sales, and sporting goods manufacturers which account
for approximately 18% of total sales. The remaining sales were divided between a
variety of developmental projects, including automotive, medical, and
infrastructure applications.
The composite materials market can be broken down into three segments: raw
materials suppliers, such as carbon fiber and resins; converters (pre-preggers),
such as Sierra Materials, which convert the raw materials into a useable state;
and end users, such as golf club shaft manufacturers, which form the pre-preg
into a finished product. While some companies, such as the golf shaft
manufacturer Aldila, have integrated into producing its own pre-preg materials,
very few companies have fully integrated from basic materials to end product.
Sierra Materials' marketing efforts are primarily accomplished by word of
mouth and industry reputation. As of March 31, 1997, backlog of unfulfilled
orders exceeded $4.5 million.
Sierra Materials Competition
- ----------------------------
There are approximately 24 suppliers of carbon fiber prepreg in the United
States. Of the top 10 suppliers, one company, ICI Fiberite, Inc. accounts for
over 35% of U.S. pre-preg shipments. Other large suppliers include Toray
Composites America, Hexcel Corp., Cytec Engineered Materials, Inc. and Newport
Adhesive and Composites, Inc. Currently, Hexcel Corp. and Newport Adhesives and
Composites, Inc. all have parent companies which own fiber manufacturing
facilities.
ICE--Ski Products
Acquisition Opportunities
- -------------------------
Management perceives that the acquisition of ICE presents the Company with
a number of opportunities. ICE is a recognized brand name in the composite ski
pole market that is sold through a large number of specialty shops selling
premium high end sports equipment. The ICE brand name can be expanded to other
premium products for distribution through this unique channel.
ICE is a manufacturer and marketer of premium composite and aluminum ski
poles. ICE markets its ski poles in the United States directly to approximately
600 speciality shops nationwide and in Canada and Japan through independent
distributors. During the 1996-1997 ski season, ICE had approximately 6% of the
unit market share and approximately 11% of the dollar market share for specialty
shops in the United States according to the March 1997 U.S. Ski and Snowboard
----------------------
Industry Report. ICE has a limited presence in chain stores.
- ---------------
Most ski poles are manufactured from extruded aluminum alloys. In recent
years, graphite ski poles have been introduced and have grown in unit sales each
year. As in most sporting goods categories, the use of carbon fiber composites
is growing due primarily to lighter weight, superior strength and greater
versatility.
In 1996-1997, ICE introduced a line of ski helmets and a line of aluminum
ski poles to the market. The new aluminum line may eventually be manufactured at
Pentiumatics, a subsidiary of Coyote, provided Pentiumatics successfully
consumates an agreement to acquire its proposed Southeast Asia facility. See
"Business--Pentiumatics-- Extruded Aluminum Alloys."
The key strategy for ICE is to expand its existing product line. Over the
past few years, the use of helmets in the ski industry has increased
dramatically. Management believes that this trend will continue and that in the
next few years helmets will be the single fastest growing segment in ski
equipment. During the 1996-1997 season and in response to this increased demand,
ICE introduced a new line of Department of Transportation approved helmets
-32-
<PAGE>
which it purchases for resale. Aluminum poles have historically been the largest
single segment of the ski pole business. Previously, ICE has not manufactured a
ski pole for this market. During the 1997-1998 season, ICE introduced a line of
high end aluminum poles to augment its traditional composite product. In an
effort to provide the ICE customer with more comfort and protection, a line of
high impact body armor was introduced during the 1997-1998 season. This product
is intended for the high performance skier and is typically used in racing
situations. Management feels that this product will continue the ICE tradition
of quality, performance and style.
ICE Industry
- ------------
According to the February 1996 issue of American Demographics Magazine,
------------------------------
more than 10 million Americans aged seven and older participated in downhill
skiing in 1994, making it the nation's most popular winter sport. The period
between 1988 and 1994 was not a good one for the ski industry with both the
number of skiers and the percent who ski at least once a year, declining.
However the introduction of the new "shaped" ski's in 1995-1996 has had a very
positive impact on the industry as a whole. As a consequence, the sale of Alpine
skis rose 36.6% during the 1996-1997 season compared against 1995-1996. Total
retail spending on snow sports rose 17.4% to approximately $2,000,000,000
(source Sporting Goods Intelligence-- May 12, 1997).
The Company employs independent sales representatives to sell and promote
its products to 600 specialty shops nationwide. The ICE brand of ski poles has
one of the highest average retail prices in the industry. The ICE ski pole is a
premium product and is marketed as such.
The Company is moving aggressively toward vertical integration and by the
end of 1998, the Company plans to be manufacturing aluminum ski poles and have
contractual control over the manufacture of composite poles through the
Company's proposed Southeast Asian facility (see "Business --Apollo" and
"Business--Pentiumatics Extruded Aluminum Alloys"). This manufacturing
capability will give ICE greater control over quality, cost and innovation which
management believes will create opportunities in the OEM market as well. The
Company believes this kind of vertical integration will allow it to have a
competitive cost structure and better control over the quality of the finished
product.
ICE Competition
- ---------------
Major competitors, in alphabetical order, are Goede Ski Technologies, Kerma
Ski Poles, Leki USA, Scott USA and Smith Sport Optics, Inc. Of these, the
Company views Leki and Kerma as its major competitors in the high technology,
high priced composite ski pole market.
Pentiumatics--Proposed Extruded Aluminum Alloys Facility
Pentiumatics is in the process of completing the purchase of land,
buildings, plant equipment and machinery from a third party. The Company is
currently awaiting confirmation from Southeast Asian counsel as to the final
amount of the purchase price and other terms of purchase and whether and when
the transaction has been or will be completed. If and when such purchase is
completed, it is Pentiumatics' plan to open an aluminum extrusion factory on the
land in Southeast Asia. Subject to the consummation of the proposed purchase of
such land, it is the Company's expectation that construction will be completed
in the fourth quarter of 1997 and the complex will include three 30,000 square
foot buildings. It is planned that one building will be used to manufacture
extruded aluminum parts for the sports and recreation industry. The Company
anticipates that a significant percentage of this new plant's output will
eventually be used by Reynolds and ICE. In addition, the Company plans to
produce other extruded aluminum parts for regional manufacturers of sports
equipment.
The addition of Pentiumatics and its proposed acquisition of land,
buildings, plan equipment and machinery and construction of the buildings is
expected to enhance the Company's strategy by adding extruded aluminum alloy to
its manufacturing base. The Company now produces steel tubing, graphite and
other advanced composite pre-preg and extruded aluminum alloy. These are the
main materials used in most sporting goods products worldwide. If the Company is
successful in acquiring the land, plant equipment and machinery and is able to
complete the construction of the factory building, the Company would be in a
position to be vertically integrated in all the main materials used in the
manufacturing of golf shafts, cycle tubing and ski poles, the main businesses of
the Company.
-33-
<PAGE>
Governmental Regulations
United Kingdom
Apollo and Reynolds are established in England and are, accordingly,
subject to the laws of the European Community and those of England and Wales
with regard to their activities generally. These laws relate to employment,
including, for example, employee rights against unfair dismissal and
discrimination on the basis of race, sex or disability, taxation, company
administration, consumer protection and planning matters. Specific regulations
which apply to Apollo and Reynolds as manufacturing companies include:
Environment. The activities of Apollo and Reynolds are regulated by the
Environmental Protection Act of 1990. This Act requires Apollo to obtain
licenses to carry out its nickel coating process for golf shafts and to produce,
store and dispose of industrial waste of various descriptions. In addition,
consent is required from the local rivers authority under the Water Resources
Act of 1991 and The Water Industry Act of 1991 regarding discharge of overflow
water from its property into the public sewers. The Company believes that it is
currently in compliance with all licenses and consents. When the Environment Act
of 1995 is fully implemented, the relevant authority will have significantly
increased powers to order persons and companies to clean contaminated land.
However, these increased powers may only be exercised if the contamination poses
a serious risk to health or property. No cleanup proceedings have been
threatened against Apollo and Reynolds, nor are such proceedings anticipated.
Health and Safety. The principal United Kingdom statute is the Health and
Safety At Work Act of 1974 ("Health and Safety Act"), which imposes a duty on
employers to maintain a "a safe system of work." This obligation is supplemented
by various regulations requiring employers to establish procedures for assessing
hazards to safety and for reducing or eliminating risk. Apollo and Reynolds have
regular contact with the Factory Inspectorate, the statutory body which
administers the Health and Safety Act. No proceedings are in existence or
threatened against the United Kingdom companies by the Factory Inspectorate.
Although management believes it is currently in compliance with the above
regulations, the Company's future operations could expose it to the risk of
claims with respect to environmental or health and safety matters. Although
compliance with governmental requirements relating to the protection of the
environment or health and safety has not had a material adverse effect on the
Company's financial condition or results of operations to date, there can be no
assurance that material costs or liabilities will not be incurred in connection
with such environmental or health and safety matters in the future.
United States
Environmental Regulations. The Company's operations which are located in
the United States, including ICE, Sierra Materials and Apollo U.S., are subject
to governmental, environmental and health and safety laws and regulations that
impose workplace standards and limitations on the discharge of pollutants into
the environment and establish standards for the handling, generation, emission,
release, discharge, treatment, storage and disposal of certain materials,
substances and wastes. These laws include, for example, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Clean Air Act, as amended, and the Resource Conservation
and Recovery Act of 1976, as amended. Management believes the Company is in
compliance with United States environmental laws and regulations. Although
compliance with governmental requirements relating to the protection of the
environment has not had a material adverse effect on the Company's financial
condition or results of operations to date, there can be no assurance that
material costs or liabilities will not be incurred in connection with such
environmental matters in the future.
-34-
<PAGE>
Employees and Consultants
The Company has 317 full time employees and no part time employees. The
Company will hire additional employees as may be required to support expansion
of the Company's operations.
There are three different unions that have collective bargaining agreements
with Apollo and Reynolds. All hourly paid Apollo employees and 18 hourly paid
Reynolds employees are members of a union. Several union agreements apply to all
hourly employees of both companies:
Except for the Hourly Paid Agreement, which is negotiated annually, there
are no termination dates to the above agreements. The above agreements continue
to apply until otherwise renegotiated between the parties. Management believes
that the relationship with its employees is good.
Research and Development
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products amounted
to $0 and approximately $220,000 for the time period from September 18, 1996,
the date that Apollo and Reynolds were acquired by Coyote to December 31, 1996
for the years ended December 31, 1995 and 1996 respectively.
Facilities
The Company's executive offices are located in Boulder, Colorado pursuant
to a month to month lease. Apollo operates its golf shaft manufacturing in a
facility in Oldbury, England, which is a heavy industrial area. The Company owns
the land, building and equipment used in manufacturing its steel golf shafts.
Deere Park Capital Management, Inc. has a lien against this property pursuant to
an Amended and Restated Secured Promissory Note dated May 4, 1997. Apollo U.S.
operates a 8,153 square foot facility in Elk Grove, Illinois, pursuant to a
lease which expires January 31, 2000. Apollo U.S. also operates a 6,480 square
foot warehouse and office area in El Cajon, California pursuant to a lease which
expires in December 1998. ICE and Sierra conduct their manufacturing operations
out of a 10,284 sq. ft. facility in San Diego, California, pursuant to a
sublease which expires in February 1999.
Litigation
The Company is not currently subject to any material litigation nor, to the
Company's knowledge, is any material litigation threatened against the Company.
Acquisition History
On September 18, 1996, the Company through a wholly-owned subsidiary,
acquired three affiliated entities, TI Apollo Limited, a company registered in
England and Wales, TI Reynolds 531 Limited, a company registered in England and
Wales, and Apollo Golf, Inc., a New Jersey corporation (collectively, the
"Apollo Entities"), and purchased certain properties from the Apollo Entities
for a total purchase price of U.S. $5,135,305. In addition, on September 18,
1996, the Company formed ICE to acquire certain intangible assets, consisting
primarily of registered trademarks and certain other intangible assets, owned by
Expedition Trading Company, L.L.C., a Utah limited liability company
("Expedition"). The Company acquired an 80% interest in ICE. This purchase was
consummated on September 18, 1996 and resulted in ICE acquiring the intangible
assets from Expedition in exchange for ICE's promissory note in the amount of
$1,500,000 payable to Expedition over a six year period and the issuance to
Expedition of a 20% interest in ICE.
On March 27, 1997, the Company formed Sierra Materials LLC, a Colorado
limited liability company. In consideration of the Company's agreement to assume
liabilities of Cape Composites, Inc. ("Cape") in the amount of $778,088, the
Company acquired an 80% interest in Sierra. In turn, Sierra acquired all of
Cape's outstanding common stock.
-35-
<PAGE>
On April 1, 1997, the Company acquired all of the outstanding stock of
Pentiumatics Sdn. Bhd., a Malaysian corporation. As of the date hereof,
Pentiumatics has not commenced operations. See "Pentiumatics - Proposed Extruded
Aluminum Alloys Facility".
-36-
<PAGE>
MANAGEMENT
Directors and Executive Officers
The names, ages and positions of the officers, directors and certain key
employees of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---------------------------------- ----- -----------------------------------------------
<S> <C> <C>
Mel S. Stonebraker/(2)/...................... 45 Chief Executive Officer, President and Chairman
of the Board
James M. Probst/(1)/......................... 39 Chief Financial Officer, Chief Operating Officer,
Secretary/Treasurer and Director
James A. Pfeil............................... 42 Vice President
Jeffrey T. Kates/(1)(2)/..................... 36 Director
</TABLE>
- ----------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Mel S. Stonebraker, co-founder of the Company, has been an officer and
director of the Company since its incorporation in 1994 and is currently
President, Chief Executive Officer and Chairman of the Board. From 1983 to 1994,
Mr. Stonebraker was International Business Development Manager for Schuller
International Corporation, a wholly owned subsidiary of Manville Corporation. In
that position, he was responsible for corporate activities throughout the
Pacific Rim countries. He was a resident in Singapore from 1984 to 1989. Mr.
Stonebraker received a B.A. degree from the University of Colorado in 1977 and a
Masters of International Administration from the American Graduate School for
International Management (Thunderbird) in 1983.
James M. Probst, co-founder of the Company, has been an officer of the
Company since February 1995 and is currently Chief Financial Officer, Chief
Operating Officer, Secretary/Treasurer and a Director. From 1986 to 1995, Mr.
Probst was employed by Schuller International Corporation, a wholly owned
subsidiary of Manville Corporation. During that time, Mr. Probst held several
positions ranging from research and development Engineer to Business Manager of
a unit with approximately $30 million in revenues. Mr. Probst received a B.S.
degree in Mechanical Engineering from the University of Colorado, Denver in 1986
and an M.B.A. from the University of Denver in 1990.
James A. Pfeil joined the Company in May 1997 as Vice President, primarily
responsible for overseeing ICE, Sierra Materials and Pentiumatics. From May 1995
to May 1997, Mr. Pfeil was Vice President of Operations of Cobra Golf, Inc., a
wholly-owned subsidiary of American Brands. From May 1992 to May 1995, he was
Vice President, General Manager of West Coast Composites, a wholly owned
subsidiary of Cobra Golf, Inc. West Coast Composites manufactures all of the
graphite golf shafts used by Cobra Golf, Inc. From May 1990 to May 1992 he was
Materials Manager for Cobra Golf, Inc. From 1985 to 1990 he worked as a
consultant with over 100 clients dealing with manufacturing issues and assisting
in materials requirement planning ("MRP") system implementations. Mr. Pfeil
received a B.S. in Business from San Diego State University in 1980.
Jeffrey T. Kates became a director of the Company in May 1997. From August
1996 to the present, Mr. Kates has been the Chief Operating Officer of Plastics
Research Corp. a firm with annual revenues of $35 million. From October 1994 to
August 1996, Mr. Kates was President and a director of Harloc Incorporated, a
subsidiary of the Tesa Group in Irun, Spain, which attained annual revenues of
$150 million. Mr. Kates received a B.S. degree in Agricultural Engineering from
the University of Illinois in 1984 and an M.B.A. from the University of Denver
in 1988.
-37-
<PAGE>
Executive officers of the Company are appointed by, and serve at the
discretion of, the Board of Directors and are elected annually. There is no
family relationship between any director of the Company and any other director
or officer of the Company.
The Company has agreed, for a period of two years from the date of this
Prospectus, if so requested by the Underwriter, to nominate and use its best
efforts to elect a designee of the Underwriter as a director of the Company or,
at the Underwriter's option, to appoint such designee as a non-voting adviser to
the Company's Board of Directors. The Company's officers, directors and
controlling stockholders have agreed to vote their shares of Common Stock in
favor of such designee. The Underwriter has not yet exercised its right to
designate such a person.
The following persons are key employees of the Company's subsidiaries:
Paul Andy Taylor, 49, has been the Managing Director of Apollo and Reynolds
since September 1990 and is responsible for all strategic and operational
activities of those companies. Mr. Taylor joined Apollo as Sales and Marketing
Director in August 1986 as part of a new management team which dramatically
expanded the company's activities through the late 1980s. Prior to joining
Apollo, he was engaged in international sales and marketing for the TI Group, a
United Kingdom owned global conglomerate. Key areas of activity included Europe,
Comecon, China/Far East and North America. Mr. Taylor received a B.A. degree
with honors in Russian Studies from Nottingham University, England in 1968 and
holds a management diploma from London Business School.
David Nelson, 43, has been the Financial Director of Apollo and Reynolds
since 1993 and is responsible for the financial control of Apollo and Reynolds,
managing relationships with external providers of finance and ensuring statutory
compliance. Mr. Nelson's previous positions were as divisional Financial
Director within United Kingdom quoted companies. He previously worked for Ernst
& Young in Kuwait, and Peat Marwick in Zambia. He received a B.S. Degree with
honors in Civil Engineering from Loughborough University in 1975, and is a
chartered accountant (FCA).
Graeme Horwood, 52, has been the Technology Director of Apollo and Reynolds
since July 1986 and is responsible for Product and Process development in the
Company's golf shaft, cycle and athletic divisions. He is the focus of Apollo's
relationship on new product development with key customers. Prior to joining the
Company, Mr. Horwood was Engineering Design Manager at the Raleigh Bicycle Co.
Nottingham, England, Group leader in a research and development team at TI
Groups' Research facility at Cambridge, England. He served a Technical
Apprenticeship with GEC, England and received a B.S. Degree in Mechanical
Engineering from Rugby College of Engineering, Rugby, England in 1968.
Keith Noronha, 41, has been the Director and General Manager of Reynolds
since September 1996 and is responsible for the strategic and operational growth
of the Reynolds cycle subsidiary. Mr. Noronha joined Apollo in November 1988 as
Financial Director until 1993 when he transferred to the U.S. to be Vice
President and General Manager of Apollo U.S., which he successfully repositioned
and grew through 1996. Mr. Noronha returned to the United Kingdom in August 1996
to develop and implement an aggressive global strategy. Prior to joining Apollo
in 1988 he worked as Financial Director at several United Kingdom companies
notably BKB Electricals, BSR and was an engineering graduate with the Rover
Group, after obtaining an B.S. Degree with honors in Mechanical Engineering at
Queen Mary College, London University in 1978. He holds the FCMA Professional
Management Accounting qualifications.
Stewart Tibbatts, 49, has been the Manufacturing Director of Apollo and
Reynolds since January 1996 and is responsible for the effective operation of
the Company's manufacturing activities in golf shafts, cycle tubing and athletic
products. Mr. Tibbatts joined Apollo in 1995 having previously been Director and
General Manager of Reynolds at Tyseley for six years. Mr. Tibbatts began his
career as an apprentice at Reynolds in 1965 and successfully worked his way up
through the company. He also received an HNC in Mechanical Engineering from
North Birmingham Poly in 1969, and Diploma in Management Studies from the
University of Central England in 1983.
-38-
<PAGE>
David B. Abrams, 32, has been the President, Chief Financial Officer,
Treasurer and a director of Sierra Materials since March 1996. His current
responsibilities include overseeing all of the subsidiary's activities and
operations, with specific responsibility for corporate finances, including
profit and loss management, materials procurement, sales and marketing and long
term strategic planning. From December 1992 to March 1996, Mr. Abrams was the
Senior Associate for acquisitions at Zimmerman Holdings, Inc., a private
investment firm. Previously, he was Manager of Business Development at Westech
Gear Corporation, a Zimmerman subsidiary. Mr. Abrams received his B.A. degree
from the University of Rochester in 1987 and his M.B.A. from the University of
Southern California in 1996. Mr. Abrams owns 10% of Sierra Materials.
Mark H. Snyder, 30, has been the Executive Vice President, Secretary and a
director of Sierra Materials since March 1996. His current responsibilities
include overseeing all of the subsidiary's manufacturing operations, research
and development and legal and regulatory affairs. From May 1992 to March 1996,
he was a Senior Associate with Sheridan Ross and McIntosh, a Denver intellectual
property law firm. Mr. Snyder received his B.S. in Chemical Engineering from the
University of Rochester in 1988 and his J.D. and M.B.A. degrees from Boston
College in 1992. Mr. Synder owns 10% of Sierra Materials.
Committees of the Board of Directors
The Company has an Audit Committee and a Compensation Committee. The Board
of Directors does not have a Nominating Committee and the functions of such a
committee are performed by the Board of Directors.
Audit Committee. The functions of the Audit Committee include
recommendations to the Board of Directors with respect to the engagement of the
Company's independent certified public accountants and the review of the scope
and effect of the audit engagement. Messrs. Kates and Probst are the current
members of the Company's Audit Committee.
Compensation Committee. The function of the Compensation Committee is to
make recommendations to the Board with respect to compensation of management
employees. The Compensation Committee also administers plans and programs
relating to stock options, pension and other retirement plans, employees
benefits, incentives and compensation and determines the persons to whom options
should be granted under the Company's Option Plan and the number of options to
be granted to each person. Messrs. Kates and Stonebraker are the current members
of the Company's Compensation Committee.
Indemnification of Officers and Directors
The Company's Articles of Incorporation authorizes the Company to indemnify
its directors for certain breach of fiduciary duty to the Company and its
stockholders, and other liabilities, subject to certain limitations. Such
indemnification does not apply to acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law or the payment of unlawful
distributions to stockholders.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
-39-
<PAGE>
Summary Compensation
The following table sets forth certain information regarding compensation
earned or awarded to the Chief Executive Officer and certain key employees of
the Company who received in excess of $100,000 of salary and bonus from the
Company during the year ended December 31, 1996 (the "Named Executive
Officers"):
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation Awards
-------------------------------------------------------- ------------------------
Other Annual Securities Underlying
Name and Principal Position Year Salary ($) Bonus($) Compensation Options/# of Shares/(1)/
- --------------------------- ---- ---------- -------- ------------ ------------------------
($)
---
<S> <C> <C> <C> <C> <C>
Mel S. Stonebraker 1996 $115,000 -0- $ 6,529(1) -0-
Chief Executive Officer 1995 $115,000 -0- $ 6,805(1) -0-
1994 -0- -0- $ 572(1) -0-
Paul Andrew Taylor 1996 $111,300 $35,200 $11,390 -0-
Managing Director 1995 $111,300 $44,690 $11,390(2) -0-
Apollo & Reynolds 1994 $111,300 $32,250 $12,820(2) -0-
</TABLE>
- ------------
(1) Includes the annual cost of a company car.
(2) Includes the annual cost of a company car and pension plan benefits and
private health insurance and an educational grant earned by Mr. Taylor.
Compensation of Directors
Directors are not currently paid fees for attending meetings, although they
may be paid annual retainer fees in cash or options in the future. Directors are
reimbursed for their out-of-pocket expenses for attending Board meetings.
Employment Agreements
The Company has entered into employment agreements with Messrs. Stonebraker
and Probst expiring on May 31, 2000, pursuant to which they are employed as
Officers of the Company. The agreements may be renewed upon sixty days notice
for additional two year periods. The employment agreements provide for
employment of Messrs. Stonebraker and Probst on a full-time basis at annual
salaries of $150,000 and $125,000, respectively, beginning September 1, 1997.
The officers are entitled to receive a bonus based on certain objectives to be
established by the Board of Directors and incentive stock options to purchase
45,000 shares each over a seven year term to be granted on the effective date of
this offering at the Price to Public. The options will vest over a three year
period if the Company achieves 90% of its targeted EBITDA as established by the
Board of Directors. The officers have the right to purchase their pro-rata share
of any new offerings of the Company's equity securities after December 31, 1997.
Messrs. Stonebraker and Probst may be terminated by the Company for cause, which
is defined as excessive unauthorized absenteeism, actual fraud or material acts
of dishonesty, destruction of material Company property; willful disclosure of
Company proprietary information, or a material violation of internal controls or
procedures. If the officers voluntarily terminate prior to the end of the
original contract term, they are required to reimburse the Company up to $62,500
each, on a pro-rata basis depending on the date of termination. If the Company
terminates Messrs. Stonebraker or Probst without cause, they are each entitled
to 18 months' salary as a severance payment. If termination occurs after the end
of the original contract term, they are each entitled to 12 months' salary. The
employment agreements provide that the officers may not compete with the Company
for a period of the greater of (i) nine months subsequent to their termination
date, or (ii) the severance pay period. The officers also have a Change of
Control Agreement with the Company.
Apollo has an employment agreement with Paul Andrew Taylor pursuant to
which he serves as Managing Director of Apollo. The agreement provides for a
salary of 65,000 pounds per year ($111,300 based upon the
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<PAGE>
conversion rate on December 31, 1996). Mr. Taylor also participates in an
executive bonus program at Apollo for 1997 with maximum bonus potential of 150%
of annual salary. The executive bonus program at Apollo is based upon operating
cash flow for the steel golf shaft business. During the year ended December 31,
1996, Mr. Taylor earned a $35,200 bonus based upon this program. Mr. Taylor's
employment agreement is subject to termination by the Company upon twelve months
notice or by Mr. Taylor upon six months notice. Mr. Taylor may be terminated by
the Company for gross default or misconduct and other breaches of conduct. His
agreement provides that he will not compete with Apollo within the United
Kingdom or the United States for a period of six months after termination of
employment. Mr. Taylor is provided life insurance equal to four times annual
base salary and has the use of a company car.
1997 Stock Option Plan
The Company's 1997 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and stockholders on June 10, 1997. The Plan provides for the
grant of options to purchase up to 500,000 shares of the Company's Common Stock
that are intended to qualify as either incentive stock options within the
meaning of Section 422 of the Internal Revenue Code or as options that are not
intended to meet the requirements of such section ("Nonstatutory Stock
Options"). Options to purchase shares may be granted under the Plan to persons
who, in the case of Incentive Stock Options, are employees (including officers
of the Company or its subsidiaries), or, in the case of Nonstatutory Stock
Options, are employees (including officers of the Company or its subsidiaries),
non-employee directors or consultants of the Company.
The Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee has full discretionary authority, subject
to certain restrictions, to determine the number of shares for which Incentive
Stock Options and Nonstatutory Stock Options may be granted and the individuals
to whom, and the times at which, and the exercise prices for which options will
be granted.
Pension Plan Benefits
The employees of Apollo and Reynolds participate in a multi-employer
defined benefit pension plan. The plan provides defined benefits to
substantially all salaried and hourly employees of Apollo and Reynolds. The
Company contributed $208,000 during the year ended December 31, 1996, to this
plan. The Company is required to implement its own defined benefit plan during
1997.
CERTAIN TRANSACTIONS
Mr. Stonebraker has loaned approximately $113,000 to the Company during the
years ended December 31, 1996 and 1995. The notes are unsecured and bear
interest rates ranging from 12% to 25% per annum. Interest is payable monthly on
the notes and any principal amounts outstanding are due in August 1998. The
Company intends to repay these notes from the proceeds of this offering.
The above-referenced transaction was made based on Mr. Stonebraker's actual
cost. All future transactions by the Company with officers, directors, 5%
stockholders and their affiliates will be entered into only if the Company
believes that such transactions are reasonably expected to benefit the Company
and the terms of such transactions are no less favorable to the Company than
could be obtained from unaffiliated third parties. Furthermore, any loans made
in the future to officers, affiliates or stockholders will be approved by a
majority of disinterested directors.
PRIVATE PLACEMENT
On April 4, 1997, the Company entered into two secured promissory notes
with lenders in the aggregate amount of $1,500,000. The notes are due on the
earlier of December 31, 1997, or five days subsequent to the Company completing
an initial public offering. The interest rate on the notes is 8% per annum. Such
notes are referred to as the "8% Notes." As additional consideration for the
lenders making the 8% Notes, the Company will also issue shares of its Common
Stock and Warrants at the time of the Company's initial public offering, if any,
of
-41-
<PAGE>
its Common Stock. The terms and quantities of the shares and warrants vary
depending on the timing of the Company's public offering. The notes are secured
by a Stock Pledge Agreement whereby the entire interest of the Company in Apollo
and Apollo U.S. are pledged as collateral. In addition, the notes are secured by
the personal guaranty of two of the Company's stockholders. The Shares and
Warrants are being registered in this offering and the Warrants will be sold in
the future in negotiated transactions.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of March 31, 1997, and as adjusted to
reflect the sale of the Shares of Common Stock offered hereby, certain
information regarding beneficial ownership of the Company's Common Stock by (i)
each person known by the Company to be the beneficial owner of more than 5% of
the outstanding Common Stock, (ii) each director of the Company, (iii) each
Named Executive Officer, and (iv) all executive officers and directors of the
Company as a group. The following information assumes that the named individuals
will not be purchasing any Shares of Common Stock in this offering.
<TABLE>
<CAPTION>
Amount and Nature Percent of Class
of Beneficial ----------------
Ownership
Name and Address --------- Before After
of Beneficial Owner Shares/(1)/ Offering/(1)/ Offering/(1)/
- ------------------- ----------- ------------- -------------
<S> <C> <C> <C>
Mel S. Stonebraker........................... 907,500/(1)/ 25.6% 19.3%
2291 Arapahoe Avenue
Boulder, CO 80302
James M. Probst.............................. 562,500/(1)/ 15.9% 12.0%
2291 Arapahoe Avenue
Boulder, CO 80302
Jeffrey T. Kates............................. 0 - -
8165 Woodview
Clarkston, MI 48348
All executive officers and directors as a 1,470,000/(1)/ 41.5% 31.0%
group (5 Persons)............................
Other Stockholders holding
5% or more:
Oon Hock-Chye................................ 2,070,000 58.5% 45.7%
52 Tingkat Jelntong
Georgetown, Penang 11600
West Malaysia
</TABLE>
- -------------------
* Less than one percent.
(1) Includes seven year options to purchase up to 45,000 shares each granted to
Messrs. Stonebraker and Probst to be issued on the effective date of this
offering at the fair market value of the shares on that date. The options
vest in three annual equal increments commencing one year from the date of
grant if the Company achieves 75% of its targeted net sales plan as
established by the Board of Directors.
-43-
<PAGE>
DESCRIPTION OF SECURITIES
The following description of the Company's securities is qualified in its
entirety by reference to the Company's Articles of Incorporation and Bylaws and
the form of Warrant, copies of which have been filed as exhibits to the
Registration Statement of which this Prospectus is a part. As of March 31, 1997,
the Common Stock was held of record by three stockholders. See "Additional
Information."
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 29,000,000 shares of capital stock, $.001 par value, of
which 25,000,000 shares are designated as Common Stock and of which 4,000,000
shares are designated as Preferred Stock.
Common Stock
As of the date of this Prospectus, the Company had 3,450,000 shares of
Common Stock issued and outstanding. The holders of the Common Stock (i) have
equal ratable rights to dividends from funds legally available therefor, when,
as and if declared by the Board of Directors of the Company; (ii) are entitled
to share ratably in all the assets of the Company available for distribution to
holders of the Common Stock upon liquidation, dissolution or winding up of the
affairs of the Company; (iii) do not have preemptive rights; and (iv) are
entitled to one vote per share on all matters which stockholders may vote on at
all meetings of stockholders.
Holders of Common Stock do not have cumulative voting rights, which means
that the holders of a majority of such outstanding shares voting for the
election of directors can elect all of the directors of the Company to be
elected, if they so choose. In such event, the holders of the remaining shares
will not be able to elect any of the Company's directors.
Preferred Stock
As of the date of this Prospectus, no shares of Preferred Stock were
outstanding. Under governing Nevada law and the Company's Articles of
Incorporation, no action by the Company's stockholders is necessary, and only
action of the Board of Directors is required, to authorize the issuance of any
of the Preferred Stock. The Board of Directors is empowered to establish and to
designate the name of, each class or series of the shares and to set the terms
of such shares (including terms with respect to redemption, sinking fund,
dividend, liquidation, preemptive, conversion and voting rights and
preferences). Accordingly, the Board of Directors, without stockholder approval,
may issue preferred stock with terms (including terms with respect to
redemption, sinking fund, dividend, liquidation, preemptive, conversion and
voting rights and preferences) that could adversely affect the voting power and
other rights of holders of the Common Stock.
The existence of Preferred Stock may have the effect of discouraging an
attempt, through acquisition of a substantial number of shares of Common Stock,
to acquire control of the Company with a view to effecting a merger, sale or
exchange of assets or a similar transaction. The anti-takeover effects of the
Preferred Stock may deny stockholders the receipt of a premium on their Common
Stock and may also have a depressive effect on the market price of the Common
Stock.
Warrants
The Board of Directors has authorized the issuance of up to 1,637,500
Warrants in connection with this offering, comprised of 1,150,000 Warrants
offered hereby, 172,500 Warrants subject to the over-allotment option, 115,000
Warrants subject to the Representative's Securities, and 200,000 Warrants to be
issued to two investors in connection with the Private Placement. Two Warrants
entitle the holder thereof to purchase one share of Common Stock at a price
equal to $________ (between 125% to 150%) of the price to the public of the
Shares (the "Warrant Exercise Price"). The Warrant Exercise Price is subject to
adjustment upon certain events such as stock splits, stock dividends and similar
transactions. The Warrants are subject to redemption by the Company, as
described below. The exercise period for the Warrants expires at 5:00 p.m.,
Denver time, on the date that is three
-44-
<PAGE>
years from the date of this Prospectus (the "Warrant Term"), at which time the
Warrants will expire automatically. The Company may at any time and from time to
time extend the Warrant Term or reduce the Warrant Exercise Price, provided
written notice of such extension or reduction is given to the registered holders
of the Warrants prior to the expiration date then in effect. Such notice may be
given by publication, press release or other means of general distribution. The
Company does not presently contemplate any extension of the Warrant Term or
reduction in the Warrant Exercise Price.
Subject to compliance with applicable securities laws, Warrant certificates
may be transferred or exchanged for new certificates of different denominations
at the offices of the Warrant Agent described below. The holders of Warrants as
such, are not entitled to vote, to receive dividends or to exercise any of the
rights of stockholders for any purpose. The Warrants may be transferred
separately from the Common Stock with which they will be issued.
Exercise. The Warrants may be exercised during the Warrant Term only upon
surrender of the Warrant certificate at the offices of the Warrant Agent with
the form of "Election to Purchase on the reverse side of the Warrant certificate
completed and signed, accompanied by payment of the full exercise price for the
number of Warrants being exercised. Warrant holders will receive on share of
Common Stock for each two Warrants exercised, subject to any adjustment required
by the Warrant Agreement. For a holder to exercise Warrants, there must be a
current registration statement in effect with the Commission and various state
securities authorities registering the shares of Common Stock underlying the
Warrants or, in the sole determination of the Company and its counsel, there
must be a valid exemption therefrom. The Company has undertaken, and intends, to
maintain a current registration statement with the Commission and state
qualifications which will permit the exercise of the Warrants during the Warrant
Term. Maintaining a current effective registration statement could result in
substantial expense to the Company, and there is no assurance that the Company
will be able to maintain a current Registration Statement covering the shares
issuable upon exercise of the Warrants. Holders of Warrants will have the right
to exercise the Warrants included therein for the purchase of shares of Common
Stock only if a registration statement is then in effect and only if the shares
are qualified for sale under securities laws of the state in which the
exercising warrant holder resides or if the Company, in its and its counsel's
sole discretion, is able to obtain valid exemptions form the foregoing
requirements. Although the Company believes that it will be able to register or
qualify the shares of Common Stock underlying the Warrants for sales in those
states where the Securities are offered by this Prospectus, there can be no
guarantee that such registration or qualification, or an exemption therefrom,
can be accomplished without undue hardship or expense to the Company. The
Warrants may be deprived of any value if a registration statement covering the
shares issuable upon exercise thereof or an exemption therefrom cannot be filed
or obtained without undue expense or hardship or if such underlying shares are
not qualified or exempted from such registration in the states in which the
holder of a Warrant resides. In the latter event, the only option available to a
holder of a Warrant may be to attempt to sell his or her Warrants into the
market, if a market then exists and only then in compliance with applicable
securities laws and restrictions on transfer.
Redemption. The Company shall have the right, at its discretion, to call
all of the Warrants for redemption on 45 days' prior written notice at a
redemption price of $.10 per Warrant if: (i) the closing high bid price of the
Company's Common Stock exceeds the Warrant Exercise Price by at least 50% during
a period of at least 20 of the 30 trading days immediately preceding the notice
of redemption; (ii) the Company gives notice of redemption within five business
days of the satisfaction of the condition referenced in (i) above; (iii) the
Company has in effect a current registration statement covering the Common Stock
issuable upon exercise of the Warrants; and (iv) the expiration of the 45-day
notice period is within the Warrant Term. If the Company elects to exercise its
redemption right, holders of Warrants may either exercise their Warrants, sell
such Warrants in the market or tender their Warrants to the Company for
redemption. Within five business days after the end of the 45-day period, the
Company will mail a redemption check to each registered holder of a Warrant who
holds unexercised Warrants and the end of the 45-day period, whether or not such
holder has surrendered the Warrant certificates for redemption. The Warrants may
not be exercised after the end of such 45-day period. The Representative must
consent to any proposed redemption occurring within 12 months from the date of
this Prospectus. The Company expects to call the Warrants for redemption if the
conditions are satisfied because the Company believes that most holders will
elect to exercise their Warrants if the condition referenced in (i) above is
satisfied. If all holders exercised their Warrants, the Company
-45-
<PAGE>
would receive, at minimal expense to the Company, $______ based on an assumed
Warrant Exercise Price of $8.25 per share.
8% Notes
In April 1997, the Company issued $1,500,000 aggregate principal amount of
the 8% Notes. Interest on the 8% Notes, and the aggregate outstanding principal
amount of the 8% Notes, are payable on the maturity date, which is the earlier
of December 31, 1997, or five days after the Company's initial public offering.
Registration Rights
The Company has agreed to grant to two holders of 50,000 shares of the
Common Stock and warrants to purchase an additional 100,000 shares of Common
Stock (the "Rights Holders") certain rights with respect to the registration of
such shares under the Securities Act. Under the terms of agreements between the
Company and these holders, if the Company proposes to register any of its Common
Stock under the Securities Act for its own account or for the account of other
security holders (other than pursuant to this offering an certain excluded
registration forms), the Rights Holders are entitled to notice of such
registration and to include in such registration shares of a Common Stock that
they hold, subject to cutback limitations that may be imposed by the underwriter
of any underwritten public offering of the Common Stock. The Rights holders are
not required to bear any expenses incurred by the Company in connection with
registering the Rights Holders' shares, but underwriting fees, discounts, or
commissions relating to the sale of each Rights Holder's shares are borne by the
applicable Rights Holder. The Company is not required to include any of the
shares with registration rights in a registration if the holders of such shares
would be able to sell such shares without registration pursuant to Rule 144 for
the Securities Act or otherwise. None of the Rights Holders will participate in
this offering.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 4,650,000 Shares of
Common Stock outstanding (4,822,500 shares if the Representative's
over-allotment option with respect to the Shares is exercised in full). The
1,150,000 Shares sold in this offering will be freely transferable and tradeable
without restriction or further registration under the Securities Act except for
any shares purchased or held by any "affiliate" of the Company, which will be
subject to the resale limitation of Rule 144 promulgated under the Securities
Act.
Of the Company's 3,450,000 shares of Common Stock outstanding immediately
prior to the date of this Prospectus, all are "restricted securities" as that
term is defined under Rule 144 of the Securities Act. Restricted securities may
be sold in open market transactions in compliance with Rule 144 if the condition
of such rule are satisfied. Under Rule 144 as amended effective April 29, 1997,
any person (or persons whose shares are aggregated) who has beneficially owned
restricted shares for at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of (i)
1% of the then outstanding shares of the Company's Common Stock (46,500 shares
immediately after this offering) or (ii) the average weekly trading volume
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the Commission. Sales pursuant to Rule 144 are also
subject to certain requirements relating to the manner of sale, notice and
availability of current public information about the Company. A person who is
not deemed to have been an affiliate of the Company at any time during the 90
days immediately preceding the sale and whose restricted shares have been fully
paid for two years since the later of the date they were acquired from the
Company or the date they were acquired from an affiliate of the Company may sell
such restricted shares under Rule 144(k) without regard to the limitations
described above.
Up to 732,500 shares (818,750 Shares if the Representative's over-allotment
option with respect to the Warrants is exercised in full) may be issued upon
exercise of the Warrants, including the exercise of the Representatives Warrants
and the Warrants granted in connection with the Private Placement.
-46-
<PAGE>
Up to 115,000 additional Shares and 115,000 Warrants may be purchased by
the Representative after the first anniversary date of this Prospectus through
the exercise of the Representative's Warrants. Any and all Shares purchased upon
exercise of the Representative's Warrant may be freely tradeable, provided that
the Company satisfies certain securities registration and qualification
requirements in accordance with the terms of the Representative's Warrants. See
"Underwriting."
The Company, its officers and directors and greater than 5% stockholders
and certain persons who participated in the Private Placement, who will
beneficially own 3,500,000 shares as of the date of this Prospectus, have agreed
not, directly or indirectly, to sell, offer to sell, contract to sell, grant any
option for the sale of, otherwise dispose of, or register or announce the sale
or offering of any shares of capital stock of the Company beneficially owned by
them or any securities beneficially owned by them convertible into, or
exercisable or exchangeable for capital stock of the Company for a period of one
year after the date of the Prospectus without the prior written consent of the
Representative.
Sales of substantial numbers of Shares and Shares issuable upon exercise of
the Warrants pursuant to Rule 144 or otherwise could adversely affect the market
price of the Common Stock, should any such market develop.
Transfer and Warrant Agent and Registrar
The Transfer Agent and Registrar with respect to the Company's Common Stock
and the Warrant Agent with respect to the Company's Warrants is American
Securities Transfer & Trust, Inc., 938 Quail Street, Suite 101, Lakewood,
Colorado 80215.
-47-
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part, the Underwriters named below (the "Underwriters"),
have severally agreed through Cohig & Associates, Inc., the Representative, to
purchase and the Company has agreed to sell the Underwriters the aggregate
number of Shares and Warrants as set forth opposite their respective names
below:
<TABLE>
<CAPTION>
Underwriters Number of Shares Number of Warrants
------------ ---------------- ------------------
<S> <C> <C>
Cohig & Associates, Inc........................
TOTAL................................. 1,150,000 1,150,000
========= =========
</TABLE>
The Shares and Warrants are being offered by the several Underwriters,
subject to prior sale, when, as, and if delivered to and accepted by the
Underwriters and subject to their rights to reject orders in whole or in part
and subject to approval of certain legal matters by counsel and to various other
conditions. The nature of the Underwriters' obligation is such that they must
purchase all of the Shares and Warrants offered hereby if any are purchased.
The Company has granted the Representative separate options, each
exercisable within 45 days from the effective date of the Registration
Statement, to purchase up to an additional number of Shares and Warrants as will
be equal to not more than 15% each of the total number of Shares and Warrants
initially offered at the initial public offering price less the underwriting
discount of $_______ per share of Common Stock and $_______ per Warrant. The
Representative may exercise such options only for the purpose of covering any
over-allotment in the sale of the Shares and Warrants offered hereby.
The Underwriters have advised the Company that the Underwriters propose to
offer the Shares and Warrants directly to the public at the initial public
offering prices set forth on the cover page of this Prospectus, and to selected
dealers at the price, less a concession of not more than $_____ per share of
Share and $______ per Warrant. After the initial public offering, the price to
the public and the concession may be changed by the Underwriters.
The Underwriters have informed the Company that they do not expect to sell
any Shares or Warrants offered hereby to accounts over which they exercise
discretionary authority.
The Company will pay the Representative a non-accountable expense allowance
of 3% of the offering proceeds, which will include proceeds from over-allotment
options to the extent exercised. The Company has paid to the Representative
$_______ against the non-accountable expense allowance. The Representative's
expenses in excess of the non-accountable expense allowance will be borne by the
Representative. To the extent that the expenses
-48-
<PAGE>
of the Representative are less than the non-accountable expense allowance, the
excess shall be deemed to be compensation to the Representative.
The Company has granted the Representative a right of first refusal with
respect to additional public or private offerings proposed to be undertaken by
the Company for a period of 18 months after the date of this Prospectus.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the 1933 Act, and, if
such indemnifications are unavailable or insufficient, the Company and the
Underwriters have agreed to damage contribution agreements between them based
upon relative benefits received from this offering and relative fault resulting
in such damages. The Company has also agreed with the Underwriters that the
Company will use its best efforts to cause a registration statement pursuant to
Section 12(g) of the Exchange Act to become effective no later than the date of
this Prospectus.
Although there is not contractual agreement or other obligation, officers,
directors and affiliates of the Company might be sold a portion of the Shares
and Warrants, but only on the same terms and conditions as will be offered to
the public. Such persons will be required to represent that purchases by such
persons, if any, will be for investment purposes only with no present intent to
sell.
The foregoing does not purport to be a complete statement of the terms and
conditions of the Underwriting Agreement, copies of which are on file at the
offices of the Representative, the Company and the Commission. See "Additional
Information."
Representative's Securities
At the closing of the offering, the Company will sell and deliver to the
Representative for an aggregate purchase price of $100, warrants (the
"Representative's Warrants"), consisting of 115,000 warrants to purchase 115,000
shares of Common Stock (the "Representative's A Warrants") and 115,000 warrants
to purchase 115,000 Warrants (the "Representative's B Warrants") (collectively
with the Representative's A Warrants, the "Representative's Securities") at a
price that is equal to the respective initial public offering prices for
the Common Stock and Warrants. The Warrants issuable upon exercise of the
Representative's B Warrants have the same exercise prices as the Warrants
offered to the public hereby.
The Representative's Securities will be non-transferable for a period of
one year following the date of this Prospectus except to the Underwriters, other
selling group members, and their respective officers or partners. The
Representative's Securities will also contain anti-dilution provisions for stock
splits, recombinations and reogranizations, a one-time demand registration
provision (at the Company's expense), piggyback registration rights (both of
which expire five years from the date of the Prospectus), a cashless exercise
provision, and will otherwise be in form and substance satisfactory to the
Representative. The Representative's Warrants will be exercisable during the
four-year period commencing one year after the date of this Prospectus. The
warrants included in the Representative's B Warrants will be exercisable during
the period provided in the Warrants offered to the public hereby, commencing one
year after the date of this Prospectus.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company by Chrisman, Bynum & Johnson, P.C., Boulder, Colorado 80302. Certain
legal matters will be passed upon by counsel for the Underwriters, Clanahan,
Tanner, Downing & Knowlton, P.C., 1600 Broadway, Suite 2400, Denver, Colorado
80202.
-49-
<PAGE>
EXPERTS
The financial statements for the Company as of December 31, 1995 and 1996
included in this Prospectus and elsewhere in the Registration Statement have
been audited by KPMG Peat Marwick LLP, independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as accounting and auditing experts in
giving said reports.
AVAILABLE INFORMATION
Prior to this offering, the Company has not been subject to the reporting
requirements of the Securities Exchange Act of 1934. The Company has filed with
the Denver Regional Office of the Commission a Registration Statement under the
Securities Act of 1933, as amended, with respect to the sale of the Shares of
Common Stock. This Prospectus, which is part of the Registration Statement, does
not contain all of the information set forth in the Registration Statement and
the exhibits thereto, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the Shares of Common Stock, reference is hereby made
to such Registration Statement, including the exhibits thereto. Statements
contained in this Prospectus as to the contents of any contract or other
document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement. The Registration Statement and exhibits
thereto may be inspected by anyone 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, or at one of the Commission's regional
offices: Northwestern Atrium Center, 500 West Madison, Suite 1400, Chicago,
Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New York, New York
10048, or on the SEC website: http://www.sec.gov. Copies of all or any part of
such material may be obtained, upon payment of the prescribed fees, from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C.
-50-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
COYOTE SPORTS, INC. AND SUBSIDIARIES
<S> <C>
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Condensed Combined Balance Sheet as of March 31, 1997................................................. F-2
Pro Forma Condensed Combined Statements of Operations for the year ended December 31, 1996..................... F-4
Pro Forma Condensed Combined Statements of Operations for three months ended March 31, 1997..................... F-5
Notes to Pro Forma Condensed Combined Financial Statements...................................................... F-6
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.................................................................................... F-7
Consolidated Balance Sheets as of December 31, 1995 and 1996 and March 31, 1997 (unaudited)..................... F-8
Consolidated Statements of Operations for the years ended December 31, 1995 and 1996 and three months ended
March 31, 1996 and 1997 (unaudited)...................................................................... F-10
Consolidated Statements of Stockholders' Equity (Deficit) for the years ended December 31, 1995 and 1996
and three months ended March 31, 1997 (unaudited)........................................................ F-11
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and 1996 and three months ended
March 31, 1996 and 1997 (unaudited)...................................................................... F-12
Notes to Consolidated Financial Statements...................................................................... F-13
TI APOLLO LIMITED, APOLLO GOLF, INC. AND TI REYNOLDS 531 LIMITED
HISTORICAL COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report.................................................................................... F-23
Combined Balance Sheets as of December 31, 1995 and September 30, 1996.......................................... F-24
Combined Statements of Operations for the year ended December 31, 1995 and the nine months ended
September 30, 1996....................................................................................... F-26
Combined Statements of Stockholders' Equity for the year ended December 31, 1995 and the nine
months ended September 30, 1996.......................................................................... F-27
Combined Statements of Cash Flows for the year ended December 31, 1995 and the nine months ended
September 30, 1996....................................................................................... F-28
Notes to Combined Financial Statements.......................................................................... F-29
</TABLE>
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
The following unaudited pro forma condensed consolidated financial statements
have been prepared to give effect to the completion of the offering and the
acquisitions of the entities described below.
On September 18, 1996, Coyote Sports, Inc. (the "Company" or "Coyote") acquired
three affiliated entities, TI Apollo Limited, TI Reynolds 531 Limited and Apollo
Golf, Inc., (collectively, the "Apollo Entities") and a manufacturing facility.
The transaction has been accounted for as a purchase and the results of
operations of the Apollo Entities are included in the operations of the Company
beginning October 1, 1996. The pro forma condensed combined statements of
operations for the year ended December 31, 1996 assume the offering and the
acquisition were consummated on January 1, 1996.
On March 27, 1997, the Company established a new entity, Sierra Materials, LLC
("Sierra"). Sierra is 80% owned by the Company and 20% owned by two individuals
not previously related to the Company. Sierra was established to acquire Cape
Composites, Inc. (d/b/a Sierra Materials). Sierra Materials is a supplier of
graphite and other advanced composite materials for use in the sports and
recreational markets. This acquisition of Sierra Materials coincided with the
formation of Sierra on March 27, 1997. The shares of Sierra Materials are
pledged as collateral for certain outstanding debt of Sierra Materials which
must be paid by or personal guarantees of the previous owners of indebtedness
existing on March 27, 1997 removed by the Company prior to September 30, 1997 or
the shares of Sierra Materials will revert back to the previous owners of Sierra
Materials. The unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 1996 and the three months ended March
31, 1997 of the Company assume the offering and acquisition occurred on January
1, 1996 and January 1, 1997, respectively.
The accompanying pro forma condensed consolidated balance sheet assumes the
offering and related debt repayments was completed on March 31, 1997.
In management's opinion, all material adjustments necessary to reflect the
transactions are presented in the pro forma adjustments for the year ended
December 31, 1996 and the three months ended March 31, 1997 which are
based upon available information. The pro forma statements do not purport to be
the Company's results of operations or financial position that would have
resulted had the transactions to which pro forma effect is given been
consummated as of the dates or for the periods indicated and do not purport to
project the Company's financial position or results of operations at any future
date or for any future period, and should be read in conjunction with the
Company's consolidated financial statements and the combined financial
statements of the Apollo Entities.
F-1
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1997
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
COYOTE
MARCH 31, PRO FORMA PRO FORMA
ASSETS 1997 ADJUSTMENTS COMBINED
- ------ ----------- ----------- ----------
<S> <C> <C> <C>
Current Assets:
Cash $ 1,293,212 5,217,750(a) 6,510,962
Receivables, net 3,969,805 3,969,805
Inventories 4,607,230 4,607,230
Prepaid expenses and other
current assets 374,343 374,343
----------- ----------
Total current assets 10,244,590 15,462,340
----------- ----------
Property, plant and equipment, net 4,233,414 4,233,414
Intangible assets, net 984,725 984,725
----------- ----------- ----------
$15,462,729 5,217,750 20,680,479
=========== =========== ==========
</TABLE>
(Continued)
F-2
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET, CONTINUED
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HISTORICAL
COYOTE
MARCH 31, PRO FORMA PRO FORMA
1997 ADJUSTMENTS COMBINED
------------ ------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
<S> <C> <C> <C>
Current liabilities:
Notes payable to banks $ 3,203,753 3,203,753
Current portion of long term debt 69,947 69,947
Current portion of obligation payable
under purchase agreement 87,000 87,000
Payables to related parties 22,291 22,291
Accounts payable 3,108,209 3,108,209
Taxes payable 401,000 401,000
Accrued expenses 1,692,658 1,692,658
------------ ----------
Total current liabilities 8,584,858 8,584,858
------------ ----------
Obligation payable under purchase agreement,
net of current portion 688,754 688,754
Notes payable to stockholder 112,146 (112,146)(a) -
Long term debt, less current portion 415,762 (300,000)(a) 115,762
Deferred tax liability 424,000 424,000
------------ ----------
Total liabilities 10,225,520 9,813,374
Minority interests in net assets of subsidiaries 203,356 203,356
Stockholders' equity:
Common stock 3,450 1,200 (a) 4,650
Additional paid-in capital 6,342,211 5,628,696 (a) 11,970,907
Accumulated deficit (1,513,808) (1,513,808)
Foreign currency translation adjustment 202,000 202,000
------------ ----------
Total stockholders' equity 5,033,853 10,663,749
------------ ------------ ----------
$15,462,729 5,217,750 20,680,479
============ ============ ==========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
F-3
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
HISTORICAL
APOLLO SIERRA
ENTITIES MATERIALS
PERIOD FROM PERIOD FROM
HISTORICAL JANUARY 1, MARCH 1, 1996
COYOTE 1996 TO TO
DECEMBER 31, SEPTEMBER DECEMBER 31, PRO FORMA PRO FORMA
1996 30, 1996 1996 ADJUSTMENTS COMBINED
----------- ----------- ----------- ----------- -----------
DECEMBER 31, 1996
<S> <C> <C> <C> <C> <C>
Net sales $ 5,453,117 14,787,052 3,281,936 23,522,105
Cost of goods sold (3,028,756) (8,914,428) (2,592,758) (14,535,942)
----------- ----------- ----------- -----------
Gross profit 2,424,361 5,872,624 689,178 8,986,163
Selling, general, and
administrative expenses (3,139,140) (5,872,959) (893,179) 13,000(b) (9,892,278)
----------- ----------- ----------- -----------
Operating loss (714,779) (335) (204,001) (906,115)
----------- ----------- ----------- -----------
Other income (expense):
Interest expense (34,897) (238,677) (48,781) 36,000(c) (286,355)
Gains on forward
exchange contracts,
net 126,570 54,000 -- 180,570
----------- ----------- ----------- -----------
91,673 (184,677) (48,781) (105,785)
----------- ----------- ----------- -----------
Loss before income
taxes and minority
interest (623,106) (185,012) (252,782) (1,011,900)
Income tax expense -- (248,000) -- (248,000)
Minority interest (5,938) -- -- (5,938)
----------- ----------- ----------- ----------- -----------
Net loss $ (629,044) (433,012) (252,782) 49,000 (1,265,838)
=========== =========== =========== =========== ===========
Net loss per share $ (0.18) (0.37)
=========== ===========
Weighted average shares
outstanding 3,450,000 3,450,000
=========== ===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
F-4
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIERRA
COYOTE MATERIALS
THREE MONTHS THREE MONTHS
ENDED ENDED PRO FORMA PRO FORMA
MARCH 31, 1997 MARCH 31, 1997 ADJUSTMENTS COMBINED
-------------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 5,375,918 932,948 6,308,866
Cost of goods sold (3,157,341) (743,196) 8,000 (b) (3,892,537)
-------------- -------------- -----------
Gross profit 2,218,577 189,752 2,416,329
Selling, general, and administrative expenses (2,716,666) (237,861) (2,954,527)
-------------- -------------- -----------
Operating loss (498,089) (48,109) (538,198)
-------------- -------------- -----------
Other income (expense):
Interest expense (93,368) (14,028) 12,000 (c) (95,396)
Loss on forward exchange contracts, net (23,000) -- (23,000)
-------------- -------------- -----------
(116,368) (14,028) (118,396)
-------------- -------------- -----------
Loss before taxes and minority interest (614,457) (62,137) (656,594)
Income tax benefit 111,000 -- 111,000
Minority interests in losses of subsidiaries 6,332 -- 12,427 (d) 18,759
-------------- -------------- ----------- -----------
Net loss $ (497,125) (62,137) 32,427 (526,835)
============== ============== =========== ===========
Net loss per share $ (0.14) (0.15)
============= ===========
Weighted average shares outstanding 3,450,000 3,450,000
============= ===========
</TABLE>
See accompanying notes to pro forma condensed combined financial statements.
F-5
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
- --------------------------------------------------------------------------------
(1) BASIS OF PRESENTATION
On September 18, 1996, Coyote acquired all of the outstanding common stock
of TI Apollo Limited, Apollo Golf, Inc. and TI Reynolds 531 Limited. In
addition, the Company acquired a manufacturing facility located in Oldbury,
U.K. (the "Oldbury property"). These entities and manufacturing facility
are collectively referred to as the Apollo Entities. Consideration paid for
the Apollo Entities was $5,135,305 in cash.
On March 27, 1997, the Company and two previously unrelated stockholders
established Sierra Materials which acquired all of the outstanding common
stock of Cape Composites, Inc. (d/b/a "Sierra Materials"). Consideration
for Sierra Materials was the assumption of all liabilities which
approximated $1,400,000. The Company is obligated to repay or the personal
guarantees of the prior stockholders of Sierra Materials must be removed
prior to September 30, 1997 or the shares of Sierra Materials will revert
to the previous owners of Sierra Materials in the amount of approximately
$775,000.
(2) PRO FORMA ADJUSTMENTS
The following pro forma adjustments give effect to the offering and
acquisition of the Apollo Entities, and Sierra Materials as of the
beginning of each period presented for the statement of operations and the
effect of the offering as of March 31, 1997 for the balance sheet.
(a) Reflects the estimated net proceeds of the offering, repayment of
notes payable to stockholder of $112,146 and other debt of $300,000.
(b) Reflects the net decrease in depreciation expense for the Apollo
Entities, based on the lower carrying values of property, plant and
equipment. The lower carrying values resulted from the allocation of
purchase price to monetary assets and liabilities based on their fair
value with the amount remaining to allocate to long lived assets being
less than historical carrying values.
(c) Reflects the decrease in interest expense due to pay down of the
Sierra indebtedness and repayment of the stockholder notes payable.
(d) Reflects the adjustment for minority interest in Sierra Materials for
the three months ended March 31, 1997.
(3) PENTIUMATICS SDN., BHD.
Coyote entered into an agreement dated April 4, 1997 to purchase
Pentiumatics Sdn., Bhd. The Company is awaiting confirmation that this
purchase has been completed. No assets, liabilities or operating items are
included for this transaction in the historical or pro forma information
herein.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE BOARD OF DIRECTORS
COYOTE SPORTS, INC.:
We have audited the accompanying consolidated balance sheets of Coyote Sports,
Inc. and subsidiaries (the "Company") as of December 31, 1995 and 1996, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for the years then ended. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated 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 consolidated financial statements referred to above present
fairly, in all material, respects the financial position of Coyote Sports, Inc.
and subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for the years then ended, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Boulder, Colorado
May 19, 1997, except
for note 8 which
is as of June 11, 1997
F-7
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1995 1996 1997
------- --------- -----------
(unaudited)
ASSETS
- ------
<S> <C> <C> <C>
Current assets:
Cash $29,497 305,006 1,293,212
Trade receivables, less allowance for doubtful
accounts of $340,000 in 1996 and $360,000 in 1997 - 2,681,626 3,897,519
Receivables from related parties - 91,418 72,286
Inventories - 4,240,627 4,607,230
Prepaid expenses and other assets - 245,624 374,343
------- --------- -----------
Total current assets 29,497 7,564,301 10,244,590
------- --------- -----------
Property, plant and equipment:
Land - 816,000 783,000
Building - 110,000 248,173
Machinery and equipment 7,195 2,628,301 3,369,838
Furniture and fixtures 2,122 19,122 16,000
------- --------- -----------
9,317 3,573,423 4,417,011
Less accumulated depreciation (2,477) (31,677) (183,597)
------- --------- -----------
Net property, plant and equipment 6,840 3,541,746 4,233,414
------- --------- -----------
Intangible assets, net of accumulated amortization
of $16,979 in 1996 and $34,025 in 1997 - 1,001,771 984,725
------- --------- -----------
$36,337 12,107,818 15,462,729
======= ========== ===========
(Continued)
</TABLE>
F-8
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
DECEMBER 31, 1995 AND 1996 AND MARCH 31, 1997(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31
--------------------------------- March 31,
1995 1996 1997
----------- ----------- -----------
(unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
Current liabilities:
<S> <C> <C> <C>
Notes payable to banks $ - 1,038,000 3,203,753
Current portion of long term debt - - 69,947
Current portion of obligation payable under purchase agreement - 87,000 87,000
Payables to related parties 17,817 22,291 22,291
Accounts payable - 2,687,427 3,108,209
Taxes payable - 638,000 401,000
Accrued expenses 4,604 823,076 1,692,658
----------- ----------- -----------
Total current liabilities 22,421 5,295,794 8,584,858
----------- ----------- -----------
Obligation payable under purchase agreement, net of current portion - 728,000 688,754
Long term debt, net of current portion - - 415,762
Notes payable to stockholder 45,632 112,861 112,146
Deferred tax liability - 426,000 424,000
----------- ----------- -----------
Total liabilities 68,053 6,562,655 10,225,520
Minority interests in net assets of subsidiaries - 209,688 203,356
Stockholders' equity (deficit):
Preferred stock, $.001 par value. Authorized 4,000,000 shares,
none issued or outstanding - - -
Common stock, $.001 par value. Authorized 25,000,000 shares,
3,450,000 shares issued and outstanding 3,450 3,450 3,450
Additional paid-in capital 352,473 6,136,288 6,342,211
Accumulated deficit (387,639) (1,016,683) (1,513,808)
Foreign currency translation adjustment - 212,420 202,000
----------- ----------- -----------
Total stockholders' equity (deficit) (31,716) 5,335,475 5,033,853
----------- ----------- -----------
Commitments and contingencies (notes 1, 2, 5, 6, 9, 12 and 13)
$ 36,337 12,107,818 15,462,729
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31, 1996
AND 1997(unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Three months
ended
Years ended December 31, March 31,
------------------------ -----------------------
1995 1996 1996 1997
---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Net sales $ - 5,453,117 10,362 5,375,918
Cost of goods sold - (3,028,756) (11,882) (3,157,341)
---------- ----------- ---------- ----------
Gross profit - 2,424,361 (1,520) 2,218,577
Selling, general and administrative expenses (370,873) (3,139,140) (98,217) (2,716,666)
---------- ---------- ---------- ----------
Operating loss (370,873) (714,779) (99,737) (498,089)
---------- ---------- ---------- ----------
Other income (expense):
Interest expense - (34,897) - (93,368)
Gain (loss) on forward exchange contracts, net - 126,570 - (23,000)
---------- ---------- ---------- ----------
- 91,673 - (116,368)
---------- ---------- ---------- ----------
Loss before income taxes and minority interest (370,873) (623,106) (99,737) (614,457)
Income tax benefit - 111,000
Minority interests - (5,938) - 6,332
---------- ---------- ---------- ----------
Net loss $ (370,873) (629,044) (99,737) (497,125)
========== ========== ========== ==========
Net loss per share $ (0.11) (0.18) (0.03) (0.14)
========== ========== ========== ==========
Weighted average shares outstanding 3,450,000 3,450,000 3,450,000 3,450,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31,
1997(unaudited), AS ADJUSTED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Foreign Total
Additional currency stockholders'
paid-in Accumulated translation equity
Preferred stock Common stock captial deficit adjustment (deficit)
--------------- ------------------ --------- ---------- ------- ---------
Shares Amount Shares Amount
------ ------ --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 1, 1995 - $ - 3,450,000 $ 3,450 47,550 (16,766) - 34,234
Contributed capital - - - - 304,923 - - 304,923
Net loss - - - - - (370,873) - (370,873)
------ ------ --------- ------ --------- ---------- ------- ---------
BALANCES AT DECEMBER 31, 1995 - - 3,450,000 3,450 352,473 (387,639) - (31,716)
Contributed capital - - - - 5,783,815 - - 5,783,815
Net loss - - - - - (629,044) - (629,044)
Foreign currency
translation adjustment - - - - - - 212,420 212,420
------ ------ --------- ------ --------- ---------- ------- ---------
BALANCES AT DECEMBER 31, 1996 - - 3,450,000 $ 3,450 6,136,288 (1,016,683) 212,420 5,335,475
------ ------ --------- ------ --------- ---------- ------- ---------
Contributed capital - - - - 205,923 - - 205,923
Net loss - - - - - (497,125) - (497,125)
Foreign currency
translation adjustment - - - - - - (10,420) (10,420)
------ ------ --------- ------ --------- ---------- ------- ---------
BALANCES AT MARCH 31, 1997 - $ - - - 6,342,211 (1,513,808) 202,000 5,033,853
====== ====== ========= ======= ========= ========== ======= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND THREE MONTHS ENDED MARCH 31, 1996 AND
1997(unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31, March 31,
-------------------------- ------------------------
1995 1996 1996 1997
---- ---- ---- ----
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(370,873) (629,044) $(99,737) (497,125)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 2,477 46,179 - 107,929
Deferred taxes - - - (2,000)
Minority interest in net earnings of subsidiary - 5,938 - (6,332)
Changes in operating assets and liabilities (net of acquisitions):
Trade receivables and receivables from related parties - 1,640,801 - (895,215)
Inventories - (1,131,565) - 62,360
Prepaid expenses and other assets 900 (215,860) (200) (100,134)
Payables to related parties 17,817 4,474 (42,483) -
Accounts payable 4,725 (137,696) 81,775 (276,451)
Taxes payable - 63,000 - (237,000)
Accrued expenses - (763,530) 1,801 843,408
----------- -------------- ----------- ------------
Net cash used in operating activities (344,954) (1,117,303) (58,844) (1,000,560)
----------- -------------- ----------- ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (3,140) (25,106) - (169,776)
Acquisitions of businesses, net of cash acquired of $114,759 - (5,020,546) - -
----------- -------------- ----------- ------------
Net cash used in investing activities (3,140) (5,045,652) - (169,776)
----------- -------------- ----------- ------------
Cash flows from financing activities:
Borrowings (repayments) on notes payable to stockholder 45,632 67,229 - (715)
Proceeds from notes payable to banks - 375,000 - 2,003,000
Capital contributions 304,923 5,783,815 115,766 205,923
Payments on purchase obligation - - - (39,246)
----------- -------------- ----------- ------------
Net cash provided by financing activities 350,555 6,226,044 115,766 2,168,962
----------- -------------- ----------- ------------
Effect of exchange rate changes on cash - 212,420 - (10,420)
----------- -------------- ----------- ------------
Increase in cash 2,461 275,509 56,922 988,206
Cash at beginning of period 27,036 29,497 29,497 305,006
----------- -------------- ----------- ------------
Cash at end of period $ 29,497 305,006 $ 86,419 1,293,212
=========== ============== =========== ============
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ - 23,000 16,845 37,690
=========== ============== =========== ============
Income taxes $ - - - -
=========== ============== =========== ============
Noncash transactions - acquisition of a business in exchange for 20% of
the stock in a subsidiary and future cash payments (note 2)
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(Information as of March 31, 1997 and for the three months ended March 31, 1996
and 1997 is unaudited)
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
NATURE OF BUSINESS
Coyote Sports, Inc. and subsidiaries (the Company), is engaged in the
manufacture and sale of sporting good products. These sporting good
products include steel golf shafts (under the name Apollo), bicycle frame
tubes (under the name Reynolds), and high-end ski poles (under the name
ICE). The Company sells its golf shafts and bicycle frame tubes in
wholesale markets and to assemblers of finished products, and its ski poles
to retail shops throughout the United States. The Company's golf shaft and
cycle tubing businesses accounted for approximately 91% of the Company's
revenue for the year ended December 31, 1996. If the demand for golf
products were to experience a significant change it could have a
significant impact on the Company's financial performance.
The Company, in addition to the businesses described above, plans to expand
its existing product lines into other sporting good product lines in the
future. The Company plans to develop some of these products internally, as
well as, acquiring companies with existing products lines that complement
the Company's product lines.
Prior to 1996, the Company was a development stage enterprise as it was
devoting most of its activities to financial planning and identifying
acquisitions.
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated as of March 31, 1997 and for the three
months ended March 31, 1996 and 1997, are unaudited but, in the opinion of
management, include all adjustments, consisting of normal recurring
adjustments, which are necessary for a fair presentation of the financial
condition, results of operations, and cash flows. The operating results
for the three months ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1997.
LIQUIDITY
The Company incurred a loss of $629,044 in 1996. Notes payable to banks as
of December 31, 1996 contractually terminate March 31, 1997 and May 31,
1997. Subsequent to December 31, 1996 the Company acquired two additional
entities in exchange for the assumption of indebtedness and entered into
two new debt agreements which contractually terminate in fiscal 1997.
F-13
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
Management believes that the combination of positive cash flows from
operations, extending the due dates of debt agreements, entering into new
debt agreements and the sale of equity will provide sufficient cash
to meet its obligations as they come due. However, there can be no
assurance that operations will generate positive cash flows, that the debt
agreements will be extended, and that new debt or equity will be sold. If
the Company is unable to secure additional financing or refinance existing
debt, cash flows from operations might not be sufficient to cover the
Company's financial obligations during 1997.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries in which a controlling interest is held, including Apollo
Sports Holdings Ltd. and its subsidiaries, Apollo Golf, Inc. and ICE*USA
LLC. All significant intercompany balances and transactions have been
eliminated in consolidation.
TRADE RECEIVABLES
Prior to the year ended December 31, 1996, the Company had not recorded a
provision for doubtful accounts. During the year ended December 31, 1996,
the Company recorded a provision of approximately $33,000 and the remaining
$307,000 represents provisions for doubtful accounts carried over from the
Apollo acquisition.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Maintenance and repairs
are charged to expense as incurred. Depreciation is computed using the
straight-line method based on estimated useful lives of the assets, which
range from 3 to 20 years.
INTANGIBLE ASSETS
Intangible assets represent the rights to specific products, trade names,
customer lists and are amortized on a straight-line basis over the expected
period to be benefitted of 15 years. The Company reviews the impairment of
intangible assets as well as other long-lived assets whenever changes in
circumstances indicate that the carrying amount of such assets may have
been impaired which is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceed
the fair value of the assets.
REVENUE RECOGNITION
The Company recognizes sales upon shipment to customers.
F-14
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products, are
expensed as incurred. The amount charged against operations in 1996 was
approximately $220,000, which is included in selling, general and
administrative expenses.
TAXES PAYABLE
Taxes payable consist of employee withheld payroll taxes for employees based
in the United Kingdom. Additionally, as a part of the purchase agreement of
the Apollo entities (note 2) the Company is obligated to pay income taxes
for the entities domiciled in the United Kingdom for earnings prior to the
acquisition.
INCOME TAXES
The Company accounts for income taxes under the asset and liability method
whereby deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
ADVERTISING
The Company expenses advertising costs when incurred. Advertising expenses
recognized in the year ended December 31, 1996 approximated $335,000 and are
included in selling, general and administrative expenses.
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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
FOREIGN EXCHANGE RISK AND FINANCIAL INSTRUMENTS
The accounts of the Company's foreign subsidiaries and affiliates are
measured using the local currency as the functional currency. For those
operations, assets and liabilities are translated at period end exchange
rates. Revenue and expense accounts are translated at average monthly
exchange rates. Net gains or losses resulting from translation are excluded
from results of operations and accumulated as a separate component of
stockholders' equity. Gains and losses from foreign currency transactions
are included in operations as incurred.
F-15
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
The Company enters into forward foreign exchange contracts on certain
foreign forward delivery commitments. Generally, open forward delivery
commitments are marked to market at the end of each accounting period and
corresponding gains and losses are recognized in other income (expense).
NET LOSS PER SHARE
Net loss per share is computed using the weighted average number of shares
outstanding during the year as adjusted for subsequent stock splits.
(2) ACQUISITIONS
On September 18, 1996, the Company acquired three affiliated entities, TI
Apollo Limited, a United Kingdom company, TI Reynolds 531 Limited, a United
Kingdom company, and Apollo Golf, Inc., a United States company, (the
"Apollo Entities") and a manufacturing facility for total consideration of
3,284,702 Pound Sterling (PS) ($5,135,305 U.S.) in cash. The transaction was
accounted for by the purchase method. The purchase price was allocated to
monetary current assets and liabilities based on the fair values and the
remainder to property, plant and equipment, which resulted in property,
plant and equipment being recorded at less than the appraised value.
Accordingly, no goodwill was recorded from this acquisition. According to
the purchase agreement, the seller has indemnified the Company for five
years for environmental obligations and related costs up to 500,000 PS.
Also, on September 18, 1996, the Company entered into an agreement to
acquire certain assets of Expedition Trading Company, LLC, a Utah Limited
Liability Company (Expedition). The Company established ICE*USA LLC, a
Colorado Limited Liability Company (ICE), in order to purchase certain
intangible assets from Expedition in exchange for consideration of $1.5
million, in the form of a note, and a 20% interest in ICE.
The $1.5 million obligation is payable to Expedition over six years, and has
been discounted which present value is $815,000 as of December 31, 1996.
Certain assets and liabilities of the acquired entities have been stated at
management's best estimate of fair value and settlement value which may be
adjusted once better information becomes available. Once determined, the
purchase price and related allocations may be adjusted.
On March 27, 1997, the Company established a new entity, Sierra Materials,
LLC ("Sierra"). Sierra is 80% owned by the Company and 20% owned by two
individuals. Sierra was established to acquire Cape Composites, Inc. (d/b/a
Sierra Materials). Sierra Materials is a supplier of graphite and other
advanced composite materials for use in the sports and recreational markets.
This acquisition of Sierra Materials coincided with the formation of Sierra
on March 27, 1997. The shares of Sierra Materials are pledged as collateral
for certain outstanding debt of Sierra Materials which must be paid or the
personal guarantees of the prior stockholders of Sierra Materials must be
removed by the Company prior to September 30, 1997 or the Shares of Sierra
Materials will revert back to the previous owners of Sierra Materials.
The following unaudited pro forma financial information for the years ended
December 31, 1996 and 1995 present the combined results of operations of the
Company and the Apollo Entities as if the acquisition had occurred as of the
beginning of 1996 and 1995, after giving effect to certain adjustments,
including amortization of intangible assets, reduced depreciation expense,
and related income tax effects. The following unaudited pro forma financial
information for the three months ended March 31, 1997 presents the combined
results of operations of the Company and Sierra Materials as if the
acquisition had occurred as of January 1, 1997, after giving effect to
additional depreciation expense. The pro forma financial information does
not necessarily reflect the results of operations that would have occurred
had the Company the Apollo Entities, and Sierra Materials constituted a
single entity during such periods.
<TABLE>
<CAPTION>
Three months
Year ended December 31, ended March 31,
--------------------------- ---------------------
1995 1996 1996 1997
------ ------ ------ ------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales $22,280,546 20,240,169 4,873,876 6,308,866
============== ============ ========= =========
Net loss (325,264) (718,104) (307,505) (559,263)
============== ============ ========= =========
Net loss per share $ (0.09) (0.21) (0.09) (0.16)
============== ============ ========= =========
</TABLE>
F-16
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
----
<S> <C>
Raw materials and supplies $ 857,831
Work-in-process 940,000
Finished goods 3,184,519
-----------
4,982,350
Valuation allowance (741,723)
-----------
$4,240,627
===========
</TABLE>
(4) NOTES PAYABLE TO STOCKHOLDER
The Company has outstanding notes payable to one of its stockholders in the
amount of $112,861 at December 31, 1996. The notes are unsecured and bear
interest rates ranging from 12% to 25% per annum. Interest is payable
monthly on the notes and any principal amounts outstanding are due in August
1998.
(5) NOTES PAYABLE TO BANKS
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
1996
----
<S> <C>
Note payable under line of credit, variable interest rate of 1.5% over
the bank's prime rate (7.5% at December 31, 1996), interest payable
quarterly $ 738,000
Note payable under line of credit, variable interest rate equal to the
bank's prime rate (8.25% at December 31, 1996), interest payable
monthly 300,000
--------------
$1,038,000
==============
</TABLE>
In September 1996, the Company entered into a Credit Facility Agreement
("credit facility") which provides for borrowings under a foreign line of
credit up to 750,000 PS ($1,285,000 U.S.) with an interest rate of 1.5% over
the bank's prime rate. The credit facility also provides for borrowings of
up to 400,000 PS ($685,000 U.S.) for spot and forward foreign exchange
transactions and borrowings of up to 120,000 PS ($205,000 U.S.) for customs
bonds. Amounts outstanding on the credit facility are secured by
substantially all Apollo Sports Holdings Ltd.'s assets. As of December 31,
1996, $431,000 PS ($738,000 U.S.) was outstanding under the credit facility.
The credit facility formally terminated March 31, 1997 and the debt was due
on demand. The debt agreement was subsequently extended to July 31, 1997.
F-17
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
In December 1996, the Company entered into a Loan and Security Agreement
("line of credit") which provides for borrowings under a line of credit up
to a maximum of $500,000, with an interest rate equal to the bank's prime
rate. Amounts outstanding on the line of credit are secured by
substantially all assets of Apollo Golf, Inc. As of December 31, 1996,
$300,000 was outstanding under this line of credit. The line of credit
expires on May 31, 1998.
(6) LEASES
The Company has noncancelable operating leases for offices and equipment
that expire in various years through 2001. Lease expense on these operating
leases amounted to approximately $61,000 and $14,669 for the years ended
December 31, 1996 and 1995, respectively.
At December 31, 1996, future minimum lease payments for operating leases are
as follows:
1997 $250,000
1998 190,000
1999 90,000
2000 6,000
----------
$536,000
==========
(7) INCOME TAXES
Income tax expense (benefit) is comprised of the following for the years
ended:
December 31,
----------------
1995 1996
---- ----
Current:
U.S. Federal $ - -
United Kingdom - (16,000)
State - -
------ -------
- (16,000)
------ -------
Deferred:
U.S. Federal - -
United Kingdom - 16,000
State - -
------ -------
- 16,000
------ -------
$ - -
====== =======
F-18
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
Actual income tax expense (benefit) differs from the amounts computed
using the U.S. statutory tax rate of 34% as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
1995 1996
---- ----
<S> <C> <C>
Computed tax at the expected statutory rate $(126,000) (214,000)
Increase (decrease) in income taxes resulting from:
State tax, net of federal benefit and state tax
credits (12,000) (21,000)
Increase in valuation allowance 137,000 267,000
Other, net 1,000 (32,000)
--------- ----------
Income tax expense $ - -
========= ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
December 31,
----------------------
1995 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 142,000 332,000
Bad debts and inventory allowances - 111,000
--------- --------
Total deferred tax assets 142,000 443,000
Valuation allowance (142,000) (409,000)
--------- --------
Net deferred tax assets - 34,000
--------- --------
Deferred tax liability -
difference in book and tax bases of property, plant
and equipment from acquisition - (460,000)
--------- --------
Net deferred tax liability $ - (426,000)
========= =========
</TABLE>
At December 31, 1996, the Company has net operating loss carryforwards for
U.S. federal income tax purposes of $332,000 which are available to offset
future federal taxable income and expire in the following years:
<TABLE>
<CAPTION>
<S> <C>
2009 $ 5,000
2010 137,000
2011 190,000
--------
$332,000
</TABLE>
At December 31, 1996, management does not believe it is more likely than
not that the Company will realize the benefits of a substantial portion of
its deferred tax assets and recognized a valuation allowance.
F-19
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(8) COMMON STOCK AND PREFERRED STOCK
On June 11, 1997, the stockholders approved an increase in the authorized
number of shares of common stock from 1,000,000 shares to 25,000,000
shares. Also on that date, the Board of Directors of the Company declared a
3,450 to 1 stock split of the Company's common stock. In the accompanying
financial statements, all numbers of common shares and per share amounts
have been adjusted to reflect the common stock split retroactively. The
stockholders also authorized preferred stock. The total amount of preferred
stock authorized is 4,000,000 shares with none issued or outstanding.
(9) EMPLOYEE BENEFIT PLAN
Two of the Company's acquired subsidiaries participate in a multi-employer
defined benefit pension plan. The plan provides defined benefits to
substantially all salaried and hourly employees in these two subsidiaries.
Amounts charged to pension expense and contributed to the plan in 1996 were
$208,000. The Company is required to implement its own defined benefit plan
during 1997. In accordance with the purchase agreement on the transfer date
of the newly formed defined benefit plan, the amount of assets transferred
from the multi-employer plan will be equal to the benefit obligation of the
Company's employees based upon an actuarial report to be performed as of
the transfer date.
(10) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instrument equals the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The carrying amounts of certain of the Company's financial
instruments, including cash, trade accounts receivable and accounts payable
approximate fair value because of their short maturity. The fair value of
notes payable approximate the carrying value because of the short maturity
of these notes and because the notes bear interest at variable interest
rates which approximate market rates.
FOREIGN CURRENCY INSTRUMENTS
The fair value of the Company's foreign exchange contracts is estimated
based on quoted market prices of comparable contracts.
<TABLE>
<CAPTION>
December 31, 1996
---------------------
Carrying Fair
amount value
------ -----
<S> <C> <C>
Foreign exchange contracts $191,306 $191,306
========== =========
</TABLE>
F-20
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(11) OPERATING INFORMATION BY GEOGRAPHIC REGION
The Company's operations are summarized by geographic region as follows:
<TABLE>
<CAPTION>
Year ended
December 31,
1996
----
<S> <C>
Net sales:
Europe, Asia and Australia $ 2,606,000
United States 2,847,117
--------------
$ 5,453,117
==============
Net loss:
United Kingdom $ (16,000)
United States (613,044)
--------------
$ (629,044)
==============
Identifiable assets:
United Kingdom $ 7,984,943
United States, including
corporate 3,121,104
--------------
$11,106,047
==============
</TABLE>
(12) COMMITMENTS AND CONTINGENCIES
LITIGATION
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations or
liquidity.
UNION AGREEMENTS
Substantially all of the employees of Apollo Sports Holdings Ltd. and its
subsidiaries are unionized under various contracts which are periodically
renegotiated.
(13) SUBSEQUENT EVENTS
On March 27, 1997, the Company established a new entity, Sierra Materials,
LLC ("Sierra"). Sierra is 80% owned by the Company and 20% owned by two
individuals. Sierra was established to acquire Cape Composites, Inc. (d/b/a
"Sierra Materials"). The shares of Sierra Materials are pledged as
collateral for certain outstanding debt of approximately $650,000 of Sierra
Materials which must be paid or the personal guarantees of the prior
stockholders of Sierra Materials must be removed prior to September 30,
1997 or the shares of Sierra Materials will revert to the previous owners
of Sierra Materials.
On April 1, 1997, the Company acquired all of the outstanding stock of
Pentiumatics Sdn. Bhd. ("Pentiumatics"), a Southeast Asian entity whose
principal operations have not commenced. Pentiumatics is in the process of
completing the purchase of land machinery and equipment from a third party
pursuant to an agreement dated April 4, 1997. The Company is awaiting
confirmation from Southeast Asian counsel as to the amount of the purchase
price and terms of such purchase agreement and that this transaction has
been completed. The principal
F-21
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(13) SUBSEQUENT EVENTS (CONTINUED)
operations of Pentiumatics will be the extrusion of various metals which
will be sold to third parties, primarily for the manufacture of sporting
goods. The consideration for Pentiumatics was equal to approximately $ 3.8
million, which was comprised of cash and the assumption of liabilities. The
transaction will be accounted for as a purchase and operations of
Pentiumatics will be included in the Company's consolidated financial
statements beginning April 1, 1997.
On April 4, 1997, the Company entered into two secured promissory notes
with lenders. The amounts of the notes are $1,355,000 and $145,000 and are
due on June 16, 1997, or they may be extended to the earlier of December
31, 1997 or five days subsequent to the Company completing an initial
public offering. The interest rates on the notes are 8% and may be
increased if the Company defaults on the terms of the notes. As additional
consideration for the lenders making the notes, the Company will also issue
shares of the Company's common stock for no additional consideration and
warrants subsequent to the Company's initial public offering, if any, of
its common stock. The terms and quantities of the shares and warrants vary,
depending on the timing of the Company's public offering of its common
stock. The notes are secured by a Stock Pledge Agreement whereby the assets
of the Company in Apollo Golf, Inc. and in Apollo Sports Holdings are
pledged as collateral. In addition, the notes are secured by the personal
guaranty of two of the stockholders of the Company.
F-22
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
THE BOARD OF DIRECTORS
COYOTE SPORTS, INC.
We have audited the accompanying combined balance sheets of TI Apollo Limited,
Apollo Golf, Inc. and TI Reynolds 531 Limited (collectively the Apollo Entities)
as of December 31, 1995 and September 30, 1996, and the related combined
statements of operations, stockholders' equity and cash flows and for the year
ended December 31, 1995 and for the nine months ended September 30, 1996. These
combined financial statements are the responsibility of the company's
management. Our responsibility is to express an opinion on these combined
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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of TI Apollo
Limited, Apollo Golf, Inc. and TI Reynolds 531 Limited (collectively the Apollo
Entities) as of December 31, 1995 and September 30, 1996, and the results of
their operations and their cash flows for the year ended December 31, 1995 and
for the nine months ended September 30, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Boulder, Colorado
June 5, 1997
F-23
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
COMBINED BALANCE SHEETS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
December 31, September 30,
1995 1996
ASSETS ------------ -------------
- ------
Current assets:
<S> <C> <C>
Cash $ 1,214,407 $ 114,757
Trade accounts receivable, less allowance for doubtful accounts 2,736,164 3,086,843
of $265,000 in 1995 and $125,000 in 1996
Inventories 3,941,519 3,475,001
Prepaid expenses and other assets 282,939 204,761
------------ -----------
Total current assets 8,175,029 6,881,362
------------ -----------
Property, plant and equipment:
Machinery and equipment 10,269,054 10,438,190
Furniture and fixtures 578,000 582,000
------------ -----------
10,847,054 11,020,190
Less accumulated depreciation (7,843,819) (8,320,485)
------------ -----------
Net property, plant and equipment 3,003,235 2,699,705
------------ -----------
$ 11,178,264 $ 9,581,067
============ ===========
</TABLE>
(Continued)
F-24
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
COMBINED BALANCE SHEETS, CONTINUED
December 31, 1995 and September 30, 1996
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
December 31, September 30,
1995 1996
LIABILITIES AND STOCKHOLDERS EQUITY ---- ----
- -------------------------------------
Current liabilities:
<S> <C> <C>
Notes payable to Former Parent $ 688,000 1,138,000
Accounts payable 2,505,197 1,623,546
Taxes payable 947,000 575,000
Accrued expenses 942,111 1,398,577
Dividends payable 832,000 -
----------- -------------
Total current liabilities 5,914,308 4,735,123
----------- -------------
Deferred tax liability 540,000 525,000
----------- -------------
Total liabilities 6,454,308 5,260,123
Stockholders' equity
Common stock 1,872,878 2,652,878
Additional paid-in capital 4,208,122 3,440,122
Accumulated deficit (1,344,044) (1,777,056)
Foreign currency translation adjustment (13,000) 5,000
----------- -------------
Total stockholders equity 4,723,956 4,320,944
----------- -------------
Commitments and contingencies (notes 3, 4, 6 and 9)
$11,178,264 9,581,067
=========== =============
</TABLE>
See accompanying notes to combined financial statements.
F-25
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------------
Year ended Nine months ended
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Net sales $ 22,280,546 14,787,052
Cost of goods sold (13,516,961) (8,914,428)
------------ -----------------
Gross profit 8,763,585 5,872,624
Selling, general and administrative expenses (8,319,276) (5,872,959)
------------ -----------------
Operating income (loss) 444,309 (335)
------------ -----------------
Other income (expense):
Interest expense, net (224,305) (238,677)
Gains (losses) on forward exchange contracts, net (126,000) 54,000
------------ -----------------
(350,305) (184,677)
------------ -----------------
Income (loss) before income taxes 94,004 (185,012)
Income tax expense (507,000) (248,000)
------------ -----------------
Net loss $ (412,996) (433,012)
============ =================
</TABLE>
See accompanying notes to combined financial statements.
F-26
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
COMBINED STATEMENTS OF STOCKHOLDERS EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Foreign
Additional currency Total
Common Common Common paid-in Accumulated translation stockholders
stock(1) stock(2) stock(3) capital deficit adjustment equity
------ --------- ------ ------- ------- ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES JANUARY 1, 1995 1,000 1,450,678 $ 421,200 4,246,017 (931,048) (5,000) 5,182,847
Contributed Capital - - - 808,105 - - 808,105
Dividends declared - - - (846,000) - - (846,000)
Net loss - - - - (412,996) - (412,996)
Foreign currency translation
adjustment - - - - - (8,000) (8,000)
------ --------- ----------- ---------- --------- --------- ----------
BALANCES DECEMBER 31, 1995 1,000 1,450,678 421,200 4,208,122 (1,344,044) (13,000) 4,723,956
====== ========= =========== ========== ========= ========= ==========
Contributed capital - 780,000 - (76,000) - - 704,000
Dividends declared - - - (692,000) - - (692,000)
Net loss - - - - (433,012) - (433,012)
Foreign currency translation
adjustment - - - - - 18,000 18,000
------ --------- ----------- ---------- --------- --------- ----------
BALANCES SEPTEMBER 30, 1996 1,000 2,230,678 $ 421,200 3,440,122 (1,777,056) 5,000 4,320,944
====== ========= =========== ========== ========= ========= =========
</TABLE>
- ------------
(1) Common stock, no par value. Authorized 1,000 shares, 100 issued and
outstanding.
(2) Common stock, .25 Pound Sterling (PS) ($.39 at December 31, 1995 and
September 30, 1996) par value. Authorized 5,800,000 shares, 3,719,688 and
5,719,688 shares issued and outstanding at December 31, 1995 and September
30, 1996, respectively.
(3) Common stock, .02 PS ($.03 at December 31, 1995 and September 30, 1996) par
value. Authorized 14,040,040 shares, 14,040,000 shares issued and
outstanding.
See accompanying notes to combined financial statements.
F-27
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
- ------------------------------------------------------------------------------------
Nine months
Year ended ended
December 31, September 30,
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (412,996) (433,012)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 395,600 476,666
Deferred income taxes (4,000) (15,000)
Changes in operating assets and liabilities:
Trade accounts receivable, net 540,928 (350,679)
Inventories (124,189) 466,518
Prepaid expenses and other assets (174,032) 78,178
Accounts payable (305,427) (881,651)
Taxes payable (179,000) (372,000)
Accrued expenses (692,636) 456,466
----------- -----------
Net cash used in operating activities (955,752) (574,514)
----------- -----------
Cash flows used in investing activities -
purchase of property, plant and equipment (192,144) (173,136)
Cash flows from financing activities:
Proceeds from notes payable to Former Parent 688,000 450,000
Dividends paid (1,962,000) (832,000)
Capital contributions 808,105 12,000
----------- -----------
Net cash used in financing activities (465,895) (370,000)
----------- -----------
Effect of exchange rate changes on cash (8,000) 18,000
----------- -----------
Net decrease in cash (1,621,791) (1,099,650)
----------- -----------
Cash at beginning of period 2,836,198 1,214,407
----------- -----------
Cash at end of period 1,214,407 114,757
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 11,050 53,788
=========== ===========
Income taxes $ 1,191,768 -
=========== ===========
</TABLE>
See accompanying notes to combined financial statements.
F-28
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND SEPTEMBER 30, 1996
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES AND BASIS OF
PRESENTATION
NATURE OF BUSINESS AND BASIS OF PRESENTATION
TI Apollo Limited (TAL), Apollo Golf, Inc. (AGI) and TI Reynolds 531 Limited
(TRL) (collectively, the "Apollo Entities", or Company) formerly wholly
owned subsidiaries of TI Group plc (Former Parent) are engaged in the
manufacture and sales of sporting goods products. These sporting good
products include steel golf shafts (under the name Apollo) and bicycle frame
tubes (under the name Reynolds). The Company sells its golf shafts and
bicycle frame tubes in wholesale markets and to assemblers of finished
products primarily in Europe and the United States. The Company's golf shaft
business accounted for approximately 88% of the Company's revenue for the
nine months ended September 30, 1996. If the demand for golf products were
to experience a significant change it could have a significant impact on the
financial performance of the Apollo Entities.
The Apollo Entities have been combined as a result of the acquisition of
these entities by Coyote Sports, Inc. as described in note 10. These
combined financial statements are presented on a historical cost basis and
do not include the effects of purchase accounting. The purchase price paid
by Coyote Sports, Inc., for the Apollo Entities was less than the net book
value recorded in the combined financial statements.
All significant intercompany balances and transactions have eliminated in
combination.
ACCOUNTS RECEIVABLE
The provision for doubtful accounts was $269,167 and $101,003 and
uncollectible accounts charged to the allowance were $262,189 and $240,787
for the year ended December 31, 1995 and the nine months ended September 30,
1996, respectively. The allowance for doubtful accounts was $258,661 as of
December 31, 1994.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. Maintenance and repairs are
charged to expense as incurred. Depreciation is computed using the straight-
line method based on estimated useful lives of the assets, which range from
3 to 20 years.
REVENUE RECOGNITION
The Company recognizes sales upon shipment to customers.
F-29
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
RESEARCH AND DEVELOPMENT EXPENSES
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products,
are expensed as incurred. The amount charged against operations during the
year ended December 31, 1995 and the nine months ended September 30, 1996
was approximately $676,000 and $407,000, respectively, which is included
in selling, general and administrative expenses.
INCOME TAXES
The Apollo Entities account for income taxes under the asset and liability
method whereby deferred tax assets and liabilities are recognized for
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized
in income in the period that includes the enactment date.
ADVERTISING
The Apollo Entities expense advertising costs when incurred. Advertising
expense recognized in the year ended December 31, 1995 and the nine months
ended September 30, 1996 approximated $313,000 and $249,000, respectively,
and is included in selling, general and administrative expenses.
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 revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
FOREIGN EXCHANGE RISK AND FINANCIAL INSTRUMENTS
The accounts of TAL and TRL are measured using the local currency (Pound
Sterling) as the functional currency. For those operations, assets and
liabilities are translated at period end exchange rates. Revenue and
expense accounts are translated at average monthly exchange rates. Net
gains or losses resulting from translation are excluded from results of
operations and accumulated as a separate component of stockholder's
equity. Gains and losses from foreign currency transactions are included
in operations as incurred.
The Company enters into forward foreign exchange contracts on certain
foreign forward delivery commitments. Generally, open forward delivery
commitments are marked to market at the end of each accounting period and
corresponding gains and losses are recognized in other income (expense).
F-30
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(2) INVENTORIES
Inventories consist of the following:
December 31, September 30,
1995 1996
------------- -------------
Raw materials and supplies $1,218,119 2,352,094
Work-in-progress 933,689 89,239
Finished goods 2,717,595 2,047,552
------------- -------------
4,869,403 4,488,885
Valuation allowance (927,884) (1,013,884)
------------- -------------
$3,941,519 3,475,001
============= =============
(3) NOTES PAYABLE TO FORMER PARENT
The Former Parent had a senior bank facility which was used to fund the
working capital needs of the Apollo Entities, similar to a line of
credit. Amounts outstanding on the facility were the obligation of the
Former Parent. Amounts payable by the Apollo Entities were payable to the
Former Parent. These amounts were paid prior to the completion of the
acquisition in note 10.
(4) LEASES
The Company has noncancelable operating leases for offices and equipment
that expire in various years through 2000. Lease expense on these
operating leases amounted to approximately $193,000 and $134,000 for the
year ended December 31, 1995 and the nine months ended September 30,
1997, respectively.
F-31
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
At September 30, 1996, future minimum lease payments for operating
leases are as follows:
1997................. $ 204,415
1998................. 327,507
1999................. 239,463
2000................. 93,549
2001................. 6,350
---------
$ 871,284
=========
(5) INCOME TAXES
Income tax expense (benefit) is comprised of the following for the
years ended:
December 31, September 30,
1995 1996
---- ----
Current:
U.S. Federal $ - -
United Kingdom 543,000 263,000
State - -
----------- ---------
543,000 263,000
----------- ---------
Deferred:
U.S. Federal - -
United Kingdom (36,000) (15,000)
State - -
----------- ---------
(36,000) (15,000)
----------- ---------
$ 507,000 248,000
=========== =========
F-32
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
Actual income tax expense (benefit) differs from the amounts
computed using the U.S. statutory tax rate of 34% as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1995 1996
------------ -------------
<S> <C> <C>
Computed tax at the expected statutory
rate $ 32,000 (63,000)
Increase (decrease) in income taxes
from:
State tax, net of federal benefit and tax
credits (16,000) (20,000)
Meals and entertainment expenses 22,000 19,000
Correction of a previously filed tax return -- 80,000
Increase in valuation allowance 448,000 264,000
Other, net 21,000 (32,000)
------------ -------------
Income tax expense $ 507,000 248,000
============ =============
</TABLE>
Income tax expense is a result of income generated in the United
Kingdom without the benefit of utilization of net operating losses
generated in the United States.
The tax effects of temporary differences which give rise to
significant portions of deferred tax assets and deferred tax
liabilities are presented below:
<TABLE>
<CAPTION>
December 31, September 30
1995 1996
------------ ------------
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards $ 294,000 524,000
Bad debts and inventory allowances 201,000 227,000
--------- ---------
Total deferred tax assets 495,000 751,000
Valuation allowance (448,000) (712,000)
--------- ---------
Net deferred tax assets 47,000 39,000
--------- ---------
Deferred tax liability -
difference in book and tax basis of
property, plant and equipment from
acquisition (587,000) (564,000)
--------- ---------
Net deferred tax liability $(540,000) (525,000)
========= =========
At September 30, 1996, management does not believe it is more
likely than not that the Apollo Entities will realize the benefits
of a substantial portion of its deferred tax assets and recognized
a valuation allowance.
</TABLE>
F-33
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(6) EMPLOYEE BENEFIT PLAN
The Apollo Entities participate in a multi-employer defined benefit pension
plan. The plan provides defined benefits to substantially all salaried and
hourly employees in these two subsidiaries. Amounts charged to pension
expense and contributed to the plan during the year ended December 31, 1995
and the nine months ended September 30, 1996 were $ 31,996 and $ 20,250,
respectively.
(7) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument equals the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The carrying amounts of certain of the Apollo Entities' financial
instruments, including cash, trade accounts receivable and accounts payable
approximate fair value because of their short maturity.
FOREIGN CURRENCY INSTRUMENTS
The fair value of the Apollo Entities' foreign exchange contracts is
estimated based on quoted market prices of comparable contracts.
September 30, 1996
-------------------------
Carrying Fair
amount value
------ -----
Foreign exchange contracts $80,252 $80,252
======= =======
F-34
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS, CONTINUED
- --------------------------------------------------------------------------------
(8) OPERATING INFORMATION BY GEOGRAPHIC REGION
The Apollo Entities' operations are summarized by geographic region as
follows:
Nine months
ended
September 30,
1996
-------------
Net Sales:
Europe, Asia and Australia $ 6,788,333
United States 7,998,719
-------------
14,787,052
=============
Net income (loss):
United Kingdom 286,000
United States (719,012)
-------------
(433,012)
=============
Identifiable assets:
United Kingdom 6,321,000
United States 3,260,067
-------------
$ 9,581,067
=============
(9) COMMITMENTS AND CONTINGENCIES
LITIGATION
The Apollo Entities are involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of management,
the ultimate disposition of these matters will not have a material adverse
effect on the Apollo Entities' combined financial position, results of
operations or liquidity.
UNION AGREEMENTS
Substantially all of the employees of TAL and TRL are unionized under
various contracts which are periodically renegotiated.
(10) ACQUISITION BY COYOTE SPORTS, INC.
On September 18, 1996, all of the outstanding shares of the Apollo Entities
were sold to Coyote Sports, Inc. In addition to these shares of the Apollo
Entities, Coyote Sports, Inc. acquired a manufacturing facility which is
used by TI Apollo Limited to manufacture golf shafts.
F-35
<PAGE>
No dealer, salesperson or any other person has been authorized to give
information or making any representation not contained in this Prospectus in
connection with the offer made by this Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by the Company or the Underwriters. This Prospectus does not constitute an offer
to sell, or solicitation by anyone in any jurisdiction in which such offer or
solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so or to anyone to whom it is unlawful to
make such offer or solicitation. Neither the delivery of this Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
the affairs of the Company since that date hereof or the information herein is
correct as of any time subsequent to the date of this Prospectus.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary...........................................................3
Risk Factors.................................................................7
Use of Proceeds.............................................................14
Dividend Policy.............................................................16
Dilution....................................................................17
Selected Financial Data.....................................................18
Management's Discussion and Analysis of Financial Condition & Results
of Operations.............................................................20
Business....................................................................25
Management..................................................................37
Certain Transactions........................................................41
Principal Stockholders......................................................43
Description of Securities...................................................44
Shares Eligible for Future Sale.............................................46
Underwriting................................................................48
Legal Matters...............................................................49
Experts.....................................................................50
Available Information.......................................................50
</TABLE>
- --------------------------------------------------------------------------------
Until ____ , 1997, all dealers effecting transactions in Securities,
whether or not participating in this distribution, may be required to deliver a
Prospectus. This delivery requirement is in addition to the obligation of
dealers to deliver a Prospectus when acting as Underwriters and with respect to
their unsold allotments or subscriptions.
1,150,000 Shares of Common Stock
and 1,150,000 Warrants
COYOTE SPORTS, INC.
--------------
PROSPECTUS
--------------
Cohig & Associates, Inc.
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Articles of Incorporation and Bylaws of the Company provide that
the Company shall indemnify to the fullest extent permitted by Nevada law any
person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action, suit or proceeding, by reason of the
fact that he or she is or was a director or officer of the Company or is or was
serving at the request of the Company in any capacity and in any other
corporation, partnership, joint venture, trust or other enterprise. The
Nevada Business Corporation Act (the "Nevada Act") permits the Company to
indemnify an officer or director who was or is a party or is threatened to be
made a party to any proceeding because of his or her position, if the officer or
director acted in good faith and in a manner he or she reasonably believed to be
in the best interests of the Company or, if such officer or director was not
acting in an official capacity for the Company, he or she reasonably believed
the conduct was not opposed to the best interests of the Company.
Indemnification is mandatory if the officer or director was wholly successful,
on the merits or otherwise, in defending such proceeding. Such indemnification
(other than as ordered by a court) shall be made by the Company only upon a
determination that indemnification is proper in the circumstances because the
individual met the applicable standard of conduct. Advances for such
indemnification may be made pending such determination. Such determination shall
be made by a majority vote of a quorum consisting of disinterested directors or
of a committee of at least two disinterested directors, or by independent legal
counsel or by the shareholders.
In addition, the Articles of Incorporation provide for the elimination,
to the extent permitted by Nevada law, of personal liability of directors to the
Company and its shareholders for monetary damages for breach of fiduciary duty
as directors. The Nevada Act provides for the elimination of personal liability
of directors for damages occasioned by breach of fiduciary duty, except for
liability based on the director's duty of loyalty to the Company, liability for
acts or omissions not made in good faith, liability for acts or omissions
involving intentional misconduct, liability based on payments of improper
dividends, liability based on violations of state securities laws, and liability
for acts occurring prior to the date such provision was added.
See the second and third paragraphs of Item 28 below for information
regarding the position of the Securities and Exchange Commission with respect to
the effect of any indemnification for liabilities arising under the Securities
Act.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the estimated costs and expenses to be
borne by the Company in connection with the offering described in the
Registration Statement, other than the underwriting discount and the
Representative's nonaccountable expense allowance.
<TABLE>
<S> <C>
Registration Fee.......................................... $ 5,284
National Association of Securities Dealers, Inc. Fee...... 2,262
Non-Accountable Expense Allowance......................... 224,164
Legal Fees and Expenses................................... 150,000
Accounting Fees and Expenses.............................. 170,000
Printing and Engraving Expenses........................... 40,000
Blue Sky Fees and Expenses................................ 5,000
Underwriters' Legal Fees for Blue Sky..................... 10,000
Transfer Agent's and Registrar's Fees..................... 1,000
Nasdaq Listing Fees....................................... 10,000
Miscellaneous Expenses.................................... 12,290
--------
Total................................................... $ 630,000
========
</TABLE>
II-1
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
The Registrant sold the following unregistered securities during the
past three fiscal years.
The Company sold 1,000 shares of its Common Stock to its two founders
in October 1994. Subsequently, the two founders sold a total of 150 shares of
the Company's Common Stock to a third founder of the Company who was an officer
and director of the Company since its inception. On June 11, 1997, the Company
effected a 3,450 to 1 forward stock split of its Common Stock which resulted in
a total of 3,450,000 shares issued and outstanding as of that date and
registered in the names of the three such founders. The Company believes that
the transactions were private in nature and were exempt from the registration
requirements of Section 5 of the Securities Act of 1933 (the "Securities Act")
by virtue of the exemptions contained in Section 4(2) of the Securities Act and
the so called 4(1 1/2) exemption under the Securities Act.
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
1.1 Form of Underwriting Agreement. *
1.2 Representative's Warrant Agreement. *
3.1 Restated Articles of Incorporation of the Company, as amended.
3.2 Bylaws of the Company, as amended. *
4.1 Form of certificate for shares of Common Stock. *
5.1 Opinion of Chrisman, Bynum & Johnson, P.C.
10.1 TI Group plc and Apollo Sports Holding Ltd. and Coyote Sports Inc.
Agreement for the sale and purchase of the whole of the issued share
capitals of TI Apollo Limited, Apollo Golf Inc. and TI Reynolds 531
Limited, dated September 18, 1996.
10.2 ICE*USA LLC Agreement between Coyote Sports, Inc. And Expedition
Trading Company dated September 18, 1996.
10.3 Agreement between David B. Abrams, Coyote Sports, Inc. And Mark H.
Snyder (regarding Sierra Materials, Inc), dated March 27, 1997. *
10.4 Mel S. Stonebraker Employment Agreement. *
10.5 Mel S. Stonebraker Change in Control Agreement. *
10.6 James M. Probst Employment Agreement. *
10.7 James M. Probst Change in Control Agreement. *
10.8 James A. Pfeil Employment Agreement. *
10.9 Paul Andrew Taylor Employment Agreement
10.10 1997 Stock Option Plan
10.11 Transfer of Oldbury Property located in UK from TI Reynolds Limited to
Apollo Sports Holdings Limited dated September 18, 1996.
10.12 Agreement for Sale and Purchase of Freehold Property at Oldbury, West
Midlands, dated September 17, 1996, between TI Reynolds Limited and TI
Group plc. *
10.13 Amended and Restated Secured Promissory Note between Deere Park Capital
Management, Inc. and Coyote Sports, Inc. dated May 4, 1997
10.14 Amended and Restated Secured Promissory Note between Steve Kerr and
Coyote Sports, Inc. dated May 4, 1997
10.15 Unlimited Continuing Guaranty between Deere Park Capital Management,
Inc. and Apollo Sports Holdings Limited dated May 4, 1997
10.16 Unlimited Continuing Guaranty between Deere Park Capital Management,
Inc. and Mel Stonebraker dated April 4, 1997
10.17 Unlimited Continuing Guaranty between Steve Kerr and Apollo Sports
Holdings Limited dated May 4, 1997
10.18 Stock Pledge Agreement between Deere Park Capital Management, Inc.,
Steve Kerr and Mel Stonebraker dated April 4, 1997.
10.19 Stock Pledge Agreement between Deere Park Capital Management, Inc.,
Steve Kerr and Coyote Sports, Inc. dated April 4, 1997.
10.20 Lease between Hamann-Chambers-Rumsey-Burns and Apollo Golf, Inc.
located in El Cajun, Diego,
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
California. *
10.21 Lease between American National Bank and Trust Company of Chicago and
TI Steel Tube (USA) Inc. located in Cook County, Illinois. *
10.22 Lease between Coyote Sports, Inc. and Accent Properties located in
Boulder, Colorado. *
10.23 Lease between Hamann-Chambers-Rumsey-Burns and Apollo Golf, Inc.
located in San Diego, California. *
21.1 List of Subsidiaries of Company.
ICE*USA LLC, a Colorado limited liability company
Sierra Materials, LLC (formerly known as Cape Composites,
LLC), a Colorado limited liability company
Pentiumatics SDN, BHD, a Malaysian company
Apollo Golf, Inc., a New Jersey corporation
Apollo Sports Holdings Ltd., a United Kingdom company
Reynolds Cycle Technology, Ltd., a United Kingdom company
Apollo Sports Technologies, Limited, a United Kingdom company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Chrisman, Bynum & Johnson, P.C. (included in its opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (included in signature page of original filing).
</TABLE>
- -------------------
*To be filed by Amendment.
Item 28. Undertakings.
The undersigned small business issuer will provide to the Underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the small business issuer pursuant to the foregoing
provisions, or otherwise, the small business issuer has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the small
business issuer pursuant to Rule 424(b)(1), or (4) or 497(h)
under the Securities Act as part of this registration
statement as of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering
of those securities.
II-3
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COYOTE SPORTS, INC.
Coyote Sports, Inc., a corporation organized and existing under the laws of
the State of Nevada (the "Corporation"), hereby adopts the following Amended and
Restated Articles of Incorporation, pursuant to unanimous approval of the
Shareholders of the Corporation:
ARTICLE I
NAME
The name of the Corporation is: Coyote Sports, Inc.
ARTICLE II
AUTHORIZED CAPITAL STOCK
The total number of shares which the Corporation is authorized to issue is
Twenty-Nine Million (29, 000,000) shares of capital stock, $.001 par value each,
of which Twenty-Five Million (25,000,000) shares will be designated as Common
Stock (the "Common Stock") and of which Four Million (4,000,000) shares will be
designated as Preferred Stock (the "Preferred Stock"). The Board of Directors
shall have the authority to fix the rights, powers, preferences and privileges,
and the qualifications, limitations or restrictions thereof, of any series of
preferred stock, including but not limited to dividend rights, dividend rates,
conversion rights, voting rights, and liquidation preferences; and to fix the
number of shares constituting any such series and the designation thereof; and
to increase or decrease the number of shares of any such series (but not below
the number of shares thereof then outstanding).
ARTICLE III
STOCK SPLIT
Each share of the Corporation's Common Stock, no par value, issued at the
time these Amended and Restated Articles of Incorporation are filed with the
Secretary of State of the State of Nevada shall be and hereby is automatically
changed and reclassified without further action into Three Thousand Four Hundred
Fifty (3,450) fully paid and nonassessable shares, $.001 par value, of the
Corporation's Common Stock.
<PAGE>
ARTICLE IV
OFFICES
The street address of the registered office of the Corporation in the State
of Nevada is One East First Street, Reno, Nevada 89601. The name of the
registered agent at that address is The Corporation Trust Company of Nevada.
The principal office of the Corporation is 2291 Arapahoe Avenue, Boulder, CO
80302.
ARTICLE V
PURPOSES
The purpose for which the Corporation is organized is to engage in the
design, engineering, manufacture, marketing and distribution of sports equipment
and recreational products worldwide or any other lawful purpose.
ARTICLE VI
QUORUM FOR SHAREHOLDERS' MEETINGS
Except as otherwise provided by law or the Corporation's Bylaws, one-third
of the votes entitled to be cast on any matter by each voting group entitled to
vote on a matter shall constitute a quorum of that voting group for action on
the matter.
ARTICLE VII
BOARD OF DIRECTORS
The corporate powers shall be exercised by or under the authority of, and
the business and affairs of the Corporation shall be managed under the direction
of a board of directors. The names and addresses of the current members of the
board of directors are as follows:
Mel S. Stonebraker 1181 West Nicholl
Boulder, CO 80304
James M. Probst 5455 S. Simms Way
Littleton, CO 80127
Jeffrey T. Kates 8165 Woodview
Clarkson, MI 48348
The number of directors of the Corporation shall be not less than three nor more
than nine and may be altered from time to time in accordance with the Bylaws.
Each director shall serve until the next annual meeting of shareholders or until
his successor has been duly elected and qualified.
Any director may be removed from office by the vote of shareholders
representing not less than two-thirds of the issued and outstanding stock
entitled to vote at a meeting called for that purpose.
<PAGE>
ARTICLE VIII
CUMULATIVE VOTING
Each outstanding share of Common Stock shall be entitled to one vote on
each matter submitted to a vote of shareholders. Cumulative voting shall not be
allowed in the election of directors.
ARTICLE IX
LIMITATION ON DIRECTOR LIABILITY
To the fullest extent permitted by the General Corporation Law of Nevada,
as the same exists or may hereafter be amended, a director of the Corporation
shall not be liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
ARTICLE X
INDEMNIFICATION
The Corporation shall indemnify, to the fullest extent permitted by
applicable law in effect from time to time, any person, and the estate and
personal representative of any such person, against all liability and expense
(including attorneys' fees) incurred by reason of the fact that the person is or
was a director or officer of the Corporation or, while serving as a director or
officer of the Corporation, such person is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary, or
agent of, or in any similar managerial or fiduciary position of, another
domestic or foreign corporation or other individual or entity or of an employee
benefit plan. The Corporation shall also indemnify any person who is serving or
has served the Corporation as director, officer, employee, fiduciary, or agent,
and that person's estate and personal representative, to the extent and in the
manner provided in any bylaw, resolution of the shareholders or directors,
contract, or otherwise, so long as such provision is legally permissible.
ARTICLE XI
TERM OF EXISTENCE
The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
executed this Amended and Restated Articles of Incorporation this 9th day of
June, 1997.
COYOTE SPORTS, INC.
/s/ Mel S. Stonebraker
------------------------------------
Mel S. Stonebraker, President
<PAGE>
/s/ James M. Probst
-------------------------------------------
James M. Probst, Secretary
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing Amended and Restated Articles of Incorporation were
acknowledged and executed by Mel S. Stonebraker and James M. Probst, who are
personally known to me to be duly elected President and Secretary of the
Corporation, this 9th day of June, 1997.
My commission expires: 4/7/2001
--------
/s/ RoxAnn D. Mack
-----------------------------------
Notary Public
<PAGE>
[LETTERHEAD OF CHRISMAN BYNUM & JOHNSON APPEARS HERE]
Exhibit 5.1
June 12, 1997
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, CO 80302
Gentlemen:
We have acted as counsel to Coyote Sports, Inc. (the "Company") in connection
with the preparation and filing of a Registration Statement on Form SB-2 (the
"Registration Statement") covering registration under the Securities Act of 1933
of 1,322,500 shares of the Company's Common Stock, $.001 par value and
1,322,500, Redeemable Class A Common Stock Purchase Warrants including the over-
allotment option (collectively "Securities".) As such, we have examined the
Registration Statement, the Company's Amended and restated Articles of
Incorporation, its Bylaws, and minutes of meetings of its Board of Directors.
Based upon the foregoing, and assuming that the Securities will be sold
according to the Registration Statement at a time when effective, we are of the
opinion that, upon issuance of the Securities according to the Registration
Statement and receipt of the consideration to be paid for the Securities, the
Securities will be validly issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the references to our firm in the Prospectus which is made a
part of the Registration Statement.
Very truly yours,
CHRISMAN, BYNUM & JOHNSON, P.C.
/s/ Laurie P. Glasscock, Esq.
Laurie P. Glasscock, Esq.
LPG\jmb
<PAGE>
EXHIBIT 10.1
SALE AND PURCHASE AGREEMENT
THIS AGREEMENT is made on 18th September, 1996 BETWEEN:
(1) TI GROUP plc whose registered office is at 50 Curzon Street, London, W1Y
7PN ("TI" or the "SELLER");
(2) APOLLO SPORTS HOLDINGS LIMITED whose registered office is at c/o Townsends,
42 Cricklade Street, Swindon SN1 3HD (the "PURCHASER"); and
(3) COYOTE SPORTS INC. of 2291 Arapahoe Avenue, Boulder, Colorado 80302, United
States of America ("COYOTE").
WHEREAS:
(A) The Seller is the beneficial owner of the entire issued share capital of TI
APOLLO LIMITED ("APOLLO UK").
(B) The Seller is the beneficial owner of the entire issued share capital of TI
Group Inc., a Delaware corporation of 375 Park Avenue, New York, NY 10152,
U.S.A. ("TIUS").
(C) TIUS is the beneficial owner of the entire issued share capital of APOLLO
GOLF, INC. ("APOLLO US").
(D) The Seller is the beneficial owner of the entire issued share capital of TI
REYNOLDS 531 LIMITED ("REYNOLDS").
(E) TI wishes to sell (and, in the case of Apollo US, procure the sale of) and
the Purchaser wishes to purchase the whole of the issued share capitals of
the Company, Apollo US, Reynolds and the Oldbury Property for the
consideration and upon the terms and subject to the conditions set out in
this agreement.
(F) The Purchaser is the wholly owned subsidiary of Coyote and the Seller has
entered into this agreement with the Purchaser at the request of Coyote.
NOW IT IS AGREED as follows:
1. DEFINITIONS
IN THIS AGREEMENT:
"ACCLES & POLLOCK" means TIGrup No. 7 Limited whose registered office is at
Lambourn Court, Abingdon, Oxon OX 14 1 UH;
"ACCOUNTS" means the audited balance sheet as at the Accounts Date and the
audited profit and loss account and (in the case of Apollo US) its audited
financial statements in each case in respect of the financial year ended on
the Accounts Date and notes to them and any directors' and auditors'
reports annexed or attached to them of each of the Companies;
"ACCOUNTS DATE" means 31st December, 1995;
"AGREED FORM" means, in relation to any document, the form of that document
which has been initialled for the purpose of identification by or on behalf
of the Seller and the Purchaser;
"APOLLO SHARES" means the 5,719,688 fully paid issued ordinary shares of 25
pence each in Apollo UK;
<PAGE>
"COMPANIES" means Apollo UK, Apollo US and Reynolds;
"COMPLETION" means completion of the sale and purchase of the Apollo
Shares, the US Shares, the Reynolds Shares and the Oldbury Property in
accordance with Clause 3;
"COYOTE LEGAL OPINION" means the legal opinions in relation to Coyote of
its General Counsel and Thomas, Parker, Spencer & Burghart P.C. in the
respective forms agreed by the Purchaser's Solicitors and the Seller's
Solicitors;
"DEBT" means the aggregate of the amounts (including any accrued interest)
due to the Companies from the Remaining Group (other than in respect of
current trading indebtedness) at Completion;
"DEBT SATISFACTION DOCUMENTS" means the board minutes of Apollo US and TIUS
(each set duly certified by the Secretary thereof) effecting repayment of
the US Loan (including outstanding interest) out of the proceeds of a new
share issue by Apollo to TIUS;
"DISCLOSURE LETTER" means the letter of the same date as this agreement
written by the Seller to the Purchaser;
"DIVIDEND DOCUMENTS" means the board minutes of Apollo UK (duly certified
by the Secretary thereof) paying up the unpaid balance of the 2,000,000
ordinary shares of 25 pence each of the capital of Apollo UK by a dividend
declaration and a call by Apollo UK on the Seller to pay up the uncalled
amount of the Apollo Shares;
"ENVIRONMENTAL INDEMNITY" means the indemnity given by the Seller to the
Purchaser in accordance with Clause 17 and Schedule 6 below;
"LOANS" means the aggregate net amount due (other than current trading
indebtedness) as at Completion from the Companies to the Remaining Group;
"MARL HOLE" means the effluent lagoon management by Apollo UK under waste
management licence (SL137) a plan of which, for identification purposes is
attached to Schedule 6;
"OLDBURY PROPERTY" means the property briefly described in Part 2 of
Schedule 2;
"PROPERTY TRANSFER" means the transfer of the Oldbury Property to be
entered into by the Seller and the Purchaser pursuant to the provisions of
paragraph 5 of Part 4 of Schedule 2 in the Agreed Form;
"PURCHASER'S GROUP" means the Purchaser its holding company for the time
being and Subsidiaries of the Purchaser or its holding company (other than
the Companies);
"PURCHASER'S SOLICITORS" Townsends, of 18 London Road, Newbury, Berkshire
RG14 1JX;
"REMAINING GROUP" means the Seller and its Subsidiaries excluding the
Companies;
"REYNOLDS SHARES" means the 4,040,000 fully paid issued ordinary shares of
5 pence each and the 10,000,000 issued ordinary shares of 5 pence each
party paid to .5 pence in Reynolds;
"SELLER'S SOLICITORS" means Allen & Overy, of One New Change, London EC4M
9QQ;
"SHARES" means the Apollo Shares, the US Shares and The Reynolds Shares;
"SUBSIDIARY" and "SUBSIDIARIES" means a subsidiary for the purposes of the
Companies Act 1985-1;
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"TAXATION" has the meaning assigned to it in the Tax Deed;
"TAXES ACT" means the Income and Corporation Taxes Act 1988;
"TAX DEED" means the tax deed to be entered into at Completion by the
Seller and the Purchaser in the Agreed Form;
"TERMINATION DEEDS" means:
(a) the termination deed dated 4th September, 1996 between TI
Reynolds Limited, Accles & Pollock and Apollo UK terminating the
existing leases, the trade effluent discharge licence and the
management agreement so far as they relate to Accles & Pollock
and the Oldbury Property; and
(b) the termination deed in the Agreed Form between TI Reynolds
Limited and Apollo UK terminating the existing leases and the
trade effluent discharge licence so far as they relate to Apollo
UK and the Oldbury Property;
"TYSELEY GUARANTEE" means the guarantee by the Seller in favour of The Hay
Hall Group Limited in respect of the Tyseley Lease;
"TYSELEY LEASE" means the lease described in Part 3 of Schedule 2;
"UK COMPANIES" means Apollo UK and Reynolds;
"UK PROPERTIES" means the Oldbury Property and the Tyseley Lease;
"US PROPERTIES" means the properties briefly described in Part 1 of
Schedule 2;
"US LOAN" means the loan of US$5,000,000 from Apollo US to TIUS;
"US SHARES" means the 100 issued and outstanding shares of no par value
common stock of Apollo US;
"WARRANTIES" means the warranties contained in Schedules 3 and 4.
(2) Any reference, express or implied, to an enactment includes references to:
(a) that enactment as amended, extended or applied by or under any
other enactment before or after this agreement;
(b) any enactment which that enactment re-enacts (with or without
modification); and
(c) any subordinate legislation made (before or after this agreement)
under any enactment, including one within (a) or (b) above,
except to the extent that any legislation or subordinate legislation made
or enacted after the date of this agreement would create or increase a
liability of either party under this agreement or the Tax Deed.
(3) Where any statement is qualified by the expression "so far as the Seller is
aware" or "to the best of the Seller's knowledge, information and belief"
or any similar expression that statement shall only be deemed to be made on
the basis of actual knowledge of the Seller having made enquiries only of
the following individuals:
Andy Taylor (Managing Director)
Stewart Tibbats (Manufacturing Director)
Graeme Horwood (Technical Director)
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David Nelson (Financial Controller)
Keith Noronha (Vice President and General Manager - Apollo Golf Inc.)
Michael Apse (in respect of property and environmental matters)
Jenny Buchan (in respect of insurance matters)
Stephen Clarke (in respect of legal matters)
Ian Ralph (in respect of taxation matters)
(4) Subclauses (1) to (3) above apply unless the contrary intention appears.
(5) The headings in this agreement do not affect its interpretation.
2. SALE AND PURCHASE
(1) The Seller shall sell the Apollo Shares and the Reynolds Shares and the
Purchaser shall purchase the same, free from all charges, liens,
encumbrances, equities and claims whatsoever and together with all rights
attaching to them.
(2) The Seller agrees that on Completion it shall procure that TIUS shall
transfer the US Shares to the Purchaser, free from all charges, liens,
encumbrances, equities and claims whatsoever and together with all rights
attaching to them and the Purchaser agrees to purchase the same.
(3) The Seller covenants with the Purchaser that it is the owner of and has the
right to sell and transfer the full legal and beneficial interests in the
Apollo Shares and the Reynolds Shares to the Purchaser on the terms set out
in this agreement.
(4) The Seller shall sell (or, so far as necessary, shall procure the transfer
by TI Reynolds Limited of) and the Purchaser shall purchase the Oldbury
Property on and subject to the terms and conditions set out in Part 4 of
Schedule 2.
(5) The consideration for the sale and purchase of the Shares shall be the sum
of (Pounds)1,584,702 and for the sale of the Oldbury Property shall be the
sum of (Pounds)l,700,000 (the aggregate amount being referred to as the
"CONSIDERATION") which, in the case of the Shares, shall be apportioned
amongst the Apollo Shares, the US Shares and the Reynolds Shares in the
manner set out in Schedule 1.
(6) At Completion the Purchaser shall pay to the Seller the Consideration in
full free of any bank charges and commissions in sterling to the Seller in
accordance with Clause 3(3)(a) below.
(7) Any payment made by the Seller under this agreement or the Tax Deed shall
be deemed to be a reduction in the Consideration in respect of the relevant
Shares concerning a Company.
3. COMPLETION
(1) Completion shall take place at the offices of the Seller's Solicitors
immediately after entry into of this agreement.
(2) At Completion the Seller shall deliver or cause to be delivered to the
Purchaser:
(a) signed transfers into the name of the Purchaser or its nominee in
respect of the Apollo Shares and the Reynolds Shares;
(b) share certificates in respect of all the Apollo Shares and the
Reynolds Shares (or an express indemnity in the case of any found to
be missing);
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(c) stock certificates evidencing all of the US Shares duly endorsed in
blank or accompanied by stock powers duly executed in blank in proper
form for transfer;
(d) the common seal, all minute books, share register and share
certificate books (with any unissued share certificates) and other
statutory books of each of the Companies in each case duly completed
and written up to date and all certificates of incorporation and
certificates of' incorporation on change of name together with (in the
case of Apollo US) any other statutory records including but not
limited to a current certificate of good standing and all minutes and
byelaws;
(e) the Tax Deed duly executed by the Seller;
(f) the resignation of the auditors of the UK Companies in accordance with
section 392 of the Companies Act 1985, in each case confirming that
there are no circumstances connected with their resignation which
should be brought to the notice of the members or creditors of the
relevant UK Company and that no fees are due to them and the
resignation of the auditors of Apollo US;
(g) the Property Transfer duly executed by the Seller and TI Reynolds
Limited;
(h) the resignations of Ralph K. Kessler as a director and secretary of
Apollo US, James H. Katzoff as a director of Apollo US and Claire A.
Aceste as assistant treasurer of Apollo US in each case acknowledging
under seal that he or she has no claim against Apollo US whether for
loss of office or otherwise;
(i) certified copies of the Termination Deeds duly executed by TI Reynolds
Limited, Accles & Pollock and Apollo UK; and
(j) the Debt Satisfaction Documents and the Dividend Documents.
(3) The Purchaser shall at Completion deliver to the Seller:
(a) by way of a telegraphic transfer to the bank account of the Seller's
Solicitors with National Westminster Bank plc, 15 Bishopsgate, London
EC2P 2AP (Account No. 03002314) the sum of (Pounds)3,284,702 (being
the Consideration);
(b) a counterpart of the Tax Deed and the duplicate of the Property
Transfer duly executed by the Purchaser; and
(c) the Coyote Legal Opinion.
(4) The Seller shall procure that meetings of the directors of the UK Companies
are held at Completion at which the following business is transacted:
(a) the directors of the UK Companies shall approve for registration
(subject to their being duly stamped) the transfers referred to in
Clause 3(2)(a) above;
(b) the situation of the registered offices of the UK Companies shall be
changed as the Purchaser may direct;
(c) such persons as the Purchaser shall nominate shall be appointed as
directors of the UK Companies; and
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(d) such firm as the Purchaser may appoint is appointed as auditors of the
UK Companies.
(5) The Seller shall procure that extraordinary general meetings of the members
of the UK Companies are held at Completion at which resolutions are duly
passed to change their names to Apollo Sports Technologies Limited and
Reynolds 531 Limited respectively or such other name as the Purchaser may
approve (such approval not to be unreasonably withheld or delayed) not
including the name "TI" or any colourable imitation thereof.
(6) If the Seller or the Purchaser fails to perform any of its obligations
under this Clause 3 and such obligation is not waived by the other party
that other party shall at its option (without prejudice to any other
remedies or rights which it may have against the non-performing party in
respect of such nonperformance) cease to be liable to perform its own
obligations under this Clause 3 and Completion shall be delayed
accordingly.
(7) The parties acknowledge that prior to Completion the Companies have had the
benefit of insurances effected and maintained by the Seller in relation to
the Remaining Group and that such insurances will cease with effect from
Completion in respect of the Companies.
Accordingly, insurance in relation to the Companies on and from Completion
shall be the responsibility of the Purchaser and the Purchaser's Group.
(8) The delivery by the Purchaser of the Consideration to the Seller pursuant
to Clause 3(4)(a) shall be a good discharge of the Purchaser's obligation
to pay TIUS that part of the Consideration as relates to the US Shares and
the Seller shall receive that part of the Consideration as agent for TIUS.
(9) The Purchaser will pay to the Seller (Pounds)4,815 plus VAT, being one half
of the costs of the bore hole monitoring at the Oldbury Property, within 14
days of receipt by the Purchaser of an invoice from the Seller reflecting
these costs.
(10) The Purchaser will procure that Apollo UK continues to reimburse Lee
Mucklow for all itemised expenses claimed by him in the period ending on
28th February 1997, and the Seller will reimburse the Purchaser for all
such expenses for the period from 1st September, 1996 to 28th February,
1997, up to a maximum of (Pounds)7,369. The Purchaser will also procure
that Lee Mucklow is invited to Apollo Week 1997 and will reimburse his
itemised expenses for that week, and the Seller will reimburse the
Purchaser for such expenses up to a maximum of (Pounds)1,000.
4. WARRANTIES
(1) The Seller warrants to the Purchaser that, except as fairly disclosed to
the Purchaser in the Disclosure Letter, each of the statements set out in
Schedules 3 and 4 is true and accurate in all respects at the date of this
agreement.
(2) The Purchaser warrants to the Seller that:
(a) it is a corporation validly existing under the laws of England with
the requisite power and authority to enter into and perform, and has
taken all necessary corporate action to authorise, the execution and
performance of, its obligations under this agreement and the Tax Deed;
(b) this agreement and the Tax Deed will when executed constitute valid
and binding obligations of the Purchaser; and
(c) other than as contemplated by this agreement no announcements,
consultations, notices, reports or filings are required to be made by
any member of the Purchaser's Group in connection with the
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transactions contemplated by this agreement nor are any consents,
approvals, registrations, authorisations or permits required to be
obtained by any member of the Purchaser's Group in connection with the
execution or performance of this agreement the failure to make or
obtain any of which:
(i) would prevent or delay completion of this agreement; or
(ii) would subject the Seller or any member of the Remaining Group or
the Companies to any material liability.
(3) The Seller agrees with the Purchaser (as trustee for each Company and its
employees), in the absence of fraud, dishonesty or wi1ful concealment by or
on behalf of the Companies or their employees, to waive any rights or
claims which the Seller may have in respect of any misrepresentation,
inaccuracy or omission in or from any information or advice supplied or
given by the Companies or any of their employees in connection with the
giving of the Warranties and the preparation of the Disclosure Letter.
5. LIMITATIONS ON WARRANTY CLAIMS
(1) The Purchaser acknowledges to and agrees with the Seller that:
(a) the Warranties are the only representations, warranties or other
assurances of any kind given by or on behalf of the Seller or any
member of the Remaining Group and on which the Purchaser may rely in
entering into and performing this agreement;
(b) no other statement, promise or forecast made by or on behalf of the
Seller or any other member of the Remaining Group may be relied on or
form the basis of, or be pleaded in connection with, any claim by the
Purchaser under or in connection with this agreement;
(c) any claim by the Purchaser in connection with the Warranties (a
"WARRANTY CLAIM") shall be subject to the following provisions of this
Clause; and
(d) at the time of entering into this agreement it is not aware of any
matter or thing which is inconsistent with the Warranties or
constitutes a breach of any of them and which, in either case, the
Purchaser might reasonably recognise as something which could lead to
a Warranty Claim being made against the Seller.
(2) The liability of the Seller shall be limited as follows:
(a) the Seller shall not be liable in respect of any breach of the
Warranties if and to the extent that the matter giving rise to the
breach is the subject of a claim under the Environmental Indemnity or
the Tax Deed;
(b) there shall be disregarded for all purposes any breach of the
Warranties in respect of which the amount of the damages to which the
Purchaser would otherwise be entitled is less than (Pounds)20,000;
(c) the Purchaser shall not be entitled to recover any damages in respect
of any breach or breaches of the Warranties unless the amount of
damages in respect of such breach or breaches, exceeds in aggregate
the sum of (Pounds)100,000 when the whole of such amount shall be
recoverable; and
(d) the maximum aggregate liability of the Seller in respect of all and
any Warranty Claims (and any claims under the Tax Deed) and under the
Environmental Indemnity shall not exceed the Consideration.
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<PAGE>
(3) The Purchaser shall not be entitled to make any Warranty Claim:
(a) to the extent that provision or allowance for the matter or liability
which would otherwise give rise to the claim in question has been
specifically made in the Accounts;
(b) in respect of anything arising directly or indirectly from any
transaction, matter or thing fairly disclosed in the Disclosure
Letter;
(c) to the extent that the claim would not have arisen but for a change in
legislation announced or enacted on or after the date of this
agreement (whether relating to Taxation, rates of Taxation or
otherwise) or the withdrawal after the date of this agreement of any
practice or extra-statutory concession previously published by the
Inland Revenue or other taxing authority (whether or not the change
purports to be effective retrospectively in whole or in part);
(d) to the extent that the claim arises as a result of any changes in the
accounting policies or practices upon which the Companies value their
respective assets made after Completion unless such changes are
either:
(i) necessary to comply with generally accepted accounting principles
statements of standard accounting practice; or
(ii) to obtain an auditors' opinion that the accounts of any of the
Companies give a true and fair view of the affairs of that
company;
(e) to the extent occasioned by any voluntary act or omission of any
member of the Purchaser's Group or one of the Companies after
Completion where the member of the Purchaser's Group or the relevant
Company knew or ought reasonably to have known that such act or
omission would or might give rise to the liability in question; or
(f) in respect of anything arising from any matter or thing of which any
member of the Purchaser's Group is aware as being something which
could lead to a Warranty Claim being made against the Seller; or
(g) to the extent that any loss or liability is caused or increased by the
Purchaser's failure to mitigate; or
(h) to the extent that the claim arises from the Purchaser's failure to
perform its obligations under subclause (4) below, and to the extent
that any Warranty Claim is increased as a result of any of the matters
set out in this subclause, the Seller shall not be liable in respect
of the amount by which any claim is so increased.
(4) If the Purchaser or one of the Companies becomes aware of a matter which
could give rise to a Warranty Claim (other than a Warranty Claim in respect
of a breach of a Warranty contained in Part B of Schedules 3 and 4, to
which the provisions of clause 10 of the Tax Deed shall apply as if the
Warranty Claim were a Tax Claim) the Purchaser shall give written notice of
the relevant facts as soon as reasonably practicable and in any event
within 45 days of the Purchaser or one of the Companies becoming aware of
those facts, unless the Warranty Claim relates to a matter where there has
been an assessment, notice or other document served on one of the Companies
in respect of Taxation in circumstances where there are statutory time
limits for appealing against or otherwise responding to any such notice or
other document, the Purchaser shall give written notice of the relevant
facts to the Seller as soon as reasonably practicable and in any event
within 30 days provided that, in each case, the Purchaser's failure to give
notice within the 45 or 30 day limit (as applicable) shall not be an
absolute bar to that claim. In addition, (subject to the provisions of the
Tax Deed in relation to any matter which may form the subject of a claim
under it) if the Warranty Claim in question is as a result of or in
connection with a liability or alleged liability to a third party:
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(a) the Purchaser shall procure the Companies to take such action to
avoid, dispute, resist, appeal, compromise or contest the liability as
may reasonably be requested by the Seller and the Purchaser shall not,
and shall ensure that none of the Companies shall, admit liability in
respect of, or compromise or settle the matter, without the prior
written consent of the Seller (not to be unreasonably withheld or
delayed), provided that nothing in this subclause 5(4)(a) shall
require the Purchaser or any Company to take any action which it
reasonably considers likely to adversely affect its or the Companies'
relationships with customers or suppliers or to result in the
Purchaser or any of the Companies incurring any expenditure which the
Seller has not agreed to reimburse to the Purchaser or Company
concerned; and
(b) the Purchaser shall procure the relevant Companies to make available
to the Seller such employees or officers of the companies or other
members of the Purchaser's Group and all such information as the
Seller may reasonably require for avoiding, disputing, resisting,
appealing, compromising or contesting any such liability.
(5) The Seller shall cease to have any liability under or in respect of the
Warranties:
(a) on the seventh anniversary of the date of this agreement in respect of
Warranties B.1 to B.17 in Schedule 3 and B.1 in Schedule 4; or
(b) (in respect of any other Warranties) on the date which is 20 months
after the date of this agreement,
except in respect of a Warranty Claim of which the Purchaser gives written
notice (setting out the Warranty Claim in reasonable detail) to the Seller
before the relevant date and in accordance with subclause 5(4) but the
liability of the Seller in respect of any Warranty Claim shall terminate
absolutely if proceedings in respect of it have not been commenced within
twelve months of service of notice of that Warranty Claim.
(6) Without prejudice to the Purchaser's duty to mitigate any loss in respect
of any breach of the Warranties, if, in respect of any matter which would
otherwise give rise to a breach of the Warranties, one of the Companies is
entitled to claim under any policy of insurance the amount of insurance
monies to which that Company recovers shall reduce pro tanto or extinguish
the claim for breach of the Warranties.
(7) If the Seller makes any payment by way of damages for breach of the
Warranties (the "DAMAGES PAYMENT") and one of the Companies or any member
of the Purchaser's Group receives any benefit otherwise than from the
Seller which would not have been received but for the circumstance giving
rise to the claim in respect of which the Damages Payment was made the
Purchaser shall, once it or one of the Companies or the member of the
Purchaser's Group has received such benefit net of taxation thereon and any
reasonable costs of recovery, immediately repay to the Seller an amount
equal to the lesser of the amount of such benefit net of taxation thereon
and any reasonable costs of recovery and the Damages Payment.
(8) Where the Seller has made a payment to the Purchaser in respect of, or
relating to, any claim under the Warranties and one of the Companies or the
Purchaser has a right of reimbursement against any other person in respect
of or relating to that claim the Purchaser shall notify the Seller within a
reasonable period of that fact and shall take all reasonable steps or
proceedings to enforce such right provided that nothing in this subclause
(8) shall require the Purchaser or any Company to take any action which it
reasonably considers is likely to materially adversely affect its or that
Company's relationship with customers or suppliers and provided that the
Seller shall not be liable to the extent that any loss or liability is
caused or increased by the Purchaser's failure to mitigate.
6. PENSIONS AND EMPLOYEES
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(1) The provisions of Schedule 5 relating to pensions shall have effect on and
from Completion with regard to the UK Companies.
(2) The Purchaser is acquiring the Companies with the intention that they
should carry on the respective businesses from their present locations and
has agreed to honour the existing terms and conditions of employment of the
employees of the Companies and not to make any material changes to them for
a period of twelve months following Completion save to the extent expressly
provided for or contemplated by this agreement and save for the Seller's
savings related and executive share option schemes, family education scheme
and health care plan. Nothing in this clause shall prevent the Purchaser
from terminating the contract of employment of any employee of any of the
Companies if such termination is carried out in accordance with that
employee's existing terms and conditions.
(3) Currently, the employees of Apollo US ("APOLLO US EMPLOYEES") are eligible
to participate in one or more of the Plans (as defined in warranty A.22 of
Schedule 4), certain of which Plans are qualified under Section 401(a) of
the United States Internal Revenue Code of 1986, as amended, ("QUALIFIED
PLANS"). As of the date of Completion, the Purchaser will provide for
Apollo US Employees to receive credit for vesting and eligibility purposes
for all employment of such employees with Apollo US ("APOLLO SERVICE") in
any and all Qualified Plans maintained by the Purchaser. The Purchaser
further agrees that with regard to any employee welfare benefit plan, as
defined under Section 3(l) of ERISA (as defined in warranty A.22 of
Schedule 4), and with regard to any other plan, programme, policy or
arrangement maintained for the benefit of employees of the Purchaser, as of
the date of Completion the Purchaser shall recognise all Apollo Service and
shall waive or cause to be waived all pre-existing condition provisions.
To the extent not in existence at the date of Completion, the Purchaser
shall use reasonable endeavours to establish Qualified Plans for the Apollo
US Employees similar to the Qualified Plans in which the Apollo US
Employees participated in immediately prior to the Closing and shall
provide for full credit for Apollo Service for eligibility and vesting as
provided above (and also for purposes of benefit accrual with respect to
any Qualified Plan which is a defined benefit pension plan, subject to an
offset, in the case of any such defined benefit pension plan, for any
vested benefits accrued by Apollo US Employees under Apollo US's similar
Qualified Plan for such service to the extent benefits are not transferred
from Seller's defined benefit pension plan to the Purchaser's defined
benefit pension plan). The Purchaser and the Seller agree to transfer, as
soon as practicable after the date of Completion, from each of the
Qualified Plans of the Seller to the corresponding Qualified Plan of the
Purchaser the assets and liabilities of the Qualified Plans of the Seller
which are attributable to the Apollo US Employees who become employed by
the Purchaser on the date of Completion, to the extent that such benefits
are vested and are not distributable under the terms of the Seller's
Qualified Plans or applicable law. Before the expiration of the remedial
amendment period that applies under Section 401(b) of the US Internal
Revenue Code to any of the Purchaser's Qualified Plans for determination of
its initial qualification, or amendment to reflect the transfer of assets
and liabilities as contemplated by this Section 6(3), as appropriate, under
Section 401(a) of the US Internal Revenue Code, the Purchaser shall apply
for a determination by the US Internal Revenue Service to the effect that
each of the Purchaser's Qualified Plans satisfies, or as so amended
continues to satisfy, the requirements for qualification under Section
401(a) and other applicable sections of the US Internal Revenue Code, and
the Purchaser shall take all reasonable actions to ensure continued
qualification of each of the Purchaser's Qualified Plans under Section
401(a) and other applicable sections of the US Internal Revenue Code. Upon
such transfer, the Seller shall have no further responsibility or liability
with respect to such transferred assets and liabilities. The Purchaser
shall indemnify and hold the Seller and each member of the Remaining Group
harmless from and against any claim for, or with respect to, any such
transferred assets and liabilities.
(4) Subject to subclause (5), the Seller shall permit the Apollo US Employees
to continue to participate for a maximum period of six months after
Completion in the self insured medical plan under a General American Policy
(which includes employees of other businesses owned by the Seller)
("MEDICAL PLAN").
(5) The participation referred to in subclause (4) shall be subject to the
following conditions:
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(a) such participation shall not materially adversely affect the
administration or operation of the Medical Plan; and
(b) all funding obligations, costs, expenses, taxes and other charges
attributable to the participation shall be payable by the Purchaser to
the Seller promptly upon their being incurred by the Seller.
(6) The Purchaser shall promptly after Completion establish its own
arrangements in relation to the medical plan benefits of the Apollo US
Employees, such plans to be operational within six months of Completion and
the Seller and the Purchaser shall procure that the Apollo US Employees are
transferred to the new plans not later than six months after Completion.
7. DEBT AND LOANS
The Seller shall procure that the Debt and all Loans shall be satisfied in
full on Completion.
8. TAX DEED
The Seller and the Purchaser shall each enter into the Tax Deed at
Completion.
9. MARKS
(1) Subject to subclause (2) below, the Purchaser shall and shall procure that
the Company shall from the date of Completion cease to use or display the
trademark "TI" or any colourable imitations thereof and/or any logo used by
any member of the Remaining Group (together called the "MARKS") in relation
to any goods or services provided by the Seller or the Companies including
without prejudice to the foregoing the use of the Marks on any building
owned or used by the Companies and on any letterhead.
(2) Notwithstanding the provision of subclause (1) above, the Companies (but
not the Purchaser) shall be permitted for the period of 3 months from the
date of Completion to use the Marks on or in connection with any brochures,
catalogues or items of sales literature relating to goods sold by the
Companies prior to the date of Completion which were published prior to the
date of Completion. After the expiry of such three month period, the
Purchaser shall and shall procure that the Companies shall cease to use the
Marks or any confusingly similar marks and shall destroy any remaining
stocks of such brochures, catalogues or items of sales literature using the
Marks.
(3) The Seller shall procure that from Completion neither the Seller nor any
member of the Remaining Group shall use or display the trademarks "Apollo"
or "Reynolds" or any variation or imitation of such marks or any other
trademarks or logos used wholly or mainly in the business of the Companies
in relation to the business carried on by any member of the Remaining
Group. Nothing in this subclause (3) shall operate to restrict TI Reynolds
Rings Limited from using the name "Reynolds" in relation to its aerospace
engine rings business.
10. GUARANTEES
(1) The Purchaser undertakes with the Seller to use its reasonable endeavours
to procure the release at Completion (or as soon thereafter as is
practicable) of the Seller and any member of the Remaining Group from all
guarantees (save for the Tyseley Guarantee), indemnities, bonds, letters of
comfort, undertakings, licences and other arrangements to which they or any
of them are a party in respect of the Companies or their business or
properties occupied by them and to indemnify and to keep indemnified on a
continuing basis the Seller and any member of the Remaining Group from all
claims, liabilities, costs and expenses (including without limitation,
legal and other professional advisers' fees) arising in respect or by
reason thereof.
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(2) Without limiting the generality of subclause (1), the Purchaser agrees, in
discharging its obligations under that subclause, to offer any guarantees,
indemnities or other undertakings (as the case may be) in place of the
guarantees and indemnities and other arrangements referred to in subclause
(1).
(3) The obligations of the Purchaser under subclauses (1) and (2) will continue
after Completion until all such releases are obtained.
(4) The Purchaser undertakes to indemnify and keep indemnified on a continuing
basis the Seller and any member of the Remaining Group from all claims,
liabilities, costs and expenses (including without limitation legal and
other professional advisers' fees) arising in respect of the Tyseley
Guarantee.
(5) The Seller undertakes with the Purchaser to procure the unconditional
release at Completion (or as soon thereafter as is practicable) of the
Companies from all guarantees, indemnities, bonds, letters of comfort,
undertakings, licences and other arrangements to which they or any of them
are a party in respect of the Seller and/or any other member of the
Remaining Group and to the extent that such guarantees, indemnities, bonds,
letters of comfort, undertakings, licences and other arrangements are not
unconditionally released at Completion to indemnify and keep indemnified on
a continuing basis the Purchaser and the Companies from all claims,
liabilities, costs and expenses (including without limitation, legal and
other professional advisers' fees) arising in respect of or by reason
thereof.
(6) Without limiting the generality of subclause (5) the Seller agrees, in
discharging its obligations under that subclause to offer any guarantees,
indemnities or other undertakings (as the case may be) in place of the
guarantees and indemnities and other arrangements referred to in subclause
(5).
(7) The obligations of the Seller under subclauses (5) and (6) will continue
after Completion until all such releases are obtained.
11. COVENANTS
(1) The Seller undertakes that it shall not, and shall procure that no member
of the Remaining Group for so long as it shall remain a Subsidiary of the
Seller shall, either alone or in conjunction with or on behalf of any other
person, do any of the following:
(a) within two years after Completion, be engaged or (save as the holder
of the shares or debentures in a listed company which confer not more
than five per cent. of the votes which could normally be cast at a
general meeting of the company) directly or indirectly interested in
carrying on the business in the world of the manufacture and sale of
steel or graphite golf shafts or steel hammer handles or speciality
lightweight cycle or wheelchair tubing or javelins;
(b) within five years after Completion, disclose to any other person any
information of a secret or confidential nature relating wholly or
predominantly to the business of the Companies except:
(i) to the extent that the information has entered the public domain
otherwise than by reason of the unauthorised act or default of
the Seller or of any other member of the Remaining Group; and
(ii) insofar as may be required by law or by any regulatory authority;
and
(c) within two years after Completion, solicit or entice away from the
employment of the Companies (otherwise than by placing a normal
newspaper or trade advertisement to which the person concerned
responds) any person who is at Completion a senior manager, technical,
engineering or sales employee of one of the Companies.
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(2) The restrictions in subclause (1) shall not apply (or as the case may be
shall cease to apply) insofar and to the extent that any member of the
Remaining Group after Completion acquires any company or business and, as a
result of that acquisition, acquires a company or business which falls
within the terms of subclause (1)(a) above (the "RELEVANT INTEREST"),
provided that the Relevant Interest is incidental to the principal trading
activity of the company or business acquired and if requested the acquiring
company enters into bona fide negotiations to sell the Relevant Interest to
the Purchaser.
(3) Each undertaking contained in this clause shall be construed as a separate
undertaking and if one or more of the undertakings is held to be against
the public interest or unlawful or in any way an unreasonable restraint of
trade, the remaining undertakings shall continue to bind the Seller or the
Purchaser (as the case may be).
12. WHOLE AGREEMENT
(1) This agreement and the documents referred to in it contain the whole
agreement between the parties relating to the transactions contemplated by
this agreement and supersede all previous agreements between the parties
relating to those transactions.
(2) Each of the parties acknowledges that, in agreeing to enter into this
agreement, it has not relied on any representation, warranty, undertaking
or other assurance except those set out in this agreement. Without
prejudice to the foregoing, the Purchaser acknowledges that it has not
relied on any representations or warranties or other information contained
in the Information Memorandum on the Companies or in any other written or
oral information supplied by or on behalf of the Seller or its advisers or
made or supplied in connection with the negotiations of the sale and
purchase under this agreement.
(3) In entering into this agreement no party may rely on any representation,
warranty, collateral contract or other assurance (except those set out in
this agreement and the documents referred to in it) made by or on behalf of
any other party before the signature of this agreement and each of the
parties waives all rights and remedies which, but for this subclause, might
otherwise be available to it in respect of any such representation,
warranty, collateral contract or other assurances; provided that nothing in
this subclause shall limit or exclude any liability for fraud.
13. ANNOUNCEMENTS
No announcement concerning this sale and purchase or any ancillary matter
will be made before, on or after Completion by any member of the Remaining
Group or of the Purchaser's Group without prior consultation with and
(unless the announcement is required by law, the Council of The Stock
Exchange or any other relevant regulatory authority) without the prior
written approval of the Seller and the Purchaser (such approval not to be
unreasonably withheld or delayed).
14. NOTICES
(1) Any notice or other document to be served under this agreement must be in
the English language and may be delivered or sent by first class recorded
delivery post or facsimile process (with a copy to be sent by first class
recorded delivery post) to the party to be served at its address appearing
in this agreement or at such other address as it may have notified to the
other parties in accordance with this Clause.
(2) Any notice or document shall be deemed to have been served:
(a) if delivered, at the time of delivery; or
(b) if posted, at 10.00 a.m. on the third business day after it was put
into the post (twelve business days in the case of Coyote); or
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(c) if sent by facsimile process, at the expiration of twelve hours after
the time of despatch (twenty four hours in the case of Coyote).
(3) In proving service of a notice or document it shall be sufficient to prove
that delivery was made or that the envelope containing the notice or
document was properly addressed and posted as a prepaid first class
recorded delivery letter or that the telex or facsimile message was
properly addressed and despatched and the correct answerback or identity
code is received as the case may be.
(4) The addresses of the parties for the purpose of this Clause are as follows:
THE SELLER
Lambourn Court
Abingdon
Oxfordshire
OX14 1UH
For the attention of: The Company Secretary
Facsimile: 01235 555818
THE PURCHASER
c/o Townsends
42 Cricklade Street
Swindon
SN1 3HD
For the attention of: The Managing Partner
Facsimile: 01793 512452
COYOTE
2291 Arapahoe Avenue
Boulder
Colorado 80302
United States of America
For the attention of: The Chief Executive
Facsimile 001 303 417 1700
15. GENERAL
(1) Each of the obligations and undertakings set out in this agreement which is
not fully performed at Completion will continue in force after Completion.
(2) Neither party shall be entitled to assign or transfer its rights or
obligations under this agreement or any of them without the prior written
consent of the other party.
(3) Each party shall pay the costs and expenses incurred by it in connection
with the entering into and completion of this agreement.
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(4) The Purchaser will bear all stamp duty and registration fees payable or
assessed in relation to this agreement, the transfer of the Shares and
transfer of the Oldbury Property.
(5) Time is of the essence in relation to all obligations under this agreement.
(6) The Purchaser agrees to provide the Seller and its advisers during normal
business hours and on giving reasonable prior written notice with full and
free access (including the right to take copies) to the books of accounts
and other financial records of the Companies which relate to the period up
to Completion as the Seller may reasonably request for the purpose of
preparing its annual consolidated accounts for the year in which Completion
takes place. The Purchaser further agrees for the same purpose to give the
Seller reasonable access to its employees (including the employees of the
Companies) and to respond to requests from the Seller for information.
(7) In the case of any inconsistency between the terms of this agreement and
the terms of any ancillary document arising hereunder the terms of this
agreement shall prevail.
(8) The failure of either party at any time or times to require performance of
any provision of this agreement shall not affect its right to enforce such
provision at a later time.
(9) The Seller shall and shall procure that any other necessary party
(including without limitation any member of the Remaining Group) shall
execute and do all such documents, acts and things as may be reasonably
required by the Purchaser for vesting in the Purchaser the legal ownership
of the Shares in accordance with the terms and conditions of this
agreement.
(10) All payments to be made under this agreement shall be made in full and
without operation of set-off or counterclaim.
16. GUARANTEE OF COYOTE
Coyote as primary obligor unconditionally and irrevocably guarantees to the
Seller by way of continuing guarantee the payment when due of all amounts
payable by the Purchaser to the Seller under this agreement and the prompt
performance of all other obligations of the Purchaser to the Seller
thereunder and agrees that any time that the Purchaser shall fail to make
any payment as and when the same becomes due under this agreement Coyote
will on demand (without requiring the Seller first to take steps against
the Purchaser or any other person) pay to the Seller such amounts. The
obligations of Coyote hereunder shall not be affected by any matter or
thing which but for this provision might operate to effect such obligations
including without limitation:
(a) any time or indulgence granted to or composition with the Purchaser or
any other person; and
(b) the taking, variation, renewal or release of or neglect to enforce,
any rights, remedies or securities against the Purchaser or any other
person.
Until all amounts which may be or become payable under this agreement have
been irrevocably paid in full, Coyote shall not by virtue of this guarantee
be subrogated to any rights of the Seller or claim in competition with the
Seller against the Purchaser.
17. ENVIRONMENTAL
The provisions of Schedule 6 shall have effect from Completion.
18. GOVERNING LAW
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(1) This agreement is governed by, and shall be construed in accordance
with the laws of England.
(2) Coyote submits to the exclusive jurisdiction of the English courts for
all purposes relating to this agreement and irrevocably appoints the
Purchaser as its agent for service of process. Coyote may replace its
service agent with another agent in England by giving seven days prior
written notice to the Seller.
AS WITNESS this agreement has been signed by and on behalf of the parties the
day and year first before written.
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EXHIBIT 10.2
AGREEMENT
THIS AGREEMENT, made this 18th day of September, 1996, by and between
Expedition Trading Company, L.C., a Utah Limited Liability Company (hereinafter
referred to for convenience as "Expedition") and Coyote Sports, Inc., a Nevada
corporation (hereinafter referred to for convenience as "Coyote",
Because Expedition has produced, developed and acquired certain assets in the
operation of its business, including but not limited to Patents, Copyrights,
Trademarks, Trade names, Trade Secrets and other Proprietary Information, Art,
Drawings, Product Specifications, Sketches, Graphics, Decals, Screen Printing
Materials, Heat Transfer Processes and Materials, Research and Development
Materials, Customer Lists, Credit Files, Vendor Lists, Order Book, Purchase
Orders, and the like, and
Because Expedition is currently unable to itself capitalize its business
adequately to fill its current orders for its products, and
Because Coyote is in a position to provide appropriate capitalization,
management, and business expertise to an entity to be formed which can fill
Expedition's orders, and in fact has an interest in a company which sells
graphite shafts (Apollo) which are suitable for use in manufacturing ski poles,
and is willing to facilitate an arrangement between Apollo and the entity to be
formed for the provision of graphite shafts and the manufacture of ski poles for
the entity to be formed, on a fair and fully disclosed basis and with the
consent of Expedition, but only on certain terms and conditions and in the form
and manner hereinbelow provided for,
Now therefore, the parties agree as follows:
1. Agreement to convey certain assets to an entity to be formed. Expedition
------------------------------------------------------------
will immediately upon execution of this instrument, convey all of the assets
listed in Exhibit A hereto, which is incorporated herein by this reference, to a
Limited Liability Company formed pursuant to the laws of the State of Colorado
(hereinafter referred to as "ICE*USA" for convenience) partly as its capital
contribution to such entity, and partly in consideration of a royalty on
ICE*USA's sales, said Royalty Agreement being attached hereto as Exhibit B.
Coyote will, as its capital contribution to such entity, arrange for and
guaranty appropriate credit facilities for ICE-USA to
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finance its current orders, and attempt to arrange, manage and maintain, using
its best efforts, such other credit facilities as may be reasonably necessary
and reasonably available from time to time thereafter for a period of six and
-------
1/4 (6-1/4) years from and after the date hereof.
- --- -----
2. Ownership interests in ICE*USA. ICE*USA shall be formed in substantial
------------------------------
conformity with the Articles of Organization and Operating Agreement which are
attached hereto as Exhibits C and D respectively, with the Membership Interests
in ICE*USA being owned 20% by Expedition and 80% by Coyote. Coyote, or its
designee, shall be the Manager of ICE*USA, and shall conduct all of its business
and affairs.
3. Warranties and Representations of Expedition:
--------------------------------------------
a. Authority. Expedition is duly organized, constituted and in good
---------
standing and has full power and due authorization to convey the assets described
in Exhibit A to "ICE*USA", and has taken and done every necessary company act
prerequisite to such conveyance.
b. Title. Expedition has good, sure, perfect and absolute title to each
-----
and all of the assets to be conveyed to ICE*USA as shown in Exhibit A, free of
any and all claims, demands, competitions, challenges, liens, suits,
obligations, security interests, charges and the like, and warrants that the
same are in possession of Expedition, and Expedition indemnifies and saves
harmless Coyote and ICE*USA from claims or damages of anyone against such
assets.
c. Order Book. Each and all of the orders contained in the Order Book are
----------
true and bona fide, and taken by Expedition in the ordinary course of its
---------
business, and there has been no material change regarding any order shown in the
Order Book which is not appearing in the Order Book.
d. Disclosures. Expedition has in September, 1996 permitted inspection of
-----------
all of the assets described in Exhibit A, and all of Expedition's financial
records and other company records, by a representative of Coyote at Expedition's
offices in Utah, and during such disclosure, all documents, files, art, records
and information concerning each and all of the assets were truly and fairly
disclosed to said representative, and nothing material was concealed or
disclosed, and in Expedition's true and honest opinion, said representative was
clearly presented and saw and understood all material components of each and
every asset to be transferred and was clearly presented and saw and understood
the true operations and condition of Expedition. Coyote has acquired or is in
the process of acquiring TI Apollo Ltd.and Apollo Golf, Inc. through a U.K.
entity, Apollo Sports Holdings, Ltd., and intends to use those entities to
provide a ready source
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of graphite shafts for sale to ICE*USA, for a fair price negotiated in an arm's
length transaction between ICE*USA and Apollo Sports Holdings, Ltd. upon receipt
of appropriate waivers and consents which will ameriorate the apparent conflict
of interest in that transaction.
e. Conduct of Expedition's Business and Non-Competition. Expedition will
----------------------------------------------------
cease all of it's business operations on the execution of this agreement, and
discharge all of it's employees, but will remain organized and not dissolve for
the sole purpose of receiving the payments from ICE*USA provided for herein.
ICE*USA may, in its discretion, engage the services of any or all of
Expedition's employees, free from any claim of Expedition. In the event
Expedition has any rights of any nature against any of its past or present
employees or independent contractors under any agreement regarding trade secrets
or any non-competition agreement, Expedition will immediately on demand assign
the same to ICE*USA. Before execution of this agreement, Expedition has fully
paid all compensation of any and every nature owing to each and every one of its
Sales Representatives, whether employees or independent contractors. Expedition
will not attempt to use the property shown on Exhibit A hereto in any manner
after conveyance thereof to ICE*USA to compete with ICE*USA, its licensees,
permittees or others designated by ICE*USA, and covenants and agrees not to
compete with ICE*USA or Coyote in any market in the world for the sale of
graphite shafts or ski poles for a period of five (5) years from and after the
date of this agreement. As a violation of the provisions of this paragraph
could cause irreparable injury to ICE*USA and/or Coyote and there is no adequate
remedy at law for such violation, the either ICE*USA or Coyote, or both of them
shall have the right, in addition to any other remedies available to either or
both of them, at law or in equity, to enjoin Expedition in a court of equity for
violating such provisions.
The parties hereto covenant and agree that to the extent any provisions or
portion of this paragraph shall be held, found or deemed to be unreasonable,
unlawful or unenforceable, then the parties hereto expressly covenant and agree
that any such provision or portion thereof shall be modified to the extent
necessary in order that any such provision or portion thereof shall be legally
enforceable to the fullest extent permitted by applicable law and that any court
of competent jurisdiction shall, and the parties hereto do hereby expressly
authorize any court of competent jurisdiction to, enforce any such provision or
portion thereof or to modify any such provision or portion thereof in order that
any such provision or portion thereof shall be enforced by such court to the
fullest extent permitted by applicable law.
f. Confidentiality. Expedition will keep confidential and protect from
disclosure all proprietary information, trade secrets constituting or concerning
any and all of the assets described in Exhibit A.
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4. Warranties and Representations of Coyote:
----------------------------------------
a. Authority. Coyote is duly organized, constituted and in good standing
---------
and has full power and due authorization to enter into this agreement, and has
taken and done every necessary company act prerequisite execution of this
agreement.
5. Arbitration of Disputes. In the event of any dispute hereunder, the parties
-----------------------
agree that the same shall be submitted to binding arbitration under the auspices
of the American Arbitration Association for determination pursuant to its
Commercial Rules then obtaining, in Denver, Colorado before a single neutral
arbitrator agreed upon by the parties, or in the event the parties are unable to
agree upon an arbitrator within a reasonable time in the opinion of the AAA
Tribunal Administrator, a single arbitrator appointed by the AAA in accordance
with its customary procedures. The arbitrator shall award the prevailing party
in any such arbitration its reasonable costs and attorney's fees.
6. Applicable Law. This agreement shall be interpreted under the laws of the
--------------
State of Colorado, and contains the entire agreement between the parties, and
shall not be modified or modifiable except by writing signed by all of the
parties hereto.
In witness whereof the parties hereto have set their hands and seals on the date
first written above.
Expedition Trading Company, L.C.
By: /s/ Kim Huffman
-----------------------------------
Kim Huffman
Its: Member
----------------------------------
and By /s/ James F. Parks
--------------------------------
James F. Parks
Its: Member
----------------------------------
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Coyote Sports, Inc.
By: /s/ James M. Probst
-------------------------------------
James M. Probst, Vice President
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Exhibit 10.9
THIS AGREEMENT is made the 18th day of September 1996
BETWEEN:
(1) APOLLO SPORTS TECHNOLOGIES LIMITED whose registered office is at
Paddock Works Oldbury Warley West Midlands B69 2DF (Company
Registration No. 343458) ("the Company"); and
(2) PAUL ANDREW TAYLOR of 45 Anstruther Road Edgbaston Birmingham B15 3NW
("the Director")
WHEREAS:
It is agreed that the Company will employ the Director and the Director will
serve the Company as director of the Company on the following terms and
conditions:
NOW IT IS AGREED as follows:
1. DEFINITIONS AND INTERPRETATION
1.1 In this agreement the following words and expressions shall have the
meanings following them:
"Associated Company" a subsidiary and any other company which is for
the time being a holding company (as defined by
the Companies Act 1985 Section 736) of the
Company or another subsidiary of any such
holding company;
"Subsidiary" a subsidiary (as defined by the Companies Act
1985 Section 736) for the time being of the
Company;
<PAGE>
"the Board" the board of directors for the time being of the
Company;
"the Business" the business of the design development
manufacture marketing and sale of golf shafts
bicycle tubing wheel tubing javelins and similar
speciality sports and tubing products carried on
by the Company and any other business carried on
by the Company at the date of termination of
this agreement and the business carried on by
any Associated Company at the date of such
termination;
"Intellectual
Property" includes letters patent, trade marks and service
marks (whether registered or unregistered),
registered or unregistered designs, utility
models, copyrights (including design
copyrights), applications for any of the
foregoing and the right to apply for them in any
part of the world, discoveries, creations,
inventions or improvements upon or additions to
an invention, confidential information, trade
secrets, know-how and any research effort
relating to any of the above mentioned, business
names whether registrable or not, moral rights
and any similar rights in any country;
"Incapacity" any illness or other like cause incapacitating
the Director from attending to his duties;
"EPCA" Employment Protection (Consolidation) Act 1978
(as amended).
1.2 Words importing one gender include all other genders and words
importing the singular include the plural and vice versa.
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1.3 Any reference to a statutory provision shall be deemed to include a
reference to any statutory modification or re-enactment of it.
1.4 The clause headings do not form part of this agreement and shall not be
taken into account in its construction or interpretation.
1.5 Any reference to the Director shall if appropriate include his personal
representatives.
1.6 References in this agreement to any clause, sub-clause, schedule or
paragraph without further designation shall be construed as references
to the clause, sub-clause, schedule or paragraph of this agreement so
numbered.
2. TERM OF EMPLOYMENT
2.1 The employment of the Director by the Company commenced on 1 August
1986 and is subject to termination by the Company giving to the
Director twelve months notice in writing or by the Director giving to
the Company six months notice in writing or as provided below.
2.2 The employment of the Director shall terminate automatically on the
last day of calendar month in which he attains the age of 62.
3. DUTIES
3.1 The Director shall during his employment under this agreement:
3.1.1 perform the duties and exercise the powers which the Board may
from to time properly assign to him in his capacity as
managing director or in connection with the business of the
Company or the business of any one or more of its Associated
Companies (including performing duties as requested from time
to time by the Board serving on the board of such Associated
Companies or by any other executive body or any committee of
such a company);
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3.1.2 in the absence of any specific directions from the Board (but
subject always to the memorandum control association of the
Company) have the and management of the business of the
Company; and
3.1.3 do all in his power to promote develop and extend the business
of the Company and of its Associated Companies and at all
times and in all respects conform and comply with the proper
and reasonable directions and regulations of the Board.
3.2 The Director shall carry out his duties and exercise his powers jointly
with any other managing or executive director(s) appointed by the Board
to act jointly with him and the Board may at any time require the
Director to cease performing or exercising the said or any duties or
powers.
3.3 The Director shall work in any place within the United Kingdom which
the Board may require for the proper performance and exercise of his
duties and powers and he may be required to travel on the business of
the Company or any of its Associated Companies anywhere within the
world.
3.4 If the Company requires the Director to work permanently at a place
which necessitates a move from his present address the Company will
reimburse the Director for all removal expenses directly and reasonably
incurred as a result of the Company's requirement up to the maximum
permitted under the Inland Revenue's Extra Statutory Concession from
time to time relating to such reimbursement.
3.5 The Director's job and associated duties may from time to be changed by
the Company and the Director may at any time be required to undertake
reasonable additional or other duties as necessary to meet the needs of
the business of the Company or the Associated Companies.
3.6 The Director may from time to time be required by the Company to
undertake duties or
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work for (whether on a temporary or permanent basis) any one or more of
the Associated Companies.
3.7 The Company shall be entitled to require the Director to work at such
other places within the world on a temporary basis as the Company shall
from time to time direct and the following provisions shall apply in
such cases:
3.7.1 the Director shall not be required to work outside the United
Kingdom for periods exceeding 6 months in any calendar year;
3.7.2 the Director shall continue to be paid in sterling to his United
Kingdom bank account in accordance with clause 5.1;
3.7.3 during any such periods the Director shall be entitled to be paid
hotel, temporary accommodation and additional subsistence expenses
in accordance with the Company's policy from time to time but
shall not be entitled to any further or additional payment;
3.7.4 during any such periods the provisions of this agreement shall
continue to apply to the Director's employment but the Director
shall in addition comply with the reasonable requirements of any
Associated Company for whom the Director is required to undertake
duties during such period; and
3.7.5 there shall be no special terms and conditions relating to the
Director's return to the United Kingdom at the conclusion of such
periods
4. OFFICE OF DIRECTOR
During his employment under this agreement the Director shall not:
4.1 voluntarily resign as a director of the Company; or
4.2 do or refrain from doing any act whereby his office as a director of the
Company is or becomes liable to be vacated;
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4.3 do anything that would cause him to be disqualified from continuing to
act as a director
5. REMUNERATION
5.1 Starting Salary
The remuneration of the Director shall be a salary (which shall accrue
from day to day) at the rate of (pound)65,000 per year (or such higher
rate as the Company may in its discretion from time to time decide or
award inclusive of any directors' fees payable to him under the articles
of association of the Company and the Associated Companies) payable by
equal monthly installments on the 15th day of every month.
5.2 Review of Salary
The said shall be reviewed annually to take effect on 1st January of
each year, commencing 1st January 1998.
5.3 Bonus
The Company envisages that the Director shall be allowed to participate
in such executive bonus scheme (with maximum earnings potential of 150%
of basic salary) as the Company may from time to time operate on such
basis as the Company may from time to time decide. The Company shall be
entitled to amend vary or withdraw the terms of any bonus scheme from
time to time in any way the Company may choose. No benefits will be paid
to the Director under the terms of any bonus scheme if the Director has
given or received notice to terminate this Agreement.
6. PENSION SCHEME
The Director will during his employment under this agreement be entitled
to become a member of any retirement benefits scheme established by the
Company or its Holding Company (or of any scheme set up in place of it)
and the Company and the Director will promptly pay all contributions due
under the scheme.
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7. LIFE, MEDICAL AND PERMANENT HEALTH INSURANCE
7.1 The Company will provide life insurance cover for the Director in an
amount of not less than four times his annual basic salary.
7.2 The Company will provide medical insurance cover for the Director and
his spouse and dependants under the age of 21 (or 24 if in full time
education) with an insurance company nominated by the Company from time
to time.
7.3 In respect of medical insurance the Company shall only be obligated to
maintain payments of premiums in respect thereof and shall not be
obliged to pay any benefits to the Director except such, if any, as are
received by the Company from any relevant insurance company.
8. COMPANY CAR
8.1 The Company will supply the Director with a car deemed by the Company to
be suitable for the performance of his duties or in relation to his
position within the Company in respect of which the Company will pay the
fuel and other running costs together with all insurance and maintenance
costs for business and reasonable private use.
8.2 The Director shall take good care of the car and ensure that the
provisions and conditions of any insurance policy relating to it are
observed and shall return the car and its keys to the Company at its
registered office (or any other place the Company may reasonably
nominate) immediately upon the termination of his employment however
arising.
8.3 The car shall be renewed in accordance with the Company's policy as to
renewal of motor cars from time to time.
9. EXPENSES
The Company shall by way of reimbursement pay or procure to be paid to
the Director:
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9.1 all reasonable traveling hotel, and other expenses wholly, exclusively
and necessarily incurred by him in or about the performance of his
duties under this agreement; and
9.2 the cost of subscription to all professional bodies to which he is
obliged to belong in order to maintain his professional qualifications.
10. HOLIDAYS
The Director (in addition to the usual public and bank holidays) be
entitled to not less than 25 days' holiday in each year to be taken at
a time or times convenient to the Company. At least 5 day's holiday
must be taken to coincide with factory holiday closure unless agreed
otherwise with the Company.
11. ILLNESS
11.1 The Director shall be paid during absence due to Incapacity (such
payment to be inclusive of any statutory sick pay or social security
benefits to which he may be entitled) an amount equal to the salary
which would otherwise have been payable to the Director for a total of
up to 26 weeks of Incapacity.
11.2 Thereafter the Director shall be paid during absence due to Incapacity
during the period from the 27th week to the 52nd week of Incapacity an
amount equal to one half of the salary which would otherwise have been
payable to the Director.
11.3 After the 52nd week of absence by reason of Incapacity any payment to
the Director shall be made only at the discretion of the Board.
11.4 If after the 52nd week of absence as aforesaid the Director shall be
absent without the consent of the Board for a further period the
Company may terminate the appointment of the Director by notice in
writing in accordance with clause 2.1.
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11.5 Periods of absence in any 18 month period shall be aggregated.
11.6 If the Incapacity shall be or appear to be occasioned by actionable
negligence of a third party in respect of which damages are or may be
recoverable the Director shall immediately notify the Board of that
fact and of any claim, compromise, settlement or judgment made or
awarded in connection with it and shall give to the Board all
particulars the Board may reasonably to the Company that part of
any Board damages recovered relating to loss of for the period of the
Incapacity as the Board may reasonably determine provided that the
amount to be refunded shall not exceed the amount of damages or
compensation recovered by him less any costs borne by the Director in
connection with the recovery of such damages or compensation and shall
not exceed the total remuneration paid to him by way of salary in
respect of the period of the Incapacity.
12. TIME AND ATTENTION
During the continuance of his employment under this agreement the
Director shall unless prevented by Incapacity devote his whole time and
attention to the business of the Company and shall not without the
prior written consent of the Board:
12.1 engage in any other business; or
12.2 be concerned or interested in any other business of a similar nature to
or competitive with that carried on by the Company or any of its
Associated Companies or which is a supplier or customer of the Company
or of its Associated Companies in relation to its goods or services;
provided that nothing in this clause shall preclude the Director from
holding or being otherwise interested in any shares or other securities
of any company which are for the time being quoted on any recognized
stock exchange (or in respect of which dealing takes
9
<PAGE>
place in the Unlisted Securities Market of The International Stock
Exchange of the United Kingdom and Republic of Ireland Limited) so long
as the interest of the Director in such shares or other securities does
not extend to more than 1% of the total amount of such shares or
securities.
13. INVENTIONS
13.1 The parties in the Director may make, discover or create Intellectual
course of his duties under this agreement and agree that in this
respect the Director has a special obligation to further the interests
of the Company.
13.2 Subject to the provisions of the Patents Act 1977 and the Copyright
Designs and Patents Act 1988 if at any time during his employment under
this agreement the Director makes or discovers or participates in the
making or discovery of any Intellectual Property relating to or capable
of being used in the business for the time being carried on by the
Company or any of its Associated Companies full details of the
Intellectual Property shall immediately be communicated by him to the
Company and shall be the absolute property of the Company. Al the
request and expense of the Company the Director shall give and supply
all such information, data, drawings and assistance as may be requisite
to enable the Company to exploit the Intellectual Property to the best
advantage of the Company and the Director shall execute all documents
and do all things which may be necessary or desirable for obtaining
patent or other protection for the Intellectual Property in such parts
of the world as may be specified by the Company and for vesting the
same in the Company or as it may direct.
13.3 The Director irrevocably appoints the Company to be his attorney in his
name and on his behalf to sign, execute or do any such instrument or
thing and generally to use his name for the purpose of giving to the
Company (or its nominee) the full benefit of the provisions of this
clause and in favor of any third party. A certificate in writing signed
by any director or the secretary of the Company that any instrument or
act falls within the
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<PAGE>
authority conferred by this clause shall be conclusive evidence that
such is the case.
13.4 If the Intellectual Property is not the property of the Company the
Company shall, subject to the Provisions of the Patents Act 1977 and
the Copyright Designs and Patent Act 1988, have the right to acquire
for itself or its nominee the Director's rights in the Intellectual
Property within 3 months after disclosure pursuant to clause 13.2 on
fair and reasonable terms to be agreed by a patent agent agreed by the
parties or in default of agreement nominated by the President for the
time being of the Chartered Institute of Patent Agents. Such patent
agent shall act as expert and not as arbitrator and accordingly the
provision of any statutes relating to arbitration shall not apply to
the patent agent's decision. The costs of the patent agent shall be
borne by the Company.
13.5 The rights and obligations under this clause shall continue in force
after termination of this agreement in respect of Intellectual Property
made during the Director's employment under this agreement and shall be
binding upon his representatives.
14. CONFIDENTIALITY
14.1 The Director is aware that in the course of employment under this
agreement he will have access to and be entrusted with information in
respect of the business and financing of the Company and its dealings,
transactions and affairs and likewise in relation to its Associated
Companies all of which information is or may be confidential.
14.2 The Director shall not (except in the proper course of his duties)
during or after the period of his employment under this agreement
divulge to any person whatever or otherwise make use of (and shall use
his best endeavors to prevent the publication or disclosure of) any
trade secret or secret manufacturing process or any confidential
information
11
<PAGE>
concerning any of the Associated Companies or any of its or their
suppliers agents, distributors or customers.
14.3 All notes and memoranda of any trade secrets or confidential
information concerning the business of the Company and the Associated
Companies or any of its or their suppliers, agents, distributors or
customers which shall be acquired, received or made by the Director
during the course of his employment shall be the property of the
Company and shall be surrendered by the Director to someone duly
authorized in that behalf at the termination of his employment or at
the request of the Board at any time during the course of his
employment.
15. TERMINATION OF DIRECTORSHIP
The employment of the Director under this agreement shall terminate
automatically in the event of his ceasing to be a director of the
Company and in that event the Director shall have no claim for damages
against the Company unless he shall so cease:
15.1 by reason of his not being re-elected as a director of the Company at
the annual general meeting of the Company held next after the
commencement of his employment; or
15.2 by virtue of a resolution passed by the members of the Company in
general meeting to remove him as a director;
and at the time of such failure to re-elect or of such removal the
Company shall not be otherwise entitled to determine his employment
under this Agreement.
16. SUMMARY TERMINATION OF EMPLOYMENT
The employment of the Director may be terminated by the Company without
notice or payment in lieu of notice:
12
<PAGE>
16.1 if the Director is guilty of any gross default or misconduct in
connection with or affecting the business of the Company or any
Subsidiary or Associated Company to which he is required by this
agreement to render services; or
16.2 in the event of any serious or repeated breach or non-observance by the
Director of any of the stipulations contained in this agreement; or
16.3 if the Director becomes bankrupt or makes any composition or enters
into any deed of arrangement with his creditors; or
16.4 if the Director is convicted of any arrestable criminal offence (other
than an offence under road traffic legislation in the United Kingdom or
elsewhere for which a fine or non-custodial penalty is imposed); or
16.5 if the Director is disqualified from holding office in another company
in which be is concerned or interested because of wrongful trading
under the Insolvency Act 1986; or
16.6 if the Director shall become of unsound mind or become a patient under
the Mental Health Act 1983; or
16.7 if the Director is convicted of an offence under the Companies
securities (Insider Dealing) Act 1985 or under any other pursuant or
future statutory enactment or regulations relating to insider dealings;
or
16.8 if the Director resigns as a director of the Company otherwise than at
the request of the Company.
17. TERMS DURING NOTICE PERIOD
13
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17.1 The Company reserves the right to make a payment in lieu of notice
(including benefits to which the Director is contractually entitled)
should it so wish or to require the Director to remain away from work
during his notice period whichever may be appropriate.
17.2 Where the Company requires the Director to remain away from work during
his notice period (whether he or the Company gave notice), he will be
required to comply with any reasonable conditions laid down by the
Company and whilst on full pay during such time he will not be
permitted to work for any other person, firm, client, corporation or on
his own behalf without the Company's prior written permission.
18. RESIGNATION FROM DIRECTORSHIPS
Upon the termination by whatever means of this agreement:-
18.1 the Director shall at the request of the Company immediately resign
from office as a director of the Company and from such offices held by
him in Associated Companies as may be so requested without claim for
compensation as a result of such resignations and in the event of his
failure so to do the Company is hereby irrevocably authorized to
appoint some person in his name and on his behalf to sign and deliver
such resignation or resignations to the Company and to each of the
Associated Companies of which the Director is at the material time a
director or other officer; and
18.2 the Director shall not without the consent of the Company at any time
thereafter represent himself still to be connected with the Company or
any of the Associated Companies.
19. RECONSTRUCTION OR AMALGAMATION
If the employment of the Director under this agreement is terminated by
reason of the liquidation of the Company for the purpose of
reconstruction or amalgamation and the Director is offered employment
with any concern or undertaking resulting from the reconstruction or
amalgamation on terms and conditions not less favorable than the terms
14
<PAGE>
of this agreement then the Director shall have no claim against the
Company in respect of the termination of his employment under this
agreement.
20. NON-SOLICITATION AND NON-COMPETITION
20.1 The Director covenants with the Company that he will not for the period
of 12 months after ceasing to be employed under this agreement without
the prior written consent of the Board in connection with the carrying
on of any business similar to or in competition with the Business on
his own behalf or on behalf of any person firm or company directly or
indirectly:
20.1.1 seek to procure orders from or seek to do business with any
person, firm or company who has at any time during the
period of 12 months immediately preceding such cessation
done business with the Company; or
20.1.2 actually accept orders from or do business with any person,
firm or company who has at any time during the period of
12 months immediately preceding such cessation done
business with the Company; or
20.1.3 endeavor to entice away from the Company any person who has
at any time during the period of 12 months immediately
preceding such cessation been employed or engaged by the
Company
provided that nothing in this clause shall prohibit the seeking of
procuring of orders or the doing of business not relating or similar to
the business or businesses described above.
20.2 The Director covenants with the Company that he will not within the
United Kingdom or the USA and for the period of 6 months after ceasing
to be employed under this agreement without the prior written consent
of the Board either alone or jointly with or as manager, agent,
consultant or employee of any person, firm or company directly or
indirectly carry on or be engaged in any activity or business which
shall be in competition with the Business.
20.3 In the event that the Company requires the Director to remain away from
work as
15
<PAGE>
provided for in Clause 17.1 for some or all of any period of notice,
the period of the restrictions set out in Clauses 20.1 and 20.2 will be
reduced by the length of time the Director is so required to remain
away from work prior to the cessation of his employment.
20.4 The restrictions contained in clause 20.1 and 20.2 shall apply for the
benefit of any Associated Companies (as the Director hereby covenants)
for which the Director has undertaken work or to which the Director has
provided services or of whose affairs the Director gained personal
knowledge in each case during the period of 12 months immediately
preceding the cessation of the Directors employment as if such clauses
had been repeated in full for the benefit of such Associated Company.
20.5 Each of the restrictions in this clause shall be read and construed
independently, separately and severally from the other covenants herein
contained and are considered by the parties to be reasonable in all the
circumstances and accordingly it is hereby agreed that if any such
restrictions shall be adjudged to be void as going beyond what is
reasonable in all the circumstances for the protection of the interests
of the Company but would be valid if part of the wording were deleted
or the period thereof reduced or the range of activities reduced in
scope the said restrictions shall apply with such modifications as may
be necessary to make them valid and effective.
21. GRIEVANCE AND DISCIPLINARY PROCEDURES
There are no specific disciplinary rules applicable to the Director. If
the Director is dissatisfied with any disciplinary decision relating to
him or if he has any grievance arising from his employment hereunder he
may refer any such matter to the Board who will deal with the matter by
discussion and by a majority decision of those present (other than the
Director) at the Board Meeting at which the matter is discussed. Any
such decision shall be final.
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<PAGE>
22. REDUNDANCY
If the Director shall have been dismissed by reason of redundancy and
shall be entitled to a redundancy payment under the EPCA Company shall
pay to him a redundancy payment calculated as follows in full and final
settlement:
22.1 an amount computed as set out in Schedule 4, EPCA save that the week's
pay shall be the actual pay on the relevant date and not be subject to
a statutory maximum and a maximum of 30 completed years of service
shall be taken into account; and
22.2 the Directors contractual notice entitlement (or pay in lieu to include
any benefits to which the Director is contractually entitled. If the
Director is required by the Company to work part or all of his notice
period, a payment equivalent to the Director's final notice
entitlement, calculated from the date of termination, may be paid as an
additional termination payment. This would include any payment in lieu
of any period of unexpired notice.
provided always that the Director shall not be entitled to receive in
addition to the said redundancy payment compensation of any kind, (and
to which he may otherwise have been entitled), in respect of any period
of notice during which he shall not have been asked to continue the
performance of his duties as employee of the Company.
23. NOTICES
Notices may be given by either party by letter addressed to the other
party at (in the case of the Company) its registered office for the
time being and (in the case of the Director) his last known address and
any notice given by letter shall be deemed to have been given at the
time at which the letter would be delivered in the ordinary course of
post or if delivered by hand upon delivery and in proving service by
post it shall be sufficient to prove that the notice was properly
addressed and posted.
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<PAGE>
24. PARTICULARS OF EMPLOYMENT
The schedule to this agreement sets out the particulars of the
Director's employment with the Company in accordance with the
requirements of section 1 of the EPCA.
25. MISCELLANEOUS
25.1 This agreement is governed by and shall be construed in accordance with
the laws of England.
25.2 The parties to this agreement submit to the exclusive jurisdiction of
the English courts.
25.3 This agreement contains the entire understanding between the parties
and supersedes all previous agreements and arrangements (if any)
relating to the employment of the Director by the Company (which shall
be deemed to have been terminated by mutual consent).
IN WITNESS whereof the parties hereto have executed this agreement (in the
case of the Director, as a deed) the day and year first before written.
18
<PAGE>
SCHEDULE
1. THE PARTIES
1.1 Name of the Company : Apollo Sports Manufacturing Limited
1.2 Address of the Company : Paddock Works Oldbury Warley West
Midlands B69 2DF
1.3 Name of the Director : Paul Andrew Taylor
1.4 Address of the Director : 45 Anstruther Road Edgbaston
Birmingham B15 3NW
2. DATES OF EMPLOYMENT
2.1 Date of commencement of
employment with the Company : 1 August 1986
2.2 There is no period of employment with a previous employer which counts as
part of the Director's continuous period of employment.
3. AMPLIFICATION OF TERMS OF EMPLOYMENT
In accordance with the EPCA section 1 (3) the following terms of the
Director's employment apply on the date of this agreement:
3.1 Hours of work: The Director shall carry out his duties between the hours
of 8:30 a.m. and 5:00 p.m. during Monday to Friday inclusive and such
further hours as may from time to time become necessary in order to meet
the business of the Company and any Associated Companies for which he is
required to fulfil duties or during such hours as the Board may from time
to time reasonably require of him and the Director shall not be entitled
to receive any additional remuneration for work done outside his normal
hours of work.
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<PAGE>
3.2 Holidays: see clause 10;
3.3 Sickness or injury: the Director is entitled to be paid during absence
from work during sickness or injury in accordance with clause 11;
3.4 Pension: see clause 6 and paragraph 4.4 of this Schedule;
3.5 Remuneration: the Director is entitled to remuneration in accordance with
clause 5;
3.6 Notice: see clause 2;
3.7 Job description. see clause 3.
3.8 Periods of work outside
the United Kingdom : see clause 3.7
4. REQUIRED INFORMATION
The following information is supplied pursuant to the EPCA and reflects
the Company's current practice:
4.1 Disciplinary rules and procedure: see clause 21;
4.2 Grievance procedure: see clause 21;
4.3 Appeals procedure: see clause 21;
4.4 A contracting-out certificate is in force in respect of this employment.
4. There are no collective agreements which directly affect the terms and
conditions of the Director's employment with the Company.
20
<PAGE>
SIGNED by )
for and on behalf of Apollo ) /s/ The Company
Sports Manufacturing Limited )
in the presence of:- )
/s/ J. Payne
J. Payne
Solicitor
Townsends
SIGNED AS A DEED by )
Paul Andrew Taylor ) /s/ Paul Andrew Taylor
in the presence of:- )
/s/ Nicholas Smith
Nicholas Smith
Solicitor
Townsends
21
<PAGE>
Exhibit 10.10
COYOTE SPORTS, INC.
1997 STOCK OPTION PLAN
I. Purpose
The COYOTE SPORTS, INC. 1997 STOCK OPTION PLAN ("Plan") provides for the
grant of Stock Options to employees, directors and consultants of Coyote Sports,
Inc. (the "Company"), and such of its subsidiaries (as defined in Section 424(f)
of the Internal Revenue Code of 1986, as amended (the "Code")), as the Board of
Directors of the Company (the "Board") shall from time to time designate
("Participating Subsidiaries") in order to advance the interests of the Company
and its Participating Subsidiaries through the motivation, attraction and
retention of key personnel.
II. Incentive Stock Options and Non-Incentive Stock Options
The Stock Options granted under the Plan may be either:
a) Incentive Stock Options ("ISOs") which are intended to be "Incentive
Stock Options" as that term is defined in Section 422 of the Code; or
b) Nonstatutory Stock Options ("NSOs") which are intended to be options
that do not qualify as "Incentive Stock Options" under Section 422 of the
Code.
All Stock Options shall be ISOs only to the extent specified in the Option
Agreement. Subject to the other provisions of the Plan, a Participant may
receive ISOs and NSOs at the same time, provided that the ISOs and NSOs are
clearly designated as such, and the exercise of one does not affect the exercise
of the other.
Except as otherwise expressly provided herein, all of the provisions and
requirements of the Plan relating to Stock Options shall apply to ISOs and NSOs.
III. Administration
The Plan shall be administered by the Board, or by a committee composed
solely of two or more directors ("Committee") each of whom is a Non-Employee
Director. The Committee or the Board, as the case may be, shall have full
authority to administer the Plan, including authority to interpret and construe
any provision of the Plan and any Stock Options granted thereunder, and to adopt
such rules and regulations for administering the Plan as it may deem necessary
in order to comply with the requirements of the Code or in order that Stock
Options that are intended to be ISOs will be classified as incentive stock
options under the Code, or in order to conform to any regulation or to any
change in any law or regulation applicable thereto. The
<PAGE>
Board shall have the power to reprice and accelerate the vesting of Stock
Options. The Board may reserve to itself any of the authority granted to the
Committee as set forth herein, and it may perform and discharge all of the
functions and responsibilities of the Committee at any time that a duly
constituted Committee is not appointed and serving. All references in this Plan
to the "Committee" shall be deemed to refer to the Board whenever the Board is
discharging the powers and responsibilities of the Committee, and to any special
committee appointed by the Board to administer particular aspects of this Plan.
All actions taken and all interpretations and determinations made by the
Committee in good faith (including determinations of Fair Market Value) shall be
final and binding upon all Participants, the Company and all other interested
persons. No member of the Committee shall be personally liable for any action,
determination or interpretation made in good faith with respect to this Plan,
and all members of the Committee shall, in addition to their rights as
directors, be fully protected by the Company with respect to any such action,
determination or interpretation. Rule 16b-3 under the Securities Exchange Act
of 1934 (the "Exchange Act") provides that the grant of a stock option to a
director or officer of a company will be exempt from the provisions of Section
16(b) of the Exchange Act if the conditions set forth in that Rule are
satisfied. Unless otherwise specified by the Committee, grants of Stock Options
hereunder to individuals who are officers or directors of the Company shall be
made in a manner that satisfies the conditions of that Rule.
IV. Definitions
4.1. "Stock Option." A Stock Option is the right granted under the Plan
------------
to an Employee, director, or consultant to purchase, at such time or times and
at such price or prices ("Option Price") as are determined by the Committee, the
number of shares of Common Stock determined by the Committee.
4.2. "Common Stock." A share of Common Stock means a share of authorized
------------
common stock of the Company.
4.3. "Fair Market Value." If the Common Stock is traded publicly, the
-----------------
Fair Market Value of a share of Common Stock on any date shall be the average of
the representative closing bid and asked prices, as quoted by the National
Association of Securities Dealers, Inc. through NASDAQ (its automated system for
reporting quotes), for the date in question, or, if the Common Stock is listed
on the NASDAQ National System or is listed on a national stock exchange, the
officially quoted closing price on NASDAQ or such exchange, as the case may be,
on the date in question. If the Common Stock is not traded publicly, the Fair
Market Value of a share of Common Stock on any date shall be determined in good
faith by the Committee after such consultations with outside legal, accounting
and other experts as the Committee may deem advisable, and the Committee may
maintain a written record of its method of determining such value.
4.4. "Employee." An Employee is an employee of the Company or any
--------
Participating Subsidiary.
<PAGE>
4.5. "Participant." A Participant is an Employee, director or consultant
-----------
to whom a Stock Option is granted.
4.6. "Non-Employee Director." A Non-Employee Director is a person who
---------------------
satisfies the definition of a "non-employee director" set forth in Rule 16b-3
under the Exchange Act or any successor rule or regulation, as it may be amended
from time to time.
4.7 "Corporate Transaction." A Corporate Transaction shall mean one or
---------------------
more of the following transactions unless persons who were holders of
outstanding voting capital stock of the Company which was outstanding
immediately prior to such transaction are immediately after such transaction
holders of 51% or more of the outstanding voting capital stock of the surviving
or acquiring entity (or equivalent equity interest if the entity is not a
corporation): (i) a merger, consolidation or acquisition (ii) a share exchange
(with or without a stockholder vote) in which 95% or more of the outstanding
capital stock of the Company is exchanged for capital stock of another
corporation; or (iii) the sale, transfer or other disposition of all or
substantially all of the Company's assets.
4.8 "Securities Act." Securities Act shall mean the Securities Act of
--------------
1933, as amended.
4.9 "Change in Control." Change in Control shall mean any of the following
-----------------
events occurring after the Effective Date of the Company's Registration
Statement filed with the Securities Exchange Commission for its Initial Public
Offering.
A. If any one Person (as defined below), after the date of the
Company's Initial Public Offering, in a single transaction or in a series of
transactions shall purchase or otherwise acquire or become the beneficial owner
of securities of the Company representing twenty percent (20%) or more of the
combined voting power of the Company's then outstanding voting securities
(including any voting securities issuable upon conversion of convertible
securities of the Company held by such Person).
B. If at any annual or special meeting of Company stockholders
following a contested election the Board of Directors of the Company shall cease
to be an Authorized Board. For purposes of this paragraph, a "contested
election" shall mean (i) an election contest subject to Rule 14a-11 under the
Exchange Act or (ii) an election which would have been subject to Rule 14a-11 if
at the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act.
C. If a change of control of the Company (i) required to be reported
in accordance with Item 6 of Schedule 14A under the Exchange Act, or (ii) which
would be required to be reported in accordance with Item 6 of Schedule 14A if at
the time of such election the Company had securities registered pursuant to
Section 12 of the Exchange Act, has otherwise occurred, unless a Constitutional
Majority of an Authorized Board approves the change of control and specifically
waives the application of this section.
<PAGE>
For purposes of this Section 4.9 "Person" shall have the meaning set
forth in Sections 13(d) and 14(d)(2) of the Exchange Act, as in effect on the
date thereof, and shall include, without limitation, any "Affiliate" or
"Associate" of such Person (as those terms are used in Rule 12b-2 under the
Exchange Act); provided, however, that the term "Person" shall not include the
Company or any trustee or other fiduciary holding securities under any employee
benefit plan of the Company. For purposes of this Section 4.9, (i) beneficial
ownership shall be computed in accordance with Rule 13d-3 under the Exchange
Act; and (ii) "Authorized Board" shall mean a Board of Directors of the Company
of which a number of directors equal to a majority of the authorized number of
directors constituting the entire Board, including vacancies (a "Constitutional
Majority"), were either members of the Board of Directors on the date of the
Company's Initial Public Offering or were nominated or elected a director by a
Constitutional Majority at the date of nomination or election of an Authorized
Board.
4.10 "Initial Public Offering". "Initial Public Offering" shall mean the
-------------------------
Company's first offering of securities to the public which is registered
pursuant to the Securities Act.
V. Eligibility and Participation
Grants of ISOs may be made to Employees of the Company or any Participating
Subsidiary. Grants of NSOs may be made to Employees or directors of, or
consultants to, the Company or any Participating Subsidiary. Any director of
the Company or of a Participating Subsidiary who is also an Employee shall also
be eligible to receive ISOs. The Board or Committee shall from time to time
determine the Participants to whom Stock Options shall be granted, the number of
shares of Common Stock subject to each Stock Option to be granted to each such
Participant, and the Option Price of such Stock Options, all as provided in this
Plan. The Option Price of any ISO shall be not less than the Fair Market Value
of a share of Common Stock on the date on which the Stock Option is granted, and
the Option Price of an NSO shall be not less than eighty-five percent (85%) of
the Fair Market Value on the date the NSO is granted. If an ISO is granted to an
Employee who then owns stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company or any parent or subsidiary
corporation of the Company, the Option Price of such ISO shall be at least 110%
of the Fair Market Value of the Common Stock subject to the ISO at the time such
ISOs are granted, and such ISO shall not be exercisable after five years after
the date on which it was granted. Each Stock Option shall be evidenced by a
written agreement ("Option Agreement") containing such terms and provisions as
the Committee may determine, subject to the provisions of this Plan.
VI. Shares of Common Stock Subject to the Plan
6.1. Maximum Number. The maximum aggregate number of shares of Common
--------------
Stock that may be made subject to Stock Options shall be 500,000 authorized
shares. To the extent the aggregate Fair Market Value (determined as of the
time the ISO is granted) of the stock with respect to which ISOs are exercisable
for the first time by an individual in a particular calendar year exceeds
$100,000, such excess Stock Options shall be treated as NSOs. If any shares of
Common Stock subject to Stock Options are not purchased or otherwise paid for
before such Stock Options expire, such shares may again be made subject to Stock
Options.
<PAGE>
6.2. Capital Changes. In the event any changes are made to the shares of
---------------
Common Stock (whether by reason of reorganization, recapitalization, stock
dividend, stock split, combination of shares, exchange of shares, change in
corporate structure or otherwise), appropriate adjustments shall be made in:
(i) the number of shares of Common Stock theretofore made subject to Stock
Options, and in the Option Price of said shares; and (ii) the aggregate number
of shares which may be made subject to Stock Options in the future. If any of
the foregoing adjustments shall result in a fractional share, the fraction shall
be disregarded, and the Company shall have no obligation to make any cash or
other payment with respect to such a fractional share.
VII. Exercise of Stock Options
7.1 Time of Exercise. Subject to the provisions of the Plan, the
----------------
Committee, in its discretion, shall determine the time when a Stock Option, or a
portion of a Stock Option, shall become exercisable, and the time when a Stock
Option, or a portion of a Stock Option, shall expire. Such time or times shall
be set forth in the Option Agreement evidencing such Stock Option. Unless
otherwise specified in an Option Agreement, a Stock Option shall become
exercisable (i) with respect to 20% of the shares subject thereto on the
anniversary of the date of grant, and (ii) with respect to 1/48th of the shares
subject thereto at the end of each month after the first anniversary of the date
of grant, (so that all Stock Options are fully vested five (5) years after the
date of grant) subject to continued employment with the Company or a
Participating Subsidiary and Section 7.4 hereof. A Stock Option shall expire, to
the extent not exercised, no later than the tenth anniversary of the date on
which it was granted. The Committee may accelerate the vesting of any
Participant's Stock Option by giving written notice to the Participant. Upon
receipt of such notice, the Participant and the Company shall amend the Option
Agreement to reflect the new vesting schedule. The acceleration of the exercise
period of a Stock Option shall not affect the expiration date of that Stock
Option.
7.2 Exchange of Outstanding Stock. The Committee, in its sole discretion,
-----------------------------
may permit a Participant to (i) surrender to the Company whole shares of Common
Stock previously acquired by the Participant and/or (ii) request that the
Company withhold whole shares of Common Stock issuable upon exercise of the
Stock Option, as part or full payment for the exercise of a Stock Option. Such
surrendered or withheld shares shall be valued at their Fair Market Value on the
date of exercise. Shares credited to a Participant shall again be available for
grant under the Plan.
7.3 Use of Promissory Note; Exercise Loans. The Committee may, in its
--------------------------------------
sole discretion, impose terms and conditions, including conditions relating to
the manner and timing of payments, on the exercise of Stock Options. Such terms
and conditions may include, but are not limited to, permitting a Participant to
deliver to the Company his promissory note as full or partial payment for the
exercise of a Stock Option. The Committee, in its sole discretion, may
authorize the Company to make a loan to a Participant in connection with the
exercise of Stock Options, or authorize the Company to arrange or guarantee
loans to a Participant by a third party. Any loan by the Company or acceptance
of a promissory note shall be made in accordance with the corporate law of the
Company's state of incorporation.
<PAGE>
7.4. Termination of Employment before Exercise. If the employment of a
-----------------------------------------
Participant who was an employee of the Company or a Participating Subsidiary
when the Stock Option was granted shall terminate for any reason other than the
Participant's death or disability, any Stock Option granted to the Participant,
to the extent then exercisable under the applicable Option Agreement(s), shall
remain exercisable after the termination of the Participant's employment for a
period of three (3) months (but not later than the specified expiration date).
If the Participant's employment is terminated because the Participant is
disabled within the meaning of Section 22(e)(3) of the Code, any Stock Option
granted to the Participant, to the extent then exercisable under the applicable
Option Agreement(s), shall remain exercisable after the termination of his
employment for a period of twelve (12) months (but not later than the specified
expiration date). If the Participant dies while employed by the Company or a
Participating Subsidiary, or during the three-month or twelve-month periods
referred to above, his Stock Options may be exercised by the Participant's
estate, duly appointed representative or beneficiary who acquires the Stock
Options by will or by the laws of descent and distribution, to the extent that
they were exercisable on the date of cessation of his employment, but no further
installments of the Participant's Stock Options will become exercisable and each
of the Participant's Stock Options shall terminate on the first anniversary of
the date of the Participant's death (but not later than the specified expiration
dates). If a Stock Option is not exercised during the applicable period, it
shall be deemed to have been forfeited and of no further force or effect.
Notwithstanding the foregoing provisions of this Section 7.4, but subject to
the other provisions of this Plan, the Option Agreement may specify longer
periods for exercise of a NSO or ISO (unless to do so in the case of an ISO
would cause the ISO not to qualify as an incentive stock option pursuant to
Section 422 of the Code) after any such an event.
Upon action of the Committee in its sole discretion, except as provided in a
written employment or consulting agreement of the Company or a Participating
Subsidiary with the Participant, which is referenced in the Option Agreement,
any Stock Option shall terminate immediately, and may not be exercised, and any
exercise for which certificates for the shares have not been delivered to the
Participant shall be void and unwound: (i) if prior to the date of exercise
and/or delivery of such certificate(s) (but in any event not later than five (5)
days after date of exercise) Participant is terminated for cause as an Employee
of the Company or its Participating Subsidiary, or if not an Employee, for cause
as a director or consultant for the Company or its Participating Subsidiary; or
(ii) if subsequent to a Participant's termination and prior to the expiration of
the term of the Stock Option conditions arise or are discovered with respect to
a Participant that would have constituted cause for termination. "Cause" shall
have the meaning given to it in the Participant's written employment, consultant
or director agreement with the Company or Participating Subsidiary. If no such
written agreement exists, "cause" shall mean (i) dishonesty which is not the
result of an inadvertent or innocent mistake with respect to the Company or any
of its subsidiaries; (ii) willful misfeasance or nonfeasance of duty intended to
injure or having the effect of injuring in some material fashion the reputation,
business or business relationships of the Company or any of its subsidiaries or
any of their respective officers, directors or employees; (iii) conviction upon
a charge of any crime involving moral turpitude or a crime other than a vehicle
offense which could reflect in some material fashion unfavorably upon the
Company or any of its subsidiaries; or (iv) willful or prolonged absence
<PAGE>
from work by the Participant (other than by reason of disability due to physical
or mental illness) or failure, neglect or refusal by the Participant to perform
his duties and responsibilities without the same being corrected upon twenty
(20) days prior written notice. In addition, unless specifically provided
otherwise in reference to this Plan in a written employment, consultant or
director agreement with the Company or Participating Subsidiary, "cause" for
purposes of this Section 7.4 shall exist (and termination of the Stock Option
may occur even if not so provided in the written employment, consultant or
director agreement with the Company or Participating Subsidiary) if the
Participant materially breaches any provision of an agreement with the Company
or any of its subsidiaries with respect to obligations regarding non-
competition, confidentiality, non-solicitation of customers, and non-hire of
customers and employees of the Company or a Subsidiary, or if the Participant
commits a material breach of any other obligation to the Company or any of its
subsidiaries under conditions where the existence of this risk of termination of
the Stock Option would not constitute a substantial risk of forfeiture under
Section 83 of the Code if Section 83 of the Code would apply in respect of such
Stock Options in such circumstance and require such Stock Option to be treated
as taxable income to the Participant prior to exercise or transfer of the Stock
Option.
7.5. Disposition of Forfeited Stock Options. Any shares of Common Stock
--------------------------------------
subject to Stock Options forfeited by a Participant shall not thereafter be
eligible for purchase by the Participant, but may be made subject to Stock
Options granted to other Participants.
7.6. Conditions of Exercise. Notice of exercise shall be in the form
----------------------
attached to the Option Agreement and shall, in the discretion of the Company,
contain a representation, in the form provided by the Company, that the shares
are being purchased for investment only and not for resale or distribution, and
such other representations and agreements as the Company may reasonably require,
and may in addition require as a condition of exercise that the Participant
execute any stockholders agreement which is to be applicable to either: (i)
holders of 70% or more of the capital stock of the Company or (ii) holders of
60% or more of the Stock Options granted under this Plan. The Company may also
require as a condition of exercise that the Participant will agree, if requested
by the Company in connection with a public offering of the Company's securities,
to adhere to lock-up arrangements between the Company and an underwriter
involved in such public offering.
VIII. No Contract of Employment
Nothing in this Plan shall confer upon the Participant the right to
continue as an employee, consultant or director of the Company or any
Participating Subsidiary, nor shall it interfere in any way with the right of
the Company, or any Participating Subsidiary, to discharge the Participant at
any time for any reason whatsoever, with or without cause. Nothing in this
Article VIII shall affect any rights or obligations of the Company or any
Participant under any written contract of employment.
IX. No Rights as a Stockholder
A Participant shall have no rights as a stockholder with respect to any
shares of Common
<PAGE>
Stock subject to a Stock Option. Except as provided in Section 6.2, no
adjustment shall be made in the number of shares of Common Stock issued to a
Participant, or in any other rights of the Participant upon exercise of a Stock
Option by reason of any dividend, distribution or other right granted to
stockholders for which the record date is prior to the date of exercise of the
Participant's Stock Option. The Committee, the Board and the Company have no
continuing duty to provide a Participant with information concerning the
Company.
X. Assignability
No Stock Option granted under this Plan, nor any other rights acquired by
Participant under this Plan, shall be assignable or transferable by a
Participant, other than by will or the laws of descent and distribution.
Notwithstanding the preceding sentence, the Committee, in its sole discretion,
may permit the assignment or transfer of an NSO and the exercise thereof by a
person other than a Participant, on such terms and conditions as the Committee
in its sole discretion may determine. Any such terms shall be set forth in the
Option Agreement. In the event of a Participant's death, the Stock Option may
be exercised by the personal representative of the Participant's estate or by
the successor or successors in interest determined under the Participant's will
or under the applicable laws of descent and distribution. The terms of any
rights under this Plan in the hands of a transferee or assignee shall be
determined as if held by the Participant and shall be of no greater extent or
term than if the transfer or assignment had not taken place.
XI. Corporate Transactions and Changes in Control
11.1. At least ten (10) days prior to the consummation of a Corporate
Transaction, the Company shall give Participants written notice of the proposed
Corporate Transaction. The vesting schedules of all Stock Options shall
automatically be accelerated so that the Stock Options shall become exercisable
as to those shares which could be purchased under those vesting schedules 12
months after the date of consummation of the Corporation Transaction. In
addition, at the sole discretion of the Committee, the vesting schedule of some
or all other Stock Options may be accelerated so that all or any portion of
Stock Options outstanding under the Plan immediately prior to the consummation
of the Corporate Transaction shall, for all purposes under this Plan, become
exercisable as of such time. If a Corporate Transaction is to occur, in lieu of
allowing a Participant to exercise the Participant's Stock Options, the Board
may, in its sole discretion, require some or all Participants to accept a cash
payment in consideration for the termination of the Participant's Stock Options.
The termination shall occur immediately prior to the consummation of the
Corporate Transaction and the cash payment shall be equal to the difference
between the price per share of Common Stock in the Corporate Transaction as
determined by the Board and the exercise price of a Participant's Stock Options.
All Stock Options, to the extent not previously exercised, shall terminate upon
the consummation of such Corporate Transaction and cease to be exercisable
unless expressly assumed by the successor corporation or parent thereof.
Provided, however, that if the Corporate Transaction is to be accounted for as a
"pooling-of-interest," then unexercised stock options shall be exchanged for
similar options of the acquiror or surviving entity or voting common stock of
the acquiror or surviving entity based on the value of the options, as and to
the extent required by APB No. 16, accounting pronouncements of the Securities
and Exchange Commission, and other authoritative
<PAGE>
principles and pronouncements concerning pooling-of-interest accounting.
Notwithstanding the foregoing, the vesting of a Participant's Stock Options
shall not be accelerated (if and to the extent requested in writing by the
Participant) upon a Corporate Transaction if the participant is a "disqualified
individual" as that term is defined in Section 280G of the Internal Revenue
Code.
11.2. The vesting schedules of all Stock Options shall be automatically
accelerated so that the Stock Options shall become exercisable as to all shares
subject to the Stock Options if the Participant's employment is terminated
without cause by the Company within one (1) year following a Change in Control.
"Without cause" means that "cause" did not exist as defined in Section 7.4.
11.3 The employment, consulting or directorship agreement, or the Option
Agreement of a Participant may contain terms which vary from Sections 11.1 and
11.2 upon approval of the Board and the Committee.
XII. Amendment
The Board of Directors may from time to time alter, amend, suspend or
discontinue the Plan, including, where applicable, any modifications or
amendments as it shall deem advisable in order that ISOs will be classified as
incentive stock options under the Code, or in order to conform to any regulation
or to any change in any law or regulation applicable thereto; provided, however,
that no such action shall adversely affect the rights and obligations with
respect to Stock Options at any time outstanding under the Plan; and provided
further that no such action shall, without the approval of the stockholders of
the Company, (i) increase the maximum number of shares of Common Stock that may
be made subject to Stock Options (unless necessary to effect the adjustments
required by Section 6.2), (ii) materially modify the requirements as to
eligibility for participation in the Plan, or (iii) materially increase the
benefits accruing to Participants under the Plan.
XIII. Registration of Optioned Shares
The Stock Options shall not be exercisable unless the purchase of such
optioned shares is pursuant to an applicable effective registration statement
under the Securities Act and applicable state securities laws or unless, in the
opinion of counsel to the Company, the proposed purchase of such optioned shares
would be exempt from the registration requirements of the Securities Act and
from the registration or qualification requirements of applicable state
securities laws. Any certificates for such shares shall bear such legends as
deemed appropriate by the Committee.
XIV. Withholding Taxes
The Company or Participating Subsidiary may take such steps as it may
deem necessary or appropriate for the withholding of any taxes or funds
(including the withholding of shares of Common Stock otherwise issuable which
have appropriate Fair Market Value) which the Company or the Participating
Subsidiary is required by any law or regulation of any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in
<PAGE>
connection with any Stock Options.
XV. Brokerage Arrangements
The Committee, in its discretion, may enter into arrangements with one or
more banks, brokers or other financial institutions to facilitate the
disposition of shares acquired upon the exercise of Stock Options including,
without limitation, arrangements for the simultaneous exercise of Stock Options
and the sale of shares acquired upon exercise.
XVI. Nonexclusivity of the Plan
Neither the adoption of the Plan by the Board nor the submission of the
Plan to stockholders of the Company for approval shall be construed as creating
any limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board of Directors may deem necessary or desirable or preclude or limit the
continuation of any other plan, practice or arrangement for the payment of
compensation or fringe benefits to employees generally, or to any class or group
of employees, which the Company or any Participating Subsidiary now has lawfully
put into effect, including, without limitation, any retirement, pension, savings
and stock purchase plan, insurance, death and disability benefits and executive
short-term or long-term incentive plans.
XVII. Special California Provisions
17.1 Special Provisions. In order for the grant or exercise of a Stock
------------------
Option to be exempt from the securities laws of the State of California: (i)
the total number of shares issuable upon exercise of all outstanding Stock
Options plus the total number of shares issuable under any stock option, stock
bonus or similar plan of the Company may not exceed thirty percent (30%) of the
then outstanding shares of capital stock of the Company, measured on an as
converted to common basis; (ii) the Option Price of all Stock Options shall be
at least 110% of Fair Market Value of a share of Common Stock if the Participant
owns more than ten percent (10%) of the combined voting power of all classes of
stock of the Company; (iii) no Stock Option shall be exercisable more than 120
months from date of grant; (iv) each Participant located in California shall
receive the annual financial statements of the Company; and (v) each Participant
shall be delivered a copy of this Plan, as amended, with each Option Agreement.
XVIII. Effective Date
This Plan was adopted by the Board on June 10, 1997 and became effective
on that date subject to the approval of the Company's stockholders within twelve
(12) months thereafter. However, if such approval is not obtained all provisions
of this Plan, and all grants hereunder, shall nevertheless be effective except
that all ISOs shall be NSOs. No Stock Options shall be granted subsequent to ten
years after the effective date of the Plan. Stock Options outstanding subsequent
to ten years after the effective date of the Plan shall continue to be governed
by the provisions of the Plan.
<PAGE>
NON-STATUTORY STOCK OPTION AGREEMENT
This NON-STATUTORY STOCK OPTION AGREEMENT is made ________, 199___, between
COYOTE SPORTS, INC. (hereinafter referred to as the "Company"), and
_______________ (hereinafter referred to as "Optionee").
WHEREAS, Optionee is an important and valuable contributor to the Company and
the Company deems it to be in its interest and in the interest of its
shareholders to secure the services of Optionee for the Company or such of its
subsidiary companies as may be designated by the Company; and
WHEREAS, the Company, as an incentive to Optionee to continue to serve the
Company or its subsidiaries and to increase Optionee's proprietary interest in
the Company, desires to enter into this Agreement containing the terms and
conditions hereinafter set forth and to grant Optionee an option to purchase
shares of the Common Stock of the Company.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, and for other good and valuable consideration, the
parties agree as follows:
1. Grant of Option. In consideration of the foregoing, the Company hereby
---------------
grants to Optionee the right and option (hereinafter referred to as "the
option") to purchase __________ shares of the Company's Common Stock ("Shares")
pursuant to the following schedule: subject to Section 7.4 of the Plan,
______________________. The option shall terminate on the tenth anniversary of
the date hereof and, accordingly, may not be exercised after that date. The
purchase price to be paid for such Shares upon exercise of the option shall be
$______ per share, being not less than the percentage of fair market value of
the Shares on the date of this Agreement required under the Plan. This option
is granted pursuant to, and is subject to the terms and conditions of the
Company's 1997 Stock Option Plan (the "Plan"), a copy of which has been
furnished to Optionee and receipt of which Optionee hereby acknowledges.
2. Method of Exercising Option. The option may be exercised, in whole at
---------------------------
any time or in part from time to time, by giving to the Company notice in
writing to that effect. Within thirty (30) days after the receipt by it of
notice of exercise of the option and upon due satisfaction of all conditions
pertaining to the option as set forth in this Agreement, the Company shall cause
certificates for the number of Shares with respect to which the option is
exercised to be issued in the name of Optionee, or his executors,
administrators, or other legal representatives, heirs, legatees, next of kin, or
distributees, and to be delivered to Optionee or his executors, administrators,
or other legal representatives, heirs, legatees, next of kin, or distributees.
Payment of the purchase price for the shares with respect to which the option is
exercised shall be made to the Company upon the delivery of such stock, together
with revenue stamps or checks in an amount sufficient to pay any stock transfer
taxes required on such delivery. The Company shall give the person or persons
entitled to the same at least five (5) days' notice of the time and place for
delivery and for the payment of such purchase price.
<PAGE>
3. Conditions of Option. The option is subject to the following
--------------------
additional conditions:
(a) The option herein granted to Optionee shall not be transferable by
Optionee other than by will or the laws of descent and distribution, and
shall be exercisable, during his lifetime, only by him.
(b) The option may be exercised by Optionee pursuant to the terms of the
Plan, but only to the extent that Optionee had the right to exercise such
option at the date of termination of the Optionee's service to the Company.
4. Representation as to Investment. Unless the Option and the shares are
-------------------------------
registered pursuant to a then effective registration statement pursuant to the
Securities Act of 1933 and applicable state law, the exercise of such option and
the delivery of the Shares subject to it will be contingent upon the Company
being furnished by Optionee, his legal representatives, or other persons
entitled to exercise such option, with a statement in writing, in substantially
the form attached as Exhibit 2 hereto, that at the time of such exercise it is
his or their intention to acquire the Shares being purchased solely for
investment purposes and not with a view to distribution.
5. Notices. Any notice to be given by Optionee as required by this
-------
Agreement shall be sent to the Company at its principal executive offices and
any notice from the Company to Optionee shall be sent to Optionee at his address
as it appears on the Company's books and records. Either party may change the
address to which notices are to be sent by informing the other party in writing
of the new address.
6. Restriction Against Assignment. Except as otherwise expressly provided
------------------------------
above, Optionee agrees on behalf of himself and of his executors and
administrators, heirs, legatees, distributees, and any other person or persons
claiming any benefits under him by virtue of this Agreement, that this Agreement
and the rights, interests, and benefits under it shall not be assigned,
transferred, pledged, or hypothecated in any way by Optionee or any executor,
administrator, heir, legatee, distributee, or other person claiming under
Optionee by virtue of this Agreement. Such rights, interest, or benefits shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge or hypothecation, or other disposition of this
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or the levy of any attachment or similar process thereupon, shall be
null and void and without effect.
7. Further Agreements. The undersigned agrees, in connection with the
------------------
issuance of the Shares, and thereafter from time to time as requested by the
Company, to execute any stockholders agreement as provided in the Plan. The
undersigned will, if requested, by the Company in connection with a public
offering of the Company's securities, adhere to lock-up arrangements between the
Company and an underwriter involved in such public offering.
At such times as the Company intends (if ever) to be taxed as an "S
Corporation" for Federal income tax purposes, the undersigned will take all
actions concerning his ownership and transfer of the shares to not cause a loss
of such status.
<PAGE>
IN WITNESS WHEREOF, the Company and the Optionee have executed this Non-
Statutory Stock Option Agreement as of the day and year first above written.
ATTEST: COYOTE SPORTS, INC.
By: By:
------------------------ ---------------------------
Secretary President
------------------------------
, Optionee
--------------
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: COYOTE SPORTS, INC.
1. The undersigned hereby elects to purchase ___________________ shares of
Common Stock of COYOTE SPORTS, INC. pursuant to the terms of the attached
Non-statutory Stock Option Agreement, and tenders herewith payment of the
purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
----------------------------
(Name)
----------------------------
----------------------------
----------------------------
(Address)
Date: --------------------------------
Optionee
<PAGE>
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
TO: COYOTE SPORTS, INC.
With respect to the ____________________ shares of Common Stock ("Shares") of
COYOTE SPORTS, INC. ("Company") which the undersigned ("Purchaser") has
purchased from the Company today, the Purchaser hereby represents and warrants
as follows:
1. The Purchaser acknowledges that he has received no formal prospectus or
offering memorandum describing the business and operations of the Company. He
has, however, by virtue of his relationship with the Company, been given
access to all information that he believes is material to his decision to
purchase the Shares. The Purchaser has had the opportunity to ask questions
of, and receive answers from, representatives of the Company concerning its
business operations. Any questions raised by the Purchaser have been answered
to his satisfaction.
2. The Shares are being acquired by the Purchaser for his account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the marketability or
value of the Shares. The Purchaser understands that there is currently no
market for the transfer of the Shares. The Purchaser further acknowledges
that, because the Shares have not been registered under the Securities Act of
1933, and cannot be resold unless they are subsequently registered under said
Act or an exemption from registration is available, the Purchaser must
continue to bear the economic risk of his investment in the Shares for an
indefinite period of time. Specifically, the Purchaser agrees that the Shares
may not be transferred until the Company has received an opinion of counsel
reasonably satisfactory to it that the proposed transfer will not violate
federal or state securities laws unless the Company receives this
requirement. The Company has not agreed or represented to the Purchaser that
the Shares will be purchased or redeemed from the Purchaser at any time in
the future. Further, there have been no representations, promises, or
agreements that the Shares will be registered under the Securities Act of
1933 at any time in the future or otherwise qualified for sale under the
applicable securities laws. The Purchaser further understands that a notation
will be made on the appropriate records of the Company and on the Stock
Certificate representing the Shares so that the transfer of Shares will not
be effected on those records without compliance with the restrictions
referred to above.
Date: ----------------------
Optionee
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
This INCENTIVE STOCK OPTION AGREEMENT is made ________, 199___, between
COYOTE SPORTS, INC. (hereinafter referred to as the "Company"), and
_______________ (hereinafter referred to as "Optionee").
WHEREAS, Optionee is an important and valuable employee of the Company and
the Company deems it to be in its interest and in the interest of its
shareholders to secure the services of Optionee for the Company or such of its
subsidiary companies as may be designated by the Company; and
WHEREAS, the Company, as an incentive to Optionee to continue to remain in
the employment of the Company or its subsidiaries and to increase Optionee's
proprietary interest in the Company, desires to enter into this Agreement
containing the terms and conditions hereinafter set forth and to grant Optionee
an option to purchase shares of the Common Stock of the Company.
NOW, THEREFORE, in consideration of the promises and the mutual agreements
hereinafter contained, and for other good and valuable consideration, the
parties agree as follows:
1. Grant of Option. In consideration of the foregoing, the Company hereby
---------------
grants to Optionee the right and option (hereinafter referred to as "the
option") to purchase __________ shares of the Company's Common Stock ("Shares")
pursuant to the following schedule: subject to Section 7.4 of the Plan,
________________________. The option shall terminate on the tenth anniversary
of the date hereof and, accordingly, may not be exercised after that date. The
purchase price to be paid for such Shares upon exercise of the option shall be
$______, being at least the fair market value of the Shares on the date of this
Agreement. This option is granted pursuant to, and is subject to the terms and
conditions of the Company's 1997 Stock Option Plan (the "Plan"), a copy of which
has been furnished to Optionee and receipt of which Optionee hereby
acknowledges.
2. Method of Exercising Option. The option may be exercised, in whole at
---------------------------
any time or in part from time to time, by giving to the Company notice in
writing to that effect. Within thirty (30) days after the receipt by it of
notice of exercise of the option and upon due satisfaction of all conditions
pertaining to the option as set forth in this Agreement, the Company shall cause
certificates for the number of Shares with respect to which the option is
exercised to be issued in the name of Optionee, or his executors,
administrators, or other legal representatives, heirs, legatees, next of kin, or
distributees, and to be delivered to Optionee or his executors, administrators,
or other legal representatives, heirs, legatees, next of kin, or distributees.
Payment of the purchase price for the shares with respect to which the option is
exercised shall be made to the Company upon the delivery of such stock, together
with revenue stamps or checks in an amount sufficient to pay any stock transfer
taxes required on such delivery. The Company shall give the person or persons
entitled to the same at least five (5) days' notice of the time and place for
delivery and for the payment of such purchase price.
<PAGE>
3. Conditions of Option. The option is subject to the following
--------------------
additional conditions:
(a) The option herein granted to Optionee shall not be transferable by
Optionee other than by will or the laws of descent and distribution, and
shall be exercisable, during his lifetime, only by him.
(b) The option may be exercised by Optionee pursuant to the terms of the
Plan, but only to the extent that Optionee had the right to exercise such
option at the date of termination of the Optionee's employment with the
Company.
4. Representation as to Investment. Unless the Option and the shares are
-------------------------------
registered pursuant to a then effective registration statement pursuant to the
Securities Act of 1933 and applicable state law, the exercise of such option and
the delivery of the Shares subject to it will be contingent upon the Company
being furnished by Optionee, his legal representatives, or other persons
entitled to exercise such option, with a statement in writing, in substantially
the form attached as Exhibit 2 hereto, that at the time of such exercise it is
his or their intention to acquire the Shares being purchased solely for
investment purposes and not with a view to distribution.
5. Qualification of Option. The option is intended to qualify as an
-----------------------
incentive stock option within the meaning of the Internal Revenue Code of 1986,
as amended, and shall be so construed, provided, however, that nothing herein
shall be deemed to be or interpreted as a representation, guarantee, or other
undertaking on the part of the Company that such option is or will be determined
to be an incentive stock option within that or any other section of the Internal
Revenue Code.
6. Notices. Any notice to be given by Optionee as required by this
-------
Agreement shall be sent to the Company at its principal executive offices and
any notice from the Company to Optionee shall be sent to Optionee at his address
as it appears on the Company's books and records. Either party may change the
address to which notices are to be sent by informing the other party in writing
of the new address.
7. Restriction Against Assignment. Except as otherwise expressly provided
------------------------------
above, Optionee agrees on behalf of himself and of his executors and
administrators, heirs, legatees, distributees, and any other person or persons
claiming any benefits under him by virtue of this Agreement, that this Agreement
and the rights, interests, and benefits under it shall not be assigned,
transferred, pledged, or hypothecated in any way by Optionee or any executor,
administrator, heir, legatee, distributee, or other person claiming under
Optionee by virtue of this Agreement. Such rights, interest, or benefits shall
not be subject to execution, attachment, or similar process. Any attempted
assignment, transfer, pledge or hypothecation, or other disposition of this
Agreement or of such rights, interests, and benefits contrary to the preceding
provisions, or the levy of any attachment or similar process thereupon, shall be
null and void and without effect.
8. Further Agreements. The undersigned agrees, in connection with the
------------------
issuance of the Shares, and thereafter from time to time as requested by the
Company, to execute any stockholders agreement as provided in the Plan. The
undersigned will, if requested, by the Company in connection with a public
offering of the Company's securities, adhere to lock-up arrangements
<PAGE>
between the Company and an underwriter involved in such public offering.
At such times as the Company intends (if ever) to be taxed as an "S
Corporation" for Federal income tax purposes, the undersigned will take all
actions concerning his ownership and transfer of the shares to not cause a loss
of such status.
IN WITNESS WHEREOF, the Company and the Optionee have executed this Incentive
Stock Option Agreement as of the day and year first above written.
ATTEST: COYOTE SPORTS, INC.
By: By:
------------------------ ---------------------------
Secretary President
------------------------------
, Optionee
--------------
<PAGE>
EXHIBIT 1
NOTICE OF EXERCISE
TO: COYOTE SPORTS, INC.
1. The undersigned hereby elects to purchase ___________________ shares of
Common Stock of COYOTE SPORTS, INC. pursuant to the terms of the attached
Incentive Stock Option Agreement, and tenders herewith payment of the
purchase price of such shares in full.
2. Please issue a certificate or certificates representing said shares of Common
Stock in the name of the undersigned or in such other name as is specified
below:
-------------------------
(Name)
-------------------------
-------------------------
-------------------------
(Address)
Date: -------------------------------
Optionee
<PAGE>
EXHIBIT 2
INVESTMENT REPRESENTATION STATEMENT
TO: COYOTE SPORTS, INC.
With respect to the ____________________ shares of Common Stock ("Shares") of
COYOTE SPORTS, INC. ("Company") which the undersigned ("Purchaser") has
purchased from the Company today, the Purchaser hereby represents and warrants
as follows:
1. The Purchaser acknowledges that he has received no formal prospectus or
offering memorandum describing the business and operations of the Company. He
has, however, by virtue of his relationship with the Company, been given
access to all information that he believes is material to his decision to
purchase the Shares. The Purchaser has had the opportunity to ask questions
of, and receive answers from, representatives of the Company concerning its
business operations. Any questions raised by the Purchaser have been answered
to his satisfaction.
2. The Shares are being acquired by the Purchaser for his account, for
investment purposes only, and not with a view to the distribution or resale
thereof.
3. No representations or promises have been made concerning the marketability or
value of the Shares. The Purchaser understands that there is currently no
market for the transfer of the Shares. The Purchaser further acknowledges
that, because the Shares have not been registered under the Securities Act of
1933, and cannot be resold unless they are subsequently registered under said
Act or an exemption from registration is available, the Purchaser must
continue to bear the economic risk of his investment in the Shares for an
indefinite period of time. Specifically, the Purchaser agrees that the Shares
may not be transferred until the Company has received an opinion of counsel
reasonably satisfactory to it that the proposed transfer will not violate
federal or state securities laws unless the Company receives this
requirement. The Company has not agreed or represented to the Purchaser that
the Shares will be purchased or redeemed from the Purchaser at any time in
the future. Further, there have been no representations, promises, or
agreements that the Shares will be registered under the Securities Act of
1933 at any time in the future or otherwise qualified for sale under the
applicable securities laws. The Purchaser further understands that a notation
will be made on the appropriate records of the Company and on the Stock
Certificate representing the Shares so that the transfer of Shares will not
be effected on those records without compliance with the restrictions
referred to above.
Date: --------------------------
Optionee
<PAGE>
EXHIBIT 10.11
HM LAND REGISTRY
LAND REGISTRATION ACTS 1925 TO 1986
TRANSFER OF PART
(APOLLO)
County and District/ County of West Midlands and Borough
of London Borough: Sandwell
Title Number: WM566236 WM496305 WM496306 and WM589257
Property: Factory in Brades Road, Oldbury
Date: 18 September 1996
1. INTERPRETATION
In this transfer:
"DECLARATIONS" means the declarations specified in Schedule 4;
"EFFLUENT DISCHARGE SYSTEM" means the Holding Tank and the Service Media
used for discharge of trade effluent into the Marl Hole;
"EXISTING COVENANTS" means the covenants specified in Schedule 3;
"EXISTING RIGHTS" means the rights specified in Part 1 of Schedule 1;
"FIRST PROPERTY" means all that property forming part of title numbers
WM496305 and WM589257 comprised in the Oldbury Property;
"HOLDING TANK" means the acid holding tank shown in the position shown
coloured yellow on the Plan;
"MARL HOLE" means all that property at Rounds Green Road and Shidas Lane
shown for the purposes of identification only edged orange on the Plan
comprising all of the land registered at HM Land Registry under title
number WM496306;
"NEW COVENANTS" means the covenants specified in Schedule 5;
"NEW RIGHTS" means the rights specified in Part 2 of Schedule 1;
"PLAN" means the plan attached to this transfer;
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2
"OLDBURY PROPERTY" means all that property at Brades Road and Rounds Green
Road, Oldbury for the purposes of identification only edged red on the
Plan;
"PROPERTY" means the First Property the Second Property and the Marl Hole;
"RESERVED RIGHTS" means the rights specified in Schedule 2;
"RETAINED LAND" means the land retained by the Transferor shown edged green
on the Plan;
"SECOND PROPERTY" means all that property forming part of title number
WM566236 comprised in the Oldbury Property;
"SERVICE MEDIA" means all pipes drains wires sewers watercourses cables
conduits and other service media;
"SPECIFIED PERIOD" means the period beginning with the date which first
appears on page 1 and enduring for 80 years which is the perpetuity period
applicable to this transfer;
"STIPULATIONS" means the stipulations specified in Schedule 6;
"TRANSFEREE" means Apollo Sports Holdings Limited whose registered office
is at 42 Cricklade Street, Swindon, Wiltshire SN1 3HD;
"TRANSFEROR" means TI Reynolds Limited (registered number 59990) whose
registered office is at Lambourn Court, Abingdon, Oxon OX14 1UH;
"TIG" means TI Group plc (registered number 156641) whose registered office
is at 50 Curzon Street, London W1Y 7PN.
2. TRANSFER
In consideration of ONE MILLION SEVEN HUNDERED THOUSAND POUNDS
((Pounds)1,700,000) the receipt of which is acknowledged by the Transferor
the Transferor at the direction of TIG transfers and TIG transfers and
confirms to the Transferee:
(1) with full title guarantee the First Property and the Marl Hole; and
(2) such right title and interest as the Transferor and TIG may have in
the Second Property.
3. ANCILLARY MATTERS
(1) The Property is transferred with the Existing Rights (so far as they
benefit the Property) and the New Rights.
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3
(2) The Reserved Rights are excepted and reserved to the Transferor (and
its successors in title) in fee simple for the benefit of the Retained
Land.
(3) The Property is transferred subject to the Existing Covenants and all
other covenants restrictions and other matters affecting the Second
Property.
(4) The Declarations are incorporated in this transfer.
4. INDEMNITY COVENANT
The Transferee covenants with the Transferor and as a separate covenant
with TIG that the Transferee and the persons deriving title under the
Transferee will observe and perform the Existing Covenants and will keep
the Transferor and TIG indemnified from all proceedings, costs, claims,
expenses and liabilities on account of any breach or non-performance of any
of the Existing Covenants.
5. NEW COVENANT
The Transferee covenants with the Transferor and as a separate covenant
with TIG to the intent that the burden of this covenant may run with and
bind the Property and every part of it and to the intent that the benefit
of this covenant may be annexed to and run with the Retained Land and every
part of it to perform and observe the New Covenants.
6. STIPULATIONS
The Transferor covenants with the Transferee to the extent that the burden
of this covenant may run with and bind the Retained Land and every part of
it and to the extent that the benefit of this covenant may be annexed to
and run with the Property and every part of it to perform and observe the
Stipulations.
7. SUPPLY OF ELECTRICITY AND GAS
(1) In connection with the rights reserved to the Transferor in paragraph
4 of Schedule 2 the Transferor covenants with the Transferee to
reimburse to the Transferee on demand all charges paid by the
Transferee for metered usage of gas and electric current and power
consumed by the owners and occupiers of the Retained Land and a fair
proportion according to user (to be decided by the Transferee's
surveyor acting reasonably):
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4
(a) all periodic and standing charges and meter rents (if any)
relating to such supply (insofar as not payable directly to the
relevant statutory authority by the Transferor) and;
(b) of all reasonable and proper costs incurred by the Transferee in
the maintenance and repair of any installations and equipment used
in connection with the supply of such services
Provided that the Transferor shall be entitled to take access onto the
Property on giving reasonable notice to the Transferee to read any
meters and to receive from the Transferee on the request and at the
cost of the Transferor copies of all bills rendered for charges for
which the Transferee is seeking reimbursement and Provided further
that the Transferor shall be entitled to determine the arrangements
for the provision of electricity or gas to the Retained Land from the
Property by giving not less than one month's notice in writing to the
Transferee and following expiry of such notice the Transferee shall
not be entitled to recover such costs in connection with or in
relation to the supply of gas or electricity (as appropriate).
(2) The Transferee covenants with the Transferor until expiry of any
notice served by the Transferor determining the arrangements referred
to in clause 7(l) above to maintain all equipment and Service Media
for the supply of electricity and gas to the Retained Land in
sufficient condition to ensure the continued supply of those services
at all times provided however that the Transferee shall not be liable
to the Transferor nor shall the Transferor have any claim against the
Transferee in respect of any interruption in the supply of gas or
electrical services caused by reason of:
(i) necessary repairs or maintenance of any installations or
apparatus; or
(ii) damage to or destruction of any installations or apparatus; or
(iii) mechanical or other defect or breakdown; or
(iv) frost or other inclement conditions; or
(v) by any other causes unavoidably beyond the control of the
Transferee provided further that the Transferee will at the
joint cost of the Transferor and the Transferee effect and keep
in place insurance in an amount to be agreed between the
parties acting reasonably in
<PAGE>
5
respect of any losses incurred by the Transferor as a result of
interruption to the services caused by the negligence or
default of the Transferee.
(3) The provisions of this clause 7 shall only apply until such time as
the electricity and gas services to the Oldbury Property have been
separated so as to allow the Transferor a direct supply of the same
8. REGISTRATION
The Transferor and the Transferee apply to the Registrar:
(a) to register the Existing Rights (so far as they benefit the Property)
and the New Rights as appurtenant rights in the registers of the
Property;
(b) to enter a notice of the burden of the New Covenants on the registers
of the Property and of the benefit of the New Covenants on the
registers of the Retained Land;
(c) to enter a notice of the burden of the Stipulations on the registers
of the Retained Land and of the benefit of the Stipulations on the
registers of the Property;
(d) to note on the registers of the Property the Reserved Rights and the
Declarations; and
(e) to note the New Rights the Reserved Rights and the Declarations on the
registers of the Retained Land.
(f) to enter on the charges register of the title to the Property a
restriction in the following form:-
"Except under an order of the Registrar no transfer of the
freehold interest in the whole or any part of the Property shall
be registered without the consent of the Transferor (as defined
in the transfer dated 18 September 1996 between TI Reynolds
Limited, TI Group plc and Apollo Sports Holdings Limited (the
"Transfer")) or unless accompanied by the certificate of a
solicitor that the transferee has executed and delivered to the
Transferor the deed required in paragraph 2 of Schedule 5 to the
Transfer or that the rights granted in paragraph 3 of Schedule 2
to the Transfer have been finally determined in accordance with
the provisions of paragraph 5 of Schedule 7 to the Transfer."
9. DISPUTE RESOLUTION
<PAGE>
6
Any dispute arising in connection with any of the provisions of this
transfer shall be determined in default of agreement by an expert to be
agreed upon between the Transferor and the Transferee or failing agreement
to be appointed on the application of either party (after notice in writing
to the other party) by the president of the Royal Institution of Chartered
Surveyors whose judgment shall be final and binding following
representations by both parties and the costs of such expert shall be borne
by the parties equally unless he otherwise directs.
10. GENERAL
(1) Where either party to this transfer includes two or more persons, they
shall be jointly and severally responsible in respect of any covenant
given by that party in this transfer. The party to whom the covenant
is given may release or compromise the liability of any one of those
persons or grant any time or other indulgence without affecting the
liability of any other person.
(2) Any covenant by any party to this transfer not to do or omit anything
shall be construed as though the covenant was in addition a covenant
not to permit or suffer that thing to be done or omitted.
(3) References in this transfer to the "TRANSFEROR" and the "TRANSFEREE"
shall (save where the context so requires) include their respective
successors in title and assigns.
(4) The headings in this transfer do not affect its interpretation.
<PAGE>
7
SCHEDULE 1
PART 1
EXISTING RIGHTS
The rights referred to in entry number 3 of the property register of title
number WM496305 and entry numbers 2 and 3 of the property register of title
number WM496306.
PART 2
NEW RIGHTS
1. The right of support for the Property from the Retained Land including the
buildings on it.
2. (Subject to the Transferee making the payments referred to below) the right
for all proper purposes connected with the Property to the free passage and
running of water soil (excluding trade effluent and other effluent referred
to in paragraph 2 of Schedule 6) gas electricity and other services to and
from the Property through the Service Media now laid or in the future
during the Specified Period to be laid in under or over the Retained Land
with power at any time or times having given prior written notice to the
Transferor (or the other occupier of the Retained Land) to enter on the
Retained Land for the purpose of making connections with, repairing,
renewing, maintaining, inspecting or cleansing the Service Media PROVIDED
THAT the person entering the Retained Land pursuant to the rights reserved
by this Paragraph 2 shall:
2.1 cause as little damage as is reasonably practicable to the Retained
Land; and
2.2 make good so far as is reasonably practicable all damage so caused as
soon as reasonably practicable; and
2.3 take all reasonable steps to minimise the disruption caused thereby to
the conduct of the trade or business carried on upon the Retained
Land; and
2.4 not materially diminish the services enjoyed by the Retained Land as a
result of the exercise of the rights reserved by this Paragraph 2 and
further subject to and conditional on the Transferee paying within
seven days of demand a fair proportion (to be absolutely decided by
the Transferor's
<PAGE>
8
Surveyor) of the costs of inspecting maintaining repairing and
renewing (including the costs where necessary of replacing the same)
such Service Media as are common to the Property and the Retained
Land.
<PAGE>
9
SCHEDULE 2
RESERVED RIGHTS
1. The right of support for the Retained Land from the Property including the
buildings on it.
2. Subject to the Transferor making the payments referred to below the right
for all proper purposes connected with the Retained Land to the free
passage and running of water soil (excluding trade effluent and other
effluent referred to in paragraph 4 of Schedule 5) gas electricity and
other services to and from the Retained Land through the Service Media
(excluding the Effluent Discharge System) now laid or in the future during
the Specified Period to be laid under or over the Property with power at
any time or times having given prior written notice to the Transferee (or
the other occupier of the Property) to enter on the Property for the
purpose of making connections with, repairing, renewing, maintaining,
inspecting or cleansing the Service Media PROVIDED THAT the person entering
the Property pursuant to the rights reserved by this Paragraph 2 shall
2.1 cause as little damage as is reasonably practicable to the Property;
and
2.2 make good so far as is reasonably practicable all damage so caused as
soon as reasonably practicable; and
2.3 take all reasonable steps to minimise the disruption caused thereby to
the conduct of the trade or business carried on upon the Property; and
2.4 not materially diminish the services enjoyed by the Property as a
result of the exercise of the rights reserved by this Paragraph 2
and further subject to and conditional on the Transferor paying a fair
proportion (to be decided absolutely by the Transferee's Surveyor) of the
costs of inspecting maintaining repairing and renewing (including the costs
where necessary of replacing the same) such Service Media as are common to
the Property and the Retained Land (excluding the Effluent Discharge
System).
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10
3. Subject to the further terms and conditions set out in Schedule 7 the right
to discharge trade effluent from the Retained Land into the pipes and
drains on the Property leading to the Holding Tank and thereafter into the
Effluent Discharge System.
4. Subject to the Transferor continuing to make the payments referred to in
clause 7(1) of this transfer and until such services have been separated as
provided for in clause 7(3) or until expiry of a notice served by the
Transferor in accordance with the provisions of clause 7(l) the right to
the supply of gas and electric current and power from the mains supply
through the Service Media and other receiving equipment for such services
located on the Property.
<PAGE>
11
SCHEDULE 3
EXISTING COVENANTS
1. The covenants contained in or referred to in entry numbers 2 and 3 of the
charges register of title number WM496305, entry number 2 of the charges
register of title number WM589257 and entry numbers 1, 2 and 3 of title
number WM496306.
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12
SCHEDULE 4
DECLARATIONS
1. This transfer does not include any easements for the benefit of the
Property or the Retained Land other than those expressly mentioned in
Schedule 1 and Schedule 2 (and in the case of the Retained Land the rights
benefiting the Retained Land set out in the registers of title numbers
WM496305, WM496306, WM566236 and WM589287).
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13
SCHEDULE 5
NEW COVENANTS BY THE TRANSFEREE IN FAVOUR OF THE
RETAINED LAND
1. Not to do anything on the Property which may be or grow to be a nuisance to
the Transferor or its successors in title to the Retained Land or any other
owners of nearby land.
2. Not to transfer the whole or any part of the freehold interest in the
Property without first procuring that the transferee executes and delivers
to the Transferor a deed by which the transferee covenants with the
Transferor to observe and perform the obligations on the part of the
Transferee set out in Schedule 7.
3. Not to discharge any effluent into the Service Media in under or over the
Retained Land as may be in any way harmful or corrosive to the Service
Media or cause any obstruction or deposit therein and not to discharge any
effluent or waste liquid into the canal adjoining or near to the Property
without the consent of the water authority and the Transferor (and the
Transferee shall indemnify the Transferor in respect of all costs damage
loss or liabilities arising out of breach of this covenant).
4. To maintain in good and substantial repair the fence erected or to be
erected between the points marked "A" "B" "C" "D" and "E" on the Plan.
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14
SCHEDULE 6
STIPULATIONS BY THE TRANSFEROR IN FAVOUR OF THE
PROPERTY
1. Not to do anything on the Retained Land which may be or grow to be a
nuisance for the Transferee or its successors in title to the Property.
2. Not to discharge any effluent into the Service Media in under or over the
Property (save as permitted pursuant to paragraph 3 of Schedule 2) as may
be in any way harmful or corrosive to the Service Media or cause any
obstruction or deposit therein and not to discharge any effluent or waste
liquid into the canal adjoining or near to the Retained Land without the
consent of the water authority and the Transferee (and the Transferor shall
indemnify the Transferee in respect of all costs damage loss or liabilities
arising out of breach of this covenant).
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15
SCHEDULE 7
RIGHTS TO USE THE EFFLUENT DISCHARGE SYSTEM
The terms and conditions subject to which the rights referred to in paragraph 3
of Schedule 2 may be exercised are as follows:
1. In this Schedule:
"Effluent Discharge Consents" means the waste management licence and trade
effluent discharge consents dated 16th March, 1978, 16th January, 1979,
22nd December, 1982 and 17th February, 1987 and any supplemental or
subsequent consents or licences relating to the discharge of trade effluent
into the Marl Hole
"Licence Fee" means six thousand pounds ((Pounds)6,000) per annum or such
other increased amount as may from time to time be determined in accordance
with paragraph 6 of this Schedule
"Effluent Discharge Rights" means the rights granted in paragraph 3 of
Schedule 2 to this transfer
2. The Transferor agrees and undertakes:
(1) To pay to the Transferee (subject to the provisions of paragraph 4):
(a) the Licence Fee (together with any Value Added Tax) by four equal
instalments in advance on the 25th March, 24th June, 29th
September and 25th December in each year (or for any lesser
period a due proportion of it apportioned on a day to day basis);
(b) on demand a fair proportion according to user (to be decided by
the Transferee's Surveyor acting reasonably) of the reasonable
and proper costs and expenses incurred by or on behalf of the
Transferee in the maintenance, repair, operation and management
of the Effluent Discharge System and of any rates or other proper
outgoings relating to the same, including, without limitation,
the costs incurred in connection with:
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16
(i) Waste Management Subsistence Charge
(ii) Caustic liquor ex MEL Chemicals
(iii) Severn Trent Water - Trade Effluent Charges
(iv) Maintenance - Parts
(v) Maintenance - Labour
(vi) Environmental Engineer
(vii) Acid Well cleaning - Aquaforce
(viii) Calibration & Maintenance of instruments (West Mid
Inst)
(ix) Ground Water Analysis Charges
(x) Management fee
(xi) Insurance.
Provided always that the Transferor shall be entitled to require
the Transferee to provide evidence in a suitable form of the
costs and expenditure incurred including copies of relevant
invoices and provided further that the Transferor shall have the
right on giving reasonable notice to inspect metering equipment
used in the Effluent Discharge System and in the event of any
dispute the matter shall be referred to the expert referred to in
clause 7(2).
(2) If the Transferee intends to make or incur extraordinary expenditure
in excess of (Pounds)10,000 in any one year in addition to the usual
or historic running and maintenance costs of the Effluent Discharge
System the transferee shall first notify the Transferor in writing of
such proposed extraordinary expenditure and shall not be entitled to
charge such extraordinary expenditure to the Transferor if within 28
days following receipt of such notice the Transferor serves notice
terminating the Effluent Discharge rights in accordance with the
provisions of paragraph 5 of this Schedule.
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17
(3) At all times to observe and perform all the terms and conditions of
the Effluent Discharge Consents and not to do or permit to be done on
the Retained Land any matter or thing which would or might constitute
or lead to a breach of the Effluent Discharge Consents or any other
trade effluent, waste management licences consents and permissions
from time to time governing the discharge of trade effluent at the
Property or any part thereof.
(4) To ensure that any effluent discharged pursuant to these provisions is
consistent (so far as relates to materials discharged, volume, flow
rate and in all other respects) with the Effluent Discharge Consents.
(5) Notwithstanding anything contained in the Effluent Discharge Consents
not to discharge more than 150 tonnes of effluent into the Effluent
Discharge System in any 24 hour period (or such other amount as may be
agreed by the Transferor and the Transferee).
(6) Not to obstruct the access to any Service Media forming part of the
Effluent Discharge System.
(7) To exercise the rights granted for the purposes designated above in
such a way as to cause no nuisance damage disturbance annoyance
inconvenience or interference to the Property or adjoining or
neighbouring property or to the owners occupiers or users of such
adjoining or neighbouring property.
(8) Not to do any act matter or thing which would or might constitute a
breach of any statutory requirements relating to the operation of and
discharge of trade effluent through the Effluent Discharge System or
place the Transferee in breach of any statutory requirements affecting
the Property or which might vitiate in whole or in part any insurance
effected in respect of the operation of the Effluent Discharge System
from time to time.
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18
(9) To indemnify the Transferee and keep the Transferee indemnified
against all losses claims demands actions proceedings damages costs
expenses and liabilities arising in any way from any breach of the
Transferor's undertakings contained in this Schedule or the exercise
or purported exercise of any of the Effluent Discharge Rights.
(10) To observe such reasonable rules and regulations as the Transferee may
at any time make and of which the Transferee shall notify the
Transferor from time to time governing the way in which the Transferor
may make use of the rights granted for the purposes shown above.
(11) To allow the Transferee and its officers servants and agents access to
such parts of the Effluent Discharge System as are situate on the
Retained Land in order to inspect maintain repair and renew the same.
3. The Transferee agrees and undertakes:
(1) To use all reasonable endeavours to maintain in full force and effect
the Effluent Discharge Consents.
(2) To maintain and operate the Effluent Discharge System so as to ensure
compliance with the Effluent Discharge Consents.
(3) Not to act in breach of the Effluent Discharge Consents.
4. The Transferor may (subject to the Transferees' right to determine the
Effluent Discharge Rights pursuant to paragraph 5 below) by giving not less
than six months' notice to the Transferee notify the Transferee that the
Transferor temporarily has no requirement to utilise the Effluent Discharge
Rights and on expiry of such
<PAGE>
19
notice the Licence Fee and the other payments referred to in paragraph
2(l)(b) shall cease to be payable until the Transferor serves further
written notice (of not less than one month) on the Transferee that it
wishes to re-utilise the Effluent Discharge Rights and following expiry of
such further notice the Licence Fee and other payments shall become payable
again with effect from the date of expiry of such further notice.
5. The Effluent Discharge Rights shall be determined and the obligations of
the parties under this schedule shall cease (but without prejudice to
either parties rights in respect of any prior breach of the undertakings
and agreements contained in this Schedule 7):
(1) immediately on service of written notice given by the Transferee to
the Transferor at any time following any material breach by the
Transferor of its undertakings contained in this Schedule 7 (the
Transferee having first served on the Transferor written notice of the
alleged breach and the required action to remedy the breach and the
Transferor having failed to remedy the breach in the time specified in
the notice which must not be less than 7 days or if no time is
specified within a reasonable period); or
(2) on the expiry of not less than six months' notice given by the
Transferee to the Transferor at any time provided;
(a) that the Transferee shall not be entitled to serve such notice
before the expiry of 66 months from the date of this transfer
unless at the date of service the Transferee intends permanently
to cease its use of (and within six months of the date of such
notice does permanently cease use of) the Effluent Discharge
System, and
(b) if the Transferee serves such notice before the expiry of 66
months from the date of this transfer the Transferee shall on
expiry of such notice pay to the Transferor an amount equal to
the sum paid by the Transferor to the Transferee pursuant to its
obligations contained in
<PAGE>
20
paragraph 2(l)(b) of this Schedule for the period of twelve
months immediately preceding service of the notice (together with
any value added tax properly payable on that amount).
(3) forthwith on expiry of the Effluent Discharge Consents or on earlier
determination of them by the relevant regulatory authority; or
(4) on the expiry of not less than six months' notice given by the
Transferor to the Transferee at any time (where the Transferor
specifies it has no future requirement absolutely to use the Effluent
Discharge System).
6. The Licence Fee shall be revised on each anniversary of the date of this
transfer (each one being a "REVIEW DATE") as follows:
(a) the revised Licence Fee shall be the greater of:
(i) the Licence Fee payable immediately before the relevant Review
Date; and
(ii) the amount of the Licence Fee payable immediately before the
relevant Review Date multiplied by the sum of the Retail Prices
Index for the month immediately preceding the relevant Review
Date divided by the Retail Prices Index at the date of the
immediately preceding Review Date subject to a maximum increase
of 5% per annum.
(b) The revised Licence Fee shall become payable from and including the
relevant Review Date until termination of the Effluent Discharge
Rights (subject to further review).
<PAGE>
21
(c) For the purposes of paragraph (a) above "RETAIL PRICES INDEX" means
the monthly index of retail prices maintained by the central
statistical office on behalf of HM Government (or by any government
department upon which duties in connection with such index shall have
devolved) provided that in the event of any change after the date of
this agreement to the reference base used to compile the index the
figure taken to be shown is the figure which would have been shown in
the index if the reference base current at the date of this transfer
had been retained.
7. Subject to the provisions of paragraphs 4 and 5 of this Schedule nothing
contained in this schedule shall prevent the Transferor granting the like
rights set out in paragraph 3 of Schedule 2 to its tenants and other
occupiers of the Retained Land.
8. The Transferee gives no warranty that the Effluent Discharge System is
legally or physically fit for the purposes set out in paragraph 3 of
Schedule 2.
9. The Transferee shall not be liable for the death of or injury to or for
damage to any property of or for any loss claim demand action proceeding
damage costs or expense or other liability incurred by the Transferor its
employees servants agents tenants and occupiers in the exercise or
purported exercise of the Effluent Discharge Rights.
10. The Transferee may withhold, add to, extend, vary or make any alteration in
the provision of any services comprised in the Effluent Discharge System if
the Transferee reasonably considers it desirable to do so for the more
efficient conduct and management of the Effluent Discharge System or the
discharge of trade effluent at the Property and the Retained Land.
<PAGE>
22
11. Notwithstanding any other provision in this Schedule the Transferee shall
not be liable to the Transferor nor shall the Transferor have any claim
against the Transferee in respect of any interruption in any of the
services provided by the Transferee in connection with the Effluent
Discharge System by reason of:
(i) necessary repairs or maintenance of any installations or apparatus;
or
(ii) damage to or destruction of any installations or apparatus; or
(iii) mechanical or other defect or breakdown; or
(iv) frost or other inclement conditions; or
(v) by any other causes unavoidably beyond the Transferee's control.
12. All notices given by either party pursuant to the provisions of this
Schedule shall be in writing and shall be sufficiently served if delivered
by hand or sent by recorded delivery to the other party at its registered
office or last known address.
<PAGE>
AMENDED AND RESTATED EXHIBIT 10.13
SECURED PROMISSORY NOTE
-----------------------
$1,355,000 May 4, 1997
This Amended and Restated Secured Promissory Note ("Note"), entered into
this 4th day of May, 1997 by Coyote Sports, Inc., a Nevada corporation
("Borrower"), in favor of Deere Park Capital Management, Inc., an Illinois
corporation ("Lender"), amends and restates in its entirety that certain Secured
Promissory Note of Borrower in favor of Lender dated as of April 4, 1997.
RECITALS
A. A certain Secured Promissory Note was entered into on April 4, 1997, by
Borrower and Lender (the "Original Note").
B. Borrower has requested certain modifications to the Original Note as
provided herein, including the extension of the Original Note.
C. Lender is willing to modify the Original Note as provided herein,
subject to the terms and conditions as set forth herein.
1. OBLIGATION. FOR VALUE RECEIVED, Borrower hereby promises to pay to
the order of Lender, subject to the terms and conditions of this Note, the
principal amount of One Million Three Hundred Fifty-Five Thousand Dollars
($1,355,000) on June 16, 1997, or, as determined pursuant to Section 10 hereof.
2. INTEREST. The unpaid principal balance hereof shall bear interest at
a rate of eight percent (8 %) per annum. Interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed. All principal,
interest and other amounts unpaid after default shall bear interest, payable on
demand, computed at a rate equal to five percent (5%) per annum plus the rate
otherwise payable hereunder. Principal of and interest on this Note shall be
payable in lawful money of the United States of America. This Note may be
prepaid in full or part at any time without premium or penalty. Payments shall
be applied first to accrued interest, if any, and then to principal.
3. SECURITY. To secure payment of Borrower's obligations under this
Note, Borrower grants to Lender the security interests established pursuant to
the following security agreements:
(i) Stock Pledge Agreement (the "AGI Pledge"), dated April 4, 1997,
----------------------
pledging entire interest of Borrower in Apollo Golf, Inc., a New
Jersey corporation ("AGI").
(ii) Stock Pledge Agreement (the "ASHL Pledge"), dated April 4, 1997,
----------------------
pledging entire interest of Borrower in Apollo Sports Holdings
Limited, a limited company organized in England and Wales
("ASHL").
(iii) Personal Guaranty, dated April 4, 1997, by Mel Stonebraker.
-----------------
(iv) Personal Guaranty, dated April 4, 1997, by James Probst.
-----------------
(v) Guaranty, dated May 5, 1997, by ASHL, which guaranty is further
--------
secured by a pledge providing Lender with a lien in all of ASHL's
right, title and interest in, to and all of the assets of ASHL,
real or personal, tangible or intangible, now existing or
hereafter arising or acquired, including, without limitation, all
accounts, inventory, equipment, machinery, fixtures, contract
rights, chattel paper, instruments, general intangibles,
documents and other obligations of any kind, all bank accounts,
monies, revenues, credits, claims,
<PAGE>
demands, goodwill and any claims or causes of action arising from
or relating to any of the foregoing, all proceeds, additions of
or to any and all of the assets described herein, and all
personal property and physical assets owned by ASHL (the "ASHL
Asset Pledge"), which lien shall be subsequent only to those
liens in favor of Midlands Bank plc dated September 18, 1996 (the
"Midlands Lien").
(vi) Collateral Assignment of Economic Benefits of Membership
--------------------------------------------------------
Interests (the "LLC Pledge") dated May 4, 1997, by Borrower,
pledging the entire interest of Borrower in Cape Composites LLC
("Cape Composites"), a Colorado limited liability company.
In addition, Borrower hereby grants to Lender a security interest in all of
Borrower's right, title and interest in, to and all of the assets of the
Borrower, now existing or hereafter arising or acquired, including, without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles, documents and other obligations of any kind, all bank accounts,
monies, revenues, credits, claims, demands, goodwill and any claims or causes of
action arising from or relating to any of the foregoing, all proceeds, additions
of or to any and all of the assets described herein, and all personal property
and physical assets owned by the Borrower.
4. ADDITIONAL CONSIDERATION. As an inducement to Lender to enter into
this Note and to consummate the transactions contemplated herein, Borrower shall
provide Lender with the following additional consideration.
(A) INITIAL PUBLIC OFFERING ON OR BEFORE AUGUST 31, 1997. If Borrower
shall first offer shares of its capital stock to the public pursuant
to a registered public offering on or before August 31, 1997, Borrower
shall, within five (5) days of such offering, deliver to Lender forty-
five thousand one hundred sixty-seven (45,167) shares of such offered
stock and warrants representing the right of Lender to purchase one
hundred eighty thousand six hundred sixty-seven (180,667) shares of
such offered stock at a strike price of equal to the strike price of
the warrants issued pursuant to such offering.
(B) INITIAL PUBLIC OFFERING BETWEEN SEPTEMBER 1, 1997 AND DECEMBER 31,
1997. If Borrower shall first offer shares of its capital stock to the
public pursuant to a registered public offering between September 1,
1997 and December 31, 1997, Borrower shall, within five (5) days of
such offering, deliver to Lender sixty-seven thousand seven hundred
fifty (67,750) shares of such offered stock and warrants representing
the right of Lender to purchase up two hundred twenty-five thousand
eight hundred thirty-three (225,833) shares of such offered stock at a
strike price equal to the strike price of the warrants issued pursuant
to such offering.
(C) INITIAL PUBLIC OFFERING AFTER DECEMBER 31, 1997. If Borrower
shall fail to offer shares of its capital stock to the public pursuant
to a registered public offering on or before December 31, 1997,
Borrower shall deliver to Lender: (i) within five (5) days of
December 31, 1997, shares of equal to an amount representing two and
twenty-six one hundredths percent (2.26%) of the then outstanding
shares of common stock of Borrower; and (ii) within five (5) days of
the first day on which Borrower's common stock is offered to the
public pursuant to a registered public offering, either, at Borrower's
option: (A) warrants representing the right of Lender to purchase two
hundred twenty-five thousand eight hundred thirty-three (225,833)
shares of such offered stock at a strike price equal to the strike
price of the warrants issued pursuant to such shares issued pursuant
to such offering, or (B) four hundred fifty one thousand six hundred
sixty-seven dollars ($451,667). Lender shall have an option to
require Borrower to purchase such shares issued pursuant to this
Section 4(c) at an aggregate price of three hundred thirty-eight
thousand seven hundred fifty dollars ($338,750).
5. REPRESENTATIONS AND WARRANTIES. As an inducement to Lender to
enter into this Note and to consummate the transactions contemplated
herein, Borrower here represents and warrants to Lender and
2
<PAGE>
agrees as follows on the date hereof and (except as specifically provided
otherwise below) as long as any amount is payable by Borrower under this Note:
(A) ORGANIZATION OF BORROWER. Borrower is a corporation organized,
validly existing and in good standing under the laws of the State of
Nevada. Borrower has full power and authority to own or lease and
operate its properties and to carry on its business as now conducted
or as proposed to be conducted. The name appearing above is the
correct name of Borrower, and Borrower does not do business under any
other names. Borrower shall immediately advise Lender of a change of
name, identity, or corporate structure.
(B) AUTHORIZATION; VALIDITY; NO CONFLICT. Borrower has full power and
authority to enter into this Note. The execution, delivery and
performance of this Note by Borrower have been duly authorized by
Borrower and, upon execution and delivery, this Note will be the
legal, valid and binding agreement of Borrower enforceable against
Borrower in accordance with its terms, except to the extent limited by
bankruptcy, insolvency or other similar laws of general application
relating to or affecting the enforcement of creditor's rights. Neither
the execution and delivery of Note nor the consummation of the
transactions contemplated thereunder, nor compliance with or
fulfillment of the terms, conditions and provisions herein will (i)
conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default, or an
event creating rights of acceleration, termination or cancellation
under the Articles of Incorporation (as amended) or Bylaws (as
amended) of Borrower, or any instrument, agreement, mortgage,
judgment, order, award, decree or other restriction to which Borrower
is a party, or (ii) require the approval, consent or authorization of,
or the making of any declaration, filing or registration with any
third party.
(C) FINANCIAL INFORMATION. To the best knowledge of Borrower, the
financial information delivered to Lender is correct and complete in
all material respects and fairly presents the financial position of
Borrower as of the indicated dates.
(D) NO ADVERSE CHANGE. There has been no change in the business or
operations of Borrower that might be reasonably expected to materially
and adversely affect the ability of the Borrower to carry on business
substantially as now being conducted or to materially adversely affect
the financial condition of the Borrower.
(E) OWNERSHIP OF INTERESTS PLEDGED. Borrower has good, indefeasible
and sole title to the interests pledged by it pursuant to the AGI
Pledge, ASHL Pledge and the LLC Pledge, free and clear of all liens,
claims, security interests, and other encumbrances.
(F) LITIGATION; COMPLIANCE WITH LAWS. There are no lawsuits,
proceedings, claims or governmental investigations pending or, to the
best knowledge of Borrower and except as disclosed to Lender,
threatened, by or against Borrower or its properties or business or
relating to the ownership, use or operation of Borrower's assets or
the conduct of the business related thereto. Borrower has complied in
all material respects with federal, state, local and other laws,
ordinances, regulations or orders applicable to it or its business or
assets.
(G) BUSINESS PURPOSE. Borrower will use the proceeds of the loan
evidenced by this Note for business purposes only.
(H) OTHER INFORMATION; NO OMISSIONS. None of the representations and
warranties made by Borrower in this Agreement is false or misleading
in any material respect or omits to state a material fact necessary in
order to make any of the statements therein not misleading. To the
best of the Borrower's knowledge, there is no fact which adversely
affects or in the future is likely to
3
<PAGE>
affect adversely the business, property or assets of Borrower taken as
a whole in any material respect which has not been disclosed to
Lender.
6. NEGATIVE COVENANTS. From and after the date hereof and so long as any
amount is outstanding under this Note, except to the extent compliance in any
case or cases is waived in writing by Lender, Borrower shall not, and shall not
cause or permit AGI, ASHL or any other subsidiary of Borrower to, directly or
indirectly:
(A) INDEBTEDNESS. Create, assume, incur or have outstanding any
indebtedness (including purchase money indebtedness), or become
liable, whether as endorser, guarantor or surety or otherwise, for any
debt or obligation of any other person, firm or corporation, except
(i) the indebtedness of Borrower hereunder and other indebtedness and
liabilities of Borrower to Lender; (ii) endorsement for collection or
deposit of any commercial paper secured in the ordinary course of
business; (iii) obligations of Borrower for taxes, assessments,
municipal or other governmental charges; (iv) obligations of Borrower
for accounts payable, other than for money borrowed, incurred in the
ordinary course of business; and (v) obligations existing on the date
hereof which are disclosed on the financial statements referred to in
Section 8(a) hereof.
(B) TRANSFER; MERGER. Merge, consolidate, sell, transfer, lease,
encumber or otherwise dispose of all or any part of its property,
assets or business, or sell or discount any of its notes or accounts
receivable, except in the ordinary course of business.
(C) DISTRIBUTIONS. Pay or make any dividends or other distributions to
its shareholders or redeem, purchase or set aside any sums for the
purchase or payment of its capital stock.
(D) VALUE OF COLLATERAL. Take any actions resulting in the diminution
of the value of Borrower, AGI or ASHL or any other subsidiary of
Borrower, or to create, assume, incur, suffer or permit to exist any
mortgage, pledge, encumbrance, security interest, assignment, lien or
charge of any kind or character upon the assets of Borrower, AGI or
ASHL (other than the Midlands Lien).
(E) ACTIONS REGARDING AGI AND ASHL. Take any actions which would
result in: (i) the merger, consolidation, sale, transfer, lease,
encumbrance or any other disposition of all or any part of the
property, assets or business of AGI or ASHL; or (ii) the sale or
discount of any of the notes or accounts receivable of AGI or ASHL,
except in the ordinary course of their businesses.
7. AFFIRMATIVE COVENANTS. From and after the date hereof and so long as
any amount is outstanding under this Note, except to the extent compliance is in
any case or cases waived in writing by Lender, Borrower shall:
(A) CONTINUED OWNERSHIP OF AGI AND ASHL. Continue to own, without lien
or encumbrance (other than any liens and encumbrances in favor of
Secured Parties as defined in AGI Pledge and the ASHL Pledge), all of
the outstanding shares of capital stock of AGI and ASHL.
(B) USE OF PROCEEDS. Use the proceeds of the Loan only for purposes of
ordinary working capital requirements of Borrower.
(C) FINANCIAL STATEMENTS. Establish and maintain a standard and modern
system of accounting, on the accrual basis of accounting and in all
respects in accordance with GAAP, and shall furnish to Lender or its
authorized representatives such information respecting the business
affairs, operations and financial condition of Borrower, as reasonably
may be requested.
(D) ACCESS TO RECORDS. Allow Lender access to its books and records,
as Lender may reasonably request.
4
<PAGE>
(E) INSURANCE. Insure and keep insured in good and responsible
insurance companies, and cause AGI and ASHL to insure and keep insured
in good and responsible insurance companies, all insurable property
owned by it (or them) which is of a character usually insured by
companies similarly situated and operating like properties, against
loss or damage from fire and such other hazards or risks as are
customarily insured against by companies similarly situated and
operating like properties; and shall similarly insure employers' and
public liability risks in good and responsible insurance companies;
and shall upon request of Lender furnish a certificate setting forth
in summary form the nature and extent of the insurance maintained by
Borrower, AGI and ASHL identifying Lender as Loss Payee.
(F) NOTICE OF PROCEEDINGS. Immediately after the commencement
thereof, give notice to Lender in writing of all actions, suits and
proceedings before any court or governmental department, commission,
board or other administrative agency which may have a material effect
on the operations of Borrower, AGI or ASHL.
(G) NOTICE OF DEFAULT. Immediately after the commencement thereof,
give notice to Lender in writing of the occurrence of a Default, as
defined below, or an event which with notice or lapse of time or both
would constitute a Default.
8. ADDITIONAL AFFIRMATIVE COVENANTS. Except to the extent compliance is
in any case or cases waived in writing by Lender:
(A) FINANCIAL STATEMENTS. No later than May 20, 1997, Borrower shall
provide Lender financial statements of Borrower, reasonably acceptable
to Lender, audited by independent certified public accountants,
including the balance sheet and statements of income, retained
earnings and cash flows, including notes and the opinion of such
independent certified public accountants.
(B) CONSENTS TO LLC PLEDGE. No later than May 20, 1997, Borrower
shall provide Lender consents duly executed by the other members of
Cape Composites consenting to the LLC Pledge in such form as is
acceptable to Lender.
(C) REGISTRATION STATEMENT.
(I) DELIVERY OF DRAFT REGISTRATION STATEMENT. No later than June
2, 1997, Borrower shall provide Lender a substantially completed
draft of the appropriate registration statement which Borrower
may offer shares of its capital stock to the public pursuant to a
registered public offering ("Registration Statement").
(II) DELIVERY AND REGISTRATION OF FINAL REGISTRATION STATEMENT.
No later than June 12, 1997, Borrower shall file a formal
Registration Statement with the Securities and Exchange
Commission and provide Lender a copy thereof promptly after such
filing.
(D) PERFECTION OF SECURITY INTEREST IN ENGLAND. Borrower shall
undertake any such actions as reasonably required, or cause such
actions to be undertaken, in order that Lender may perfect its
security interest pursuant to the ASHL Asset Pledge.
(E) FORECASTS. No later than May 20, 1997, Borrower shall provide
Lender with complete forecasts of Borrower's expected operating
results and projected financial statements for the years 1998 and
1999.
5
<PAGE>
9. DEFAULT.
(A) EVENTS OF DEFAULT. If any one or more of the following conditions
or events ("Events of Default") shall occur:
(I) DEFAULT IN PAYMENT OF NOTE. If the Borrower shall default in
the timely payment of any principal or interest due under the
terms of this Note; provided, however, that, if this Note is not
extended pursuant to Section 10 hereof, Borrower shall have thirty
(30) days after June 16, 1997 to pay all amounts outstanding under
this Note; or
(II) DEFAULT IN COMPLIANCE WITH NOTE TERMS. If Borrower shall
default in the performance of or compliance with any term (other
than payment of any principal or interest hereon and other than as
otherwise provided herein) contained in this Note and such default
shall not have been remedied within thirty (30) business days
after written notice thereof to the Borrower; or
(III) BREACH OF SECTION 8 COVENANTS. If Borrower shall default in
the performance of or compliance with any covenant in Section 8
hereof; provided, however, that, upon such a default, Borrower
shall have thirty (30) days thereafter to pay all amounts
outstanding under this Note; or
(IV) BREACH OF REPRESENTATION OR WARRANTY. If any representation
or warranty made by Borrower in this Note proves to be incorrect
in any material respect or is breached in any material respect;
provided, however, that, upon such a default, Borrower shall have
thirty (30) days thereafter to pay all amounts outstanding under
this Note; or
(V) CROSS DEFAULT. If the Borrower defaults in the payment of the
principal or interest of any indebtedness for borrowed money or
dividend payments when due, unless such indebtedness is extended
or renewed; provided, however, that, upon such a default (other
than a default under that certain Amended and Restated Secured
Promissory Note dated May 4, 1997 in favor of Steve Kerr),
Borrower shall have thirty (30) days thereafter to pay all amounts
outstanding under this Note; or
(VI) BANKRUPTCY; INSOLVENCY; INVOLUNTARY OR VOLUNTARY LIQUIDATION
OR DISSOLUTION. If the Borrower shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to
pay a major part of its debts as they become due, or shall become
the subject of any insolvency, bankruptcy, receivership, or
dissolution proceeding, or the holders of a majority of the
outstanding capital stock of the Borrower shall take any action
looking to the dissolution or liquidation of the Borrower;
then the Lender may at any time, at the option of the Lender, by
written notice given to the Borrower, declare this Note to be, and
this Note shall thereupon become, due and payable, without any
presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Borrower forthwith will pay to
the Lender the entire principal of and interest accrued on this Note;
provided, however, that no such notice shall be required concerning a
default under clause (vi) above.
(B) REMEDIES ON DEFAULT, ETC. In case any one or more Events of
Default shall occur, the Lender may proceed to protect and enforce its
rights, by an action at law, suit in equity or other appropriate
proceedings, whether for the specific performance of any agreement
contained herein, or for an injunction against a violation of any of
the terms hereof, or in aid of the exercise of any
6
<PAGE>
power granted hereby, or by law. In such event, Lender shall have all
rights and remedies for default provided by the Uniform Commercial
Code, as well as any other applicable law and the Obligations. With
respect to such rights and remedies, written notice, when required by
law, sent to any address of Borrower in this Note at least ten (10)
calendar days (including the day of sending) before the date of a
proposed disposition of the Collateral is reasonable notice.
No right, power or remedy conferred by this Note upon any Holder
hereof shall be exclusive of any other right, power or remedy referred
to herein or now or hereafter available at law, in equity, by statue
or otherwise. The Borrower waives presentment, demand, notice of
dishonor and protest, and agrees to pay all costs of collection,
before and after judgment, including reasonable attorneys' fees and
legal expenses and all expenses of taking possession, holding,
preparing for disposition and disposing of the Collateral. After
deduction of such expenses, Lender may apply the proceeds of
disposition to Borrower's obligations in such order and amounts as it
elects.
10. EXTENSION OF TERM. If Borrower shall comply with all of the
provisions and covenants of Section 8 hereof, as provided thereby, Lender shall
extend the date upon which payment under this Note is due to the earlier to
occur of: (i) December 31, 1997; or (ii) five (5) days after the first day the
shares of Borrower are made available to the public pursuant to a registered
public offering.
11. PAYMENT OF LENDER'S FEES AND EXPENSES. Borrower shall reimburse
Lender for all fees and expenses incurred in the negotiation, preparation,
execution and delivery of this Note and the consummation of the transactions
herein contemplated, including, without limitation, all out-of-pocket expenses
incurred by Lender and any attorneys' fees related hereto.
12. NATURE OF NOTE. This Note constitutes a replacement and substitute
for the Original Note. The indebtedness evidenced by the Original Note is
continuing indebtedness, and nothing herein shall be deemed to constitute a
payment, settlement or novation of the Original Note, or to release or otherwise
adversely affect any lien or security interest securing such indebtedness or any
rights of Lender against any party primarily or secondarily liable for such
indebtedness.
13. MISCELLANEOUS.
(A) AMENDMENTS AND WAIVERS. Any term of this Note may be amended and
the observance of any term hereof may be waived (either generally or
in a particular instance and either retroactively or prospectively)
only with the written consent of the Borrower and the Lender. No such
amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
The Lender may, from time to time and without notice, renew or extend
the time for payment, accept partial payments, release or impair any
Collateral security for payment of this Note, or agree not to sue any
party liable upon it.
(B) NOTICES. All notices or communications hereunder shall be in
writing and shall be mailed by first-class mail, postage prepaid,
addressed to the address of each party as shall have furnished to the
other party in writing. Any notice so addressed and mailed by
registered or certified mail shall be deemed to be given when so
mailed.
(C) GOVERNING LAW. This Note is made pursuant to and shall be
construed in accordance with the internal laws of the State of
Illinois.
(D) SEVERABILITY. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, illegal or unenforceable, such
provision shall be severed, enforced to the extent possible,
7
<PAGE>
or modified in such a way as to make it enforceable, and the
invalidity, illegality or unenforceability thereof shall not affect
the remainder of this Note.
(E) CAPTIONS; GENDERS. The captions and headings used in this Note are
for convenience and ease of reference only and are not intended to be
a part of or to affect the meaning or interpretation of this Note.
Unless otherwise provided herein, or unless the context requires
otherwise, the use of the singular shall include the plural and the
use of any gender shall include all genders.
(F) BINDING NATURE. This Note and all of its terms shall be binding
upon the parties, their heirs, successors, administrators and assigns.
(G) CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE EXCLUSIVE
-----------------------
JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN COOK COUNTY,
ILLINOIS, AND WAIVES ANY OBJECTION BASED ON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS, WITH REGARD TO
-----------------------
ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS
AGREEMENT, OR ANY DOCUMENT DELIVERED HEREUNDER OR IN CONNECTION
HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF THE
FOREGOING. BORROWER WAIVES ITS RIGHT TO A JURY AND PERSONAL SERVICE OF
ANY AND ALL PROCESS, AND CONSENTS TO ALL SUCH SERVICE OF PROCESS MADE
BY REGISTERED OR CERTIFIED MAIL OR BY MESSENGER DIRECTED TO THE
ADDRESS SPECIFIED BELOW. NOTHING HEREIN SHALL AFFECT SECURED PARTIES'
RIGHTS TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW, OR LIMIT
SECURED PARTIES' RIGHT TO BRING PROCEEDINGS AGAINST BORROWER OR ITS
PROPERTY OR ASSETS IN THE COMPETENT COURTS OF ANY OTHER JURISDICTION
OR JURISDICTIONS.
IN WITNESS WHEREOF, Borrower have caused this Note to be signed and
attested by its duly authorized officer on or as of the date first written
above.
COYOTE SPORTS, INC.
By: /s/ Mel Stonebraker
_________________________
Mel Stonebraker, President
8
<PAGE>
EXHIBIT 10.14
AMENDED AND RESTATED
SECURED PROMISSORY NOTE
-----------------------
$145,000 May 4, 1997
This Amended and Restated Secured Promissory Note ("Note"), entered
into this 4th day of May, 1997 by Coyote Sports, Inc., a Nevada corporation
("Borrower"), in favor of Steve Kerr ("Lender"), amends and restates in its
entirety that certain Secured Promissory Note of Borrower in favor of Lender
dated as of April 4, 1997.
RECITALS
A. A certain Secured Promissory Note was entered into on April 4, 1997,
by Borrower and Lender (the "Original Note").
B. Borrower has requested certain modifications to the Original Note as
provided herein, including the extension of the Original Note.
C. Lender is willing to modify the Original Note as provided herein,
subject to the terms and conditions as set forth herein.
1. OBLIGATION. FOR VALUE RECEIVED, Borrower hereby promises to pay to
the order of Lender, subject to the terms and conditions of this Note, the
principal amount of One Hundred Forty-Five Thousand Dollars ($145,000) on June
16, 1997, or, as determined pursuant to Section 10 hereof.
2. INTEREST. The unpaid principal 'balance hereof shall bear interest at
a rate of eight percent (8%) per annum. Interest shall be calculated on the
basis of a 360-day year for the actual number of days elapsed. All principal,
interest and other amounts unpaid after default shall bear interest, payable on
demand, computed at a rate equal to five percent (5%) per annum plus the rate
otherwise payable hereunder. Principal of and interest on this Note shall be
payable in lawful money of the United States of America. This Note may be
prepaid in full or part at any time without premium or penalty. Payments shall
be applied first to accrued interest, if any, and then to principal.
3. SECURITY. To secure payment of Borrower's obligations under this
Note, Borrower grants to Lender the security interests established pursuant to
the following security agreements:
(i) Stock Pledge Agreement (the "AGI Pledge"), dated April 4, 1997,
----------------------
pledging entire interest of Borrower in Apollo Golf, Inc., a New
Jersey corporation ("AGI").
(ii) Stock Pledge Agreement (the "ASHL Pledge"), dated April 4, 1997,
----------------------
pledging entire interest of Borrower in Apollo Sports Holdings
Limited, a limited company organized in England and Wales
("ASHL").
(iii) Personal Guaranty, dated April 4, 1997, by Mel Stonebraker.
-----------------
(iv) Personal Guaranty, dated April 4, 1997, by James Probst.
-----------------
(v) Guaranty, dated May 5, 1997, by ASHL, which guaranty is further
--------
secured by a pledge providing Lender with a lien in all of
ASHL's right, title and interest in, to and all of the assets of
ASHL, real or personal, tangible or intangible, now existing or
hereafter arising or acquired, including, without limitation,
all accounts, inventory, equipment, machinery, fixtures,
contract rights, chattel paper, instruments, general
intangibles, documents and other obligations of any kind, all
bank accounts, monies, revenues, credits, claims, demands,
goodwill and any claims or causes of action arising from or
relating to any of
<PAGE>
the foregoing, all proceeds, additions of or to any and all of
the assets described herein, and all personal property and
physical assets owned by ASHL (the "ASHL Asset Pledge"), which
lien shall be subsequent only to those liens in favor of
Midlands Bank plc dated September 18, 1996 (the "Midlands
Lien").
(vi) Collateral Assignment of Economic Benefits of Membership
--------------------------------------------------------
Interests (the "LLC Pledge") dated May 4, 1997, by
---------
Borrower, pledging the entire interest of Borrower in Cape
Composites LLC ("Cape Composites"), a Colorado limited liability
company.
In addition, Borrower hereby grants to Lender a security interest in all of
Borrower's right, title and interest in, to and all of the assets of the
Borrower, now existing or hereafter arising or acquired, including, without
limitation, all accounts, contract rights, chattel paper, instruments, general
intangibles, documents and other obligations of any kind, all bank accounts,
monies, revenues, credits, claims, demands, goodwill and any claims or causes of
action arising from or relating to any of the foregoing, all proceeds, additions
of or to any and all of the assets described herein, and all personal property
and physical assets owned by the Borrower.
4. ADDITIONAL CONSIDERATION. As an inducement to Lender to enter into
this Note and to consummate the transactions contemplated herein, Borrower shall
provide Lender with the following additional consideration.
(a) INITIAL PUBLIC OFFERING ON OR BEFORE AUGUST 31, 1997. If Borrower
shall first offer shares of its capital stock to the public pursuant
to a registered public offering on or before August 31, 1997, Borrower
shall, within five (5) days of such offering, deliver to Lender four
thousand eight hundred thirty-three (4,833) shares of such offered
stock and warrants representing the right of Lender to purchase
nineteen thousand three hundred thirty-three (19,333) shares of such
offered stock at a strike price of equal to the strike price of the
warrants issued pursuant to such offering.
(b) INITIAL PUBLIC OFFERING BETWEEN SEPTEMBER 1, 1997 AND DECEMBER 31,
1997. If Borrower shall first offer shares of its capital stock to the
public pursuant to a registered public offering between September 1,
1997 and December 31, 1997, Borrower shall, within five (5) days of
such offering, deliver to Lender seven thousand two hundred fifty
(7,250) shares of such offered stock and warrants representing the
right of Lender to purchase up twenty-four thousand one hundred sixty-
seven (24,167) shares of such offered stock at a strike price equal to
the strike price of the warrants issued pursuant to such offering.
(c) INITIAL PUBLIC OFFERING AFTER DECEMBER 31, 1997. If Borrower
shall fail to offer shares of its capital stock to the public pursuant
to a registered public offering on or before December 31, 1997,
Borrower shall deliver to Lender: (i) within five (5) days of December
31, 1997, shares of equal to an amount representing twenty-four one
hundredths of one percent (.24%) of the then-outstanding shares of
common stock of Borrower; and (ii) within five (5) days of the first
day on which Borrower's common stock is offered to the public pursuant
to a registered public offering, either, at Borrower's option: (A)
warrants representing the right of Lender to purchase twenty-four
thousand one hundred sixty-seven (24,167) shares of such offered stock
at a strike price equal to the strike price of the warrants issued
pursuant to such offering, or (B) forty-eight thousand three hundred
thirty-three dollars ($48,333). Lender shall have an option to
require Borrower to purchase such shares issued pursuant to this
Section 4(c) at an aggregate price of thirty-six thousand two hundred
fifty dollars ($36,250).
5. REPRESENTATIONS AND WARRANTIES. As an inducement to Lender to enter
into this Note and to consummate the transactions contemplated herein, Borrower
hereby represents and warrants to Lender and agrees as follows on the date
hereof and (except as specifically provided otherwise below) as long as any
amount is payable by Borrower under this Note:
2
<PAGE>
(a) ORGANIZATION OF BORROWER. Borrower is a corporation organized,
validly existing and in good standing under the laws of the State of
Nevada. Borrower has full power and authority to own or lease and
operate its properties and to carry on its business as now conducted
or as proposed to be conducted. The name appearing above is the
correct name of Borrower, and Borrower does not do business under any
other names. Borrower shall immediately advise Lender of a change of
name, identity, or corporate structure.
(b) AUTHORIZATION; VALIDITY; NO CONFLICT. Borrower has full power and
authority to enter into this Note. The execution, delivery and
performance of this Note by Borrower have been duly authorized by
Borrower and, upon execution and delivery, this Note will be the
legal, valid and binding agreement of Borrower enforceable against
Borrower in accordance with its terms, except to the extent limited by
bankruptcy, insolvency or other similar laws of general application
relating to or affecting the enforcement of creditor's rights. Neither
the execution and delivery of Note nor the consummation of the
transactions contemplated thereunder, nor compliance with or
fulfillment of the terms, conditions and provisions herein will (i)
conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default, or an
event creating rights of acceleration, termination or cancellation
under the Articles of Incorporation (as amended) or Bylaws (as
amended) of Borrower, or any instrument, agreement, mortgage,
judgment, order, award, decree or other restriction to which Borrower
is a party, or (ii) require the approval, consent or authorization of,
or the making of any declaration, filing or registration with any
third party.
(c) FINANCIAL INFORMATION. To the best knowledge of Borrower, the
financial information delivered to Lender is correct and complete in
all material respects and fairly presents the financial position of
Borrower as of the indicated dates.
(d) NO ADVERSE CHANGE. There has been no change in the business or
operations of Borrower that might be reasonably expected to materially
and adversely affect the ability of the Borrower to carry on business
substantially as now being conducted or to materially adversely affect
the financial condition of the Borrower.
(e) OWNERSHIP OF INTERESTS PLEDGED. Borrower has good, indefeasible
and sole title to the interests pledged by it pursuant to the AGI
Pledge, ASHL Pledge and the LLC Pledge, free and clear of all liens,
claims, security interests, and other encumbrances.
(f) LITIGATION; COMPLIANCE WITH LAWS. There are no lawsuits,
proceedings, claims or governmental investigations pending or, to the
best knowledge of Borrower and except as disclosed to Lender,
threatened, by or against Borrower or its properties or business or
relating to the ownership, use or operation of Borrower's assets or
the conduct of the business related thereto. Borrower has complied in
all material respects with federal, state, local and other laws,
ordinances, regulations or orders applicable to it or its business or
assets.
(g) BUSINESS PURPOSE. Borrower will use the proceeds of the loan
evidenced by this Note for business purposes only.
(h) OTHER INFORMATION; NO OMISSIONS. None of the representations and
warranties made by Borrower in this Agreement is false or misleading
in any material respect or omits to state a material fact necessary in
order to make any of the statements therein not misleading. To the
best of the Borrower's knowledge, there is no fact which adversely
affects or in the future is likely to affect adversely the business,
property or assets of Borrower taken as a whole in any material
respect which has not been disclosed to Lender.
3
<PAGE>
6. NEGATIVE COVENANTS. From and after the date hereof and so long as any
amount is outstanding under this Note, except to the extent compliance in any
case or cases is waived in writing by Lender, Borrower shall not, and shall not
cause or permit AGI, ASHL or any other subsidiary of Borrower to, directly or
indirectly:
(a) INDEBTEDNESS. Create, assume, incur or have outstanding any
indebtedness (including purchase money indebtedness), or become
liable, whether as endorser, guarantor or surety or otherwise, for any
debt or obligation of any other person, firm or corporation, except
(i) the indebtedness of Borrower hereunder and other indebtedness and
liabilities of Borrower to Lender; (ii) endorsement for collection or
deposit of any commercial paper secured in the ordinary course of
business; (iii) obligations of Borrower for taxes, assessments,
municipal or other governmental charges; (iv) obligations of Borrower
for accounts payable, other than for money borrowed, incurred in the
ordinary course of business; and (v) obligations existing on the date
hereof which are disclosed on the financial statements referred to in
Section 8(a) hereof.
(b) TRANSFER; MERGER. Merge, consolidate, sell, transfer, lease,
encumber or otherwise dispose of all or any part of its property,
assets or business, or sell or discount any of its notes or accounts
receivable, except in the ordinary course of business.
(c) DISTRIBUTIONS. Pay or make any dividends or other distributions
to its shareholders or redeem, purchase or set aside any sums for the
purchase or payment of its capital stock.
(d) VALUE OF COLLATERAL. Take any actions resulting in the diminution
of the value of Borrower, AGI or ASHL or any other subsidiary of
Borrower, or to create, assume, incur, suffer or permit to exist any
mortgage, pledge, encumbrance, security interest, assignment, lien or
charge of any kind or character upon the assets of Borrower, AGI or
ASHL (other than the Midlands Lien).
(e) ACTIONS REGARDING AGI AND ASHL. Take any actions which would
result in: (i) the merger, consolidation, sale, transfer, lease,
encumbrance or any other disposition of all or any part of the
property, assets or business of AGI or ASHL; or (ii) the sale or
discount of any of the notes or accounts receivable of AGI or ASHL,
except in the ordinary course of their businesses.
7. AFFIRMATIVE COVENANTS. From and after the date hereof and so long as any
amount is outstanding under this Note, except to the extent compliance is in any
case or cases waived in writing by Lender, Borrower shall:
(a) CONTINUED OWNERSHIP OF AGI AND ASHL. Continue to own, without lien
or encumbrance (other than any liens and encumbrances in favor of
Secured Parties as defined in AGI Pledge and the ASHL Pledge), all of
the outstanding shares of capital stock of AGI and ASHL.
(b) USE OF PROCEEDS. Use the proceeds of the Loan only for purposes
of ordinary working capital requirements of Borrower.
(c) FINANCIAL STATEMENTS. Establish and maintain a standard and modem
system of accounting, on the accrual basis of accounting and in all
respects in accordance with GAAP, and shall furnish to Lender or its
authorized representatives such information respecting the business
affairs, operations and financial condition of Borrower, as reasonably
may be requested.
(d) ACCESS TO RECORDS. Allow Lender access to its books and records,
as Lender may reasonably request.
4
<PAGE>
(e) INSURANCE. Insure and keep insured in good and responsible
insurance companies, and cause AGI and ASHL to insure and keep insured
in good and responsible insurance companies, all insurable property
owned by it (or them) which is of a character usually insured by
companies similarly situated and operating like properties, against
loss or damage from fire and such other hazards or risks as are
customarily insured against by companies similarly situated and
operating like properties; and shall similarly insure employers' and
public liability risks in good and responsible insurance companies;
and shall upon request of Lender furnish a certificate setting forth
in summary form the nature and extent of the insurance maintained by
Borrower, AGI and ASHL identifying Lender as Loss Payee.
(f) NOTICE OF PROCEEDINGS. Immediately after the commencement thereof,
give notice to Lender in writing of all actions, suits and proceedings
before any court or governmental department, commission, board or
other administrative agency which may have a material effect on the
operations of Borrower, AGI or ASHL.
(g) NOTICE OF DEFAULT. Immediately after the commencement thereof,
give notice to Lender in writing of the occurrence of a Default, as
defined below, or an event which with notice or lapse of time or both
would constitute a Default.
8. ADDITIONAL AFFIRMATIVE COVENANTS. Except to the extent compliance is
in any case or cases waived in writing by Lender:
(a) FINANCIAL STATEMENTS. No later than May 20, 1997, Borrower shall
provide Lender financial statements of Borrower, reasonably acceptable
to Lender, audited by independent certified public accountants,
including the balance sheet and statements of income, retained
earnings and cash flows, including notes and the opinion of such
independent certified public accountants.
(b) CONSENTS TO LLC PLEDGE. No later than May 20, 1997, Borrower shall
provide Lender consents duly executed by the other members of Cape
Composites consenting to the LLC Pledge in such form as is acceptable
to Lender.
(c) REGISTRATION STATEMENT.
(i) DELIVERY OF DRAFT REGISTRATION STATEMENT. No later than June
2, 1997, Borrower shall provide Lender a substantially completed
draft of the appropriate registration statement under which
Borrower may offer shares of its capital stock to the public
pursuant to a registered public offering ("Registration
Statement").
(ii) DELIVERY AND REGISTRATION OF FINAL REGISTRATION STATEMENT.
No later than June 12, 1997, Borrower shall file a final
Registration Statement with the Securities and Exchange
Commission and provide Lender a copy thereof promptly after such
filing.
(d) PERFECTION OF SECURITY INTEREST IN ENGLAND. Borrower shall
undertake any such actions as reasonably required, or cause such
actions to be undertaken, in order that Lender may perfect its
security interest pursuant to the ASHL Asset Pledge.
(e) FORECASTS. No later than May 20, 1997, Borrower shall provide
Lender with complete forecasts of Borrower's expected operating
results and projected financial statements for the years 1998 and
1999.
5
<PAGE>
9. DEFAULT.
(a) EVENTS OF DEFAULT. If any one or more of the following conditions
or events ("Events of Default") shall occur:
(i) DEFAULT IN PAYMENT OF NOTE. If the Borrower shall default in
the timely payment of any principal or interest due under the
terms of this Note; provided, however, that, if this Note is not
extended pursuant to Section 10 hereof, Borrower shall have thirty
(30) days after June 16, 1997 to pay all amounts outstanding under
this Note; or
(ii) DEFAULT IN COMPLIANCE WITH NOTE TERMS. If Borrower shall
default in the performance of or compliance with any term (other
than payment of any principal or interest hereon and other than as
otherwise provided herein) contained in this Note and such default
shall not have been remedied within thirty (30) business days
after written notice thereof to the Borrower; or
(iii) BREACH OF SECTION 8 COVENANTS. If Borrower shall default in
the performance of or compliance with any covenant in Section 8
hereof; provided, however, that, upon such a default, Borrower
shall have thirty (30) days thereafter to pay all amounts
outstanding under this Note; or
(iv) BREACH OF REPRESENTATION OR WARRANTY. If any representation
or warranty made by Borrower in this Note proves to be incorrect
in any material respect or is breached in any material respect;
provided, however, that upon such a default, Borrower shall have
thirty (30) days thereafter to pay all amounts outstanding under
this Note; or
(v) CROSS DEFAULT. If the Borrower defaults in the payment of the
principal or interest of any indebtedness for borrowed money or
dividend payments when due, unless such indebtedness is extended
or renewed; provided, however, that upon such a default (other
than a default under that certain Amended and Restated Secured
Promissory Note dated May 4, 1997 in favor of Deere Park Capital
Management, Inc.), Borrower shall have thirty (30) days thereafter
to pay all amounts outstanding under this Note; or
(vi) BANKRUPTCY; INSOLVENCY; INVOLUNTARY OR VOLUNTARY LIQUIDATION
OR DISSOLUTION. If the Borrower shall make an assignment for the
benefit of creditors, or shall admit in writing its inability to
pay a major part of its debts as they become due, or shall become
the subject of any insolvency, bankruptcy, receivership, or
dissolution proceeding, or the holders of a majority of the
outstanding capital stock of the Borrower shall take any action
looking to the dissolution or liquidation of the Borrower;
then the Lender may at any time, at the option of the Lender, by
written notice given to the Borrower, declare this Note to be, and
this Note shall thereupon become, due and payable, without any
presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived, and the Borrower forthwith will pay to
the Lender the entire principal of and interest accrued on this Note;
provided, however, that no such notice shall be required concerning a
default under clause (vi) above.
(b) REMEDIES ON DEFAULT, ETC. In case any one or more Events of
Default shall occur, the Lender may proceed to protect and enforce its
rights, by an action at law, suit in equity or other appropriate
proceedings, whether for the specific performance of any agreement
contained herein, or for an injunction against a violation of any of
the terms hereof, or in aid of the exercise of any
6
<PAGE>
power granted hereby, or by law. In such event, Lender shall have all
rights and remedies for default provided by the Uniform Commercial
Code, as well as any other applicable law and the Obligations. With
respect to such rights and remedies, written notice, when required by
law, sent to any address of Borrower in this Note at least ten (10)
calendar days (including the day of sending) before the date of a
proposed disposition of the Collateral is reasonable notice.
No right, power or remedy conferred by this Note upon any Holder
hereof shall be exclusive of any other right, power or remedy referred
to herein or now or hereafter available at law, in equity, by statue
or otherwise. The Borrower waives presentment, demand, notice of
dishonor and protest, and agrees to pay all costs of collection,
before and after judgment, including reasonable attorneys' fees and
legal expenses and all expenses of taking possession, holding,
preparing for disposition and disposing of the Collateral. After
deduction of such expenses, Lender may apply the proceeds of
disposition to Borrower's obligations in such order and amounts as it
elects.
10. EXTENSION OF TERM. If Borrower shall comply with all of the
provisions and covenants of Section 8 hereof, as provided thereby, Lender shall
extend the date upon which payment under this Note is due to the earlier to
occur of: (i) December 31, 1997; or (ii) five (5) days after the first day the
shares of Borrower are made available to the public pursuant to a registered
public offering.
11. PAYMENT OF LENDER'S FEES AND EXPENSES. Borrower shall reimburse
Lender for all fees and expenses incurred in the negotiation, preparation,
execution and delivery of this Note and the consummation of the transactions
herein contemplated, including, without limitation, all out-of-pocket expenses
incurred by Lender and any attorneys' fees related hereto.
12. NATURE OF NOTE. This Note constitutes a replacement and substitute
for the Original Note. The indebtedness evidenced by the Original Note is
continuing indebtedness, and nothing herein shall be deemed to constitute a
payment, settlement or novation of the Original Note, or to release or otherwise
adversely affect any lien or security interest securing such indebtedness or any
rights of Lender against any party primarily or secondarily liable for such
indebtedness.
13. MISCELLANEOUS.
(a) AMENDMENTS AND WAIVERS. Any term of this Note may be amended and
the observance of any term hereof may be waived (either generally or
in a particular instance and either retroactively or prospectively)
only with the written consent of the Borrower and the Lender. No such
amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
The Lender may, from time to time and without notice, renew or extend
the time for payment, accept partial payments, release or impair any
Collateral security for payment of this Note, or agree not to sue any
party liable upon it.
(b) NOTICES. All notices or communications hereunder shall be in
writing and shall be mailed by first-class mail, postage prepaid,
addressed to the address of each party as shall have furnished to the
other party in writing. Any notice so addressed and mailed by
registered or certified mail shall be deemed to be given when so
mailed.
(c) GOVERNING LAW. This Note is made pursuant to and shall be
construed in accordance with the internal laws of the State of
Illinois.
(d) SEVERABILITY. If any provision of this Note is held by a court of
competent jurisdiction to be invalid, illegal or unenforceable, such
provision shall be severed, enforced to the extent possible,
7
<PAGE>
or modified in such a way as to make it enforceable, and the
invalidity, illegality or unenforceability thereof shall not affect
the remainder of this Note.
(e) CAPTIONS; GENDERS. The captions and headings used in this Note
are for convenience and ease of reference only and are not intended to
be a part of or to affect the meaning or interpretation of this Note.
Unless otherwise provided herein, or unless the context requires
otherwise, the use of the singular shall include the plural and the
use of any gender shall include all genders.
(f) BINDING NATURE. This Note and all of its terms shall be binding
upon the parties, their heirs, successors, administrators and assigns.
(g) CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE
-----------------------
EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN COOK
COUNTY, ILLINOIS, AND WAIVES ANY OBJECTION BASED ON LACK OF PERSONAL
JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS, WITH REGARD TO
-----------------------
ANY ACTIONS, CLAIMS, DISPUTES OR PROCEEDINGS RELATING TO THIS
AGREEMENT, OR ANY DOCUMENT DELIVERED HEREUNDER OR IN CONNECTION
HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF THE
FOREGOING. BORROWER WAIVES ITS RIGHT TO A JURY TRIAL AND PERSONAL
SERVICE OF ANY AND ALL PROCESS, AND CONSENTS TO ALL SUCH SERVICE OF
PROCESS MADE BY REGISTERED OR CERTIFIED MAIL OR BY MESSENGER DIRECTED
TO THE ADDRESS SPECIFIED BELOW. NOTHING HEREIN SHALL AFFECT SECURED
PARTIES' RIGHTS TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW, OR
LIMIT SECURED PARTIES' RIGHT TO BRING PROCEEDINGS AGAINST BORROWER OR
ITS PROPERTY OR ASSETS IN THE COMPETENT COURTS OF ANY OTHER
JURISDICTION OR JURISDICTIONS.
IN WITNESS WHEREOF, Borrower have caused this Note to be signed and
attested by its duly authorized officer on or as of the date first written
above.
COYOTE SPORTS, INC.
BY: /s/ Mel Stonebraker
_____________________________________
Mel Stonebraker, President
8
<PAGE>
EXHIBIT 10.15
BORROWER: Coyote Sports, Inc., a Nevada corporation
GUARANTOR: Apollo Sports Holdings Limited
UNLIMITED CONTINUING GUARANTY
------------------------------
To: Deere Park Capital Management, Inc.
650 Dundee Road
Suite 460
Northbrook, Illinois 60062
(1) For valuable consideration, the undersigned, intending to be
legally bound ("Guarantor"), unconditionally guaranties and promises to pay to
Deere Park Capital Management, Inc. (hereinafter called "Lender"), or order, on
demand, in lawful money of the United States, any and all indebtedness of Coyote
Sports, Inc. a Nevada corporation (hereinafter called "Borrower") to Lender,
plus all costs, attorneys' fees and other expenditures incurred or paid by
Lender in collecting on the obligations of Guarantor hereunder and in enforcing
this Guaranty. The word "indebtedness" is used herein in its most comprehensive
sense and includes any and all advances, debts, obligations and liabilities of
Borrower, heretofore, now, or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether direct or acquired by
Lender by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Borrower may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter may become otherwise unenforceable.
(2) This is a continuing guaranty relating to any indebtedness,
including that arising under successive transactions which shall either continue
the indebtedness or from time to time renew it after it has been satisfied.
(3) To secure payment of Guarantor's obligations hereunder, Guarantor
grants to Lender the security interests established pursuant to a Security
Agreement, to be entered into by Guarantor pledging a security interest in its
entire right, title and interest in, to and all of the assets of Guarantor, real
or personal, tangible or intangible,, now existing or hereafter arising or
acquired, including, without limitation, all accounts, inventory, machinery,
equipment, fixtures, contract rights, chattel paper, instruments, general
intangibles, documents and other obligations of any kind, all bank accounts,
monies, revenues, credits, claims, demands, goodwill and any claims or causes of
action arising from or relating to any of the foregoing, all proceeds, additions
of or to any and all of the assets described herein, and all personal property
and physical assets owned by Guarantor, which lien shall be subsequent only to
those liens in favor of Midlands Bank plc dated September 18, 1996.
(4) The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions.
(5) Guarantor authorizes Lender, without notice or demand and without
affecting his liability hereunder, from time to time to: (a) renew, compromise,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty (as agreed with any Guarantor or Guarantors from time
to time, but without the need for consent of any other Guarantor) or the
indebtedness guaranteed hereby, and exchange, enforce, waive and release any
such security; (c) apply such security and direct the order or manner of sale
thereof as Lender in its discretion may determine; and (d) release or substitute
any one or more endorsers or Guarantors. Lender may without notice assign this
guaranty in whole or in part.
(6) GUARANTOR WAIVES ANY RIGHT TO REQUIRE LENDER TO: (A) PROCEED
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<PAGE>
AGAINST BORROWER; (B) PROCEED AGAINST OR EXHAUST ANY SECURITY RECEIVED FROM
BORROWER, OR DISPOSE OF SAME IN A COMMERCIALLY REASONABLE MANNER; (C) OBTAIN THE
GUARANTEE OF ANY OTHER PERSON OR ENTITY; OR (D) PURSUE ANY OTHER REMEDY
WHATSOEVER. Guarantor waives any defense arising by reason of any disability or
other defense of Borrower or by reason of the cessation from any cause
whatsoever of the liability of Borrower. Guarantor waives all presentments,
demands for performance, notices of non-performance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional indebtedness.
(7) This Agreement shall be continuing and shall not be discharged,
impaired or affected by (a) the power or authority or lack thereof of Borrower
to incur the indebtedness; (b) the validity or invalidity of the documents
evidencing the indebtedness or securing the same; (c) any defenses whatsoever
that Borrower may or might have to the payment of the indebtedness or to the
performance of the other obligations described in the documents evidencing the
indebtedness; (d) the existence or non-existence of Borrower as a legal entity;
(e) the transfer by Borrower of all or any part of the property described in the
documents evidencing the indebtedness; or (f) any right of offset, counterclaim
or defense (other than payment in full of the indebtedness and the performance
of all the obligations in accordance with the terms of the documents evidencing
the indebtedness) that Guarantor may or might have to his undertakings,
liabilities and obligations hereunder, each and every such defense being hereby
waived by Guarantor.
(8) Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the indebtedness of Borrower to Lender; and such
indebtedness of Borrower to Guarantor, if Lender so requests, shall be
collected, enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the indebtedness of Borrower to Lender but without
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty (except to the extent that the indebtedness of
Borrower to Lender is reduced by such payment).
(9) Guarantor agrees that it is not necessary for Lender to inquire
into the powers of Borrower or the officers, directors, partners or agents
acting or purporting to act on Borrower's behalf, and any indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
(10) Guarantor agrees to pay all reasonable attorney's fees and all
other costs and expenses which may be incurred by Lender in the enforcement of
this Guaranty.
(11) Guarantor hereby acknowledges that the transactions contemplated
by this Guaranty are commercial transactions and hereby waives its rights to
notice and hearing, if any, as allowed by applicable law with respect to any
prejudgment remedy which Lender may desire to use. Stay of execution,
inquisition and extension upon any levy on real estate are hereby waived and
condemnation agreed to, and any exemption that shall be claimed under or by
virtue of any exemption law now in force or which may hereafter be enacted is
also waived. No single exercise of any warrant and power to confess judgment as
provided herein shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable or void, but the
power shall continue undiminished and may be exercised from time to time as
often as Lender may elect until all sums payable by Guarantor have been paid in
full. Judgment may be confessed from time to time as often as any sums may be
due hereunder. Failure by the holder hereof to declare a default shall not
constitute waiver of any subsequent default. Any or all of the foregoing
provisions shall be deemed stricken from this Guaranty in any jurisdiction where
the same may be illegal or invalid to the extent of such illegality or
invalidity without affecting the remaining provisions.
(12) THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING
HEREUNDER SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF ILLINOIS.
GUARANTOR (A) AGREES THAT THE STATE OR FEDERAL COURTS IN THE CITY OF CHICAGO,
STATE OF ILLINOIS SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING THEREFROM, (B)
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING, (C) CONSENTS TO LENDER CHANGING VENUE TO THIS FORUM IN THE EVENT
LITIGATION
-2-
<PAGE>
CONCERNING SUCH CLAIMS OR DISPUTES IS PENDING IN ANY OTHER FORUM, (D) WAIVES ANY
RIGHT TO REQUEST A CHANGE OF VENUE FROM SUCH FORUM TO ANY OTHER FORUM IN ANY
LITIGATION CONCERNING SUCH CLAIMS OR DISPUTES, AND (E) AGREES THAT SERVICE OF
ANY SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN MAY BE MADE
IN ANY MANNER AND BY ANY MEANS PERMITTED BY LAW, ADDRESSED TO THE PARTY TO BE
SERVED AT THE ADDRESS SET FORTH BENEATH GUARANTOR'S SIGNATURE BELOW. SHOULD THE
PARTY SO CHARGED FAIL TO APPEAR OR ANSWER ANY SUCH SUMMONS, COMPLAINT, PROCESS
OR OTHER PAPERS SO SERVED AFTER THIRTY-ONE (31) DAYS AFTER THE SERVICE THEREOF,
SUCH PARTY SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE
ENTERED AS DEMANDED OR PRAYED FOR THEREIN.
(13) Guarantor hereby waives any claim or other right which he may now
have or hereafter acquire against Borrower or any other person that is primarily
or contingently liable on the indebtedness hereby guaranteed that arises from
the existence or performance by Guarantor of the obligations under this
Guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification, or any right to
participate in any claim or remedy of Lender against Borrower or any collateral
securing Borrower's obligations to Lender, which Lender now has or hereafter
acquires; whether or not such claim, remedy or right arises in equity, or under
contract, statute or common law.
(14) This Guaranty shall inure to the benefit of all transferees and
assignees of Lender of any part or all of the indebtedness hereby guaranteed and
of any security therefor.
(15) GUARANTOR HEREBY WAIVES HIS RIGHT TO A JURY TRIAL ON ANY DISPUTES
WHICH IN ANY WAY RELATE TO THIS GUARANTY AND/OR TO BORROWER'S INDEBTEDNESS TO
LENDER.
(16) Guarantor acknowledges that he has had the opportunity to consult
with counsel prior to executing this Guaranty, and that he has reviewed and/or
had an opportunity to review and have counsel review the Amended and Restated
Secured Promissory Note of even date between Borrower and Lender and any other
documents related thereto as he or his counsel desired.
Executed this 4 day of May, 1997.
-------------
APOLLO SPORTS HOLDINGS LIMITED
BY: /s/ James Probst
------------------------------------
ITS: Chairman
------------------------------------
Address: c/o COYOTE SPORTS
--------------------------------
2291 ARAPAHOE AVE.
--------------------------------
BOULDER, CO 80302
--------------------------------
-3-
<PAGE>
EXHIBIT 10.16
BORROWER: Coyote Sports, Inc., a Nevada corporation
GUARANTOR: Mel Stonebraker
UNLIMITED CONTINUING GUARANTY
-----------------------------
To: Deere Park Capital Management, Inc.
650 Dundee Road
Suite 460
Northbrook, Illinois 60062
(1) For valuable consideration, the undersigned, intending to be
legally bound ("Guarantor"), unconditionally guaranties to Deere Park Capital
Management, Inc. (hereinafter called "Lender"), or order, in lawful money of the
United States, the full and prompt payment when due, whether at maturity,
acceleration, demand or otherwise, any and all indebtedness of Coyote Sports,
Inc. a Nevada corporation (hereinafter called "Borrower") to Lender, plus all
costs, attorneys' fees and other expenditures incurred or paid by Lender in
collecting on the obligations of Guarantor hereunder and in enforcing this
Guaranty. The word "indebtedness" is used herein in its most comprehensive
sense and includes any and all advances, debts, obligations and liabilities of
Borrower, heretofore, now, or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether direct or acquired by
Lender by assignment or succession, whether due or not due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and whether
Borrower may be liable individually or jointly with others, or whether recovery
upon such indebtedness may be or hereafter may become otherwise unenforceable.
(2) This is a continuing guaranty relating to any indebtedness,
including that arising under successive transactions which shall either continue
the indebtedness or from time to time renew it after it has been satisfied.
This Guaranty shall terminate upon the full and final payment of the
indebtedness.
(3) To secure payment of Guarantor's obligations hereunder, Guarantor
grants to Lender the security interests established pursuant to the following
security agreements:
(i) Stock Pledge Agreement, dated April 4, 1997, pledging the
entire interest of Guarantor in Coyote Sports, Inc., a Nevada
corporation.
(4) The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought against Borrower or whether Borrower be
joined in any such action or actions.
(5) Guarantor authorizes Lender, without notice or demand and without
affecting his liability hereunder, from time to time to: (a) renew, compromise,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty (as agreed with any Guarantor or Guarantors from time
to time, but without the need for consent of any other Guarantor) or the
indebtedness guaranteed hereby, and exchange, enforce, waive and release any
such security; (c) apply such security and direct the order or manner of sale
thereof as Lender in its discretion may determine; and (d) release or substitute
any one or more endorsers or Guarantors. Lender may without notice assign this
guaranty in whole or in part.
(6) GUARANTOR WAIVES ANY RIGHT TO REQUIRE LENDER TO: (A) PROCEED
AGAINST BORROWER; (B) PROCEED AGAINST OR EXHAUST ANY SECURITY RECEIVED FROM
BORROWER, OR DISPOSE OF SAME IN A COMMERCIALLY REASONABLE MANNER; (C) OBTAIN THE
GUARANTEE OF ANY OTHER PERSON OR ENTITY; OR (D) PURSUE ANY OTHER REMEDY
WHATSOEVER. Guarantor waives any defense arising by reason of any disability or
other defense of Borrower or by reason of the cessation from any cause
whatsoever of the liability of Borrower. Guarantor waives all presentments,
<PAGE>
demands for performance, notices of non-performance, protests, notices of
protest, notices of dishonor, and notices of acceptance of this Guaranty and of
the existence, creation, or incurring of new or additional indebtedness.
(7) This Agreement shall be continuing and shall not be discharged,
impaired or affected by (a) the power or authority or lack thereof of Borrower
to incur the indebtedness; (b) the validity or invalidity of the documents
evidencing the indebtedness or securing the same; (c) any defenses whatsoever
that Borrower may or might have to the payment of the indebtedness or to the
performance of the other obligations described in the documents evidencing the
indebtedness; (d) the existence or non-existence of Borrower as a legal entity;
(e) the transfer by Borrower of all or any part of the property described in the
documents evidencing the indebtedness; or (f) any right of offset, counterclaim
or defense (other than payment in full or in part (but only to the extent of
such partial payment) of the indebtedness and the performance of all the
obligations in accordance with the terms of the documents evidencing the
indebtedness) that Guarantor may or might have to his undertakings, liabilities
and obligations hereunder, each and every such defense being hereby waived by
Guarantor.
(8) Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the indebtedness of Borrower to Lender; and, upon the
occurrence of "Event of Default" of such indebtedness of Borrower to Guarantor,
if Lender so requests, shall be collected, enforced and received by Guarantor as
trustee for Lender and be paid over to Lender on account of the indebtedness of
Borrower to Lender but without reducing or affecting in any manner the liability
of Guarantor under the other provisions of this Guaranty (except to the extent
that the indebtedness of Borrower to Lender is reduced by such payment).
(9) Guarantor agrees that it is not necessary for Lender to inquire
into the powers of Borrower or the officers, directors, partners or agents
acting or purporting to act on Borrower's behalf, and any indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
(10) Guarantor agrees to pay all reasonable attorney's fees and all
other costs and expenses which may be incurred by Lender in the enforcement of
this Guaranty.
(11) Guarantor hereby acknowledges that the transactions contemplated
by this Guaranty are commercial transactions and hereby waives its rights to
notice and hearing, if any, to the extent allowed by applicable law with respect
to any prejudgment remedy which Lender may desire to use. Stay of execution,
inquisition and extension upon any levy on real estate are hereby waived and
condemnation agreed to, and any exemption that shall be claimed under or by
virtue of any exemption law now in force or which may hereafter be enacted is
also waived. No single exercise of any warrant and power to confess judgment as
provided herein shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable or void, but the
power shall continue undiminished and may be exercised from time to time as
often as Lender may elect, to the extent allowed by applicable law, until all
sums payable by Guarantor have been paid in full. Failure by the holder hereof
to declare a default shall not constitute waiver of any subsequent default. Any
or all of the foregoing provisions shall be deemed stricken from this Guaranty
in any jurisdiction where the same may be illegal or invalid to the extent of
such illegality or invalidity without affecting the remaining provisions.
(12) THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING
HEREUNDER SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF ILLINOIS.
GUARANTOR (A) AGREES THAT THE STATE OR FEDERAL COURTS IN THE CITY OF CHICAGO,
STATE OF ILLINOIS SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING THEREFROM, (B)
EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING, (C) CONSENTS TO LENDER CHANGING VENUE TO THIS FORUM IN THE EVENT
LITIGATION CONCERNING SUCH CLAIMS OR DISPUTES IS PENDING IN ANY OTHER FORUM, (D)
WAIVES ANY RIGHT TO REQUEST A CHANGE OF VENUE FROM SUCH FORUM TO ANY OTHER FORUM
IN ANY LITIGATION CONCERNING SUCH CLAIMS OR DISPUTES, AND (E) AGREES THAT
SERVICE OF ANY SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN
MAY BE MADE BY
-2-
<PAGE>
REGISTERED OR CERTIFIED MAIL OR BY MESSENGER DIRECTED TO THE ADDRESS SPECIFIED
BELOW. NOTHING HEREIN SHALL AFFECT A PARTY'S RIGHT TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW, OR LIMIT A PARTY'S RIGHT TO BRING PROCEEDINGS AGAINST
GUARANTOR OR GUARANTOR'S PROPERTY OR ASSETS IN THE COMPETENT COURTS OF ANY OTHER
JURISDICTION OR JURISDICTIONS. SHOULD THE PARTY SO CHARGED FAIL TO APPEAR OR
ANSWER ANY SUCH SUMMONS, COMPLAINT, PROCESS OR OTHER PAPERS SO SERVED AFTER
THIRTY-ONE (31) DAYS AFTER THE SERVICE THEREOF, SUCH PARTY SHALL BE DEEMED IN
DEFAULT AND AN ORDER AND/OR JUDGMENT MAY BE ENTERED AS DEMANDED OR PRAYED FOR
THEREIN.
(13) Guarantor hereby waives any claim or other right which he may now
have or hereafter acquire against Borrower or any other person that is primarily
or contingently liable on the indebtedness hereby guaranteed that arises from
the existence or performance by Guarantor of the obligations under this
Guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification, or any right to
participate in any claim or remedy of Lender against Borrower or any collateral
securing Borrower's obligations to Lender, which Lender now has or hereafter
acquires; whether or not such claim, remedy or right arises in equity, or under
contract, statute or common law.
(14) This Guaranty shall inure to the benefit of all transferees and
assignees of Lender of any part or all of the indebtedness hereby guaranteed and
of any security therefor.
(15) GUARANTOR HEREBY WAIVES HIS RIGHT TO A JURY TRIAL ON ANY DISPUTES
WHICH IN ANY WAY RELATE TO THIS GUARANTY AND/OR TO BORROWER'S INDEBTEDNESS TO
LENDER.
(16) Guarantor acknowledges that he has had the opportunity to consult
with counsel prior to executing this Guaranty, and that he has reviewed and/or
had an opportunity to review and have counsel review the Loan and Security
Agreement of even date between Borrower and Lender and any other documents
related thereto as he or his counsel desired.
Executed this 4th day of April, 1997.
-----------------
/s/ Mel Stonebraker
--------------------------------------------
Mel Stonebraker
Address: 2291 Arapahoe Ave.
----------------------------------
Boulder, CO
----------------------------------
80302
----------------------------------
-3-
<PAGE>
EXHIBIT 10.17
BORROWER: Coyote Sports, Inc., a Nevada corporation
GUARANTOR: Apollo Sports Holdings Limited
UNLIMITED CONTINUING GUARANTY
-----------------------------
To: Steve Kerr
c/o Deere Park Capital Management, Inc.
650 Dundee Road
Suite 460
Northbrook, Illinois 60062
(1) For valuable consideration, the undersigned, intending to be
legally bound ("Guarantor"), unconditionally guaranties and promises to pay to
Steve Kerr (hereinafter called "Lender"), or order, on demand, in lawful money
of the United States, any and all indebtedness of Coyote Sports, Inc. a Nevada
corporation (hereinafter called "Borrower") to Lender, plus all costs,
attorneys' fees and other expenditures incurred or paid by Lender in collecting
on the obligations of Guarantor hereunder and in enforcing this Guaranty. The
word "indebtedness" is used herein in its most comprehensive sense and includes
any and all advances, debts, obligations and liabilities of Borrower,
heretofore, now, or hereafter made, incurred or created, whether voluntary or
involuntary and however arising, whether direct or acquired by Lender by
assignment or succession, whether due or not due, absolute or contingent,
liquidated or unliquidated, determined or undetermined, and whether Borrower may
be liable individually or jointly with others, or whether recovery upon such
indebtedness may be or hereafter may become otherwise unenforceable.
(2) This is a continuing guaranty relating to any indebtedness,
including that arising under successive transactions which shall either continue
the indebtedness or from time to time renew it after it has been satisfied.
(3) To secure payment of Guarantor's obligations hereunder, Guarantor
grants to Lender the security interests established pursuant to a Security
Agreement, to be entered into by Guarantor pledging a security interest in its
entire right, title and interest in, to and all of the assets of Guarantor, real
or personal, tangible or intangible, now existing or hereafter arising or
acquired, including, without limitation, all accounts, inventory, machinery,
equipment, fixtures, contract rights, chattel paper, instruments, general
intangibles, documents and other obligations of any kind, all bank accounts,
monies, revenues, credits, claims, demands, goodwill and any claims or causes of
action arising from or relating to any of the foregoing, all proceeds, additions
of or to any and all of the assets described herein, and all personal property
and physical assets owned by Guarantor, which lien shall be subsequent only to
those liens in favor of Midlands Bank plc dated September 18, 1996.
(4) The obligations hereunder are independent of the obligations of
Borrower, and a separate action or actions may be brought and prosecuted against
Guarantor whether action is brought and prosecuted against Guarantor whether
action is brought against Borrower or whether Borrower be joined in any such
action or actions.
(5) Guarantor authorizes Lender, without notice or demand and without
affecting his liability hereunder, from time to time to: (a) renew, compromise,
extend, accelerate or otherwise change the time for payment of, or otherwise
change the terms of the indebtedness or any part thereof, including increase or
decrease of the rate of interest thereon; (b) take and hold security for the
payment of this Guaranty (as agreed with any Guarantor or Guarantors from time
to time, but without the need for consent of any other Guarantor) or the
indebtedness guaranteed hereby, and exchange, enforce, waive and release any
such security; (c) apply such security and direct the order or manner of sale
thereof as Lender in its discretion may determine; and (d) release or substitute
any one or more endorsers or Guarantors. Lender may without notice assign this
guaranty in whole or in part.
-1-
<PAGE>
(6) GUARANTOR WAIVES ANY RIGHT TO REQUIRE LENDER TO: (A) PROCEED
AGAINST BORROWER; (B) PROCEED AGAINST OR EXHAUST ANY SECURITY RECEIVED FROM
BORROWER, OR DISPOSE OF SAME IN A COMMERCIALLY REASONABLE MANNER; (C) OBTAIN THE
GUARANTEE OF OTHER PERSON OR ENTITY; OR (D) PURSUE ANY OTHER REMEDY WHATSOEVER.
Guarantor waives any defense arising by reason of any disability or other
defense of Borrower or by reason of the cessation from any cause whatsoever of
the liability of Borrower. Guarantor waives all presentments, demands for
performance, notices of non-performance, protests, notices of protest, notices
of dishonor, and notices of acceptance of this Guaranty and of the existence,
creation, or incurring of new or additional indebtedness.
(7) This Agreement shall be continuing and shall not be discharged,
impaired or affected by (a) the power or authority or lack thereof of Borrower
to incur the indebtedness; (b) the validity or invalidity of the documents
evidencing the indebtedness or securing the same; (c) any defenses whatsoever
that Borrower may or might have to the payment of the indebtedness or to the
performance of the other obligations described in the documents evidencing the
indebtedness; (d) the existence or non-existence of Borrower as a legal entity;
(e) the transfer by Borrower of all or any part of the property described in the
documents evidencing the indebtedness; or (f) any right of offset, counterclaim
or defense (other than payment in full of the indebtedness and the performance
of all the obligations in accordance with the terms of the documents evidencing
the indebtedness) that Guarantor may or might have to his undertakings,
liabilities and obligations hereunder, each and every such defense being hereby
waived by Guarantor.
(8) Any indebtedness of Borrower now or hereafter held by Guarantor is
hereby subordinated to the indebtedness of Borrower to Lender; and such
indebtedness of Borrower to Guarantor, if Lender so requests, shall be
collected, enforced and received by Guarantor as trustee for Lender and be paid
over to Lender on account of the indebtedness of Borrower to Lender but without
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty (except to the extent that the indebtedness of
Borrower to Lender is reduced by such payment).
(9) Guarantor agrees that it is not necessary for Lender to inquire
into the powers of Borrower or the officers, directors, partners or agents
acting or purporting to act on Borrower's behalf, and any indebtedness made or
created in reliance upon the professed exercise of such powers shall be
guaranteed hereunder.
(10) Guarantor agrees to pay all reasonable attorney's fees and all
other costs and expenses which may be incurred by Lender in the enforcement of
this Guaranty.
(11) Guarantor hereby acknowledges that the transactions contemplated
by this Guaranty are commercial transactions and hereby waives its rights to
notice and hearing, if any, as allowed by applicable law with respect to any
prejudgment remedy which Lender may desire to use. Stay of execution,
inquisition and extension upon any levy on real estate are hereby waived and
condemnation agreed to, and any exemption that shall be claimed under or by
virtue of any exemption law now in force or which may hereafter be enacted is
also waived. No single exercise of any warrant and power to confess judgment as
provided herein shall be deemed to exhaust the power, whether or not any such
exercise shall be held by any court to be invalid, voidable or void, but the
power shall continue undiminished and may be exercised from time to time as
often as Lender may elect until all sums payable by Guarantor have been paid in
full. Judgment may be confessed from time to time as often as any sums may be
due hereunder. Failure by the holder hereof to declare a default shall not
constitute waiver of any subsequent default. Any or all of the foregoing
provisions shall be deemed stricken from this Guaranty in any jurisdiction where
the same may be illegal or invalid to the extent of such illegality or
invalidity without affecting the remaining provisions.
(12) THIS GUARANTY AND ALL RIGHTS, OBLIGATIONS AND LIABILITIES ARISING
HEREUNDER SHALL BE CONSTRUED ACCORDING TO THE LAWS OF THE STATE OF ILLINOIS.
GUARANTOR (A) AGREES THAT THE STATE OR FEDERAL COURTS IN THE CITY OF CHICAGO,
STATE OF ILLINOIS SHALL HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR
DISPUTES PERTAINING TO THIS GUARANTY OR TO ANY MATTER ARISING THEREFROM, (B)
EXPRESSLY
-2-
<PAGE>
SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR
PROCEEDING, (C) CONSENTS TO LENDER CHANGING VENUE TO THIS FORUM IN THE EVENT
LITIGATION CONCERNING SUCH CLAIMS OR DISPUTES IS PENDING IN ANY OTHER FORUM, (D)
WAIVES ANY RIGHT TO REQUEST A CHANGE OF VENUE FROM SUCH FORUM TO ANY OTHER FORUM
IN ANY LITIGATION CONCERNING SUCH CLAIMS OR DISPUTES, AND (E) AGREES THAT
SERVICE OF ANY SUMMONS AND COMPLAINT OR OTHER PROCESS OR PAPERS ISSUED THEREIN
MAY BE MADE IN ANY MANNER AND BY ANY MEANS PERMITTED BY LAW, ADDRESSED TO THE
PARTY TO BE SERVED AT THE ADDRESS SET FORTH BENEATH GUARANTOR'S SIGNATURE BELOW.
SHOULD THE PARTY SO CHARGED FAIL TO APPEAR OR ANSWER ANY SUCH SUMMONS,
COMPLAINT, PROCESS OR OTHER PAPERS SO SERVED AFTER THIRTY-ONE (31) DAYS AFTER
THE SERVICE THEREOF, SUCH PARTY SHALL BE DEEMED IN DEFAULT AND AN ORDER AND/OR
JUDGMENT MAY BE ENTERED AS DEMANDED OR PRAYED FOR THEREIN.
(13) Guarantor hereby waives any claim or other right which he may now
have or hereafter acquire against Borrower or any other person that is primarily
or contingently liable on the indebtedness hereby guaranteed that arises from
the existence or performance by Guarantor of the obligations under this
Guaranty, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification, or any right to
participate in any claim or remedy of Lender against Borrower or any collateral
securing Borrower's obligations to Lender, which Lender now has or hereafter
acquires; whether or not such claim, remedy or right arises in equity, or under
contract, statute or common law.
(14) This Guaranty shall inure to the benefit of all transferees and
assignees of Lender of any part or all of the indebtedness hereby guaranteed and
of any security therefor.
(15) GUARANTOR HEREBY WAIVES HIS RIGHT TO A JURY TRIAL ON ANY DISPUTES
WHICH IN ANY WAY RELATE TO THIS GUARANTY AND/OR TO BORROWER'S INDEBTEDNESS TO
LENDER.
(16) Guarantor acknowledges that he has had the opportunity to consult
with counsel prior to executing this Guaranty and that he has reviewed and/or
had an opportunity to review and have counsel review the Amended and Restated
Secured Promissory Note of even date between Borrower and Lender and any other
documents related thereto as he or his counsel desired.
Executed this 4 day of May, 1997.
--------------
APOLLO SPORTS HOLDINGS LIMITED
BY: /s/ James Probst
----------------------------
ITS: Chairman
---------------------------
Address: c/o Coyote Sports Inc.
-----------------------
2291 Arapahoe Ave.
-----------------------
Boulder, CO 80302
-----------------------
-3-
<PAGE>
EXHIBIT 10.18
STOCK PLEDGE AGREEMENT
THIS AGREEMENT is dated as of the ________ day of April, 1997 by MEL
STONEBRAKER ("Pledgor"), in favor of DEERE PARK CAPITAL MANAGEMENT, INC., an
Illinois corporation ("Deere Park"), and STEVE KERR (individually, "Secured
Party", and, collectively, "Secured Parties").
WITNESSETH:
WHEREAS, Coyote Sports, Inc. ("Borrower") has executed certain Secured
Promissory Notes (the "Notes"), pursuant to which Secured Parties
contemporaneously with the execution and delivery hereby shall loan funds to
Borrower (the "Loan"); and
WHEREAS, pursuant to a guaranty executed in connection with the Notes
("Guaranty"), Pledgor personally guaranteed payment of the Loan.
WHEREAS, pursuant to such Guaranty, Pledgor pledged 250 shares of the
common stock of Borrower, as security for repayment of the Loan.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor hereby agrees as follows:
1. Grant of Security Interest. Pledgor hereby grants to Secured
--------------------------
Parties a security interest in 250 shares of the common stock of Borrower (the
"Collateral"), the Collateral representing all of Pledgor's interest in, and
twenty-five percent (25%) of the outstanding capital of, such corporation, and
all distributions at any time received or receivable in respect of or in
exchange for such Collateral, whether paid in cash or other property, including
without limitation additional interests issued as dividends or distributions or
as a result in any reclassification, split-up or other reorganization, all
monies and replacements or, all substitutions for, and all proceeds, whether
upon sale, collection, transfer, exchange of or other disposition, of all or any
of the foregoing, to secure payment of all of the obligations of Pledgor to each
Secured Party now existing or hereafter arising (the "Obligations"), including
without limitation, all obligations under the Notes.
2. Delivery of Collateral. Upon execution and delivery of this
----------------------
Agreement, Pledgor agrees to deliver to Deere Park certificates representing the
Collateral, together with duly executed stock power or powers with respect
thereto.
3. Warranties and Covenants of Pledgor. Pledgor hereby warrants and
-----------------------------------
covenants that:
(a) Except for the security interest granted hereby, Pledgor is the
owner of the Collateral free from any adverse lien, security interest or
encumbrance; and Pledgor will defend the Collateral against all claims and
demands of all persons at any time claiming the same or any interest
therein.
(b) Pledgor will not sell or offer to sell, assign, pledge, lease or
otherwise transfer or encumber the Collateral or any interest therein,
without the prior written consent of Secured Parties.
4. Maintenance of Security Interest. Pledgor shall pay all expenses
--------------------------------
and, upon request, take any action reasonably deemed advisable by Secured
Parties, or either of them, to preserve the Collateral or to establish,
determine priority of, perfect, continue perfected, terminate and/or enforce
Secured Parties' interest therein or rights under this Agreement.
5 Authority of Secured Parties to Perform for Pledgor. Upon the
---------------------------------------------------
occurrence, of an Event of Default (as defined below), Secured Parties, or
either of them, is authorized, in Pledgor's name or otherwise, to
<PAGE>
take any such action necessary to effect the transfer of the Collateral,
including, without limitation, signing or endorsing Pledgor's name or paying any
amount so required, and the cost shall be part of the Pledgor's Obligations
secured by this Agreement and shall be payable by Pledgor upon demand with
interest from the date of payment by Secured Parties, or either of them, at the
highest rate stated in any evidence of any Obligations but not in excess of the
maximum rate permitted by law.
6. Events of Default. The following shall be "Events of Default"
-----------------
for purposes of this Agreement:
(a) any "Event of Default" under the Note, as that term is defined in
the Note; or
(b) the breach of any warranty or covenant of Pledgor under this Stock
Pledge Agreement, and the failure of Pledgor to remedy such breach within
fifteen (15) days after receiving notice thereof.
7. Remedies.
--------
(a) Upon an Event of Default (regardless of whether the Code has been
enacted in the jurisdiction where rights or remedies are asserted) and at
any time thereafter (such default not having previously been cured),
Secured Parties, or either of them, at their option may declare all
indebtedness secured hereby immediately due and payable and shall have the
remedies of a secured party under the Uniform Commercial Code of Illinois.
(b) The remedies of Secured Parties hereunder are cumulative and the
exercise of any one or more of the remedies provided for herein or under
the Uniform Commercial Code of Illinois shall not be construed as a waiver
of any of the other remedies of Secured Parties so long as any part of the
indebtedness secured hereby remains unsatisfied.
8. General.
-------
(a) No waiver by Secured Parties, or either of them, of any default
shall operate, as a waiver of any other default or of the same default on a
future occasion. A waiver by either Secured Party shall not operate as a
waiver by the other. All rights of Secured Parties hereunder shall inure
to the benefit of its successors and assigns; and all obligations of
Pledgor shall bind its heirs, executors or administrators or its successors
or its assigns.
(b) All rights of Secured Parties in, to and under this Agreement and
in and to the Collateral shall pass to and may be exercised by any assignee
thereof. Pledgor agrees that if either Secured Party gives notice to
Pledgor of an assignment of said rights, upon such notice the liability of
Pledgor to the assignee shall be immediate and absolute. Pledgor will not
set up any claim against Secured Parties as a defense, counterclaim or set-
off to any action brought by any such assignee for the unpaid balance owed
hereunder, provided that Pledgor shall not waive hereby any right of action
to the extent that waiver thereof is expressly made unenforceable under
applicable law. This agreement shall be governed and construed in
accordance with the internal laws of the State of Illinois.
(c) If any provision of this agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the
remainder of such provision or the remaining provisions of this agreement.
9. CONSENT TO JURISDICTION. PLEDGOR HEREBY CONSENTS TO THE EXCLUSIVE
-----------------------
JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN COOK COUNTY, ILLINOIS,
AND WAIVES ANY OBJECTION BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE
OR
2
<PAGE>
FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR
- --------------------
PROCEEDINGS RELATING TO THIS AGREEMENT, OR ANY DOCUMENT DELIVERED HEREUNDER OR
IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF
THE FOREGOING. PLEDGOR WAIVES RIGHT TO JURY TRIAL AND PERSONAL SERVICE OF ANY
AND ALL PROCESS, AND CONSENTS TO ALL SUCH SERVICE OF PROCESS MADE BY CERTIFIED
OR REGISTERED MAIL OR BY MESSENGER DIRECTED TO THE ADDRESS SPECIFIED BELOW.
NOTHING HEREIN SHALL AFFECT SECURED PARTIES' RIGHTS TO SERVE PROCESS IN ANY
MANNER PERMITTED BY LAW, OR LIMIT SECURED PARTIES' RIGHT TO BRING PROCEEDINGS
AGAINST PLEDGOR OR ITS PROPERTY OR ASSETS IN THE COMPETENT COURTS OF ANY OTHER
JURISDICTION OR JURISDICTIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
MEL STONEBRAKER
("PLEDGOR")
/s/ Mel Stonebraker
----------------------------
3
<PAGE>
STOCK PLEDGE AGREEMENT EXHIBIT 10.19
THIS AGREEMENT is dated as of the ___ day of April, 1997 by COYOTE SPORTS,
INC, a Nevada corporation ("Borrower"), in favor of DEERE PARK CAPITAL
MANAGEMENT, INC., an Illinois corporation ("Deere Park"), and STEVE KERR
(individually, "Secured Party", and, collectively, "Secured Parties").
WITNESSETH:
WHEREAS, Borrower has executed certain Secured Promissory Notes (the
"Notes"), pursuant to which Secured Parties contemporaneously with the execution
and delivery hereby shall loan funds to Borrower (the "Loan"); and
WHEREAS, pursuant to such Notes, Borrower pledged 2,000,000 shares of the
ordinary shares of Apollo Sports Holdings Limited and 100 shares of common stock
of Apollo Golf, Inc., as security for repayment of the Loan.
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrower hereby agrees as follows:
1. Grant of Security Interest. Borrower hereby grants to Secured Parties
--------------------------
a security interest in 2,000,000 shares of the ordinary shares of Apollo Sports
Holdings Limited, a public limited company organized under the laws of England
and Wales, and 100 shares of common stock of Apollo Golf, Inc. (the
"Collateral"), the Collateral representing all of Borrower's interest in, and
one hundred percent (100%) of the outstanding capital of, such corporations, and
all distributions at any time received or receivable in respect of or in
exchange for such Collateral, whether paid in cash or other property, including,
without limitation additional interests issued as dividends or distributions or
as a result in any reclassification, split-up or other reorganization, all
monies and replacements or, all substitutions for, and all proceeds, whether
upon sale, collection, transfer, exchange of or other disposition, of all or any
of the foregoing, to secure payment of all of the obligations of Borrower to
each Secured Party now existing or hereafter arising, (the "Obligations"),
including without limitation, all obligations under the Notes.
2. Delivery of Collateral. Upon execution and delivery of this
----------------------
Agreement, Borrower agrees to deliver to Deere Park certificates representing
the Collateral, together with duly executed stock power or powers with respect
thereto.
3. Warranties and Covenants of Borrower. Borrower hereby warrants and
------------------------------------
covenants that:
(a) Except for the security interest granted hereby, Borrower is the
owner of the Collateral free from any adverse lien, security interest or
encumbrance; and Borrower will defend the Collateral against all claims and
demands of all persons at any time claiming the same or any interest therein.
(b) Borrower will not sell or offer to sell, assign, pledge, lease or
otherwise transfer or encumber the Collateral or any interest therein, without
the prior written consent of Secured Parties.
4. Maintenance of Security Interest. Borrower shall pay all expenses
--------------------------------
and, upon request, take any action reasonably deemed advisable by Secured
Parties, or either of them, to preserve the Collateral or to establish,
determine priority of, perfect, continue perfected, terminate and/or enforce
Secured Parties' interest therein or rights under this Agreement.
5. Authority of Secured Parties to Perform for Borrower. Upon the
----------------------------------------------------
occurrence of an Event of Default (as defined below), Secured Parties, or either
of them, is authorized, in Borrower's name or otherwise, to take any such action
necessary to effect the transfer of the Collateral, including, without
limitation, signing or endorsing Borrower's name or paying any amount so
required, and the cost shall be part of the Borrower's Obligations secured by
this Agreement and shall be payable by Borrowers upon demand with interest from
the date of payment by Secured Parties,
<PAGE>
or either of them, at the highest rate stated in any evidence of any Obligations
but not in excess of the maximum rate permitted by law.
6. Events of Default. The following shall be "Events of Default" for
-----------------
purposes of this Agreement:
(a) any "Event of Default" under the Note, as that term is defined
in the Note; or
(b) the breach of any warranty or covenant of Borrower under this
Stock Pledge Agreement, and the failure of Borrower to remedy such breach within
fifteen (15) days after receiving notice thereof.
7. Remedies.
--------
(a) Upon an Event of Default (regardless of whether the Code has been
enacted in the jurisdiction where rights or remedies are asserted) and at any
time thereafter (such default not having previously been cured), Secured
Parties, or either of them, at their option may declare all indebtedness secured
hereby immediately due and payable and shall have the remedies of a secured
party under the Uniform Commercial Code of Illinois.
(b) The remedies of Secured Parties hereunder are cumulative and the
exercise of any one or more of the remedies provided for herein or under the
Uniform Commercial Code of Illinois shall not be construed as a waiver of any of
the other remedies of Secured Parties so long as any part of the indebtedness
secured hereby remains unsatisfied.
8. General.
-------
(a) No waiver by Secured Parties, or either of them, of any default
shall operate as a waiver of any other default or of the same default on a
future occasion. A waiver by either Secured Party shall not operate as a waiver
by the other. All rights of Secured Parties hereunder shall inure to the
benefit of its successors and assigns; and all obligations of Borrower shall
bind its heirs, executors or administrators or its successors or assigns.
(b) All rights of Secured Parties in, to and under this Agreement and
in and to the Collateral shall pass to and may be exercised by any assignee
thereof. Borrower agrees that if either Secured Party gives notice to Borrower
of an assignment of said rights, upon such notice, the liability of Borrower to
the assignee shall be immediate and absolute. Borrower will not set up any
claim against Secured Parties as a defense, counterclaim or set-off to any
action brought by any such assignee for the unpaid balance owed hereunder,
provided that Borrower shall not waive hereby any right of action to the extent
that waiver thereof is expressly made unenforceable under applicable law. This
Agreement shall be governed and construed in accordance with the internal laws
of the State of Illinois.
(c) If any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Agreement.
9. CONSENT TO JURISDICTION. BORROWER HEREBY CONSENTS TO THE EXCLUSIVE
-----------------------
JURISDICTION OF ANY STATE OR FEDERAL COURT SITUATED IN COOK COUNTY, ILLINOIS,
AND WAIVES ANY OBJECTION BASED ON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE
OR FORUM NON CONVENIENS, WITH REGARD TO ANY ACTIONS, CLAIMS, DISPUTES OR
--------------------
PROCEEDINGS RELATING TO THIS AGREEMENT, OR ANY DOCUMENT DELIVERED HEREUNDER OR
IN CONNECTION HEREWITH, OR ANY TRANSACTION ARISING FROM OR CONNECTED TO ANY OF
THE FOREGOING. BORROWER WAIVES ITS RIGHT TO A JURY TRIAL AND PERSONAL SERVICE
OF ANY AND ALL PROCESS, AND CONSENTS TO ALL SUCH SERVICE OF PROCESS MADE BY
CERTIFIED OR REGISTERED MAIL OR BY MESSENGER DIRECTED TO THE ADDRESS SPECIFIED
BELOW. NOTHING HEREIN SHALL AFFECT SECURED PARTIES' RIGHTS TO SERVE PROCESS IN
ANY MANNER PERMITTED BY LAW, OR LIMIT
2
<PAGE>
SECURED PARTIES' RIGHT TO BRING PROCEEDINGS AGAINST BORROWER OR ITS PROPERTY OR
ASSETS IN THE COMPETENT COURTS OF ANY OTHER JURISDICTION OR JURISDICTIONS.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
COYOTE SPORTS, INC.
("BORROWER")
By: /s/ Mel Stonebraker
----------------------------
Its: President
----------------------------
3
<PAGE>
Exhibit 23.1
------------
CONSENT OF INDEPENDENT AUDITORS
-------------------------------
THE BOARD OF DIRECTORS
COYOTE SPORTS, INC.
We consent to the inclusion of our report dated May 19, 1997, except for note 8
which is as of June 11, 1997, with respect to the consolidated balance sheets of
Coyote Sports, Inc. as of December 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for the years then ended, which report appears in Form SB-2 of Coyote
Sports, Inc. dated June 12, 1997 and to the reference to our firm under the
heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Boulder, Colorado
June 11, 1997
<PAGE>
Exhibit 23.2
------------
Consent of Independent Auditors
-------------------------------
The Board of Directors
Coyote Sports, Inc.:
We consent to the inclusion of our report dated June 5, 1997, with respect to
the combined balance sheets of TI Apollo Limited, Apollo Golf, Inc. and TI
Reynolds 531 Limited as of December 31, 1995 and September 30, 1996, and the
related combined statements of operations, stockholder's equity, and cash flows
for the year ended December 31, 1995 and the nine months ended September 30,
1996, which report appears in Form SB-2 of Coyote Sports, Inc. dated June 12,
1997.
KPMG Peat Marwick LLP
Boulder, Colorado
June 11, 1997
