<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 8, 1997
REGISTRATION NO. 333-29077
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 1
TO
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 (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
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. WARD E. TERRY, JR., ESQ.
LAURIE P. GLASSCOCK, ESQ. DANIEL B. MARKOFSKY, ESQ.
JULIE A. JOHNSON, ESQ. CLANAHAN, TANNER, DOWNING & KNOWLTON, P.C.
CHRISMAN, BYNUM & JOHNSON, P.C. 1600 BROADWAY
1900 FIFTEENTH STREET SUITE 2400
BOULDER, COLORADO 80302 DENVER, CO 80202
(303) 546-1300 (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. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER SHARE(1) PRICE(1) FEE
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock............. 1,150,000(2) $6.00 $6,900,000 $2,090.91
- ------------------------------------------------------------------------------
Representative's
Warrants................ 100,000(3) -- $ 100 $ --
- ------------------------------------------------------------------------------
Common Stock Underlying
Representative's
Warrants................ 100,000(4) $6.00 $ 600,000 $ 181.82
- ------------------------------------------------------------------------------
Common Stock, Selling
Stockholders............ 50,000(5) -- -- $ --
- ------------------------------------------------------------------------------
Warrants, Selling
Stockholders............ 200,000(5) -- -- --
- ------------------------------------------------------------------------------
Common Stock Underlying
Warrants, Selling
Stockholders............ 100,000(5) $9.00 $ 900,000 $ 272.72
- ------------------------------------------------------------------------------
Total.................... -- -- -- $2,545.45
- ------------------------------------------------------------------------------
</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 150,000 shares that the representative of the
underwriters (the "Representative") has the option of purchasing from the
registrant to cover over-allotments, if any).
(3) The registrant will issue to the Representative at the closing of the
registrant's public offering 100,000 warrants to purchase 100,000 shares
of Common Stock (the "Representative's Warrants").
(4) These shares of Common Stock are issuable upon exercise of the
Representative's Warrants. An indeterminate number of additional Shares
are registered hereunder which may be issued as provided in the
Representative's Warrants in the event that the provisions against
dilution in the Representative's Warrant's become operative.
(5) 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
--------------------------- ---------------------------------
<C> <S> <C>
Item 1. Front of Registration Statement
and Outside Front Cover Page of
Prospectus........................ Facing Page of Registration
Statement; Outside Front 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; Additional
Registered Securities
Item 8. Plan of Distribution.............. Prospectus Summary; Underwriting
Item 9. Legal Proceedings................. Business--Litigation
Item 10. Directors, Executive Officers,
Promoters and Control Persons..... Management; Principal
Shareholders; Certain
Transactions
Item 11. Security Ownership of Certain
Beneficial Owners and Management.. Principal Stockholders
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
Indemnification for Securities Act
Liabilities....................... Management--Statement as to
Indemnification; 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 Operation..... Management's Discussion and
Analysis or Plan of 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 Stockholder Matters....... Inside Front Cover Page of
Prospectus; Risk Factors;
Underwriting; Dividend Policy
Item 21. Executive Compensation............ Management
Item 22. Financial Statements.............. Prospectus Summary; Financial
Statements; Selected Consolidated
Financial Data
Item 23. Changes in and Disagreements With
Accountants on Accounting and
Financial Disclosure.............. Experts
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR 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. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED AUGUST 12, 1997
COYOTE SPORTS, INC.
1,000,000 SHARES OF COMMON STOCK
[LOGO OF COYOTE SPORTS, INC. APPEARS HERE]
Coyote Sports, Inc. (the "Company" or "Coyote") is offering 1,000,000 shares
of Common Stock of the Company (the "Shares"). In addition, an aggregate of
50,000 shares of Common Stock owned by certain shareholders of the Company (the
"Bridge Lenders") and Warrants to purchase an additional 100,000 shares are
being registered simultaneously with this offering for resale by such
shareholders from time to time. See "Additional Registered Securities."
It is currently anticipated that the offering price of the Shares will be
between $4.00 and $6.00 per Share. Prior to the offering of the Company's
securities as described herein, there has been no public market for the Shares
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 approved for quotation on The Nasdaq SmallCap Market.
-----------
THIS OFFERING INVOLVES SPECULATIVE SECURITIES WITH 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 SHARES.
-----------
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................................. $ $ $
- --------------------------------------------------------------------------------
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 payable by the Company of
$810,000, including the non-accountable expense allowance. The Bridge
Lenders are not responsible for any of these expenses.
(3) The Company has granted the Representative an option, exercisable within 45
days from the date of this Prospectus, to purchase up to an additional
150,000 Shares on the same terms as set forth above solely to cover
overallotment, if any. If the overallotment option is exercised in full,
the total Price to Public, Underwriting Discounts and Proceeds to Company
will be $ , $ and $ respectively. See "Underwriting."
-----------
The Shares are being offered severally, and not jointly, by the Underwriters,
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 will
be made on or about , 1997.
COHIG & ASSOCIATES, INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<PAGE>
COYOTE SPORTS, INC. DESIGNS, ENGINEERS, MANUFACTURES, MARKETS AND DISTRIBUTES
BRAND NAME SPORTS EQUIPMENT AND RECREATIONAL PRODUCTS WORLDWIDE.
[PHOTO OF GOLF SHAFTS APPEARS HERE]
[REYNOLDS LOGO APPEARS HERE]
[PHOTO OF SKI POLES APPEARS HERE]
[APPOLLO LOGO APPEARS HERE]
[PHOTO OF BICYCLE FRAMES APPEARS HERE]
[ICE.USA LOGO APPEARS HERE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP 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 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>
[GOLF SHAFT PHOTO APPEARS HERE]
Apollo Golf Shafts. The only seamless steel golf shaft in the world. Supplying
premium golf club brands such as Callaway Golf, Cobra Golf, Karsten
Manufacturing, MacGregor Golf and Wilson Sporting Goods.
[PHOTOS OF MATERIALS APPEAR HERE]
Sierra Materials. Manufacturer of pre-impregnated graphite and other advance
composite materials, operates in San Diego, CA.
<PAGE>
[PHOTO OF BICYCLE RIDER APPEARS HERE]
Reynolds Cycle Tubing. 27 of the last 39 Tour De France winners have won on
bikes made with Reynolds Cycle Tubing. Supplying premium bicycle brands such as
Trek Bicycles, GT Bicycles, Kona Bicycles and Raleigh Bicycles.
[PHOTO OF SKIER APPEARS HERE]
ICE*USA Performance Ski Poles. Established in 1992 as the premium composite ski
pole brand in the industry.
[PHOTOS OF MATERIALS APPEAR HERE]
Sierra Materials' advanced composite materials are being used in the
manufacturing of golf shafts, ski poles, cycle frames, fishing rods, hockey
sticks, tennis racquets and other products.
<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) reflects the return to the
Company for cancellation of 850,000 shares of Common Stock by the Company's two
existing shareholders on July 23, 1997 ("Share Return"); (iii) assumes the
issuance upon consummation of this offering of an aggregate of 50,000 shares of
Common Stock and warrants to purchase 100,000 shares of Common Stock to the
Bridge Lenders in connection with a private placement financing in April 1997
(see "Private Placement"); (iv) assumes no exercise of the overallotment option
(up to 150,000 Shares); (v) 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 (vi) does not
include up to 100,000 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,
composite ski poles and javelins. The Company also 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, and graphite and other advanced composite
materials in California and will be manufacturing extruded aluminum alloys in
Southeast Asia for such products as cycle tubing, ski poles and tennis rackets.
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, 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 39 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 equipment and
recreational products industry. The Company intends to continue to purchase
undervalued companies within the sports equipment and recreational products
industry with experienced management, that have well-established brand names
and
3
<PAGE>
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 three operating companies and has a controlling
interest in three other operating companies in furtherance of this strategy.
The Company's strategies to achieve its objective and facilitate its growth
are 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) 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...... 1,000,000 Shares.
Common Stock
outstanding before
offering............... 2,600,000 Shares
Common Stock
outstanding after
offering............... 3,650,000 Shares
Use of Proceeds......... Repayment of loan, capital equipment for Sierra
Materials, repayment of liabilities for Sierra
Materials, repayment of stockholder notes, and
working capital. See "Use of Proceeds."
Proposed NASDAQ
SmallCap symbol for
Common Stock...... "COYT"
- --------
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 six months ended June 30,
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 six months ended June 30, 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, SIX MONTHS ENDED JUNE 30,
------------------------------------ ---------------------------------------
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 20 12,750 13,683
Cost of goods sold.... -- (4,169) (17,881) (23) (9,784) (10,622)
---------- ---------- ---------- ---------- ---------- ----------
Gross profit (loss)... -- 1,284 5,641 (3) 2,966 3,061
Selling, general and
administrative
expenses............. (371) (2,308) (6,856) (238) (4,072) (4,233)
---------- ---------- ---------- ---------- ---------- ----------
Operating loss........ (371) (1,024) (1,215) (241) (1,106) (1,172)
Other income (ex-
pense), net.......... -- 92 (106) -- (632)(6) (604)
Income tax benefit
(expense)............ -- -- (248) -- 181 181
Minority interests.... -- (6) (6) -- 48 60
---------- ---------- ---------- ---------- ---------- ----------
Net loss.............. $ (371) (938) (241) (1,509)
========== ========== ========== ==========
Net loss per share.... $ (0.11) (0.27) (0.07) (0.44)
========== ========== ========== ==========
Pro forma net loss.... $ (1,575) (1,535)
========== ==========
Pro forma net loss per
share(3)............. $ (0.46) (0.44)
========== ==========
Shares used in
computing net loss
per share and pro
forma net loss per
share(3)(5).......... 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------
DECEMBER 31, AS ADJUSTED
1996 ACTUAL (2)(4)
------------ ------- -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash....................................... $ 305 1,807 3,350
Working capital (deficit).................. 1,960 (516) 3,127
Total assets............................... 11,799 19,717 21,260
Total liabilities.......................... 6,563 13,291 11,144
Minority interests in net assets of subsid-
iaries.................................... 210 756 756
Total stockholders' equity................. 5,027 5,670 9,360
</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 Apollo, Apollo U.S.,
Reynolds and an acquired manufacturing facility for the nine months ended
September 30, 1996 (collectively, the "Apollo Entities"), and the
historical financial statements of Sierra Materials for the ten months
period ended 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 for the period January 1, 1997 to March 31, 1997.
(3) Calculated as described in Note 1 of Notes to Consolidated Financial
Statements.
(4) As adjusted amounts reflect the sale of 1,000,000 Shares (excluding any
Shares which may be sold as a result of the exercise of the overallotment
option) as contemplated by this Prospectus at an assumed price of $5.00 per
Share, net of $1,310,000 of estimated offering expenses including the non-
accountable expense allowance and underwriting discounts and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
(5) Subsequent to June 30, 1997, the Company retired 850,000 shares of Common
Stock contributed back by the Company's stockholders.
(6) Approximately $394,000 of this amount is attributable to debt financing
costs associated with the Private Placement (See "Private Placement").
6
<PAGE>
RISK FACTORS
The purchase of the Shares 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.
RISK FACTORS RELATED TO THE BUSINESS OF THE COMPANY
Recent Operating Losses and Accumulated Deficit. Coyote has acquired an
interest in seven operating 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 which had been acquired as of that date. The Company, on a consolidated
historical basis, incurred a net loss of $937,954 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 of $252,782
for the ten month period ended December 31, 1996. Pentiumatics was acquired by
the Company in April 1997 and had no prior business operations. From inception
through June 30, 1997, the Company has an accumulated deficit of $2,834,977.
In order to become profitable, the Company must increase sales while
effectively managing costs. 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."
Risks Involved With Expansion Strategy. Since inception, the Company has
acquired an equity interest in seven operating 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
financial risks resulting from pre-acquisition liabilities that may exceed any
indemnities provided by the seller of the acquired company.
No Assurance That Acquisitions Will Be Effectively Assimilated. 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.
Further Capital Requirements Associated With Expansion. 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
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<PAGE>
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."
Potential Problems Associated With 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 six months
ended June 30, 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. Apollo's steel golf shaft business and Reynolds cycle tubing
business accounted for approximately 91% of the Company's sales for the year
ended December 31, 1996. 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."
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 would 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
8
<PAGE>
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 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."
Financial Requirements Associated With Growth. 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 $200,155 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
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<PAGE>
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."
Highly Competitive Industry. 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."
Continued 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 2,600,000 shares
(72.2% 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."
Dependence on Proprietary Technology. The Company relies primarily on
trademark and trade secret laws and confidentiality procedures to protect its
trade secrets, goodwill, 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--
Intellectual Property."
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
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<PAGE>
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 Injury Claims. 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.
It is possible that the incidence of claims may have an effect on the terms of
which insurance becomes available in the future. See "Business--Governmental
Regulations."
Substantial Purchase Obligation Could Negatively Impact Company Assets. ICE
was formed on September 18, 1996, by the transfer of certain assets from
Expedition Trading Company ("Expedition") which also retained a 20% ownership
interest in ICE. The Company owns an 80% ownership interest in ICE which
entitles the Company to receive 80% of the allocations of profits and losses
and 80% of all cash and in-kind distributions, if any, which may be made by
ICE to members in the future, including distributions of assets or the
proceeds from the sale of assets in the liquidation of 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
Offering Prices Not Necessarily Indicative of the Actual Value of the
Company. The offering price of the Shares was determined by negotiation
between the Company and the Representative and is 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."
Dilution to Investors. At June 30, 1997, after giving effect to the Share
Return, the Company had net tangible book value of $4,702,060 or $1.81 per
Share based upon 2,600,000 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
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<PAGE>
June 30, 1997, would have been $8,392,060 or $2.30 per Share. This represents
an immediate increase of $0.49 per Share to current stockholders and an
immediate dilution of $2.70 per Share or 54% to the investors in this
offering. See "Dilution."
Underwriters' Influence on the Market. A significant number of Shares may be
sold to customers of the Underwriters. Such customers may subsequently engage
in transactions for the sale or purchase of such Shares 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 Shares. To the extent the 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 Shares. 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
Shares at such time, the Underwriters' discontinuance could adversely affect
the price and liquidity of the Shares.
Lack of Dividends. The Company has not paid any dividends since inception.
The Board of Directors does not intend to declare payment of any dividends in
the foreseeable future. See "Dividend Policy."
Possible Illiquidity of Trading Market. The Shares are expected to be
eligible for initial quotation on the NASDAQ SmallCap Market upon completion
of this offering which may be a significantly less liquid market than the
NASDAQ National Market. Moreover, if the Company should experience losses from
operations, it may be unable to maintain the standards for continued quotation
on the NASDAQ SmallCap Market, and the Shares could be subject to removal from
the NASDAQ SmallCap Market. Trading, if any, in the Common Stock would
therefore be conducted in the over-the-counter market on an electronic
bulletin board established for securities that do not meet the NASDAQ SmallCap
Market Listing requirements, or in what are commonly referred to as the "pink
sheets." As a result, an investor would find it more difficult to dispose of,
or to obtain accurate quotations as to the price of, the Company's Common
Stock. In addition, if the Company's Common Stock were removed from the NASDAQ
SmallCap Market, it would be subject to so-called "penny stock" rules that
impose additional sales practice and market making requirements on broker-
dealers who sell and/or make a market in such securities. As such, broker-
dealers at any date after the offering, to the extent that the Company's
Common Stock were to become subject to the "penny stock" rules, would be
required in connection with transactions in the Company's Common Stock, to
provide customers with required risk disclosure documents, disclose quotation
and compensation information and provide monthly price information and other
required information. Consequently, removal from the NASDAQ SmallCap Market,
if it were to occur, could affect the ability or willingness of broker-dealers
to sell and/or make a market in the Company's Common Stock and the ability of
purchasers of the Company's Common Stock to sell their securities in the
secondary market. In addition, if the market price of the Company's Common
Stock is less than $5.00 per share, the Company may become subject to certain
penny stock rules even if still quoted on the NASDAQ SmallCap Market. While
such penny stock rules should not affect the quotation of the Company's Common
Stock on the NASDAQ SmallCap Market, such rules may further limit the market
liquidity of the Common Stock and the ability of purchasers in this offering
to sell such securities in the secondary market.
Currently Restricted Shares Will Be Eligible for Future Sale. Upon
consummation of this offering, the Company will have 3,600,000 Shares
outstanding (excluding 50,000 shares of Common Stock issuable to the Bridge
Lenders) of which the 1,000,000 Shares offered hereby will be freely tradeable
without restriction or further registration under the Securities Act. The
remaining 2,600,000 outstanding Shares, 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 all said 2,600,000 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 the date of this
Prospectus. 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 for at least one year is entitled to
sell, within any three-month period, a number of shares that does not exceed
the
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<PAGE>
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 for at least two years is
entitled to sell such shares under Rule 144 without regard to any of the
volume limitations described above.
Upon the consummation of this offering, the Company will issue 50,000 shares
of Common Stock and warrants to purchase an additional 100,000 shares to the
Bridge Lenders. These shares, warrants and shares underlying the warrants are
being registered simultaneously with this offering for resale by the holders
thereof from time to time. The holders 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 the 50,000 shares for one year following the
offering, provided, however, that they will be released from this lock-up if
the Common Stock trades at 150% or more of the public offering price for three
consecutive days.
The Company is authorized to issue 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, in addition to the warrants issuable to the Bridge Lenders, the
Company will have outstanding warrants exercisable to purchase 100,000 Shares
which will be issued to the Representative. 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 under Rule 144 may have a depressive effect upon the
price of the Common Stock.
Substantial Portion of Proceeds Used for Repayment of Debt. A substantial
portion of the proceeds of this offering ($2,350,155 or 63.7%) will be used
for repayment of debt, including $200,155 to be paid to Mr. Stonebraker, the
President of the Company. Interest rates under Mr. Stonebraker's notes range
from 12% to 25% per annum, which generally reflect the interest costs incurred
by Mr. Stonebraker to enable him to advance the funds to the Company.
Warrants May Create Dilution of Ownership. 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 100,000 Shares. In addition,
the Bridge Lenders will receive warrants to purchase 100,000 shares.
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. The Bridge
Lender warrants will be exercisable commencing with the date of this
Prospectus and for three years thereafter, at an exercise price equal to 150%
of the initial public offering price of the Shares. Holders of these warrants
are given the opportunity to profit from a rise in the market price of the
Shares 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" and "Additional Registered Securities. "
Forward Looking Statements May Materially Differ from Actual Financial
Results. 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, investors should be aware 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
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<PAGE>
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.
No Prior Public Market; Determination of Offering Price May Bear No
Relationship to Market Price After Offering; Possible Volatility of Stock
Price. Prior to this offering, there has been no public market for the
Company's Shares and there can be no assurance that an active trading market
for the Shares 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 at the price quoted, or at all. The
initial public offering price for the Shares 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 subsequent to this
offering. Following this offering, the market price for the Shares 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 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 May Deter Change of Control. 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."
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USE OF PROCEEDS
The net proceeds to the Company from this offering, after deduction of
estimated offering expenses and underwriting discounts of $1,310,000 will be
approximately $3,690,000, assuming a per Share offering price of
$5.00 ($4,342,500 if the over-allotment option on the Shares is exercised in
full). Management anticipates that the net proceeds will be applied with the
following priority during the next twelve month period:
<TABLE>
<CAPTION>
DESCRIPTION OF USE AMOUNT PERCENT
------------------ ---------- -------
<S> <C> <C>
Repayment of Loan(1) ........................................ $1,500,000 40.7
Capital Equipment--Sierra Materials(2)....................... 600,000 16.3
Repayment of Liabilities--Sierra Materials(3)................ 650,000 17.6
Repayment of notes to stockholder(4)......................... 200,155 5.4
Working Capital(5)........................................... 739,845 20.0
---------- ----
Total.................................................... $3,690,000 100
========== ====
</TABLE>
- --------
(1) 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 loans 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. The proceeds of these loans were used by
the Company as follows: Apollo and Reynolds working capital, $808,000;
Sierra Materials working capital, $360,000; and general corporate expenses
of $332,000.
(2) The Company intends to purchase certain capital equipment necessary for an
additional production line, which represents approximately 50% of total
capital equipment which may be purchased. Management anticipates obtaining
additional financing for the balance of such equipment or, if available,
using cash from operations.
(3) The Company intends to use these funds to repay certain liabilities of
Sierra Materials which include $534,000 needed to eliminate the personal
guarantees of the prior shareholders of Sierra Materials and to eliminate
the obligation of the Company to make future royalty payments. See
"Consolidated Financial Statements" footnote 2, Acquisitions.
(4) The Company had outstanding notes payable to Mel Stonebraker in the amount
of $112,496 at June 30, 1997. Subsequent to June 30, 1997 the Company
entered into an additional note payable to Mr. Stonebraker in the amount
of $87,659. 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 between August 1998 and October
1999. The Company used the proceeds of Mr. Stonebraker's loans for working
capital. See "Certain Transactions."
(5) Part of the working capital may be used for Apollo marketing and sales,
for the Pentiumatics manufacturing facility, or for additional capital
equipment for Sierra Materials. Working capital will be increased by an
amount equal to the expenses of the offering that have been prepaid. The
Company had prepaid approximately $370,000 as of August 4, 1997.
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,
unanticipated complications, delays or expenses, in developing of
Pentiumatic's manufacturing facility. 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 June 30, 1997, and as adjusted to give effect to the sale of
the Shares offered hereby and the initial application of the estimated net
proceeds therefrom and giving effect to the Share Return. 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 notes thereto included in this
Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
AS
ACTUAL ADJUSTED
---------- ----------
<S> <C> <C>
Cash.................................................... $1,806,705 3,349,985
Short term debt and current portion of long term
debt(1)(2)............................................. 5,508,824 3,408,913
========== ==========
Long term debt, excluding current portion(1)............ 1,892,123 1,845,314
Minority interests in net assets of subsidiaries........ 755,823 755,823
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;
3,650,000 shares issued and outstanding, as adjusted.. 3,450 3,650
Additional paid-in capital.............................. 8,347,333 12,037,133
Accumulated deficit..................................... (2,834,977) (2,834,977)
Foreign currency translation adjustment................. 154,000 154,000
---------- ----------
Total stockholders' equity.............................. 5,669,806 9,359,806
---------- ----------
Total capitalization.................................... $8,317,752 11,960,943
========== ==========
</TABLE>
- --------
(1) Certain obligations are in connection with the Company's acquisition of
intangible assets by ICE. See Financial Statements included herein.
(2) 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 other than in the agreements relating to the Private
Placement, which restrictions will cease when the bridge loans are paid with
the proceeds of this offering. 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. The Board of Directors does not intend to
declare payment of any dividends in the foreseeable future. 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 offered hereby at
an assumed Price to Public of $5.00. The net tangible book value of the
Company's Common Stock at June 30, 1997 was $4,702,060 or $1.81 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 June 30, 1997, as adjusted for
the Share Return. See "Capitalization." "Pro forma net tangible book value
dilution per share" represents the difference between the Price to Public per
Share 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 June 30, 1997 other than to give effect to the sale of the Shares
offered hereby (net of underwriting discounts and estimated offering expenses
of $1,310,000), the net tangible book value of the Company at June 30, 1997
would have been $8,392,060 or $2.30 per share. This represents an immediate
increase in net tangible book value to the existing stockholders of $0.49 per
share and an immediate net tangible book value dilution to purchasers of the
Shares of $2.70 per Share, as illustrated by the following table:
<TABLE>
<S> <C> <C>
Assumed Price to Public per Share............................. $5.00
Net tangible book value per share of Common Stock before of-
fering....................................................... $1.81
Increase per share of Common Stock attributable to new invest-
ors.......................................................... .49
Adjusted net tangible book value per Share of Common Stock af-
ter offering................................................. 2.30
Dilution in net tangible book value per Share of Common Stock
to new investors............................................. $2.70
=====
Dilution per share of Common Stock as a percentage of offering
price........................................................ 54%
</TABLE>
The following table summarizes as of July 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 AVERAGE
----------------- ------------------------PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 2,600,000 72% $ 8,500,000 63% $3.27
New stockholders(1)..... 1,000,000 28% 5,000,000 37% 5.00
--------- ---- ------------- ------
Total................. 3,600,000 100% 13,500,000 100%
========= ==== ============= ======
</TABLE>
- --------
(1) Assumes Price to Public of $5.00 per Share with 1,000,000 Shares sold in
this offering. Excludes 50,000 shares and warrants to purchase 100,000
shares which will be issued after this offering in connection with the
1997 Private Placement.
17
<PAGE>
SELECTED CONSOLIDATED 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 six months ended June 30,
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 six months ended June 30, 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, SIX MONTHS ENDED JUNE 30,
---------------------------------- -------------------------------------
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 20 12,750 13,683
Cost of goods sold...... -- (4,169) (17,881) (23) (9,784) (10,622)
--------- --------- --------- --------- --------- ---------
Gross profit (loss)..... -- 1,284 5,641 (3) 2,966 3,061
Selling, general and ad-
ministrative expenses.. (371) (2,308) (6,856) (238) (4,072) (4,233)
--------- --------- --------- --------- --------- ---------
Operating loss.......... (371) (1,024) (1,215) (241) (1,106) (1,172)
Other income (expense),
net.................... -- 92 (106) -- (632)(6) (604)
Income tax benefit (ex-
pense)................. -- -- (248) -- 181 181
Minority interests...... -- (6) (6) -- 48 60
--------- --------- --------- --------- --------- ---------
Net loss................ $ (371) (938) (241) (1,509) --
========= ========= ========= =========
Net loss per share...... $ (0.11) (0.27) (0.07) (0.44) --
========= ========= ========= =========
Pro forma net loss...... $ (1,575) (1,535)
========= =========
Pro forma net loss per
share(3)............... $ (0.46) (0.44)
========= =========
Shares used in computing
net loss per share and
pro forma net loss per
share(3)(5)............ 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000 3,450,000
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------
DECEMBER 31, AS ADJUSTED
1996 ACTUAL (2)(4)
------------- ------ -----------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash........................................ $ 305 1,807 3,350
Working capital (deficit)................... 1,960 (516) 3,127
Total assets................................ 11,799 19,717 21,260
Total liabilities........................... 6,563 13,291 11,144
Minority interests in net assets of subsidi-
aries...................................... 210 756 756
Total stockholders' equity.................. 5,027 5,670 9,360
</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 Apollo, Apollo U.S.,
Reynolds and an acquired manufacturing facility for the nine months ended
September 30, 1996 (collectively, the "Apollo entities"), and the
historical financial statements of Sierra Materials for ten months period
ended 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 for the period January 1, 1997 to March 31,
1997.
(3) Calculated as described in Note 1 to Consolidated Financial Statements.
(4) Pro forma as adjusted amounts reflect the sale of 1,000,000 Shares as
contemplated by this Prospectus at an assumed price of $5.00 per Share,
net of $1,310,000 of estimated offering expenses including the non-
accountable expense allowance and underwriting discounts and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
(5) Subsequent to June 30, 1997, the Company retired 850,000 shares of Common
Stock contributed back by the Company's stockholders.
(6) Approximately $394,000 of this amount is attributable to debt financing
costs associated with the Private Placement (see "Private Placement").
18
<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." Such statements are subject to risks,
uncertainties and other factors that could cause actual results to differ
materially from future results expressed or implied by such 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 revenues 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.
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, composite ski
poles and javelins. The Company also 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 manufactures its Apollo golf shafts in its manufacturing facility in
Oldbury, England, its Reynolds cycle tubing in Tyseley, England, its advanced
composite materials in San Diego, California and intends on manufacturing
extruded aluminum alloys in Southeast Asia for such products as cycle tubing,
ski poles and tennis rackets. The Company's ICE products are assembled in
Heber City, Utah.
Management anticipates that technology, price, quality and service will be
determining factors in the future success of the Company's current brand name
products which principally include golf shafts, ski poles and cycle tubing.
With this strategy in mind, the Company made two investments in 1997. The
Company acquired an 80% interest in Sierra Materials in March and acquired its
interest in Pentiumatics in April. See "Acquisition History."
Located in San Diego, California, Sierra Materials manufactures advanced
composite materials made primarily from carbon fiber, fiberglass and Kevlar.
Sierra Materials sells its products to manufacturers of sports and recreation
equipment. In the future, Sierra Materials intends on selling product to a
third party in Southeast Asia who will use the product, in part, to
manufacture graphite golf shafts to be distributed by Apollo under an
exclusive distribution agreement. See "Apollo Golf Shafts." The Company
intends on using a portion of the proceeds from the offering for capital
equipment purchases to expand Sierra Materials manufacturing capacity. See
"Use of Proceeds."
Pentiumatics is in the process of constructing a thirty thousand square foot
aluminum extrusion factory in Southeast Asia. Pentiumatics will manufacture
aluminum cycle tubes and aluminum ski poles to be sold under the Reynolds and
ICE brand names, respectively. In addition, Pentiumatics intends to sell
extruded aluminum to unrelated third parties.
The addition of Pentiumatics is expected to enhance the Company's strategy
by adding extruded aluminum alloy to its manufacturing base. This would mean
that the Company could produce 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 completing the construction of the factory
19
<PAGE>
to be located in Southeast Asia, 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.
However, there can be no assurance that the Company will finish the
construction of the aluminum extrusion factory or that the Company will
produce extruded aluminum alloy.
Source of Sales
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'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 is anticipated to lessen the
Company's dependence on the sale of golf and cycle products as the principal
source of its sales. During the year ending 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 manufacturing of steel golf shafts and the Company does
not anticipate additional capacity coming on line from any new competitors.
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. 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 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 equipment catalogs and custom
club makers ("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 an exclusive
distribution agreement with a Southeast Asian company whereby the Company will
distribute graphite golf shafts utilizing the Company's technology and
specifications and believes that with Apollo's established sales and
distribution channels 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, HST, 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.
20
<PAGE>
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, and Wilson Sporting Goods Company. For the year
ended December 31, 1996, Apollo had approximately 700 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
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 39 Tour de
France races were won with bikes made from Reynolds' 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 investment in Pentiumatics and the introduction of
an aluminum cycle tubing product line.
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 greater cash flows for the Company
throughout the year.
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 depreciation 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
The Company analyzes its results from operations into two categories: (1)
"United Kingdom (UK)" which consists of sales and corresponding cost of sales
of all product sold from the United Kingdom, with the exception of product
sold to Apollo U.S., and all selling, general, administrative, interest and
other expenses incurred by Apollo and Reynolds and (2) "U.S." which consists
of sales and corresponding cost of sales of all product sold from the United
States and all selling, general, administrative, interest and other expenses
incurred by Apollo U.S., Sierra Materials and ICE and general corporate
expenses incurred in the United States. Pentiumatics is not yet operational.
The Company accounts for its foreign operations in the local functional
currency, the Pound Sterling for United Kingdom operations and the Malaysian
Ringgit for Pentiumatics. These amounts are translated into the U.S. dollar
for financial reporting purposes. Balance Sheet amounts are translated using
the period end exchange rate. Statement of Operations amounts are translated
using the average exchange rate for the period. Translation gains/losses are
reflected in Stockholders' equity (deficit) in the line item, "Foreign
currency translation adjustment." The risks inherent in maintaining assets and
liabilities and entering into transactions denominated in foreign currencies
increases volatility in reported results of operations and stockholders'
equity due to exchange rate differences between the U.S. dollar and the other
currencies. The Company enters into forward foreign exchange contracts, from
time to time, to "fix" the exchange rate for specific sales from the U.K. to
the U.S. The contracts are "marked" to market at each period end. Gains and
losses on the contracts are recognized currently in the Statement of
Operations. Due to significant volatility between the U.S. dollar and the U.K.
Pound Sterling, the Company's Statement of Operations could be significantly
impacted by exchange rate changes in these currencies.
21
<PAGE>
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., ICE, Sierra Materials and Pentiumatics. See
"Acquisition History." 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 and
resulting net operating loss for the six months ended June 30, 1997 in
comparison to the six months ended June 30, 1996 and for the year ended
December 31, 1996 compared to the year ended December 31, 1995. Apollo,
Reynolds, Apollo U.S. and ICE were acquired in September 1996. The operating
results of these acquired entities are reflected only in the six months ended
June 30, 1997 and not for the six months ended June 30,1996 and from October
1, 1996 to December 31, 1996 for the year ended December 31, 1996. In March
and April of 1997 the Company acquired its interest in Sierra Materials and
Pentiumatics, respectively. The effects of these acquisitions are included in
the interim consolidated balance sheet of the Company as of June 30, 1997 and
in the interim consolidated statement of operations for the six months ended
June 30, 1997.
SIX MONTHS ENDED JUNE 30, 1997 AND 1996.
The Company had net sales of $12,750,000 for the six months ended June 30,
1997 compared to $20,000 for the comparable period in 1996. Net sales for the
six months ended June 30, 1997 from UK operations were $4,339,000. The Company
did not have any UK sales, cost of sales or selling, general and
administrative costs for the six months ended June 30, 1996. Net sales from
U.S. operations were $8,411,000 for the six months ended June 30, 1997
compared to $20,000 for the comparable period in 1996.
The Company had a gross profit of $2,966,000 for the six months ended June
30, 1997 compared to $(3,000) for the comparable period in 1996. Gross profit
from UK operations was $1,158,000 for the six months ended June 30, 1997.
Gross profit from U.S. operations was $1,808,000 for the six months ended June
30, 1997 compared to $(3,000) for the comparable period in 1996.
The Company's selling, general and administrative expenses increased to
$4,072,000 for the six months ended June 30, 1997 compared to $238,000 for the
comparable period in 1996. Selling, general and administrative expenses from
UK operations were $2,623,000 for the six months ending June 30, 1997.
Selling, general and administrative expenses from U.S. operations were
$1,449,000 for the six months ended June 30, 1997 compared to $238,000 for the
comparable period in 1996.
The Company incurred an operating loss of $1,106,000 for the six months
ended June 30, 1997 compared to a $241,000 operating loss for the comparable
period in 1996. Operating loss from UK operations was $1,465,000 for the six
months ended June 30, 1997. The Company did not have UK operating income for
the six months ended June 30, 1996. Operating income from U.S. operations was
$359,000 for the six months ended June 30, 1997 compared to an operating loss
of $241,000 for the comparable period in 1996.
The disproportionate operating loss from UK operations compared to U.S.
operations is a result of Apollo's disproportionate share of selling, general
and administrative costs and Apollo's inter company sales. The majority of
selling, general and administrative expenses incurred by the Apollo Group
(Apollo and Apollo U.S.) are incurred and recognized in the UK by Apollo.
Apollo U.S. has significantly less selling, general and administrative
expenses. Apollo's inter company sales, corresponding cost of sales and
unrealized profit in inventory are eliminated upon consolidation for the six
months ended June 30, 1997. Sales, corresponding cost of sales and profit in
inventory are recognized by Apollo U.S., and therefore included in U.S.
operations, once shipment is made to its customers.
The Company had $200,000 in interest expense for the six months ended June
30, 1997; $77,000 from UK operations and $123,000 from U.S. operations. No
interest expense was incurred for the six months ending June 30, 1996. The
increase in interest expense is primarily the result of the Company's credit
facilities in the United States and the United Kingdom and interest on the
remaining purchase obligation for ICE.
22
<PAGE>
The Company has entered into certain forward currency exchange contracts to
hedge its exposures to changes in currency exchange rates primarily between
the U.S. dollar and the UK pound sterling. These transactions resulted in
$39,000 in losses from UK operations for the six months ended June 30, 1997.
No such transactions took place for the six months ended June 30, 1996.
The Company entered into two secured promissory notes with Bridge Lenders in
1997 for $1,500,000. For the six months ended June 30, 1997, the Company
incurred $394,000 in debt financing costs from U.S. operations in
consideration of the notes payable. No such transactions took place for the
six months ended June 30, 1996.
The Company recorded an income tax benefit of $181,000 for the six months
ended June 30, 1997 primarily as a result of losses generated by Apollo in the
United Kingdom. Taxable income (loss) by country is determined under the tax
regulations of the respective taxing authorities, and varies significantly
from the measurement bases utilized for financial reporting purposes.The
losses will be utilized to offset future taxable income in the United Kingdom.
No such income tax benefits existed for the six months ended June 30, 1996.
The Company incurred a net loss of $1,509,000; $1,400,000 from UK operations
and $109,000 from U.S. operations, for the six months ended June 30, 1997
compared to a net loss of $241,000 for the comparable period in 1996.
Management attributes the increase in loss primarily to lower than expected
sales of Apollo and ICE, manufacturing material usage inefficiencies at Sierra
Materials, debt financing costs and other general corporate expenses.
In order to become profitable, the Company must increase sales while
effectively managing costs. Profitability depends to a large extent on
management's ability to increase sales, reduce selling, general, and
administrative costs, outsource the manufacturing of graphite shafts, more
efficiently utilize existing plant capacities at Apollo and Reynolds and
expand manufacturing capacity at Sierra Materials, commencing manufacturing at
Pentiumatics, and by acquiring companies whose businesses would be
complementary to, and compatible with, the existing business of the Company's
subsidiaries. Management does not expect the Company to attain profitability
in 1997. There can be no assurance that the Company will be able to achieve
these goals or attain profitability in the future.
YEARS ENDED DECEMBER 31, 1996 AND 1995
The Company had net sales of $5,453,000 for the year ended December 31,
1996, of which $2,499,000 were from UK operations and $2,954,000 were from
U.S. operations. The Company did not have any sales or cost of sales for the
year ended December 31, 1995.
The Company had a gross profit of $1,284,000 for the year ended December 31,
1996, of which $626,000 was from UK operations and $658,000 was from U.S.
operations.
The Company's selling, general and administrative expenses increased to
$2,308,000 for the year ended December 31, 1996 compared to $371,000 for the
comparable period in 1995. Selling, general and administrative expenses were
$1,348,000 from UK operations and $960,000 from U.S. operations for the year
ended December 31, 1996. All selling, general and administrative costs for the
year ended December 31, 1995 were from U.S. operations.
The Company incurred an operating loss of $1,024,000 for the year ended
December 31, 1996 compared to an operating loss of $371,000 for the comparable
period in 1995. Operating loss from UK operations was $722,000 for the year
ended December 31, 1996. Operating loss from U.S. operations was $302,000 for
the year ended December 31, 1996 compared to an operating loss of $371,000 for
the comparable period in 1995. The operating loss of $371,000 for the year
ended December 31, 1995 was from U.S. operations.
Interest expense for the year ended December 31, 1996 was $35,000; $16,000
from UK operations and $19,000 from U.S. operations. The Company did not have
interest expense for the year ended December 31, 1995.
The Company incurred a gain of $127,000 on forward currency exchange
contracts for the year ended December 31, 1996, all of which was from UK
operations. The Company did not have any forward currency exchanges gains or
losses for the year ended December 31, 1995.
23
<PAGE>
The Company incurred a net loss of $938,000; $611,000 from UK operations and
$327,000 from U.S. operations for the year ended December 31, 1996, compared
to a net loss of $371,000 for the year ended December 31, 1995 entirely from
U.S. operations.
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, Apollo U.S., ICE and general corporate expenses and the
pro forma 1996 data reflects the pro forma combined results of those entities
as though the acquisitions were effective January 1, 1996. The June 30, 1997
data is attributable to Apollo, Reynolds, Apollo U.S., ICE, Sierra Materials,
Pentiumatics and general corporate expenses. The pro forma 1997 data reflects
the combined results of those entities and of Sierra Materials and
Pentiumatics as though these two acquisitions were effective January 1, 1997.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1996 JUNE 30, 1997
-------------------- --------------------
HISTORICAL PRO FORMA HISTORICAL PRO FORMA
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net sales........................... 100% 100 100 100
Cost of goods sold.................. (77) (76) (77) (78)
Gross profit...................... 23 24 23 22
Selling, general and administrative
expenses........................... (42) (29) (32) (31)
Operating loss...................... (19) (5) (9) (9)
Interest expense.................... (1) (1) (2) (1)
Gains on forward exchange contracts,
net................................ 3 -- -- --
Debt financing costs................ -- -- (3) (3)
Loss before income taxes and minor-
ity interest....................... (17) (6) (14) (13)
Income tax benefit (expense)........ -- (1) 2 1
Minority interests.................. -- -- -- --
Net loss.......................... (17)% (7) (12) (12)
</TABLE>
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
As a result of the Company's present operations being primarily dependent
upon Apollo sales, management expects for the foreseeable future that the
Company's business will remain seasonal. 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 balance cash flows.
24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, the Company had a working capital deficit of $516,000. As
of June 30, 1997 the Company had two outstanding notes payable. One note
payable 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.
Amounts outstanding on the note are secured by substantially all Apollo's
assets. At June 30, 1997 amounts outstanding under the note payable were
$592,000, net of $1,411,000 cash on hand. The credit facility expired on July
31, 1997. The Company received oral approval of an extension of the facility
through April 1998, and is awaiting written confirmation.
The second note payable 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 U.S. At June 30, 1997, $500,000 was outstanding. The line of
credit expires on May 31, 1998.
Management believes that the combination of remaining borrowings under the
foreign line of credit of $693,000, the Company's cash on hand of $396,000,
excluding the cash offset against the foreign line of credit, and the sale of
Shares will provide sufficient cash to meet the Company's financial
obligations as they come due. However, there can be no assurance that the
Company will be able to meet its financial obligations as they come due.
The Company incurred a loss of $938,000 in the year ended December 31, 1996
and $371,000 in the year ended December 31, 1995. At December 31, 1996,
amounts outstanding on the foreign line of credit were $738,000 and amounts
outstanding on the second note payable were $300,000.
Subsequent to December 31, 1996, the Company acquired a controlling interest
in 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 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 the debt
agreements will be extended.
As of December 31, 1996, the Company had $305,000 in cash. Working capital
as of December 31, 1996, totaled $1,960,000.
Net cash used in operating activities was $345,000 and $1,117,000 in 1995
and 1996, respectively. The primary uses of cash were 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 $5,046,000 was principally the
acquisition of businesses in 1996.
Net cash provided by financing activities was $351,000 and $6,226,000 in
1995 and 1996, respectively. The primary source of cash was capital
contributions by one of the Company's prior 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 would require additional
debt or equity financing, if it were to engage in a material acquisition in
the future.
25
<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, composite ski poles
and javelins. The Company also 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, 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, Mizuno
Golf Company, Northwestern Golf, 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 39 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 equipment and
recreational product industry. The Company intends to purchase companies in the
sports equipment and recreational products industry, which it believes are
undervalued, having 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. In furtherance of
this strategy, Coyote has acquired sole ownership of three companies (i.e.,
Apollo, Apollo U.S., and Reynolds) and a controlling interest in three other
companies (i.e., ICE, Sierra Materials and Pentiumatics) since September 1,
1996. The following table provides summary information about each of these
acquired companies.
26
<PAGE>
<TABLE>
<CAPTION>
% OF PRO FORMA(/1/)
REVENUE
% OWNED BY PRINCIPAL -----------------------
NAME LOCATION DATE ACQUIRED THE COMPANY PRODUCTS OR ACTIVITY 12/31/96 6/30/97
---- ----------------- ---------------- ----------- ---------------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Apollo Golf, Inc. New Jersey 9/18/96 100% U.S. distributor 47% 49%
corporation for certain
located in Company
Chicago, IL products,
primarily golf
shafts
Apollo Sports UK (Oldbury, 9/18/96 100% Steel golf shafts; 28% 25%
Technologies, England) javelins
Limited
Sierra Materials, LLC(2) Colorado limited 3/27/97 (Date of 80% Graphite 14% 18%
liability company acquisition of composite
located in San shares of Cape materials;
Diego, CA Composites Inc.) advanced
composite
materials
Reynolds Cycle UK (Tyseley, 9/18/96 100% Steel cycle tubesets 9% 7%
Technology, Limited England)
ICE*USA LLC Colorado limited 9/18/96 80% Composite ski 2% 1%
liability company poles; aluminum
located in Utah ski poles; ski helmets
and San Diego,
CA
Pentiumatics Sdn., Malaysia 4/1/97 77% Extruded aluminum -- --
Bhd.
</TABLE>
- --------
(1) Pro forma financial information for the year ended December 31, 1996 is
based upon the historical consolidated financial statements of the Company
for the year ended December 31, 1996, the historical combined financial
statements of Apollo, Apollo U.S., Reynolds and an acquired 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. Pro forma
financial information for the six months ended June 30, 1997 is based upon
the historical consolidated financial statements of the Company for the
six months ended June 30, 1997 and the historical financial statements of
Sierra Materials for the three months ended March 31, 1997. See "Financial
Statements--Pro Forma Combined Financial Statements (unaudited)." For
geographic operating information, see Footnote 11 to Consolidated
Financial Statements.
(2) Owns 100% of Cape Composites Inc.
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, advantages that
historically have 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 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.
27
<PAGE>
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, and in the retail after market to catalogs and custom club
makers. According to management estimates, steel golf shafts represent a total
worldwide wholesale market of approximately 29.5 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 46% 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 26 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 24% 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 18% of the U.S. market. Approximately 42% are sold in Europe and
the rest of the world, which management believes represents approximately 47%
of the steel golf shaft market in Europe and approximately 25% of the steel
golf shaft market in 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 somewhat 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.
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
28
<PAGE>
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 retail
after market consisting of the 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. Additionally, 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
engineered 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 its Technical
Director, Graeme Horwood, an industry recognized expert. 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. 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
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
29
<PAGE>
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 markets its steel golf shafts through a salaried
sales force directly to golf club manufacturers and custom club makers.
Apollo's sales force consists of four full time employees in the United States
and one full time employee in Europe. 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 in the foreseeable future.
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,
HST, 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 cycle tubesets, bike parts, handle
bars and wheel frames into new and existing markets.
History and Market
Reynolds and its predecessor businesses have been manufacturing steel tubing
for high end bicycle frames for 99 years. Reynolds cycle tubing has been the
winning bike in 27 of the last 39 Tour De France races. Currently, Reynolds has
under contract the U.S.A. National Road Racing Team (which generally comprises
a significant portion of the 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 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
30
<PAGE>
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 represent a market into which
Reynolds can extend its brand through introduction of new products.
Geographically, the major markets for the top 5% of bicycles sold are Western
Europe and the U.S., while the largest producers are physically in Taiwan and
Italy. 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)/631(TM) "Air Hardened" products were developed. These products give an
exceptional weight to strength and stiffness ratio not normally seen with
conventional steel alloys that is achieved by a unique air hardening process
that concentrates the stiffness in the frame geometry and strength in 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)/631(TM) products,
Reynolds also manufactures its 753(TM)/531(TM) manganese molybdenum series and
its 725(TM)/525(TM) and its 501(TM)/500(TM) chrome molybdenum 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 of tubesets in
Reynolds product line.
Reynolds Engineering, Design and Manufacturing
Reynolds currently manufactures its tubesets in a 20,000 square foot leased
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 the Company plans to expand its manufacturing into Southeast
Asia for both aluminum and steel. This will provide a competitive advantage to
increase market share, primarily with the U.S. OEM customers.
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 1998, through
the Pentiumatics facility in Southeast Asia, targeting its marketing at the
premium branded aluminum cycle tube market. Sales and marketing for Southeast
Asia will be done from the Pentiumatics facility.
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.
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<PAGE>
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, is a manufacturer of
graphite and other advanced composite materials, and a supplier of products
that are essential to ever expanding uses by manufacturers. The market for
Sierra Materials products is expanding because the products are being used in
a greater variety of applications. A significant portion of the production
capacity of Sierra Materials has been sold and management believes that the
additional manufacturing capacity planned to be acquired, in significant part
through the proceeds of this offering, will result in increased sales and
profitability.
Overview and Markets
Sierra Materials is a supplier of graphite and other advanced composite
materials primarily 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 combined with
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 material ("prepreg") made primarily from carbon fiber and
fiberglass; and coated fabrics, primarily woven fiberglass and Kevlar(TM). The
Company's finished composite materials are principally sold in rolls and are
subsequently incorporated by Sierra Materials' customers into manufactured
products.
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.
Because carbon fiber is as strong and durable as metal but lighter and more
versatile, it is used in many sporting goods applications where weight and
performance are critical factors. Sierra Materials' composite materials are
capable of being incorporated in a wide range of sports equipment and
recreational product applications. Uses of advanced composites currently
include the manufacture of golf shafts, fishing rods, hockey sticks, skis, ski
poles, snow boards, water skis, surfboards, sailboats, and tennis racquets.
Commercial applications other than sporting equipment 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 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 material or woven fabrics impregnated with resins. The
raw graphite comes into the factory in the form of a spool of yarn, where each
strand of yarn has between
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<PAGE>
1,000 to 50,000 filaments, depending on the specifications ordered. The
unidirectional prepreg is manufactured by spreading these thousands of
filaments (carbon or fiberglass) onto a resin coated paper and, by using
pressure and heat, impregnating the filaments with the resin. Both types of
materials are sold in roll form to meet specific customer requirements for
size and weight. The woven fabric prepreg is manufactured primarily of
fiberglass, carbon fiber or Kevlar(TM).
In 1997, the limiting factor affecting Sierra Materials' sales and earnings
growth is expected to be the availability of carbon fiber yarn. In 1995,
sports equipment and recreational products companies were fully embracing
carbon fiber as the material of choice. Usage of carbon fiber in the aerospace
industry was 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 early in 1998.
In 1997, management estimates that, on an industry basis, 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.
Sierra Materials is presently operating at near manufacturing capacity and
its sales are, accordingly, limited. A portion of the proceeds of this offerng
will be used to expand its manufacturing capacity.
Sierra Materials Sales and Marketing
According to the Suppliers of Advanced Composites Materials Association,
worldwide shipments of carbon fiber materials for the first half of 1995 was
over 12,000,000 pounds valued at over $280,000,000 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 suppliers of carbon fiber and resins; converters
(prepreggers), 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 prepreg into a finished product. While some companies, such as the
golf shaft manufacturer Aldila, have integrated into producing its own prepreg
materials, very few companies have fully integrated from basic materials to
end product.
Sierra Materials' sales to date have been realized with a limited formal
marketing program. Its sales have been primarily accomplished by industry
reputation. As of June 30, 1997, backlog of unfulfilled orders exceeded
$4,000,000.
Sierra Materials Competition
There are approximately 24 suppliers of carbon fiber prepreg worldwide.
Large suppliers include ICI Fiberite, Inc., Toray Composites America, Hexcel
Corp., Cytec Engineered Materials, Inc. and Newport Adhesive and Composites,
Inc. Currently, Toray Composites America, 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 that portion of the
composite ski pole market that is serviced 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.
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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 450 speciality shops nationwide and in Canada and Japan through
independent distributors. During the 1996-1997 ski season, ICE had
approximately 3% of the unit market share and approximately 6% 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 to the market. The
Company plans to introduce a new aluminum ski pole line which it intends to
manufacture at Pentiumatics. 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 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 will
introduce a line of high end aluminum poles to augment its traditional
composite product.
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 billion (source
Sporting Goods Intelligence--May 12, 1997).
The Company employs independent sales representatives to sell and promote
its products to approximatey 450 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 third party manufacture of composite poles
through the Pentiumatics 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 Goode 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
In April of 1997, the Company purchased all of the outstanding shares of
Pentiumatics for approximately $200,000 cash. At that time, Pentiumatics was
an existing Malaysian company that owned no significant assets other than
certain contract rights to purchase land and equipment. Subsequent to the
Company's initial purchase,
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<PAGE>
the Company contributed approximately $2,400,000 to Pentiumatics for stock in
order to assist Pentiumatics in acquiring land and building at a cost of
approximately $3,200,000 and equipment at a cost of approximately $670,000.
The land and equipment purchases and building construction contract were
entered into with unaffiliated third parties on an arms-length basis. The
Company intends to use these assets to build and operate an aluminum extrusion
factory. In July of 1997, Insular Mart Sdn Bhd, a Malaysian company
("Insular"), contributed additional funds into Pentiumatics to finalize the
above transactions, resulting in an ownership of 23% by Insular and 77%
ownership by the Company.
It is the Company's expectation that the 30,000 square foot factory will be
completed in the first half of 1998. 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 is expected to enhance the Company's strategy
by adding extruded aluminum alloy to its manufacturing base. This would mean
that the Company could produce 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 completing the construction of the factory, 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. There can be no assurance that the Company will finish the
construction of the aluminum extrusion factory or that the Company will
produce extruded aluminum alloy.
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.
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<PAGE>
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.
EMPLOYEES AND CONSULTANTS
The Company has 317 full time employees and one part time employee. 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.
INTELLECTUAL PROPERTY
The Company's success depends and will continue to depend in part on the
goodwill associated with its various trademarks including "APOLLO",
"ACCULITE", "MATCHFLEX", "MASTERFLEX", "SHADOW", and others. The Company has
sought and obtained trademark registrations, or has applications currently
pending, for these and other marks in the United States through the United
States Patent and Trademark Office and for a portion of these marks in many
foreign countries as well.
The Company owns no issued patents which relate to its technology or
products. As to the golf shafts produced and sold by the Company, there is one
currently pending application for a patent in Great Britain which relates to
producing frequency-matched shafts from a universal blank.
The Company has certain confidential and proprietary information including
confidential information relating to the operation of the Company's business,
sales and customer information, supplier information, and certain portions of
the manufacturing process which may be proprietary. While the Company has
taken reasonable steps to safeguard such information, there can be no
assurance that the steps that have been and 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.
RESEARCH AND DEVELOPMENT
Expenditures relating to the development of new products and processes,
including significant improvements and refinements to existing products
amounted to approximately $220,000 for the time period
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from September 18, 1996, the date that Apollo and Reynolds were acquired by
Coyote to December 31, 1996. During the nine months prior to the Company's
acquisition of Apollo, approximately $400,000 was spent on development of new
products and processes.
FACILITIES
The Company's executive offices are located in Boulder, Colorado pursuant to
a lease terminating in July, 1998. 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. Reynolds' currently manufactures its tubesets in a 20,000 square
foot leased facility in Tyseley, England. Apollo U.S. operates a 8,153 square
foot facility in Elk Grove, Illinois, pursuant to a lease which expires January
31, 2000. Sierra conducts its manufacturing operations in a 10,284 sq. ft.
facility in San Diego, California, pursuant to a sublease which expires in
February 1999. ICE operates two 1,000 square foot facilities in Heber, Utah,
pursuant to two leases, both of which expire on November 14, 1997.
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.
The Company is subject to the normal kind of claims from employees in heavy
industrial manufacturing operations. See "Risk Factors--Industrial Injuries".
ACQUISITION HISTORY
On September 18, 1996, the Company through a wholly-owned subsidiary,
acquired three affiliated entities, Apollo, a company registered in England and
Wales, Reynolds, a company registered in England and Wales, and Apollo Golf, a
New Jersey corporation (collectively, the "Apollo Entities"), and purchased
certain associated properties 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"). 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. The Company has retained an 80% interest in ICE. See
"Risk Factors--Substantial Purchase Obligation".
On March 27, 1997, the Company formed Sierra Materials, a Colorado limited
liability company which acquired all of the outstanding common stock of Cape
Composites, Inc. ("Cape"). Sierra Materials agreed to assume liabilities of
Cape in the amount of $778,088 and granted a 20% ownership interest to the
former owners of Cape, the Company retaining a 80% interest in Sierra
Materials.
In April 1997, the Company first acquired an ownership interest in an
existing Malaysian company, Pentiumatics. The Company and another unaffiliated
party subsequently financed the purchase by Pentiumatics of land, building and
equipment which will be incorporated into a proposed aluminum extrusion
facility which the Company believes should be completed in the fourth quarter
of 1997. See "Pentiumatics--Proposed Extruded Aluminum Alloys Facility".
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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
---- --- --------
<C> <C> <S>
Mel S. Stonebraker(1)... 45 Chief Executive Officer, President and Chairman
of the Board
James M. Probst(2)...... 39 Chief Operating Officer, Chief Financial Officer,
Secretary/Treasurer and Director
John Paul McNeill....... 26 Controller
James A. Pfeil.......... 42 Vice President
Jeffrey T. Kates(1)(2).. 36 Director
Don A. Forte(1)(2)...... 49 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit 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 Operating Officer, Chief
Financial 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.
John Paul McNeill, C.P.A. joined the Company in July 1997 as Controller.
Previously, Mr. McNeill was Assistant Controller of Cobra Golf, Inc., a
wholly-owned subsidiary of American Brands. Prior to his position at Cobra
Golf, Inc., he spent four years with the accounting firm of Ernst & Young LLP,
one year in the United Kingdom and three years in San Diego, California. Mr.
McNeill is knowledgeable in both U.S. and U.K. generally accepted accounting
principles. Mr. McNeill graduated high honors with a B.B.A. from the
University of Notre Dame in 1992.
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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.
Don A. Forte became a director of the Company in June 1997. For the past 25
years, Mr. Forte has been employed by the Johns Manville (JM) a leading
manufacturer of building products. Mr. Forte has held numerous positions in
his career with JM. His present position is Vice President of Manufacturing
and Engineering for the Insulation Group. Mr. Forte is currently responsible
for 16 manufacturing plants located in North America which manufacture fiber
glass insulation products for residential and commercial applications. Prior
to this assignment, Mr. Forte was the Vice President and General Manager of
JM's Filtration Division. The Filtration Division manufactures products in
four U.S. plant locations and distributes to customers worldwide. Mr. Forte
received his B.S. degree from Northern Illinois University in 1970 and an
M.B.A. degree from Xavior University in 1982.
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 Representative, to nominate and use its
best efforts to elect a designee of the Representative as a director of the
Company or, at the Representative'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 Representative does not intend to
exercise its right to designate such a person until shortly before the call of
the Company's first annual meeting of shareholders following the completion of
this offering.
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.
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<PAGE>
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 Reynolds. 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.
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. Snyder 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, Forte 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, Forte 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.
40
<PAGE>
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.
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
- --------------------------- ---- ---------- -------- --------------- ---------------------
<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 $ 91,470 $34,100 $14,474(2) -0-
Managing Director 1995 $ 86,818 $43,093 $13,791(2) -0-
Apollo & Reynolds 1994 $ 82,919 $30,821 $12,252(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 automatically renew for additional two
year periods unless either party notifies the other party that it does not
intend to renew the agreement. 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 earnings before
deduction of interest, taxes, depreciation and amortization 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 without cause 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 pursuant to which the officers are entitled to a continuation of
salary benefits if their employment is terminated by the Company without cause
or by them for good reason (such as a reduction in their compensation) within
two years after a change of control.
41
<PAGE>
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 pound sterling per year ($111,200 based upon the 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 on earnings for the steel golf
shaft business. During the year ended December 31, 1996, Mr. Taylor earned a
$34,100 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. It is anticipated that upon commencement of the
offering, the Board of Directors will grant options of approximately 300,000
shares to certain employees including Messrs. Stonebraker and Probst, who will
receive options to purchase 45,000 shares each under the employment agreements
entered into with the Company.
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 for the approximate three month period 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 $200,155 to the Company at various
times during the years ended December 31, 1996 and 1995 and after June 30,
1997. The loans are evidenced by notes that 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 between August 1998 and
October, 1999. The Company intends to repay these notes from the proceeds of
this offering. These loans were made by Mr. Stonebraker at his actual cost of
money.
On July 9, 1997, the former majority shareholder of the Company, who is no
longer affiliated with the Company, sold all of his 2,070,000 shares of Common
Stock to Messrs. Stonebraker and Probst, each of whom purchased 1,035,000
shares. Each purchaser paid $4,250,000 for shares purchased by him, payable in
the form of a promissory note bearing interest at 6 1/2% per annum due July 9,
2004. No payments of principal or interest are payable until January 1, 2001
at which time all accrued interest is due and payable. Thereafter, interest
shall be paid annually in arrears until July 9, 2004 when all accrued interest
and the full principal is due and payable. The holder of the notes agrees
that, upon any default in the notes, he will not seek to execute against or
make any claims of ownership to any capital shares of the Company or any of
its subsidiaries.
42
<PAGE>
Pursuant to the Share Return, on July 23, 1997, Messrs. Stonebraker and
Probst returned to the Company for cancellation 467,500 and 382,500 shares of
Common Stock, respectively, which were previously owned by them.
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 future
loans or other transactions, including forgiveness of loans, will be required
to be approved by a majority of the independent disinterested directors.
PRIVATE PLACEMENT
On April 4, 1997, the Company entered into two secured promissory notes with
the Bridge 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
50,000 shares of its Common Stock and warrants to purchase 100,000 shares at
the time the Company first offers shares of its capital stock pursuant to a
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 guaranties of
Messers. Stonebraker and Probst, the Company's two existing stockholders.
43
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of the date of this Prospectus, 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
OF BENEFICIAL
OWNERSHIP PERCENT OF CLASS
----------------- -----------------------
NAME AND ADDRESS BEFORE AFTER
OF BENEFICIAL OWNER SHARES(1) OFFERING(1) OFFERING(1)
- ------------------- ----------------- ----------- -----------
<S> <C> <C> <C>
Mel S. Stonebraker.................. 1,430,000(1) 55.0% 39.7%
2291 Arapahoe Avenue
Boulder, CO 80302
James M. Probst..................... 1,170,000(1) 45.0% 32.5%
2291 Arapahoe Avenue
Boulder, CO 80302
Jeffrey T. Kates.................... 0(2) -- --
3200 Robert T. Longway Blvd.
Flint, MI 48506
Don A. Forte........................ 0(2) -- --
717 Seventeenth Street
Denver, CO 80202
All executive officers and directors
as a group (4 Persons)............. 2,600,000(1) 100.0% 72.2%
</TABLE>
- --------
(1) Excludes seven year options to purchase up to 45,000 shares each to be
granted to Messrs. Stonebraker and Probst on the effective date of this
offering at the public offering price. The options vest in three annual
equal increments commencing one year from the date of grant if the Company
achieves 90% of its targeted earnings before deduction of interest, taxes,
depreciation and amortization as established by the Board of Directors.
(2) Excludes seven year options to purchase up to 15,000 shares to be granted
to Messrs. Kates and Forte on the effective date of this offering at the
public offering price. The options vest in three annual equal increments
commencing one year from the date of the grant.
ADDITIONAL REGISTERED SHARES
The shares of Common Stock issuable to the Bridge Lenders, which are not
being offered hereby, aggregating 50,000 shares, the warrants to purchase
100,000 shares as well as the 100,000 shares underlying those warrants are all
being registered simultaneously with this offering for resale by the Bridge
Lenders from time to time, provided that each of such persons has agreed with
the Company not to make any such sales until twelve months from the
consummation of this offering without the prior written consent of the
Representative in its sole discretion in each case unless the Common Stock
trades at 150% or more of the public offering price for three consecutive
days.
There are no material relationships between either of the Bridge Lenders and
the Company, nor have any such material relationships existed within the past
three years. The Company has been informed by the Representative that there
are no agreements between any of the Underwriters and any Bridge Lender
regarding the distribution of their Common Stock or warrants.
44
<PAGE>
The sale of the Common Stock or warrants by the Bridge Lenders may be
effected from time to time in transactions (which may include block
transactions by or for the account of the Bridge Lenders) in the over-the-
counter market or in negotiated transactions, a combination of such methods of
sale or otherwise. Sales may be made at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices.
The Bridge Lenders may effect such transactions by selling their securities
directly to purchasers through broker-dealers acting as agents for the Bridge
Lenders or to broker-dealers who may purchase shares as principals and
thereafter sell the securities from time to time in the over-the-counter
market, in negotiated transactions or otherwise. Such broker-dealers, if any,
may receive compensation in the form of discounts, concessions or commissions
from the Bridge Lenders and/or the purchasers from whom such broker-dealers
may act as agents or to whom they may sell as principals or otherwise (which
compensation as to a particular broker-dealer may exceed customary
commissions).
The Bridge Lenders and broker-dealers, if any, acting in connection with
such sales might be deemed to be "underwriters" within the meaning of Section
2(11) of the Securities Act and any commissions received by them and any
profit on the resale of the securities may be deemed underwriting discounts
and commissions under the Securities Act.
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,
copies of which have been filed as exhibits to the Registration Statement of
which this Prospectus is a part. As of the date of this Prospectus, the Common
Stock was held of record by two 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 2,600,000 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
45
<PAGE>
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.
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.
BRIDGE WARRANTS
An aggregate of 200,000 warrants which will be exercisable for an aggregate
of 100,000 shares of Common Stock will be issued to the Bridge Lenders shortly
after the consummation of this public offering. These warrants will have a
three year term and an exercise price equal to 150% of the public offering
price. The warrants will be subject to redemption by the Company for $.10 per
warrant if the closing high bid price of the Common Stock exceeds the warrant
exercise price by at least 50% during a period of at least 20 out of 30
trading days and if certain other conditions are satisfied.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 3,600,000 Shares of
Common Stock outstanding (3,750,500 shares if the Representative's over-
allotment option with respect to the Shares is exercised in full). In
addition, 50,000 shares will be issued to the Bridge Lenders shortly after
this offering. The 1,000,000 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 2,600,000 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. Holders of all said
2,600,000 shares have agreed that they will not, without the consent of the
Representative, offer to sell, contract to sell, or otherwise sell or dispose
of their stock for one year following this offering. Restricted securities may
be sold in open market transactions in compliance with Rule 144 if the
conditions 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 (36,500 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.
46
<PAGE>
Upon the consummation of this offering, the Company will issue 50,000 shares
and warrants to purchase an additional 100,000 shares to the Bridge Lenders.
These shares, warrants and shares underlying the warrants are being registered
simultaneously with this offering for resale by the holders thereof from time
to time. The holders 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 the 50,000 shares for one year following the offering,
provided, however, that they will be released from this lock-up if the Common
Stock trades at 150% or more of the public offering price for three
consecutive days.
The Company is authorized to issue 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, in addition to the warrants issuable to the Bridge Lenders, the
Company will have outstanding warrants exercisable to purchase 100,000 shares
of Common Stock which will be issued to the Representative. 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.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar with respect to the Company's Common Stock
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 as set forth opposite their respective names below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Cohig & Associates, Inc.......................................
---------
TOTAL....................................................... 1,000,000
=========
</TABLE>
The Shares 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 offered hereby if any are purchased.
The Company has granted the Representative an option, exercisable within 45
days from the effective date of the Registration Statement, to purchase up to
an additional number of Shares as will be equal to not more than 15% of the
total number of Shares initially offered at the initial public offering price
less the underwriting discount of $ per Share. The Representative may
exercise such option only for the purpose of covering any over-allotment in the
sale of the Shares offered hereby.
The Underwriters have advised the Company that the Underwriters propose to
offer the Shares directly to the public at the initial public offering price
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. 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 offered hereby to accounts over which they exercise discretionary
authority as to such sale.
The Company will pay the Representative a non-accountable expense allowance
of 3% of the offering proceeds, which will include proceeds from the
overallotment option to the extent exercised. The Company has paid to the
Representative $40,000 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 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.
48
<PAGE>
The Company will enter into a two-year consulting agreement with the
Representative pursuant to which the Representative will be paid $3,000 per
month. The entire consulting fee is payable upon the closing of this offering.
Although there is no contractual agreement or other obligation to do so,
officers, directors and affiliates of the Company may be sold a portion of the
Shares, 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 WARRANTS
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 100,000 warrants to purchase
100,000 shares of Common Stock at a price that is equal to the initial public
offering price for the Common Stock.
The Representative's Warrants shall be issued to the Representative and
thereafter may be transferred to one or more NASD members participating in the
offering. Such Representative's Warrants will be non-transferable for a period
of one year following the date of this Prospectus except to the Underwriters,
selling group members participating in the offering, and their respective bona
fide officers or partners. Each certificate representing the Representative's
Warrants subsequently issued shall bear a restrictive legend providing that
such securities shall remain non-transferable for the remainder of the one
year period following the date of this Prospectus. The Representative's
Warrants will also contain anti-dilution provisions for stock splits,
recombinations and reorganizations, 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.
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.
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 reports 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 Commission a Registration Statement under the Securities Act of 1933,
as amended, with respect to the sale of the Shares. This Prospectus, which is
part of the Registration Statement, does not contain all of the information
set forth in the Registration Statement and the
49
<PAGE>
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, 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
COYOTE SPORTS, INC. AND SUBSIDIARIES
<TABLE>
<S> <C>
PRO FORMA COMBINED FINANCIAL STATEMENTS (UNAUDITED)
Pro Forma Condensed Combined Balance Sheet as of June 30, 1997.......... F-3
Pro Forma Condensed Combined Statements of Operations for the year ended
December 31, 1996...................................................... F-4
Pro Forma Condensed Combined Statements of Operations for six months
ended June 30, 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 June
30, 1997 (unaudited)................................................... F-8
Consolidated Statements of Operations for the years ended December 31,
1995 and 1996 and six months ended June 30, 1996 and 1997 (unaudited).. F-9
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1995 and 1996 and six months ended June 30, 1997
(unaudited)............................................................ F-10
Consolidated Statements of Cash Flows for the years ended December 31,
1995 and 1996 and six months ended June 30, 1996 and 1997 (unaudited).. F-11
Notes to Consolidated Financial Statements.............................. F-12
TI APOLLO LIMITED, APOLLO GOLF, INC. AND TI REYNOLDS 531 LIMITED
HISTORICAL COMBINED FINANCIAL STATEMENTS
Independent Auditors' Report............................................ F-21
Combined Balance Sheets as of December 31, 1995 and September 30, 1996.. F-22
Combined Statements of Operations for the year ended December 31, 1995
and the nine months ended September 30, 1996........................... F-23
Combined Statements of Stockholders' Equity for the year ended December
31, 1995 and the nine months ended September 30, 1996.................. F-24
Combined Statements of Cash Flows for the year ended December 31, 1995
and the nine months ended September 30, 1996........................... F-25
Notes to Combined Financial Statements.................................. F-26
</TABLE>
F-1
<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. The 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 27, 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 six months ended June 30, 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 June 30, 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 six months ended June 30, 1997 which are based upon
available information. The pro forma statements do not purport to present 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-2
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
COYOTE ADJUSTMENTS COMBINED
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash.................................... $ 1,806,705 1,543,280 (a) 3,349,985
Receivables, net........................ 4,271,039 4,271,039
Inventories............................. 3,773,656 3,773,656
Prepaid expenses and other current as-
sets................................... 587,550 587,550
----------- ----------
Total current assets.................. 10,438,950 11,982,230
----------- ----------
Property, plant and equipment, net........ 8,310,059 8,310,059
Intangible assets, net.................... 967,746 967,746
----------- ---------- ----------
$19,716,755 1,543,280 21,260,035
=========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable........................... $ 4,726,940 (1,967,468)(a) 2,759,472
Current portion of long term debt....... 582,388 (19,947)(a) 562,441
Current portion of obligation payable
under purchase agreement............... 87,000 87,000
Current portion of related party notes
payable................................ 112,496 (112,496)(a) --
Payables to related parties............. 21,164 21,164
Accounts payable........................ 2,917,850 2,917,850
Taxes payable........................... 287,000 287,000
Accrued expenses........................ 2,220,165 2,220,165
----------- ----------
Total current liabilities............. 10,955,003 8,855,092
----------- ----------
Long term debt, net of current portion.. 348,521 (46,809)(a) 301,712
Obligation payable under purchase
agreement, net of current portion...... 728,000 728,000
Related party notes payable, net of
current portion ....................... 815,602 815,602
Deferred tax liability.................. 444,000 444,000
----------- ----------
Total liabilities..................... 13,291,126 11,144,406
Minority interests in net assets of sub-
sidiaries................................ 755,823 755,823
Stockholders' equity:
Common stock............................ 3,450 200 (a) 3,650
Additional paid-in capital.............. 8,347,333 3,689,800 (a) 12,037,133
Accumulated deficit..................... (2,834,977) (2,834,977)
Foreign currency translation
adjustment............................. 154,000 154,000
----------- ----------
Total stockholders' equity............ 5,669,806 9,359,806
----------- ---------- ----------
$19,716,755 1,543,280 21,260,035
=========== ========== ==========
</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 30, DECEMBER 31, PRO FORMA PRO FORMA
1996 1996 1996 ADJUSTMENTS COMBINED
---------------------- ------------- ------------- ----------- ------------
(AS RESTATED, NOTE 14)
<S> <C> <C> <C> <C> <C>
Net sales............... $ 5,453,117 14,787,052 3,281,936 23,522,105
Cost of goods sold...... (4,168,665) (10,789,428) (2,923,260) (17,881,353)
----------- ----------- ---------- ------------
Gross profit.......... 1,284,452 3,997,624 358,676 5,640,752
Selling, general, and
administrative
expenses............... (2,308,141) (3,997,959) (562,677) 13,000(b) (6,855,777)
----------- ----------- ---------- ------------
Operating loss........ (1,023,689) (335) (204,001) (1,215,025)
----------- ----------- ---------- ------------
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............. (932,016) (185,012) (252,782) (1,320,810)
Income tax expense...... -- (248,000) -- (248,000)
Minority interest in
subsidiaries (income)
loss................... (5,938) -- -- (5,938)
----------- ----------- ---------- ------ ------------
Net loss.............. $ (937,954) (433,012) (252,782) 49,000 (1,574,748)
=========== =========== ========== ====== ============
Net loss per share...... $ (0.27) (0.43)
=========== ============
Weighted average shares
outstanding............ 3,450,000 3,650,000
=========== ============
</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
SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
SIERRA
MATERIALS
THREE MONTHS
ENDED PRO FORMA PRO FORMA
COYOTE MARCH 31, 1997 ADJUSTMENTS COMBINED
----------- -------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales............... $12,750,168 932,948 13,683,116
Cost of goods sold...... (9,784,535) (819,532) (18,000)(b) (10,622,067)
----------- -------- -----------
Gross profit.......... 2,965,633 113,416 3,061,049
Selling, general, and
administrative
expenses............... (4,071,540) (161,525) (4,233,065)
----------- -------- -----------
Operating loss........ (1,105,907) (48,109) (1,172,016)
----------- -------- -----------
Other income (expense):
Interest expense...... (199,617) (14,028) 42,000(c) (171,645)
Loss on forward
exchange contracts,
net.................. (39,000) -- (39,000)
Debt financing costs.. (393,902) -- (393,902)
----------- -------- -----------
(632,519) (14,028) (604,547)
----------- -------- -----------
Loss before taxes and
minority interest.... (1,738,426) (62,137) (1,776,563)
Income tax benefit...... 181,000 -- 181,000
Minority interests in
losses of
subsidiaries........... 48,042 -- 12,427(d) 60,469
----------- -------- ------- -----------
Net loss.............. $(1,509,384) (62,137) 36,427 (1,535,094)
=========== ======== ======= ===========
Net loss per share.... $ (0.44) (0.42)
=========== ===========
Weighted average
shares
outstanding(2)....... 3,450,000 3,650,000
=========== ===========
</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 individuals
established Sierra Materials which acquired all of the outstanding common
stock of Cape Composites, Inc. (d/b/a "Sierra Materials"). The Company is
obligated to repay or remove the personal guarantees of the prior stockholders
of Sierra Materials in the amount of approximately $534,000 at June 30, 1997.
The personal guarantees must be removed prior to September 27, 1997 or the
shares of Sierra Materials will revert to the previous owners of Sierra
Materials.
(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 June 30, 1997 for the balance sheet.
(a) Reflects the estimated net proceeds of the offering of $3,690,000,
repayment of notes payable to stockholder of $112,496 and long term debt
and notes payable of $2,034,224. Subsequent to June 30, 1997, the Company
retired 850,000 shares of Common Stock.
(b) Reflects the net decrease in depreciation expense for the Apollo
Entities, based on the lower carrying values of property, plant and
equipment for the year ended December 31, 1996. The lower carrying values
resulted from the allocation of purchase price to monetary assets and
liabilities based on their fair values with the amount remaining to
allocate to long lived assets being less than historical carrying values.
Reflects the increase in depreciation expense for the increase in Sierra
Material's fixed assets due to purchase accounting for the six months ended
June 30, 1997.
(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 interests in Sierra Materials
for the three months ended March 31, 1997.
(3) PENTIUMATICS SDN., BHD.
Coyote purchased Pentiumatics Sdn., Bhd. on April 1, 1997. This transaction
is reflected in the historical information for the six months ended June 30,
1997.
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 JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1995 1996 1997
--------- ---------- -------------
<S> <C> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash................................... $ 29,497 305,006 1,806,705
Trade receivables, less allowance for
doubtful accounts of $340,000 in 1996
and $224,000 in 1997.................. -- 2,681,626 4,171,134
Receivables from related parties....... -- 91,418 99,905
Inventories (as restated, note 14)..... -- 3,931,718 3,773,656
Prepaid expenses and other assets...... -- 245,623 587,550
--------- ---------- -------------
Total current assets................. 29,497 7,255,391 10,438,950
--------- ---------- -------------
Property, plant and equipment:
Land................................... -- 816,000 794,000
Building............................... -- 110,000 3,434,940
Machinery and equipment................ 7,195 2,628,302 4,320,430
Furniture and fixtures................. 2,122 19,122 46,790
--------- ---------- -------------
9,317 3,573,424 8,596,160
Less accumulated depreciation.......... (2,477) (31,677) (286,101)
--------- ---------- -------------
Net property, plant and equipment.... 6,840 3,541,747 8,310,059
--------- ---------- -------------
Intangible assets, net of accumulated
amortization of $16,979 in 1996 and
$51,004 in 1997......................... -- 1,001,771 967,746
--------- ---------- -------------
$ 36,337 11,798,909 19,716,755
========= ========== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Notes payable.......................... $ -- 1,038,000 4,726,940
Current portion of long term debt...... -- -- 582,388
Current portion of obligation payable
under purchase agreement.............. -- 87,000 87,000
Current portion of related party notes
payable............................... -- -- 112,496
Payables to related parties............ 17,817 22,291 21,164
Accounts payable....................... -- 2,687,427 2,917,850
Taxes payable.......................... -- 638,000 287,000
Accrued expenses....................... 4,604 823,077 2,220,165
--------- ---------- -------------
Total current liabilities............ 22,421 5,295,795 10,955,003
--------- ---------- -------------
Long term debt, net of current portion... -- -- 348,521
Obligation payable under purchase
agreement, net of current portion....... -- 728,000 728,000
Related party notes payable, net of
current portion......................... 45,632 112,861 815,602
Deferred tax liability................... -- 426,000 444,000
--------- ---------- -------------
Total liabilities.................... 68,053 6,562,656 13,291,126
Minority interests in net assets of
subsidiaries............................ -- 209,688 755,823
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 8,347,333
Accumulated deficit (as restated, note
14)................................... (387,639) (1,325,593) (2,834,977)
Foreign currency translation
adjustment............................ -- 212,420 154,000
--------- ---------- -------------
Total stockholders' equity
(deficit)........................... (31,716) 5,026,565 5,669,806
--------- ---------- -------------
Commitments and contingencies (notes 1,
2, 5, 6, 9, 12 and 13).................. $ 36,337 11,798,909 19,716,755
========= ========== =============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ----------------------
1995 1996 1996 1997
----------- ------------ ---------- ----------
AS RESTATED (UNAUDITED)
(NOTE 14)
<S> <C> <C> <C> <C>
Net sales.................. $ -- 5,453,117 19,601 12,750,168
Cost of goods sold......... -- (4,168,665) (22,780) (9,784,535)
----------- ------------ ---------- ----------
Gross profit............. -- 1,284,452 (3,179) 2,965,633
Selling, general and admin-
istrative expenses........ (370,873) (2,308,141) (238,288) (4,071,540)
----------- ------------ ---------- ----------
Operating loss........... (370,873) (1,023,689) (241,467) (1,105,907)
----------- ------------ ---------- ----------
Other income (expense):
Interest expense......... -- (34,897) -- (199,617)
Gain (loss) on forward
exchange contracts,
net..................... -- 126,570 -- (39,000)
Debt financing costs..... -- -- -- (393,902)
----------- ------------ ---------- ----------
91,673 -- (632,519)
----------- ------------ ---------- ----------
Loss before income taxes
and minority interest... (370,873) (932,016) (241,467) (1,738,426)
Income tax benefit......... -- -- -- 181,000
Minority interests in sub-
sidiaries (income) loss... -- (5,938) -- 48,042
----------- ------------ ---------- ----------
Net loss................. $ (370,873) (937,954) (241,467) (1,509,384)
=========== ============ ========== ==========
Net loss per share......... $ (0.11) (0.27) (0.07) (0.44)
=========== ============ ========== ==========
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-9
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
FOREIGN TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL CURRENCY STOCKHOLDERS'
------------------ ---------------- PAID-IN ACCUMULATED TRANSLATION EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT (DEFICIT)
------- -------- --------- ------ ---------- ----------- ----------- -------------
<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................ -- -- -- -- -- (937,954) -- (937,954)
Foreign currency
translation
adjustment............. -- -- -- -- -- -- 212,420 212,420
------- -------- --------- ------ --------- ---------- ------- ----------
BALANCES AT DECEMBER 31,
1996 (as restated, note
14).................... -- -- 3,450,000 3,450 6,136,288 (1,325,593) 212,420 5,026,565
------- -------- --------- ------ --------- ---------- ------- ----------
Contributed capital..... -- -- -- -- 2,211,045 -- -- 2,211,045
Net loss................ -- -- -- -- -- (1,509,384) -- (1,509,384)
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (58,420) (58,420)
------- -------- --------- ------ --------- ---------- ------- ----------
BALANCES AT JUNE 30,
1997 (Unaudited)....... -- $ -- 3,450,000 $3,450 8,347,333 (2,834,977) 154,000 5,669,806
======= ======== ========= ====== ========= ========== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1996 AND
SIX MONTHS ENDED JUNE 30, 1996 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ---------------------
1995 1996 1996 1997
--------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating ac-
tivities: (UNAUDITED)
Net loss..................... $(370,873) (937,954) (241,467) (1,509,384)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization.............. 2,477 46,179 30 227,412
Deferred taxes............. -- -- -- 18,000
Minority interest in net
earnings of subsidiary.... -- 5,940 -- (48,042)
Contribution from minority
shareholder............... -- -- -- 594,177
Changes in operating assets
and liabilities (net of
acquisitions):
Trade receivables and
receivables from related
parties................. -- 1,640,799 (374,962) (1,196,449)
Inventories.............. -- (822,656) -- 587,025
Prepaid expenses and
other assets............ 900 (215,860) -- (288,300)
Payables to related
parties................. 17,817 4,474 60,464 --
Accounts payable......... 4,725 (137,696) 471,721 (466,810)
Taxes payable............ -- 63,000 -- (351,000)
Accrued expenses......... -- (763,530) 3,594 1,369,785
--------- ----------- -------- -----------
Net cash used in
operating activities.. (344,954) (1,117,304) (80,620) (1,063,586)
--------- ----------- -------- -----------
Cash flows from investing ac-
tivities:
Purchase of property, plant
and equipment............... (3,140) (25,105) (150) (3,832,660)
Acquisitions of businesses,
net of cash acquired of
$114,759.................... -- (5,020,546) -- (198,059)
--------- ----------- -------- -----------
Net cash used in
investing activities.. (3,140) (5,045,651) (150) (4,030,719)
--------- ----------- -------- -----------
Cash flows from financing ac-
tivities:
Proceeds from notes payable.. -- 375,000 -- 3,633,067
Leases....................... -- -- -- (4,925)
Borrowings (repayments) on
related party notes payable,
net......................... 45,632 67,229 -- 815,237
Capital contributions........ 304,923 5,783,815 40,766 2,211,045
--------- ----------- -------- -----------
Net cash provided by
financing activities.. 350,555 6,226,044 40,766 6,654,424
--------- ----------- -------- -----------
Effect of exchange rate changes
on cash....................... -- 212,420 -- (58,420)
--------- ----------- -------- -----------
Increase (decrease) in
cash.................. 2,461 275,509 (40,004) 1,501,699
Cash at beginning of period.... 27,036 29,497 29,497 305,006
--------- ----------- -------- -----------
Cash at end of period.......... $ 29,497 305,006 (10,507) 1,806,705
========= =========== ======== ===========
Supplemental disclosures of
cash flow information
Cash paid during the period
for:
Interest................. $ -- 23,000 217,427 126,247
========= =========== ======== ===========
Income taxes............. $ -- -- -- --
========= =========== ======== ===========
Noncash transactions--
acquisition of a subsidiary in
exchange for 20% of the stock
in that subsidiary and future
cash payments (note 2)
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(INFORMATION AS OF JUNE 30, 1997 AND FOR THE SIX MONTHS ENDED
JUNE 30, 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 financial statements as of June 30, 1997
and for the six months ended June 30, 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 financial
condition, results of operations, and cash flows. The operating results for
the six months ended June 30, 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 $937,954 in 1996. Notes payable to banks as
of December 31, 1996 contractually terminate July 31, 1997 and May 31, 1998.
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 on the earlier of December 31, 1997
or 5 days after the Company's initial public offering.
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 for the
year ended December 31, 1996. The Company purchased a controlling interest in
two other entities; Sierra Materials, LLC on March 27, 1997 and Pentiumatics
Sdn., Bhd on April 1, 1997. The accounts of these subsidiaries are included in
the consolidated financial statements for the six months ending June 30, 1997.
All significant intercompany balances and transactions have been eliminated in
consolidation.
F-12
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. Valuation allowances are provided for finished goods in excess of what
is expected to be sold and raw materials which are no longer used in
manufacturing.
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 trade names for approximately $765,000 and
customer lists for approximately $254,000 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.
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, of approximately
$359,000, 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 of approximately $279,000 for the entities
domiciled in the United Kingdom for earnings prior to the acquisition.
Therefore, taxes payable were included as an increase in the cost of the
Apollo entities.
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.
F-13
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 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.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to conform to the June 30, 1997
presentation.
(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. As a result of an independent
environmental evaluation, no charges are expected to be incurred in
conjunction with remediation of property. Therefore the indemnification is not
considered to be an asset and was not included in the purchase price
allocation by the Company.
Certain assets and liabilities of the acquired entities have been stated at
management's best estimate of fair 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 transaction was accounted for by the purchase method and
the shares of Sierra Materials are pledged as collateral for certain
outstanding debt, amounting to approximately $650,000 and $534,000 at March
27, 1997 and June 30, 1997, respectively, of Sierra Materials which must be
paid or
F-14
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
refinanced by the Company prior to September 27, 1997. The personal guarantees
of the prior stockholders of Sierra Materials must be removed by the Company
prior to September 27, 1997 or the Shares of Sierra Materials will revert back
to the previous owners of Sierra Materials. No cash was paid and no goodwill
was recorded as a result of this acquisition.
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. The principal 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
acquisition has been accounted for by the purchase method. Consideration for
Pentiumatics was approximately $200,000 cash and no goodwill was recorded.
The following unaudited pro forma financial information for the years ended
December 31, 1995 and 1996 present the combined results of operations of the
Company and the Apollo Entities as if the acquisition had occurred as of the
beginning of 1995 and 1996, 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 six months ended June 30, 1996 and 1997 presents the
combined results of operations of the Company and Sierra Materials as if the
acquisition had occurred as of the beginning of 1996 and 1997. 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>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------- ---------------------
1995 1996 1996 1997
------------ ----------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales..................... $ 22,280,546 23,522,105 9,672,897 13,683,116
============ =========== ========= ==========
Net loss...................... $ (699,869) (1,574,748) (355,702) (1,535,094)
============ =========== ========= ==========
Net loss per share............ $ (0.20) (0.46) (0.10) (0.44)
============ =========== ========= ==========
</TABLE>
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 negotiated
terms of the transaction provided that the Company would own an 80% interest
in ICE and Expedition would own a 20% interest.
The $1.5 million unsecured obligation is payable to Expedition over six
years, and has been discounted at 15%. The present value is $1,018,750 as of
December 31, 1996. Expedition is entitled to receive a minimum payment of
$100,000 per year and a maximum of $200,000 per year through 2002. Annual
payment amounts are based on ICE sales. In 2003, the Company must pay
Expedition $1.5 million, less all amounts previously paid under the agreement.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Raw materials and supplies................ $ 804,113
Work-in-process........................... 1,082,239
Finished goods............................ 2,661,366
----------
4,547,718
Valuation allowance....................... (616,000)
----------
$3,931,718
==========
</TABLE>
F-15
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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, but the Company received
an oral approval of an extension through April 1998, and is awaiting written
confirmation.
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:
<TABLE>
<S> <C>
1997................................ $250,000
1998................................ 190,000
1999................................ 90,000
2000................................ 6,000
--------
$536,000
========
</TABLE>
F-16
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES
Income tax expense (benefit) is comprised of the following for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1996
----- --------
<S> <C> <C>
Current:
U.S. Federal............................................ $ -- --
United Kingdom.......................................... -- (16,000)
State................................................... -- --
----- --------
-- (16,000)
----- --------
Deferred:
U.S. Federal............................................ -- --
United Kingdom.......................................... -- 16,000
State................................................... -- --
----- --------
-- 16,000
----- --------
$ -- --
===== ========
</TABLE>
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) (317,000)
Increase (decrease) in in-
come taxes resulting from:
State tax, net of federal
benefit and state tax
credits.................. (12,000) (27,000)
Increase in valuation al-
lowance.................. 137,000 414,000
Other, net................ 1,000 (70,000)
--------- --------
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....................... $ 142,000 480,000
Bad debts and inventory allowances..................... -- 111,000
--------- ---------
Total deferred tax assets............................ 142,000 591,000
Valuation allowance.................................... (142,000) (557,000)
--------- ---------
Net deferred tax assets.............................. -- 34,000
--------- ---------
Deferred tax liability--difference in book and tax bases
of property, plant and equipment from acquisition....... -- (34,000)
--------- ---------
Net deferred tax liability........................... $ -- 0
========= =========
</TABLE>
F-17
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. For the year
ended December 31, 1996, the Company generated negligible taxable income in
the U.K. All of the operating loss carryforwards were generated by U.S.
operations.
<TABLE>
<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.
(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 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-18
<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:
United Kingdom............................................ $ 2,499,142
United States............................................. 2,953,975
-----------
$ 5,453,117
===========
Operating income (loss):
United Kingdom............................................ $ (722,000)
United States............................................. 212,713
-----------
(509,287)
General corporate expenses................................ (514,402)
-----------
$(1,023,689)
===========
Identifiable assets:
United Kingdom............................................ $ 7,950,943
United States, excluding corporate........................ 3,698,341
Corporate................................................. 149,625
-----------
$11,798,909
===========
</TABLE>
Operating income (loss) represents net sales less operating expenses. In
computing operating loss none of the following items have been added or
deducted: interest expense, gain (losses) on forward exchange contracts,
income taxes and minority interest.
(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 the Apollo Entities 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 27, 1997 or the shares of
Sierra Materials will revert to the previous owners of Sierra Materials.
F-19
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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. The principal 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 $200,000 cash.
Pentiumatics is 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 $1,350,000 and $150,000 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 50,000 shares of the
Company's common stock at the initial public offering price for no additional
consideration and warrants to purchase 100,000 shares of the Company's common
stock subsequent to the Company's initial public offering. Accordingly, the
Company recorded debt financing costs of approximately $394,000 in other
income (expense) for the period ending June 30, 1997. 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.
The minority stockholders of Pentiumatics loaned the Company $815,602 in May
1997. The note bears interest at 5 percent. Principal is due July 25, 2002.
The Company's 1997 Stock Option Plan (the "Option Plan") was adopted by the
Board of Directors and stockholders on June 10, 1997. The Option Plan provides
for the grant of options to purchase up to 500,000 shares of the Company's
common stock. Stock options granted under the Option Plan may be either
incentive stock options granted to employees, or nonstatutory stock options,
granted to employees, 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, the exercise prices and vesting
requirements for which options will be granted. No options have been granted
under the Option Plan.
Subsequent to June 30, 1997, the Company retired 850,000 shares of common
stock.
On August 4, 1997, the Company entered into a note payable with one of its
stockholders in the amount of $87,659. The note is unsecured and bears
interest at 12% per annum. Interest is payable monthly on the note and any
principal amounts outstanding are due in October 1999.
(14) RESTATEMENT
The Company has restated inventory, cost of goods sold and accumulated
deficit by $308,909 as the elimination of intercompany profits in inventory
was incorrectly stated as of December 31, 1996.
F-20
<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
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-21
<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
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................. $ 1,214,407 114,757
Trade accounts receivable, less allowance for
doubtful accounts of $265,000 in 1995 and
$125,000 in 1996................................ 2,736,164 3,086,843
Inventories (as restated, note 10)............... 3,710,391 3,243,873
Prepaid expenses and other assets................ 282,939 204,761
----------- ----------
Total current assets........................... 7,943,901 6,650,234
----------- ----------
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
----------- ----------
$10,947,136 9,349,939
=========== ==========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
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..................................... 1,600,057 2,292,057
Additional paid-in capital....................... 4,480,943 3,800,943
Accumulated deficit (as restated, note 10)....... (1,575,172) (2,008,184)
Foreign currency translation adjustment.......... (13,000) 5,000
----------- ----------
Total stockholders equity...................... 4,492,828 4,089,816
----------- ----------
Commitments and contingencies (notes 3, 4, 6 and
9)................................................ $10,947,136 9,349,939
=========== ==========
</TABLE>
See accompanying notes to combined financial statements.
F-22
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
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............................. (16,342,961) (10,789,428)
------------ -----------
Gross profit................................. 5,937,585 3,997,624
Selling, general and administrative expenses... (5,493,276) (3,997,959)
------------ -----------
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-23
<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 1,521,427 77,630 4,518,838 (1,162,176) (5,000) 4,951,719
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 1,521,427 77,630 4,480,943 (1,575,172) (13,000) 4,492,828
====== ========= ====== ========= ========== ======= =========
Contributed capital..... -- 692,000 -- 12,000 -- -- 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................... $1,000 2,213,427 77,630 3,800,943 (2,008,184) 5,000 4,089,816
====== ========= ====== ========= ========== ======= =========
</TABLE>
- --------
(1) Common stock, no par value. Authorized 1,000 shares, 100 issued and
outstanding.
(2) Common stock, .25 Pound Sterling (PS) ($.39 at December 31, 1995 and
September 30, 1996) par value. Authorized 5,800,000 shares, 5,719,688 (par
value partially paid to .025 PS) and 5,719,688 (fully paid par value)
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, 10,000,000 (par value partially paid
to .005 PS) shares issued and outstanding.
See accompanying notes to combined financial statements.
F-24
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC.
AND TI REYNOLDS 531 LIMITED
COMBINED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1996
<TABLE>
<CAPTION>
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-25
<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 11. 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. Valuation allowances are provided for finished goods in excess of what
is expected to be sold and raw materials which are no longer used in
manufacturing.
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.
DIVIDENDS
Dividends declared and paid are based on the operating results of TAL and TRL.
There is no restriction from paying dividends in loss years.
REVENUE RECOGNITION
The Company recognizes sales upon shipment to customers.
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 $665,000 and $407,000, respectively, which is included in
selling, general and administrative expenses.
F-26
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC. AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
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.
In accordance with FAS 109, current and deferred income taxes were allocated
to the combined entities as if the combined entity was a separate taxpayer
independent of other TI Group plc entities.
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 $1,029,000 and $581,000, 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).
RECLASSIFICATIONS
Certain reclassifications have been made to conform to the September 30,
1996 presentation.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
Raw materials and supplies..................... $1,051,452 514,094
Work-in-progress............................... 766,022 866,239
Finished goods................................. 2,323,847 2,384,470
---------- ---------
4,141,321 3,764,803
Valuation allowance............................ (430,930) (520,930)
---------- ---------
$3,710,391 3,243,873
========== =========
</TABLE>
F-27
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC. AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(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 11.
(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.
At September 30, 1996, future minimum lease payments for operating leases
are as follows:
<TABLE>
<S> <C>
1997................................ $204,415
1998................................ 327,507
1999................................ 239,463
2000................................ 93,549
2001................................ 6,350
--------
$871,284
========
</TABLE>
(5) INCOME TAXES
Income tax expense (benefit) is comprised of the following for the years
ended:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
------------ -------------
<S> <C> <C>
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
======== =======
</TABLE>
F-28
<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 re-
turn...................................... -- 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 the 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
------------ ------------
<S> <C> <C>
Deferred tax assets:
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)
========= ========
</TABLE>
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.
(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 $30,996 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.
F-29
<PAGE>
TI APOLLO LIMITED, APOLLO GOLF, INC. AND TI REYNOLDS 531 LIMITED
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
FOREIGN CURRENCY INSTRUMENTS
The fair value of the Apollo Entities' foreign exchange contracts is
estimated based on quoted market prices of comparable contracts.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-------------------
CARRYING FAIR
AMOUNT VALUE
---------- --------
<S> <C> <C>
Foreign exchange contracts............................ $ 80,252 80,252
========= ========
</TABLE>
(8) OPERATING INFORMATION BY GEOGRAPHIC REGION
The Apollo Entities' operations are summarized by geographic region as
follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1996
-------------
<S> <C>
Net Sales:
United Kingdom............................................ $ 6,788,333
United States............................................. 7,998,719
-----------
14,787,052
===========
Operating income (loss):
United Kingdom............................................ (1,349,667)
United States............................................. 1,349,332
-----------
(335)
===========
Identifiable assets:
United Kingdom............................................ 6,321,000
United States............................................. 3,260,067
-----------
$ 9,581,067
===========
</TABLE>
(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) RESTATEMENT
The Company has restated the January 1, 1995 inventory balance and the
accumulated deficit by $231,128 as of January 1, 1995 as the elimination of
intercompany profits in inventory was incorrectly stated as of January 1,
1995.
(11) 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-30
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE IN-
FORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN CON-
NECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OF-
FER 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.......................................................... 15
Capitalization........................................................... 16
Dividend Policy.......................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition & Results of
Operations.............................................................. 19
Business................................................................. 26
Management............................................................... 38
Certain Transactions..................................................... 42
Private Placement........................................................ 43
Principal Stockholders................................................... 44
Additional Registered Securities......................................... 44
Description of Securities................................................ 45
Shares Eligible for Future Sale.......................................... 46
Underwriting............................................................. 48
Legal Matters............................................................ 49
Experts.................................................................. 49
Available Information.................................................... 49
Index to Financial Statements............................................ F-1
</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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
1,000,000
SHARES OF COMMON STOCK
COYOTE SPORTS, INC.
[LOGO OF COYOTE SPORTS, INC. APPEARS HERE]
---------------
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.
<TABLE>
<S> <C>
Registration Fee................................................... $ 2,546
National Association of Securities Dealers, Inc. Fee............... 2,262
Non-Accountable Expense Allowance.................................. 172,500
Legal Fees and Expenses............................................ 260,000
Accounting Fees and Expenses....................................... 260,000
Printing and Engraving Expenses.................................... 70,000
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............................................. 16,692
--------
Total............................................................ $810,000
========
</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. On July 23, 1997, one of
the three founders sold 1,035,000 shares to each of the other two 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
------- ----------------------
<C> <S>
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 Certificate of Amendment to Articles of Incorporation
3.3 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 Agreement dated March 1, 1997 between Sportma Corporation Berhad and
Apollo Golf, Inc.
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.**
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
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 Cajon, 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.
10.24 Purchase Agreement, dated July 23, 1997 between Pentiumatics SDN. BHD,
and Sportma Corporation Berhad.
10.25 Share Return Agreement dated July 23, 1997 among Mel Stonebraker,
James Probst and Coyote Sports, Inc.
10.26 Lease between Airport Business Commons and ICE*USA LLC dated October
22, 1996.
10.27 Lease between Airport Business and ICE*USA LLC dated July 18, 1997.
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>
- --------
**Previously filed.
II-3
<PAGE>
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.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this
section do not apply if the registration statement is on Form S-3, Form S-8
or Form F-3, and the information required to be included in a post-
effective amendment by those paragraphs is contained in periodic reports
filed with or furnished to the Commission by the registrant pursuant to
section 13 or section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form SB-2 and has caused this Amendment
to Registration Statement No. 333-29077 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Denver, State of
Colorado, on the 7th day of August 1997.
COYOTE SPORTS INC.
/s/ Mel S. Stonebraker
By: ___________________________
Mel S. Stonebraker,
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mel S. Stonebraker or James M. Probst his true
and lawful attorney-in-fact and agent, with full powers of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments to this Registration Statement,
including post-effective amendments, and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, and hereby ratifies and confirms
all his said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---- ---------------------------------------- --------------
<S> <C> <C>
/s/ Mel S. Stonebraker President, Chief Executive Officer August 7, 1997
- ------------------------------------ and Director
Mel S. Stonebraker
/s/ James M. Probst Chief Operating Officer, Chief Financial August 7, 1997
- ------------------------------------ Officer and Director
James M. Probst
/s/ Jeffrey T. Kates August 7, 1997
- ------------------------------------
Jeffrey T. Kates Director
/s/ Don A. Forte August 7, 1997
- ------------------------------------
Don A. Forte Director
/s/ J. P. McNeill August 7, 1997
- ------------------------------------
J. P. McNeill Controller
</TABLE>
<PAGE>
EXHIBIT 1.1
-----------
COYOTE SPORTS, INC.
UNDERWRITING AGREEMENT
_____________, 1997
Cohig & Associates, Inc.
6300 South Syracuse Way, Suite 430
Englewood, Colorado 80111
Gentlemen:
COYOTE SPORTS, INC. ("Company"), a Colorado corporation, hereby
confirms its agreement with you, as Representative, and with the other members
of the Underwriting Group as follows:
SECTION 1
DESCRIPTION OF OFFERING AND SHARES
----------------------------------
The Underwriting Group proposes to purchase from the Company in an
initial public offering ("Public Offering") a total of 1,000,000 shares of the
Company's $.001 par value common stock ("Shares"). The Company's $.001 par
value common stock when not referring specifically to the "Shares" shall be
referred to herein as the "Company's Common Stock." The Representative, either
on its own behalf or on behalf of the members of the Underwriting Group, will
have an overallotment option ("Overallotment Option") to purchase up to an
additional 150,000 Shares ("Overallotment Shares") exercisable for a period of
forty-five (45) days after the Effective Date (hereinafter defined) to cover
overallotments, which may occur during the Offering. The Company agrees to sell
to the Underwriting Group all of the Shares and the Company agrees to sell to
the Representative all or such portion of the Overallotment Shares under the
Overallotment Option to the extent exercised by the Representative from time to
time during the forty-five (45) day period following the Effective Date. The
Shares will initially be offered and sold to the public at a price of
$___________ for each Share. Such price is referred to herein as the "Public
Offering Price." The Company's authorized and outstanding capitalization when
the Public Offering of the Shares is permitted to commence and at the Closing
Date (hereinafter defined) and at the Option Closing Date (hereinafter defined)
will be as set forth in the Registration Statement (hereinafter defined) and the
Prospectus (hereinafter defined) included therein.
On the Effective Date, the Shares will be listed for quotation on the
NASDAQ Small Cap Market. The foregoing agreement by the Company is subject to
the Company's ability to meet the NASDAQ Small Cap Market maintenance
requirements on the Effective Date. In connection with the application for such
listing, the Company will furnish the Representative or legal counsel for the
Representative five (5) complete copies of the Registration Statement
(hereinafter defined) and all amendments thereto for filing with the NASD.
SECTION 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
In order to induce the members of the Underwriting Group to enter into
this Agreement, the Company hereby represents and warrants to and agrees with
the members of the Underwriting Group as follows:
<PAGE>
2.1 REGISTRATION STATEMENT AND PROSPECTUS. A registration statement
-------------------------------------
on Form SB-2 (File No. 333-29077) ("Registration Statement") with respect to the
Shares and the Representative's Warrants (hereinafter defined), including the
related Prospectus, copies of which have heretofore been delivered by the
Company to the Representative, has been prepared by the Company in conformity
with the requirements of the Shares Act of 1933, as amended ("Act"), and the
rules and regulations ("Rules and Regulations") of the Commission thereunder,
and said Registration Statement has been filed with the Commission under the
Act; one or more amendments to said Registration Statement, copies of which have
heretofore been delivered to the Representative, has or have heretofore been
filed with the Commission; and the Company may file with the Commission on or
prior to the Effective Date additional amendments to said Registration
Statement, including the final Prospectus. As used in this Agreement, the term
"Registration Statement" refers to and means said Registration Statement and all
amendments thereto, including the Prospectus, all exhibits and all financial
statements, as it becomes effective; the term "Prospectus" refers to and means
the Prospectus included in the Registration Statement when it becomes effective;
and the term "Preliminary Prospectus" refers to and means any Prospectus
included in said Registration Statement before it becomes effective. The terms
"Effective Date" and "effective" refer to the date the Commission declares the
Registration Statement effective, pursuant to Section 8 of the Act.
2.2 ACCURACY OF REGISTRATION STATEMENT AND PROSPECTUS. The
-------------------------------------------------
Commission has not issued any order preventing or suspending the use of any
Preliminary Prospectus with respect to the Shares and each Preliminary
Prospectus has conformed in all material respects with the requirements of the
Act and the applicable Rules and Regulations of the Commission thereunder and to
the best of the Company's knowledge has not included at the time of filing any
untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading. When the Registration
Statement becomes effective and on the Closing Date and on the Option Closing
Date, (i) the Registration Statement and Prospectus and any further amendments
or supplements thereto will contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations
thereunder for the purposes of the proposed Public Offering of the Shares, (ii)
all statements of material fact contained in the Registration Statement and
Prospectus will be true and correct and (iii) neither the Registration Statement
nor the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading; provided, however, the Company does not
make any representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus in reliance upon written
information furnished on behalf of the members of the Underwriting Group
specifically for use therein.
2.3 FINANCIAL STATEMENTS AND DEFINITION OF SUBSIDIARIES. The
---------------------------------------------------
consolidated financial statements of the Company and its Subsidiaries together
with related schedules and notes as set forth in the Registration Statement and
Prospectus present fairly the financial position of the Company and its
Subsidiaries and the results of its operations and the changes in its financial
position at the respective dates and for the respective periods for which they
apply. The term "Subsidiaries" as used throughout this Agreement refers to (i)
Apollo Sports Holding Limited ("ASHL") whose issued and outstanding capital
stock is 100% owned by the Company; (ii) Apollo Sports Technologies Limited
whose issued and outstanding capital stock is 100% owned by ASHL; (iii) Reynolds
Cycle Technology Limited ("Reynolds"), whose issued and outstanding capital
stock is 100% owned by ASHL; (iv) Apollo Golf, Inc. whose issued and outstanding
capital stock is 100% owned by the Company; (v) ICE*USA, LLC in which the
Company owns of record and holds an 80% interest; Sierra Materials, LLC
("Sierra") in which the Company owns an 80% interest and its Subsidiary and its
100% owned Subsidiary Cape Composites, Inc.; (vii) Pentiumatics Sdn. Bhd., in
which the Company owns approximately 77% of the issued and outstanding capital
stock and, (viii) any other entity in which the Company shall have a controlling
interest requiring such entity to be reported as part of the Company's financial
statements on a consolidated or unconsolidated basis. Such financial statements
have been prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods concerned except as otherwise stated
therein.
2.4 INDEPENDENT PUBLIC ACCOUNTANTS. The accountants which have
------------------------------
audited the consolidated financial statements of the Company and its
Subsidiaries filed or to be filed with the Commission as part of the
2
<PAGE>
Registration Statement and Prospectus which are designated as audited financial
statements, are independent certified public accountants with respect to the
Company within the meaning of the Act and the Rules and Regulations thereunder.
2.5 NO CONTINGENT LIABILITIES AND NO MATERIAL ADVERSE CHANGE. Except
--------------------------------------------------------
as disclosed in the Registration Statement and Prospectus, neither the Company
nor any of its Subsidiaries have any contingent liabilities, obligations or
claims nor have they received threats of claims or regulatory action. Except as
may be reflected in or contemplated by the Registration Statement or the
Prospectus, subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Date and the
Option Closing Date, (i) there shall not have been any material adverse change
in the condition, financial or otherwise, of the Company or its Subsidiaries or
in the business of the Company or its Subsidiaries; (ii) there shall not have
been any material adverse transaction entered into by the Company or any of its
Subsidiaries; (iii) neither the Company nor any of its Subsidiaries shall have
incurred any material obligations, contingent or otherwise, which are not
disclosed in the Prospectus; (iv) there shall not have been any change in the
outstanding securities or long term debt (except current payments) of the
Company or any of its Subsidiaries; (v) the Company has not and will not have
paid or declared any dividends or other distributions on its Common Stock or
other securities; and (vi) there shall not have been any change in the officers
or directors of the Company.
2.6 NO DEFAULTS. Neither the Company nor any of its Subsidiaries is
-----------
in default under any of the contracts, leases, subleases, licenses, sublicenses
or any other agreements to which they are a party. Except as disclosed in the
Prospectus, neither the Company nor any of its Subsidiaries is in default, which
has not been waived, in the performance of any obligation, agreement or
condition contained in any debenture, note or other evidence of indebtedness or
any indenture or loan agreement. The execution and delivery of this Agreement,
the consummation of the transactions herein contemplated and the compliance with
the terms of this Agreement will not conflict with or result in a breach of any
of the terms, conditions or provisions of, or constitute a default under, the
charter, articles of association, articles of incorporation, as amended,
articles of organization, operating agreement or bylaws as amended, of the
Company or any of its Subsidiaries any note, indenture, mortgage, deed of trust
or other agreement or instrument to which the Company or any of its Subsidiaries
is a party or by which it, its Subsidiaries or any of their property is bound,
or any existing law, order, rule, regulation, writ, injunction or decree of any
government, governmental instrumentality, agency or body, arbitration tribunal
or court, domestic or foreign, having jurisdiction over the Company, its
Subsidiaries or their properties. The consent, approval, authorization or order
of any court or governmental instrumentality, agency or body is not required for
the consummation of the transactions herein contemplated except such as may be
required under the Act or under the blue sky or securities laws of any state or
jurisdiction.
2.7 INCORPORATION AND STANDING. The Company is and at the Closing
--------------------------
Date and at the Option Closing Date will be duly incorporated and validly
existing in good standing as a corporation under the state law of the Company's
state of incorporation with authorized and outstanding capital stock as set
forth in the Registration Statement and the Prospectus and with full power and
authority (corporate and other) to own its properties and conduct its business,
present and proposed, as described in the Registration Statement and Prospectus;
the Company has full power and authority to enter into this Agreement; and the
Company is duly qualified and in good standing as a foreign corporation in each
jurisdiction in which it owns or leases real property or transacts business
requiring such qualification. All of the Company's Subsidiaries are identified
and described in the Registration Statement. Each of the Company's Subsidiaries
is and at the Closing Date and at the Option Closing Date will be, duly
incorporated and validly existing in good standing as a corporation or limited
liability company under the state law of their respective state of
incorporation, formation or organization or, is validly existing as a
corporation under the foreign law in which such Subsidiary was chartered, or
otherwise formed or created, incorporated with authorized and outstanding
capital stock as set forth in the Registration Statement and the Prospectus and
with full power and authority (corporate and other) to own its property and
conduct its business, present and proposed, as described in the Registration
Statement and Prospectus, and is duly qualified and in good standing as a
foreign corporation or limited liability company in each jurisdiction in which
3
<PAGE>
it owns or leases real property or transacts business requiring such
qualification, except where the failure to so qualify would not be materially
adverse to the Company's business taken as a whole.
2.8 LEGALITY OF OUTSTANDING SHARES. The outstanding shares of
------------------------------
Common Stock of the Company and the outstanding shares of capital stock or
limited liability company interests of each of its Subsidiaries have been duly
and validly authorized and issued, are fully paid and nonassessable and conform
to all statements with regard thereto contained in the Registration Statement
and Prospectus. No sales of securities have been made by the Company or any of
its Subsidiaries in violation of the registration provisions of the Act or in
violation of any other federal ar state laws.
2.9 LEGALITY OF SHARES. The Shares and the Representative's Warrants
------------------
(described in Section 3.4 hereof) have been duly and validly authorized and,
when issued and delivered against payment as provided in this Agreement, will be
validly issued, fully paid and nonassessable. The Shares and the
Representative's Warrants, upon issuance, will not be subject to the preemptive
rights of any shareholders of the Company. The Shares and the Representative's
Warrants, when sold and delivered, will constitute valid and binding obligations
of the Company enforceable in accordance with their terms. A sufficient number
of shares of Common Stock have been reserved for issuance upon exercise of the
warrants in existence and outstanding as of the Effective Date of the
Registration Statement and the Representative's Warrants. The Shares and the
Representative's Warrants will conform to all statements in the Registration
Statement and Prospectus made with respect thereto. Upon delivery of and payment
for the Shares and the Representative's Warrants to be sold by the Company as
set forth in this Agreement, the persons paying therefor will receive good and
marketable title thereto, free and clear of all liens, encumbrances, charges and
claims. The Company will have on the Effective Date of the Registration
Statement and at the time of delivery of the Shares and the Representative's
Warrants full legal right and power and all authorizations and approvals
required by law to sell and deliver the Shares and Representative's Warrants in
the manner provided hereunder.
2.10 OUTSTANDING SHARES AND LONG TERM DEBT ON EFFECTIVE DATE.
-------------------------------------------------------
Immediately prior to the Effective Date, the only shares of capital stock,
warrants, options, or other convertible securities which have been issued by the
Company and which will be outstanding on the Effective Date will be as described
in the Prospectus, and the Company will not be obligated on any long term debt,
whether or not recorded on the books, records, or accounts of the Company and
will not be obligated to issue any capital stock, warrants, options, or other
convertible securities, except as described in the Prospectus. Unless the
Representative has approved in writing a different maximum number of fully
diluted shares, immediately prior to the Effective Date of the Registration
Statement the number of shares of Common Stock of the Company outstanding on a
fully diluted basis will not exceed 2,600,000 shares plus the number of shares
underlying the warrants granted to Deere Park Capital Management, Inc. and Steve
Kerr pursuant to the terms of the Amended and Restated Secured Promissory Notes
dated May 4, 1997 between the Company and Deere Park Capital Management, Inc.
and Steve Kerr, respectively and the shares underlying the options which will be
granted after the Effective Date under the Company's 1997 Stock Option Plan
("Plan") in the amount and to the employees disclosed in the Prospectus. For
purposes of this Underwriting Agreement, the term "fully diluted basis" shall
mean the number of shares of Common Stock actually issued and outstanding plus
the number of shares of Common Stock underlying all issued and outstanding
convertible or excisable securities.
2.11 CUSIP NUMBER. The Company has obtained a CUSIP number for its
------------
Common Stock and the warrants to be registered for Deere Park Capital
Management, Inc. and Steve Kerr.
2.12 OPTIONS AND TREASURY SHARES. There are no outstanding options,
---------------------------
warrants or other rights to purchase securities of the Company, however
characterized, except as described in the Registration Statement. Except as
described in the Registration Statement, there are no securities of the Company,
however characterized, held in its treasury. Except as described in the
Registration Statement, the Company has not offered or agreed to purchase or
issue any shares of Common Stock or any convertible securities in the future.
4
<PAGE>
2.13 SUBSIDIARIES. The Company's Subsidiaries as listed and
------------
described in the Prospectus constitute all of the Company's Subsidiaries as of
the Effective Date. Except as described herein and in the Registration
Statement, the Company has no Subsidiaries other than those described herein and
in the Registration Statement, is not carrying on any discussion or negotiation
with third parties regarding the merger or acquisition of any other entity and
does not currently intend to acquire any Subsidiaries or engage in mergers with
or the acquisition of any entity except as otherwise indicated in the
Registration Statement.
2.14 JOINT VENTURES. Except as described in the Prospectus, the
--------------
Company has not entered into any joint venture, partnership, limited liability
company, strategic alliance or similar arrangement in which the Company has a
participating interest in the profits, losses, assets and liabilities as a joint
venturer, partner, member or shareholder of any such entity or under any such
arrangement.
2.15 PRIOR SALES. No securities of the Company, or of a predecessor
-----------
of the Company, have been sold except as described in the Registration Statement
or as disclosed in writing to the Representative.
2.16 LITIGATION. Except as set forth in the Registration Statement
----------
or except for nonmaterial actions, suits, or proceedings disclosed in writing to
the Representative, there is, and at the Closing Date and at the Option Closing
Date there will be, no action, suit or proceeding before any court or
governmental agency, authority or body pending or to the knowledge of the
Company threatened against the Company or any of its Subsidiaries or any joint
venture, limited liability company, partnership or similar entity or arrangement
in which the Company has an interest.
2.17 ACQUISITION OF SUBSIDIARIES. In connection with the acquisition
---------------------------
of all of the issued and outstanding capital stock of Apollo Sports
Technologies, Ltd., formerly TI Apollo, Ltd. ("Apollo"), a UK Company, Reynolds
531, Ltd., formerly TI Reynolds, Ltd., ("Reynolds"), a UK Company, and Apollo
Golf, Inc., a New Jersey corporation ("Apollo US") and certain real property
from TI Group plc, a UK Company, and in connection with the acquisition of Cape
Composites, Incorporated ("Cape") through Sierra Materials, LLC ("Sierra
Materials") in which the Company owns an 80% interest, the formation of ICE*USA,
LLC and the acquisition of assets from Expedition Trading Company, LLC and the
acquisition of 5,000,000 shares of the issued and outstanding capital stock of
Pentiumatics, Sdn Bhd, a Malaysian company, the Company, through its officers,
directors, employees, legal counsel, accountants and other agents, have
conducted a thorough and complete independent investigation of the books,
records (including, without limiting the generality thereof, the tax records),
financial data, liabilities, obligations, assets, properties, agreements and all
other instruments and documents in the possession of each such Subsidiary or the
sellers ("Sellers") of each such corporation and pertaining to each such
Subsidiary and as a result of such investigation on or prior to the closing date
when the acquisition of each such corporation was consummated, and based on the
current operations and conditions of each such Subsidiary under the Company's
control and supervision, the Company does not know of any fact, condition or
circumstance existing as of the date hereof and will not know or be aware of any
fact, condition or circumstance as of the closing date, or the Option Closing
Date, which could result in a breach of any of the representations, warranties
or covenants contained in the agreements governing the purchase of the capital
stock or assets and properties of such Subsidiaries made by the Sellers of such
Subsidiaries to the Company which shall have survived the Closing Date or which
would result in a claim for indemnification against such Sellers under the terms
of any such agreements or which would materially adversely affect the Company,
its assets or financial condition which are not otherwise disclosed in the
Registration Statement.
2.18 FINDER. Except as set forth in the Registration Statement, the
------
Company knows of no outstanding claims against it for compensation for services
in the nature of a finder's fee, origination fee, financial consulting fee,
commission or any other form of compensation which would accrue to, be earned by
or be required to be paid to any person with respect to the offer and sale of
the Shares hereunder.
2.19 EXHIBITS. There are no contracts or other documents which are
--------
required to be filed as exhibits to the Registration Statement by the Act or by
the Rules and Regulations thereunder, which have not been so filed
5
<PAGE>
and each contract to which the Company or any of its Subsidiaries is a party and
to which reference is made in the Prospectus has been duly and validly executed,
is in full force and effect in all material respects in accordance with its
terms, and none of such contracts has been assigned and the Company knows of no
present situation or condition or fact which would prevent compliance with the
terms of such contracts. Except for amendments or modifications of such
contracts in the ordinary course of business, the Company has not been advised
that any party to any such contract intends to exercise any right which it may
have to cancel any of its obligations under any of such contracts and has no
knowledge that any other party to any such contracts has any intention not to
render full performance under such contracts.
2.20 TAX RETURNS. The Company has (and to the extent required under
-----------
applicable law each of the Subsidiaries have) filed all foreign, state and local
tax returns which are required to be filed by it (them) and has (have) paid all
taxes shown on such returns and on all assessments, including interest and
penalties, received by it (them) to the extent such taxes have become due. All
such tax returns so filed were correct and complete in all material respects.
All foreign, state and local taxes with respect to which the Company (and its
Subsidiaries to the extent required under applicable law) is obligated have been
paid or adequate accruals have been set up to cover any such unpaid taxes,
including any interest and penalties accrued with respect to any such unpaid
taxes. Except as set forth in the Registration Statement, there is no material
dispute or claim concerning the liability of the Company or any of its
Subsidiaries for any tax.
2.21 NO PREEMPTIVE RIGHTS. The Company's securities, however
--------------------
characterized, are not subject to preemptive rights.
2.22 USE OF FORM SB-2. The Company is eligible to use Form SB-2 for
----------------
the offering of the Shares and the Representative's Warrants.
2.23 NO SHARES BEING OFFERED. Except as described in the
-----------------------
Registration Statement, neither the Company nor any of its Subsidiaries is
currently offering any securities of which it is the issuer.
2.24 CERTIFICATES, PERMITS, LICENSES, APPROVALS, PATENTS AND
-------------------------------------------------------
TRADEMARKS. The Company and each of its Subsidiaries possess adequate
- ----------
certificates, permits, licenses, sublicenses, authorizations, consents or
approvals, issued by the appropriate federal, state and local regulatory
authorities necessary to conduct its business and to retain possession of its
assets and properties. The Company and its Subsidiaries have not received any
notice of any proceeding relating to the revocation or modification of any of
these certificates, permits, licenses, sublicenses, authorizations, consents or
approvals. The Company and each of its Subsidiaries has had issued to it or
them, owns or has applied for, U.S. domestic, United Kingdom, real properties,
plants, equipment, _____________ machinery, furniture, fixtures, vehicles and
any other property whether real, personal, tangible or intangible, including
without limitation, other foreign (as shall be necessary or appropriate)
trademark, patent, patent right, service mark, logo, trade dress, mask work,
copyright and trade secret protection necessary to the conduct of its and their
respective businesses as now being conducted or otherwise has sufficient
licenses or sublicenses granting the Company and/or one or more of its
Subsidiaries the exclusive use of the trademarks, patents, patent rights,
service mark, logo, trade dress, mask work, or copyrights in connection with the
conduct of its or their business activities; and except as described in the
Prospectus, the Company has no knowledge of any use by it or any of its
Subsidiaries of the trade secrets of others, of any interference,
misappropriation, infringement or violation by it or them of trademarks,
patents, patent rights, service mark, logo, trade dress, mask work, or
copyrights of others, or of any claim being made against the Company or any of
its Subsidiaries regarding trademark, patent, service mark, logo, trade dress,
mask work, or copyright infringement or use or misappropriation of trade secrets
of others. Neither the Company nor any of its Subsidiaries has received any
charge, complaint, claim, demand or notice alleging any interference,
infringement, misappropriation or violation of any trademark, patent, patent
rights, service mark, logo, trade dress, mask work, copyright or use of trade
secrets of others.
6
<PAGE>
2.25 TITLE TO PROPERTIES. The Company and each of its Subsidiaries
-------------------
has marketable title to all real properties, plants, equipment, _____________
machinery, furniture, fixtures, vehicles and any other property whether real,
personal, tangible or intangible, including without limitation, patents, patent
applications, patent rights, trademarks, trademark applications, service marks,
service mark applications, logos, trade dress, mask works, copyrights,
equipment, know-how, technology, and trade secrets, described in the
Registration Statement as owned by it or them. All such properties are free and
clear of all liens, charges, encumbrances or restrictions, however
characterized, except as described in the Registration Statement. All of the
contracts, leases, subleases, patents, patent applications, patent rights,
trademarks, trademark applications, service marks, service mark applications,
logos, trade dress, mask works, copyrights, licenses and agreements, however
characterized, under which the Company and each of its Subsidiaries holds its
properties, as described in the Registration Statement, are in full force and
effect.
2.26 NO DIRECTED SALES. The Company has not made any representation,
-----------------
whether oral or in writing, to any person, whether an existing shareholder or
not, that any of the Shares will be reserved or directed to such person during
the proposed Public Offering of the Company's securities.
2.27 RESTRICTED SHARES. The Company has caused each of its current
-----------------
shareholders who holds "restricted securities" as such term is defined in Rule
144 under the Act to acknowledge that they hold "restricted securities" as
defined in Rule 144.
2.28 NEGOTIATIONS. During the period from the Effective Date to the
------------
Closing Date or the Option Closing Date, the Company will notify the
Representative in writing from time to time of the status of any negotiations
involving the Company or any of its Subsidiaries relating to any transaction
which would, if consummated, have a material effect upon the Company or any of
its Subsidiaries. Also, the Company will consult with its legal counsel
concerning the need to disclose any such negotiations.
2.29 AUTHORITY. The execution and delivery by the Company of this
---------
Agreement has been duly authorized by all necessary corporate action and this
Agreement is the valid, binding and legally enforceable obligation of the
Company.
2.30 1940 ACT. The Company has been advised of the Investment
--------
Company Act of 1940, as amended (the " 1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
2.31 CAMPAIGN CONTRIBUTIONS AND CORRUPT PRACTICES ACT. The Company
------------------------------------------------
has not at any time since the date of its incorporation, nor have any of the
Subsidiaries at any time during the period that such Subsidiaries have been
owned by the Company, made any unlawful contribution to any candidate for U.S.
domestic or foreign office, or failed to disclose fully any contribution in
violation of law, or made any payment to any federal, state or foreign
government, governmental officer or official, employee or agent, or other person
charged with similar public or quasipublic duties, other than payments required
or permitted by the laws of the United States, the United Kingdom or Malaysia or
any other foreign nation or country or any jurisdiction thereof. Further,
neither the Company, its Subsidiaries, nor its officers, directors, employees,
shareholders, agents, representatives, or any other person acting for or on
behalf of the Company disbursed or received Company funds, entered into any
transaction intended to transfer, directly or indirectly, assets or made
improper entries or inaccurate recordings of payments or receipts on the
Company's books to cover up any transaction in violation of the Foreign Corrupt
Practices Act or any other laws of the United States, the United Kingdom,
Malaysia or any other foreign country or nation or jurisdiction thereof.
2.32 SHARES ACTIVITIES. The Company has not taken and will not take,
-----------------
directly or indirectly, any action designed to, or that might be reasonably
expected to, cause or result in the stabilization or manipulation of the price
of any security to facilitate the sale or resale of the Shares.
7
<PAGE>
2.33 ENVIRONMENTAL. Except as specifically described in the
-------------
Prospectus, the Company and each of its Subsidiaries is in compliance with all
foreign, federal, state, and local laws, statutes, treaties, ordinances, rules,
regulations, and policies relating to the use, treatment, storage,
transportation, discharge, emission, or disposal of, or exposure of others to,
toxic substances and protection of health, safety or the environment
("Environmental Laws") which are applicable to its or their business; there is
no pending or asserted claim, liability, or investigation by any third party or
governmental authority against the Company or any of its Subsidiaries under
Environmental Laws; no substances which are prohibited or regulated by any
Environmental Law or designated to be radioactive, toxic, hazardous or otherwise
a danger to health or the environment by any foreign, federal, state or local
governmental agency ("Hazardous Material") are present or likely to become
present on any property which is owned, leased, or occupied by the Company and
no such property has been designated as a SuperFund site, pursuant to the
Comprehensive Response, Compensation, and Liability Act of 1980, as amended, or
otherwise designated as a contaminated site under applicable foreign, federal,
state or local law; and the Company has received all permits, licenses,
authorizations, consents, waivers or approvals required of it under
Environmental Laws to conduct its business as presently conducted and is in
compliance with all terms and conditions of such permits, licenses,
authorizations, consents, waivers or approvals.
2.34 CONDITION OF ASSETS. The buildings, machinery, equipment and
-------------------
other tangible assets of the Company and its Subsidiaries are to the best of the
Company's knowledge, free of any defects, have been maintained in accordance
with industry practice, and are in good operating condition and repair, subject
to normal wear and tear.
2.35 UNDISCLOSED LIABILITIES. Except as disclosed in the
-----------------------
Registration Statement, neither the Company nor its Subsidiaries have any
material liability (whether known or unknown, whether asserted or unasserted,
whether absolute or contingent, whether accrued or unaccrued, whether liquidated
or unliquidated, and whether due or to become due, including, without limiting
the generality thereof, any liability for taxes).
2.36 PRODUCT WARRANT. All of the products manufactured, sold, leased
---------------
and delivered by the Company and its Subsidiaries have conformed in all material
respects with all applicable contractual commitments and all express and implied
warranties, and neither the Company nor any of its Subsidiaries has any material
liability (whether known or unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued, whether liquidated or
unliquidated, and whether due or to become due) for replacement or repair
thereof or other damages in connection therewith which would materially,
adversely affect the financial condition and business operations of the Company
and its Subsidiaries.
2.37 PRODUCT LIABILITY. Neither the Company nor its Subsidiaries has
-----------------
any material liability (whether known or unknown, whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due) arising
out of any injury to individuals or property as a result of the ownership,
possession, or use of any product manufactured, sold, leased or delivered by the
Company or any of its Subsidiaries.
2.38 INSURANCE. The Company and its Subsidiaries have in effect, and
---------
as of the Closing Date and the Option Closing Date will have in effect, adequate
insurance policies, including policies providing property, casualty, liability
(whether providing for general, product liability, fire and extended coverage or
other liability coverage) and workers' compensation coverage and bond and surety
arrangements, to provide adequate coverage and protection against the risks
covered thereunder. Each such insurance policy is (i) legal, valid, binding,
enforceable and in full force and effect in all material respects; (ii) neither
the Company nor any of its Subsidiaries is in material breach or default
(including with respect to paying of premiums or the giving of notices) and no
event has occurred which, with notice or lapse of time, would constitute such a
material breach or default, or permit termination, modification, or
acceleration, under the policy; and (iii) no party to the policy has repudiated
any material provision thereof.
8
<PAGE>
2.39 EMPLOYEES. To the best knowledge of the Company, no executive,
---------
key employee, or significant group of employees employed by the Company or any
of its Subsidiaries have given notice to the Company or any of its Subsidiaries
or intends to terminate his or her employment with the Company or any of its
Subsidiaries within the next twelve (12) months. Except as described in the
Registration Statement, neither the Company nor any of its Subsidiaries is a
party to or bound by any collective bargaining agreement, nor has the Company or
any of its Subsidiaries experienced any strike or material grievance, claim of
unfair labor practice or other collective bargaining dispute within the past
three (3) years. Neither the Company nor any of its Subsidiaries has committed
any material unfair labor practice. The Company, to the best of its knowledge,
is not aware of any organizational effort presently being made or threatened by
or on behalf of any labor union with respect to the employees of the Company or
any of its Subsidiaries.
2.40 CERTAIN BUSINESS RELATIONSHIPS. Except as disclosed in the
------------------------------
Registration Statement, no principal shareholder of the Company nor any of their
affiliates have been involved in any material business arrangement or
relationship with the Company and its Subsidiaries within the past twenty-four
(24) months, and no such shareholder or affiliate owns any material asset,
tangible or intangible, which is used in the business of the Company or any of
its Subsidiaries.
All of the above representations and warranties set forth in Sections
2.1 through 2.40 hereof shall survive the performance or termination of this
Agreement.
SECTION 3
PURCHASE AND SALE OF THE SHARES
-------------------------------
3.1 PURCHASE OF SHARES. The Company hereby agrees to sell to the
------------------
members of the Underwriting Group named in Schedule I hereto (for all of whom
the Representative is acting), severally and not jointly, and each member of the
Underwriting Group, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees to purchase
from the Company, severally and not jointly, the number of Shares set forth
opposite the name of each member of the Underwriting Group as set forth in
Schedule I hereto at a purchase price of $________ for each Share which such
member has so agreed to purchase. The Company hereby grants to the
Representative and the members of the Underwriting Group an option for a period
of forty-five (45) days after the Effective Date ("Overallotment Exercise
Period") to purchase up to $150,000 Overallotment Shares in order to cover
overallotments. The purchase price of each Overallotment Share shall be
$____________. The Overallotment Option granted hereunder shall be exercisable
by the Representative, in whole or in part, from time to time during the
Overallotment Exercise Period. Any Overallotment Shares purchased upon exercise
of the Overallotment Option shall be purchased for the account of the
Representative and/or for the accounts of the members of the Underwriting Group
as determined by the Representative.
3.1.1 DEFAULT BY MEMBER OF UNDERWRITING GROUP. If for any reason one
---------------------------------------
or more of the Underwriters shall fail or refuse (otherwise than for a
reason sufficient to justify the termination of this Agreement under the
provisions of Section 9 hereof) to purchase and pay for the number of
Shares agreed to be purchased by such Underwriter, the Company shall
immediately give notice thereof to the Representative, and the
nondefaulting Underwriters shall have the right within twenty-four (24)
hours after the receipt by the Representative of such notice, to purchase
or request one or more other Underwriters to purchase, in such proportions
as may be agreed upon among the Representative and such purchasing
Underwriter or Underwriters and upon the terms herein set forth, the Shares
which such defaulting Underwriter or Underwriters agreed to purchase. If
the nondefaulting Underwriters fail so to make such arrangements with
respect to all such Shares, the number of Shares which each nondefaulting
Underwriter is otherwise obligated to purchase under this Agreement shall
be automatically increased pro rata to absorb the remaining Shares which
the defaulting Underwriter or Underwriters agreed to purchase; provided,
however, that the nondefaulting Underwriters shall not be obligated to
purchase any of the Shares if the aggregate Public Offering Price of the
Shares which the defaulting Underwriter or Underwriters agreed to purchase
exceeds ten percent (10%) of the Public Offering Price of the total
9
<PAGE>
Shares which all Underwriters agreed to purchase hereunder. If the total
number of Shares which the defaulting Underwriter or Underwriters agreed to
purchase shall not be purchased or absorbed in accordance with this
subsection 3.1.1, then the Company shall have the right, within twenty-four
(24) hours next succeeding the twenty-four (24) hour period above referred
to, to make arrangements with other underwriters or purchasers satisfactory
to the Representative for the purchase of all of the Shares which the
defaulting Underwriter or Underwriters agreed to purchase hereunder on the
terms herein set forth. In any such case, either the Representative or the
Company shall have the right to postpone the Closing Date determined as
provided in subsection 3.2.2. hereof for not more than seven (7) business
days after the date originally fixed as the Closing Date pursuant to said
subsection 3.2.2. in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be
made. If neither the nondefaulting Underwriters nor the Company shall make
arrangements within the twenty-four (24) hour periods stated above for the
purchase of all the Shares which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without
further act or deed and without any liability on the part of the Company to
any nondefaulting Underwriter and without any liability on the part of any
nondefaulting Underwriter to the Company.
3.1.2 LIABILITY OF DEFAULTING MEMBERS OF THE UNDERWRITING GROUP.
---------------------------------------------------------
Nothing contained in this Section 3.1 shall relieve any defaulting member
of the Underwriting Group of its liability, if any, to the Company or to
the remaining members of the Underwriting Group for damages occasioned by
its default hereunder.
3.2 PUBLIC OFFERING PRICE. After the Commission notifies the Company that
---------------------
the Registration Statement has become effective and after this Agreement becomes
effective, the members of the Underwriting Group propose to offer initially the
Shares to the public at the Public Offering Price. The members of the
Underwriting Group may allow such concessions and discounts upon sales to
selected dealers as may be determined from time to time by the Representative.
3.2.1 PAYMENT FOR SHARES. Payment for the Shares shall be made to
------------------
the Company by regular check or checks at the offices of the Representative
set forth above in Englewood, Colorado, upon delivery to the Representative
of certificates for the Shares in definitive form in such numbers and
registered in such names as the Representative requests in writing at least
two (2) full business days prior to such delivery. The Company agrees not
to seek to obtain (i) certification of the Representative's closing check
or checks from the Representative's bank or banks or (ii) a cashier's check
or checks from the Representative's bank or banks in substitution for the
Representative's closing check or checks. The Company agrees to deposit
the Representative's closing check or checks into the Company's bank
account and to allow such check or checks to clear through the banking
system on a "regular way" basis. Nothing contained in this Section 3.2.1
shall be construed to relieve the Representative from its obligations
created as a result of the issuance of the Representative's regular check
or checks at the Closing.
3.2.2 CLOSING. The time and date of delivery and payment hereunder
-------
for the Shares is herein called the "Closing Date" and shall take place at
the office of the Representative at the address set forth above in
Englewood, Colorado, at 10:00 A.M. on the third (3rd) business day
following the Effective Date of this Agreement; provided, however, the
Company and the Representative may agree, on the date that this Agreement
becomes legally effective, to an alternative Closing Date and such
alternative Closing Date shall become the "Closing Date" under this
Agreement. Should the Representative elect to exercise any part of the
Overallotment Option pursuant to Section 3.1 hereof, the time, date of
delivery and payment for the Overallotment Shares being purchased shall be
as mutually agreed between the Company and the Representative, but not
later than the forty-fifth (45th) calendar day after the Effective Date.
Said date is hereinafter referred to as the "Option Closing Date."
10
<PAGE>
3.2.3 INSPECTION OF CERTIFICATES. For the purpose of expediting the
--------------------------
checking and packaging of the certificates for the Shares, the Company
agrees to make the certificates available for inspection by the
Representative at the place designated by the Representative at least one
full business day prior to the proposed delivery date.
3.3 REPRESENTATIVE'S NONACCOUNTABLE EXPENSE ALLOWANCE. It is understood
-------------------------------------------------
that the Company shall reimburse the Representative for its expenses on a
nonaccountable basis in the amount of three percent (3%) of the of the Shares
and Overallotment Shares purchased at the Public Offering Price by the
Underwriters. The Representative acknowledges that it has received $40,000 of
the nonaccountable expense allowance, which amount will be credited against the
unpaid balance of such nonaccountable expense allowance. On the Closing Date and
the Option Closing Date, the Company shall pay to the Representative the unpaid
balance of such nonaccountable expense allowance then due.
3.4 REPRESENTATIVE'S WARRANTS. On the Closing Date, the Company will sell
-------------------------
warrants to the Representative and its designees ("Representative's Warrants")
entitling the Representative to purchase a total of 100,000 shares of Common
Stock (115,000 shares of Common Stock if the Overallotment Option is exercised).
The Representative's Warrants will be in the form of the Representative's
Warrants to Purchase Shares filed as an exhibit to the Registration Statement.
The Representative's Warrants shall be exercisable during the four (4) year
period commencing one (1) year after the Effective Date. The total amount that
the Representative shall pay the Company for the Representative's Warrants is
One Hundred Dollars ($100). The Company and the Representative agree that the
Representative's Warrants may not be sold, transferred, assigned, pledged, or
hypothecated for a period of one year after the Effective Date of the
Registration Statement except to officers of the Representative, to members of
the Underwriting Group, and to officers or partners of selected dealers and
except by will or operation of law. After such one (1) year period, the
Representative's Warrants may be sold, transferred, assigned, pledged, or
hypothecated provided that any such transaction is in accordance with the
registration or exemption from registration provisions of the Act and any
applicable state securities laws. If the Representative's Warrants are
exercised during the first year after the Effective Date of the Registration
Statement, then any shares of Common Stock of the Company acquired as a result
of any such exercise may not be sold, transferred, assigned, pledged, or
hypothecated until after expiration of such one (1) year period.
3.5 REPRESENTATIONS OF THE PARTIES. The parties hereto respectively
------------------------------
represent that as of the Closing Date and as of the Option Closing Date the
representations herein contained and the statements contained in all the
certificates theretofore or simultaneously delivered by any party to another,
pursuant to this Agreement, shall in all material respects be true and correct.
3.6 POSTCLOSING INFORMATION. The Representative covenants that reasonably
-----------------------
promptly after the Closing Date and after the Option Closing Date, the
Representative will supply the Company with all information that the Company may
reasonably request which must be supplied to the Commission or securities
authorities of states in which the Shares have been qualified for sale.
3.7 REOFFERS BY SELECTED DEALERS. On each sale by the members of the
----------------------------
Underwriting Group of any of the Shares to selected dealers, the members of the
Underwriting Group shall require the selected dealers purchasing any such Shares
to agree to reoffer such Shares on the terms and conditions of the offering set
forth in the Registration Statement and Prospectus.
SECTION 4
REGISTRATION STATEMENT AND PROSPECTUS
-------------------------------------
4.1 DELIVERY OF REGISTRATION STATEMENT. The Company has delivered to the
----------------------------------
Representative without charge two (2) signed printed copies of the Registration
Statement, including all financial statements and exhibits filed therewith and
any amendments or supplements thereto, and shall deliver without charge to the
Representative such number of conformed printed copies of the Registration
Statement as the Representative shall request,
11
<PAGE>
including all financial statements and exhibits filed therewith and any
amendments or supplements thereto. The signed copies of the Registration
Statement furnished to the Representative include signed copies of any and all
opinions and consents of the independent public accountants certifying to the
financial statements included in the Registration Statement and Prospectus and
signed copies of any and all opinions, consents and certificates of any other
persons whose profession gives authority to statements made by them and who are
named in the Registration Statement or Prospectus as having prepared, certified
or reviewed any part thereof.
4.2 DELIVERY OF PRELIMINARY PROSPECTUS AND AGREEMENTS. The Company will
-------------------------------------------------
have caused to be delivered, at its expense, to the members of the Underwriting
Group and to other broker dealers specified by the Representative prior to the
Effective Date of the Registration Statement as many printed copies of (i) each
Preliminary Prospectus filed with the Commission bearing in red ink the
statements required by Item 501 of Regulation S-B, and (ii) each Agreement Among
Underwriters, Underwriting Agreement, and Selected Dealer Agreement, all as may
have been requested by the Representative. The Company consents to the use of
such documents by the members of the Underwriting Group and by prospective
selected dealers prior to the Effective Date of the Registration Statement, so
long as such use is in accordance with the applicable provisions of the Act, the
applicable Rules and Regulations thereunder and the applicable state blue sky or
securities laws.
4.3 DELIVERY OF PROSPECTUS. The Company will deliver, at its expense, to
----------------------
the members of the Underwriting Group and to other broker dealers specified by
the Representative, as many printed copies of the Prospectus as the
Representative may request and will deliver said printed copies of the
Prospectus to the members of the Underwriting Group and such other persons on
the Effective Date and for such period of time thereafter as the Prospectus is
required by law to be delivered in connection with offers and sales of the
Shares.
4.4 FURTHER AMENDMENTS AND SUPPLEMENTS. If during the period of time that
----------------------------------
the Company's Prospectus is required to be delivered under the Act, any event
occurs or any event known to the Company relating to or affecting the Company
shall occur, as a result of which the Prospectus as then amended or supplemented
would include an untrue statement of a material fact, or omit to state any
material fact necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading or if it is necessary
at any time after the Effective Date to amend or supplement the Prospectus to
comply with the Act, the Company agrees to notify immediately the Representative
thereof and prepare and file with the Commission such further amendment to the
Registration Statement or supplemental or amended Prospectus as may be required
and furnish and deliver to the Representative and to others designated by the
Representative, all at the Company's expense, a reasonable number of copies of
the amended or supplemented Prospectus which as so amended or supplemented will
not contain any untrue statement of a material fact or omit to state any
material fact necessary to make the statements made therein, in the light of the
circumstances under which they were made, not misleading when it is delivered to
a purchaser or prospective purchaser, and which will comply in all respects with
the Act; and in the event the Representative is required to deliver a Prospectus
after the date specified in Rule 174 of the Rules and Regulations, the Company
upon request will prepare promptly such Prospectus or Prospectuses as may be
necessary to permit compliance with the requirements of Section 10 of the Act.
4.5 USE OF PROSPECTUS. The Company authorizes the members of the
-----------------
Underwriting Group in connection with the distribution of the Shares and all
dealers who may distribute any of the Shares to use the Prospectus, as from time
to time amended or supplemented, in connection with the offering and sale of the
Shares so long as such use is in accordance with the applicable provisions of
the Act, the applicable Rules and Regulations thereunder and applicable state
blue sky or securities laws.
SECTION 5
COVENANTS OF THE COMPANY
------------------------
The Company covenants and agrees with the members of the Underwriting Group
that:
12
<PAGE>
5.1 OBJECTION OF REPRESENTATIVE TO AMENDMENTS OR SUPPLEMENTS. After the
--------------------------------------------------------
date hereof, the Company will not at any time, whether before or after the
Effective Date of the Registration Statement, file any amendment or supplement
to the Registration Statement or Prospectus (i) unless and until a copy of such
amendment or supplement has been previously furnished to the Representative
within a reasonable time period (but in no event less than three (3) business
days before the Company proposes to file such amendments and to the extent of
any changes are made to such amendment not less than two (2) business days)
prior to the filing thereof or (ii) to which the Representative or legal counsel
to the Representative has reasonably objected, in writing, on the ground that
such amendment or supplement is not in compliance with the Act or the Rules and
Regulations.
5.2 COMPANY'S BEST EFFORTS TO CAUSE REGISTRATION STATEMENT TO BECOME
----------------------------------------------------------------
EFFECTIVE. The Company agrees to use its best efforts to cause the Registration
- ---------
Statement and any amendment thereto to become effective as promptly as
reasonably practicable and will promptly advise the Representative and will
confirm such advice in writing (i) when the Registration Statement shall have
become effective and when any amendment thereto shall have become effective and
when any amendment of or supplement to the Prospectus shall be filed with the
Commission, (ii) when the Commission shall make, either orally or in writing, a
request or suggestion for any amendment to the Registration Statement or the
Prospectus or for any additional information and the nature and substance
thereof, (iii) of the issuance by the Commission of an order suspending the
effectiveness of the Registration Statement pursuant to Section 8 of the Act or
of the initiation of any proceedings for that purpose, (iv) of the happening of
any event which in the judgment of the Company makes any material statement in
the Registration Statement or Prospectus untrue or which requires the making of
any changes in the Registration Statement or Prospectus in order to make the
statements therein not misleading, and (v) of the refusal to qualify or the
suspension of the qualification of the Shares for offering or sale in any
jurisdiction or of the institution of any proceedings for any of such purposes.
The Company will use every reasonable effort to prevent the issuance of any such
order or of any order preventing or suspending such use, to prevent any such
refusal to qualify or any such suspension, and to obtain as soon as possible a
lifting of any such order, the reversal of any such refusal and the termination
of any such suspension.
5.3 PREPARATION AND FILING OF AMENDMENTS AND SUPPLEMENTS. The Company
----------------------------------------------------
agrees to prepare and file promptly with the Commission, upon request of the
Representative, such amendments or supplements to the Registration Statement or
Prospectus, in form satisfactory to legal counsel for the Representative, as in
the opinion of the Representative and of legal counsel to the Company, may be
necessary in connection with the offering or distribution of the Shares and will
use its best efforts to cause the same to become effective as promptly as
possible.
5.4 BLUE SKY QUALIFICATIONS. The Company agrees to use its best efforts
-----------------------
to register or qualify the Shares or such part thereof as the Representative may
determine for sale under the blue sky laws of such states as are requested by
the Representative. The Company will be assisted by legal counsel for the
Representative in registering or qualifying the Shares for sale under such blue
sky laws. The Company will pay all of the filing fees and legal fees, costs and
expenses incurred by such legal counsel in so registering or qualifying such
Shares. The Representative acknowledges that the Company has paid five thousand
dollars ($5,000) against which the legal fees of legal counsel for the
Representative may be billed. The Representative's legal counsel will forward
to legal counsel for the Company copies of all correspondence, comments, orders
or other documents ("correspondence and documents") sent to or received from
such states in connection with such registrations and qualifications at the time
such correspondence and documents are sent or received by legal counsel for the
Representative. Immediately prior to the distribution of the preliminary
Prospectus to potential investors and prior to the Effective Date of the
Registration Statement, legal counsel for the Representative will issue to the
Company and the Underwriting Group a written blue sky memorandum of all states
in which the preliminary Prospectus may be distributed and in which the proposed
initial Public Offering (the "Public Offering") of the Shares has been
registered or qualified for sale, canceled, withdrawn, denied or exempt, the
date of such event(s) and the number of Shares registered or qualified for sale
in each such state. The Company understands that one of the
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factors considered by the Representative and the Underwriting Group in deciding
to execute this Underwriting Agreement was the states in which the Shares have
been registered or qualified for resale.
5.5 FINANCIAL STATEMENTS. The Company, at its own expense, agrees to
--------------------
prepare and give and will continue to give such financial statements and other
information and reports to and as may be required by the Commission or the
proper public bodies of the states in which the Shares may be registered or
qualified.
5.6 REPORTS AND FINANCIAL STATEMENTS TO THE REPRESENTATIVE. From and
------------------------------------------------------
after June 30, 1997, the date of the most recent quarterly financial statement
filed with the Commission and continuing through the Closing Date, the Company
shall furnish to the Representative and to legal counsel for the Representative,
the Company's unaudited monthly financial statements. For a period of five (5)
years from the Closing Date, the Company agrees to deliver to the Representative
copies of each annual report of the Company and copies of all reports it is
required to file or make available pursuant to the Shares Exchange Act of 1934,
as amended ("Exchange Act"), and will deliver to the Representative: (i) within
ninety (90) days (plus any extensions of time that the Commission grants to the
Company to file its annual report on the appropriate Form) after the close of
each fiscal year of the Company, a financial report of the Company and its
Subsidiaries on a consolidated basis, and a similar financial report of all of
the Company's unconsolidated Subsidiaries, all such reports to include a balance
sheet as of the end of the preceding fiscal year, a statement of operations, a
statement of stockholders' equity and statement of cash flows covering such
fiscal year, and all to be in reasonable detail and certified by independent
public accountants for the Company; (ii) within forty-five (45) days (plus any
extensions of time that the Commission grants to the Company to file its
quarterly report on the appropriate Form) after the end of each quarterly fiscal
period of the Company other than the last quarterly fiscal period in any fiscal
year, copies of the consolidated statements of operations, stockholders' equity
and cash flows for the quarterly fiscal period and the fiscal year to the end of
such quarterly fiscal period, and the balance sheet as of the end of that period
of the Company and its Subsidiaries and the equivalent financial statements of
all of the Company's unconsolidated Subsidiaries, for that period, all subject
to year end adjustment, certified by the principal financial or accounting
officer of the Company; (iii) copies of all other statements, documents or other
information which the Company mails or otherwise makes available to any class of
its security holders or files with the Commission; (vi) copies of all news,
press or public information releases when made; (v) copies of all letters to the
Company from its independent certified public accountants concerning actual or
potential deficiencies in the Company's accounting procedures or internal
control of funds; and (vi) upon request in writing from the Representative, such
other information as may reasonably be requested and which may be properly
disclosed to the Representative with reference to the property, business and
affairs of the Company and its Subsidiaries. If the Company fails to furnish
the Representative with financial statements as herein provided, within the
times specified herein, the Representative shall have the right to have such
financial statements prepared by independent public accountants of such
Representative's own choosing and the Company agrees to furnish such independent
public accountants such data and assistance and access to such records as they
may reasonably require to enable them to prepare such statements and to pay
their reasonable fees and expenses in preparing the same; provided, however, the
Company shall have the right to furnish the financial statements to the
Representative at any time after the Representative retains independent public
accountants to prepare the financial statements in which event the amount of
fees that the Company shall be obligated to pay to the independent public
accountants selected by the Representative will be limited to those fees
(including any retainer paid) actually incurred to the point in time that the
Company furnishes the required financial statements.
5.7 EXPENSES PAID BY THE COMPANY. The Company agrees to pay, whether or
----------------------------
not the transactions contemplated hereunder are consummated or this Agreement is
prevented from becoming effective or is terminated, all costs and expenses
incident to the performance of its obligations under this Agreement, including
all expenses incident to the authorization, issuance, and delivery of the Shares
and Representative's Warrants, any original issue taxes in connection therewith,
all transfer taxes, if any, incident to the initial sale of the Shares to the
public, the fees and expenses of the Company's personnel in connection with the
proposed Public Offering, the costs, fees, and expenses incident to the
preparation, printing and filing under the Act and with the NASD of the
Registration Statement, or supplements thereto, the cost of printing,
reproducing and filing all exhibits to
14
<PAGE>
the Registration Statement, the Agreement Among Underwriters, this Agreement,
the Selected Dealer Agreement and any other underwriting documents, the cost of
printing and delivering to the Representative, the members of the Underwriting
Group, and selected dealers copies of the Registration Statement and copies of
the Agreement Among Underwriters, this Agreement and the Selected Dealer
Agreement, and any other underwriting documents, as many Preliminary
Prospectuses and the final Prospectuses as the Representative may deem
reasonably necessary as herein provided, the costs and legal counsel fees of
qualifying the Shares under the state securities or blue sky laws as provided in
Section 5.4 hereof, the fees and disbursements of legal counsel and accountants
for the Company, the cost of providing the Representative with two (2) bound
volumes of the Registration Statement, as amended, all exhibits thereto, all
state filings and all correspondence relating to the Registration Statement and
all state filings, all expenses incurred in connection with the holding of "due
diligence" meetings (which shall include all presentations specified by the
Representative) held by the Representative, and the cost of one (1) suitable
tombstone notice in the Wall Street Journal relating to the proposed Public
Offering, and any other expenses customarily paid by an issuer. Except as
specified above, the Company shall not be required to pay any fees or charges
for attending or any travel or lodging expenses incurred in attending due
diligence meetings by members of the Underwriting Group or dealers. Except as
otherwise specified above, the Representative agrees to pay all fees and
expenses of any legal counsel which it may employ to represent it separately in
connection with or on account of the proposed Public Offering and agrees to pay
any advertising not paid by the Company, mailing, telephone, travel and clerical
costs and all other office costs incurred or to be incurred by the
Representative or by its representatives in connection with the proposed Public
Offering.
5.8 REPORTS TO SHAREHOLDERS. For so long as the Company's Common Stock is
-----------------------
registered under the Exchange Act, the Company agrees to hold an annual meeting
of shareholders for the election of directors within one hundred eighty (180)
days after the end of each of the Company's fiscal years and, within one hundred
eighty (180) days after the end of each of the Company's fiscal years, to send
to each of the Company's shareholders the audited financial statements of the
Company as of the end of the fiscal year just completed prior thereto. Such
financial statements shall be those required by Rule 14c-3 under the Exchange
Act and shall be included in an annual report meeting the requirements of such
Rule. Further, the Company agrees, so long as such Common Stock is so
registered:
(i) to provide the Company's shareholders with quarterly summary
operating financial statements;
(ii) to send, within thirty (30) days after the Closing Date, a letter
to shareholders of the Company which welcomes them as shareholders and
discusses the business conducted by the Company since the Effective Date.
(iii) to send, as least every ninety (90) days for a period of three
(3) years after the Effective Date, a letter or report to shareholders of
the Company and to broker dealers which are then market markers of Shares
of the Company on NASDAQ ("market makers"), which contains a narrative
discussion of the Company's financial status and results of operations and
a narrative discussion of the business conducted by the Company since the
last report or letter to shareholders and market markers.
(iv) during the period after three (3) years from the Effective Date,
to send to each of the Company's shareholders and market markers in printed
form within ninety (90) days after the end of each fiscal quarter just
ended a narrative discussion of such financial statements and the business
conducted by the Company during such quarter.
If the Company breaches any of its agreements set forth in this Section
5.8, the parties agree that any such breach will result in irreparable harm to
the Representative for which an adequate remedy for damages will not exist and
therefore the Representative shall be entitled to seek and obtain a court
injunction in equity which orders the Company to comply with its agreements set
forth in this Section 5.8 and which requires the Company
15
<PAGE>
to reimburse the Representative for its costs, including reasonable attorney
fees, incurred in obtaining such injunctive order.
5.9 SECTION 11(A) FINANCIAL. The Company agrees to send to each of its
-----------------------
security holders and agrees to deliver to the Representative, as soon as
practicable, but in no event later than the first day of the sixteenth (16th)
full calendar month following the Effective Date, an earnings statement (as to
which no opinion need be rendered but which will satisfy the provisions of
Section 11 (a) of the Act) covering a period of at least twelve (12) months
beginning after the Effective Date.
5.10 POSTEFFECTIVE AVAILABILITY OF PROSPECTUS. Within the time during
----------------------------------------
which the Prospectus is required to be delivered under the Act, the Company
agrees to comply, at its own expense, with all requirements imposed upon it by
the Act, as now or hereafter amended, by the Rules and Regulations, as from time
to time may be in force, and by any order of the Commission, so far as necessary
to permit the continuance of sales of the Shares.
5.11 APPLICATION OF PROCEEDS. The Company intends to apply the net
-----------------------
proceeds from the sale of the Shares substantially in the manner set forth in
the Registration Statement. Except for cumulative changes of less than ten
percent (10%) in each specific item set forth in the "Use of Proceeds" section
of the definitive Prospectus, the Company will not deviate from such use without
giving written notice of such proposed deviation to the Representative at least
ten (10) business days prior to any such deviation. Pending utilization of the
net proceeds by the Company for business purposes, all of the unused net
proceeds from the sale of the Shares will be invested in short term United
States government securities purchased through a bank or in a nondiscretionary
account of the Company with the Representative.
5.12 DELIVERY OF DOCUMENTS. Prior to the Closing Date, the Company agrees
---------------------
to deliver to the Representative true and correct copies of the charter,
articles of association, articles of incorporation and certificate of
incorporation of the Company and its Subsidiaries, and all amendments thereto,
all such copies to be certified by the secretary of state of the state of
incorporation of the Company and by the proper governmental authority of any
foreign country in which one or more Subsidiaries are incorporated to the extent
that such document or an equivalent thereof is made available by such
governmental authority; true and correct copies of the bylaws of the Company and
of the minutes of all meetings of the directors and shareholders of the Company
held prior to the Closing Date; and true and correct copies of all material
contracts to which the Company or any of its Subsidiaries, if any, is a party.
5.13 COOPERATION WITH REPRESENTATIVE'S DUE DILIGENCE. At all times prior
-----------------------------------------------
to the Closing Date, the Company agrees to cooperate with the Representative,
legal counsel for the Representative, and the Representative's consultants in
such investigation as the Representative may make or cause to be made of the
Company, its Subsidiaries and their affiliates and the Company agrees to make
available to the Representative in connection therewith such information and
documents relating to the Company, its Subsidiaries and their affiliates as the
Representative may reasonably request and such persons as the Representative or
legal counsel for the Representative shall deem reasonably necessary or
appropriate in order to verify or substantiate any document or other information
regarding the Company and the preparation and filing of the Registration
Statement.
5.14 ANNUAL MEETINGS. The Company will, at its expense, so long as its
---------------
Common Stock is registered under the Exchange Act, hold an annual meeting of
shareholders for the election of directors within one hundred eighty (180) days
after the end of each of the Company's fiscal years.
5.15 LIMITATIONS ON COMPANY. Except with the Representative's prior
----------------------
written consent, the Company agrees that the Company will not do the following
until (a) the termination of this Agreement or (b) the number of days after the
Effective Date for which the Prospectus is required to be used pursuant to Rule
174 of the Rules and Regulations, whichever occurs first:
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<PAGE>
(i) Undertake or authorize any change in its capital structure;
(ii) Borrow any funds other than in the ordinary course of business
and as contemplated by the Prospectus;
(iii) Consolidate or merge with or into any other corporation;
(iv) Purchase all or substantially all of the assets of another
corporation or any other entity or person or sell all or substantially all
of the Company's assets to another corporation, entity or person;
(v) Purchase fifty percent (50%) or more of the securities of
another corporation or other entity or sell or enter into an exchange
transaction pursuant to which the Company or the Company's shareholders
sell or exchange or otherwise dispose of fifty percent (50%) of the issued
and outstanding shares of the Company's Common Stock in a taxable or tax
free transaction; or
(vi) Create any mortgage or any lien upon any of its properties or
assets other than in the ordinary course of business and as contemplated by
the Prospectus.
5.16 APPOINTMENT OF TRANSFER AGENT. Prior to the Effective Date, the
-----------------------------
Company will have appointed American Securities Transfer & Trust, Inc., 938
Quail Street, Suite 101, Lakewood, Colorado 80215, as transfer agent for the
Company's Shares and Common Stock. The Company shall not change its transfer
agent for a period of two (2) years after the Effective Date without the
Representative's prior written consent.
5.17 DAILY TRANSFER SHEETS. For the three (3) year period following the
---------------------
Effective Date, the Company, at its expense, shall provide the Representative,
if so requested in writing, with copies of the Company's daily Common Stock
transfer sheets and the __________________________ ("DTC") special security
position listing reports.
5.18 CERTIFICATES. The Company agrees to make arrangements to have
------------
available at the office of the transfer agent sufficient quantities of the
Company's certificates as may be needed for the quick and efficient transfer of
the Shares and Common Stock.
5.19 COMPLIANCE WITH CONDITIONS PRECEDENT. The Company agrees to use all
------------------------------------
reasonable efforts to comply or cause to be complied with the conditions
precedent to the obligations of the members of the Underwriting Group in Section
8 hereof.
5.20 FILINGS OF FORMS. The Company agrees to file with the Commission all
----------------
required reports on Form SR in accordance with the provisions of Rule 463 of the
Rules and Regulations and will file with the appropriate state securities
authorities any sales and other reports required by the rules and regulations of
such agencies and will provide copies of such reports to the Representative and
to the legal counsel for the members of the Underwriting Group.
5.21 REGISTRATION UNDER THE EXCHANGE ACT. Prior to the Effective Date of
-----------------------------------
the Registration Statement, the Company will have made a filing under Section
12(g) of the Exchange Act with respect to the Company's Common Stock. The
Company agrees to deliver a copy of such filing to the Representative and to
legal counsel for the Representative when filed. On the Effective Date of the
Registration Statement, the Company will cause the Company's filing under
Section 12(g) of the Exchange Act to become effective with the Commission.
5.22 LISTING IN MANUALS. The Company will use its best efforts to qualify
------------------
(if not already qualified) the Company's Shares and Common Stock for trading in
all states as soon as legally possible. Therefore, as soon as possible prior to
the Effective Date, the Company will use its best efforts to have the Company
listed in
17
<PAGE>
Moody's Over-the-Counter Manual and Standard & Poor's Standard Corporation
Records and such other Manuals as are reasonably requested by the
Representative.
5.23 NASDAQ/NMS. The Company agrees to have the Shares listed and
----------
available for quotation on the NASDAQ Small Cap Market on the Effective Date of
the Registration Statement. Subject to the Company's ability to meet the
maintenance requirements of the NASDAQ Small Cap Market, the Company agrees to
maintain the listing of its Common Stock such that such Shares will continue to
be available for quotation on the NASDAQ Small Cap Market. The trading symbols
shall be mutually agreeable to the Company and the Representative. As soon as
the Company meets the qualifications required with respect thereto, the Company
will designate its securities for inclusion on the NASDAQ National Market System
or, in the alternative, such national stock exchange as is agreed to between the
Company and the Representative.
5.24 SECONDARY TRADING QUALIFICATIONS. The Company agrees to qualify its
--------------------------------
securities for secondary trading, as soon as legally possible, in California and
such other states as are reasonably requested by the Representative from time to
time.
5.25 LEGENDS ON STOCK CERTIFICATES. The Company agrees to cause the stock
-----------------------------
certificates of its current shareholders that represent "restricted securities,"
and the stock and warrant certificates held by officers, directors, or
controlling persons of the Company to be clearly legended as being restricted
against transfer without compliance with the Act and to cause the Company's
transfer agent and warrant agent to put stop transfer instructions against such
certificates.
5.26 STOCKHOLDERS AND WARRANTHOLDERS LISTS AND TRANSFER SUMMARIES. Within
------------------------------------------------------------
ten (10) business days after the Closing Date and within ten (10) business days
after the Option Closing Date, the Company will deliver to the Representative
complete lists of all holders of the Shares and Common Stock of the Company as
of the Closing Date and as of the Option Closing Date, respectively. Each such
list shall include the name and address of each such holder and the number of
Shares and shares of Common Stock owned by each such person as of such date.
Within ten (10) business days after the end of each of the first twenty-four
(24) calendar months after the Closing Date, the Company will provide the
Representative with a new list containing the information described above with
respect to the Shares and Common Stock as of the end of each such month and a
list which shows each transaction involving a transfer of a Share or Common
Stock certificate during such month. This transfer list shall include the name
and address of the transferor and the transferee and the number of Shares and
shares of Common Stock transferred.
5.27 DIRECTORS, OFFICERS AND COMMITTEES. Immediately after the Closing
----------------------------------
Date, the Representative shall have the right, subject to the approval of the
Board of Directors, to select one member of the Company's Board of Directors.
The director to be selected by the Representative shall serve until the next
annual meeting of the Company's Shareholders. Thereafter, the Company will have
such member renominated for an additional two (2) terms of office. The
Company's officers and directors agree that they will vote their shares of
Common Stock (or any other securities entitled to vote for the election of
directors) to re-elect such member. In addition, the Company will solicit its
shareholders to vote in favor of the Representative's nominee. Following the
date of the final Prospectus, the Company agrees that the persons comprising the
Board of Directors and officers of the Company on the Effective Date must be
acceptable to the Representative. Such acceptance will only be withheld by the
Representative if material adverse information is discovered by the
Representative. By no later than the Closing Date, the Company will, if it has
not already done so, have two (2) outside independent directors serving on the
Board of Directors. The Company shall continue to maintain at least two (2)
independent outside directors for at least the next two (2) fiscal years beyond
the Effective Date. The Company agrees that for a period of three (3) years
after the Closing Date, the Company will permit a representative, designated by
the Representative and acceptable to the Company, to receive notice of and to
attend all meetings of the Board of Directors of the Company. The
Representative shall be provided with the same notice of each meeting of the
Board of Directors as is provided to the Board of Directors. No compensation
shall be paid to such observer. However, the Company will reimburse out of
pocket expenses incurred by such observer to attend meetings.
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<PAGE>
Such observer shall have no vote at such meetings; and, such observer shall be
required, prior to attending any such meeting, to represent in writing to the
Company that such observer is familiar with and will comply with all
requirements of the federal securities laws applicable to a person who comes
into possession of material nonpublic information concerning the Company. The
Board of Directors of the Company will establish an audit and a management
compensation committee and will maintain such committees so long as the Common
Stock of the Company is registered under the Exchange Act. For a period of not
less than two (2) years after the Effective Date, at least two (2) outside
independent director's will serve on the Company's audit and compensation
committees and as such shall comprise a majority of the members of such
committees. The Board of Directors will manage and oversee the application of
the proceeds received by the Company from the Public Offering. Any material
modification in the application of such proceeds which varies from the specific
use described in the Final Prospectus shall require the prior review and
approval of all of the members of the Board of Directors.
5.28 RIGHT OF INSPECTION. The Company agrees that for a period of three
-------------------
(3) years following the date of the final Prospectus, the Representative, at the
Representative's expense, will have the right to have a person or persons
selected by the Representative review the books, records and operations of the
Company, upon seven (7) days written notice. Any person designated by the
Representative to conduct such review shall be required to execute a
confidentiality agreement which will, in part, prohibit disclosure of
information to any person other than the Representative. Unless the Company
specifically agrees otherwise, any such information shall be held in confidence.
5.29 PUBLIC RELATIONS FIRM. At least ninety (90) days prior to the
---------------------
Effective Date, the Company will engage the services of a public relations
advisory firm which is acceptable to the Representative. The Company shall
retain the services of such public relations advisory firm for at least one (1)
year following the Effective Date. The Company shall have sole authority to
determine the compensation and the utilization of such public relations firm.
In any event, the Company shall provide reasonable and frequent notices to the
public concerning material developments in the Company's business operations,
activities and acquisitions. Such public relations firm shall not be a member
of the Underwriting Group or a "related person" of any such member of the
Underwriting Group. The term "related person" is described in Section 5.32 of
this Agreement.
5.30 DISSEMINATION OF INFORMATION. To avoid any appearance of the early
----------------------------
commencement of the Public Offering, the Company shall consult with its counsel
and the Representative prior to distribution to third parties of any financial
information, news releases and/or other publicity regarding the Company, its
business or any terms of the proposed Public Offering, unless such dissemination
is required by law or by prior Company practices. Prior to the distribution
thereof, the Company shall furnish to the Representative copies of all
documents, including, without limitation, financial information, news releases
and other documents regarding the Company, its business, its properties or any
of the terms of the proposed Public Offering, which the Company or its public
relations advisors intend to distribute prior to the Closing Date.
5.31 MANAGEMENT REFERRALS. Persons whom management of the Company believe
--------------------
may be interested in purchasing Shares in the Public Offering will be referred
only to the Representative and management of the Company will purchase Shares in
the Public Offering only through the Representative. The Representative will
have complete control of the distribution of the Shares in the Public Offering.
5.32 NO NASD MEMBER PAYMENTS OR AFFILIATION. For purposes of this Section
--------------------------------------
5.29 and Section 5.32 hereof, a "related person" of an NASD member is a person
who has any of the following relationships with any NASD member: legal counsel,
financial consultant or advisor, finder, associated person, or member of the
immediate family of any such person. The Company represents to the
Representative that the Company has not paid and will not pay, except as
described in the Registration Statement or the next sentence, or agreed to pay
or deliver any item of value, including securities, to any member of the NASD or
to any person associated with a member of the NASD or to any related person of
an NASD member during the period beginning on the three hundred sixty-sixth
(366th) day prior to the filing of the Registration Statement with the
Commission and ending
19
<PAGE>
on the forty-fifth (45th) day after the Effective Date of the Registration
Statement. The representation contained in the foregoing sentence shall not
include cash discounts or commissions paid by the Company in connection with a
distribution of the Company's securities which occurs prior to the filing of the
Registration Statement with the Commission. The Company shall supply to legal
counsel for the Representative no later than one (1) week before the expected
filing date of the Registration Statement, the written representation of the
Company's president or chief executive officer as to (i) the existence or non-
existence of any NASD affiliation or association of any officer, director, or
five percent (5%) or greater shareholder of the Company, and, if a shareholder
of the Company is a corporation, the existence or non-existence of such NASD
affiliation or association of any officer, director or five percent (5%) or
greater shareholder of such corporation, (ii) whether or not any unregistered
securities of the Company have been acquired by any NASD member or related
persons during the thirteen (13) month period prior to the anticipated filing
date of the Registration Statement, and (iii) whether or not key-man life
insurance has been or will be provided for any officer or director of the
Company by any NASD member or related person.
5.33 FUTURE SALES.
------------
5.33.1 COMPANY SALES TO OTHERS. During the period of six (6) months
-----------------------
after the Effective Date of the Registration Statement, the Company will
not sell any securities (other than debt securities issued to financial
institutions) not covered by the Registration Statement without the
Representative's prior written consent. Excepted from this provision shall
be sales of Excluded Shares. The term "Excluded Shares" shall mean options
and warrants which are issued and outstanding on the Effective Date of the
Registration Statement or which are issued pursuant to a plan ("Plan")
which has been approved in writing by the Board of Directors of the Company
and the Representative prior to the Effective Date of the Registration
Statement.
5.33.2 COVERED PERSONS. Prior to the Effective Date of the
---------------
Registration Statement, the Company will cause each of its officers,
directors, one percent (1%) or more shareholders, and their affiliates and
any other persons as shall be required by NASDAQ ("Covered Persons) to
agree with the Representative in a written agreement in form and substance
satisfactory to the Representative and legal counsel for the Representative
that, without the prior written consent of the Representative, each such
Covered Person will not sell or otherwise dispose of any of the Company's
shares of Common Stock. Such agreement will also provide that if a Covered
Person who is an officer or director of the Company on the Effective Date
of the Registration Statement ceases to be an officer or director of the
Company at any time during the period of twelve (12) months after the
Closing Date, then such Covered Person and the affiliates of such Covered
Person will agree not to sell any of the Company's shares of Common Stock
which are owned by such Covered Person and such Covered Person's affiliates
on the Effective Date of such Registration Statement until the expiration
of twelve (12) months after the Effective Date. For purposes of this
Agreement, the term "affiliate" shall have the meaning ascribed to it in
Rule 405 of the Act. Such agreements between the Representative and the
Covered Persons will also provide that any sales of shares of Common Stock
of the Company by such persons during the three (3) year period after the
Closing Date, under Rule 144 promulgated by the SEC under the Act ("Rule
144 Sales"), will be executed only through the Representative acting as a
broker or dealer. In such agreement the Representative will agree to
execute such Rule 144 Sales on a competitive basis. If any person required
to execute an agreement under this subsection 5.33.2. has pledged, or
during the applicable period pledges, any of the Company's shares of Common
Stock which are covered by such agreement, such person shall cause his
pledgee to also agree in writing to comply with the pledgor's agreement
with the Representative. A copy of any such written agreement from the
pledgee shall be promptly delivered by the pledgor to the Representative
after execution thereof by the pledgee.
5.34 EXCLUSIVE DEALING. The Company at no time prior to the Closing Date,
-----------------
as contemplated under this Agreement, shall enter into discussions, negotiate or
otherwise make any arrangements with any other underwriter or other person which
relate in any manner to the undertaking of a possible Public Offering of the
20
<PAGE>
Company's securities by any such person other than the Representative, so long
as the Representative is discharging and performing its duties and
responsibilities under this Agreement and has not indicated in writing its
decision not to consummate the proposed Public Offering as contemplated under
this Agreement.
5.35 FINANCIAL PRINTER. The Representative has approved the Company's
-----------------
selection and engagement of R R Donnelley Financial as the financial printing
company selected by the Company to print the Preliminary and Final Prospectus
and for the transmitting of all electronic filings to the Commission prior to
the engagement by the Company of the services of such financial printing
company. In addition, the Representative shall approve the form, size, style
and quality of the Preliminary and Final Prospectus.
5.36 LIMITATION ON CERTAIN OFFERINGS. At no time for a period commencing
-------------------------------
on March 17, 1997 and continuing until thirty-six (36) months after the
Effective Date shall the Company, without the prior written consent of the
Representative, conduct an offering of its securities under the exemption from
the registration requirements afforded under Regulation S (i.e., Rules 901
through 904) as promulgated under the Act or any offering of its Shares under an
S-8 Registration Statement (or successor from of registration statement) in
connection with the issuance of the Company's securities to consultants or
advisors for services.
SECTION 6
INDEMNIFICATION
---------------
6.1 INDEMNIFICATION BY COMPANY. The Company agrees to indemnify and hold
--------------------------
harmless the Representative and the other members of the Underwriting Group and
each officer, director, employee, representative, agent, surety, guarantor, and
each person who controls the Representative or any other member of the
Underwriting Group within the meaning of Section 15 of the Act against any and
all losses, claims, damages or liabilities, joint or several, or litigation,
arbitration or mediation proceedings (collectively referred to as "litigation"),
including any and all awards or judgments rendered in connection therewith, to
which they or any of them may become subject under the Act or any other statute
or at common law and to reimburse the persons indemnified for any legal or other
expenses (including the cost of any investigation and preparation) incurred by
them in connection with any litigation, whether or not resulting in any
liability, but only insofar as such losses, claims, damages, liabilities and
litigation (including awards and/or judgments in connection therewith) arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment thereto
and the Prospectus and related exhibits included in the Registration Statement
or any application or other document filed in order to qualify the Shares under
the blue sky or securities laws of the states where filings were made, or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, all
as of the date when the Registration Statement or such amendment, as the case
may be, becomes effective, or any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or supplemented if
the Company shall have filed with the Commission any amendments thereof or
supplements thereto), or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however
that the indemnity agreement contained in this subsection 6.1 shall not apply to
the Representative or any of the other members of the Underwriting Group or any
person controlling the Representative or any other member of the Underwriting
Group in respect of any such losses, claims, damages, liabilities or litigation
arising out of or based upon any such untrue statement or alleged untrue
statement, or any such omission or alleged omission, if such statement or
omission was made in reliance upon information peculiarly within the knowledge
of the Representative or another member of the Underwriting Group and furnished
in writing to the Company by a member of the Underwriting Group specifically for
use in connection with the preparation of the Registration Statement and
Prospectus or any such amendment or supplement thereto and such person in making
any such statement, or any such omission or alleged omission, knowingly and
willfully violated applicable law or was guilty of gross negligence in
connection therewith. This indemnity agreement is in addition to any other
liability which the Company may otherwise have to the Representative and other
members of the Underwriting Group or to any person controlling the
Representative or a member of the Underwriting Group. Each member of the
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Underwriting Group agrees within ten (10) days after the receipt by it of
written notice of the commencement of any action against it or against any
person controlling it as aforesaid, in respect of which indemnity may be sought
from the Company on account of the indemnity agreement contained in this
subsection 6.1 to notify the Company in writing of the commencement thereof.
The failure of such a member of the Underwriting Group so to notify the Company
of any such action shall relieve the person to whom such notice was not given
from any liability which it may have to that member of the Underwriting Group or
any person controlling it as aforesaid on account of the indemnity agreement
contained in this subsection 6.1, but shall not relieve the Company from any
other liability which it may have to that member of the Underwriting Group or
such controlling person. In case any such action shall be brought against the
Representative of any other member of the Underwriting Group or any such
controlling person and the Representative or other member of the Underwriting
Group shall notify the Company of the commencement thereof, the Company shall be
entitled to participate in (and, to the extent that it shall wish, to direct)
the defense thereof at its own expense, but such defense shall be conducted by
legal counsel of recognized standing and reasonably satisfactory to such member
of the Underwriting Group or such controlling person or persons, which is a
defendant or which are defendants in such litigation. No settlement, compromise
or other disposition of any such litigation shall be made by the Company without
the prior written consent of the Representative and the other persons
indemnified hereunder. Conversely, any settlement, compromise or other
disposition shall require the Company's written consent and to the extent the
Company does not consent to any such settlement, compromise or other disposition
of any such litigation, the Company shall not be liable for amounts paid in
connection therewith. If the Company elects to direct such defense, the Company
agrees to furnish to each indemnified member of the Underwriting Group at its
request, copies of all pleadings therein and to apprise each indemnified member
of the Underwriting Group of all developments therein, all at the Company's
expense, and to permit the Representative and each indemnified member of the
Underwriting Group to be an observer therein.
6.2 INDEMNIFICATION BY THE MEMBERS OF THE UNDERWRITING GROUP. The members
--------------------------------------------------------
of the Underwriting Group agree, in the same manner as set forth in subsection
6.1. above, to indemnify and hold harmless the Company, the directors and
officers of the Company and each person, if any, who controls the Company within
the meaning of Section 15 of the Act, with respect to any statement in or
omission from the Registration Statement or any amendment thereto, or the
Prospectus (as amended or as supplemented, if amended or supplemented as
aforesaid) or any application or other document filed in any state or
jurisdiction in order to qualify the Shares under the blue sky or securities
laws thereof, or any information furnished pursuant to subsection 3.6 hereof, if
such statement or omission was made in reliance upon information peculiarly
within the knowledge of a member of the Underwriting Group and furnished in
writing to the Company by a member of the Underwriting Group or on its behalf
specifically for use in connection with the preparation thereof or supplement
thereto and such person in making any such statement, or any such omission or
alleged omission, knowingly or willfully, violated applicable law or was guilty
of gross negligence in connection therewith. No member of the Underwriting
Group shall be liable for amounts paid in settlement of any such litigation if
such settlement was effected without the written consent of the member of the
Underwriting Group. In case of commencement of any action in respect of which
indemnity may be sought from a member of the Underwriting Group on account of
the indemnity agreement contained in this subsection 6.2., each person to be
indemnified by the indemnifying member of the Underwriting Group shall have the
same obligation to notify the member of the Underwriting Group as the members of
the Underwriting Group have toward the Company in subsection 6.1. hereof,
subject to the same loss of indemnity in the event such notice is not given, and
the member of the Underwriting Group shall have the same right to participate in
(and, to the extent that the indemnifying member of the Underwriting Group shall
wish, to direct) the defense of such action at the expense of the indemnifying
member of the Underwriting Group, but such defense shall be conducted by legal
counsel of recognized standing and reasonably satisfactory to the Company. If
the indemnifying member of the Underwriting Group elects to direct such defense,
the indemnifying member of the Underwriting Group agrees to furnish to the
Company at its request copies of all pleadings therein and apprise it of all the
developments therein, all at the expense of the indemnifying member of the
Underwriting Group, and permit the Company to be an observer therein.
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6.3 CONTRIBUTION. If the indemnification provided for in this Section 6
------------
is unavailable to or insufficient to hold harmless an indemnified party under
subsections 6.1 and 6.2 hereof, in respect of any losses, claims, damages or
liabilities (or actions or litigation including awards and/or judgments in
respect thereof) referred to therein, then each indemnifying party shall in lieu
of indemnifying such indemnified party contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages, or
liabilities (or actions or litigation including awards and/or judgments in
respect thereof) in such proportion as is appropriate to reflect not only (i)
the relative benefits received by the Company on the one hand and the member of
the Underwriting Group on the other from the Public Offering of the Shares, but
also (ii) the relative fault of the Company and the member of the Underwriting
Group in connection with the statements or omissions which resulted in such
losses, claims, damages, or liabilities (or actions or litigation including
awards and/or judgments in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the member of the Underwriting Group on the other shall be deemed
to be in the same proportion as the total net proceeds from the Public Offering
of the Shares (before deducting expenses) received by the Company bears to the
total underwriting discount received by the members of the Underwriting Group,
in each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the member of the Underwriting Group and the person's relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company and the members of the Underwriting
Group agree that it would not be just and equitable if contribution pursuant to
this subsection 6.3. were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this subsection. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions or litigation including awards and/or judgments in respect thereof)
referred to above in this subsection 6.3 shall be deemed to include any legal or
other expenses to which such indemnified party would be entitled if subsections
6.1 and 6.2 hereof were applied. Notwithstanding the provisions of this
subsection 6.3, no member of the Underwriting Group shall be required to
contribute any amount in excess of the amount equal to the total price of the
Shares underwritten and distributed by it to the public. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11 of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
6.4 THREAT OF REGULATORS' ACTION. The Company and the Representative
----------------------------
agree to advise each other immediately and confirm in writing the receipt of any
threat of or the initiation of any steps or procedures by the Commission or any
other regulatory authority which would impair or prevent the right to offer or
sell any of the Shares or the issuance of any "suspension orders" or other
prohibitions preventing or impairing the proposed Public Offering of the Shares.
In the case of the happening of any such event, neither the Company nor the
members of the Underwriting Group will acquiesce in such steps, procedures or
suspension orders, and each party agrees to actively defend any such actions or
orders unless all parties agree, in writing, to acquiesce in such actions or
orders.
SECTION 7
EFFECTIVENESS OF AGREEMENT
--------------------------
After this Agreement has been executed by the Company and the
Representative, this Agreement shall become effective (i) at 10:00 A.M., Denver,
Colorado Time, on the first full business day after the Effective Date of the
Registration Statement or (ii) upon release by the Representative of the Shares
for offering after the Effective Date, whichever shall first occur. The time of
the release by the Representative of the Shares for offering, for the purposes
of this Section 7, shall mean the time of release by the Representative for
publication of the first newspaper advertisement which is subsequently published
relating to the Shares or the time of the first mailing of copies of the
Prospectus relating to the Shares in connection with a confirmation of a sale of
Shares by an Underwriter or Dealer, whichever shall first occur.
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SECTION 8
CONDITIONS OF THE OBLIGATIONS OF THE
------------------------------------
MEMBERS OF THE UNDERWRITING GROUP
---------------------------------
After execution of this Agreement by the Company and the Representative,
the obligations of the members of the Underwriting Group to purchase the Shares
and to make payment therefor on the Closing Date and on the Option Closing Date
shall be subject to the accuracy, as of the Closing Date and as of the Option
Closing Date, of the representations and warranties on the part of the Company
herein contained, to the performance by the Company of all of its agreements and
obligations herein contained, to the fulfillment of or compliance by the Company
with all covenants and conditions hereof, and to the following additional
conditions, any of which may be waived or modified by the Representative:
8.1 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement
---------------------------------------
shall have become effective and no order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for that purpose
shall have been initiated or threatened by the Commission or be pending; any
request for additional information on the part of the Commission (to be included
in the Registration Statement or Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission; and neither the
Registration Statement nor the Prospectus nor any amendment thereto shall have
been filed to which legal counsel for the Representative shall have reasonably
objected in writing or shall have withheld giving its consent.
8.2 ACCURACY OF REGISTRATION STATEMENT. The Representative shall not have
----------------------------------
disclosed in writing to the Company that the Registration Statement or the
Prospectus or any amendment thereof or supplement thereto contains an untrue
statement of a fact which, in the opinion of legal counsel for the
Representative is material, or omits to state a fact which, in the opinion of
such legal counsel, is material and is required to be stated therein, or is
necessary to make the statements therein not misleading.
8.3 NO MATERIAL ADVERSE CHANGES. No material adverse changes shall have
---------------------------
occurred in or with respect to the officers or directors of the Company. No
material adverse changes shall have occurred in or with respect to the business,
properties, financial condition or credit of the Company or in or with respect
to any conditions affecting the prospects of its business.
8.4 CASUALTY AND OTHER CALAMITY. The Company or any of its Subsidiaries
---------------------------
shall not have sustained any loss on account of fire, explosion, flood,
accident, calamity or any other cause, of such character as materially adversely
affects the business or properties of the Company of any of its Subsidiaries
considered as an entire entity, whether or not such loss is covered by
insurance, and no officer or director of the Company shall have suffered any
injury, sickness or disability of a nature which would materially adversely
affect his or her ability to properly function as an officer or director of the
Company.
8.5 LITIGATION AND OTHER PROCEEDINGS. Except as disclosed in the
--------------------------------
Prospectus, there shall be no litigation instituted or threatened against the
Company and there shall be no proceeding instituted or threatened against the
Company before or by any federal or state commission, regulatory body or
administrative agency or other governmental body, domestic or foreign.
8.6 LACK OF MATERIAL CHANGE. Except as contemplated herein or as set
-----------------------
forth in the Registration Statement and Prospectus, during the period subsequent
to the date of the last audited balance sheet included in the Registration
Statement, the Company (i) shall have conducted its business in the usual and
ordinary manner as the same was being conducted on the date of the last audited
balance sheet included in the Registration Statement, and (ii) except in the
ordinary course of its business, the Company shall not have incurred any
liabilities or obligations (direct or contingent) or disposed of any of its
assets, or entered into any material transaction or suffered or experienced any
materially adverse change in its condition, financial or otherwise. The
24
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capital stock and surplus accounts of the Company shall be substantially the
same as at the date of the last balance sheet included in the Registration
Statement, without considering the proceeds from the sale of the Shares, other
than as may be set forth in the Prospectus.
8.7 LEGAL COUNSEL FOR THE REPRESENTATIVE. The authorization of the
------------------------------------
Shares, the Representative's Warrants, the Registration Statement, Prospectus
and all corporate proceedings and other legal matters incident thereto and to
this Agreement shall be reasonably satisfactory in all respects to legal counsel
for the Representative.
8.8 OPINIONS OF LEGAL COUNSEL.
-------------------------
8.8.1. CHRISMAN BYNUM & JOHNSON, P.C., LEGAL OPINION. The Company
---------------------------------------------
shall have furnished to the members of the Underwriting Group an opinion,
dated the Closing Date, addressed to the members of the Underwriting Group,
from Chrisman Bynum & Johnson, P.C.,legal counsel to the Company, to the
effect that based upon a review by them of the Registration Statement,
Prospectus, the Company's certificate of incorporation,bylaws and relevant
corporate proceedings and contracts, an examination of such statutes as
they deem necessary and based upon such other investigation by such legal
counsel as they deem necessary to express such opinion:
(i) The Company and each of its Subsidiaries have been duly
incorporated or formed and are validly existing corporations or
limited liability companies in good standing under the laws of the
state or foreign country, nation or jurisdiction in which the Company
and each such Subsidiary was incorporated or formed, and that the
Company and each such Subsidiary has full power and authority to own
and operate its properties and to carry on its business as set forth
in the Registration Statement and Prospectus.
(ii) The Company has authorized and outstanding securities as
set forth in the Registration Statement and Prospectus; the
outstanding securities of the Company and each of its Subsidiaries and
the Shares conform to the statements concerning them in the
Registration Statement and Prospectus; the outstanding securities of
the Company and each of its Subsidiaries have been duly and validly
issued and are fully paid and nonassessable, except as otherwise
disclosed by such legal counsel with respect to the Reynolds' ordinary
shares, and contain no preemptive rights; the Shares being sold by the
Company to the Underwriting Group and the Representative's Warrants
have been duly and validly authorized and, upon issuance thereof and
payment therefor in accordance with the terms of this Agreement and
the Representative's Warrants, will be duly and validly issued, fully
paid and nonassessable and will not be subject to the preemptive
rights of any shareholder of the Company.
(iii) To legal counsel's knowledge, no consents, approvals,
authorizations or orders of agencies, officers or other regulatory
authorities are known to such legal counsel which are necessary for
the valid authorization, issue or sale of the Shares being sold by the
Company to the Underwriting Group hereunder, except as required under
the Act or the securities laws of the states in which the Shares are
qualified or except as required by the NASD.
(iv) To legal counsel's knowledge, the issuance and sale of the
Shares being sold by the Company to the Underwriting Group and the
consummation of the transactions herein contemplated and compliance
with the terms of this Agreement will not conflict with or result in a
breach of any of the terms, conditions, or provisions of or constitute
a default under the certificate of incorporation or bylaws of the
Company, or any note, indenture, mortgage, deed of trust, or other
agreement or instrument known to such counsel to which the Company or
any of its Subsidiaries is a party or by which the Company or any of
its Subsidiaries or any of the properties of any such Subsidiaries are
bound or any existing law (provided this Section 8.8 (iv)
25
<PAGE>
shall not relate to federal or state securities laws), order, rule,
regulation, writ, injunction, or decree of any government,
governmental instrumentality, agency, body, arbitration tribunal, or
court, domestic or foreign, having jurisdiction over the Company or
its property or any of the Company's Subsidiaries or the property of
any such Subsidiary which is known to such counsel.
(v) No preemptive rights exist with respect to the Company's
securities.
(vi) The Company has authorized capitalization as described in
the Registration Statement.
(vii) Based upon written or oral communications from the
Commission, the Registration Statement has become effective under the
Act and, to the knowledge of such legal counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceeding for that purpose has been instituted or is
pending or contemplated; legal counsel has participated in the
preparation of the Registration Statement and Prospectus and each
amendment and supplement thereto, and no facts have come to the
attention of legal counsel to lead counsel to believe that either the
Registration Statement or the Prospectus or any amendment or
supplement thereto contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of
the circumstances under which made (except for the financial
statements and other financial data included therein, as to which
legal counsel expresses no opinion); and such counsel is familiar with
all contracts referred to in the Registration Statement or Prospectus
and such contracts are sufficiently summarized or disclosed therein or
filed as exhibits thereto as required, and such legal counsel does not
know of any other contracts that are required to be summarized or
disclosed or filed, and such legal counsel does not know of any legal
or governmental proceedings pending or threatened to which the Company
or any of its Subsidiaries are subject of such a character required to
be disclosed in the Registration Statement or the Prospectus which are
not disclosed and properly described therein.
(viii)This Agreement has been duly authorized by the Company and
is a valid and binding agreement of the Company enforceable in
accordance with its terms subject to equitable principles and to
applicable bankruptcy, insolvency and other laws concerning the
enforceability of creditors' rights generally; provided that such
counsel need not express any opinion as to the enforceability of any
indemnification or contribution provisions contained in this
Agreement. A sufficient number of shares of the Company's Common Stock
have been duly reserved for issuance upon exercise of the
Representative's Warrants.
(ix) Except as disclosed in the Registration Statement and
Prospectus, to the knowledge of legal counsel, neither the Company nor
any of its Subsidiaries is in default under any of the contracts,
licenses, leases or agreements to which any of them is a party and
which are described in the Registration Statement or attached thereto
as exhibits and the Public Offering of the Shares being sold by the
Company to the Underwriting Group will not cause the Company to become
in default of any of such contracts, licenses, leases or agreements.
(x) Except as disclosed in the Registration Statement and
Prospectus and subject to equitable principles, to the knowledge of
legal counsel, the properties owned by the Company and its
Subsidiaries described in the Registration Statement are free and
clear of all liens, charges, encumbrances or restrictions; to the
knowledge of legal counsel all of the leases, subleases and other
agreements under which the Company and each of its Subsidiaries holds
its properties and conducts its business are in full force and effect;
to the knowledge of legal counsel neither the Company nor any of its
Subsidiaries is in default under any of the material terms or
provisions of any of such leases, subleases or other agreements known
to such counsel; and to the knowledge of legal counsel there are no
claims against the Company or any
26
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of its Subsidiaries concerning the rights of the Company of any of its
Subsidiaries under such leases, subleases and other agreements and
concerning the right of the Company or any of its Subsidiaries to
continued possession of its properties.
(xi) Legal counsel is unaware of any affiliate, parent or
Subsidiaries of the Company except as are described in the
Registration Statement and Prospectus.
(xii) Except as disclosed in the Registration Statement, the
Company and/or each of its Subsidiaries, as the case may be,
exclusively own, possess, or lawfully use, pursuant to licenses,
sublicenses or other agreements, all U.S. or United Kingdom or other
foreign patents, patent applications, trademarks, trademark
applications, service marks, trade names, logos, trade dress, mark
works, and copyrights (collectively, "Patents, Trademarks and
Copyrights") necessary to the manufacture, distribution and marketing
of the products currently manufactured by the Company's Subsidiaries;
such Patents, Trademarks and copyrights are legal, valid and
enforceable; and to the best of legal counsel's knowledge, the Company
and each of its Subsidiaries has taken all necessary and appropriate
action to maintain and protect the Patents, Trademarks and Copyrights.
(xiii) Such counsel has not received and is not aware of the
Company or any of its Subsidiaries having received any notice of any
claim from any third party which notice would cause such counsel to
conclude that the Company or its Subsidiaries do not own or possess
adequate rights with respect to the Patents, Trademarks and
Copyrights.
(xiv) The licenses, sublicenses and other agreements
("Licenses") covering the use of any of the Patents, Trademarks and
Copyrights by the Company of any of its Subsidiaries is legal,
binding, enforceable and in full force and effect and to the best of
legal counsel's knowledge, neither the Company nor any of its
Subsidiaries is in breach or default of any such Licenses and no event
has occurred which with notice or lapse of time would result in a
breach or default or permit termination, modification or acceleration
under any such License.
(xv) To such counsel's knowledge, except as set forth in the
Registration Statement and Prospectus, no holders of Common Stock or
other securities of the Company have registration rights with respect
to securities of the Company and, except as set forth in the
Registration Statement and Prospectus, all holders of securities of
the Company having rights to registration of such Common Stock, or
other securities, because of the filing of the Registration Statement
by the Company have, with respect to the Public Offering contemplated
thereby, waived such rights or such rights have expired by reason of
lapse of time following notification of the Company's intent to file
the Registration Statement, or have included securities in the
Registration Statement pursuant to the exercise of such rights.
In rendering such opinions, such legal counsel shall be entitled to rely
upon Public Authority Documents and upon information provided by client
officials in written Certificates provided that copies of such Public Authority
Documents and Certificates are attached as exhibits to the written opinion of
legal counsel. The term "Public Authority Documents" shall have the meaning
ascribed to it in the Legal Opinion Accord of the ABA Section of Business Law
(1991). Such opinions may be subject to such qualifications, exceptions,
definitions, limitations as are normally included in similar opinions.
8.9 ACCOUNTANT'S LETTER. The Representative shall have received a letter
-------------------
addressed to the Representative and dated the Closing Date from KMPG Peat
Marwick LLP, independent public accountants for the Company, stating that with
respect to the Company they are independent public accountants within the
meaning of the Act and the applicable published Rules and Regulations
thereunder; in their opinion, the Company's financial statements audited by them
at all dates and for all periods referred to in their opinion and
27
<PAGE>
included in the Registration Statement and Prospectus, comply in all material
respects with the applicable accounting requirements of the Act and the
published Rules and Regulations thereunder with respect to registration
statements on Form SB-2; on the basis of certain indicated procedures (but not
an audit in accordance with generally accepted accounting principles), including
reading of the instruments of the Company set forth in the Prospectus, a reading
of the latest available interim unaudited financial statements of the Company,
whether or not appearing in the Prospectus, inquiries of the officers of the
Company or other persons responsible for its financial and accounting matters
regarding the specific items for which representations are requested below and a
reading of the minute book of the Company, nothing has come to their attention,
except as disclosed in their letter, which would cause them to believe that
during the period from the last audited balance sheet included in the
Registration Statement to a specified date not more than two (2) days prior to
the date of such letter:
(i) there has been any material change in the financial
position of the Company other than as contemplated by disclosures
contained in the Prospectus;
(ii) there has been any material change in the capital stock or
surplus accounts of the Company or any payment or declaration of any
dividend or other distribution in respect thereof or exchange therefor
or in the debt of the Company from that shown in the Company's last
audited balance sheet included in the Prospectus, other than as
contemplated by disclosures contained in the Prospectus;
(iii) there have been any material decreases in working capital
or net worth as compared with amounts shown in the Company's last
audited balance sheet included in the Prospectus other than as
contemplated by disclosures contained in the Prospectus;
(iv) there have been any material decreases, as compared with
amounts shown in the Company's last audited balance sheet included in
the Prospectus, in the cash balances other than as contemplated by
disclosures contained in the Prospectus;
(v) the financial statements and schedules set forth in the
Registration Statement and Prospectus do not present fairly the
financial position and results of operations of the Company for the
periods indicated in conformity with generally accepted accounting
principles applied on a consistent basis, and are not in all material
respects a fair presentation of the information purported to be shown;
(vi) there is any material obligation or liability on the part
of the Company or any of its Subsidiaries to fund the Apollo and
Reynolds Pension Scheme not otherwise reflected in Company's audited
consolidated financial statements for the fiscal year ended December
31, 1997; and
(vii) the dollar amounts, percentages and other financial
information set forth in the Registration Statement and Prospectus
under the captions "Summary," "The Offering, "Summary Consolidated
Financial Data," "Risk Factors," "Use of Proceeds," "Capitalization,"
"Dilution," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations,"
"Business," "Summary Compensation," and "Certain Transactions" are not
in agreement with the Company's general ledger, financial records or
computations made by the Company therefrom.
Such letter ("Accountant's Letter") shall also cover such other matters
incident to the transactions contemplated by this Agreement in form satisfactory
to the Representative as the Representative reasonably requests.
28
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8.10 CONFORMED COPIES OF ACCOUNTANT'S LETTER. The Representative shall be
---------------------------------------
furnished without charge, in addition to the original signed copies, such number
of signed or photostatic or conformed copies of the Accountant's Letter as the
Representative shall reasonably request.
8.11 OFFICER'S CERTIFICATES. The Company shall have furnished to the
----------------------
Representative two (2) certificates each signed by the president and by the
chief financial officer of the Company, one dated the date of this Agreement and
one dated as of the Closing Date, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct at and as of the date of the
certificate and the Company has complied with all the agreements and
has satisfied all the conditions on its part to be performed or
satisfied at or prior to the date of the certificate;
(ii) The Registration Statement has become effective and no
order suspending the effectiveness of the Registration Statement has
been issued and to the best of the knowledge of the respective
signers, after such respective signers have made inquiry, no
proceeding for that purpose has been initiated or is threatened by the
Commission;
(iii) The respective signers have each carefully examined the
Registration Statement and Prospectus and any amendments and
supplements thereto, and the Registration Statement and the Prospectus
and any amendments and supplements thereto contain all statements
required to be stated therein, and all statements contained therein
are true and correct, and neither the Registration Statement nor
Prospectus nor any amendment or supplement thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and, since the Effective Date of the
Registration Statement, there has occurred no event required to be set
forth in an amended or a supplemented Prospectus which has not been so
set forth;
(iv) This Agreement has been, and, as of the Closing Date, the
Representative's Warrants will have been, duly authorized and executed
by the Company;
(v) The respective signers have each reviewed the
questionnaires provided to the Representative by each officer,
director, and five percent (5%) or more shareholder of the Company
and, to the best of their knowledge, the statements made in such
questionnaires are true and correct;
(vi) Except as set forth in the Registration Statement and
Prospectus, since the respective dates as of which information is
given in the Registration Statement and Prospectus and prior to the
date of such certificate, (i) there has not been any change in the
officers or directors of the Company or any substantially adverse
change, financial or otherwise, in the affairs or condition of the
Company, and (ii) the Company has not incurred any liabilities, direct
or contingent, or entered into any transactions, otherwise than in the
ordinary course of business; and
(vii) As of or subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, no
dividends or distributions whatever have been declared and/or paid on
or with respect to the securities of the Company.
8.12 TENDER FOR DELIVERY. All of the Shares being offered by the Company
-------------------
which are sold in the Public Offering shall be tendered for delivery in
accordance with the terms and provisions of this Agreement.
29
<PAGE>
8.13 BLUE SKY QUALIFICATION. The Shares shall be qualified in such states
----------------------
as are reasonably designated by the Representative as set forth in Section 5.4
hereof and each such qualification shall be in effect and not subject to any
stop order or other proceeding on the Closing Date or Option Closing Date. On
both the Effective Date of the Registration Statement and on the Closing Date,
the Company and the Representative shall receive from Clanahan, Tanner, Downing
and Knowlton, P.C., a written opinion which contains the following:
(i) The names of the states in which applications to register
or qualify the Shares have been filed;
(ii) The status of such registrations or qualifications in such
states as of the date thereof;
(iii) A list containing the name of each such state in which the
Shares may be legally offered and sold by a dealer licensed in such
state and the number of each which may be legally offered and sold in
each such state as of the date thereof:
(iv) With respect to the written opinion dated on the Effective
Date, a representation that such legal counsel will continuously
update such written information if any changes occur in the
information provided therein between the Effective Date and the
Closing Date and Option Closing Date; and
(v) A statement that the Company, the members of the
Underwriting Group and selected dealers in the Public Offering may
rely upon the opinions contained therein.
8.14 APPROVAL OF LEGAL COUNSEL TO THE REPRESENTATIVE. All opinions,
-----------------------------------------------
letters, certificates and evidence mentioned above or elsewhere in this
Agreement shall be deemed to be in compliance with the provisions hereof only if
they are in form and substance satisfactory to legal counsel for the
Representative. The suggested form of such documents shall be provided to the
legal counsel for the Representative at least three (3) business days before the
Closing Date.
8.15 OFFICER'S CERTIFICATE AS A COMPANY REPRESENTATIVE. Any certificate
-------------------------------------------------
signed by an officer of the Company and delivered to the Representative or to
legal counsel for the Representative will be deemed a representation and
warranty by the Company to the members of the Underwriting Group as to the
statements made therein.
SECTION 9
TERMINATION
-----------
9.1 TERMINATION BECAUSE OF NONCOMPLIANCE. This Agreement may be
------------------------------------
terminated by the members of the Underwriting Group by notice to the Company in
the event that the Company shall have failed or been unable to comply with any
of the terms, conditions or provisions of this Agreement on the part of the
Company to be performed, complied with or fulfilled within the respective times
herein provided for, unless compliance therewith or performance or satisfaction
thereof shall have been expressly waived by the Representative in writing. This
Agreement may be terminated by the Company by notice to the Representative in
the event the members of the Underwriting Group shall have failed or been unable
to comply with any of the terms, conditions or provisions of this Agreement on
the part of the members of the Underwriting Group to be performed, complied with
or fulfilled within the respective times herein provided for, unless compliance
therewith or performance or satisfaction thereof shall have been expressly
waived by the Company in writing.
9.2 TERMINATION BECAUSE OF CHANGES. This Agreement may be terminated by
------------------------------
the members of the Underwriting Group by notice to the Company if the
Representative believes in its sole judgment that any changes have occurred in
or with respect to the management of the Company or any of its Subsidiaries,
that material adverse changes have occurred in or with respect to the business,
financial condition, results of operations,
30
<PAGE>
prospects or obligations of the Company or any of its Subsidiaries, or if the
Company or any of its Subsidiaries shall have sustained a loss or anticipated
loss as a result of a strike, governmental action, fire, flood, accident,
contract termination, or other calamity of such a character as, in the sole
judgment of the Representative, may interfere materially with the conduct of the
business and operations of the Company and its Subsidiaries on a consolidated
basis, regardless of whether or not such loss or anticipated loss shall have
been insured.
9.3 MARKET OUT TERMINATION. This Agreement may be terminated by the
----------------------
members of the Underwriting Group by notice to the Company at any time if, in
the judgment of the Representative, payment for and delivery of the Shares is
rendered impracticable or inadvisable because (i) additional material
governmental restrictions not in force and effect on the date hereof shall have
been imposed upon the trading in securities generally, or minimum or maximum
prices shall have been generally established on the New York or American Stock
Exchange, or trading in securities generally on either such Exchange shall have
been suspended, or a general moratorium shall have been established by federal
or state authorities, or (ii) a war or other national calamity or emergency
shall have occurred, or (iii) of any suspension of trading of the Common Stock
of the Company in the over-the-counter market, or (iv) the occurrence of a
material adverse event affecting the Company which materially impairs the
investment quality of the Shares, or (v) substantial and material adverse
changes in the condition of the securities markets beyond normal fluctuations
have occurred.
9.4 EFFECT OF TERMINATION HEREUNDER. If the members of the Underwriting
-------------------------------
Group decide to terminate this Agreement pursuant to this Section 9 or the
Company decides to terminate this Agreement pursuant to Section 9.1 or 10.3
hereof, such party shall provide notice of such termination to the other party.
In such event, the Company shall reimburse the Representative on an accountable
basis for all reasonable and customary expenses incurred by the Representative
in connection with the proposed Public Offering as herein provided up to and
including the date of termination subject to a maximum limit of $50,000. The
Representative shall provide the Company with a statement of the Underwriting
Group's actual accountable out of pocket expenses, which shall include but are
not limited to, fees of legal counsel for the Representative and the fees of
independent consultants and investigators who are not directly or indirectly
affiliated or associated with a member of the NASD and who are retained by the
Underwriting Group to provide a service in connection with the due diligence
investigation of the proposed Public Offering, confirmation and other document
preparation costs, entertainment expenses, travel expenses, postage expenses,
advertising costs, duplication expenses, long distance telephone expenses, and
any other actual out of pocket accountable expense incurred by the Underwriting
Group in connection with the proposed Public Offering. The Representative shall
not be required to include in such accountable expenses any of the expenses to
be paid by the Company under Section 5.7 hereof, and, if the Underwriting Group
has paid any of such expenses on behalf of the Company, the Company shall
separately reimburse the Underwriting Group for such advances immediately upon
receipt of a statement therefor from the Representative. If such actual
accountable out of pocket expenses are less than the amount of the
nonaccountable expense payments the Company has made to the Representative as
provided in Section 3.3 hereof, the Underwriting Group will refund the balance
of such payments net of the Representative's actual accountable out-of-pocket
expenses, to the Company within ten (10) days after the delivery of such
statement by the Representative to the Company. If the amount of the actual
accountable out-of-pocket expenses are more than the amount of the
nonaccountable expense payments made by the Company to the Representative, the
balance shall be promptly paid by the Company to the Representative. The members
of the Underwriting Group shall not have any liabilities to each other if the
Company or the members of the Underwriting Group decide not to proceed with the
proposed offering for any reason set forth in this Section 9 or in Section 10
hereof, except that the Company shall remain obligated to pay the costs and
expenses provided to be paid by it as specified in Section 5.7 hereof and this
Section 9.4, and the Company, and the members of the Underwriting Group shall be
obligated to pay, respectively, all losses, claims, damages or liabilities,joint
or several, under Section 6 hereof.
31
<PAGE>
SECTION 10
REPRESENTATIONS AND WARRANTIES OF
---------------------------------
THE MEMBERS OF THE UNDERWRITING GROUP
-------------------------------------
The members of the Underwriting Group represent and warrant to and agree
with the Company that:
10.1 REGISTRATION AS BROKER DEALER AND MEMBER OF NASD. The members of the
------------------------------------------------
Underwriting Group are registered as broker dealers with the Commission and are
members in good standing of the NASD and are licensed as dealers in all states
in which they will sell the Shares.
10.2 NO PENDING PROCEEDINGS. There is not now pending against the
----------------------
Representative any action or proceeding of which it has been advised, either in
any court of competent jurisdiction, before the Commission or any state
securities commission, concerning its activities as a broker or dealer that, in
the opinion of the Representative, would prevent it from acting as such under
federal securities laws or under the laws of the states in which it intends to
offer the Shares.
10.3 COMPANY'S RIGHT TO TERMINATE. In the event any action or proceeding
----------------------------
of the type referred to in Section 10.2 hereof shall be instituted against the
Representative at any time prior to the Closing Date hereunder, or in the event
there shall be filed by or against the Representative in any court pursuant to
any federal, state, local or municipal statute, a petition in bankruptcy or
insolvency or for reorganization or for the appointment of a receiver or trustee
of assets of the Representative or if the Representative makes an assignment for
the benefit of creditors, the Company shall have the right on written notice to
the Representative to terminate this Agreement without any liability to the
members of the Underwriting Group of any kind except for the payment of expenses
as provided in Section 5.7 hereof.
10.4 FINDER. The members of the Underwriting Group know of no outstanding
------
claims against them for compensation for services in the nature of a finder's
fee, origination fee, financial consulting fee or any other form of compensation
as a finder with respect to the offer and sale of the Shares hereunder.
10.5 COMPLIANCE. The members of the Underwriting Group, severally and not
----------
jointly, agree to offer and sell the Shares being purchased hereunder in
accordance with the requirements of federal and state securities laws and the
rules of the NASD.
SECTION 11
RIGHT OF FIRST REFUSAL
----------------------
For a period of three (3) years after the Effective Date of the
Registration Statement, the Representative shall act as managing underwriter for
any public offerings of the Company's securities contemplated by the Company,
its parent company, if any, or any of its Subsidiaries during such period. As
such, the Company shall have a preferential right to purchase for its account or
to sell for any account of the Company, its parent company, if any, or the
Company's Subsidiaries any securities with respect to which the Company, its
parent company, or its Subsidiaries may seek a public or private offering within
the United States for cash. The Company will consult the Representative with
regard to any such covered offering for cash and will offer the Representative
the opportunity to purchase or sell any such securities on terms not less
favorable to the Company, its parent company, or its Subsidiaries than it or
they can secure elsewhere. The Representative will have thirty (30) days in
which to accept such offer. If the Representative rejects such offer, the
Company, its parent company, or its Subsidiaries may sell such securities on
terms not less favorable than those offered to the Representative. If such
securities are not sold within a period of two hundred seventy (270) days, the
Representative will once again have the rights specified herein with respect to
the sale or purchase of such securities. The Company has informed the
Representative that it has not previously granted a similar right of first
refusal to any other person which is currently binding on the Company.
Furthermore, even though the Representative has determined not to exercise its
rights under this Section 11, the Company, upon the request of the
Representative, shall designate the
32
<PAGE>
Representative as a co-manager of any public offering of the Shares of the
Company, its parent company, if any, or any of its Subsidiaries and will be
entitled to receive a management fee for acting in such capacity of not less
than twenty percent (20%) of the total management fee payable to the managing
underwriter.
SECTION 12
FEE PAYABLE ON OCCURRENCE OF CERTAIN EVENTS
-------------------------------------------
12.1 FINANCIAL CONSULTING AGREEMENT. On the Closing Date, the Company
------------------------------
shall enter into an agreement ("Financial Consulting Agreement") with the
Representative pursuant to which the Representative shall receive a consulting
fee of Three Thousand Dollars ($3,000) per month for the twenty-four (24) month
period following the Closing Date in consideration for the consulting services
to be provided by the Representative during such period which shall include
advising the Company in connection with business and financial planning,
corporate organization and structure, financial matters in connection with the
operation of the business of the Company, private and public equity and debt
financing, acquisitions, mergers and other similar business combinations, the
Company's relations with the holders of its securities, preparation and
distribution of periodic reports as well as providing the Company with analysis
of the Company's financial statements. Under the terms of the Financial
Consulting Agreement, the Representative shall not be required to spend in
excess of twenty (20) hours per month in providing such consulting services to
the Company. The entire amount of the consulting fee equal to a total of Seventy
Two Thousand Dollars ($72,000) shall be paid by the Company to the
Representative on the Closing Date.
12.2 MERGERS AND ACQUISITIONS. Subject to the purchase of the Shares by
------------------------
the members of the Underwriting Group, for a period of three (3) years after the
Effective Date, the Representative will provide consulting services which are
customary in the industry in connection with, and the Representative will be
paid a consulting fee in connection with any transaction initiated by the
Representative involving, a merger, consolidation, stock exchange, or the
acquisition or sale of all or a material part of the assets or business of any
entity (collectively referred to herein as "Mergers and Acquisitions"), if such
transaction involves the Company, its parent company, or its Subsidiaries. A
transaction will be deemed initiated by the Representative if it is suggested by
the Representative to either party to the transaction. The consulting fee
payable to the Representative in connection with any such Merger or Acquisition
will be computed as follows:
AMOUNT OF TRANSACTION FEE
--------------------- ---
$1.00 - $1,000,000 5% plus
$1,000,001 - $2,000,000 4% plus
$2,000,001 - $3,000,000 3% plus
$3,000,001 - $4,000,000 2% plus
$4,000,001 and over 1%
Amount of the transaction includes:
(i) the total proceeds and other consideration being received by the
Company, its parent company, or its Subsidiaries and/or any of their
securities holders upon the consummation of the transaction (including
payments made in installments) inclusive of cash, securities, notes,
liabilities assumed, consulting agreements and agreements not to compete;
(ii) if a portion of such consideration includes contingent payments
(whether or not related to future earnings or operations), fifty percent
(50%) of the maximum amount of such payments; and
(iii) in the event that the aggregate consideration for a transaction
consists in whole or in part of securities, for the purposes of calculating
the amount of the consideration, the value of such securities will be, in
the case of the existence of a public trading market thereof, the average
of the closing sale prices for the five (5) days preceding the consummation
of the transaction or, in the absence of a public
33
<PAGE>
trading market thereof, the fair market value thereof as agreed to by the
parties on the day preceding the consummation of the transaction.
The Company has not previously granted similar rights to any other person.
If the Company, at any time during the three (3) year period following the
Effective Date, contemplates (i) the purchase and sale of its assets or the
assets of any of its Subsidiaries which is not in the ordinary course of
business, (ii) a Merger or Acquisition, (iii) the creation of a joint venture
with one (1) or more third parties, or (iv) a material investment (whether debt
or equity financing) is made by a third party in the Company and the
Representative did not arrange for the transaction, the Company shall engage the
Representative to review, comment and make recommendations with respect to any
such transaction and shall compensate the Representative for such services in a
reasonable amount the Representative and the Company shall mutually agree.
In addition, the Company shall reimburse the Representative for any
reasonable expenses it incurs in arranging and closing such funding or
transactions as contemplated under this subsection 12.2, including legal fees of
its counsel after receiving written approval from the Company.
12.3 ADDITIONAL EQUITY AND DEBT FINANCING. If the Representative, upon
------------------------------------
request by the Company, arranges for equity financing on behalf of the Company
involving the offer and sale of the Company's securities, including, without
limitation, options, warrants or rights into which the Company's shares of
Common Stock or other securities may be acquired upon exercise thereof, other
than the Public Offering contemplated under this Agreement, which financing is
accepted and closed by the Company at any time during the three (3) year period
following the Effective Date, the Company will pay to the Representative a
commission equal to ten percent (10%) of the total amount of the equity
financing arranged by the Representative. For purposes of this subsection 12.3,
the term "arranges" shall mean the efforts of the Representative in locating the
financing, introducing the Company to the source of the financing, and assisting
the Company, in all reasonable way as the Company may request, to negotiate and
complete such financing. If the Representative arranges for debt financing
accepted by and closed with the Company during such three (3) year period, the
Company will pay the Representative a commission equal to five percent (5%) of
the total amount of such debt financing. If the Representative arranges for an
increase in the Company's line of credit, which is accepted and closed with the
Company, the Company will pay the Representative a fee equal to one percent (1%)
of the total amount of such increase.
SECTION 13
NOTICE
------
Except as otherwise expressly provided in this Agreement:
13.1 NOTICE TO THE COMPANY. Whenever notice is required by the provisions
---------------------
of this Agreement to be given to the Company, such notice shall be in writing
addressed as follows:
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Attn: Mel S. Stonebraker,
Chief Executive Officer
13.2 NOTICES. Whenever notice is required by the provisions of this
-------
Agreement to be given to the members of the Underwriting Group, such notice
shall be given in writing addressed to the Representative at the address set
forth in the beginning of this Agreement.
34
<PAGE>
SECTION 14
MISCELLANEOUS
-------------
14.1 BENEFIT. This Agreement is made solely for the benefit of the members
-------
of the Underwriting Group, the Company, their respective officers and directors
and any controlling person referred to in Section 15 of the Act, and their
respective successors and assigns, and no other person shall acquire or have any
right under or by virtue of this Agreement. The term "successor" or the term
"successors and assigns" as used in this Agreement shall not include any
purchasers, as such, of any of the Shares. In addition, the indemnity, defense
and contribution obligations of the Company included in Section 6 of this
Agreement also inure to the benefit of the selected dealers and any person who
controls the selected dealers within the meaning of Section 15 of the Act.
14.2 SURVIVAL. The respective indemnities, agreements, representations,
--------
warranties, covenants and other statements as set forth in or made pursuant to
this Agreement and the indemnity and contribution agreements contained in
Section 6 hereof shall survive and remain in full force and effect, regardless
of (i) any investigation made by or on behalf of the Company, or the
Representative or any of the other members of the Underwriting Group or any such
officer or director thereof or any controlling person of the Company or of the
Representative or any other member of the Underwriting Group, (ii) delivery of
or payment for the Shares, and (iii) the occurrence of Closing Date and the
Option Closing Date. Any successor of the Company, any member of the
Underwriting Group or any controlling person, officer or director thereof, shall
be entitled to the benefits hereof.
14.3 GOVERNING LAW AND FORUM. The validity, interpretation and
-----------------------
construction of this Agreement and of each part hereof will be governed by the
laws of the state of Colorado. The parties to the Agreement hereby agree to
submit to the jurisdiction of the courts of the State of Colorado located in
Denver, Colorado which shall be the sole tribunal in which any such parties may
institute and maintain a legal proceeding against the other party arising from
any dispute under this Agreement. If any party initiates a legal proceeding in
a jurisdiction other than in the courts of the State of Colorado, the other
party may assert as a complete defense and as a basis for dismissal of such
legal proceeding failure of the party initiating such proceeding to have
initiated and maintained such proceeding in the courts of the State of Colorado
in accordance with this Section 14.3.
14.4 THE INFORMATION OF THE MEMBERS OF THE UNDERWRITING GROUP.
--------------------------------------------------------
Notwithstanding any participation by the legal counsel for the Representative in
the reorganization and/or revision of the Prospectus, the statements with
respect to the Public Offering of the Shares on the cover page of the Prospectus
and the Notes thereto and under the caption "Underwriting" in the Prospectus
constitute the only written information furnished by or on behalf of the members
of the Underwriting Group referred to in Sections 2.2, 6.1 and 6.2 hereof.
14.5 SEVERABILITY. If any provision or portion of any provision of this
------------
Agreement is determined to be invalid for any reason, such invalid provision or
portion of such invalid provision shall be deemed to be deleted and the validity
of the remaining provisions or portions thereof shall not be affected thereby
and shall remain in full force and effect.
14.6 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which may be deemed an original and all of which together
will constitute one and the same instrument.
35
<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement
between the members of the Underwriting Group and the Company.
Very truly yours,
COYOTE SPORTS, INC.
By:_____________________________________________
Mel S. Stonebraker, President
THE REPRESENTATIVE, ON BEHALF OF THE UNDERWRITING GROUP, HEREBY CONFIRMS AS OF
THE DATE HEREOF THAT THE ABOVE LETTER SETS FORTH THE AGREEMENT BETWEEN THE
COMPANY AND THE UNDERWRITING GROUP.
COHIG & ASSOCIATES, INC.
By:______________________________________________
Harold M. Golz, Director of Corporate
Finance of Cohig & Associates, Inc.,
as Attorney in Fact for the several
Underwriters named in Schedule I to
the Underwriting Agreement
36
<PAGE>
SCHEDULE I
TO
UNDERWRITING AGREEMENT
UNDERWRITER ADDRESS NUMBER OF SHARES
- ----------- ------- ----------------
COHIG & ASSOCIATES, INC. 6300 SOUTH SYRACUSE WAY
SUITE 430
ENGLEWOOD, CO 80111
<PAGE>
Exhibit 1.2
-----------
VOID AFTER 3:30 P.M., MOUNTAIN TIME, ON __________________, 2002
REPRESENTATIVE'S WARRANTS TO PURCHASE COMMON STOCK
This is to Certify That, FOR VALUE RECEIVED COHIG & ASSOCIATES, INC., 6300
South Syracuse Way, Suite 430, Englewood, Colorado 80111 ("Holder") is entitled
to purchase, subject to the provisions of this Representative's Warrants, from
COYOTE SPORTS, INC. ("Company"), at any time on or after __________________,
1998, until 3:30 P.M., Mountain Time, on _________________________, 2002
("Expiration Date"), ______ shares of the Company's $.001 par value common stock
("Common Shares") during the period this Warrant is exercisable. This Warrant
sometimes referred to herein as the "Representative's Warrants" in addition to
being referred to also as "this Warrant." The number of Common Shares to be
received upon the exercise of this Warrant and the price to be paid for the
Common Shares may be adjusted from time to time as hereinafter set forth. The
purchase price of the Common Shares in effect at any time and as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Price." The
Warrant Shares also include all Common Shares that have been exercised upon the
exercise of the Warrants.
(A) EXERCISE OF WARRANT. This Representative's Warrants may be exercised
-------------------
in whole or in part at any time or from time to time on or after _____________,
1998, until the Expiration Date or if the Expiration Date is a day on which
banking institutions are authorized by law to close, then on the next succeeding
day which shall not be such a day, by presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto as EXHIBIT A, or the Cashless Exercise Form attached hereto
---------
in the form of EXHIBIT B, duly executed and accompanied by payment of the
---------
Exercise Price for the number of shares specified in such Form, together with
all federal and state taxes applicable upon such exercise. The Company agrees
not to merge, reorganize or take any action that would terminate this
Representative's Warrants unless provisions are made as part of such merger,
reorganization or other action which would provide the holders of this
Representative's Warrants with an equivalent of this Representative's Warrants
as specified in Section (i) hereof. The Company agrees to provide notice to the
Holder that any tender offer is being made for the Company's Common Shares no
later than three (3) business days after the day the Company becomes aware that
any tender offer is being made for outstanding Common Shares of the Company. If
this Representative's Warrants should be exercised in part only, the Company
shall, upon surrender of this Representative's Warrants for cancellation,
execute and deliver a new Warrant evidencing the right of the Holder to purchase
the balance of the Common Shares purchasable hereunder. Upon receipt by the
Company of this Representative's Warrants at the office of
<PAGE>
the Company or at the office of the Company's stock transfer agent, in proper
form for exercise and accompanied by the Exercise Price, the Holder shall be
deemed to be the holder of record of the Common Shares issuable upon such
exercise, notwithstanding that the stock transfer books of the Company shall
then be closed or that certificates representing such Common Shares shall not
then be actually delivered to the Holder.
(B) PAYMENT OF EXERCISE PRICE. The Exercise Price shall be paid either:
-------------------------
(1) in cash or by check, or any combination thereof; or
(2) upon the request of the Holder and with the approval of the
Company, by means of a "Cashless Exercise," pursuant to which the Holder
shall exchange this Representative's Warrants for such number of Common
Shares determined by multiplying the number of Common Shares by a fraction,
numerator of which shall be the difference between the Average Current
Market Price per Common Share and the Exercise Price, and the denominator
of which shall be the Average Current Market Price per Common Share. For
purposes of this subsection (b)(2), the "Average Current Market Price" per
Common Share at any date shall be deemed to be the average of the Current
Market Prices (as defined in Subsection (d) below) for twenty (20)
consecutive trading days commencing twenty-one (21) trading days before
such date.
(C) RESERVATION OF COMMON SHARES. The Company hereby agrees that at all
----------------------------
times there shall be reserved for issuance and/or delivery upon exercise of this
Representative's Warrants such number of Common Shares as shall be required for
issuance or delivery upon exercise of this Representative's Warrants.
(D) FRACTIONAL SHARES. No fractional Common Shares or scrip representing
-----------------
fractional Common Shares shall be issued upon the exercise of this
Representative's Warrants. With respect to any fraction of a Common Share or
Warrant called for upon any exercise hereof, the Company shall, upon receipt by
the Company or the Company's stock transfer agent of the Exercise Price, pay to
the Holder an amount in cash equal to such fraction multiplied by the current
market value ("Current Market Price") of such fractional Common Share,
determined as follows:
(1) If the Common Shares are listed on a national securities exchange,
are admitted to unlisted trading privileges on such an exchange, or are
listed for trading on a trading system of the National Association of
Securities Dealers, Inc. ("NASD") such as the NASDAQ Small Cap Market or
NASDAQ National Market System ("NMS"), then the Current Market Price shall
be the last high bid price of the Common Shares on such an exchange or
system on the last business day prior to
2
<PAGE>
the date of exercise of this Representative's Warrants or if no such sale
is made on such day, the average of the closing high bid prices for the
Common Shares for such day on such exchange or such system shall be used;
or
(2) If the Common Shares are not so listed on such exchange or system
or admitted to unlisted trading privileges, the Current Market Price shall
be the average of the last reported high bid prices reported by the
National Quotation Bureau, Inc. on the last business day prior to the date
of the exercise of this Representative's Warrants; or
(3) If the Common Shares are not so listed or admitted to unlisted
trading privileges and if bid and asked prices are not so reported, the
Current Market Price shall be an amount, not less than book value,
determined in such reasonable manner as may be prescribed by the board of
directors of the Company.
(E) EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT. This Representative's
---------------------------------------
Warrants is exchangeable, without expense, at the option of the Holder, upon
presentation and surrender hereof to the Company or at the office of its stock
transfer agent, if any, for other Warrants of different denominations entitling
the Holder thereof to purchase (under the same terms and conditions as provided
by this Representative's Warrants) in the aggregate the same number of Common
Shares purchasable hereunder. This Representative's Warrants may not be sold,
transferred, assigned or hypothecated, except that it may be transferred or
assigned in whole or in part to the officers of Cohig & Associates, Inc., to
other securities brokers and dealers who participated in the offering of Common
Shares of the Company with respect to which this Representative's Warrants was
issued ("Public Offering"), to the officers of such other securities brokers and
dealers, or by will or operation of law. Any such transfer or assignment shall
be made by surrender of this Representative's Warrants to the Company or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto as EXHIBIT A duly executed and with funds sufficient to pay any transfer
---------
tax; whereupon the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Representative's Warrants shall promptly be canceled. This
Representative's Warrants may be divided or combined with other Warrants which
carry the same rights upon presentation hereof at the office of the Company or
at the office of its stock transfer agent, if any, together with a written
notice specifying the names and denominations in which new Warrants are to be
issued and signed by the Holder hereof. The term "Warrant" as used herein
includes any warrants issued in substitution for or replacement of this
Representative's Warrants, or into which this Representative's Warrants may be
divided or exchanged. Upon receipt by the Company of evidence satisfactory to it
of the loss, theft, destruction or mutilation of this Representative's Warrants,
and (in the case of
3
<PAGE>
loss, theft or destruction) of reasonably satisfactory indemnification, and upon
surrender and cancellation of this Representative's Warrants, if mutilated, the
Company will execute and deliver a new Warrant of like tenor and date. Subject
to such right of indemnification, any such new Warrant executed and delivered
shall constitute an additional contractual obligation on the part of the
Company, whether or not this Representative's Warrants so lost, stolen,
destroyed, or mutilated shall be at any time enforceable by anyone.
(F) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
--------------------
entitled to any rights of a shareholder in the Company, either at law or in
equity, and the rights of the Holder are limited to those expressed in this
Representative's Warrants and are not enforceable against the Company except to
the extent set forth herein.
(G) ADJUSTMENT PROVISIONS.
---------------------
(1) Adjustments of the Exercise Price.
(A) If the Company subdivides its outstanding Common Shares into
a greater number of Common Shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately
reduced. Conversely, if the Company combines its outstanding Common
Shares into a lesser number of Common Shares, the Exercise Price in
effect immediately prior to such combination shall be proportionally
increased. In case of a subdivision or combination, the adjustment of
the Exercise Price shall be made as of the effective date of the
applicable event. A distribution on Common Shares, including a
distribution of Convertible Securities, to shareholders of the Company
on a pro rata basis shall be considered a subdivision of Common Shares
for the purposes of this Subsection (1)(A) of this Section, except
that the adjustment will be made as of the record date for such
distribution and any such distribution of Convertible Securities shall
be deemed to be a distribution of the Common Shares underlying such
Convertible Securities.
(B) If the Company shall at any time distribute or cause to be
distributed to its shareholders, on a pro rata basis, cash, assets, or
securities of any entity other than the Company, then the Exercise
Price in effect immediately prior to such distribution shall
automatically be reduced by an amount determined by dividing (x) the
amount (if cash) or the value (if assets or securities) of the
holders' of the Representative's Warrantss (as such term is defined in
the first paragraph hereof) pro rata share of such distribution
determined assuming that all holders of the Representative's
4
<PAGE>
Warrantss had exercised their Representative's Warrantss on the day
prior to such distribution, by (y) the number of Common Shares
included in the Representative's Warrantss issuable upon the exercise
of this Representative's Warrants on the day prior to such
distribution.
(3) NO ADJUSTMENT FOR SMALL AMOUNTS. Anything in this Section (f) to
-------------------------------
the contrary notwithstanding, the Company shall not be required to give
effect to any adjustment in the Exercise Price unless and until the net
effect of one or more adjustments, determined as above provided, shall have
required a change of the Exercise Price by at least one (1) cent, but when
the cumulative net effect of more than one adjustment so determined shall
be to change the actual Exercise Price by at least one (1) cent, such
change in the Exercise Price shall thereupon be given effect.
(4) NUMBER OF SHARES ADJUSTED. Upon any adjustment of the Exercise
-------------------------
Price, the Holder of this Warrant shall thereafter (until another such
adjustment) be entitled to purchase, at the new Exercise Price, the number
of Common Shares, calculated to the nearest full share, obtained by
multiplying the number of Common Shares initially issuable upon exercise of
this Warrant by the Exercise Price specified in the first paragraph hereof
and dividing the product so obtained by the new Exercise Price.
(5) DEFINITIONS.
-----------
(A) Whenever reference is made in this Section (f) to the
distribution of Common Shares, the term "Common Shares" shall mean the
Common Shares of the Company authorized as of the date hereof and any
other class of stock ranking on a parity with such Common Shares.
However, subject to the provisions of Section (i) hereof, Common
Shares included in the Securities issuable upon exercise hereof shall
include only Common Shares of the class designated as Common Shares of
the Company as of the date hereof.
(B) Whenever reference is made in this Section (f) to the
distribution of Convertible Securities, the term "Convertible
Securities" shall mean options or warrants or rights for the purchase
of Common Shares of the Company or for the purchase of any stock or
other securities convertible into or exchangeable for Common Shares of
the Company.
(G) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted
---------------------
as required by the provisions of Section (f) hereof, the Company shall forthwith
file in the custody of its Secretary or
5
<PAGE>
an Assistant Secretary at its principal office, and with its stock transfer
agent, if any, an officer's certificate showing the adjusted Exercise Price
determined as herein provided and setting forth in reasonable detail the facts
requiring such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the Holder and the Company
shall, forthwith after each such adjustment, deliver a copy of such certificate
to the Holder.
(H) NOTICES TO HOLDERS. So long as this Representative's Warrants shall be
------------------
outstanding and unexercised (i) if the Company shall pay any dividend or make
any distribution upon the Common Shares or (ii) if the Company shall offer to
the holders of Common Shares for subscription or purchase by them any shares of
stock of any class or any other rights or (iii) if any capital reorganization of
the Company, reclassification of the capital stock of the Company, consolidation
or merger of the Company with or into another corporation, sale, lease or
transfer of all or substantially all of the property and assets of the Company
to another corporation, or voluntary or involuntary dissolution, liquidation or
winding up of the Company shall be effected, then, in any such case, the Company
shall cause to be delivered to the Holder, at least ten (10) days prior to the
date specified in (x) or (y) below, as the case may be, a notice containing a
brief description of the proposed action and stating the date on which (x) a
record is to be taken for the purpose of such dividend, distribution or rights,
or (y) such reclassification, reorganization, consolidation, merger, conveyance,
lease, dissolution, liquidation or winding up is to take place and the date, if
any is to be fixed, as of which the holders of Common Shares of record shall be
entitled to exchange their Common Shares for securities or other property
deliverable upon such reclassification, reorganization, consolidation, merger,
conveyance, dissolution, liquidation or winding up.
(I) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
------------------------------------------
reclassification, capital reorganization or other change of outstanding
Common Shares of the Company (other than a change in par value, or from par
value to no par value, or from no par value to par value, or as a result of
an issuance of Common Shares by way of dividend or other distribution or of
a subdivision or combination), or in case of any consolidation or merger of
the Company with or into another corporation (other than a merger with a
subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or
other change of outstanding Common Shares of the class issuable upon
exercise of this Warrant) or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially
as an entirety, the Company shall cause effective provision to be made so
that the Holder shall have the right thereafter, by
6
<PAGE>
exercising this Warrant, to purchase the kind and amount of shares of stock
and other securities and property which the Holder would have received upon
such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance had this Warrant been exercised
prior to the consummation of such transaction. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Warrant. The
foregoing provisions of this Section (i) shall similarly apply to
successive reclassifications, capital reorganizations and changes of Common
Shares and to successive consolidations, mergers, sales or conveyances. In
the event the Company spins off a subsidiary by distributing to the
shareholders of the Company as a dividend or otherwise the stock of the
subsidiary, the Company shall reserve for the life of this Warrant, shares
of the subsidiary to be delivered to the Holders of the Warrants upon
exercise to the same extent as if they were owners of record of the Common
Shares on the record date for payment of the shares of the subsidiary.
(J) REGISTRATION UNDER THE SECURITIES ACT OF 1933.
---------------------------------------------
(1) Within forty-five (45) days after receipt of a written request by
the then Holder(s) of the Representative's Warrantss or Common Shares
representing at least fifty-one (51%) of the total Common Shares made at
any time within the period commencing ______________, 1998, and ending
_________, 2002, the Company will file, no more than once, a registration
statement under the Securities Act of 1933, as amended, registering the
Common Shares underlying this Representative's Warrants. The Company will
use its best efforts to cause such registration statement to become
effective. As an alternative to filing such registration statement, the
Company may file a post effective amendment to Registration Statement No.
333-29077 which contains the information required in order to permit the
offer and sale of such Common Shares underlying this Representative's
Warrants under Registration Statement No. 333-29077. The Company will use
its best efforts to cause such amendment to become effective.
(2) In addition, the Company will cooperate with the then Holder(s) of
the Common Shares in preparing and signing any registration statement, in
addition to the registration statement discussed above, required in order
to sell or transfer the Common Shares and will sign and supply all
information required therefor, but such additional registration shall be at
the then Holder(s) cost and expense.
(3) When, pursuant to subsection (1) or (2) of this Section, the
Company shall take any action to permit a public
7
<PAGE>
offering or sale or other distribution of the Common Shares, the Company
shall:
(A) Supply to each selling Holder a reasonable number of copies
of the preliminary, final and other prospectus in conformity with the
requirements of the Act and the Rules and Regulations promulgated
thereunder and such other documents as the Holder(s) shall reasonably
request.
(B) Use its best efforts to register or qualify for sale the
Shares in those states in which any of the securities were sold in the
Offering. The Company shall bear the complete cost and expense (other
than any selling commissions and expense allowances payable to broker
dealers which relate to the sale of the Common Shares, which shall be
paid by the sellers thereof) of such registrations or qualifications
except those filed under subsection (j)(2) which shall be at the
Holder(s)' cost and expense.
(C) Keep effective such registration statement until the first of
the following events occur: (i) thirty six (36) months have elapsed
after the effective date of such registration statement or (ii) all of
the registered Common Shares, including Common Shares issued by the
Company after the effective date of such registration statement, have
been publicly sold under such registration statement.
(D) Indemnify and hold harmless each such Holder and each
underwriter, within the meaning of the Act, who may purchase from or
sell for any such Holder, any Common Shares from and against any and
all losses, claims, damages, and liabilities (including but not
limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim) arising
from (i) any untrue or alleged untrue statement of a material fact
contained in any registration statement furnished pursuant to clause
(A) of this subsection, or any prospectus included therein or (ii) any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading (unless such untrue statement or omission or such alleged
untrue statement or omission was based upon information furnished or
required to be furnished in writing to the Company by such Holder or
underwriter expressly for use therein), which indemnification shall
include each person, if any, who controls any such Holder or
underwriter within the meaning of the Act; provided, however, that the
Company shall not be so obligated to
8
<PAGE>
indemnify any such Holder or underwriter or controlling person unless
such Holder and underwriter shall at the same time indemnify the
Company, its directors, each officer signing any registration
statement or any amendment to any registration statement and each
person, if any, who controls the Company within the meaning of the
Act, from and against any and all losses, claims, damages and
liabilities (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing, defending
or settling any claim) arising from (iii) any untrue or alleged untrue
statement of a material fact contained in any registration statement
or prospectus furnished pursuant to Clause (A) of this subsection, or
(iv) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of such Holder, underwriter
or controlling person shall be limited to liability based upon
information furnished, or required to be furnished, in writing to the
Company by such Holder or underwriter or controlling person expressly
for use therein. The Company shall not be liable for amounts paid in
settlement of any such litigation if such settlement was effected
without the consent of the Company. The indemnity agreement of the
Company herein shall not inure to the benefit of any such underwriter
(or to the benefit of any person who controls such underwriter) on
account of any losses, claims, damages, liabilities (or actions or
proceedings in respect thereof) arising from the sale of any of such
Common Shares, by such underwriter to a person if such underwriter
failed to send or give a copy of the prospectus furnished pursuant to
Clause (A) of this subsection, as the same may then be supplemented or
amended (if such supplement or amendment shall have been furnished to
the Holder(s) pursuant to said Clause (A)), to such person with or
prior to the written confirmation of the sale involved.
(4) Each Holder shall supply such information as the Company may
reasonably require from such Holder, or any underwriter for such
Holder, for inclusion in such registration statement or post effective
amendment.
(5) The Company's agreements with respect to the Common Shares in
this Section will continue in effect regardless of the exercise or
surrender of this Representative's Warrants.
(6) Any notices or certificates by the Company to the Holder and
by the Holder to the Company shall be deemed delivered if in writing
and delivered personally
9
<PAGE>
or sent by certified mail, return receipt requested, to the Holder,
addressed to the Holder at the Holder's address as set forth on the
Representative's Warrants or stockholder register of the Company, or,
if the Holder has designated, by notice in writing to the Company, any
other address, to such other address, and, if to the Company,
addressed to it at 2291 Arapahoe Avenue, Boulder, Colorado 80302.
The Company may change its address by written notice to the Holder(s).
(K) TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933. The Company may
--------------------------------------------------
cause the following legend, or one similar thereto, to be set forth on this
Representative's Warrants and on each certificate representing Common Shares, or
any other security issued or issuable upon exercise of this Representative's
Warrants not theretofore distributed to the public or sold to underwriters for
distribution to the public pursuant to Section (j) hereof; unless legal counsel
for the Company is of the opinion as to any such certificate that such legend,
or one similar thereto, is unnecessary:
"The securities represented by this certificate may not be offered for
sale, sold or otherwise transferred except pursuant to an effective
registration statement made under the Securities Act of 1933 (the "Act")
and under any applicable state securities law, or pursuant to an exemption
from registration under the Act and under any applicable state securities
law, the availability of which is to be established to the satisfaction of
the Company."
(L) ADDITIONAL LEGENDS. In the event this Warrant is exercised prior to
------------------
________________, 1998, the following legend shall be set forth on the
certificates representing the Common Shares, so acquired:
"The securities represented by this certificate are subject to restrictions
on transfer set forth in the Representative's Warrants to Purchase Common
Stock (the "Warrant") issued by the Company. A copy of the Warrant is
available for inspection without charge at the principal office of the
Company."
(M) APPLICABLE LAW. This Representative's Warrants shall be governed by,
--------------
and construed in accordance with, the laws of the state of Nevada.
(N) EXCHANGE PROVISIONS.
-------------------
(1) For purposes of this Section (n), this Representative's Warrants
shall be deemed to represent the same number of Common Shares as there are
Common Shares
10
<PAGE>
underlying this Representative's Warrants. For example, if there are
100,000 Common Shares underlying this Representative's Warrants, then for
purposes of this Section (n) the Holder shall be deemed to hold 100,000
Representative's Warrantss.
(2) For purposes of this Section (n), the following terms shall have
the following meanings:
(A) "Current Market Price of a Common Share shall be the value as
determined under Section (d)(1) or (2) hereof except that the time of
the determination thereunder shall be the last business day prior to
the day the Company receives a notice from the Holder under this
Section (n).
(B) "Warrant Value" shall mean the Current Market of a Common
Share underlying each Warrant minus or less the Exercise Price payable
under this Representative's Warrants as of the close of business on
the last business day prior to the day the Company receives a notice
from the Holder under this Section (n).
(3) The Holder shall have the right to exchange, in a cashless
transaction, all or part of the Representative's Warrantss for Common
Shares issued by the Company at any time after ______________, 1998, and
prior to the Expiration Date of such Warrants in the manner provided in
Section (b)(2) hereof and by providing written notice ("Notice") to the
Company. Such Notice may only be provided at a time when the Company's
Common Shares are listed or approved for trading or quotation on an
exchange, interdealer communications system, or national quotation bureau.
Such Notice shall set forth the number of Warrants which the Holder elects
to exchange for Common Shares.
(4) Within ten (10) days after receipt of such Notice by the Company,
the Company shall issue the number of Common Shares of the Company to the
Holder which is determined by dividing the Warrant Value of the
Representative's Warrantss being exchanged by the Current Market Price of a
Common Share as of the date the Notice is received by the Company.
(5) The Holder shall surrender the Warrant which the Holder is
exchanging for Common Shares upon receipt thereof. If the entire
Representative's Warrants held by the Holder thereof is being exchanged by
such Holder for Common Shares, the Company shall cancel the entire
Representative's Warrants held by such Holder. If less than the entire
Warrant is being exchanged for Common Shares, the Company shall issue a new
Representative's Warrants to the Holder representing the
11
<PAGE>
portion of this Warrant which was not exchanged for Common Shares.
(6) The Holder shall have the right to exchange this Warrant for
warrants to purchase Common Shares which represent a pass through of the
same rights and obligations contained in this Representative's Warrants.
Dated: ______________, 1997. COYOTE SPORTS, INC.
By:_________________________________
Mel S. Stonebraker, President
12
<PAGE>
EXHIBIT A
---------
PURCHASE FORM
Dated: __________________, 19.
The undersigned hereby irrevocably elects to exercise the Warrant to
the extent of purchasing __________ Units and hereby makes payment of
$_________________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
Name:___________________________________________________________________________
(Please typewrite or print in block letters)
Address:________________________________________________________________________
Signature: _____________________________________________________________________
ASSIGNMENT FORM
Dated: _________________, 19__
FOR VALUE RECEIVED, ___________________________ hereby sells, assigns and
transfers unto _________________________________________________________________
Name:___________________________________________________________________________
(Please typewrite or print in block letters)
Address:________________________________________________________________________
the right to purchase Units represented by this Warrant to the extent
of_____________________ Units as to which such right is exercisable and does
hereby irrevocably constitute and
appoint _____________________________________, attorney, to transfer the same on
the books of the Company with full power of substitution in the premises.
Signature:__________________________________________________
13
<PAGE>
EXHIBIT B
---------
COYOTE SPORTS, INC.
CASHLESS EXERCISE FORM
----------------------
Coyote Sports, Inc.
The undersigned hereby irrevocably elects to Exchange its Warrant for such
shares of Common Stock pursuant to the Cashless Exercise provisions of the
within Warrant Certificate, as provided for in Section 2.2 of the
Representative's Share Option Agreement Between the Company and Cohig &
Associates, Inc.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay cash for a fractional share to:
Name:____________________________________
____________________________________
____________________________________
____________________________________
(Please print Name, Address and
Social Security Number)
Signature:_______________________________
NOTE: The above signature should
correspond exactly with the name on
the first page of this Warrant
Certificate or with the name of the
assignee appearing in the assignment
form below.
And if said number of shares shall not be all the shares exchangeable or
purchaseable under the within Warrant Certificate, a new Warrant Certificate is
to be issued in the name of the undersigned for the balance remaining of the
shares purchaseable thereunder rounded up to the next higher number of shares.
14
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT TO
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 Amendment
to Articles of Incorporation, pursuant to unanimous approval of the Shareholders
of the Corporation:
The last paragraph of Article VII of the Amended and Restated Articles of
Incorporation shall be amended to read as follows:
"Any director may be removed from office by the vote of shareholders
representing not less than a majority of the issued and outstanding stock
entitled to vote at a meeting called for that purpose."
A new ARTICLE XII is added to the Amended and Restated Articles of
Incorporation, which ARTICLE shall read as follows:
"ARTICLE XII
The corporation expressly elects not to be governed by Section 78.378
to 78.3793 inclusive of the Nevada Domestic and Foreign Corporation Laws.
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
executed this Certificate of Amendment to its Amended and Restated Articles of
Incorporation this 4th day of August, 1997.
COYOTE SPORTS, INC.
/S/ MEL S. STONEBRAKER
-----------------------------------------------
Mel S. Stonebraker, President
/S/ JAMES M. PROBST
-----------------------------------------------
James M. Probst, Secretary
STATE OF COLORADO )
) ss.
COUNTY OF BOULDER )
The foregoing Certificate of Amendment to 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 4th day of August, 1997.
My commission expires:4-7-2001
/S/ ROXANN D. MACK
-------------------------------------------
Notary Public
<PAGE>
Exhibit 3.3
AMENDED BY-LAWS
OF
COYOTE SPORTS, INC.
ARTICLE I
OFFICES
Section 1.1 PRINCIPAL OFFICE.
----------------------------
The principal office of the corporation in the State of Nevada shall be
located in the City of Reno, County of Washoe. The corporation may have such
other offices, either within or without the State of Nevada, as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
Section 1.2 REGISTERED OFFICE.
-----------------------------
The registered office of the corporation, required by the Nevada Corporation
Code to be maintained in the State of Nevada, may be, but need not be, identical
with the principal office in the State of Nevada, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 2.1 ANNUAL MEETING.
--------------------------
The annual meeting of the shareholders shall be held at such time on such
day as shall be fixed by the Board of Directors, commencing with the year 1995,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as may be
convenient.
Section 2.2 SPECIAL MEETINGS.
----------------------------
Special meetings of the shareholders, for any purpose or purposes, unless
otherwise proscribed by statute, may be called by the Chief Executive Officer or
by the Board of Directors,
<PAGE>
and shall be called by the Chief Executive Officer at the request of the holders
of not less than one-tenth of all outstanding shares of the corporation entitled
to vote at the meeting.
Section 2.3 PLACE OF MEETINGS.
-----------------------------
The Board of Directors may designate any place, either within or without the
State of Nevada, as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Nevada the place for the holding of such meeting.
If no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal office of the corporation in the State
of Colorado.
Section 2.4 NOTICE OF MEETING.
-----------------------------
Written notice stating the place, day and hour of the meeting of
shareholders and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall, unless otherwise prescribed by statute, be
delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
or the Secretary, or the officer or other persons calling the meeting, to each
shareholder of record entitled to vote at such meetings provided, however, that
if the authorized shares of the corporation are to be increased, at least thirty
days notice shall be given, and if sale of all or substantially all assets are
to be voted upon, at least twenty days notice shall be given. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
Section 2.5 MEETING OF ALL SHAREHOLDERS.
---------------------------------------
If all of the shareholders shall meet at any time and place, either within
or without the State of Nevada, and consent to the holding of a meeting at such
time and place, such meeting shall be valid without call or notice, and at such
meeting any corporate action may be taken.
Section 2.6 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
--------------------------------------------------------------
For the purpose of determining shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other purpose, the Board of Directors of the corporation
may provide that the share transfer books shall be closed for a stated period
but not to exceed, in any case, sixty days. If the share transfer books shall
be closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least
ten days immediately preceding such meeting. In lieu of closing the share
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more
-2-
<PAGE>
than fifty days and, in case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the share transfer books are
not closed and no record date is fixed for the determination of shareholders, or
shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders entitled to vote at any
meeting of shareholders. When a determination of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
Section 2.7 VOTING RECORD.
-------------------------
The officer or agent having charge of the stock transfer books for shares of
the corporation shall make, at least ten days before such meeting of
shareholders, a complete record of the shareholders entitled to vote at each
meeting of shareholders or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each. The record,
for a period of ten days prior to such meeting, shall be kept on file at the
principal office of the corporation, whether within or without the State of
Nevada, and shall be subject to inspection by any shareholder for any purpose
germane to the meeting at any time during normal business hours. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.
The original stock transfer books shall be the prima facie evidence as to
who are the shareholders entitled to examine the record or transfer books or to
vote at any meeting of the shareholders.
Section 2.8 QUORUM.
------------------
One-third of the outstanding shares of the corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, except as otherwise provided by the Nevada Corporation Code and
the Articles of Incorporation. In the absence of a quorum at any such meeting,
a majority of the shares so represented may adjourn the meeting from time to
time for a period not to exceed sixty days without further notice. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.9 MANNER OF ACTING.
----------------------------
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the
-3-
<PAGE>
vote of a greater proportion or number or voting by classes is otherwise
required by statute or by the Articles of Incorporation or these By-Laws.
Section 2.10 PROXIES.
--------------------
At all meetings of shareholders a shareholder may vote in person or by proxy
executed in writing by the shareholder or by his duly authorized attorney-in-
fact. Such proxy shall be filed with the Secretary of the corporation before or
at the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
Section 2.11 VOTING OF SHARES.
-----------------------------
Unless otherwise provided by these By-Laws or the Articles of Incorporation,
each outstanding share entitled to vote shall be entitled to one vote upon each
matter submitted to a vote at a meeting of shareholders, and each fractional
share shall be entitled to a corresponding fractional vote on each such matter.
Section 2.12 VOTING OF SHARES BY CERTAIN SHAREHOLDERS.
-----------------------------------------------------
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the By-Laws of such corporation may prescribe, or, in
the absence of such provision, as the Board of Directors of such other
corporation may determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person, may be voted by his administrator, executor, court appointed
guardian or conservator, either in person or by proxy without a transfer of such
shares into the name of such administrator, executor, court appointed guardian
or conservator. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority so to do be contained in
an appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock belonging to this corporation, nor shares of
its own stock held by it in a fiduciary capacity, nor shares of its own stock
held by another corporation, if the majority of shares entitled to vote for the
election of directors of such corporation is held by this
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corporation may be voted, directly or indirectly, at any meeting and shall not
be counted in determining the total number of outstanding shares at any given
time.
Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on and
after the date on which written notice of redemption has been mailed to
shareholders and a sum sufficient to redeem such shares has been deposited and
authority to pay the redemption price to the holders of the shares upon
surrender of certificates therefor.
Section 2.13 INFORMAL ACTION BY SHAREHOLDERS.
--------------------------------------------
Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by at least a majority of the
shareholders entitled to vote with respect to the subject matter thereof.
Facsimilie or telefax signatures shall have the same effect as original
signatures on such consents in lieu of a meeting.
Section 2.14 NO CUMULATIVE VOTING.
---------------------------------
No shareholder shall be permitted to cumulate his votes by giving one
candidate as many votes as the number of such directors multiplied by the number
of his shares shall equal, or by distributing such votes on the same principal
among any number of candidates.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 GENERAL POWERS.
--------------------------
The business and affairs of the corporation shall be managed by its Board of
Directors.
Section 3.2 PERFORMANCE OF DUTIES.
---------------------------------
A director of the corporation shall perform his duties as a director,
including his duties as a member of any committee of the board upon which he may
serve, in good faith, in a manner he reasonably believes to be in the best
interests of the corporation, and with such care as an ordinarily prudent person
in a like position would use under similar circumstances. In performing his
duties, a director shall be entitled to rely on information, opinions, reports,
or statements, including financial statements and other financial data, in each
case prepared or presented by persons and groups listed in paragraphs (a), (b)
and (c) of this Section 3.2; but he shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
such reliance to be unwarranted. A person who so performs his duties shall not
have any liability by reason of being or having been a director of the
corporation. Those persons and
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groups on whose information, opinions, reports, and statements a director is
entitled to rely upon are:
(a) One or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent.
(b) Counsel, public accountants, or other persons as to matters which the
director reasonably believes to be within such persons' professional or expert
competence; or
(c) A committee of the board upon which he does not serve, duly designated
in accordance with the provisions of the Articles of Incorporation or the By-
Laws, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence.
Section 3.3 NUMBER, TENURE AND QUALIFICATION.
--------------------------------------------
The number of directors of the corporation shall be fixed from time to time
by resolution of the Board of Directors, but in no instance shall there be less
than one director or that number otherwise required by law. Each director shall
hold office until the next annual meeting of shareholders or until his successor
shall have been elected and qualified. Directors need not be residents of the
State of Nevada or shareholders of the corporation.
Section 3.4 REGULAR MEETINGS.
----------------------------
A regular meeting of the Board of Directors shall be held without other
notice than this By-Law immediately after, and at the same place as, the annual
meeting of shareholders. The Chairman of the Board of Directors or the
President or Secretary on the written request of two directors may provide, by
resolution, the time and place, either within or without the State of Nevada, as
the place for holding any special meeting of the Board of Directors called by
them.
Section 3.5 SPECIAL MEETING.
---------------------------
Special meetings of the Board of Directors may be called by or at the
request of the Chairman or any two directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place, either
within or without the State of Nevada, as the place for holding any special
meeting of the Board of Directors called by them.
Section 3.6 NOTICE. Written notice of any special meeting of directors
------------------
shall be given as follows:
By telefax to each director at his business address at least three days
prior to the meeting; or
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By personal delivery or telegram at least three days prior to the meeting to
the business address of each director, or, in the event such notice is given on
a Saturday, Sunday or holiday, to the residence address of each director. If
notice be given by telegram, such notice shall be deemed to be delivered when
the telefax is received by the receiving directors telefax machine or the
telegram is delivered to the telegraph company. Any director may waive notice
of any meeting. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted, nor the purpose of, any regular or special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Section 3.7 QUORUM.
------------------
A majority of the number of directors fixed by or pursuant to Section 3.3 of
this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 3.8 MANNER OF ACTING.
----------------------------
Except as otherwise required by law or by the Articles of Incorporation, the
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 3.9 INFORMAL ACTION BY DIRECTORS.
----------------------------------------
Any action required or permitted to be taken by the Board of Directors or by
a committee thereof at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors or all of the committee members entitled to vote with respect to the
subject matter thereof. Facsimilie or telefax signatures shall have the same
effect as original signatures on such consents in lieu of a meeting.
Section 3.10 PARTICIPATION BY ELECTRONIC MEANS.
----------------------------------------------
Any members of the Board of Directors or any committee designated by such
Board may participate in a meeting of the Board of Directors or committee by
means of telephone conference or similar communications equipment by which all
persons participating in the meeting can hear each other at the same time. Such
participation shall constitute presence at the meeting.
Section 3.11 VACANCIES.
----------------------
Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A
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director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of any
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 3.12 RESIGNATION.
------------------------
Any director of the corporation may resign at any time by giving written
notice to the president or the secretary of the corporation. The resignation of
any director shall take effect upon receipt of notice thereof or at such later
time as shall be specified in such notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. When one or more directors shall resign from the board, effective at
a future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereof to take effect when such resignation or resignations shall become
effective.
Section 3.13 REMOVAL.
--------------------
Any director or directors of the corporation may be removed at any time,
with or without cause, in the manner provided in the Nevada Corporation Code.
Section 3.14 COMMITTEES.
-----------------------
By resolution adopted by a majority of the Board of Directors, the directors
may designate two or more directors to constitute a committee, any of which
shall have such authority in the management of the corporation as the Board of
Directors shall designate and as shall not be proscribed by the Nevada
Corporation Code.
Section 3.15 COMPENSATION.
-------------------------
By resolution of the Board of Directors and irrespective of any personal
interest of any of the members, each director may be paid his expenses, if any,
of attendance at each meeting of the Board of Directors, and each non-employee
director may be paid a stated salary as director or a fixed sum for attendance
at each meeting of the Board of Directors or such other compensation, in stock
or options as such Board of Directors shall determine. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
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Section 3.16 PRESUMPTION OF ASSENT.
----------------------------------
A director of the corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who votes in favor of such
action.
ARTICLE IV
OFFICERS
Section 4.1 NUMBER.
------------------
The officers of the corporation shall be a President, a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers, including one or more Vice Presidents, assistant officers, agents, and
employees as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person, except the
offices of President and Secretary. The officers of the corporation shall be
natural persons, eighteen years of age of older.
Section 4.2 ELECTION AND TERM OF OFFICE.
---------------------------------------
The principal officers of the corporation to be elected by the Board of
Directors shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as practicable. Each officer
shall hold office until his successor shall have been duly elected and shall
have qualified or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 4.3 REMOVAL.
-------------------
Any officer or agent may be removed by the Board of Directors whenever in
its judgment the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of any officer or agent shall not of
itself create contract rights.
Section 4.4 VACANCIES.
---------------------
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Board of Directors for the
unexpired portion of the term.
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Section 4.5 PRESIDENT.
---------------------
The President shall be the chief executive officer of the Board of Directors
and, subject to the control of the Board of Directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, and in the absence of a Chairman of the Board, preside at
all meetings of the shareholders and of the Board of Directors. He may sign,
with the Secretary or any other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates for shares of the corporation
and deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 4.6 THE VICE PRESIDENT.
------------------------------
If elected or appointed by the Board of Directors, the Vice President (or in
the event there be more than one vice president, the vice presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall, in the absence of the
President or in the event of his death, inability or refusal to act, perform all
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Any Vice President may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the corporation; and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 4.7 THE SECRETARY.
-------------------------
The Secretary shall: (a) keep minutes of the proceedings of the shareholders
and of the Board of Directors in one or more minute books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents the execution of which on behalf of
the corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President, or a Vice President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
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Section 4.8 THE TREASURER.
-------------------------
The Treasurer shall: (a) have charge and custody of and be responsible for
all funds and securities of the corporation; (b) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of Article V of these By-laws; and (c) in general perform all of the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
Section 4.9 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
----------------------------------------------------------
The Assistant Secretaries, when authorized by the Board of Directors, may
sign with the President or a Vice President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the Secretary
or the Treasurer, respectively, or by the President or the Board of Directors.
Section 4.10 BONDS.
------------------
If the Board of Directors by resolution shall so require, any officer or
agent of the corporation shall give bond to the corporation in such amount and
with such surety as the Board of Directors may deem sufficient, conditioned upon
the faithful performance of their respective duties and offices.
Section 4.11 SALARIES.
---------------------
The salaries of the officers shall be fixed from time to time by the Board
of Directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 5.1 CONTRACTS.
---------------------
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
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Section 5.2 LOANS.
-----------------
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
Section 5.3 CHECKS, DRAFTS, ETC.
-------------------------------
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the Board of
Directors.
Section 5.4 DEPOSITS.
--------------------
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board of Directors may select.
ARTICLE VI
SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES
Section 6.1 REGULATION. The Board of Directors may make such rules and
----------------------
regulations as it may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
Section 6.2 CERTIFICATES FOR SHARES.
-----------------------------------
Certificates representing shares of the corporation shall be respectively
numbered serially for each class of shares, or series thereof, as they are
issued, shall be impressed with the corporate seal or a facsimile thereof, and
shall be signed by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or by the Secretary or an Assistant Secretary; provided that
such signatures may be facsimile if the certificate is countersigned by a
transfer agent, or registered by a registrar other than the corporation itself
or its employee. Each certificate shall state the name of the corporation, the
fact that the corporation is organized or incorporated under the laws of the
State of Nevada, the name of the person to whom issued, the date of issue, the
class (or series of any class), the number of shares represented thereby and the
par value of the shares represented thereby or a statement that such shares are
without par value. A statement of the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of the
shares of each class shall be set forth in full or summarized on the face or
back of the certificates which the corporation shall issue, or in lieu thereof,
the certificate may set forth that
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such a statement or summary will be furnished to any shareholder upon request
without charge. Each certificate shall be otherwise in such form as may be
prescribed by the Board of Directors and as shall conform to the rules of any
stock exchange on which the shares may be listed.
The corporation shall not issue certificates representing fractional shares
and shall not be obligated to make any transfers creating a fractional interest
in a share of stock. The corporation may, but shall not be obligated to, issue
scrip in lieu of any fractional shares, such scrip to have terms and conditions
specified by the Board of Directors.
Section 6.3 CANCELLATION OF CERTIFICATES.
----------------------------------------
All certificates surrendered to the corporation for transfer shall be
cancelled and no new certificates shall be issued in lieu thereof until the
former certificates for a like number of shares shall have been surrendered and
cancelled, except as herein provided with respect to lost, stolen or destroyed
certificates.
Section 6.4 LOST, STOLEN OR DESTROYED CERTIFICATES.
--------------------------------------------------
Any shareholder claiming that his certificate for shares is lost, stolen or
destroyed may make an affidavit or affirmation of that fact and lodge the same
with the Secretary of the corporation, accompanied by a signed application for a
new certificate. Thereupon, and upon the giving of a satisfactory bond of
indemnity to the corporation not exceeding an amount double the value of the
shares as represented by such certificate (the necessity for such bond and the
amount required to be determined by the President and Treasurer of the
corporation), a new certificate may be issued of the same tenor and representing
the same number, class and series of shares as were represented by the
certificate alleged to be lost, stolen or destroyed.
Section 6.3 TRANSFER OF SHARES.
------------------------------
Subject to the terms of any shareholder agreement relating to the transfer
of shares or other transfer restrictions contained in the Articles of
Incorporation or authorized therein, shares of the corporation shall be
transferable on the books of the corporation by the holder thereof in person or
by his duly authorized attorney, upon the surrender and cancellation of a
certificate or certificates for a like number of shares. Upon presentation and
surrender of a certificate for shares property endorsed and payment of all taxes
therefor, the transferee shall be entitled to a new certificate or certificates
in lieu thereof. As against the corporation, a transfer of shares can be made
only on the books of the corporation and in the manner hereinabove provided, and
the corporation shall be entitled to treat the holder of record of any share as
the owner thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the statutes of the State of Nevada.
ARTICLE VII
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FISCAL YEAR
The fiscal year of the corporation shall be as designated from time to time
by the Board of Directors.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE IX
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE X
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by a majority of the directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
Section 12.1 APPOINTMENT.
------------------------
The Board of Directors by resolution adopted by a majority of the full
Board, may designate two or more of its members to constitute an Executive
Committee. The designation of such Committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed by law.
Section 12.2 AUTHORITY.
----------------------
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The Executive Committee, when the Board of Directors is not in session,
shall have and may exercise all of the authority of the Board of Directors
except to the extent, if any, that such authority shall be limited by the
resolution appointing the Executive Committee and except also that the Executive
Committee shall not have the authority of the Board of Directors in reference to
amending the Articles of Incorporation, adopting a plan of merger or
consolidation, recommending to the shareholders the sale, lease or other
disposition of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, or amending the By-Laws of the corporation.
Section 12.3 TENURE AND QUALIFICATIONS.
--------------------------------------
Each member of the Executive Committee shall hold office until the next
regular annual meeting of the Board of Directors following his designation and
until his successor is designated as a member of the Executive Committee and is
elected and qualified.
Section 12.4 MEETINGS.
---------------------
Regular meetings of the Executive Committee may be held without notice at
such time and places as the Executive committee may fix from time to time by
resolution. Special meetings of the Executive Committee may be called by any
member thereof upon not less than one day's notice stating the place, date and
hour of the meeting, which notice may be written or oral, and if mailed, shall
be deemed to be delivered when deposited in the United States mail addressed to
the member of the Executive Committee at his business address. Any member of
the Executive may waive notice given to any member thereof who attends in per-
son. The notice of a meeting of the Executive Committee need not state the
business proposed to be transacted at the meeting.
Section 12.5 QUORUM.
-------------------
A majority of the members of the Executive Committee shall constitute a
quorum for the transaction of business at any meeting thereof, and action of the
Executive Committee must be authorized by the affirmative vote of a majority of
the members present at a meeting at which a quorum is present.
Section 12.6 INFORMAL ACTION BY EXECUTIVE COMMITTEE.
---------------------------------------------------
Any action required or permitted to be taken by the Executive Committee at a
meeting may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the directors entitled to vote
with respect to the subject matter thereof. Facsimilie or telefax signatures
shall have the same effect as original signatures on such consents in lieu of a
meeting.
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Section 12.7 VACANCIES.
----------------------
Any vacancy in the Executive Committee may be filled by a resolution adopted
by a majority of the full Board of Directors.
Section 12.8 RESIGNATIONS AND REMOVAL.
-------------------------------------
Any member of the Executive Committee may be removed at any time with or
without cause by resolution adopted by a majority of the full Board of
Directors. Any member of the Executive Committee may resign from the Executive
Committee at any time by giving written notice to the President or Secretary of
the corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 12.9 PROCEDURE.
----------------------
The Executive Committee shall elect a presiding officer from its members and
may fix its own rules of procedure which shall not be inconsistent with these
By-Laws. It shall keep regular minutes of its proceedings and report the same
to the Board of Directors for its information at the meeting thereof held next
after the proceedings shall have been taken.
ARTICLE XIII
EMERGENCY BY-LAWS
The Emergency By-Laws provided in this Article XIII shall be operative
during an emergency in the conduct of the business of the corporation resulting
from an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding articles of the By-Laws
or in the Articles of Incorporation of the corporation or in the Nevada
Corporation Code. To the extent not inconsistent with the provisions of this
Article, the By-Laws provided in the preceding articles shall remain in effect
during such emergency and upon its termination the Emergency By-Laws shall cease
to be operative.
During such an emergency:
(a) A meeting of the Board of Directors may be called by any officer or
director of the corporation. Notice of the time and place of the meeting shall
be given by the person calling the meeting to such of the directors as it may be
feasible to reach by any available means of communication. Such notice shall be
given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
(b) At any such meeting of the Board of Directors, a quorum shall consist
of the number of directors in attendance at such meeting.
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(c) The Board of Directors, either before or during any such emergency,
may, effective in the emergency, change the principal office or designate
several alternative principal offices or regional offices, or authorize the
officer's so to do.
(d) The Board of Directors, either before or during any Such emergency, may
provide, and from time to time modify, lines of succession in the event that
during such an emergency any or all officers or agents of the corporation shall
for any reason be rendered incapable of discharging their duties.
(e) No officer, director or employee acting in accordance with these
Emergency ByLaws shall be liable except for willful misconduct.
(f) These Emergency By-Laws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment of these Emergency By-Laws may make any further or different provision
that may be practical and necessary for the circumstances of the emergency.
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Exhibit 4.1
NUMBER SHARES
COYOTE SPORTS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
25,000,000 AUTHORIZED COMMON SHARES $.001 PAR VALUE
-----------------------
CUSIP 224071 10 0
-----------------------
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $.OO1 PAR VALUE COMMON STOCK OF
COYOTE SPORTS, INC.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.
Dated:
[CORPORATE SEAL OF COYOTE SPORTS, INC. APPEARS HERE]
Secretary President
COUNTERSIGNED AND REGISTERED
American Securities Transfer & Trust, Inc.
P.O. Box 1596
Denver, Colorado 80201
By_______________________________________________
Transfer Agent & Registrar Authorized Signature
COYOTE SPORTS, INC.
The following abbreviations when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT ACT-_____Custodian______
TEN ENT -as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act ______________________
in common (State)
Additional abbreviations may also be used though not in the above list.
_______________________________________________________________________________
For Value Received, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ____________________________________________
attorney-in-fact to transfer the said stock on the books of the within-named
Corporation, with full power of substitution in the premises.
Dated __________________
____________________________________________________________________
____________________________________________________________________
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATSOEVER.
Signature(s) Guaranteed:
_________________________________________
The signature(s) must be guaranteed by an eligible guarantor institution (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions with membership in
an approved signature guarantee Medallion Program), pursuant to S.E.C. Rule
17Ad-15.
<PAGE>
[LETTERHEAD OF CHRISMAN BYNUM & JOHNSON APPEARS HERE]
EXHIBIT 5.1
July 30, 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 Registration Statement No. 333-29077 on Form
SB-2 (the "Registration Statement") covering registration under the Securities
Act of 1933 of 1,150,000 shares of the Company's Common Stock, $.001 par value
("Shares".) 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 Shares will be sold according to
the Registration Statement at a time when effective, we are of the opinion that,
upon issuance of the Shares according to the Registration Statement and receipt
of the consideration to be paid for the Shares, the Shares 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/ David J. Cook
David J. Cook, Esq.
DJC:rdm
<PAGE>
Exhibit 10.3
AGREEMENT
THIS AGREEMENT is made and entered into this 27th day of March, 1997, by
and between DAVID B. ABRAMS (hereinafter "Abrams"), MARK H. SNYDER (hereinafter
"Snyder") and COYOTE SPORTS, INC., a Nevada corporation (hereinafter referred to
for convenience as "Coyote"), with respect to the following.
RECITALS
A. Because Abrams and Snyder are the sole and only shareholders of Cape
Composites, Inc. (hereinafter "Cape") and Cape has produced, developed and
acquired certain assets in the operation of its business, including but not
limited to all Patents, Copyrights, Trademarks, Trade names, Trade Secrets and
other Proprietary Information, Art, Molds, Drawings, Product Specifications,
Sketches, Graphics, Decals, Screen Printing Materials, Heat Transfer Processes
and Materials, Research and Development Materials, Goodwill, Going Concern
Value, Customer Lists, Credit Files, Vendor Lists, Backlog, Purchase Orders,
Furniture, Fixtures, Equipment, Materials, Inventory, Accounts Receivable,
Instruments, and Cash and the like, more specifically, but without limitation,
set out in Exhibit A hereto;
B. Because Cape is currently unable to itself capitalize its business
adequately to fill its current orders for its products; and
C. Because Coyote is in a position to provide for appropriate
capitalization, management, and business expertise for the management of Cape's
business, but only on certain terms and conditions and in the form and manner
hereinbelow provided for;
AGREEMENT
=========
Now therefore, the parties agree as follows:
1. Agreement to convey all shares of Cape to an entity to be formed.
----------------------------------------------------------------
Abrams and Snyder will immediately upon execution of this instrument, convey all
of the shares of Cape to a Limited Liability Company formed pursuant to the laws
of the State of Colorado (hereinafter referred to as "CC LLC" for convenience)
as its capital contribution to CC LLC. Coyote will, as its capital contribution
to CC LLC, arrange for and guaranty, sufficient working capital for Cape to
finance its current operations, and, within 180 days of the date of this
agreement, procure the release of the personal guaranties and obligations of
Mark H. Snyder , David B. Abrams, Roberta B. Abrams and their families of
approximately $778,088.00 of Cape's current obligations to Merrill Lynch, CCI
Vendor Corporation, Leonard Suffredini, Rex Gosnell and Virgil Jaenicke.
Additionally, Coyote will undertake such actions as are necessary to remove Mark
H. Snyder and
<PAGE>
David B. Abrams and their families as guarantors on equipment leases with Refco
Investments, Monarch Capital Corporation, and Toshiba Corporation, and on Cape's
facilities sub-lease with CCI Vendor Corporation. In order to secure Coyote's
performance of its obligations under this Paragraph 1, Coyote hereby grants
Abrams and Snyder, respectively, a security interest in and to the shares of
Cape each of them conveys to CC LLC pursuant to this agreement.
2. Agreement for assumption certain liabilities of Cape. The parties
----------------------------------------------------
agree that upon the formation of CC LLC, and the conveyance of the
aforedescribed assets to it, that it will assume and agree to pay all of the
liabilities of Cape which are identified in Exhibit B (hereinafter referred to
as the "Identified Liabilities" for convenience) and no other liabilities of
Cape whatsoever. Abrams and Snyder, jointly and severally agree to pay any and
all other liabilities of Cape other than the identified liabilities, and hereby
indemnify and save Cape harmless from all liabilities, charges, claims and
demands, whether known or unknown, vested or contingent, choate or inchoate,
which exist on or before the date of this agreement.
3. Ownership interests in CC LLC. CC LLC 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 CC LLC being owned 10% by Abrams, 10% by Snyder and 80% by Coyote. Coyote or
its designee, shall be the Manager of CC LLC, and shall conduct all of its
business and affairs.
4. Warranties and Representations of Abrams and Snyder:
---------------------------------------------------
a. Authority and Title. Abrams and Snyder and each of them warrant
-------------------
that they are the true owners of the shares of Cape to be conveyed hereby, and
that collectively their shares represent one hundred (100%) percent of the
issued and outstanding shares of Cape, that said shares of Cape are unencumbered
and free from any and every claim of others, and that Cape is duly organized,
constituted and in good standing under the laws of the State of California.
b. Books and Records. Abrams and Snyder and each of them warrant and
-----------------
represent that all of the books and records of Cape adequately and fairly
reflect the business and operations of Cape and that each and all of the orders
contained in the Backlog (which is part of Exhibit A hereto) are true and bona
----
fide, and taken by Cape in the ordinary course of its business, and there has
- ----
been no material change regarding any order shown in the Backlog which is not
appearing in the Backlog and further warrant and represent that each and every
customer listed in the Customer List has within the last one (1) year placed an
order with Cape, and Cape has no knowledge that any such customer has terminated
its operations or intends not to do business with Cape in the future.
c. Equipment and Machinery. Abrams and Snyder and each of them
-----------------------
warrant and represent that all of the equipment and machinery set forth on
Exhibit A is in good working order, ordinary wear and tear excepted.
-2-
<PAGE>
d. Inventory. Abrams and Snyder and each of them warrant and
---------
represent that the inventory set forth on Exhibit A of Cape exists and is in the
current Possession of Cape, and is properly stored and in good condition and
useable for its intended purposes, except for such inventory sold to customers
in the ordinary course of business from the date of such inventory shown on
Exhibit A through the closing hereof.
e. Cash and Accounts. Abrams and Snyder and each of them warrant and
-----------------
represent that the accounting and financial records of Cape truly, correctly and
faithfully reflect the current accounts receivable and cash owned by Cape, and
no financial transactions between Cape and any person have occurred in the last
one (1) year which are not properly and clearly reflected in Cape's accounting
and financial records.
f. Brokers and Finder's fees. Abrams and Snyder and each of them
-------------------------
warrant and represent that no one is entitled to receive any broker's commission
or finder's fee or other commission in connection with the transaction
contemplated by this agreement.
g. Disclosures. Cape has in March, 1997 permitted inspection of its
-----------
assets and liabilities, and provided access to all of Cape's financial records
and other company records, by a representative of Coyote at Cape's offices in
San Diego, California, and Abrams and Snyder and each of them warrant and
represent that during such disclosure, all documents, files, art, records and
information concerning each and all of the assets and -liabilities and business
and operations of Cape were truly and fairly disclosed to said representative,
and nothing material was concealed or not disclosed, and in each of their
respective true and honest opinions, said representative was clearly presented
and saw and understood all material components of each and every asset and
liability of Cape, and was clearly presented and saw and understood the true
operations and condition of Cape.
5. Warranties and Representations of Coyote:
-----------------------------------------
(a) Coyote is a corporation validly existing and in good standing under
the laws of the State of Nevada and has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations under this
Agreement;
(b) The execution, delivery and performance of this Agreement has been
duly and validly authorized and approved by Coyote, and no further corporate
action by Coyote is or shall be required for such execution, delivery and
performance;
(c) This Agreement has been duly executed by and on behalf of Coyote
and constitutes a valid and binding obligation of Coyote; and
(d) The performance of its obligations hereunder by Coyote will not:
(i) conflict with or result in a breach of, or constitute a
default under,
-3-
<PAGE>
any of the terms, conditions or provisions of:
(A) the articles of incorporation or bylaws of Coyote,
(B) to the best of Coyote's knowledge, any law, judgment,
order, injunction, decree, regulation or ruling of any court or governmental
authority, domestic or foreign, to which Coyote is subject and of which
disclosure has not otherwise been made, or
(C) any material agreement, lease, commitment or contract to
which Coyote is a party or is subject, or
(ii) give to others any interest or rights, including rights of
termination, cancellation or acceleration, any of which events could adversely
affect the ability of Coyote to perform its obligations hereunder.
6. 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.
7. 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.
/s/ David B. Abrams
----------------------------
DAVID B. ABRAMS
/s/ Mark H. Snyder
----------------------------
MARK H. SNYDER
-4-
<PAGE>
COYOTE SPORTS, INC.
By: /s/ Mel S. Stonebraker
-----------------------------------
Mel Stonebraker, President
Attest:
[SEAL] /s/ James M. Probst
--------------------------------------
James M. Probst, Secretary
-5-
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Agreement is effective the 1st day of June, 1997 by and between
COYOTE SPORTS, INC., a Nevada corporation with its principal offices located at
2291 Arapahoe Avenue, Boulder, Colorado 80302 (hereinafter the "Company") and
MEL STONEBRAKER residing at 2231 Nicholl, Boulder, CO 80304 (hereinafter the
"Officer").
The Company designs, engineers, manufactures, markets and distributes brand
name sports and recreational products worldwide (the "Business"). The Company
desires to secure and retain the services of Officer and such services are
considered by the Company to be valuable with regard to the Business. The
Company, through its Board of Directors, agrees to employ the Officer in the
offices of President and Chief Executive Officer of the Company for the Term,
and Officer agrees to accept such employment and office upon the terms and
conditions set forth herein.
1. Term. Subject to the provisions for renewal and termination as hereinafter
----
provided, the term of this Agreement shall commence on June 1, 1997 and
terminate on May 31, 2000. This Agreement will be renewed automatically,
upon the same terms and conditions, for successive periods of two years
each, until either party at least sixty days prior to the expiration of the
original term or any extended term, shall give written notice to the other
of its intention not to renew such employment. Officer shall remain an
employee during the sixty day notice period. Any election not to renew or to
terminate by the Company shall be effected by a duly adopted resolution of
the Company's Board of Directors. Unless otherwise stated, any notice of
nonrenewal shall be treated as a termination without cause. The obligations
of the Officer under Sections 9 and 10 shall survive termination or
expiration of this Agreement. The obligations of the Company under the
Agreement that by their terms are to be paid or to continue after
termination of the Agreement, shall also survive such termination or
expiration.
2. Duties. The Company agrees to employ the Officer as President and Chief
------
Executive Officer of the Company and agrees to elect the Officer as a
member of the Board of Directors as of the date of this Agreement and for
so long as he is so employed. The responsibilities of the Officer shall be
as set forth in the Company's Bylaws attached hereto as Exhibit A, as
otherwise directed by the Company's Board of Directors and as more
specifically set forth in Section 3 of this Agreement. The Officer shall
report to the Board of Directors and all other officers of the Company
shall report to him or as he shall direct. The Officer shall be responsible
for the overall revenue and profit of the Company; establishing short-term
and long-range objectives, plans and policies subject to the approval of
the Board of Directors. He shall be responsible for representing the
organization with major customers, the financial community, and the public.
If the overall revenue and profit of the Company is not satisfactory, as
determined by the Board of Directors, in no event shall this occurrence
give rise to justification for termination of the Officer for cause.
<PAGE>
3. Outside Commitments. The Officer shall not be constrained from
-------------------
continuation of outside business commitments so long as such commitments do
not interfere or conflict with the performance of his duties as President
and Chief Executive Officer of the Company. It is recognized that the
Officer currently serves as a member of the Board of Directors of certain
subsidiaries of Coyote Sports, Inc. which are not deemed to be outside
commitments. Any outside business activities which involve remuneration to
the Officer, shall require the prior approval of the Board of Directors.
Such approval shall not be unreasonably withheld so long as the outside
commitment does not conflict with the Officer's responsibilities to the
Company.
4. Compensation. For all services rendered by the Officer under this
------------
Agreement, the Company shall pay to the Officer base cash compensation of
$10,416.67 per month for the first three months of the contract and $12,500
per month for the next nine (9) months. Beyond the first twelve (12) months,
compensation is subject to such increases as may be granted from time to
time by the Board of Directors, but in no event shall such increase be less
than the average percentage increase granted to the top ten salaried
employees of the Company, unless mutually agreed upon by Officer and the
Company. The Officer shall be entitled to a bonus scheme based upon meeting
agreed upon objectives determined by the Board of Directors. Such
compensation shall be payable bimonthly in equal installments. The Company
will provide life insurance of $800,000 payable to a beneficiary of the
Officer's choice, provided that Officer passes the physical examination
required for said insurance and the annual premium cost for said insurance
is less than $3,000. The Officer will be eligible for participation,
according to the eligibility requirements of the plans, for participation in
all other employee benefit programs including, but not limited to, medical,
dental, workers compensation and disability insurance, as well as any 401(k)
plan and existing or future pension or other employee benefits. Any
additional benefits desired by the Officer may be, at the Officer's
discretion, deducted from the base compensation in lieu of payment by the
Officer thereof.
Stock Options. At the closing of the Company's initial public offering, the
-------------
Officer will be granted Incentive Stock Options to purchase 45,000 shares of
the Company's Common Stock at the public offering price of the Common Stock.
As long as the Officer is employed by the Company, the options shall vest in
three equal annual increments commencing one year from the date of grant if
the Company achieves 75% of its targeted EBITDA (earnings before income,
taxes, depreciation and amortization) plan as established by the Board of
Directors. The options shall expire seven years from the date of initial
grant.
Dilution. If the Board of Directors sells additional shares of Common
--------
Stock beyond those issued and outstanding as of December 31, 1997,
other than shares issued pursuant to the exercise of options granted
under the Company's 1997 Stock Option Plan, the Officer shall have the
right, at his sole discretion, to purchase his pro rata share of the
newly issued shares at the price as the newly offered shares. The
intent of this provision is to allow the Officer to maintain
<PAGE>
ownership, or an option position, on a minimum percentage of the
Company's common stock.
Bonus. The Officer shall be paid a one-time bonus of $150,000, said bonus
-----
to be paid at the Board's discretion.
5. Expenses. The Officer shall be entitled to reimbursement for all reasonable
--------
expenses including travel, entertainment and similar items which may be
incurred in connection with performance of his duties. Expenses incurred by
the Officer pursuant to this section will be reimbursed by the Company upon
presentation by the Officer from time to time of an itemized account of
such expenditures in a form reasonably acceptable to the Company's
President or controller. The Board of Directors has the right to review
these expenses at any time.
6. Working Facilities. The Officer shall be furnished with all such facilities
------------------
and services suitable to his position and adequate for the performance of
his duties at the Company's executive offices in Boulder, Colorado. The
Officer's principal business activities shall be at such office or other
location within 25 miles of Boulder, Colorado.
7. Vacation. The Officer shall be entitled each year to a vacation of four (4)
--------
weeks (20 days) per year, during which time his compensation will be paid
in full. Vacation shall accrue at a rate of 6.6 hours per payroll from the
date of hire. Unused vacation may carry over for one additional year, but
in no case shall the Officer have vacation accrued in excess of eight
weeks.
8. Termination.
-----------
a) The Company may terminate this Agreement for cause at any time on 30
days written notice to the other party thereof. In any termination for
cause by the Company, "cause" shall mean: (i) gross misconduct, such
as, but not limited to dishonesty, theft or embezzlement with regard to
material property of the Company; (ii) excessive unauthorized
absenteeism, after written notification from the Board of Directors of
such absenteeism, and the Officer's failure to cure the problem; (iii)
any of the following acts which have a material, negative impact on the
financial condition of the Company: (a) actual fraud or other material
acts of dishonesty in conducting the Company's business or in the
fulfillment by the Officer or his assigned responsibilities; (b) the
destruction of any material amount of the Company's property willfully
or through the Officer's gross neglect; (c) the unauthorized willful
disclosure of any Proprietary Information of the Company to any person,
business or entity in violation of this Agreement or (d) a violation of
internal controls or procedures. If the Officer is terminated for cause
as defined in this section, all benefits and entitlements provided
under this Agreement, including but not limited to, the vesting of
options and payment of compensation, shall terminate as of the date of
notification of termination for cause.
<PAGE>
b) If the Officer voluntarily terminates before May 31, 2000, the Officer
will be required to reimburse the Company the amount of $75,000 as
follows: $75,000 if termination prior to May 31, 1998; $50,000 if
termination occurs between June 1,1998 and May 31, 1999; and $25,000 if
termination occurs between June 1, 1999 and May 31, 2000. If the
Officer terminates this Agreement without cause at any time after June
1, 1997, he shall provide 30 days notice to the Company and shall be
entitled to accrued salary, benefits through the notice period and
optional COBRA coverage as authorized by current law but he shall in no
event be entitled to severance pay or bonus compensation for the period
through the date of termination.
c) In the event of a change in control of the Company, regardless of
whether such control has received the endorsement or recommendation of
the Board of Directors of the Company, the Officer shall be paid
compensation.
d) If the Company terminates the Officer without cause, the Officer shall
receive 18 months salary if such termination occurs prior to December
1, 1998. If such termination occurs subsequent to December 1, 1998, the
Officer shall receive no less than 12 months salary. Stock options to
purchase 45,000 shares will continue to vest during the 18 or 12 month
period as defined above however, after three months, any options not
exercised will be non-qualified options. The Officer shall have the
option of selecting regular biweekly payments or a net present value
lump sum payment discounted by the Prime Rate as published in the Wall
Street Journal within 30 days of the notice of termination without
cause.
9. Noncompetition Agreement. Officer acknowledges that the Company has trade
------------------------
secrets and confidential information that, as President and Chief Executive
Officer, he will have access to all such trade secrets and confidential
information. Therefore, in consideration for the severance benefits set
forth above, the Officer agrees that for a period of the greater of (i) nine
months subsequent to the Termination Date or (ii) the severance pay period
provided for in Section 8(d), the Officer will not, directly or indirectly:
a) Call upon any person or entity which was a customer of the Company
immediately prior to the Termination Date for the purpose of diverting,
taking away business of, or selling products or services competitive
with significant products or services provided by the Company on the
Termination Date.
b) Alone or in any capacity solicit or in any manner to solicit or induce
any persons or persons employed by the Company within one year prior to
the Termination Date to leave such employment.
c) Within the United States of America, either as an employee, employer,
consultant, agent, principal, partner, more that 5% shareholders,
corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that
designs, engineers, manufactures, markets or distributes sports and
<PAGE>
recreational products, or that is in competition in any significant
manner with any Material Business conducted by the Company subsequent to
the date of this Agreement and in which the Company is involved on the
Termination Date. Material Business shall be defined as that business
which comprises in excess of 20% of the Company's revenue for the prior
12-month period.
10. Nondisclosure of Proprietary Information. In view of the fact that
----------------------------------------
Officer's employment by the Company will bring him into contact with
certain confidential matters of the Company, its customers and suppliers,
including, without limitation, matters of a technical nature (such as
information about costs, profits, markets, price lists, sales, data files,
mailing lists and lists of customers) and any other information of a
similar nature to the extent not available to the public (the "Confidential
Matters"), Officer agrees not to disclose, either during his employment or
for a period of three years thereafter, any Confidential Matters of the
Company, whether or not developed, to any person except with the Company's
prior written consent and then only after such person has signed an
agreement similar to this Agreement, or an agreement approved by the
Company prior to such disclosure. In the event that the Board of Directors
determines that the Officer possesses a significant Confidential Matter in
the nature of a trade secret or other proprietary information that will not
be in the public domain at the end of the three year period, upon written
notification from the Board of Directors prior to the end of the three year
period, the Officer agrees to keep that matter confidential indefinitely.
In the event Officer has some question as to whether or not certain
information is covered by this paragraph, Officer shall treat the
information as within this paragraph until told otherwise by the Company,
in writing. Officer further agrees to deliver to the Company, on the date
of termination of his employment, for whatever reason, all memoranda,
notes, records, reports, manuals, drawings, sketches, blueprints,
bulletins, writings, proposals, notebooks, manuals and other documents
containing confidential information of the Company, including all copies or
summaries thereof, which Officer may possess or have in his control.
It is agreed that Officer's services to the Company and his knowledge of
the Company's activities are unique in that any breach or threatened breach
by Officer of this Section cannot be remedied solely by damages.
Accordingly, the breach of, or threatened breach by, Officer of the
provisions of this Section shall allow the Company to seek injunctive
relief restraining the Officer and any business, firm, partnership, or
corporation from participating in such breach or anticipated breach, or
engaging in any activity which shall constitute a breach of the provisions
of this Section. The Company shall also have the right to bring an action
to obtain monetary damages to which it may be entitled from Officer or any
party who is involved in the use or dissemination of such confidential
information.
11. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given or delivered if (i)
delivered personally; (ii) mailed by certified mail, return receipt
requested, with property postage prepaid; or (iii) delivered by recognized
courier contracting for same day or next day delivery with signed receipt
<PAGE>
acknowledgment to the Company or the Officer.
If to the Company: Compensation Committee
Board of Directors
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, CO 80302
With a copy to: Laurie P. Glasscock
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
If to the Officer: Mel Stonebraker
2231 Nicholl
Boulder, CO 80304
or at such other address as either party may specify from time to time in
writing to the other.
12. Assignment of Inventions. The Officer agrees to assign patent rights
------------------------
developed during the term of this Agreement to the Company. Should the
Company, by agreement of the Board of Directors, waive their right to
assignment of any given patent, the Officer will retain ownership of said
intellectual property.
13. Arbitration. Except as provided below, any and all disputes arising under
-----------
or related to this Agreement which cannot be resolved through negotiations
between the parties shall be submitted to binding arbitration. If the
parties fail to reach a settlement of their dispute within fifteen (15)
days after the earliest date upon which one of the parties notified the
other(s) of its desire to attempt to resolve the dispute, then the dispute
shall be promptly submitted to arbitration by a single arbitrator through
the Judicial Arbiter Group ("JAG"), any successor of the JAG, or any
similar arbitration provider who can provide a former judge to conduct such
arbitration if JAG is no longer in existence. The arbiter shall be selected
by JAG on the basis, if possible, of his or her expertise in the subject
matter(s) of the dispute. The decision of the arbitrator shall be final,
nonappealable and binding upon the parties, and it may be entered in any
court of competent jurisdiction. The arbitration shall take place in
Boulder, Colorado. The arbitrator shall be bound by the laws of the State
of Colorado applicable to the issues involved in the arbitration and all
Colorado rules relating to the admissibility of evidence, including,
without limitation, all relevant privileges and the attorney work product
doctrine. All discovery shall be completed in accordance with the time
limitations prescribed in the Colorado rules of civil procedure, unless
otherwise agreed by the parties or ordered by the arbitrator on the basis
of strict necessity adequately demonstrated by the party requesting an
extension of time. The arbitrator shall have the power to grant equitable
relief where applicable under Colorado law, and shall be entitled to make
an award of punitive damages when applicable under Colorado law. The
arbitrator shall
<PAGE>
issue a written opinion setting forth his or her decision and the reasons
therefor within thirty (30) days after the arbitration proceeding is
concluded. The obligation of the parties to submit any dispute arising
under or related to this Agreement to arbitration as provided in this
Section shall survive the expiration or earlier termination of this
Agreement. Notwithstanding the foregoing, either party may seek and obtain
an injunction or other appropriate relief from a court to preserve or
protect trademarks, trade names, copyrights, patents, trade secrets or
other intellectual property or confidential information or to preserve the
status quo with respect to any matter pending conclusion of the arbitration
proceeding, but no such application to a court shall in any way be
permitted to stay or otherwise impede the progress of the arbitration
proceeding.
In the event of any arbitration or litigation being filed or instituted
between the parties concerning this Agreement, the prevailing party will be
entitled to receive from the other party or parties its attorneys' fees,
witness fees, costs and expenses, court costs and other reasonable
expenses, whether or not such controversy, claim or action is prosecuted to
judgment or other form of relief.
14. General Provisions. This Agreement shall be governed by and construed
------------------
under the laws of the state of Colorado, giving effect to its conflict of
law principles. The terms of this Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns. Neither party
may assign his or its obligations under this Agreement to any other party.
15. Severability. If any provision of this Agreement is held to be invalid or
------------
unenforceable by any court of competent jurisdiction, such holdings shall
not affect the enforceability of any other provision of this Agreement, and
all other provisions shall continue in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
The Officer: The Company:
COYOTE SPORTS, INC.
BY:
- ----------------------------- -----------------------------------------
Mel Stonebraker James M. Probst, Chief Operating Officer
<PAGE>
Exhibit A
AMENDED BY-LAWS
OF
COYOTE SPORTS, INC.
ARTICLE I
OFFICES
Section 1.1 PRINCIPAL OFFICE.
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The principal office of the corporation in the State of Nevada shall be
located in the City of Reno, County of Washoe. The corporation may have such
other offices, either within or without the State of Nevada, as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
Section 1.2 REGISTERED OFFICE.
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The registered office of the corporation, required by the Nevada Corporation
Code to be maintained in the State of Nevada, may be, but need not be, identical
with the principal office in the State of Nevada, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 2.1 ANNUAL MEETING.
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The annual meeting of the shareholders shall be held at such time on such
day as shall be fixed by the Board of Directors, commencing with the year 1995,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as may be
convenient.
Section 2.2 SPECIAL MEETINGS.
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Special meetings of the shareholders, for any purpose or purposes, unless
otherwise proscribed by statute, may be called by the Chief Executive Officer or
by the Board of Directors,
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and shall be called by the Chief Executive Officer at the request of the holders
of not less than one-tenth of all outstanding shares of the corporation entitled
to vote at the meeting.
Section 2.3 PLACE OF MEETINGS.
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The Board of Directors may designate any place, either within or without the
State of Nevada, as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Nevada the place for the holding of such meeting.
If no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal office of the corporation in the State
of Colorado.
Section 2.4 NOTICE OF MEETING.
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Written notice stating the place, day and hour of the meeting of
shareholders and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall, unless otherwise prescribed by statute, be
delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
or the Secretary, or the officer or other persons calling the meeting, to each
shareholder of record entitled to vote at such meetings provided, however, that
if the authorized shares of the corporation are to be increased, at least thirty
days notice shall be given, and if sale of all or substantially all assets are
to be voted upon, at least twenty days notice shall be given. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
Section 2.5 MEETING OF ALL SHAREHOLDERS.
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If all of the shareholders shall meet at any time and place, either within
or without the State of Nevada, and consent to the holding of a meeting at such
time and place, such meeting shall be valid without call or notice, and at such
meeting any corporate action may be taken.
Section 2.6 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
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For the purpose of determining shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other purpose, the Board of Directors of the corporation
may provide that the share transfer books shall be closed for a stated period
but not to exceed, in any case, sixty days. If the share transfer books shall
be closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least
ten days immediately preceding such meeting. In lieu of closing the share
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more
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than fifty days and, in case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the share transfer books are
not closed and no record date is fixed for the determination of shareholders, or
shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders entitled to vote at any
meeting of shareholders. When a determination of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
Section 2.7 VOTING RECORD.
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The officer or agent having charge of the stock transfer books for shares of
the corporation shall make, at least ten days before such meeting of
shareholders, a complete record of the shareholders entitled to vote at each
meeting of shareholders or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each. The record,
for a period of ten days prior to such meeting, shall be kept on file at the
principal office of the corporation, whether within or without the State of
Nevada, and shall be subject to inspection by any shareholder for any purpose
germane to the meeting at any time during normal business hours. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.
The original stock transfer books shall be the prima facie evidence as to
who are the shareholders entitled to examine the record or transfer books or to
vote at any meeting of the shareholders.
Section 2.8 QUORUM.
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One-third of the outstanding shares of the corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, except as otherwise provided by the Nevada Corporation Code and
the Articles of Incorporation. In the absence of a quorum at any such meeting,
a majority of the shares so represented may adjourn the meeting from time to
time for a period not to exceed sixty days without further notice. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.9 MANNER OF ACTING.
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If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the
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vote of a greater proportion or number or voting by classes is otherwise
required by statute or by the Articles of Incorporation or these By-Laws.
Section 2.10 PROXIES.
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At all meetings of shareholders a shareholder may vote in person or by proxy
executed in writing by the shareholder or by his duly authorized attorney-in-
fact. Such proxy shall be filed with the Secretary of the corporation before or
at the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
Section 2.11 VOTING OF SHARES.
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Unless otherwise provided by these By-Laws or the Articles of Incorporation,
each outstanding share entitled to vote shall be entitled to one vote upon each
matter submitted to a vote at a meeting of shareholders, and each fractional
share shall be entitled to a corresponding fractional vote on each such matter.
Section 2.12 VOTING OF SHARES BY CERTAIN SHAREHOLDERS.
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Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the By-Laws of such corporation may prescribe, or, in
the absence of such provision, as the Board of Directors of such other
corporation may determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person, may be voted by his administrator, executor, court appointed
guardian or conservator, either in person or by proxy without a transfer of such
shares into the name of such administrator, executor, court appointed guardian
or conservator. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority so to do be contained in
an appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock belonging to this corporation, nor shares of
its own stock held by it in a fiduciary capacity, nor shares of its own stock
held by another corporation, if the majority of shares entitled to vote for the
election of directors of such corporation is held by this
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corporation may be voted, directly or indirectly, at any meeting and shall not
be counted in determining the total number of outstanding shares at any given
time.
Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on and
after the date on which written notice of redemption has been mailed to
shareholders and a sum sufficient to redeem such shares has been deposited and
authority to pay the redemption price to the holders of the shares upon
surrender of certificates therefor.
Section 2.13 INFORMAL ACTION BY SHAREHOLDERS.
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Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by at least a majority of the
shareholders entitled to vote with respect to the subject matter thereof.
Facsimilie or telefax signatures shall have the same effect as original
signatures on such consents in lieu of a meeting.
Section 2.14 NO CUMULATIVE VOTING.
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No shareholder shall be permitted to cumulate his votes by giving one
candidate as many votes as the number of such directors multiplied by the number
of his shares shall equal, or by distributing such votes on the same principal
among any number of candidates.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 GENERAL POWERS.
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The business and affairs of the corporation shall be managed by its Board of
Directors.
Section 3.2 PERFORMANCE OF DUTIES.
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A director of the corporation shall perform his duties as a director,
including his duties as a member of any committee of the board upon which he may
serve, in good faith, in a manner he reasonably believes to be in the best
interests of the corporation, and with such care as an ordinarily prudent person
in a like position would use under similar circumstances. In performing his
duties, a director shall be entitled to rely on information, opinions, reports,
or statements, including financial statements and other financial data, in each
case prepared or presented by persons and groups listed in paragraphs (a), (b)
and (c) of this Section 3.2; but he shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
such reliance to be unwarranted. A person who so performs his duties shall not
have any liability by reason of being or having been a director of the
corporation. Those persons and
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groups on whose information, opinions, reports, and statements a director is
entitled to rely upon are:
(a) One or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent.
(b) Counsel, public accountants, or other persons as to matters which the
director reasonably believes to be within such persons' professional or expert
competence; or
(c) A committee of the board upon which he does not serve, duly designated
in accordance with the provisions of the Articles of Incorporation or the By-
Laws, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence.
Section 3.3 NUMBER, TENURE AND QUALIFICATION.
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The number of directors of the corporation shall be fixed from time to time
by resolution of the Board of Directors, but in no instance shall there be less
than one director or that number otherwise required by law. Each director shall
hold office until the next annual meeting of shareholders or until his successor
shall have been elected and qualified. Directors need not be residents of the
State of Nevada or shareholders of the corporation.
Section 3.4 REGULAR MEETINGS.
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A regular meeting of the Board of Directors shall be held without other
notice than this By-Law immediately after, and at the same place as, the annual
meeting of shareholders. The Chairman of the Board of Directors or the
President or Secretary on the written request of two directors may provide, by
resolution, the time and place, either within or without the State of Nevada, as
the place for holding any special meeting of the Board of Directors called by
them.
Section 3.5 SPECIAL MEETING.
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Special meetings of the Board of Directors may be called by or at the
request of the Chairman or any two directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place, either
within or without the State of Nevada, as the place for holding any special
meeting of the Board of Directors called by them.
Section 3.6 NOTICE. Written notice of any special meeting of directors
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shall be given as follows:
By telefax to each director at his business address at least three days
prior to the meeting; or
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By personal delivery or telegram at least three days prior to the meeting to
the business address of each director, or, in the event such notice is given on
a Saturday, Sunday or holiday, to the residence address of each director. If
notice be given by telegram, such notice shall be deemed to be delivered when
the telefax is received by the receiving directors telefax machine or the
telegram is delivered to the telegraph company. Any director may waive notice
of any meeting. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted, nor the purpose of, any regular or special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Section 3.7 QUORUM.
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A majority of the number of directors fixed by or pursuant to Section 3.3 of
this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 3.8 MANNER OF ACTING.
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Except as otherwise required by law or by the Articles of Incorporation, the
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 3.9 INFORMAL ACTION BY DIRECTORS.
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Any action required or permitted to be taken by the Board of Directors or by
a committee thereof at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors or all of the committee members entitled to vote with respect to the
subject matter thereof. Facsimilie or telefax signatures shall have the same
effect as original signatures on such consents in lieu of a meeting.
Section 3.10 PARTICIPATION BY ELECTRONIC MEANS.
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Any members of the Board of Directors or any committee designated by such
Board may participate in a meeting of the Board of Directors or committee by
means of telephone conference or similar communications equipment by which all
persons participating in the meeting can hear each other at the same time. Such
participation shall constitute presence at the meeting.
Section 3.11 VACANCIES.
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Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A
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director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of any
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 3.12 RESIGNATION.
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Any director of the corporation may resign at any time by giving written
notice to the president or the secretary of the corporation. The resignation of
any director shall take effect upon receipt of notice thereof or at such later
time as shall be specified in such notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. When one or more directors shall resign from the board, effective at
a future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereof to take effect when such resignation or resignations shall become
effective.
Section 3.13 REMOVAL.
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Any director or directors of the corporation may be removed at any time,
with or without cause, in the manner provided in the Nevada Corporation Code.
Section 3.14 COMMITTEES.
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By resolution adopted by a majority of the Board of Directors, the directors
may designate two or more directors to constitute a committee, any of which
shall have such authority in the management of the corporation as the Board of
Directors shall designate and as shall not be proscribed by the Nevada
Corporation Code.
Section 3.15 COMPENSATION.
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By resolution of the Board of Directors and irrespective of any personal
interest of any of the members, each director may be paid his expenses, if any,
of attendance at each meeting of the Board of Directors, and each non-employee
director may be paid a stated salary as director or a fixed sum for attendance
at each meeting of the Board of Directors or such other compensation, in stock
or options as such Board of Directors shall determine. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
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Section 3.16 PRESUMPTION OF ASSENT.
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A director of the corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who votes in favor of such
action.
ARTICLE IV
OFFICERS
Section 4.1 NUMBER.
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The officers of the corporation shall be a President, a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers, including one or more Vice Presidents, assistant officers, agents, and
employees as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person, except the
offices of President and Secretary. The officers of the corporation shall be
natural persons, eighteen years of age of older.
Section 4.2 ELECTION AND TERM OF OFFICE.
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The principal officers of the corporation to be elected by the Board of
Directors shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as practicable. Each officer
shall hold office until his successor shall have been duly elected and shall
have qualified or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 4.3 REMOVAL.
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Any officer or agent may be removed by the Board of Directors whenever in
its judgment the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of any officer or agent shall not of
itself create contract rights.
Section 4.4 VACANCIES.
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A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Board of Directors for the
unexpired portion of the term.
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Section 4.5 PRESIDENT.
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The President shall be the chief executive officer of the Board of Directors
and, subject to the control of the Board of Directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, and in the absence of a Chairman of the Board, preside at
all meetings of the shareholders and of the Board of Directors. He may sign,
with the Secretary or any other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates for shares of the corporation
and deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 4.6 THE VICE PRESIDENT.
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If elected or appointed by the Board of Directors, the Vice President (or in
the event there be more than one vice president, the vice presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall, in the absence of the
President or in the event of his death, inability or refusal to act, perform all
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Any Vice President may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the corporation; and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 4.7 THE SECRETARY.
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The Secretary shall: (a) keep minutes of the proceedings of the shareholders
and of the Board of Directors in one or more minute books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents the execution of which on behalf of
the corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President, or a Vice President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
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Section 4.8 THE TREASURER.
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The Treasurer shall: (a) have charge and custody of and be responsible for
all funds and securities of the corporation; (b) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of Article V of these By-laws; and (c) in general perform all of the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
Section 4.9 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
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The Assistant Secretaries, when authorized by the Board of Directors, may
sign with the President or a Vice President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the Secretary
or the Treasurer, respectively, or by the President or the Board of Directors.
Section 4.10 BONDS.
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If the Board of Directors by resolution shall so require, any officer or
agent of the corporation shall give bond to the corporation in such amount and
with such surety as the Board of Directors may deem sufficient, conditioned upon
the faithful performance of their respective duties and offices.
Section 4.11 SALARIES.
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The salaries of the officers shall be fixed from time to time by the Board
of Directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 5.1 CONTRACTS.
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The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
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Section 5.2 LOANS.
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No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
Section 5.3 CHECKS, DRAFTS, ETC.
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All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the Board of
Directors.
Section 5.4 DEPOSITS.
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All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board of Directors may select.
ARTICLE VI
SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES
Section 6.1 REGULATION. The Board of Directors may make such rules and
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regulations as it may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
Section 6.2 CERTIFICATES FOR SHARES.
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Certificates representing shares of the corporation shall be respectively
numbered serially for each class of shares, or series thereof, as they are
issued, shall be impressed with the corporate seal or a facsimile thereof, and
shall be signed by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or by the Secretary or an Assistant Secretary; provided that
such signatures may be facsimile if the certificate is countersigned by a
transfer agent, or registered by a registrar other than the corporation itself
or its employee. Each certificate shall state the name of the corporation, the
fact that the corporation is organized or incorporated under the laws of the
State of Nevada, the name of the person to whom issued, the date of issue, the
class (or series of any class), the number of shares represented thereby and the
par value of the shares represented thereby or a statement that such shares are
without par value. A statement of the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of the
shares of each class shall be set forth in full or summarized on the face or
back of the certificates which the corporation shall issue, or in lieu thereof,
the certificate may set forth that
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such a statement or summary will be furnished to any shareholder upon request
without charge. Each certificate shall be otherwise in such form as may be
prescribed by the Board of Directors and as shall conform to the rules of any
stock exchange on which the shares may be listed.
The corporation shall not issue certificates representing fractional shares
and shall not be obligated to make any transfers creating a fractional interest
in a share of stock. The corporation may, but shall not be obligated to, issue
scrip in lieu of any fractional shares, such scrip to have terms and conditions
specified by the Board of Directors.
Section 6.3 CANCELLATION OF CERTIFICATES.
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All certificates surrendered to the corporation for transfer shall be
cancelled and no new certificates shall be issued in lieu thereof until the
former certificates for a like number of shares shall have been surrendered and
cancelled, except as herein provided with respect to lost, stolen or destroyed
certificates.
Section 6.4 LOST, STOLEN OR DESTROYED CERTIFICATES.
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Any shareholder claiming that his certificate for shares is lost, stolen or
destroyed may make an affidavit or affirmation of that fact and lodge the same
with the Secretary of the corporation, accompanied by a signed application for a
new certificate. Thereupon, and upon the giving of a satisfactory bond of
indemnity to the corporation not exceeding an amount double the value of the
shares as represented by such certificate (the necessity for such bond and the
amount required to be determined by the President and Treasurer of the
corporation), a new certificate may be issued of the same tenor and representing
the same number, class and series of shares as were represented by the
certificate alleged to be lost, stolen or destroyed.
Section 6.3 TRANSFER OF SHARES.
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Subject to the terms of any shareholder agreement relating to the transfer
of shares or other transfer restrictions contained in the Articles of
Incorporation or authorized therein, shares of the corporation shall be
transferable on the books of the corporation by the holder thereof in person or
by his duly authorized attorney, upon the surrender and cancellation of a
certificate or certificates for a like number of shares. Upon presentation and
surrender of a certificate for shares property endorsed and payment of all taxes
therefor, the transferee shall be entitled to a new certificate or certificates
in lieu thereof. As against the corporation, a transfer of shares can be made
only on the books of the corporation and in the manner hereinabove provided, and
the corporation shall be entitled to treat the holder of record of any share as
the owner thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the statutes of the State of Nevada.
ARTICLE VII
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FISCAL YEAR
The fiscal year of the corporation shall be as designated from time to time
by the Board of Directors.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE IX
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE X
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by a majority of the directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
Section 12.1 APPOINTMENT.
------------------------
The Board of Directors by resolution adopted by a majority of the full
Board, may designate two or more of its members to constitute an Executive
Committee. The designation of such Committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed by law.
Section 12.2 AUTHORITY.
----------------------
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<PAGE>
The Executive Committee, when the Board of Directors is not in session,
shall have and may exercise all of the authority of the Board of Directors
except to the extent, if any, that such authority shall be limited by the
resolution appointing the Executive Committee and except also that the Executive
Committee shall not have the authority of the Board of Directors in reference to
amending the Articles of Incorporation, adopting a plan of merger or
consolidation, recommending to the shareholders the sale, lease or other
disposition of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, or amending the By-Laws of the corporation.
Section 12.3 TENURE AND QUALIFICATIONS.
--------------------------------------
Each member of the Executive Committee shall hold office until the next
regular annual meeting of the Board of Directors following his designation and
until his successor is designated as a member of the Executive Committee and is
elected and qualified.
Section 12.4 MEETINGS.
---------------------
Regular meetings of the Executive Committee may be held without notice at
such time and places as the Executive committee may fix from time to time by
resolution. Special meetings of the Executive Committee may be called by any
member thereof upon not less than one day's notice stating the place, date and
hour of the meeting, which notice may be written or oral, and if mailed, shall
be deemed to be delivered when deposited in the United States mail addressed to
the member of the Executive Committee at his business address. Any member of
the Executive may waive notice given to any member thereof who attends in per-
son. The notice of a meeting of the Executive Committee need not state the
business proposed to be transacted at the meeting.
Section 12.5 QUORUM.
-------------------
A majority of the members of the Executive Committee shall constitute a
quorum for the transaction of business at any meeting thereof, and action of the
Executive Committee must be authorized by the affirmative vote of a majority of
the members present at a meeting at which a quorum is present.
Section 12.6 INFORMAL ACTION BY EXECUTIVE COMMITTEE.
---------------------------------------------------
Any action required or permitted to be taken by the Executive Committee at a
meeting may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the directors entitled to vote
with respect to the subject matter thereof. Facsimilie or telefax signatures
shall have the same effect as original signatures on such consents in lieu of a
meeting.
-15-
<PAGE>
Section 12.7 VACANCIES.
----------------------
Any vacancy in the Executive Committee may be filled by a resolution adopted
by a majority of the full Board of Directors.
Section 12.8 RESIGNATIONS AND REMOVAL.
-------------------------------------
Any member of the Executive Committee may be removed at any time with or
without cause by resolution adopted by a majority of the full Board of
Directors. Any member of the Executive Committee may resign from the Executive
Committee at any time by giving written notice to the President or Secretary of
the corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 12.9 PROCEDURE.
----------------------
The Executive Committee shall elect a presiding officer from its members and
may fix its own rules of procedure which shall not be inconsistent with these
By-Laws. It shall keep regular minutes of its proceedings and report the same
to the Board of Directors for its information at the meeting thereof held next
after the proceedings shall have been taken.
ARTICLE XIII
EMERGENCY BY-LAWS
The Emergency By-Laws provided in this Article XIII shall be operative
during an emergency in the conduct of the business of the corporation resulting
from an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding articles of the By-Laws
or in the Articles of Incorporation of the corporation or in the Nevada
Corporation Code. To the extent not inconsistent with the provisions of this
Article, the By-Laws provided in the preceding articles shall remain in effect
during such emergency and upon its termination the Emergency By-Laws shall cease
to be operative.
During such an emergency:
(a) A meeting of the Board of Directors may be called by any officer or
director of the corporation. Notice of the time and place of the meeting shall
be given by the person calling the meeting to such of the directors as it may be
feasible to reach by any available means of communication. Such notice shall be
given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
(b) At any such meeting of the Board of Directors, a quorum shall consist
of the number of directors in attendance at such meeting.
-16-
<PAGE>
(c) The Board of Directors, either before or during any such emergency,
may, effective in the emergency, change the principal office or designate
several alternative principal offices or regional offices, or authorize the
officer's so to do.
(d) The Board of Directors, either before or during any Such emergency, may
provide, and from time to time modify, lines of succession in the event that
during such an emergency any or all officers or agents of the corporation shall
for any reason be rendered incapable of discharging their duties.
(e) No officer, director or employee acting in accordance with these
Emergency ByLaws shall be liable except for willful misconduct.
(f) These Emergency By-Laws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment of these Emergency By-Laws may make any further or different provision
that may be practical and necessary for the circumstances of the emergency.
-17-
<PAGE>
EXHIBIT 10.5
CHANGE OF CONTROL AGREEMENT
AGREEMENT made as of this 1st day of June, 1997, by and between Coyote Sports,
Inc., a Nevada corporation, with its principal offices located at 2291 Arapahoe
Avenue, Boulder, CO 80302, (hereinafter the "Company"), and Mel S. Stonebraker,
residing at 2231 Nicholl, Boulder, CO 80304 (hereinafter the "Officer").
1. Definitions. For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(a) For the purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (a) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, beneficially owns 50%
or more of the Company's voting common stock; or, (b) at any time
during the period of three consecutive years (not including any
period prior to the date hereof), individuals who at the beginning of
such period constitute the Board (and any new director whose election
by the Board or whose nomination for election by the Company's
stockholders were approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority thereof; or (c) the stockholders of the Company approve a
merger or consolidation of the Company with any other corporation,
other than a merger or consolidation in which both (i) a majority of
the directors of the surviving entity were directors of the Company
prior to such consolidation or merger, and (ii) which would result in
the voting securities of the Company outstanding immediately prior
thereto continue to represent (either by remaining outstanding or by
being changed into voting securities of the surviving entity) at
least 51% of the combined voting power of the voting securities of
the surviving entity outstanding immediately after such merger or
consolidation; or (d) the stockholders approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
(b) "Termination Date" shall mean the date following a Change of Control
when the Officer receives written notice that his employment is
terminated without Cause as defined in the Employment Agreement, or,
if later, such other termination date specified in the written
notice.
(c) "Terminate" shall mean not only a complete termination of employment
by the Company or its successor but also a significant negative
change in the terms of employment with the Company or its successor,
including but not limited to a requirement to relocate or a
significant reduction in salary and benefits.
1
<PAGE>
(d) "Termination Following a Change of Control" shall mean a termination
without Cause by the Company following or in connection with a change
of control or a termination by the Officer for "Good Reason" of the
Officer's employment with the Company within two years following a
"Change of Control" (as defined below).
(e) For purposes of this Agreement, "Good Reason" shall include, but not
be limited to, any of the following (without the Officer's express
written consent):
i) the assignment to the Officer by the Company of duties
inconsistent with or a substantial alteration in the nature or
status of, the Officer's responsibilities as in effect
immediately prior to a Change of Control;
ii) a reduction by the Company in the Officer's compensation or
benefits as in effect immediately prior to the date of a Change
of Control;
iii) a relocation of the Company's principal offices beyond 25 miles
from the present Boulder, Colorado location, or the Officer's
relocation to any place other than the Boulder, Colorado
offices of the Company, except for reasonably required travel
by the Officer on the Company's business;
iv) any material breach by the Company of any provision of this
Agreement if such material breach has not been cured within
thirty (30) days following written notice of such breach by the
Officer to the Company setting forth with specificity the
nature of the breach; or
v) any failure by the Company to obtain the assumption and
performance of the Employment Agreement and this Agreement by
any successor (by merger, consolidation or otherwise) or
assignee of the Company.
2. Severance Benefits. In the event there is a Termination Following a Change
of Control, the Officer shall be entitled to the following severance
benefits for a period of 12 months after the Termination Date:
(a) Continued base salary in regular biweekly payments, or if so elected
by the Officer, a lump sum payable within 30 days of the Officer's
election.
(b) Bonus payable in such amount as would be payable to the Officer had
he been employed by the Company for the full fiscal year during which
the termination occurred, and the Company had achieved Plan
performance for such fiscal year. Such bonus shall be paid in the
same manner as elected by the Officer in (a) above;
(c) Continued medical, dental, life and disability insurance benefits;
and
(d) Continued retirement benefits, including 401(k) plan.
2
<PAGE>
Such benefits shall be identical to the salary, bonus, insurance and
retirement plan benefits to which the Officer was entitled immediately
prior to the Change of Control. During such 12-month period, the Officer
shall continue to be an employee of the Company for purposes of
participation in the plans which provide the benefits described in
subsections (c) and (d) above but shall have no further responsibilities as
an employee and shall not be required or permitted to continue his former
duties. Subject to Section 3, the Officer shall be free to accept other
employment during such period, and there shall be no offset of any
employment compensation earned by Officer in such other employment during
such period against payments due the Officer hereunder, and there shall be
no offset in any compensation or benefits received from such other
employment against the continued salary and benefits set forth above.
3. Stock Option Vesting. In the event of a Termination Following a Change of
Control, all outstanding stock options held by the Officer which are not
then exercisable, shall become exercisable in their entirety as of the date
immediately preceding the Termination Date.
4. Noncompetition Agreement. Officer acknowledges that the Company has trade
secrets and confidential information, that as President and Chief Executive
Officer he will have access to all such trade secrets and confidential
information and that in performing duties in an executive position for
another company he might necessarily use and divulge such trade secrets and
confidential information. Therefore, in consideration for the severance
benefits set forth above, the Officer agrees that for a period of 12 months
subsequent to the Termination Date, the Officer will not, directly or
indirectly:
(a) Call upon any person or entity which was a customer of the Company
immediately prior to the Termination Date for the purpose of
diverting, taking away the business of, or selling products or
services competitive with significant products or services provided
by the Company;
(b) In any manner, misuse or divulge to any person any list of customers,
confidential information or trade secrets of the Company;
(c) Alone or in any capacity solicit or in any manner attempt to solicit
or induce any person or persons employed by the Company within one
year prior to the Termination Date to leave such employment;
(d) Within the United States of America, either as an employee, employer,
consultant, agent, principal, partner, more than 5% stockholder,
corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that
is in competition in any significant manner with any material
business conducted by the Company on the Termination Date.
5. Termination. This Agreement may be terminated only as follows:
(a) by mutual written agreement of the parties;
3
<PAGE>
(b) upon termination of Officer's employment prior to, and not in
connection with, a Change of Control.
(c) when the Officer attains age 65.
6. Severability. Should a court or other body of competent jurisdiction
determine that any provision of this Agreement is excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and all other provisions of the Agreement shall be deemed valid
and enforceable to the extent possible.
7. Assignment. The parties may assign their economic rights under this
Agreement but shall not assign any personal obligations from this
Agreement.
8. Miscellaneous. This Agreement: (a) contains the entire agreement among the
parties regarding the subject matter hereof and supersedes any prior
agreements on this subject between the parties; (b) may not be amended nor
may any rights hereunder be waived except by an instrument in writing
signed by the party sought to be charged with such amendment or waiver; (c)
shall be construed in accordance with, and governed by, the laws of
Colorado; and (d) shall be binding upon and shall inure to the benefit of
the parties and their respective personal representatives and permitted
assigns, including, without limitation, any successor to the business of
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
<TABLE>
<S> <C>
THE OFFICER: THE COMPANY:
Coyote Sports, Inc.
By:
- ---------------------------------- ----------------------------------------
Mel S. Stonebraker James B. Probst, Chief Operating Officer
</TABLE>
4
<PAGE>
Exhibit 10.6
EMPLOYMENT AGREEMENT
This Agreement is effective the 1st day of June, 1997 by and between
COYOTE SPORTS, INC., a Nevada corporation, with its principal offices located at
2291 Arapahoe Avenue, Boulder, Colorado 80302 (hereinafter the "Company") and
JAMES M. PROBST residing at 5455 South Simms Way, Littleton, Colorado 80127
(hereinafter the "Officer").
The Company designs, engineers, manufactures, markets and distributes brand
name sports and recreational products worldwide (the "Business"). The Company
desires to secure and retain the services of Officer and such services are
considered by the Company to be valuable with regard to the Business. The
Company, through its Board of Directors, agrees to employ the Officer in the
office of Chief Operating Officer of the Company for the Term, and Officer
agrees to accept such employment and office upon the terms and conditions set
forth herein.
1. Term. Subject to the provisions for renewal and termination as hereinafter
----
provided, the term of this Agreement shall commence on June 1, 1997 and
terminate on May 31, 2000. This Agreement will be renewed automatically,
upon the same terms and conditions, for successive periods of two years
each, until either party at least sixty days prior to the expiration of the
original term or any extended term, shall give written notice to the other
of its intention not to renew such employment. Officer shall remain an
employee during the sixty day notice period. Any election not to renew or
to terminate by the Company shall be effected by a duly adopted resolution
of the Company's Board of Directors. Unless otherwise stated, any notice of
nonrenewal shall be treated as a termination without cause. The obligations
of the Officer under Sections 9 and 10 shall survive termination or
expiration of this Agreement. The obligations of the Company under the
Agreement that by their terms are to be paid or to continue after
termination of the Agreement, shall also survive such termination or
expiration.
2. Duties. The Company agrees to employ the Officer as Chief Operating
------
Officer of the Company and agrees to elect the Officer as a member of the
Board of Directors as of the date of this Agreement and for so long as he
is so employed. The responsibilities of the Officer shall be as set forth
in the Company's Bylaws attached hereto as Exhibit A, as otherwise directed
by the Company's Board of Directors and as more specifically set forth in
Section 3 of this Agreement. The Officer shall report to the President. The
Officer shall have primary accountability for the day-to-day operations of
the Company.
3. Outside Commitments. The Officer shall not be constrained from
-------------------
continuation of limited outside business commitments so long as such
commitments do not interfere or conflict with the performance of his duties
as Chief Operating Officer of the Company. It is recognized that the
Officer currently serves as a member of the Board of Directors of certain
subsidiaries of Coyote Sports, Inc. which are not deemed to be outside
commitments. Any outside business activities which involve remuneration to
the
<PAGE>
Officer, shall require the prior approval of the Board of Directors. Such
approval shall not be unreasonably withheld so long as the outside
commitment does not conflict with the Officer's responsibilities to the
Company.
4. Compensation. For all services rendered by the Officer under this
------------
Agreement, the Company shall pay to the Officer base cash compensation of
$8,333.33 per month for the first three (3) months of the contract and
$10,416.67 per month for the next nine (9) months. Beyond the first twelve
(12) months, compensation is subject to such increases as may be granted
from time to time by the Board of Directors, but in no event shall such
increase be less than the average percentage increase granted to the top
ten salaried employees of the Company, unless mutually agreed upon by
Officer and the Company. The Officer shall be entitled to a bonus scheme
based upon meeting agreed upon objectives determined by the Board of
Directors. Such compensation shall be payable bimonthly in equal
installments. The Company will provide life insurance of $400,000 payable
to a beneficiary of the Officer's choice, provided that Officer passes the
physical examination required for said insurance and the annual premium
cost for said insurance is less than $2,000. The Officer will be eligible
for participation, according to the eligibility requirements of the plans,
for participation in all other employee benefit programs including, but not
limited to, medical, dental, workers compensation and disability insurance,
as well as any 401(k) plan and existing or future pension or other employee
benefits. Any additional benefits desired by the Officer may be, at the
Officer's discretion, deducted from the base compensation in lieu of
payment by the Officer thereof.
Stock Options. At the closing of the Company's initial public offering,
-------------
the Officer will be granted Incentive Stock Options to purchase 45,000
shares of the Company's Common Stock at the public offering price of the
Common Stock. As long as the Officer is employed by the Company, the
options shall vest in three equal annual increments commencing one year
from the date of grant if the Company achieves 90% of its targeted EBITDA
(earnings before income, taxes, depreciation and amortization) plan as
established by the Board of Directors. The options shall expire seven years
from the date of initial grant.
Dilution. If the Board of Directors sells additional shares of Common
---------
Stock beyond those issued and outstanding as of December 31, 1997, other
than shares issued pursuant to the exercise of options granted under the
Company's 1997 Stock Option Plan, the Officer shall have the right, at his
sole discretion, to purchase his pro rata share of the newly issued shares
at the price as the newly offered shares. The intent of this provision is
to allow the Officer to maintain ownership, or an option position, on a
minimum percentage of the Company's common stock.
5. Expenses. The Officer shall be entitled to reimbursement for all reason-
--------
able expenses including travel, entertainment and similar items which may
be incurred in connection with performance of his duties. Expenses incurred
by the Officer pursuant to this section will be reimbursed by the Company
upon presentation by the Officer from time to time of
<PAGE>
an itemized account of such expenditures in a form reasonably acceptable to
the Company's President or controller. The Board of Directors has the right
to review these expenses at any time.
6. Working Facilities. The Officer shall be furnished with all such
-----------------
facilities and services suitable to his position and adequate for the
performance of his duties at the Company's executive offices in Boulder,
Colorado. The Officer's principal business activities shall be at such
office or other location within the Denver metropolitan area.
7. Vacation. The Officer shall be entitled each year to a vacation of four
--------
(4) weeks (20 days) per year, during which time his compensation will be
paid in full. Vacation shall accrue at a rate of 6.6 hours per payroll from
the date of hire. Unused vacation may carry over for one additional year,
but in no case shall the Officer have vacation accrued in excess of eight
weeks.
8. Termination.
-----------
a) The Company may terminate this Agreement for cause at any time on 30
days written notice to the other party thereof. In any termination
for cause by the Company, "cause" shall mean: (i) gross misconduct,
such as, but not limited to dishonesty, theft or embezzlement with
regard to material property of the Company; (ii) excessive
unauthorized absenteeism, after written notification from the Board
of Directors of such absenteeism, and the Officer's failure to cure
the problem; (iii) any of the following acts which have a material,
negative impact on the financial condition of the Company: (a) actual
fraud or other material acts of dishonesty in conducting the
Company's business or in the fulfillment by the Officer or his
assigned responsibilities; (b) the destruction of any material amount
of the Company's property willfully or through the Officer's gross
neglect; (c) the unauthorized willful disclosure of any Proprietary
Information of the Company to any person, business or entity in
violation of this Agreement or (d) a violation of internal controls
or procedures. If the Officer is terminated for cause as defined in
this section, all benefits and entitlements provided under this
Agreement, including but not limited to, the vesting of options and
payment of compensation, shall terminate as of the date of
notification of termination for cause.
b) If the Officer voluntarily terminates before May 31, 2000, the
Officer will be required to reimburse the Company up to the amount of
$62,500 as follows: $62,500 if termination is prior to May 31, 1998;
$41,666 if termination occurs between June 1, 1998 and May 31, 1999;
and $20,833 if termination occurs between June 1, 1990 and May 31,
2000. If the Officer terminates this Agreement without cause at any
time after June 1, 1997, he shall provide 30 days notice to the
Company and shall be entitled to accrued salary, and benefits through
the notice period and optional COBRA coverage as authorized by
current law, but he shall in no event be entitled to severance pay or
bonus compensation for the period through the date of termination.
<PAGE>
c) In the event of a change in control of the Company, regardless of
whether such control has received the endorsement or recommendation
of the Board of Directors of the Company, the Officer shall be paid
compensation as set forth in Exhibit B- Change in Control Agreement.
d) If the Company terminates the Officer without cause, the Officer
shall receive 18 months salary if such termination occurs prior to
December 1, 1998. If such termination occurs subsequent to December
1, 1998, the Officer shall receive no less than 12 months salary.
Stock options to purchase 45,000 shares will continue to vest during
the 18 or 12 month period as defined above however, after three
months, any options not exercised will be non-qualified options. The
Officer shall have the option of selecting regular biweekly payments
or a net present value lump sum payment discounted by the Prime Rate
as published in the Wall Street Journal within 30 days of the notice
of termination without cause.
9. Noncompetition Agreement. Officer acknowledges that the Company has trade
------------------------
secrets and confidential information that, as Chief Operating Officer, he
will have access to all such trade secrets and confidential information.
Therefore, in consideration for the severance benefits set forth above, the
Officer agrees that for a period of the greater of (i) nine months
subsequent to the Termination Date or (ii) the severance pay period
provided for in Section 8d), the Officer will not, directly or indirectly:
a) Call upon any person or entity which was a customer of the Company
immediately prior to the Termination Date for the purpose of
diverting, taking away business of, or selling products or services
competitive with significant products or services provided by the
Company on the Termination Date.
b) Alone or in any capacity solicit or in any manner to solicit or
induce any persons or persons employed by the Company within one year
prior to the Termination Date to leave such employment.
c) Within the United States of America, either as an employee, employer,
consultant, agent, principal, partner, more that 5% shareholders,
corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that
designs, engineers, manufactures, markets or distributes sports and
recreational products, or that is in competition in any significant
manner with any Material Business conducted by the Company subsequent
to the date of this Agreement and in which the Company is involved on
the Termination Date. Material Business shall be defined as that
business which comprises in excess of 20% of the Company's revenue
for the prior 12-month period.
10. Nondisclosure of Proprietary Information. In view of the fact that
----------------------------------------
Officer's employment by the Company will bring him into contact with
certain confidential matters of the Company, its customers and suppliers,
including, without limitation, matters of a technical nature (such as
information about costs, profits, markets, price lists, sales, data
<PAGE>
files, mailing lists and lists of customers) and any other information of a
similar nature to the extent not available to the public (the "Confidential
Matters"), Officer agrees not to disclose, either during his employment or
for a period of three years thereafter, any Confidential Matters of the
Company, whether or not developed, to any person except with the Company's
prior written consent and then only after such person has signed an
agreement similar to this Agreement, or an agreement approved by the
Company prior to such disclosure. In the event that the Board of Directors
determines that the Officer possesses a significant Confidential Matter in
the nature of a trade secret or other proprietary information that will not
be in the public domain at the end of the three year period, upon written
notification from the Board of Directors prior to the end of the three year
period, the Officer agrees to keep that matter confidential indefinitely.
In the event Officer has some question as to whether or not certain
information is covered by this paragraph, Officer shall treat the
information as within this paragraph until told otherwise by the Company,
in writing. Officer further agrees to deliver to the Company, on the date
of termination of his employment, for whatever reason, all memoranda,
notes, records, reports, manuals, drawings, sketches, blueprints,
bulletins, writings, proposals, notebooks, manuals and other documents
containing confidential information of the Company, including all copies or
summaries thereof, which Officer may possess or have in his control.
It is agreed that Officer's services to the Company and his knowledge of
the Company's activities are unique in that any breach or threatened breach
by Officer of this Section cannot be remedied solely by damages.
Accordingly, the breach of, or threatened breach by, Officer of the
provisions of this Section shall allow the Company to seek injunctive
relief restraining the Officer and any business, firm, partnership, or
corporation from participating in such breach or anticipated breach, or
engaging in any activity which shall constitute a breach of the provisions
of this Section. The Company shall also have the right to bring an action
to obtain monetary damages to which it may be entitled from Officer or any
party who is involved in the use or dissemination of such confidential
information.
11. Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed to have been duly given or delivered if (i)
delivered personally; (ii) mailed by certified mail, return receipt
requested, with property postage prepaid; or (iii) delivered by recognized
courier contracting for same day or next day delivery with signed receipt
acknowledgment to the Company or the Officer.
If to the Company: Mr. Jeffrey T. Kates, Chairman
Compensation Committee
Board of Directors
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, CO 80302
With a copy to: Laurie P. Glasscock, Esq.
<PAGE>
Chrisman, Bynum & Johnson, P.C.
1900 Fifteenth Street
Boulder, CO 80302
If to the Officer: James M. Probst
5455 South Simms Way
Littleton, CO 80127
or at such other address as either party may specify from time to time in
writing to the other.
12. Assignment of Inventions. The Officer agrees to assign patent rights
-------------------------
developed during the term of this Agreement to the Company. Should the
Company, by agreement of the Board of Directors, waive their right to
assignment of any given patent, the Officer will retain ownership of said
intellectual property.
13. Arbitration. Except as provided below, any and all disputes arising under
-----------
or related to this Agreement which cannot be resolved through negotiations
between the parties shall be submitted to binding arbitration. If the
parties fail to reach a settlement of their dispute within fifteen (15)
days after the earliest date upon which one of the parties notified the
other(s) of its desire to attempt to resolve the dispute, then the dispute
shall be promptly submitted to arbitration by a single arbitrator through
the Judicial Arbiter Group ("JAG"), any successor of the JAG, or any
similar arbitration provider who can provide a former judge to conduct such
arbitration if JAG is no longer in existence. The arbiter shall be selected
by JAG on the basis, if possible, of his or her expertise in the subject
matter(s) of the dispute. The decision of the arbitrator shall be final,
nonappealable and binding upon the parties, and it may be entered in any
court of competent jurisdiction. The arbitration shall take place in
Boulder, Colorado. The arbitrator shall be bound by the laws of the State
of Colorado applicable to the issues involved in the arbitration and all
Colorado rules relating to the admissibility of evidence, including,
without limitation, all relevant privileges and the attorney work product
doctrine. All discovery shall be completed in accordance with the time
limitations prescribed in the Colorado rules of civil procedure, unless
otherwise agreed by the parties or ordered by the arbitrator on the basis
of strict necessity adequately demonstrated by the party requesting an
extension of time. The arbitrator shall have the power to grant equitable
relief where applicable under Colorado law, and shall be entitled to make
an award of punitive damages when applicable under Colorado law. The
arbitrator shall issue a written opinion setting forth his or her decision
and the reasons therefor within thirty (30) days after the arbitration
proceeding is concluded. The obligation of the parties to submit any
dispute arising under or related to this Agreement to arbitration as
provided in this Section shall survive the expiration or earlier
termination of this Agreement. Notwithstanding the foregoing, either party
may seek and obtain an injunction or other appropriate relief from a court
to preserve or protect trademarks, trade names, copyrights, patents, trade
secrets or other intellectual property or confidential information or to
preserve the status quo with respect to any matter pending conclusion of
the arbitration proceeding, but no such application to a court shall in any
way be
<PAGE>
permitted to stay or otherwise impede the progress of the arbitration
proceeding.
In the event of any arbitration or litigation being filed or instituted
between the parties concerning this Agreement, the prevailing party will be
entitled to receive from the other party or parties its attorneys' fees,
witness fees, costs and expenses, court costs and other reasonable
expenses, whether or not such controversy, claim or action is prosecuted to
judgment or other form of relief.
14. General Provisions. This Agreement shall be governed by and construed
------------------
under the laws of the state of Colorado, giving effect to its conflict of
law principles. The terms of this Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns. Neither party
may assign his or its obligations under this Agreement to any other party.
15. Severability. If any provision of this Agreement is held to be invalid or
------------
unenforceable by any court of competent jurisdiction, such holdings shall
not affect the enforceability of any other provision of this Agreement, and
all other provisions shall continue in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
The Officer: The Company:
COYOTE SPORTS, INC.
By:
- -------------------------------- -------------------------------------
James M. Probst Mel Stonebraker, President
<PAGE>
Exhibit A
AMENDED BY-LAWS
OF
COYOTE SPORTS, INC.
ARTICLE I
OFFICES
Section 1.1 PRINCIPAL OFFICE.
----------------------------
The principal office of the corporation in the State of Nevada shall be
located in the City of Reno, County of Washoe. The corporation may have such
other offices, either within or without the State of Nevada, as the Board of
Directors may designate or as the business of the corporation may require from
time to time.
Section 1.2 REGISTERED OFFICE.
-----------------------------
The registered office of the corporation, required by the Nevada Corporation
Code to be maintained in the State of Nevada, may be, but need not be, identical
with the principal office in the State of Nevada, and the address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
Section 2.1 ANNUAL MEETING.
--------------------------
The annual meeting of the shareholders shall be held at such time on such
day as shall be fixed by the Board of Directors, commencing with the year 1995,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on the
day designated herein for any annual meeting of the shareholders, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the shareholders as soon thereafter as may be
convenient.
Section 2.2 SPECIAL MEETINGS.
----------------------------
Special meetings of the shareholders, for any purpose or purposes, unless
otherwise proscribed by statute, may be called by the Chief Executive Officer or
by the Board of Directors,
<PAGE>
and shall be called by the Chief Executive Officer at the request of the holders
of not less than one-tenth of all outstanding shares of the corporation entitled
to vote at the meeting.
Section 2.3 PLACE OF MEETINGS.
-----------------------------
The Board of Directors may designate any place, either within or without the
State of Nevada, as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Nevada the place for the holding of such meeting.
If no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal office of the corporation in the State
of Colorado.
Section 2.4 NOTICE OF MEETING.
-----------------------------
Written notice stating the place, day and hour of the meeting of
shareholders and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall, unless otherwise prescribed by statute, be
delivered not less than ten nor more than fifty days before the date of the
meeting, either personally or by mail, by or at the direction of the President,
or the Secretary, or the officer or other persons calling the meeting, to each
shareholder of record entitled to vote at such meetings provided, however, that
if the authorized shares of the corporation are to be increased, at least thirty
days notice shall be given, and if sale of all or substantially all assets are
to be voted upon, at least twenty days notice shall be given. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears on the stock transfer
books of the corporation, with postage thereon prepaid.
Section 2.5 MEETING OF ALL SHAREHOLDERS.
---------------------------------------
If all of the shareholders shall meet at any time and place, either within
or without the State of Nevada, and consent to the holding of a meeting at such
time and place, such meeting shall be valid without call or notice, and at such
meeting any corporate action may be taken.
Section 2.6 CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE.
--------------------------------------------------------------
For the purpose of determining shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or shareholders
entitled to receive payment of any dividend, or in order to make a determination
of shareholders for any other purpose, the Board of Directors of the corporation
may provide that the share transfer books shall be closed for a stated period
but not to exceed, in any case, sixty days. If the share transfer books shall
be closed for the purpose of determining shareholders entitled to notice of or
to vote at a meeting of shareholders, such books shall be closed for at least
ten days immediately preceding such meeting. In lieu of closing the share
transfer books, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more
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<PAGE>
than fifty days and, in case of a meeting of shareholders, not less than ten
days prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken. If the share transfer books are
not closed and no record date is fixed for the determination of shareholders, or
shareholders entitled to receive payment of a dividend, the date on which notice
of the meeting is mailed or the date on which the resolution of the Board of
Directors declaring such dividend is adopted, as the case may be, shall be the
record date for such determination of shareholders entitled to vote at any
meeting of shareholders. When a determination of shareholders has been made as
provided in this section, such determination shall apply to any adjournment
thereof.
Section 2.7 VOTING RECORD.
-------------------------
The officer or agent having charge of the stock transfer books for shares of
the corporation shall make, at least ten days before such meeting of
shareholders, a complete record of the shareholders entitled to vote at each
meeting of shareholders or any adjournment thereof, arranged in alphabetical
order, with the address of and the number of shares held by each. The record,
for a period of ten days prior to such meeting, shall be kept on file at the
principal office of the corporation, whether within or without the State of
Nevada, and shall be subject to inspection by any shareholder for any purpose
germane to the meeting at any time during normal business hours. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.
The original stock transfer books shall be the prima facie evidence as to
who are the shareholders entitled to examine the record or transfer books or to
vote at any meeting of the shareholders.
Section 2.8 QUORUM.
------------------
One-third of the outstanding shares of the corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, except as otherwise provided by the Nevada Corporation Code and
the Articles of Incorporation. In the absence of a quorum at any such meeting,
a majority of the shares so represented may adjourn the meeting from time to
time for a period not to exceed sixty days without further notice. At such
adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally noticed. The shareholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough shareholders to leave less than a quorum.
Section 2.9 MANNER OF ACTING.
----------------------------
If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on the subject matter shall be
the act of the shareholders, unless the
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<PAGE>
vote of a greater proportion or number or voting by classes is otherwise
required by statute or by the Articles of Incorporation or these By-Laws.
Section 2.10 PROXIES.
--------------------
At all meetings of shareholders a shareholder may vote in person or by proxy
executed in writing by the shareholder or by his duly authorized attorney-in-
fact. Such proxy shall be filed with the Secretary of the corporation before or
at the time of the meeting. No proxy shall be valid after eleven months from
the date of its execution, unless otherwise provided in the proxy.
Section 2.11 VOTING OF SHARES.
-----------------------------
Unless otherwise provided by these By-Laws or the Articles of Incorporation,
each outstanding share entitled to vote shall be entitled to one vote upon each
matter submitted to a vote at a meeting of shareholders, and each fractional
share shall be entitled to a corresponding fractional vote on each such matter.
Section 2.12 VOTING OF SHARES BY CERTAIN SHAREHOLDERS.
-----------------------------------------------------
Shares standing in the name of another corporation may be voted by such
officer, agent or proxy as the By-Laws of such corporation may prescribe, or, in
the absence of such provision, as the Board of Directors of such other
corporation may determine.
Shares standing in the name of a deceased person, a minor ward or an
incompetent person, may be voted by his administrator, executor, court appointed
guardian or conservator, either in person or by proxy without a transfer of such
shares into the name of such administrator, executor, court appointed guardian
or conservator. Shares standing in the name of a trustee may be voted by him,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him without a transfer of such shares into his name.
Shares standing in the name of a receiver may be voted by such receiver and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer thereof into his name if authority so to do be contained in
an appropriate order of the court by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither shares of its own stock belonging to this corporation, nor shares of
its own stock held by it in a fiduciary capacity, nor shares of its own stock
held by another corporation, if the majority of shares entitled to vote for the
election of directors of such corporation is held by this
-4-
<PAGE>
corporation may be voted, directly or indirectly, at any meeting and shall not
be counted in determining the total number of outstanding shares at any given
time.
Redeemable shares which have been called for redemption shall not be
entitled to vote on any matter and shall not be deemed outstanding shares on and
after the date on which written notice of redemption has been mailed to
shareholders and a sum sufficient to redeem such shares has been deposited and
authority to pay the redemption price to the holders of the shares upon
surrender of certificates therefor.
Section 2.13 INFORMAL ACTION BY SHAREHOLDERS.
--------------------------------------------
Any action required or permitted to be taken at a meeting of the
shareholders may be taken without a meeting if a consent in writing, setting
forth the action so taken, shall be signed by at least a majority of the
shareholders entitled to vote with respect to the subject matter thereof.
Facsimilie or telefax signatures shall have the same effect as original
signatures on such consents in lieu of a meeting.
Section 2.14 NO CUMULATIVE VOTING.
---------------------------------
No shareholder shall be permitted to cumulate his votes by giving one
candidate as many votes as the number of such directors multiplied by the number
of his shares shall equal, or by distributing such votes on the same principal
among any number of candidates.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 GENERAL POWERS.
--------------------------
The business and affairs of the corporation shall be managed by its Board of
Directors.
Section 3.2 PERFORMANCE OF DUTIES.
---------------------------------
A director of the corporation shall perform his duties as a director,
including his duties as a member of any committee of the board upon which he may
serve, in good faith, in a manner he reasonably believes to be in the best
interests of the corporation, and with such care as an ordinarily prudent person
in a like position would use under similar circumstances. In performing his
duties, a director shall be entitled to rely on information, opinions, reports,
or statements, including financial statements and other financial data, in each
case prepared or presented by persons and groups listed in paragraphs (a), (b)
and (c) of this Section 3.2; but he shall not be considered to be acting in good
faith if he has knowledge concerning the matter in question that would cause
such reliance to be unwarranted. A person who so performs his duties shall not
have any liability by reason of being or having been a director of the
corporation. Those persons and
-5-
<PAGE>
groups on whose information, opinions, reports, and statements a director is
entitled to rely upon are:
(a) One or more officers or employees of the corporation whom the director
reasonably believes to be reliable and competent.
(b) Counsel, public accountants, or other persons as to matters which the
director reasonably believes to be within such persons' professional or expert
competence; or
(c) A committee of the board upon which he does not serve, duly designated
in accordance with the provisions of the Articles of Incorporation or the By-
Laws, as to matters within its designated authority, which committee the
director reasonably believes to merit confidence.
Section 3.3 NUMBER, TENURE AND QUALIFICATION.
--------------------------------------------
The number of directors of the corporation shall be fixed from time to time
by resolution of the Board of Directors, but in no instance shall there be less
than one director or that number otherwise required by law. Each director shall
hold office until the next annual meeting of shareholders or until his successor
shall have been elected and qualified. Directors need not be residents of the
State of Nevada or shareholders of the corporation.
Section 3.4 REGULAR MEETINGS.
----------------------------
A regular meeting of the Board of Directors shall be held without other
notice than this By-Law immediately after, and at the same place as, the annual
meeting of shareholders. The Chairman of the Board of Directors or the
President or Secretary on the written request of two directors may provide, by
resolution, the time and place, either within or without the State of Nevada, as
the place for holding any special meeting of the Board of Directors called by
them.
Section 3.5 SPECIAL MEETING.
---------------------------
Special meetings of the Board of Directors may be called by or at the
request of the Chairman or any two directors. The person or persons authorized
to call special meetings of the Board of Directors may fix any place, either
within or without the State of Nevada, as the place for holding any special
meeting of the Board of Directors called by them.
Section 3.6 NOTICE. Written notice of any special meeting of directors
------------------
shall be given as follows:
By telefax to each director at his business address at least three days
prior to the meeting; or
-6-
<PAGE>
By personal delivery or telegram at least three days prior to the meeting to
the business address of each director, or, in the event such notice is given on
a Saturday, Sunday or holiday, to the residence address of each director. If
notice be given by telegram, such notice shall be deemed to be delivered when
the telefax is received by the receiving directors telefax machine or the
telegram is delivered to the telegraph company. Any director may waive notice
of any meeting. The attendance of a director at any meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted, nor the purpose of, any regular or special meeting of the Board of
Directors need be specified in the notice or waiver of notice of such meeting.
Section 3.7 QUORUM.
------------------
A majority of the number of directors fixed by or pursuant to Section 3.3 of
this Article III shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors, but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time without further notice.
Section 3.8 MANNER OF ACTING.
----------------------------
Except as otherwise required by law or by the Articles of Incorporation, the
act of the majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 3.9 INFORMAL ACTION BY DIRECTORS.
----------------------------------------
Any action required or permitted to be taken by the Board of Directors or by
a committee thereof at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, shall be signed by all of the
directors or all of the committee members entitled to vote with respect to the
subject matter thereof. Facsimilie or telefax signatures shall have the same
effect as original signatures on such consents in lieu of a meeting.
Section 3.10 PARTICIPATION BY ELECTRONIC MEANS.
----------------------------------------------
Any members of the Board of Directors or any committee designated by such
Board may participate in a meeting of the Board of Directors or committee by
means of telephone conference or similar communications equipment by which all
persons participating in the meeting can hear each other at the same time. Such
participation shall constitute presence at the meeting.
Section 3.11 VACANCIES.
----------------------
Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a
quorum of the Board of Directors. A
-7-
<PAGE>
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office. Any directorship to be filled by reason of any
increase in the number of directors may be filled by election by the Board of
Directors for a term of office continuing only until the next election of
directors by the shareholders.
Section 3.12 RESIGNATION.
------------------------
Any director of the corporation may resign at any time by giving written
notice to the president or the secretary of the corporation. The resignation of
any director shall take effect upon receipt of notice thereof or at such later
time as shall be specified in such notice; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make it
effective. When one or more directors shall resign from the board, effective at
a future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereof to take effect when such resignation or resignations shall become
effective.
Section 3.13 REMOVAL.
--------------------
Any director or directors of the corporation may be removed at any time,
with or without cause, in the manner provided in the Nevada Corporation Code.
Section 3.14 COMMITTEES.
-----------------------
By resolution adopted by a majority of the Board of Directors, the directors
may designate two or more directors to constitute a committee, any of which
shall have such authority in the management of the corporation as the Board of
Directors shall designate and as shall not be proscribed by the Nevada
Corporation Code.
Section 3.15 COMPENSATION.
-------------------------
By resolution of the Board of Directors and irrespective of any personal
interest of any of the members, each director may be paid his expenses, if any,
of attendance at each meeting of the Board of Directors, and each non-employee
director may be paid a stated salary as director or a fixed sum for attendance
at each meeting of the Board of Directors or such other compensation, in stock
or options as such Board of Directors shall determine. No such payment shall
preclude any director from serving the corporation in any other capacity and
receiving compensation therefor.
-8-
<PAGE>
Section 3.16 PRESUMPTION OF ASSENT.
----------------------------------
A director of the corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who votes in favor of such
action.
ARTICLE IV
OFFICERS
Section 4.1 NUMBER.
------------------
The officers of the corporation shall be a President, a Secretary, and a
Treasurer, each of whom shall be elected by the Board of Directors. Such other
officers, including one or more Vice Presidents, assistant officers, agents, and
employees as may be deemed necessary may be elected or appointed by the Board of
Directors. Any two or more offices may be held by the same person, except the
offices of President and Secretary. The officers of the corporation shall be
natural persons, eighteen years of age of older.
Section 4.2 ELECTION AND TERM OF OFFICE.
---------------------------------------
The principal officers of the corporation to be elected by the Board of
Directors shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the annual meeting of the
shareholders. If the election of officers shall not be held at such meeting,
such election shall be held as soon thereafter as practicable. Each officer
shall hold office until his successor shall have been duly elected and shall
have qualified or until his death or until he shall resign or shall have been
removed in the manner hereinafter provided.
Section 4.3 REMOVAL.
-------------------
Any officer or agent may be removed by the Board of Directors whenever in
its judgment the best interests of the corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of any officer or agent shall not of
itself create contract rights.
Section 4.4 VACANCIES.
---------------------
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Board of Directors for the
unexpired portion of the term.
-9-
<PAGE>
Section 4.5 PRESIDENT.
---------------------
The President shall be the chief executive officer of the Board of Directors
and, subject to the control of the Board of Directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, and in the absence of a Chairman of the Board, preside at
all meetings of the shareholders and of the Board of Directors. He may sign,
with the Secretary or any other proper officer of the corporation thereunto
authorized by the Board of Directors, certificates for shares of the corporation
and deeds, mortgages, bonds, contracts, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed; and in general shall perform
all duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time.
Section 4.6 THE VICE PRESIDENT.
------------------------------
If elected or appointed by the Board of Directors, the Vice President (or in
the event there be more than one vice president, the vice presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall, in the absence of the
President or in the event of his death, inability or refusal to act, perform all
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. Any Vice President may
sign, with the Secretary or an Assistant Secretary, certificates for shares of
the corporation; and shall perform such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 4.7 THE SECRETARY.
-------------------------
The Secretary shall: (a) keep minutes of the proceedings of the shareholders
and of the Board of Directors in one or more minute books provided for that
purpose; (b) see that all notices are duly given in accordance with the
provisions of these By-Laws or as required by law; (c) be custodian of the
corporate records and of the seal of the corporation and see that the seal of
the corporation is affixed to all documents the execution of which on behalf of
the corporation under its seal is duly authorized; (d) keep a register of the
post office address of each shareholder which shall be furnished to the
Secretary by such shareholder; (e) sign with the President, or a Vice President,
certificates for shares of the corporation, the issuance of which shall have
been authorized by resolution of the Board of Directors; (f) have general charge
of the stock transfer books of the corporation; and (g) in general perform all
duties incident to the office of Secretary and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
-10-
<PAGE>
Section 4.8 THE TREASURER.
-------------------------
The Treasurer shall: (a) have charge and custody of and be responsible for
all funds and securities of the corporation; (b) receive and give receipts for
moneys due and payable to the corporation from any source whatsoever, and
deposit all such moneys in the name of the corporation in such banks, trust
companies or other depositories as shall be selected in accordance with the
provisions of Article V of these By-laws; and (c) in general perform all of the
duties incident to the office of Treasurer and such other duties as from time to
time may be assigned to him by the President or by the Board of Directors.
Section 4.9 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.
----------------------------------------------------------
The Assistant Secretaries, when authorized by the Board of Directors, may
sign with the President or a Vice President certificates for shares of the
corporation the issuance of which shall have been authorized by a resolution of
the Board of Directors. The Assistant Secretaries and Assistant Treasurers, in
general, shall perform such duties as shall be assigned to them by the Secretary
or the Treasurer, respectively, or by the President or the Board of Directors.
Section 4.10 BONDS.
------------------
If the Board of Directors by resolution shall so require, any officer or
agent of the corporation shall give bond to the corporation in such amount and
with such surety as the Board of Directors may deem sufficient, conditioned upon
the faithful performance of their respective duties and offices.
Section 4.11 SALARIES.
---------------------
The salaries of the officers shall be fixed from time to time by the Board
of Directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 5.1 CONTRACTS.
---------------------
The Board of Directors may authorize any officer or officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
-11-
<PAGE>
Section 5.2 LOANS.
-----------------
No loans shall be contracted on behalf of the corporation and no evidences
of indebtedness shall be issued in its name unless authorized by a resolution of
the Board of Directors. Such authority may be general or confined to specific
instances.
Section 5.3 CHECKS, DRAFTS, ETC.
-------------------------------
All checks, drafts or other orders for the payment of money, notes or other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation and in such
manner as shall from time to time be determined by resolution of the Board of
Directors.
Section 5.4 DEPOSITS.
--------------------
All funds of the corporation not otherwise employed shall be deposited from
time to time to the credit of the corporation in such banks, trust companies or
other depositories as the Board of Directors may select.
ARTICLE VI
SHARES, CERTIFICATES FOR SHARES AND TRANSFER OF SHARES
Section 6.1 REGULATION. The Board of Directors may make such rules and
----------------------
regulations as it may deem appropriate concerning the issuance, transfer and
registration of certificates for shares of the corporation, including the
appointment of transfer agents and registrars.
Section 6.2 CERTIFICATES FOR SHARES.
-----------------------------------
Certificates representing shares of the corporation shall be respectively
numbered serially for each class of shares, or series thereof, as they are
issued, shall be impressed with the corporate seal or a facsimile thereof, and
shall be signed by the President or a Vice-President and by the Treasurer or an
Assistant Treasurer or by the Secretary or an Assistant Secretary; provided that
such signatures may be facsimile if the certificate is countersigned by a
transfer agent, or registered by a registrar other than the corporation itself
or its employee. Each certificate shall state the name of the corporation, the
fact that the corporation is organized or incorporated under the laws of the
State of Nevada, the name of the person to whom issued, the date of issue, the
class (or series of any class), the number of shares represented thereby and the
par value of the shares represented thereby or a statement that such shares are
without par value. A statement of the designations, preferences,
qualifications, limitations, restrictions and special or relative rights of the
shares of each class shall be set forth in full or summarized on the face or
back of the certificates which the corporation shall issue, or in lieu thereof,
the certificate may set forth that
-12-
<PAGE>
such a statement or summary will be furnished to any shareholder upon request
without charge. Each certificate shall be otherwise in such form as may be
prescribed by the Board of Directors and as shall conform to the rules of any
stock exchange on which the shares may be listed.
The corporation shall not issue certificates representing fractional shares
and shall not be obligated to make any transfers creating a fractional interest
in a share of stock. The corporation may, but shall not be obligated to, issue
scrip in lieu of any fractional shares, such scrip to have terms and conditions
specified by the Board of Directors.
Section 6.3 CANCELLATION OF CERTIFICATES.
----------------------------------------
All certificates surrendered to the corporation for transfer shall be
cancelled and no new certificates shall be issued in lieu thereof until the
former certificates for a like number of shares shall have been surrendered and
cancelled, except as herein provided with respect to lost, stolen or destroyed
certificates.
Section 6.4 LOST, STOLEN OR DESTROYED CERTIFICATES.
--------------------------------------------------
Any shareholder claiming that his certificate for shares is lost, stolen or
destroyed may make an affidavit or affirmation of that fact and lodge the same
with the Secretary of the corporation, accompanied by a signed application for a
new certificate. Thereupon, and upon the giving of a satisfactory bond of
indemnity to the corporation not exceeding an amount double the value of the
shares as represented by such certificate (the necessity for such bond and the
amount required to be determined by the President and Treasurer of the
corporation), a new certificate may be issued of the same tenor and representing
the same number, class and series of shares as were represented by the
certificate alleged to be lost, stolen or destroyed.
Section 6.3 TRANSFER OF SHARES.
------------------------------
Subject to the terms of any shareholder agreement relating to the transfer
of shares or other transfer restrictions contained in the Articles of
Incorporation or authorized therein, shares of the corporation shall be
transferable on the books of the corporation by the holder thereof in person or
by his duly authorized attorney, upon the surrender and cancellation of a
certificate or certificates for a like number of shares. Upon presentation and
surrender of a certificate for shares property endorsed and payment of all taxes
therefor, the transferee shall be entitled to a new certificate or certificates
in lieu thereof. As against the corporation, a transfer of shares can be made
only on the books of the corporation and in the manner hereinabove provided, and
the corporation shall be entitled to treat the holder of record of any share as
the owner thereof and shall not be bound to recognize any equitable or other
claim to or interest in such share on the part of any other person, whether or
not it shall have express or other notice thereof, save as expressly provided by
the statutes of the State of Nevada.
ARTICLE VII
-13-
<PAGE>
FISCAL YEAR
The fiscal year of the corporation shall be as designated from time to time
by the Board of Directors.
ARTICLE VIII
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law and its Articles of Incorporation.
ARTICLE IX
CORPORATE SEAL
The Board of Directors shall provide a corporate seal which shall be
circular in form and shall have inscribed thereon the name of the corporation
and the state of incorporation and the words "CORPORATE SEAL".
ARTICLE X
AMENDMENTS
These By-Laws may be altered, amended or repealed and new By-Laws may be
adopted by a majority of the directors present at any meeting of the Board of
Directors of the corporation at which a quorum is present.
ARTICLE XII
EXECUTIVE COMMITTEE
Section 12.1 APPOINTMENT.
------------------------
The Board of Directors by resolution adopted by a majority of the full
Board, may designate two or more of its members to constitute an Executive
Committee. The designation of such Committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors, or any member
thereof, of any responsibility imposed by law.
Section 12.2 AUTHORITY.
----------------------
-14-
<PAGE>
The Executive Committee, when the Board of Directors is not in session,
shall have and may exercise all of the authority of the Board of Directors
except to the extent, if any, that such authority shall be limited by the
resolution appointing the Executive Committee and except also that the Executive
Committee shall not have the authority of the Board of Directors in reference to
amending the Articles of Incorporation, adopting a plan of merger or
consolidation, recommending to the shareholders the sale, lease or other
disposition of all or substantially all of the property and assets of the
corporation otherwise than in the usual and regular course of its business,
recommending to the shareholders a voluntary dissolution of the corporation or a
revocation thereof, or amending the By-Laws of the corporation.
Section 12.3 TENURE AND QUALIFICATIONS.
--------------------------------------
Each member of the Executive Committee shall hold office until the next
regular annual meeting of the Board of Directors following his designation and
until his successor is designated as a member of the Executive Committee and is
elected and qualified.
Section 12.4 MEETINGS.
---------------------
Regular meetings of the Executive Committee may be held without notice at
such time and places as the Executive committee may fix from time to time by
resolution. Special meetings of the Executive Committee may be called by any
member thereof upon not less than one day's notice stating the place, date and
hour of the meeting, which notice may be written or oral, and if mailed, shall
be deemed to be delivered when deposited in the United States mail addressed to
the member of the Executive Committee at his business address. Any member of
the Executive may waive notice given to any member thereof who attends in per-
son. The notice of a meeting of the Executive Committee need not state the
business proposed to be transacted at the meeting.
Section 12.5 QUORUM.
-------------------
A majority of the members of the Executive Committee shall constitute a
quorum for the transaction of business at any meeting thereof, and action of the
Executive Committee must be authorized by the affirmative vote of a majority of
the members present at a meeting at which a quorum is present.
Section 12.6 INFORMAL ACTION BY EXECUTIVE COMMITTEE.
---------------------------------------------------
Any action required or permitted to be taken by the Executive Committee at a
meeting may be taken without a meeting if a consent in writing, setting forth
the action so taken, shall be signed by all of the directors entitled to vote
with respect to the subject matter thereof. Facsimilie or telefax signatures
shall have the same effect as original signatures on such consents in lieu of a
meeting.
-15-
<PAGE>
Section 12.7 VACANCIES.
----------------------
Any vacancy in the Executive Committee may be filled by a resolution adopted
by a majority of the full Board of Directors.
Section 12.8 RESIGNATIONS AND REMOVAL.
-------------------------------------
Any member of the Executive Committee may be removed at any time with or
without cause by resolution adopted by a majority of the full Board of
Directors. Any member of the Executive Committee may resign from the Executive
Committee at any time by giving written notice to the President or Secretary of
the corporation, and unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 12.9 PROCEDURE.
----------------------
The Executive Committee shall elect a presiding officer from its members and
may fix its own rules of procedure which shall not be inconsistent with these
By-Laws. It shall keep regular minutes of its proceedings and report the same
to the Board of Directors for its information at the meeting thereof held next
after the proceedings shall have been taken.
ARTICLE XIII
EMERGENCY BY-LAWS
The Emergency By-Laws provided in this Article XIII shall be operative
during an emergency in the conduct of the business of the corporation resulting
from an attack on the United States or any nuclear or atomic disaster,
notwithstanding any different provision in the preceding articles of the By-Laws
or in the Articles of Incorporation of the corporation or in the Nevada
Corporation Code. To the extent not inconsistent with the provisions of this
Article, the By-Laws provided in the preceding articles shall remain in effect
during such emergency and upon its termination the Emergency By-Laws shall cease
to be operative.
During such an emergency:
(a) A meeting of the Board of Directors may be called by any officer or
director of the corporation. Notice of the time and place of the meeting shall
be given by the person calling the meeting to such of the directors as it may be
feasible to reach by any available means of communication. Such notice shall be
given at such time in advance of the meeting as circumstances permit in the
judgment of the person calling the meeting.
(b) At any such meeting of the Board of Directors, a quorum shall consist
of the number of directors in attendance at such meeting.
-16-
<PAGE>
(c) The Board of Directors, either before or during any such emergency,
may, effective in the emergency, change the principal office or designate
several alternative principal offices or regional offices, or authorize the
officer's so to do.
(d) The Board of Directors, either before or during any Such emergency, may
provide, and from time to time modify, lines of succession in the event that
during such an emergency any or all officers or agents of the corporation shall
for any reason be rendered incapable of discharging their duties.
(e) No officer, director or employee acting in accordance with these
Emergency ByLaws shall be liable except for willful misconduct.
(f) These Emergency By-Laws shall be subject to repeal or change by further
action of the Board of Directors or by action of the shareholders, but no such
repeal or change shall modify the provisions of the next preceding paragraph
with regard to action taken prior to the time of such repeal or change. Any
amendment of these Emergency By-Laws may make any further or different provision
that may be practical and necessary for the circumstances of the emergency.
-17-
<PAGE>
Exhibit 10.7
CHANGE OF CONTROL AGREEMENT
AGREEMENT made as of this 1st day of June, 1997, by and between Coyote Sports,
Inc., a Nevada corporation, with its principal offices located at 2291 Arapahoe
Avenue, Boulder, CO 80302, (hereinafter the "Company"), and James M. Probst,
residing at 5455 South Simms Way, Littleton, Colorado 80127 (hereinafter the
"Officer").
1. Definitions. For purposes of this Agreement, the following terms shall have
the meanings set forth below:
(a) For the purposes of this Agreement, a "Change of Control" shall be
deemed to have occurred if (a) any "person" or "group" (within the
meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company, beneficially owns 50% or
more of the Company's voting common stock; or, (b) at any time during
the period of three consecutive years (not including any period prior
to the date hereof), individuals who at the beginning of such period
constitute the Board (and any new director whose election by the Board
or whose nomination for election by the Company's stockholders were
approved by a vote of at least two-thirds of the directors then still
in office who either were directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority thereof; or (c) the
stockholders of the Company approve a merger or consolidation of the
Company with any other corporation, other than a merger or
consolidation in which both (i) a majority of the directors of the
surviving entity were directors of the Company prior to such
consolidation or merger, and (ii) which would result in the voting
securities of the Company outstanding immediately prior thereto
continue to represent (either by remaining outstanding or by being
changed into voting securities of the surviving entity) at least 51% of
the combined voting power of the voting securities of the surviving
entity outstanding immediately after such merger or consolidation; or
(d) the stockholders approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of
all or substantially all of the Company's assets.
(b) "Termination Date" shall mean the date following a Change of Control
when the Officer receives written notice that his employment is
terminated without Cause as defined in the Employment Agreement, or, if
later, such other termination date specified in the written notice.
(c) "Terminate" shall mean not only a complete termination of employment by
the Company or its successor but also a significant negative change in
the terms of
1
<PAGE>
employment with the Company or its successor, including but not limited
to a requirement to relocate or a significant reduction in salary and
benefits.
(d) "Termination Following a Change of Control" shall mean a termination
without Cause by the Company following or in connection with a change
of control or a termination by the Officer for "Good Reason" of the
Officer's employment with the Company within two years following a
"Change of Control" (as defined below).
(e) For purposes of this Agreement, "Good Reason" shall include, but not be
limited to, any of the following (without the Officer's express written
consent):
i) the assignment to the Officer by the Company of duties
inconsistent with or a substantial alteration in the nature or
status of, the Officer's responsibilities as in effect
immediately prior to a Change of Control;
ii) a reduction by the Company in the Officer's compensation or
benefits as in effect immediately prior to the date of a Change
of Control;
iii) a relocation of the Company's principal offices beyond 25 miles
from the present Boulder, Colorado location, or the Officer's
relocation to any place other than the Boulder, Colorado offices
of the Company, except for reasonably required travel by the
Officer on the Company's business;
iv) any material breach by the Company of any provision of this
Agreement if such material breach has not been cured within
thirty (30) days following written notice of such breach by the
Officer to the Company setting forth with specificity the nature
of the breach; or
v) any failure by the Company to obtain the assumption and
performance of the Employment Agreement and this Agreement by
any successor (by merger, consolidation or otherwise) or
assignee of the Company.
2. Severance Benefits. In the event there is a Termination Following a Change
of Control, the Officer shall be entitled to the following severance
benefits for a period of 12 months after the Termination Date:
(a) Continued base salary in regular biweekly payments, or if so elected
by the Officer, a lump sum payable within 30 days of the Officer's
election.
(b) Bonus payable in such amount as would be payable to the Officer had he
been employed by the Company for the full fiscal year during which the
termination occurred, and the Company had achieved Plan performance for
such fiscal year. Such bonus shall be paid in the same manner as
elected by the Officer in (a) above;
(c) Continued medical, dental, life and disability insurance benefits; and
2
<PAGE>
(d) Continued retirement benefits, including 401(k) plan.
Such benefits shall be identical to the salary, bonus, insurance and
retirement plan benefits to which the Officer was entitled immediately
prior to the Change of Control. During such 12-month period, the Officer
shall continue to be an employee of the Company for purposes of
participation in the plans which provide the benefits described in
subsections (c) and (d) above but shall have no further responsibilities as
an employee and shall not be required or permitted to continue his former
duties. Subject to Section 3, the Officer shall be free to accept other
employment during such period, and there shall be no offset of any
employment compensation earned by Officer in such other employment during
such period against payments due the Officer hereunder, and there shall be
no offset in any compensation or benefits received from such other
employment against the continued salary and benefits set forth above.
3. Stock Option Vesting. In the event of a Termination Following a Change of
Control, all outstanding stock options held by the Officer which are not
then exercisable, shall become exercisable in their entirety as of the date
immediately preceding the Termination Date.
4. Noncompetition Agreement. Officer acknowledges that the Company has trade
secrets and confidential information, that as Chief Operating Officer he
will have access to all such trade secrets and confidential information and
that in performing duties in an executive position for another company he
might necessarily use and divulge such trade secrets and confidential
information. Therefore, in consideration for the severance benefits set
forth above, the Officer agrees that for a period of 12 months subsequent
to the Termination Date, the Officer will not, directly or indirectly:
(a) Call upon any person or entity which was a customer of the Company
immediately prior to the Termination Date for the purpose of diverting,
taking away the business of, or selling products or services
competitive with significant products or services provided by the
Company;
(b) In any manner, misuse or divulge to any person any list of customers,
confidential information or trade secrets of the Company;
(c) Alone or in any capacity solicit or in any manner attempt to solicit or
induce any person or persons employed by the Company within one year
prior to the Termination Date to leave such employment;
(d) Within the United States of America, either as an employee, employer,
consultant, agent, principal, partner, more than 5% stockholder,
corporate officer, director, or in any other individual or
representative capacity, engage or participate in any business that is
in competition in any significant manner with any material business
conducted by the Company on the Termination Date.
3
<PAGE>
5. Termination. This Agreement may be terminated only as follows:
(a) by mutual written agreement of the parties;
(b) upon termination of Officer's employment prior to, and not in
connection with, a Change of Control.
(c) when the Officer attains age 65.
6. Severability. Should a court or other body of competent jurisdiction
determine that any provision of this Agreement is excessive in scope or
otherwise invalid or unenforceable, such provision shall be adjusted rather
than voided, if possible, so that it is enforceable to the maximum extent
possible, and all other provisions of the Agreement shall be deemed valid
and enforceable to the extent possible.
7. Assignment. The parties may assign their economic rights under this
Agreement but shall not assign any personal obligations from this
Agreement.
8. Miscellaneous. This Agreement: (a) contains the entire agreement among the
parties regarding the subject matter hereof and supersedes any prior
agreements on this subject between the parties; (b) may not be amended nor
may any rights hereunder be waived except by an instrument in writing
signed by the party sought to be charged with such amendment or waiver; (c)
shall be construed in accordance with, and governed by, the laws of
Colorado; and (d) shall be binding upon and shall inure to the benefit of
the parties and their respective personal representatives and permitted
assigns, including, without limitation, any successor to the business of
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and
year first above written.
THE OFFICER: THE COMPANY:
Coyote Sports, Inc.
By:
- ------------------------------ --------------------------------------
James B. Probst Mel S. Stonebraker, President
4
<PAGE>
Exhibit 10.8
AGREEMENT
This Agreement, made and entered into as of March 1, 1997 is between Sportma
Corporation Berhad, a Malaysian corporation with a business address of 95, Jalan
Portland, Tasek Industrial Estate, 31400 Ipoh, Perak Darul Ridzuan, West
Malaysia, hereinafter referred to for convenience as "Sportma", and Apollo Golf,
Inc., a New Jersey corporation qualified to do business in Illinois with a
business address of 1025 Criss Circle, Elk Grove Village, Illinois, 60007 USA,
hereinafter referred to as "Apollo" for convenience;
Witnesseth that whereas Sportma manufacturers high quality graphite golf club
shafts (hereinafter "Shafts") and wishes to obtain a market share for Shafts in
the market of Original Equipment Manufacturers of Golf Club Shafts throughout
the entire world, and
Whereas Apollo is familiar with the aforesaid market, and is willing to act as
an undisclosed agent for Sportma in that market, upon the following terms and
conditions:
1. Designation of Agent. Sportma hereby designates Apollo as its exclusive
--------------------
worldwide agent to sell its Shafts throughout the worldwide market (hereinafter
the "World"), but only to Original Equipment Manufacturers (hereinafter "OEMs"),
which are those companies which use Shafts to manufacture golf clubs for resale.
Sportma hereby directs Apollo to act as an undisclosed agent for Sportma and to
conduct Sportma's business of selling Shafts to OEMs throughout the World as if
and for all appearances as Apollo's business.
2. Existing Business of Apollo. Sportma understands that Apollo is engaged in
---------------------------
several enterprises, including but not limited to selling metal golf club
shafts, selling graphite ski pole shafts, selling graphite golf club shafts in
markets other than to OEMs, and selling other products. Sportma consents to
Apollo's other business activities and affirmatively represents to Apollo that
any and every business activity which Apollo may engage in throughout the World,
other than selling Shafts to OEMs, will not conflict with Sportma's interests.
3. Exclusivity. Sportma covenants and agrees that during the term of this
-----------
Agreement and any and every extension hereof, it will not sell Shafts anywhere
in the World to OEMs, or permit any of its Shafts to be sold in such market,
other than through Apollo.
4. Expenses of Sale. Sportma shall provide all Shafts at its own expense, and
----------------
pay in advance or reimburse Apollo (at Apollo's election) for all direct
expenses of the distribution of the shafts to the OEM customer including,
without limitation, freight, shipping, duties, taxes, customs fees and the like.
5. Overhead. Apollo shall bear its own overhead expenses, such as office
--------
facility and personnel, telephones, and other general and administrative
expenses related to the sales and marketing of shafts.
<PAGE>
6. Sales Efforts. Apollo shall use its best efforts, in its reasonable
-------------
discretion, to sell Shafts in the OEM market. Sportma shall have neither the
right nor the obligation to prescribe the size of Apollo's sales force, nor
direct or control its efforts. Sportma is familiar with Apollo's operations and
management, and is confident to grant Apollo such discretion. Sportma agrees
that its sole and only remedy in the event that it becomes unsatisfied with
Apollo's performance hereunder is to terminate this Agreement as hereinbelow
provided. Apollo shall be responsible for the sales and marketing effort in the
OEM market, setting of terms for payment by customers and credit qualification
of customers, ordering sufficient supply to anticipate demand for Shafts in the
OEM market, directing the filling and shipping of OEM orders for Shafts,
preparing and delivery of invoices for Shafts shipped, and collection of
revenues therefrom. In no instance, however, shall Apollo be responsible for
any customer's failure to pay any invoice, and it is agreed that Sportma shall
bear the risk thereof. Revenues collected from sales of Sportma's Shafts in the
OEM market by Apollo shall, after deductions of the sums provided for in
Paragraphs 4 and 10 hereof, and any other sums justly due Apollo, be transferred
to Sportma monthly, within 30 days after the end of each calendar month.
7. Disclosure of the Identity of the Principal. Sportma understands that
-------------------------------------------
Apollo is a wholly owned subsidiary of a company which may at some time during
the term of this agreement attempt to sell some of its shares on a public
market, and that in connection therewith this Agreement may be required by the
Securities Laws of the USA or some or all States to be publicly disclosed.
Sportma consents to such disclosure, and agrees that it will not be damaged
thereby, or if unanticipated damage does arise from such disclosure or any other
advertent or inadvertent disclosure, hereby waives any and every claim against
Apollo, its officers, directors, employees, agents and attorneys therefor.
8. Compensation of the Agent. Sportma will pay Apollo a sum equal to ten
-------------------------
percent (10%) of annual gross sales, less returns and bad debt of its Shafts in
the OEM market in the world as compensation for Apollo's acting as Sportma's
agent under this Agreement.
9. Research and Development, and Engineering Reimbursement. Sportma
-------------------------------------------------------
acknowledges that Apollo is conducting research and development with regard to
Shafts and supplying engineering support for the construction of a Shaft
manufacturing facility for Sportma, and in addition to the other compensation
provided for herein, will pay the sum up to USD$8,333.00 per month to reimburse
Apollo for the cost or a part the cost of such research and development and
engineering, until such time as annual gross sales as defined in Paragraph 8
supra, exceed Ten Million U.S. Dollars. All results of Apollo's research and
- -----
development efforts with regard to Shafts shall remain the property of Apollo,
however Sportma shall be entitled to a non-exclusive license to use any and all
such information as is developed or discovered during the term of this
Agreement.
10. Termination. Sportma recognizes that Apollo will necessarily make a
-----------
significant investment of management time, staffing, planning, facilities,
overhead and the like to undertake and discharge its obligations under this
Agreement, and further understands that Apollo is foregoing an opportunity to
exploit the OEM Shaft market in the World itself, and therefore, Sportma may not
terminate this
2
<PAGE>
Agreement with or without cause, except in the case of gross or intentional
misconduct, without first giving Apollo one (1) year's prior written notice of
intent to terminate. Upon termination after notice, Sportma shall pay Apollo
all sums due hereunder, without deduction or set off. Apollo may terminate this
Agreement by giving Sportma thirty (30) days prior written notice of intent to
terminate. In the event of termination by either party, either with or without
cause, each party agrees that the other may compete in the OEM Shaft market in
the World free from any and all claims of the other of any nature whatever,
whether arising by, through or under this Agreement or in any other fashion,
whether at law or in equity, or otherwise.
11. Protection of Trade Secrets. For purposes of this Agreement, "Trade
---------------------------
Secret" means the whole or any portion or phase of any scientific or technical
information, design, process, procedure, formula, or improvement which is
included in or emanates from Apollo's research and development efforts as
described above which is valuable and not generally known to the business
concerns engaged in the development or marketing of Shafts. Form and after the
date of execution hereof, and for so long thereafter as the data or information
remains a Trade Secret, Sportma shall not disclose, or permit any person not
authorized by Apollo in writing to obtain any such Trade Secrets, whether or not
the Trade Secret or Trade Secrets are in written or tangible form.
12. Miscellaneous Provisions. This Agreement shall be governed by, and
------------------------
construed and enforced in accordance with, the laws of the State of Colorado,
and is deemed by the parties to have been made in the City and County of Denver,
State of Colorado, and both parties irrevocably consent to the exclusive
jurisdiction of the District Court in and for the City and County of Denver,
State of Colorado for any and every dispute which may arise hereunder. Neither
this Agreement nor any terms hereof may be modified, amended, waived, or
terminated except by an instrument in writing signed by the party against whom
enforcement thereof is sought. This Agreement embodies the entire Agreement and
understandings between the parties hereto and supersedes all prior agreements
and understandings relating to the subject matter hereof. This Agreement may be
executed simultaneously in several counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
instrument. Any and all notices required or permitted to be made under this
Agreement shall be in writing and delivered to the party to whom they are
addressed at the address shown for such party above, or at such other address as
such party may from time to time designate in writing, and shall be delivered in
person or by registered mail, return receipt requested, with the proper postage
affixed. In the event that any of the terms of this Agreement is or becomes or
is declared to be invalid or void by any court or tribunal of competent
jurisdiction, such term or terms shall be null and void and shall be deemed
severed from this Agreement without affecting any remaining terms hereof. The
headings of the Sections of this Agreement have been included for the
convenience of the parties and are not party of the Agreement, nor are the
headings to be used to alter or interpret the terms hereof.
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date first above written.
Sportma Corporation Berhad,
a Malaysian corporation
By: /s/ THOMAS GEE
-----------------------------------
Thomas Gee, Executive Director
Apollo Golf, Inc.,
a New Jersey corporation
By: /s/JAMES M. PROBST
-----------------------------------
James M. Probst, President
4
<PAGE>
DATED 17th September, 1996 Exhibit 10.12
TI REYNOLDS LIMITED
and
TI GROUP plc
-----------------
AGREEMENT
for the sale and purchase
of freehold property at
Oldbury, West Midlands
-----------------
ALLEN & OVERY
London
PY:209205.1
<PAGE>
CONTENTS
<TABLE>
<CAPTION>
Clause Page
<S> <C>
1. Interpretation..................................................1
2. Sale............................................................2
3. Title...........................................................2
4. Covenants and Rights............................................3
5. Vacant Possession and Leases....................................3
6. Transfer........................................................3
7. Completion......................................................3
8. Conditions of Sale..............................................4
9. Notices.........................................................4
Schedules
1. The Oldbury Site................................................5
2. The Property....................................................5
3. The Covenants and The Rights....................................5
4. New Rights......................................................6
5. Reserved Rights.................................................7
6. Declarations....................................................8
7. New Covenants by the Buyer in favour of the Retained Land.......8
8. Stipulations by the Seller in favour of the Property............9
9 . The Licence Documents..........................................10
10. The Leases.....................................................10
11. Rights to use the Effluent Discharge System....................11
</TABLE>
<PAGE>
THIS AGREEMENT is made on 17th September, 1996
BETWEEN:
(1) TI REYNOLDS LIMITED whose registered office is at Lambourn Court, Abingdon,
Oxon OX14 1UH (the "Seller"); and
(2) TI GROUP PLC whose registered office is at 50 Curzon Street, London WIY 7PN
(the "Buyer").
IT IS AGREED as follows:
1. INTERPRETATION
(1) In this agreement:
"Covenants" means the covenants specified in Schedule 3;
"Declarations" means the declarations specified in Schedule 6;
"Effluent Discharge System" means the Holding Tank and the Service Media
used for discharge of trade effluent into the Marl Hole;
"Holding Tank" means the acid holding tank shown in the position shown
coloured yellow on the Plan;
"Leases" means the leases specified in Schedule 10;
"Licence Documents" means the documents referred to in Schedule 9;
"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 7;
"New Rights" means the rights specified in Schedule 4;
"Oldbury Site" means all that property at Brades Road and Rounds Green
Road, Oldbury more particularly described in Schedule 1;
"Plan" means the plan attached to this agreement;
"Property" means the property specified in Schedule 2;
"Reserved Rights" means the rights specified in Schedule 5;
"Retained Land" means the land to be retained by the Seller shown edged
green on the Plan;
<PAGE>
2
"Rights" means the rights specified in Schedule 3;
"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 the transfer;
"Stipulations" means the stipulations specified in Schedule 8;
"VAT" means value added tax.
(2) In this agreement:
(a) references to a person include a body corporate and an unincorporated
association of persons;
(b) references to a natural person include his estate and personal
representatives; and
(c) references to a party to this agreement include references to the
successors or assigns (immediate or otherwise) of that party.
(3) 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 that enactment, as amended, extended or applied as described in
paragraph (a) above or under any enactment referred to in paragraph
(b) above.
(4) Sub-clauses (1) to (3) above apply unless the contrary intention appears.
(5) The headings in this agreement do not affect its interpretation.
2. SALE
(1) The Seller agrees to sell and the Buyer agrees to buy the Property at the
price of One million seven hundred thousand pounds ((Pounds)1,700,000).
(2) The Seller sells and will transfer that part of the Property which is
registered with title numbers WM496305, WM496306 and WM589257 with full
title guarantee and otherwise transfers such right, title and interest as
it has in that part of the Property which is registered with title number
WM566236.
3. TITLE
<PAGE>
3
The Seller's title is registered as part at HM Land Registry with absolute
title under title numbers WM496305, WM496306 and WM589257 and as to part
with possessory title under title number WM566236.
4. COVENANTS AND RIGHTS
The Property is sold subject to the Covenants and the Rights and also
subject to and with the benefit of the Licence Documents. The Buyer shall
not raise any enquiry, or objection or requisition in respect of the
Covenants, the Rights or the Licence Documents.
5. VACANT POSSESSION AND LEASES
The Property is sold subject to the Leases but otherwise with vacant
possession on completion. The Buyer shall not raise any enquiry on, or
objection or requisition in respect of the Leases.
6. TRANSFER
The transfer shall contain:
(1) a grant of the New Rights for the benefit of the Property;
(2) a reservation of the Reserved Rights for the benefit of the Retained
Land;
(3) a covenant by the Buyer with the Seller that the Buyer and the
persons deriving title under the Buyer will:
(a) observe and perform the Covenants and the covenants on the
part of the landlord contained in the Leases; and
(b) keep the Seller indemnified from all proceedings, costs, claims
and expenses on account of any breach of any of the Covenants
or of the covenants on the part of the landlord contained in
the Leases;
(4) a covenant by the Buyer with the Seller (so as to bind the Property)
to perform and observe the New Covenants;
(5) a covenant by the Seller with the Buyer (so as to bind the Retained
Land) to perform and observe the Stipulations;
(6) the Declarations; and
(7) provisions that any dispute arising in connection with any of the
provisions of the transfer shall be determined in default of
agreement by an expert to be agreed upon between the Seller and the
Buyer 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
judgement shall be final and binding following representations by
both
<PAGE>
4
parties and the costs of such expert shall be borne by the parties
equally unless he otherwise directs.
7. COMPLETION
The sale shall be completed on or before the date specified by either party
in a written notice given to the other party at any time.
8. CONDITIONS OF SALE
Conditions 5, 6, 8, 9, 10, 12-17 (inclusive), 21 and 22 of the National
Conditions of Sale (20th Edition) are incorporated in this agreement so far
as they:
(a) apply to a sale by private treaty of freehold property; and
(b) are not inconsistent with the other clauses of this agreement.
9. NOTICES
Any notice or document to be served under this agreement may be delivered
or sent by prepaid first class recorded delivery post or telex or facsimile
process to the party to be served.
10. VALUE ADDED TAX
The Seller shall not prior to completion elect to waive the exemption to
value added tax in respect of the Property.
AS WITNESS the hands of duly authorised representatives of the parties on the
date which appears first on page 1.
<PAGE>
5
SCHEDULE 1
The Oldbury Site
All that freehold property at Rounds Green Road and Brades Road, Oldbury, West
Midlands as the same is registered at H M Land Registry with title numbers
WM496305, WM496306, WM589257 and WM566236 and is shown for the purposes of
identification only edged red, orange and green on the Plan.
SCHEDULE 2
The Property
All that freehold property at the Oldbury Site shown for the purposes of
identification only edged red and edged orange on the Plan.
SCHEDULE 3
The Covenants and The Rights
(1) In relation to title number WM496305 the covenants and other matters
referred to in entry no. 1 2 and 3 of the charges register of that title
and to the rights referred to in the property register of that title.
(2) In relation to title number WM496306, the covenants and other matters
referred to in entry nos. 1 2 and 3 of the charges register of that title
and to the rights referred to in the property register of that title.
(3) In relation to title number WM589257 the covenants and other matters
referred to in entry numbers 2 and 3 of the charges register of that title
and the rights referred to in the property register of that title.
(4) In relation to title number WM566236 all rights of water, drainage and
water course and light and other easements and quasi or reputed easements,
covenant or rights, restrictions or stipulations and rights of adjoining
owners (if any) at the date of this agreement affecting the same (and
without any obligation on the part of the Seller to define the same).
(5) The covenants and other matters referred to in the Licence Documents.
SCHEDULE 4
New Rights
1. The right of support for the Property from the Retained Land including the
buildings on it.
<PAGE>
6
2. (Subject to the Buyer 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 8 of this agreement) 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 Seller (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:
(1) cause as little damage as is reasonably practicable to the Retained
Land;
(2) make good so far as is reasonably practicable all damage so caused as
soon as reasonably practicable;
(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
(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 Buyer paying within seven
days of demand a fair proportion (to be absolutely decided by the Seller'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.
SCHEDULE 5
Reserved Rights
1. The right of support for the Retained Land from the Property including the
buildings on it.
2. Subject to the Seller 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 3 of Schedule 7 to this agreement) 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 Buyer (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:
(1) cause as little damage as is reasonably practicable to the Property;
(2) make good so far as is reasonably practicable all damage so caused as
soon as reasonably practicable;
<PAGE>
7
(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
(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 Seller paying a fair
proportion (to be decided absolutely by the Buyer'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).
3. Subject to the further terms and conditions set out in Schedule 11 of this
agreement (and so far only as the Seller can grant the same) 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 Seller continuing to make the payments referred to in
paragraph 3(l) of Schedule 8 of this agreement and until such services have
been separated as provided for in paragraph 3(3) or until expiry of a
notice served by the Seller in accordance with the provisions of paragraph
3(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.
SCHEDULE 6
Declarations
1. A declaration that the transfer does not include any easements for the
benefit of the Property or the Retained Land other than those expressly
mentioned in Schedule 3 and Schedule 4 to this agreement (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).
SCHEDULE 7
New Covenants by the Buyer 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 Seller 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 Seller a deed by which the transferee covenants with the Seller to
observe and perform the obligations on the part of the Buyer set out in
Schedule 11.
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
<PAGE>
8
the consent of the water authority and the Seller (and the Buyer shall
indemnify the Seller 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.
SCHEDULE 8
Stipulations by the Seller 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 Buyer 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 4 to this
agreement) 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 Buyer (and the
Seller shall indemnify the Buyer in respect of all costs damage loss or
liabilities arising out of breach of this covenant).
3. (1) In connection with the rights reserved to the Seller in paragraph 4 of
Schedule 4 the Seller covenants with the Buyer to reimburse to the
Buyer on demand all charges paid by the Buyer 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 Buyer's surveyor acting reasonably):
(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 Seller); and
(b) of all reasonable and proper costs incurred by the Buyer in the
maintenance and repair of any installations and equipment used in
connection with the supply of such services,
Provided that the Seller shall be entitled to take access onto the
Property on giving reasonable notice to the Buyer to read any meters
and to receive from the Buyer on the request and at the cost of the
Seller copies of all bills rendered for charges for which the Buyer is
seeking reimbursement and Provided further that the Seller 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 Buyer and following
expiry of such notice the Buyer 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 Buyer covenants with the Seller until expiry of any notice served
by the Seller determining the arrangements referred to in paragraph
3(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
<PAGE>
9
the Buyer shall not be liable to the Seller nor shall the Seller have
any claim against the Buyer in respect of any interruption in the
supply of gas or electrical services caused by reason of:
(a) necessary repairs or maintenance of any installations or
apparatus; or
(b) damage to or destruction of any installations or apparatus; or
(c) mechanical or other defect or breakdown; or
(d) frost or other inclement conditions; or
(e) by any other causes unavoidably beyond the control of the Buyer,
provided further that the Buyer will at the joint cost of the Seller
and the Buyer effect and keep in place insurance in an amount to be
agreed between the parties acting reasonably in respect of any losses
incurred by the Seller as a result of interruption to the services
caused by the negligence or default of the Buyer.
(3) The provisions of this paragraph 3 shall only apply until such time as
the electricity and gas services to the Oldbury Site have been
separated so as to allow the Seller a direct supply of the same.
SCHEDULE 9
The Licence Documents
(1) A licence dated 1st August, 1989 between TI Reynolds Limited (1) and TI
Accles & Pollock Limited (2) concerning rights to discharge trade effluent
at the Property;
(2) a licence dated 1st August, 1989 between TI Reynolds Limited (1) and TI
Apollo Limited (2) concerning rights to discharge trade effluent at the
Property;
(3) a management agreement dated 1st August, 1989 made between TI Reynolds
Limited (1) and TI Accles & Pollock Limited (2).
SCHEDULE 10
The Leases
(1) Lease dated 1st August, 1989 between TI Reynolds Limited (1) and TI Accles
& Pollock Limited (2) relating to ground floor of building 1.
(2) Lease dated 1st August, 1989 between TI Reynolds Limited (1) and TI Accles
& Pollock Limited (2) relating to buildings 2, 4, 9, 18, 19, 21, 22, 23,
24, 26, 27, 28, 29, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, and 46.
<PAGE>
10
(3) Lease dated 1st August, 1989 between TI Reynolds Limited (1) and TI Apollo
Limited (2) relating to first floor of building 1.
(4) Lease dated 1st August, 1989 between TI Reynolds Limited (1) and TI Apollo
Limited (2) relating to buildings 6, 7, 8, 10, 11, 12, 13, 14, 15, 16, 17,
37 and 47.
SCHEDULE 11
Rights to use the Effluent Discharge System
The terms and conditions subject to which the rights referred to in paragraph 3
of Schedule 4 of this agreement 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 Seller agrees and undertakes:
(1) to pay to the Buyer (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 Buyer's Surveyor acting reasonably) of the reasonable and
proper costs and expenses incurred by or on behalf of the Buyer
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:
(i) Waste Management Subsistence Charge
(ii) Caustic liquor ex MEL Chemicals
(iii) Severn Trent Water - Trade Effluent Charges
<PAGE>
11
(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 Seller shall be entitled to require the Buyer
to provide evidence in a suitable form of the costs and expenditure
incurred including copies of relevant invoices and provided further
that the Seller 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 the transfer;
(2) if the Buyer 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 Buyer shall first notify the Seller in writing of such
proposed extraordinary expenditure and shall not be entitled to charge
such extraordinary expenditure to the Seller if within 28 days
following receipt of such notice the Seller serves notice terminating
the Effluent Discharge rights in accordance with the provisions of
paragraph 5 of this Schedule;
(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 Seller and the Buyer);
(6) not to obstruct the access to any Service Media forming part of the
Effluent Discharge System;
<PAGE>
12
(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 Buyer 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;
(9) to indemnify the Buyer and keep the Buyer indemnified against all
losses claims demands actions proceedings damages costs expenses and
liabilities arising in any way from any breach of the Seller'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 Buyer may at
any time make and of which the Buyer shall notify the Seller from time
to time governing the way in which the Seller may make use of the
rights granted for the purposes shown above;
(11) to allow the Buyer 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 Buyer 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 Seller may (subject to the Buyers' right to determine the Effluent
Discharge Rights pursuant to paragraph 5 below) by giving not less than six
months' notice to the Buyer notify the Buyer that the Seller temporarily
has no requirement to utilise the Effluent Discharge Rights and on expiry
of such notice the Licence Fee and the other payments referred to in
paragraph 2(l)(b) shall cease to be payable until the Seller serves further
written notice (of not less than one month) on the Buyer 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 11):
<PAGE>
13
(1) immediately on service of written notice given by the Buyer to the
Seller at any time following any material breach by the Seller of its
undertakings contained in this Schedule 11 (the Buyer having first
served on the Seller written notice of the alleged breach and the
required action to remedy the breach and the Seller 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 Buyer
to the Seller at any time provided;
(a) that the Buyer 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 Buyer 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 Buyer serves such notice before the expiry of 66 months
from the date of this transfer the Buyer shall on expiry of such
notice pay to the Seller an amount equal to the sum paid by the
Seller to the Buyer pursuant to its obligations contained in
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); or
(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 Seller
to the Buyer at any time (where the Seller 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);
(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
<PAGE>
14
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 Seller granting the like
rights set out in paragraph 3 of Schedule 2 to its tenants and other
occupiers of the Retained Land.
8. The Buyer gives no warranty that the Effluent Discharge System is legally
or physically fit for the purposes set out in paragraph 3 of Schedule 4 to
this agreement.
9. The Buyer 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 Seller its employees
servants agents tenants and occupiers in the exercise or purported exercise
of the Effluent Discharge Rights.
10. The Buyer may withhold, add to, extend, vary or make any alteration in the
provision of any services comprised in the Effluent Discharge System if the
Buyer 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.
11. Notwithstanding any other provision in this Schedule the Buyer shall not be
liable to the Seller nor shall the Seller have any claim against the Buyer
in respect of any interruption in any of the services provided by the Buyer
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 Buyer'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.
Signed by
for and on behalf of
TI REYNOLDS LIMITED
<PAGE>
15
Signed by John Edwards
for and on behalf of
TI GROUP PLC
<PAGE>
Exhibit 10.20
STANDARD INDUSTRIAL LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This lease, dated for reference purposes only, November 8, 1993,
is made by and between Hamann-Chambers-Rumsey-Burns, a California General
Partnership (hereinafter called "Lessor") and Apollo Golf, Inc., a New Jersey
Corporation (herein called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the county of San Diego, State of California,
commonly known as 932 Feslar Street, El Cajon, CA 92020 and described as
approximately 6,480 square feet of warehouse and office area.
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. Term.
3.1 Term. The term of this lease shall be for sixty (60) consecutive
months commencing on January 1, 1994* and ending on December 31, 1998 unless
sooner terminated pursuant to any provision hereof. *Commencement of Lease shall
adjust to completion of tenant improvements identified in Exhibit "A".
Completion shall be at receipt of certificate of occupancy issued by the City of
El Cajon. If commencement extends beyond 60 days after receipt of executed
lease for any reason not the fault of Lessee, Lessee may cancel this Lease.
3.2 Delay in Possession. Notwithstanding said commencement date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this lease or the obligations of Lessee hereunder
or extend the term hereof, but in such case, Lessee shall not be obligated to
pay rent until possession of the Premises is tenured to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date, Lessee may, at Lessee's
option, by notice in writing to Lessor within ten (10) days thereafter, cancel
this Lease, in which event the parties shall be discharged from all obligations
hereunder; provided further, however, that if such written notice of Lessee is
not received by Lessor within said ten (10) day period, Lessee's right to cancel
this Lease hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $2,900.00, in advance, on the first day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $2,900.00 as rent for the
first month of the Lease. Rent shall be abated month two (2) of the Lease.
Months one (1) through thirty (30) rent will be $2,900 per month, months thirty-
one (31) through sixty (60) rent will be $3,075 per month. Rent for any period
during the term hereof which is for less than one month shall be a pro rata
portion of the monthly installment. Rent shall be payable in lawful money of
the United States to Lessor at the address stated herein or to such other
persons or at such other places as Lessor may designate in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$2,900.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provisions of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or
applies all or any portion of said deposit, Lessee shall within ten (10) days
after written demand therefore deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount hereinabove stated and Lessee's
failure to do so shall be a material breach of this Lease. If the monthly rent
shall, from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the originally monthly
rent set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for it use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for distribution
and cosmetic work (silk screening) of golf shafts, painting and all activity for
the business to be conducted or any other use which is reasonably comparable
and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease Term commences, but without regard to the
use of which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building, health, safety,
environmental, pollution, disability, handicap and other law, and code
regulation or ordinance in effect on such Lease term commencing date. In the
event it is determined that this warranty has been violated, then it shall be
the obligation of the Lessor, after written notice from Lessee, to promptly, at
Lessor's sole cost and expense, rectify any such violation. In the event Lessee
does not give to Lessor written notice of the violation of this warranty within
six months from the date that the Lease term commences, the correction of same
shall be the obligation of the Lessee at Lessee's sole cost. The warranty
contained in this paragraph 6.2(a) shall be of no force or effect, if, prior to
the date of this Lease, Lessee was the owner or occupant of the Premises, and,
in such event, Lessee shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not
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use nor permit the use of the Premises in any manner that will tend to create
waste or a nuisance or, if there shall be more than one tenant in the building
containing the Premises, shall tend to disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in the condition existing as of the Lease commencement date or the
date that Lessee takes possession of the Premises, whichever is earlier, subject
to all applicable zoning, municipal, county and state laws, ordinances and
regulations governing and regulating the use of the Premises, and any covenants
or restrictions of record, and accepts this Lease subject thereto and to all
matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraphs 6, 7.2
and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's expense, shall keep in good
order, condition and repair the foundations, exterior walls and the exterior
roof of the Premises. Lessor shall not, however, be obligated to paint such
exterior, nor shall Lessor be required to maintain the interior surface of
exterior walls, windows, doors or plate glass. Lessor shall have no obligation
to make repairs under this Paragraph 7.1 until a reasonable time after receipt
of written notice of the need for such repairs. Lessee expressly waives the
benefits of any statute new or hereafter in effect which would otherwise afford
Lessee the right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Premises in good order, condition and
repair. Lessee shall have the right to make repairs at Lessor's expense after
notice and a reasonable time, not exceeding 30 days to cure or commence a cure.
7.2 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning, (Lessee shall procure and maintain, at Lessee's
expense, an air conditioning system maintenance contract) ventilating,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls, ceilings, windows, doors,
plate glass, and skylights, located within the Premises.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days' prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof, together with interest thereon at
the maximum rate then allowable by law shall be due and payable as additional
rent to Lessor together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear except, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of its
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the premises in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease. In any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph .3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power poles, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that
Lessee remove any or all of said alterations, improvements, additions or
Utility Installations at the expiration of the term, and restore the Premises to
their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or
Utility Installations without the prior approval of Lessor, Lessor may require
that Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations
in, on or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished or alleged to have been furnished to
or for Lessee at or for use in the Premises, which claims are or may be
<PAGE>
secured by any mechanics' or materialmen's lien against the Premises or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of the work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend itself and Lessor
against the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or the
Premises, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph
7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limited Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and all other areas appurtenant thereto. Such insurance shall be
in an amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance; Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $500,000
per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease, a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
8.4 Payment of Premium Increase.
(a) Lessee shall pay to Lessor, during the term hereof, in addition to the
rent, the amount of any increase in premiums for the insurance required under
Paragraph 8.2 and 8.3 over and above such premiums paid during the Base Period,
as hereinafter defined, whether such premium increase shall be the result of the
nature of Lessee's occupancy, any act or omission of Lessee, requirements of the
holder of a mortgage or deed of trust covering the Premises, increased valuation
of the Premises, or general rate increases. In the event that the Premises have
been occupied previously, the words "Base Period" shall mean the last twelve
months of the prior occupancy. In the event that the Premises have never been
previously occupied, the premiums during the "Base Period" shall be deemed to be
the lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, in lieu of the Base Period, the
parties may insert a dollar amount at the end of the sentence which figure shall
be considered as the insurance premium for the Base Period: ________. In no
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under paragraph 8.2.
(b) Lessee shall pay any such premium increase to Lessor within 30 days
after receipt by Lessee of a copy of the premium statement of other satisfactory
evidence of the amount due. If the insurance policies maintained hereunder
cover other improvements in addition to the Premises, Lessor shall also deliver
to Lessee a statement of the amount of such increase attributable to the
Premises and showing in reasonable detail, the manner in which such amount was
computed. If the term of this Lease shall not expire concurrently with the
expiration of the period covered by such insurance, Lessee's liability for
premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall not
be responsible for paying any increase in the property insurance premium caused
by the acts or omissions of any other tenant of the building of which the
Premises are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the premises, as
set forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days' prior written
notice to Lessor. Lessee shall, at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with renewals or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
paragraph 8.3. SEE ADDITION TO (P)8.5 AT (P)55.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogation is contained in this
Lease.
<PAGE>
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, or from
the conduct of Lessee's businesses or from any activity , work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease, or arising from any
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon; and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons, in, upon or about the Premises arising from any
cause and Lessee hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, or merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee,
Lessee's employees, agents or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said damage or injury results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50% of the fair market value of such building as
a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 Partial Damage - Insured Loss. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 Partial Damage - Uninsured Loss. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this lease there
is damage which is not an Insured Loss and which falls within the classification
of Premises Partial Damage or Premises Building partial Damage, unless caused by
a negligent or willful act of Lessee (in which event Lessee shall make the
repairs at Lessee's expense), Lessor may at Lessor's option either (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after the date of the occurrence of such
damage of Lessor's intention to cancel and terminate this Lease, as of the date
of occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 Total Destruction. If at any time during the term of this Lease there
is damage, whether or not an Insured Loss, (including destruction required by
any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5 Damage Near End of Term.
(a) If at any time during the last six (6) months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding paragraph 9.5(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or
<PAGE>
restores the Premises pursuant to the provisions of this Paragraph 9, the rent
payable hereunder for the period during which such damage, repair or restoration
continues shall be abated in proportion to the degree to which Lessee's use of
the Premises is impaired. Except for abatement of rent, if any, Lessee shall
have no claim against Lessor for any damage suffered by reason of any such
damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligation shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 Waiver. Lessor and Lessee waive the provision of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1993-94. Such payment shall be made by Lessee within thirty (30) days
after receipt of Lessor's written statement setting for the amount of such
increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 Additional Improvements. Notwithstanding paragraph 10.1 hereof,
Lessee shall pay to Lessor upon demand therefore the entirety of any increase in
real property tax if assessed solely by reason of additional improvements placed
upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefore, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or totally, any tax, fee, levy, assessment or charge hereinabove
included within the definition of "real property tax", or (ii) the nature of
which was hereinbefore included within the definition of "real property tax", or
(iii) which is imposed for a service or right not charged prior to June 1, 1978,
or, if previously charged, has been increased since June 1, 1978, or (iv) which
is imposed as a result of a transfer, either partial or total, of Lessor's
interest in the Premises or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such transfer,
or (v) which is imposed by reason of this transaction, any modifications or
changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuation
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 No Release of Lessee. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to
<PAGE>
be a waiver by Lessor of any provisions hereof. Consent to one assignment or
subletting shall not be deemed consent to any subsequent assignment or
subletting. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments or subletting of
this Lease or amendments or modifications to this Lease with assignees of
Lessee, without notifying Lessee, or any successor of Lessee, and without
obtaining its or their consent thereto and such action shall not relieve Lessee
of liability under this Lease.
12.4 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Defaults; Remedies.
13.1 Defaults. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee.
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such as
Notice to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice thereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 30 days are reasonably required for its cure, then Lessee shall not be
deemed to be in default if Lessee commenced such cure within said 30 day period
and thereafter diligently prosecutes such cure to completion.
(d)(i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors; (ii) Lessee becomes a "debtor" as defined in 11
U.S.C. paragraph 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within 60 days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within 30 days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2 Remedies. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and any
real estate commission actually paid; the worth at the time of award by the
court having such jurisdiction thereof of the amount by which the unpaid rent
for the balance of the term after the time of such award exceeds the amount of
such rental loss for the same period that Lessee proves could be reasonably
avoided; that portion of the leasing commission paid by Lessor pursuant to
Paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently prosecutes the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed on Lessor by the
terms of any mortgage or trust deed covering the Premises. Accordingly, if any
installment of rent or any other sum due from Lessee shall not be received by
Lessor or Lessor's designee within five (5) days after such amount shall be due,
then, without any requirement for notice to Lessee, Lessee shall pay to Lessor a
late charge equal to 6% of such overdue amount. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance
<PAGE>
of such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder. In the event that a
late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5 Impounds. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due, before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor by Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due, Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. Condemnation. If the Premises or any portion thereof are taken under power
of eminent domain, or sold under the threat of the exercise of said power (all
of which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than 10% of the floor area of the building on
the Premises, or more than 25% of the land area of the Premises which is not
occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing only within ten (10) days after Lessor shall
have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the rent shall be reduced in the proportion
that the floor area of the building taken bears to the total floor area of the
building situated on the Premises. No reduction of rent shall occur if the only
area taken is that which does not have a building located thereon. Any award
for the taking of all or any part of the Premises under the power of eminent
domain or any payment made under threat of the exercise of such power shall be
the property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any award
for loss of or damage to Lessee's trade fixtures and removable personal
property. In the event that this Lease is not terminated by reason by such
condemnation, Lessor shall to the extent of severance damages received by Lessor
in connection with such condemnation, repair any damage to the Premises caused
by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Grubb & Ellis Co., licensed real estate broker(s), a fee as set forth in a
separate agreement between Lessor and said broker(s), or in the event there is
no separate agreement between Lessor and said broker(s), the sum of as agreed,
for brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as defined
in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
grated to Lessee under this lease, or if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Paragraph 15.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also
on behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
(d) Lessor indemnifies and holds Lessee harmless from any claim for fees
by a broker.
<PAGE>
16. Estoppel Certificate.
(a) Lessee shall at any time upon not less than ten (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement within
such time shall be a material breach of this Lease or shall be conclusive upon
Lessee (i) that this Lease is in full force and effect, without modification,
except as may be represented by Lessor, (ii) that there are no uncured defaults
in Lessor's performance, and (iii) that not more than one month's rent has been
paid in advance or such failure may be considered by Lessor as a default by
Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements shall
be received by Lessor and such lender or purchaser in confidence and shall be
used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a Lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15, in the event of any transfer of such title or interest, Lessor herein names
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be to the grantee. The obligations contained in this Lease to
be performed by Lessor shall, subject as aforesaid, be binding on Lessor's
successors and assigns, only during their respective periods of ownership.
18. Severability. The invalidity of any provisions of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provisions hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence.
21. Additional Rent. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. Waivers. No waiver by Lessor or any provisions hereof shall be deemed a
waiver of any other provisions hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent
<PAGE>
act by Lessee. The acceptance of rent hereunder by Lessor shall not be a waiver
of any preceding breach by Lessee or any provision hereof, other than the
failure of Lessee to pay the particular rent so accepted, regardless of Lessor's
knowledge of such preceding breach at the time of acceptance of such rent.
25. Recording. This paragraph has been deleted.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all option and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
Paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. Subordination.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground Lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust, ground lease whether this Lease is dated prior or subsequent to
the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure
to execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. Attorney's Fees. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or Lessees, and making such
alterations, repairs, improvements or additions to the Premises to the building
of which they are a part as Lessor may deem necessary or desirable. Lessor may
at any time place on or about the Premises any ordinary "For Sale" signs and
Lessor may at any time during the last 120 days of the term hereof place on or
about the Premises any ordinary "For Lease" signs, all without rebate of rent or
liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party, such consent
shall not be unreasonably withheld.
<PAGE>
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
39. Multiple Tenant Building. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management , safety, care and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
40. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
<PAGE>
41. Easements. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable, and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material breach of this Lease.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suite for recovery of such sum. If it shall be
adjudged that there was no legal obligation of the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership Lessee shall, within thirty (30) days after execution of this Lease,
deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
45. Addendum. Attached hereto is an addendum or addenda containing paragraphs
47 through 56 which constitutes a part of this Lease.
EXHIBITS
- --------
Exhibit "A" - Tenant Improvements
Exhibit "B" - Personal Property Release Addendum
Exhibit "C" - Grubb & Ellis ADA Disclosure
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTIONS RELATING
THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN LEGAL
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
The parties hereto have executed this Lease on the dates specified immediately
adjacent to their respective signatures.
Lessor:
Address
(Corporate Seal)
By: Date:
------------------------------- ----------------------------
Greg Hamann
Lessee: Apollo Golf, Inc., a New Jersey Corp.
Address
<PAGE>
(Corporate Seal)
By: Date:
------------------------------- ------------------------------
Keith Noronha
V.P. Operations
<PAGE>
EXHIBIT "A"
TENANT IMPROVEMENTS
Truck loading doors, emergency exit doors, entrance door, and warehouse entrance
door shall be in good working condition at commencement of the Lease. In
addition, the attached office build out pages shall be constructed and completed
prior to Lease commencement.
<PAGE>
EXHIBIT "A"
HAMANN CONSTRUCTION
475 W. BRADLEY AVE.
EL CAJON, CA 92020
COST BREAKDOWN 0 TOTAL BUILDING SIZE
TENANT IMPROVEMENT SQ. FT. OF MEZZANI
DATED: OCTOBER 29, 1993 800 SQ. FT. OF OFFICE
ERR IMPROVED
<TABLE>
<CAPTION>
JOB: APOLLO GOLF
FILE: APOLLOBD
ITEM # ITEM NAME UNIT PRICE AMOUNT
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
110 DRAWINGS 800 0.42 336
114 ENERGY CALCS 1 150.00 150
200 PERMITS (ALLOWANCE) 800 0.43 344
330 DEMOLITION FOR PLUMBING 10 40.00 400
512 SLAB PATCH PLUMBING 10 10.00 100
820 OFFICE FRAMING 76 13.00 988
850 CARPENTRY HARDWARE 25
899 MISC. FINISH CARPENTRY 800 0.2 160
930 SKYITES 3 265 795
930 SEAL ROOF PENETRATIONS 3 200 600
1010 PLUMBING 3 880.00 2,640
1011 PLUMBING TRENCHING 10 10.00 100
1020 AIR CONDITIONING 1.5 1168.00 1,752
1022 AIR VENTS 1 85.00 85
1030 FIRE SPRINKLERS 10 55.00 550
1034 FIRE EXTINGUISHER 1 28.00 28
1110 ELECTRICAL & PHONE 800 2.54 2,030
1240 SHEET METAL 8 5.00 40
1310 PAINT 1232 0.25 308
1320 DRYWALL 1368 0.70 958
1410 FLOORING (ALLOWANCE) 320 1.75 560
1430 FRP BOARD 1 160.00 160
1470 ACOUSTIC CEILING 800 1.25 1,000
1530 INTERIOR GLASS 32 12.00 384
1620 OTHER DOORS, FRAMES & HW 4 265.00 1,060
1710 TOILET ACCESSORIES 1 150.00 150
1730 CABINETS & COUNTERS 8 75.00 600
1740 INSULATION 800 0.40 320
2000 CLEANUP 800 0.30 240
2100 TEMPORARY EXPENSE 800 0.12 96
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
2200 SUPERVISION 800 0.80 640
- --------------------------------------------------------------------------------
SUBTOTAL 10 17,599
PROFIT & OVERHEAD 1,760
- --------------------------------------------------------------------------------
TOTAL 19,359
PER SQUARE FOOT OF TENANT IMPROVEMENT 24.19875
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNITS
<C> <S> <C> <C> <C>
1110 RECEPTACLES 110 VOLT 10 60 600
1110 SWITCH 4 60 240
1110 LAY-IN FLOURESCENT 7 100 700
1110 WIRE HVAC 1 300 300
1110 PHONE:RING & PULL STRING 2 20 40
1110 WIRE RESTROOM 1 150 150
1110 MAN LIFT RENTAL 0 400 0
1110 HIGH-BAY LIGHTS 0 300 0
1110 8'-2 TUBE FLOUR. LIGHT 0 100 0
1110 220 VOLT 30 AMP RECEPT. 0 150 0
- -----------------------------------------------------------------------
1110 TOTAL 2030
</TABLE>
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL LEASE - GROSS
DATED NOVEMBER 8, 1993
47. Storage, Animals: Lessee shall not use, keep, or permit to be used or kept
----------------
any foul or noxious gas or substance in the premises, or permit or suffer
the premises to be occupied or used in a manner offensive or objectionable
to the Lessor or other occupants of the building by reason of noise, odors,
and/or vibrations or interfere in any way with other tenants or those
having business therein, nor shall any animals or birds be brought in or
kept in or about the premises or the building. Lessee shall not conduct any
auction on premises.
48. Signage: All signs to be approved by Lessor prior to installation.
-------
NO EXCEPTIONS.
49. Hazardous Materials Storage, Handling, and Disposal: It shall be Lessee's
---------------------------------------------------
sole responsibility to promptly store, handle, and dispose of all wastes
and materials generated or used by Lessee in the course of Lessee's
occupancy. Such storage, handling, and disposal shall be made in accordance
with all applicable laws, codes, and standards provided; therefore, Lessee
shall be solely responsible for any clean-up of such materials and wastes
provided clean-up is required due directly to the actions of Lessee, its
employees, agents, or assigns. Lessee is specifically prohibited for
dumping any such materials and/or wastes anywhere within the business park,
and if used for such disposal will be responsible for any subsequent clean-
up, losses, and damages. Lessee shall indemnify and hold harmless Lessor
from against any and all claims arising directly from Lessee's storage
handling and/or disposal of toxic substances and hazardous materials by
Lessee within or around the premises or anywhere on the property
compromising the business park in which the premises are located.
50. Hazardous Materials and Air Pollution Control Questionnaire: State law
-----------------------------------------------------------
requires that Lessee complete the attached questionnaires to determine
whether your business is subject to the requirements of the Risk Management
and Prevention Program.
51. Business License and Fire Department Approval: It shall be Lessee's
---------------------------------------------
responsibility to obtain proper permits to operate it business at this
location and provide Lessor with copies of permits.
52. Americans With Disabilities Act: Lessee shall at all times keep the
-------------------------------
Premises in compliance with the Americans With Disabilities Act and its
supporting regulations, and all similar federal, state or local laws,
regulations, and ordinances. If Lessor's consent would be required for
alterations to bring the premises into compliance, Lessor agrees not to
unreasonably withhold its consent.
53. Outside Storage: Lessee agrees not to store any material outside of the
---------------
building except during periods of loading and unloading.
54. Environmental Matters:
---------------------
(a) Lessor represents that to the best of Lessor's knowledge, at
the time Lessee occupies the Premises, the Premisses are free and clear of
any and all "hazardous substance(s)" and/or "hazardous materials" as
defined under this Lease. Further Lessor hereby agrees to indemnify and
hold Lessee harmless from and against any and all claims, actions, damages,
liabilities and expenses specifically associated with the cost of
remediation, if any, respecting the presence of "hazardous substance(s)"
and /or "hazardous materials" and/or arising from or in connection with the
ownership or use of the Premises prior to the date of Lessee obtaining
possession under this Lease.
(b) In the event Lessee, without fault on its part, should be made
a party to any litigation commenced by or against Lessor with respect to
the matters which are the subject of Paragraphs 1 and 2 of this Lease, the
Lessor shall protect and hold Lessee harmless and shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by Lessee in
<PAGE>
connection with such litigation or in connection with any remediation
ordered or agreed in connection therewith.
(c) For the purposes of this Lease, the term "hazardous waste"
means and includes any hazardous, toxic or dangerous waste, substance or
material including, without limitation, flammables, explosives, radioactive
materials, hazardous wastes, toxic substances and any materials or
substances defined as hazardous materials, hazardous substances or toxic
substances in (or for the purpose of) the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 (CERCLA) as amended (42
U.S.C. (S)(S) 9601 et seq.), the Hazardous Materials Transportation Act (49
U.S.C. (S)(S)1801 et seq.) and those substances defined as hazardous wastes
in Section 25117 of the California Health and Safety Code or as hazardous
substances in Section 25316 of the California Health and Safe Code, or in
any other federal, state or local statute, law, ordinance, code, rule,
regulation, order or decree regulating, relating to or imposing liability
or standards of conduct concerning any hazardous, toxic or dangerous waste,
substance or material, as now or at any time in effect.
55. Additional Language to Paragraph 8.5: Lessee, to the extent any policy is
------------------------------------
paid in part by lessee, or otherwise required by this Lease, may require
Lessor to provide copies of policies and proof that such policies remain in
effect.
56. Arbitration: Any controversy or claim arising out of, or relating to, this
-----------
Lease or the making, performance or interpretation hereof, pursuant to
which there are claims or amounts in dispute, shall be settled by
arbitration in accordance with the Commercial Rules of the American
Arbitration Association then existing, and judgment on the arbitration
award may be entered in any court having jurisdiction over the subject
matter of the controversy. Arbitrators shall be persons experienced in
negotiating, making and consummating complex real estate lease agreements.
LESSOR: LESSEE:
By: By:
----------------------- ------------------------
Greg Hamann Keith Noronha
V.P. Operations
Date: Date:
--------------------- ----------------------
<PAGE>
EXHIBIT "B"
PERSONAL PROPERTY RELEASE ADDENDUM
This is an addendum to that certain lease (the "LEASE") dated November 8, 1993,
wherein the undersigned is referred to as "Lessee" and Hamann-Chambers-Rumsey-
Burns, a California General Partnership is referred to as "Lessor".
1. As used herein, the term "Personal Property" shall mean any tangible
moveable object or item of any nature whatsoever, regardless of value.
2. Under the terms of the Lease, Lessee is not permitted to occupy the space
prior to completion of all tenant improvements and certification for occupancy.
However, Lessee has requested that, prior to its right of occupancy, it be
allowed to store its Personal Property in the Premises or other space which
Lessor may agree to provide.
3. Lessee acknowledges and agrees that Lessor cannot provide or guarantee
security for such stored Personal Property, and that Lessor does not wish Lessee
to store Personal Property in the Premises or any other space prior to the date
of occupancy under the Lease. Lessee further understands and agrees that
workmen and employees of Lessor, Lessor's contractors and subcontractors are
likely to be entering and working on the Premises or in other space provided by
Lessor for storage. Lessor cannot and shall not assume any responsibility to
monitor or account for the activities of such workmen and employees. Lessor's
agreement to allow such storage of Lessee's Personal Property is therefore
conditioned on the following assurances, without which Lessor would refuse to
allow such storage of Personal Property.
3.1 Lessor shall have no responsibility nor liability for any of Lessee's
Personal Property stored in the Premises or any other space which Lessor makes
available for such storage. In this regard, Lessee agrees that Lessor shall not
act as a bailor, nor have any duty of care with regard to Lessee's Personal
Property.
3.2 Lessee shall assume complete responsibility for all items stored.
3.3 Lessee shall indemnify, release and hold Lessor harmless from any
loss of or damage to the Personal Property stored.
4. Lessee hereby agrees that it shall indemnify and hold harmless, Lessor, and
Lessor's respective employees, agents, officers, successors, attorneys,
accountants, representatives, affiliates, partners, contractors, subcontractors,
and each of them, and to release them from any and all responsibility or
liability which may arise from the storage of Personal Property by Lessee on the
Premises or any other space made available by Lessor.
5. The release granted herein shall apply to any Personal Property previously
or presently stored, or which may in the future be stored, on the Premises or in
other space provided by Lessor.
<PAGE>
LESSOR: LESSEE:
By: By:
---------------------- ---------------------
Greg Hamann Keith Noronha
V.P. Operations
Date: Date:
-------------------- -------------------
<PAGE>
EXHIBIT "C"
Grubb & Ellis Company
Commercial Real Estate Services
State of California
SALE/LEASE AMERICANS WITH DISABILITIES ACT
AND HAZARDOUS MATERIALS DISCLOSURE
The United States Congress has enacted the Americans With Disabilities Act.
Among other things, this act is intended to make many business establishments
equally accessible to persons with a variety of disabilities; modifications to
real property may be required. State and local laws also may mandate changes.
The real estate brokers in this transaction are not qualified to advise you as
to what, if any, changes may be required now, or in the future. Owners and
tenants should consult the attorneys and qualified design professionals of their
choice for information regarding these matters. Real Estate brokers cannot
determine which attorneys or design professionals have the appropriate expertise
in this area.
Various construction materials may contain items that have been or may in the
future be determined to be hazardous (toxic) or undesirable and may need to be
specifically treated/handled or removed. For example, some transformers and
other electrical components contain PCB's, and asbestos has been used in
components such as fire-proofing, heating and cooling systems, air duct
insulation, spray-on and tile acoustical materials, linoleum, floor tiles,
roofing, dry wall and plaster. Due to prior or current uses of the Property or
in the area, the Property may have hazardous or undesirable metals, minerals,
chemicals, hydrocarbons, or biological or radioactive items (including electric
and magnetic fields) in soils, water, building components, above or below-ground
containers or elsewhere in areas that may or may not be accessible or
noticeable. Such items may leak or otherwise be released. Expert inspections
are necessary. Current or future laws may require clean up by past, present
and/or future owners and/or operators. It is the responsibility of the
Seller/Lessor and Buyer/Tenant to retain qualified experts to detect and correct
such matters and to consult with legal counsel of their choice to determine what
provisions, if any, they may wish to include in transaction documents regarding
the Property.
To the best of Seller/Lessor's knowledge, Seller/Lessor has attached to this
Disclosure copies of all existing surveys and reports known to Seller/Lessor
regarding asbestos and the hazardous materials and undesirable substances
related to the Property. Sellers/Lessors are required under California Health
and Safety Code Section 25915 et seq. to disclose reports and surveys regarding
asbestos to certain persons, including their employees, contractors, co-owners,
purchasers and tenants. Buyers/Tenants have similar disclosure obligations.
Sellers/Lessors and Buyers/Tenants have additional hazardous materials
disclosure responsibilities to each other under California Health and Safety
Code Section 25359.7 and other California laws. Consult your attorney regarding
this matter. Grubb & Ellis Company is not qualified to assist you in this matter
or provide you with other legal or tax advice,
LESSOR: LESSEE:
Apollo Golf, Inc.
By: By:
------------------------------- ------------------------------
Greg Hamann Keith Noronha
Its: Title: Vice President Operations
------------------------------ ---------------------------
Date: Date:
----------------------------- ----------------------------
<PAGE>
OFFER TO LEASE
The undersigned (hereinafter "Tenant") hereby offers to lease the Premises
described below on the following terms and conditions:
1. Premises. Located in the City of El Cajon, County of San Diego, State of
California, described as follows: 932 Feslar Street, approximately 6,480
square feet of warehouse and office space.
2. Monthly Rent. Monthly rent to be $2,851 per month for months 1-30, and
$3,022 per month for months 31-60.
3. Term of Lease and Commencement Date. Lease term to be sixty (60)
consecutive months. Commencement to be at completion of tenant
improvements.
4. Use of Premises. Distribution and cosmetic work (silk screening) of golf
shafts.
5. Security Deposit; Prepaid Rent. Security Deposit to be equal to first
month's rent and first month's rent to be paid at signature of Lease.
6. Taxes. Paid by Lessor.
7. Insurance. Paid by Lessor.
8. Utilities. Paid by Lessee.
9. Improvements to Premises. Improvements to the subject property to be per
attached bid from Lessor. Lessee to approve build-out plan. Lessee to have
abated rent months two (2) and thirteen (13) of the Lease.
10. Other Terms and Conditions. Truck loading doors, emergency exit doors,
entrance door, and warehouse entrance door to be in good working condition.
If this Offer to Lease is not accepted by the Landlord on or before November 5,
1993 the Offer shall terminate, and all sums deposited herewith shall be
promptly returned to Tenant upon receipt of a written request therefor. Upon
acceptance of this Offer to Lease, Landlord is to proceed with the preparation
of a Lease, it being expressly understood that this proposal is not binding on
either of the parties and that the Lease, when executed by the parties, shall
contain their full agreement. In the event the Landlord accepts this Offer to
Lease and the parties are for any reason unable to consummate a Lease, all sums
deposited herewith shall be promptly returned to Tenant upon receipt of a
written request therefor. In consideration of Grubb & Ellis Commercial Real
Estate Services, a division of GRUBB & ELLIS COMPANY ("Broker"), presenting this
proposal to Landlord. Tenant agrees to conduct all negotiations through Broker
in the event Tenant commences negotiation to lease or purchase the Premises
during the one-year period following the date hereof.
Tenant acknowledges receipt of a copy hereof.
Date November 2, 1993 Tenant Apollo Golf Shafts
, By
- ----------------------- ----------- -------------------------------
City State Keith Noronha, V.P. Operations
Receipt is hereby acknowledged of cash [_] check [_] in the sum of _____________
_______________________ dollars, to be delivered in accordance with the terms
hereof.
Grubb & Ellis Commercial Real Estate
Services, a division of GRUBB &
ELLIS COMPANY
Date: November 2, 1993
<PAGE>
San Diego, CA By
- -------------------------------- ---------------------------
City State Mark Silverman
Landlord hereby accepts the foregoing Offer to Lease and appoints Broker its
agent in connection with the lease of the Premises. Landlord agrees to pay a
commission to Broker in accordance with the attached Schedule of Commissions.
Landlord acknowledges receipt of a copy hereof.
Date: Landlord
----------------------------- -----------------------
, By
- -------------------- ------------ ----------------------------
City State
NOTICE TO LANDLORD AND TENANT: BROKER IS NOT AUTHORIZED TO GIVE LEGAL OR TAX
ADVICE; NO REPRESENTATION OR RECOMMENDATION IS MADE BY BROKER OR ITS AGENTS OR
EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
DOCUMENT OR ANY TRANSACTION RELATING THERETO, SINCE THESE ARE MATTERS WHICH
SHOULD BE DISCUSSED WITH YOUR ATTORNEY AND TAX ADVISOR.
<PAGE>
Exhibit 10.21(a)
AGREEMENT
---------
FOR
---
BUILDING LEASE
--------------
Dated January 1, 1990
By and Between
American National Bank and Trust Company of Chicago,
not personally but as Trustee under Trust Agreement
dated July 6, 1964 and known as Trust No. 20444
Landlord,
and
TI Steel Tubes (USA) Inc., a New Jersey corporation
Tenant
<PAGE>
AGREEMENT
FOR
BUILDING LEASE
Dated January 1, 1990
By and Between
American National Bank and Trust Company of Chicago,
not personally but as Trustee under Trust Agreement
dated July 6, 1964 and known as Trust No. 20444
Landlord,
and
TI Steel Tubes (USA) Inc., a New Jersey corporation
Tenant
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
ARTICLE NO. PAGE NO.
----------- ---------
<S> <C> <C>
I Rental ....................................................... 3
II Tenant's Acceptance and Use of Premises ...................... 5
III Landlord's Rights ............................................ 7
IV Damage - Condemnation ........................................ 7
V Landlord's and Tenant's Remedies ............................. 8
VI Waiver of Claims and Indemnification and Rights of Recovery
on Insurance ................................................ 12
VII Title Matters ............................................... 13
VIII Transfer of Landlord's Interest in Building and Lease ....... 16
IX Tenant's Option to Extend Lease ............................. 16
X General ..................................................... 17
</TABLE>
2
<PAGE>
- --------------------------------------------------------------------------------
EXHIBITS
--------
A Legal Description
B Description of Primary Work
C Base Rent
3
<PAGE>
AGREEMENT
---------
FOR
---
BUILDING LEASE
--------------
American National Bank and Trust Company of Chicago, not personally but as
Trustee under Trust Agreement dated July 6, 1964 and known as Trust No. 20444
(the "Landlord"), hereby leases to TI Steel Tubes (USA) Inc., a New Jersey
corporation (the "Tenant"), and Tenant hereby accepts, subject to the terms and
conditions of this Lease, that certain building (the "Building" or the
"Premises") located at 1025 Criss Circle, Elk Grove, Illinois, the legal
description of which is attached hereto as Exhibit A and made a part hereof (the
said property and Building and Landlord's interest therein being herein called
the "Property"), for an initial term (the "Term") of five (5) years commencing
on February 1, 1990 (the "Commencement Date") and ending on January 31, 1995 or
such other date as the Term is extended pursuant to Article IX hereof (the
"Termination Date").
The Building consists of approximately 8,153 rentable square feet.
If requested by either party to this Lease, a memorandum of this Lease in
recordable form duly executed and acknowledged shall be entered into and
recorded by the parties hereto.
In consideration of the above demise, and the acceptance of the mutual
covenants herein contained, Landlord and Tenant covenant and agree as follows:
ARTICLE I
---------
RENTAL
------
1.1. Rental. Tenant shall pay to Landlord, at such place as Landlord may
------
designate to Tenant in writing, the rent and other payments reserved and
required under this Article I, which rent and other payments, together with all
other amounts becoming due from Tenant to Landlord hereunder, are herein
collectively referred to as the "Rent" or "Rental". All Rental shall be paid
without notice or demand, and without abatement, deduction, counterclaim or
setoff. Tenant's covenant to pay Rental shall be independent of every other
covenant contained in this Lease.
1.2. Base Rent. Subject to rent adjustments in accordance with Section 1.3
---------
hereof, Tenant shall pay to Landlord an annual Base Rent (the "Base Rent") set
forth on Exhibit C attached hereto and made a part hereof. Base Rent shall be
paid in advance on the first day of each and every calendar month during the
Term.
1.3. Additional Payments. In addition to Base Rent, Tenant shall pay all
-------------------
of the Expenses (as hereinafter defined) assessed or incurred in connection with
the Property on or before the respective due dates thereof. The Tenant's
obligation to pay the Expenses shall survive the expiration of the Term.
For purposes of this Section 1.3, the following terms shall have the
respective meanings indicated:
(a) Taxes - shall mean all federal, state and local governmental taxes,
-----
assessments and charges (including transit or transit-district taxes or
assessments of every kind or nature), whether general, special,
4
<PAGE>
ordinary or extraordinary, which Landlord shall pay or which become payable
because of or in connection with the ownership, leasing, management, control or
operation of the Property or of the personal property, fixtures, machinery,
equipment, systems and apparatus located therein or used in connection therewith
for the calendar year with respect to which Taxes are being determined, subject
to the following:
(i) Taxes for any calendar year shall be the Taxes which are paid
or payable during such year, rather than Taxes which are assessed or become a
lien upon the Property during such year;
(ii) There shall be included in Taxes for any calendar year, the
amount of fees, costs and expenses (including attorney's fees) paid by Landlord
during such year in contesting taxes or obtaining a refund or reduction in Taxes
(and Landlord shall cooperate with Tenant in a reasonable manner in connection
with Tenant's contesting Taxes);
(iii) The amount of special assessments to be included shall be
payable under the longest allowable period (provided such period shall in no
event be longer than the average useful life of the improvement upon which the
special assessment was assessed) and limited to the amount of the installments
(plus any interest, other than penalty interest, payable thereon) of such
special assessment paid during the calendar year for which Taxes are being
determined;
(iv) There shall be deducted from Taxes the amount of any refunds of
Taxes except refunds pertaining to taxes paid in years prior to the first year
of this Lease received by Landlord in the calendar year for which Taxes are
being determined;
(v) There shall be excluded from Taxes, all federal, state and
local income, sales, excess profits, franchise, capital stock, inheritance,
gift, or estate taxes, provided, however, that if any change occurs in the
method of taxation which results in the substitution of any such taxes for any
Taxes, as hereinabove defined, such substituted taxes shall be included in
Taxes.
(b) Operating Expenses - shall mean, for any calendar year, all reasonable
------------------
and customary expenses, costs and disbursements (other than Taxes) of every kind
and nature which Landlord shall pay or become obligated to pay because of or in
connection with the ownership, management, operation, maintenance and repair of
the Property and of the personal property, fixtures, machinery, equipment,
systems and apparatus located therein or used in connection therewith,
including, but not limited to, the cost of utilities and services provided by
Landlord to the Building which are not separately metered or billed to Tenant or
other tenants of the Building and premiums for all insurance coverage Landlord
may be obligated to provide hereunder. Notwithstanding the foregoing, payments
made by Landlord or Tenant prior to July 1, 1990 for repairs to the roof of the
Building shall not be included in Operating Expenses.
(c) Expenses - shall mean an amount equal to the aggregate of Taxes and
--------
Operating Expenses.
As soon as practicable after the end of the calendar year ending
December 31, 1990 and each succeeding calendar year thereafter (including the
year in which the Lease terminates), Landlord shall deliver to Tenant a report
setting forth the amount of the actual Expenses for the immediately preceding
year. Tenant shall pay to Landlord within thirty (30) days the amount of such
Expenses which it has not theretofore paid. Expenses for less than a full
calendar year shall be prorated based upon a 360-day year.
5
<PAGE>
ARTICLE II
----------
TENANT'S ACCEPTANCE AND USE OF PROPERTY
---------------------------------------
2.1. Acceptance of Property and Premises. When Landlord has substantially
-----------------------------------
completed the Primary Work described in Exhibit B, Landlord shall notify Tenant
and Tenant and Landlord shall prepare a punchlist of items which both agree are
incomplete. Landlord shall correct said punchlist items within a reasonable time
after the Commencement Date. The Tenant's taking possession shall be conclusive
evidence as against the Tenant that the Property and premises was in good order
and satisfactory condition when the Tenant took possession, punchlist items and
latent defects excepted. Landlord shall pay the cost of repairing or replacing,
at its reasonable discretion, those latent defects that Tenant notifies Landlord
of within one hundred eighty (180) days of the Commencement Date. Tenant's
failure to notify Landlord of latent defects within one hundred eighty (180)
days of the Commencement Date shall conclusively be deemed an acceptance of the
condition of the Property and Premises. No promise of Landlord to alter,
remodel, decorate, clean or improve the Property or Premises and no
representations respecting the condition of the Property or Premises have been
made by the Landlord to the Tenant, other than as contained in Exhibit B.
Landlord represents to Tenant that to the best of Landlord's knowledge, the
Premises have not flooded.
2.2. Use. Subject to the Permitted Exceptions (as hereafter defined)
---
Tenant shall have the exclusive right to and shall occupy and use the Property
for general office warehouse or retail use only and any other use reasonably
related thereto. Tenant shall not occupy or use the Premises or permit the
Premises to be occupied or used for any purpose, act, or thing which is in
violation of any public law, ordinance, or governmental regulation; which may be
dangerous to persons or property or which may invalidate the insurance or
increase the amount of premiums for any policy of insurance carried on the
Building or covering its operation or violate the terms thereof, notwithstanding
the foregoing, if any additional amounts of insurance premiums are caused by
Tenant's occupancy or use of the Premises (including, but not limited to
occupancy and use by subtenants and assignees), Tenant shall pay to Landlord
said additional amounts. Tenant shall not do or permit anything to be done upon
the Premises, or bring or keep anything thereon which is in violation of rules,
regulations or requirements of the Elk Grove Fire Department or any other
similar authority having jurisdiction over the Building. Tenant shall not do or
permit anything to be done upon the Premises which in any way may create a
nuisance on the Premises or to the occupants of neighboring property or injure
the reputation of the Building. Tenant shall not use the Premises for any
illegal purpose.
2.3. Maintenance and Repair and Replacement. Tenant shall maintain and
--------------------------------------
make all necessary structural repairs, replacements and alterations to the
Building, including but not limited to foundations, roofs, exterior walls,
marquees, structural columns and structural beams, electrical or plumbing
fixtures located within the Premises. Tenant shall proceed promptly to make
such repairs or corrections. Notwithstanding the foregoing, prior to July 1,
1990, the Landlord shall maintain the roof of the Building; thereafter,
maintenance of the roof shall be the Tenant's responsibility.
Tenant shall, at its own cost and expense (i) subject to the provisions of
Section 2.4, keep the Premises decorated, in good order and repair and in a
tenantable condition during the Term, (ii) maintain in good condition and repair
all electrical and plumbing fixtures located within the Premises, all systems,
fixtures and structures installed in the premises and the ventilating, heating
and air conditioning system serving the Premises, (iii) promptly and adequately
repair all damage to the Premises including the replacement or repair of all
damaged or broken glass, fixtures and appurtenances, which replacement or
6
<PAGE>
repair shall be under the direct supervision of Landlord and shall be in full
compliance with all applicable laws and ordinances, and (iv) make all other
repairs and replacements to the Premises.
If Tenant fails to make or commence to make such repairs or replacements
promptly after written notice thereof from Landlord, Landlord may, in its sole
discretion, do so and Tenant shall pay to the Landlord the reasonable cost
thereof within fifteen (15) days of being billed therefor. Landlord may enter
the Premises at all reasonable times to make such repairs to the Premises or any
property or equipment located therein as Landlord shall reasonably deem
necessary or be required to do by any governmental authority or judicial order.
In making such entry, Landlord shall use its best efforts not to unreasonably
interfere with Tenant's occupancy of the Premises, and, except in the event of
an emergency, shall enter only upon reasonable prior notice to Tenant explaining
the reasons therefor.
2.4 Alterations. Prior to February 1, 1990, Landlord shall complete in a
-----------
good and workmanlike manner the work set forth in Exhibit B attached hereto and
made a part hereof (the "Primary Work"). If the Primary Work is not completed
prior to February 1, 1990, Tenant shall receive a credit of one day's Base Rent
and Expenses for each day thereafter until the Primary Work is completed.
Tenant shall not, without Landlord's prior written consent, alter or
remodel the Premises; Landlord's consent shall not be unreasonably withheld or
delayed. In the event that Landlord consents to any proposed alteration or
remodeling of the Premises, such consent shall specify whether Landlord will
require Tenant to remove the same upon expiration of the Term. All work
performed by or on behalf of Tenant shall be in accordance with good
construction practices, all applicable laws, insurance requirements, and
Landlord's reasonable rules and regulations. Further, Landlord shall have no
responsibility or liability for any loss or damage to any property belonging to
Tenant. Tenant shall obtain at Tenant's sole expense all certificates and
approvals which may be necessary so that a certificate of occupancy for the
Premises (if any is required) may be issued. Copies of all such certificates
shall be delivered to Landlord.
Prior to the commencement of any work by Tenant, Tenant shall (i) obtain or
cause to be obtained public liability and workmen's compensation insurance to
cover every contractor to be employed by Tenant and such contractor's
subcontractors, and shall deliver duplicate originals of all certificates of
such insurance to Landlord for approval; (ii) furnish Landlord with all
necessary permits, licenses, approvals, certificates and authorizations for
prosecution and completion of such work; and (iii) furnish Landlord with such
other documents as may be reasonably requested by Landlord. Tenant shall also
pay the cost of all signage and the installation thereof. Landlord shall have
the right, but not the duty, to inspect construction operations in connection
with any work completed or being completed on the Premises.
All alterations, improvements and additions whether temporary or permanent
in character made by Landlord or Tenant in or upon the Premises shall, unless
Landlord specifies that the Tenant shall remove such alterations, improvements
and additions upon the termination of this Lease (in which event Tenant shall so
remove the same upon the termination of this Lease), become Landlord's property
and shall remain upon the Premises at the termination of this Lease by lapse of
time or otherwise, without compensation to Tenant. Nothing herein shall give
Landlord any interest in Tenant's personal property, office furniture, office
equipment, trade fixtures (including track lighting), cables, data processing
equipment or appliances, which shall remain the property of Tenant subject to
the provisions of Section 5.4 hereof.
7
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ARTICLE III
-----------
LANDLORD'S RIGHTS
-----------------
Landlord reserves and shall have the following rights, exercisable, unless
otherwise herein provided, without notice, without liability to Tenant for
damage or injury to person, property or business, without being deemed an
eviction or disturbance in any manner of Tenant's use or possession of the
Premises and without relieving Tenant from its obligation to pay Rental when due
or from any other obligation hereunder:
(a) To display the Premises to prospective tenants at reasonable hours
during the last nine (9) months of the Term, and, if the Premises are abandoned
during the Term, to decorate, remodel, repair or otherwise prepare the Premises
for reoccupancy, provided it will not unreasonably disrupt Tenant's normal
business activities;
(b) To have and retain paramount title to the Premises free and clear of
any act of Tenant purporting to burden or encumber it (excluding Permitted
Liens, as hereafter defined); and
(c) To take any and all reasonable measures, including inspections,
repairs and alterations to the Premises as may be reasonably necessary for the
safety, protection or preservation thereof or Landlord's interest therein.
ARTICLE IV
----------
DAMAGE - CONDEMNATION
---------------------
4.1. Fire or Casualty. If the Premises or the Building are damaged by fire
----------------
or other casualty (regardless of whether the Premises are made substantially
untenantable), then Tenant shall proceed with due diligence, but subject to the
remainder of this Section 4.1, to repair and restore the Building or the
Premises. Notwithstanding the foregoing, if such damage occurs during the last
twelve (12) months of the Term of this Lease (or, if the Term of this Lease has
been extended pursuant to Article IX hereof, during the last twelve (12) months
of the Term of this Lease as extended), both Tenant and Landlord shall have the
right to terminate this Lease by delivery of written notice of such termination
within thirty (30) days following the damage, provided Tenant shall continue to
pay Rental and all other charges hereunder for the remainder of the Term, unless
Landlord terminates this Lease, in which event Rental shall abate. If neither
Tenant nor Landlord elects to terminate the Lease as hereinabove provided, then:
(i) shall continue paying Rent and all other charges
hereunder for the remainder of the Term; and
(ii) At Tenant's option either:
(a) the insurance proceeds, if any, shall be made available to
Tenant and Tenant shall, subject to Landlord's prior approval (which shall not
be unreasonably withheld or delayed), commence repairing the damage and Tenant
shall repair the damage so that the Premises are in substantially the same
condition as they were prior to being damaged. Tenant shall pay the cost, if
any, of such repair in excess of the insurance proceeds; or
(b) the insurance proceeds, if any, shall be retained by Landlord
and Landlord shall commence repairing the damage and Landlord shall repair the
damage so that the Premises are in
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substantially the same condition as they were prior to being damaged. The cost,
if any, of such repair in excess of the insurance proceeds shall be paid by
Tenant within fifteen (15) days of Landlord's demand.
It shall be solely Tenant's obligation hereunder to obtain such rental
insurance and business interruption insurance as it deems necessary to pay the
Rental and other charges due hereunder in the event of a casualty, and Tenant
shall pay such Rental and other charges regardless of the proceeds, if any, of
rental insurance or business interruption insurance available to it.
4.2. Condemnation. In the event that the whole or any part of the Premises
------------
reasonably necessary for the Tenant's continued use of the Premises shall be
taken in any proceeding by any public authority by condemnation or otherwise, or
be acquired for public or quasi-public purposes (all of which are hereinafter
collectively referred to as "Condemnation"), this Lease shall terminate as of
the date of the taking of possession by the condemning authority and the Rental
and other charges payable by Tenant shall cease as of the date possession of the
Premises is delivered to such condemning authority.
In the event that twenty-five percent (25%) or more of the Premises but
less than the whole or substantial part thereof shall be taken by Condemnation,
Landlord or Tenant shall have the option of terminating the Term of this Lease.
If either party, pursuant to the preceding sentence, desires to exercise its
option of terminating the Term of this Lease, such termination shall be
effective (without any payment by Landlord to Tenant therefor) by the party
desiring to terminate giving written notice to the other party provided that
such notice shall be given not more than fifteen (15) days subsequent to the
date on which Tenant shall have been deprived of possession of the part so
taken. If this Lease is not so terminated, then Rental shall abate as to the
portion of the Premises so taken. If the Lease is terminated pursuant to this
paragraph, Rental and other charges payable by Tenant shall cease as of the date
Tenant vacates possession of the Premises.
Tenant shall have the right to make a claim to the condemning authority for
relocation expenses and the unamortized value of any improvements, alterations
or additions to the Premises paid for by Tenant. Except for any claim awarded to
Tenant in accordance with the next preceding sentence, Tenant hereby assigns to
Landlord, Tenant's interest in any condemnation award for leasehold value.
ARTICLE V
---------
LANDLORD'S AND TENANT'S REMEDIES
--------------------------------
5.1. Events of Default. Each of the following shall be an "Event of
-----------------
Default."
(a) If Tenant fails to pay any installment of Rental, or any other payment
of money to be paid by Tenant under this Lease within five (5) days of the due
date thereof; or
(b) If Tenant fails to observe or perform one or more of the other terms,
conditions, covenants or agreements of this Lease and such failure shall
continue for a period of thirty (30) days after written notice from Landlord
specifying such failure (unless such failure requires work to be performed, acts
to be done, or conditions to be removed which cannot by their nature reasonably
be performed, done or removed, as the case may be, within such thirty (30) day
period, in which case, no Event of Default shall be deemed to exist so long as
Tenant shall have commenced the same within such thirty (30) day period and
shall diligently and continuously prosecute the same to completion); or
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(c) If Tenant makes an assignment for the benefit of creditors admits its
inability to pay its debts or takes any action towards a general compromise of
its debts or a composition with its creditor; or
(d) If all or any substantial part of the assets of Tenant, including the
leasehold interest hereunder of Tenant, are attached, seized or become subject
to a writ or distress warrant, are levied upon or come within the possession of
any receiver, trustee, custodian or assignee for the benefit of creditors and
such attachment, seizure, writ, warrant or levy is not withdrawn or removed
within forty-five (45) days after becoming effective; or
(e) If a notice of lien or levy is filed with respect to all or
substantially all of Tenant's assets located on the Premises by any federal,
state, county or municipal body, department, agency or instrumentality for taxes
or debts then owing by Tenant and such notice is not released or withdrawn
within forty-five (45) days of its filing (unless such lien is a "Permitted
Lien" (as hereafter defined)); or
(f) If any involuntary petition or similar pleading is filed in any court
under any section of the Federal Bankruptcy Code seeking to declare Tenant
bankrupt, or seeking a plan of reorganization for Tenant under Chapter 11 of the
Bankruptcy Code, and such petition or pleading is not withdrawn or denied within
sixty (60) days after its filing, or if any voluntary petition or similar
pleading is filed in any court under any section of the Federal Bankruptcy Code;
or
(g) If Tenant abandons the Premises.
5.2. Termination. Upon the occurrence of an Event of Default under
-----------
Section 5.(1), Landlord may, at its option, at any time thereafter, without
notice (i) terminate this Lease, or (ii) without terminating this Lease,
forthwith terminate the Tenant's right to possession of the Premises, or (iii)
pursue any other remedy now or hereafter available to Landlord under the laws of
the State of Illinois.
(a) Upon Landlord's termination if this Lease as a result of the
occurrence if an Event of Default, Landlord shall be entitled to recover from
Tenant all damages incurred by Landlord by reason of Tenant's default, including
(i) the unpaid Base Rent, and other charges which had been earned as of the date
of termination; and (ii) any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease, including, but not limited to, any costs or
expenses incurred by Landlord in maintaining or preserving the Premises after
the occurrence of such Event of Default, the cost of recovering possession of
the Premises, expenses of reletting, including necessary renovation or
alteration of the Premises, Landlord's reasonable attorneys' fees incurred in
connection therewith, and any real estate commission paid or payable.
(b) Upon and after Landlord's termination of Tenant's right to possession
of the Premises, Landlord shall make reasonable efforts to relet the Premises or
any part thereof to any person, firm or corporation other than Tenant for such
rent, for such term and upon such conditions as Landlord, in Landlord's
discretion shall reasonably determine, and Landlord shall not be required to
accept any tenant offered by Tenant (provided that such acceptance shall not be
unreasonably refused) or to observe any instructions given by Tenant covering
such reletting. In any such case, Landlord may incur expenses for repairs,
alterations, improvements, additions and decoration of or to the Premises to the
extent reasonably deemed necessary or desirable by Landlord for the purpose of
reletting the Premises. All such expenses, plus all brokers' commissions and
reasonable attorneys' fees incurred by Landlord in connection with any reletting
of the Premises, shall be paid by Tenant to Landlord upon demand. In addition,
Tenant shall, for the
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remainder of the Term, reimburse Landlord, on demand, for any deficiency between
Rent and other charges reserved hereunder and the rent received by Landlord upon
reletting the Premises.
5.3. Surrender of Possession. Upon termination of this Lease, whether by
-----------------------
lapse of time or otherwise, or upon any termination of Tenant's right to
possession of the Premises without termination of the Lease, Tenant shall
surrender and vacate the Premises immediately and deliver possession thereof to
Landlord in clean, good and tenantable condition, ordinary wear and damage by
fire or other casualty excepted. Upon any termination which occurs other than by
reason of Tenant's default, for a ten (10) day period, Tenant shall be entitled
to remove from the Premises any built-in furniture, attached data or word
processing or duplicating equipment, trade fixtures, cables or appliances,
provided that Tenant shall repair all damage resulting from such removal and
shall restore the Premises to a tenantable condition. Subject to Section 2.4,
all other additions, decorations, fixtures, hardware and all improvements,
temporary or permanent, in or about the Premises, whether placed there by Tenant
or by Landlord shall remain Landlord's property and shall remain upon the
Premises without compensation, allowance or, credit to Tenant. In the event
possession is not immediately delivered to landlord or if Tenant shall fail to
remove all of such property which it is entitled or directed to remove, Tenant
hereby grants to Landlord to the extent permitted by law, full and free license
to enter into and upon the Premises with or without process of law for the
purpose of returning to Landlord the Premises as of Landlord's former estate, to
expel or remove Tenant and any others who may be occupying the Premises and to
remove any and all property therefrom using such force as may be necessary and
permitted by law, without being deemed guilty of trespass, eviction or forcible
entry or detainer, and without relinquishing Landlord's right to Rental or any
other right hereunder.
Any and all property which may be removed from the Premises by Landlord
pursuant to the preceding paragraph or pursuant to law and not removed from the
Premises as set forth above shall be conclusively presumed to have been
abandoned by Tenant and Landlord may, at its option, upon ten (10) days prior
written notice, (i) accept title to such property in which event Tenant shall be
conclusively presumed to have conveyed such property to Landlord under this
Lease as a bill of sale or (ii) at Tenant's expense, dispose of such property in
any manner that Landlord shall choose. In no event, however, shall Landlord be
responsible for the value, preservation or safekeeping of such property. If
Tenant shall fail or refuse to remove all such property from the Premises,
Tenant shall be conclusively presumed to have abandoned the same, and title
thereto shall thereupon pass to Landlord without any cost to Landlord either by
setoff, credit allowance or otherwise, and Landlord shall be entitled to be
reimbursed by Tenant for any removal or other expenses, including storage
expenses, incurred by Landlord as a result of such abandonment.
5.4. Holding Over. If Tenant retains possession of the Premises or any
------------
part thereof after the termination of this Lease by lapse of time or otherwise
and such period is less than fourteen (14) days, Tenant shall pay to Landlord
Rental at twice the per diem rate payable for the month immediately preceding
said holding over, computed on a per diem basis, for each day or part thereof
that Tenant thus remains in possession, and, in addition thereto, Tenant shall
pay to Landlord all direct damages sustained by reason of Tenant's retention of
possession. In the event that the above period is greater than fourteen (14)
days, in addition, Landlord by written notice to Tenant and not otherwise, may
elect to treat such retention of possession by Tenant as an extension of the
Term of this Lease for an additional one (1 year period (the "Holdover Term")
(such extension commencing on the first day of the first full month following
the date of such notice) at a monthly Base Rent equal to 125% of the monthly
Base Rent in effect for the last month of the Term, unless Tenant has vacated
the Premises prior to the issuance of said notice. In the event Landlord elects
to extend the Term of this Lease, the provisions of the first sentence of this
Section 5.5 shall apply
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only to that period commencing with the termination of the Lease and ending with
the commencement of the Holdover Term and all the terms and conditions of this
Lease shall be applicable to such Holdover Term except (i) for those matters
that have expired by their own terms or have been performed and (ii) the Base
Rent and Rent Adjustment for such Holdover Term shall be as set forth above.
The provisions of this Section 5.5 shall not deemed to limit or exclude any of
Landlord's rights of re-entry or any other right granted to Landlord hereunder
or under law.
5.5. Payment of Expenses in Enforcing Obligations. In the event of any
--------------------------------------------
action at law or in equity between Landlord and Tenant to enforce any of the
provisions and/or rights hereunder, the unsuccessful party to such litigation
covenants and agrees to pay to the successful party all costs and expenses
including reasonable attorneys' fees, incurred therein by the successful party,
which costs and expenses shall be included in and as a part of such judgment. If
Landlord, without fault on its part, shall be made a party to any litigation
instituted by or against the Tenant by reason of this Lease, then Landlord shall
be entitled to receive from the Tenant upon demand all costs, expenses and
reasonable attorneys' fees incurred by Landlord in or in connection with such
litigation.
5.6. Landlord's Performance of Tenant's Obligations. If Tenant shall
----------------------------------------------
default in the performance of any of its obligations hereunder and such default
shall continue after the expiration of any notice or grace period herein
provided, Landlord may perform such obligation for the account and expense of
Tenant upon five (5) days written notice except in cases of emergency, and
Tenant shall reimburse Landlord therefor upon demand.
5.7. Non-Waiver. No waiver of any agreement or condition expressed in this
----------
Lease shall be implied by any neglect of Landlord or Tenant to enforce any
remedy on account of the violation of such agreement or condition if such
violation be continued or repeated subsequently, and no express waiver shall
affect any agreement or condition other than the one specified in such waiver
and that one only for the time and in the manner specifically stated. No receipt
of monies by Landlord from Tenant after the termination in any way of the Term
or of Tenant's right of possession hereunder, or after the giving of any notice,
shall reinstate, continue or extend the Term or affect any notice given to
Tenant prior to the receipt of such monies, it being agreed that after the
service of notice or the commencement of a suit or after final judgment for
possession of the Premises Landlord may receive and collect any Rental due, and
the payment of said Rental shall not waive or affect said notice, suit or
judgment.
5.8. Landlord's Rights and Remedies Cumulative. All rights and remedies of
-----------------------------------------
Landlord under this Article and elsewhere in this Lease shall be distinct,
separate and cumulative and none shall exclude any other right or remedy of
Landlord as set forth in this Lease or allowed by law. Tenant's obligations
under this Article shall survive the expiration of the Term.
ARTICLE VI
----------
WAIVER OF CLAIMS AND INDEMNIFICATIONS
-------------------------------------
AND RIGHTS OF RECOVERY ON INSURANCE
-----------------------------------
6.1. Waiver of Claims and Indemnity. Tenant hereby releases and waives all
------------------------------
claims against Landlord, and its agents, employees and servants for injury or
damage to person, property or business sustained in or about the property by
Tenant, its agents, employees or servants, which injury or damage results from
any act, neglect, occurrence or conditions in or about the Property, except to
the extent that such injury or damage is caused by the gross negligence or
willful or wanton act or omission by Landlord, or its
12
<PAGE>
agents, employees or servants. To the extent any of the foregoing is covered by
insurance, Landlord or Tenants, as the case may be, shall have but one (1)
recovery.
Tenant hereby agrees to indemnify and hold Landlord, its agents, employees
and servants harmless against any and all claims, damage, demands, costs and
expenses of every kind and nature, including reasonable attorneys' fees for the
defense thereof, arising from Tenant's occupancy of the Property or from any
breach or default on the part of Tenant in the performance of any agreement of
Tenant to be performed pursuant to the terms of this Lease, or from any act,
omission or negligence of the Tenant, its employees, servants and agents,
subtenants and/or assignees in or about the Property. To the extent any of the
foregoing is covered by insurance, Landlord shall have but one (1) recovery. In
case any such proceeding is brought against Landlord, its agents, employees or
servants, Tenant covenants to defend such proceeding at its sole cost and
expense by legal counsel reasonably satisfactory to Landlord.
Landlord shall have no responsibility for loss or damage to Tenant's
personal property, except to the extent caused by and degree of fault
attributable to Landlord's willful misconduct, and no responsibility to insure
the personal property of Tenant of whatever nature and wherever located on the
Premises against any loss or damage thereto, however occasioned, it being
understood and agreed that Tenant will so insure such personal property.
6.2. Insurance Coverage. Tenant, at Tenant's sole cost and expense, shall
------------------
obtain and maintain, for the Term of this Lease, as extended, insurance policies
in form and content, and issued by an insurer, reasonably acceptable to
Landlord, providing the following coverage: (i) all perils included in the
classification "fire and extended coverage" under insurance industry practices
in effect from time to time in the jurisdiction in which the Building is located
covering the Building and all fixtures and property located therein, including
without limitation, Tenant's fixtures, equipment, furnishings, merchandise,
alterations, improvements and other contents in the Premises, for 100% of the
full replacement value of said Building and items; and (ii) comprehensive
generally liability insurance (including contractual liability) naming Landlord,
and any mortgagee, as additional insureds, which policy is to be in the minimum
amount of One Million Dollars ($1,000,000.00) with respect to any one person, in
the minimum amount of One Million Five Hundred Thousand Dollars ($1,500,000.00)
with respect to any one accident, and in the minimum amount of Two Hundred Fifty
Thousand Dollars ($250,000.00) with respect to property damage. Each policy
described in this Section 6.2 shall name Landlord and any mortgagee of the
Premises as loss payees and shall contain a provision that it shall (i) not be
cancelable and that it shall continue in full force and effect unless Landlord
has received at least thirty (30) days prior written notice of such cancellation
or termination, and (ii) not be materially changed without thirty (30) days
prior notice to Landlord.
6.3. Rights of Recovery on Insurance. Tenant agrees to have all fire and
-------------------------------
extended coverage and material damage insurance which may be carried with
respect to the Premises or to the property located therein endorsed with a
clause substantially as follows: "This insurance shall not be invalidated should
the insured waive in writing prior to a loss any or all rights of recovery
against any party for loss occurring to the property described herein." Landlord
and Tenant hereby waive all claims for recovery from each other for any loss or
damage to them or to any of their property insured under valid and collectible
insurance policies to the extent of the proceeds collected under such insurance
policies.
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ARTICLE VII
-----------
TITLE MATTERS
-------------
7.1 Subordination of Lease. This Lease and the rights of Tenant
----------------------
hereunder shall be and are hereby made expressly subject and subordinate at all
times to the lien of any mortgage or trust deed now existing against the
Property, and to all advances made or hereafter to be made upon the security
thereof. Tenant agrees to execute and deliver such further instruments
subordinating this Lease to the lien of any such mortgage or trust deed as may
be requested in writing by Landlord from time to time. Tenant agrees that it
will, by appropriate instrument, subordinate this Lease to any future mortgage
or trust deed imposed on the Property, provided that concurrently therewith the
holder of such mortgage, or the trustee under the trust deed, shall deliver to
Tenant, if requested in writing by Tenant, a Non-Disturbance Agreement in
recordable form duly executed and acknowledged from the holder of each such
mortgage, which Agreement shall expressly recognize Tenant's rights under this
Lease and provide that so long as Tenant is not in default under this Lease or
any amendments thereto, Tenant's possession of the Premises and its rights and
privileges under the Lease or any renewal thereto shall not be diminished or
interfered with by the holder of such mortgage and its successors or assigns.
In the event any proceedings are brought to foreclose any mortgage or trust
deed, Tenant will attorn to the purchaser upon any foreclosure sale and
recognize such purchaser as the Landlord under this Lease. Tenant agrees to
execute and deliver at any time any instrument to further evidence such
attornment as may be requested in writing by any holder of such mortgage, or the
trustee under any such trust deed.
Tenant acknowledges that its title is and always shall be subordinate
to the title of any owner of the Property and nothing herein contained shall
empower Tenant to do any act which can, shall or may encumber the title of the
owner of the Property, except if such encumbrance is a Permitted Lien.
7.2. Estoppel Certificate. The Tenant agrees that from time to time
--------------------
upon not less than fifteen (15) business days prior request by Landlord, the
Tenant, or Tenant's duly authorized representative having knowledge of the
following facts, will deliver to Landlord, or to such person as Landlord may
designate, a statement in writing certifying (i) that this Lease is unmodified
and in full force and effect, or, if there have been modifications, that the
Lease as modified is in full force and effect; (ii) the dates to which the
Rental and other charges have been paid; and (iii) that to the best of Tenant's
knowledge, the Landlord is not in default under any provision of this Lease, or,
if in default, the nature thereof in detail.
7.3. Assignment and Subletting. Except as otherwise permitted in
-------------------------
Section 7.4 and this Section 7.3, Tenant shall not without Landlord's prior
written consent, which consent shall not be unreasonably withheld or delayed,
(i) assign, convey, encumber or mortgage this Lease or any interest under this
Lease; (ii) allow any transfer of or lien upon Tenant's interest under this
Lease by operation of law; (iii) sublease all or any portion of the Premises; or
(iv) permit the use or occupancy of the Premises by any party other than Tenant,
its agents, employees, guests, invitees and licensees.
Tenant may assign this Lease or sublet all or any portion of the
Tenant Premises subject to the prior written consent of Landlord, which shall
not be unreasonably withheld:
(a) To a corporation controlling, controlled by or under common
control with Tenant, (hereinafter an "Affiliated Corporation"); provided that
any such assignment or sublease shall be subject to the terms and conditions of
this Lease. For purposes hereof, "control" shall mean the ownership, either
14
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directly or indirectly, of fifty percent (50%) or more of all shares entitled to
vote of such other corporation; and
(b) To the surviving corporation in a merger, reorganization or
consolidation or other corporate action involving Tenant provided that:
(1) (i) as a result of a merger or reorganization, the Tenant is the surviving
corporation or (ii) as a result of a merger, consolidation, or reorganization,
the Tenant is not the surviving corporation, but the surviving corporation has a
net worth equal to 100% of the amount of the net worth of Tenant as shown by an
audited financial report of Tenant prepared by an independent Certified Public
Accountant, which report is the latest report of Tenant immediately prior to the
effective date of such merger, consolidation, or reorganization; or (iii) as a
result of the merger, consolidation or reorganization the surviving corporation
is an Affiliated Corporation as defined above, and (2) any such assignment or
sublease shall be subject to the terms and conditions of this Lease.
No assignment of this Lease or sublease of the Premises pursuant to
the provisions of this Section 7.3 shall be effective unless and until the
assignee or sublessee shall have executed an appropriate instrument, in form
reasonably satisfactory to Landlord, assuming all of the obligations of Tenant
hereunder to the extent of the Premises assigned or subleased, and shall have
delivered a copy thereof, or an executed counterpart thereof, to Landlord.
No sublease or assignment of all or any portion of the Premises, and
no sublease or assignment of any of Tenant's interest under this Lease, shall
release or discharge Tenant from any liability, whether past, present or future,
under this Lease and Tenant shall remain fully liable thereunder. Tenant shall
deliver to Landlord promptly after execution, an executed copy of each sublease
and assignment and any amendment thereto entered into pursuant to the terms of
this Section 7.3.
Any purported assignment or sublease made in violation of this
Section 7.3 shall be null and void.
7.4. Covenant Against Liens. Tenant covenants and agrees not to
----------------------
suffer or permit any lien of mechanics or materialmen to be placed against the
Property or any part thereof arising from work done by or on behalf of Tenant.
If any such lien shall attach to the Property or any part thereof, Tenant shall
either (i) immediately pa off and remove the same or (ii) if Tenant desires to
contest such lien in a court of competent jurisdiction, at Landlord's election
either (1) file with Landlord a bond or other security in an amount and with an
independent surety, reasonably satisfactory to Landlord or (2) maintain a title
indemnity with appropriate security to protect against an exception to title
with a title insurance company designated by Landlord and in such amount and on
such terms as are reasonably satisfactory to Landlord and such title insurance
company, in which event such a lien shall be a "Permitted Lien". Other than a
Permitted Lien, Tenant has no authority or power to cause or permit any lien or
encumbrance of any kind whatsoever, whether created by act of Tenant, operation
of law or otherwise, to attach to or be placed upon the Property or any part
thereof. Any and all liens and encumbrances created by Tenant shall attach only
to Tenant's interest in the Premises.
7.5. Covenant of Quiet Enjoyment. Landlord covenants, represents
---------------------------
and warrants that it has full power and proper authority to execute this Lease
and to grant the rights provided to Tenant hereunder and further covenants that,
upon paying the Rental and keeping the agreements of this Lease on its part to
be kept and performed, Tenant shall have peaceful and quiet possession of the
Premises and full enjoyment of all of its rights herein granted for the Term of
this Lease (or, if the Term of this Lease has been extended pursuant to Article
IX hereof, for the Term of this Lease as extended).
15
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7.6 Permitted Title Exceptions. The leasehold interest conveyed
--------------------------
hereby shall be subject to the following exceptions (the "Permitted
Exceptions"):
a. Trust Deed dated October 1, 1964 and recorded October 16, 1964
as document 19276414 made by Landlord to Chicago Title and Trust Company.
b. A 25 foot building line as shown on the plat of Higgins Road
Commercial Subdivision Unit No. 3, recorded January 16, 1963 as document
18698699 as follows: from the North line of lot 70.
c. Easements for public utilities and drainage as shown on the
plat of Higgins Road Commercial Subdivision Unit No. 3, recorded January 16,
1963 as document 18698699 over that part of the Property described as follows:
over the North 25 feet and the South 10 feet of lot 70.
d. Easement over the Property noted above at c. for the purpose of
installing and maintaining all equipment necessary for the purpose of serving
the subdivision and other property with telephone and electric service, together
with right to overhang aerial service wires over any part of the Property and
also with right of access thereto as granted to the Illinois Bell Telephone
Company and the Commonwealth Edison Company, their respective successors and
assigns as shown on the plat of said subdivision recorded January 16, 1963 as
document 18698699.
e. Covenants and restrictions contained in deed recorded
May 10, 1963 as document 18792819 providing that no building shall at any time
be erected on the Property within 25 feet of any street right of way adjoining
the same or within 10 feet from all side and rear boundary lines of the
Property. No loading dock shall be erected on the Property fronting on any
street, unless the front of such loading platform shall be set back at least 60
feet from the property line abutting the street on which said loading dock
fronts; the grantee agrees to provide on the Property off-street automobile
parking facilities based on a minimum rate of one 300-square-foot space for each
3 employees employed on the Property of the original occupants thereof;
construction and materials of buildings; landscaping; water towers, water tanks,
stand pipes, penthouses, elevators or elevator equipment, stairways, ventilating
fans or similar equipment required to operate and maintain the building, fire or
parapet walls, skylights, tanks, cooling or other towers, wireless, radio or
television masts, roof signs, flagpoles, chimneys, smoke stacks, gravity flow
storage and mixing towers or similar structures may exceed a height of 50 feet
from the established building grade only with the approval of grantor. Grantor
retains such right of way and easements as may be necessary or convenient for
the purpose of erecting, constructing, maintaining and operating utility service
over, across, under and through the Property in the designated set back areas
between the building lines and property lines, including public service wires
and conduits for lighting, power and telephone, gas lines, sanitary sewer, storm
sewer and water and the grantor shall have the right to grant right of way
easements to others to carry out this purpose. Any contract for the laying of
such lines, wires, conduits, pipes or sewers shall also provide that the
Property shall be restored to the same condition it was in prior to the doing of
such work; screening of storage area from the street. The Property shall not be
used or maintained as a dumping ground for rubbish. Trash, garbage or other
waste shall not be kept, except in sanitary containers. All incinerators or
other equipment for the storage or disposal of such material shall be kept in a
clean and sanitary condition. No fence, wall, hedge or shrub, plant or tree
which obstructs site lines at elevations between 2 and 6 feet above the roadway
shall be placed or permitted to remain on any corner within the triangular area
formed by street property lines and a line connecting them at points 25 feet
from the intersection of the street lines.
16
<PAGE>
f. Assignment of rents made by Landlord to Salk, Ward & Salk,
Inc., recorded as document 19276415.
g. Right of way for drainage tiles, ditches, feeders and laterals;
h. Taxes for the year 1989 and subsequent years;
i. Acts done or suffered by Tenant, pursuant to this Lease or
otherwise;
j. Special assessments confirmed after the date of this lease;
k. Zoning laws and ordinances; and
l. Easements for public utilities.
Tenant shall not be responsible for correcting any violation of the
above Permitted Exceptions of such violation existed on or before the
commencement Date.
ARTICLE VIII
------------
TRANSFER OF LANDLORD'S INTEREST IN BUILDING AND LEASE
-----------------------------------------------------
In the event of any sale or other transfer of the Property effective
after the commencement Date of this Lease, Landlord and the seller or transferor
shall be entirely freed and relieved of all agreements and obligations of
Landlord hereunder accruing after the date of such sale or transfer, provided,
such purchaser or transferee shall have assumed and agreed to perform all
agreements and obligations of the Landlord hereunder accruing from and after the
date of such sale or transfer. Subject to the provisions of the preceding
sentence, Tenant hereby consents to any future assignment by Landlord of any
part or all of its rights under this Lease.
ARTICLE IX
----------
TENANT'S OPTION TO EXTEND LEASE
-------------------------------
9.1. First Option. Tenant shall have the right and option to extend
------------
the Term of this Lease for an additional consecutive three (3) year period (the
"First Option Period") commencing immediately following the Termination Date
provided that (i) Tenant sends notice of its election to extend the Term of the
Lease to Landlord not less than six (6 months prior to the end of the Term of
the Lease; (ii) Tenant is not then in default in the performance of any term,
condition, covenant or agreement of this Lease as to which notice of default has
been given to Tenant unless such default cannot, with due diligence, be cured,
prior to the last date on which Tenant is entitled to exercise such option and
Tenant has proceeded promptly and with due diligence after service of the notice
of default to cure such default; and (iii) at the date of commencement of the
First Option Period, Tenant is not in default in the performance of any term,
condition, covenant or agreement of this Lease as to which notice of default has
been given to Tenant or, if notice of default has been given, Tenant has
proceeded promptly and with due diligence after service of then notice of
default to cure such default, and no event is occurring which, with the passage
of time or the giving of notice, or both, would constitute a default hereunder.
17
<PAGE>
9.2. Second Option. Tenant shall have the right and option (the
-------------
"Second Option") to extend the Term of this Lease for an additional consecutive
three (3) year period (the "Second Option Period") commencing immediately after
the last day of the First Option Period provided that (i) Tenant sends notice of
its election to extend the Term of the Lease to Landlord not less than six (6)
months prior to the end of the Term of the Lease (as extended by the First
Option); (ii) Tenant is not then in default in the performance of any term,
condition, covenant or agreement of this Lease as to which notice of default has
been given to Tenant unless such default cannot, with due diligence, be cured,
prior to the last date on which Tenant is entitled to exercise such option and
Tenant has proceeded promptly and with due diligence after service of the notice
of default to cure such default; and (iii) at the date of commencement of the
Second Option Period, Tenant is not in default in the performance of any term,
condition, covenant or agreement of this Lease as to which notice of default has
been given to Tenant or, if notice of default has been given, Tenant has
proceeded promptly and with due diligence after service of the notice of default
to cure such default, and no event is occurring which, with the passage of time
or the giving of notice, or both, would constitute a default hereunder.
9.3. Rent During Option Years. The Base Rent and Rent Adjustment
------------------------
due and payable during the First Option Period and Second Option Period shall be
determined pursuant to Article I and are set forth on Exhibit C hereto. All the
terms and conditions of this Lease shall be applicable to such extended terms
except (i) for those matters that have expired by their own terms or have been
performed and (ii) the Base Rent and Rent Adjustment for such extended terms
shall be as set forth above. Such Lease shall be deemed extended without any
further lease or instrument.
ARTICLE X
---------
GENERAL
-------
10.1 Notices. All notices, waivers, demands, requests or other
-------
communications required or permitted hereunder shall, unless otherwise expressly
provided, be in writing and be deemed to have been properly given, served and
received (i) if delivered by messenger, when delivered, (ii) if mailed, on the
third (3rd) business day after deposit in the United States Mail, certified or
registered, postage prepaid, return receipt requested, (iii) if telexed,
telegraphed or telecopies, six (6) hours after being dispatched by telex,
telegram or telecopy, if such sixth (6th) hour falls on a business day within
the hours of 8:00 a.m. through 5:00 p.m. of the time in effect at the place of
receipt, or at 8:00 a.m. on the next business day thereafter if such sixth (6th)
hour is later than 5:00 p.m., or (iv) if delivered by reputable overnight
express courier, freight prepaid, the next business day after delivery to such
courier; in every case addressed to the party to be notified as follows:
If to Landlord:
Mr. Willard A. Brown, Jr.
Rubloff, Inc.
111 West Washington Street
Chicago, Illinois 60602
18
<PAGE>
with a copy to:
Mr. Matthew K. Phillips
Bell, Boyd & Lloyd
70 W. Madison Street
Suite 3200
Chicago, Illinois 60602
If to Tenant:
Mr. Robert Roach
Apollo Golf
1025 Criss Circle
Elk Grove, Illinois 60007
with a copy to:
Mr. Bruce J. McWhirter
Ross & Hardies
150 N. Michigan Avenue
Suite 2500
Chicago, Illinois 60601
or at such other address as the party to receive said notice may theretofore
have furnished by written notice as set forth above.
10.2. Brokers. Tenant and Landlord represent and warrant to each
-------
other that they have not dealt with any broker or finder, other than Mesirow
Realty Brokerage and Rubloff, Inc., in connection with this lease, and to their
knowledge, no other broker or finder initiated or participated in the
negotiation of this Lease, submitted or showed the Premises to Tenant or is
entitled to any commission in connection with this Lease. Landlord shall pay a
commission to Rubloff, Inc. pursuant to a separate brokerage agreement. Tenant
and Landlord hereby indemnify and hold each other harmless from and against any
and all claims, damages and expenses based upon or arising out of any claim by
any person with whom it is ultimately determined that Landlord or Tenant has
dealt in violation of the foregoing representations and warranties of any other
real estate broker for commissions resulting from a breach of the foregoing
representations and warranties.
10.3. General.
-------
(a) All rights and remedies of Landlord or Tenant, as the case may
be, under this Lease shall be cumulative and none shall exclude any other rights
and remedies allowed by laws.
(b) All installments of Rental and any other sums which are unpaid
when due and remain unpaid for ten (10) days thereafter, with our without
notice, shall bear interest at a rate of two percent (2%) per annum above the
prime rate of interest declared from time to time by the First National Bank of
Chicago, from the date due until paid.
19
<PAGE>
(c) Each of the provisions of this Lease shall extend to and shall,
as the case may require, bind or inure to the benefit, not only of Landlord and
of Tenant, but also of their respective heirs, legal representatives, successors
and assigns, subject to Section 7.4. hereof.
(d) All of the representations, agreements and obligations of
Landlord are contained herein, and no modification, waiver or amendment of this
Lease or of any of its conditions or provisions shall be binding upon the
Landlord unless in writing signed by Landlord.
(e) Submission of this instrument by Landlord to Tenant for
examination shall not bind Landlord in any manner, and no lease, option,
agreement to lease or other obligation of Landlord shall arise until this
instrument is signed and delivered by Landlord to Tenant.
(f) Except as provided herein, no rights to light or air over any
property, whether belonging to Landlord or any other person, are granted to
Tenant by this Lease.
(g) No receipt of money by Landlord from Tenant after the
termination of this Lease or after the service of any notice or after the
commencement of any suit, or after final judgment for possession of the Premises
shall reinstate, continue or extend the Term of this Lease or affect any such
notice, demand or suit.
(h) The officers of Tenant executing this Lease represent that they
and each of them have been authorized by their respective Board of Directors to
execute this Lease in this form and containing the aforesaid covenants.
(i) The headings or captions of Sections are for convenience only,
are not part of this Lease, and shall not affect the interpretation of this
Lease.
(j) This lease may be executed in any number of counterparts, all
of which when put together shall be deemed an original.
(k) Time is of the essence in connection with this Lease,
including, without limitation, Tenant's exercise of the First Option and Second
Option.
(l) This Lease shall be governed by and construed in accordance
with the laws of the State of Illinois. If any provision or part of this Lease
or the application thereof to any persons or circumstances shall, to any extent,
be invalid, illegal or unenforceable, the remainder of this Lease, or the
application of such provision or part to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable, shall not be
affected thereby, and each term and provision of this Lease shall be valid and
enforced to the fullest extent permitted by law.
IN WITNESS WHEREOF, Landlord and Tenant have caused this AGREEMENT FOR
BUILDING LEASE to be executed as of the 2nd day of February 1990.
20
<PAGE>
LANDLORD:
American National Bank and Trust
Company of Chicago, as Trustee aforesaid
By:
--------------------------------------
Its
-------------------------------
TENANT:
TI Steel Tubes (USA) Inc., a New
Jersey corporation
By:
--------------------------------------
Its
-------------------------------
IN WITNESS WHEREOF, Landlord and Tenant have caused this AGREEMENT FOR
BUILDING LEASE to be executed as of the _____ day of _______________, 19___.
LANDLORD:
American National Bank and Trust
Company of Chicago, as Trustee aforesaid
By:
--------------------------------------
Its
-------------------------------
TENANT:
TI Steel Tubes (USA) Inc., a New
Jersey corporation
By:
--------------------------------------
Its
-------------------------------
21
<PAGE>
EXHIBIT A
---------
LEGAL DESCRIPTION
-----------------
LOT 70 (EXCEPT THE EAST 41.78 FEET THEREOF) AND THE EAST 56.78 FEET OF LOT 71 IN
HIGGINS ROAD COMMERCIAL SUBDIVISION, UNIT NO. 3, BEING A SUBDIVISION IN THE WEST
HALF OF SECTION 22, TOWNSHIP 41 NORTH, RANGE 11, EAST OF THE THIRD PRINCIPAL
MERIDIAN, IN COOK COUNTY, ILLINOIS.
P.I.N.: 08-22-102-167-0000
22
<PAGE>
EXHIBIT B
---------
PRIMARY WORK
------------
Work to be preformed by Landlord prior to February 1, 1990 (the
"Primary Work"):
1. The warehouse floor shall be scrubbed and sealed, with the floor
drain grate being replaced, and adjacent wall repaired.
2. The access to the warehouse area common for van pick-up and
delivery will be achieved through a double-wide drive-in door located in
conjunction with the existing main door located next to the dock.
3. The fluorescent lights located within the warehouse area shall
be suspended within the joist structure.
4. Existing office paneling shall be replaced with dry wall and dry
wall shall be installed in the entire office area.
5. Doors into the southwestern office and dock air lock area will
be provided.
6. The ceiling vents in the office area will be replaced, and the
vents in the doors leading into the mens' and womens' office restrooms will be
cleaned.
7. An office area in the warehouse approximately 8 ft. x 10 ft.
improved with dry wall shall be constructed.
23
<PAGE>
EXHIBIT C
---------
BASE RENT
---------
Tenant shall pay the monthly installments of Base Rent in advance on
the first day of each calendar month during the Term subject to the following
schedule:
a. February 1990 through January 1993 $3,200.00/month
b. February 1993 through January 1995 $3,392.00/month
c. Monthly Base Rent during the First Option Period pursuant to
Tenant's exercise of the First Option described in Article IX
hereof shall be increased and shall be the greater of the
following:
(i) One-twelfth (1/12) the sum of (y) the Base Rent
for the calendar year 1994 and (z) the product of the
Base Rent for the calendar year 1994 and the percentage
increase in the "Consumer Price Index" from December 1992
through December 1994; and
(ii) One-twelfth (1/12) the sum of (y) the Base Rent
for the calendar year 1990 and (z) the product of the
Base Rent for the calendar year 1990 and the percentage
increase in the Consumer Price Index from December 1989
through December 1994.
d. Monthly Base Rent during the Second Option Period pursuant to
Tenant's exercise of the Second Option described in Article IX
hereof shall be increased and shall equal the following:
One-twelfth (1/12) of the sum of (y) Base Rent for the
calendar year 1997 and (2) the product of the Base Rent
for the calendar year 1997 and the percentage increase in
the "Consumer Price Index" from December 1994 through
December 1997.
Landlord shall notify Tenant in writing of the amount of the
adjustment pursuant to c. and d. above, whereupon Tenant shall
pay the same to Landlord in twelve (12) equal monthly
installments commencing on the first day of the First Option
Period or Second Option Period, as the case may be, and on the
first day of each calendar month thereafter. However, failure
of Landlord to so notify Tenant shall not negate Tenant's
obligation to pay the increase in Base Rent as provided
hereunder.
For the purposes of this Lease the term "Consumer Price Index"
means the Consumer Price Index for Urban Wage Earners and
Clerical Workers --All items, City of Chicago (Base Year 1982-
84 equals 100) of the Bureau of Labor Statistics of the United
States Department of Labor.
24
<PAGE>
If the manner in which such Consumer Price Index is determined
by the Department of Labor shall be substantially revised, an
adjustment shall be made in such revised index which would
produce results equivalent, as nearly as possible, to those
which would have been obtained in the Consumer Price Index had
not been so revised. If the 1982-84 average shall no longer be
used as an index of 100, such change shall constitute a
substantial revision. If the Consumer Price Index shall become
unavailable to the public because publication is discontinued,
or otherwise, Landlord will substitute therefor a comparable
index based upon changes in the cost of living or purchasing
power of the consumer dollar published by any other
governmental agency, or if no such index shall be available,
then a comparable index published by a major bank or other
financial institution or by a university or a recognized
financial publication.
25
<PAGE>
FIRST AMENDMENT TO BUILDING LEASE
---------------------------------
THIS FIRST AMENDMENT TO BUILDING LEASE (the "Amendment") is made as of
this 12 Day of December, 1994, by and between American National Bank and
------
Trust Company of Chicago, not personally but as Trustee under Trust Agreement
dated July 6, 1964 and known as Trust No. 20444 ("Landlord"), and TI Steel Tubes
(U.S.A.) Apollo Golf (s/KN), Inc., a New Jersey corporation ("Tenant").
Recitals
--------
A. Landlord and Tenant are the parties to a certain Building Lease
dated January 1, 1990 (the "Lease"), pursuant to which Tenant leases and
occupies the space commonly known as 1025 Criss Circle, Elk Grove, Illinois (the
"Premises").
B. The term of the Lease expires on January 31, 1995, and Landlord
and Tenant desire to extend the term of the Lease and amend the Lease as set
forth below.
Agreements
----------
NOW, THEREFORE, for and in consideration of the above Recitals, which
are incorporated herein by reference and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord and Tenant agree as follows:
1. Terms not otherwise defined herein shall have the meanings set
forth in the Lease. In the event of any inconsistency between the terms of the
Lease and the terms of this Amendment, the terms of this Amendment shall govern.
2. The "Term" of the Lease shall be extended for five (5) years and
shall end on January 31, 2000. All references in the Lease to the Term shall be
deemed to refer to the Term as amended by this Amendment, and the "Termination
Date" shall be deemed to refer to January 31, 2000.
3. Exhibit C of the Lease is deleted and replaced by the following:
"Tenant shall pay monthly installments of Base Rent in advance on the first day
of the calendar month during the Term from and after February 1, 1995 at a rate
of $3,550 per month."
4. Article IX of the Lease ["Tenant's Option to Extend Lease"] is
deleted and all references to the First Option, First Option Period, Second
Option and Second Option Period shall be deemed deleted.
26
<PAGE>
5. The first grammatical paragraph of Section 2.3 of the Lease
["Tenant shall maintain ... the Tenant's responsibility."] is deleted and
replaced by the following: "From and after February 1, 1995, Landlord shall
maintain and, except as provided in the next two immediate sentences, make all
necessary structural repairs, replacements and alterations to the Building,
including but not limited to, foundations, exterior walls, marquees, structural
columns and structural beams, but excluding the roof of the Building and
electrical or plumbing fixtures located in the Building. Tenant shall make any
repairs necessary as a result of Tenant's or any of its agent's or invitee's
acts. In addition, Tenant shall maintain and make all necessary structural
repairs to the roof of the Building and electrical or plumbing fixtures located
in the Building. Tenant represents to Landlord that to the best of its
knowledge, the structural portions of the Building which Landlord is required to
maintain and repair pursuant to the first sentence above of this section, are
now was of the date of this Amendment in good order and satisfactory condition."
6. After the execution of this Amendment, Landlord shall complete
the following work at its cost and expense: (1) recarpet the office area of the
Premises; and (2) repaint the office area of the Premises. Landlord shall cause
such work to be commenced after the close of business on a Friday afternoon and
completed by Sunday evening on the same weekend. Tenant shall notify Landlord at
least even (7) business days prior to the Friday on which Tenant desires the
work to be commenced, and Tenant shall at its cost and expense move all
furniture and equipment from the office area prior to the date the work is
commenced and move such furniture an equipment back into the office area after
the work is completed.
7. In Paragraph 10.2 of the Lease, line 3, for purposes of this
Amendment, "Mesirow Realty Brokerage" shall be deleted and replaced by "Frain,
Camins & Swartchild".
8. Except as modified by the terms of this Amendment, the Lease
shall remain in full force and effect.
27
<PAGE>
IN WITNESS WHEREOF, the Landlord and Tenant have caused this First
Amendment to Lease to be executed as of the 12 day of December 1994.
------
LANDLORD: TENANT:
American National Bank and Trust Company TI Steel Tubes (U.S.A.) Apollo Golf
of Chicago, as Trustee aforesaid (s/KN), Inc., a New Jersey corporation
By: s/PM By: K Noronko
------------------------------------ ----------------------------------
Its: 2nd VP Its: VP/General Manager
------------------------------- ------------------------------
28
<PAGE>
LEASE AGREEMENT Exhibit 10.22
THIS AGREEMENT, made this 12 day of May 1997, between
Coyote Sports, Inc., hereinafter known as "Tenant," and Accent
Properties as agent for and, hereinafter known as ("Owner").
s/GE WITNESSETH
Owner hereby does rent until Tenant the premises known and
described as Apartment No. A On the Floor of the building known
as 2291 Arapahoe Located at Boulder, CO 80302
TO HAVE AND TO HOLD the same from the 1 Day of June, 1997, to
the 1 Day of June, 1998. Tenant agrees to pay to Owner as
rental for said premises the sum of Eight Thousand Six Hundred
Forty Dollars ($8,640.00) payable in advance in equal monthly
installments of $720.00, on the 1st day of each and every
calendar month during the term, as hereinbefore set forth in
this Lease Agreement. If the term shall commence upon a day
other than the calendar day of the month, then Tenant shall pay
upon the commencement date a pro rata portion of the monthly
rent as above provided so that all future rental payments will
be due on the 1st Day of every month. It is also understood and
agreed that a delinquency charge may be assessed by Owner on
rents not paid in full when due as follows:
RENTS(OR ANY PORTION THEREOF) RECEIVED AFTER 5PM ON THE 5TH -
$10 PER DAY CHARGED FROM THE 1ST. EXAMPLE: PAID ON THE 9TH -
$90. It is also understood and agreed that in the event
Resident pays his rent by check and same is not cashed and paid
by the bank when presented, for whatever reason, Resident shall
pay, in addition to any late charges and in addition to the
rent, a charge for each occurrence in the amount of $20.
This lease is subject to the following terms and conditions to
which Owner and Tenant specifically agree.
1. Tenant agrees to notify Owner in writing of its
intention to vacate said premises at least thirty (30) days
Notice to prior to the termination of the tenancy.
Vacate-
Holdover: In the event Tenant holds over the leased premises
after the term of the tenancy specified herein, said holdover
shall be deemed a month-to-month tenancy, and Tenant shall be
liable for the monthly rental as specified herein for each
month that said premises is held over by Tenant.
Owner shall be entitled to terminate the tenancy
provided for in this lease without cause upon notice as
required by law.
Security 2. The Tenant concurrently with the execution of the
Deposit: Agreement has deposited with the Owner and will keep on deposit
during the term of this Agreement, the sum of Seven Hundred
Twenty Dollars ($ 720.00). The receipt of which is hereby
acknowledged, which sum shall be retained by Owner as security
for the payment by Tenant of the rent herein agreed to be paid
and for the Faithful performance of all terms, conditions, and
covenants of this Agreement. If, at any time, during the term
of this Agreement, the Tenant shall be in default in the
performance of any of the provisions of this Agreement, Owner
shall have the right to use said deposit, or so much thereof as
is necessary, in payment of any rental in default, as
aforesaid, and in payment of any damages incurred by Owner by
reason of said default of Tenant. In the event that said
deposit which shall be paid over and held by Owner, shall not
be utilized as aforesaid, then said deposit shall be refunded
to Tenant without interest, upon the full performance of this
Agreement by Tenant.
1
<PAGE>
Said security deposit shall be held by owner as security
against damage to the property of Owner (normal wear and tear
excepted), as defined on Exhibit "A" hereto attached; Tenant
vacating the premises prior to the termination of the tenancy;
Tenant vacating said premises without providing proper notice
in accordance with paragraph 1 of this Agreement; and the cost
of cleaning the apartment after Tenant vacated same - said
cleaning being hereby specifically contracted for by Tenant,
charges more expressly defined and hereby agreed as reasonable,
on Exhibit "A" hereto attached.
It is agreed by Tenant and Owner, that, if all covenants set
forth in this Agreement have been complied with and owner has
not sustained any damage to his property, nor is required to
clean said apartment, and further provided, that all provisions
relative to a notification to vacate are complied with by
Tenant, Owner shall refund said deposit to Tenant. However, if
Tenant defaults in the performance of any of the terms hereof
and/or damages any of Owner's property, vacated the apartment
prior to termination of the lease term, vacates the apartment
without tendering proper notice as provided in paragraph 1,
leaves the apartment in a condition which requires Owner to
clean same, Owner shall have the right to permanently retain
and apply so much of the subject deposit as to compensate Owner
for damages sustained by Owner, whether said damages be the
cost of repair, replacement, and/or cleaning of said apartment,
or the loss of rental due to improper termination of the lease
term, or vacation by Tenant and/or failure by Tenant to provide
proper notice. If any balance remains thereafter, Owner shall
return same to Tenant. The security deposit due Tenant, if any,
will be refunded by check mailed, certified mailing, to the
forwarding address of the Tenant and make payable to a person
signing this Agreement, but said refund, if any, or any notice
required by law, will not be made earlier than fourteen (14)
days not later than sixty (60) days from the date of the
termination of the lease Agreement. Any refunds of security
deposits cannot be obtained at the office of Owner. If the
deposit retained by Owner is insufficient to compensate Owner
for damages and/or losses, as previously set forth, Owner shall
be entitled to collect additional compensation from Tenant.
This provision shall not limit Owner's equitable or legal
Term- rights and is in addition to all other rights owner may have
Minimum for Tenant's breach of the terms of the Agreement.
Term
Service 3. In the event Tenant terminates this lease prior to
Charge ninety (90) days from the date of commencement of the term of
this lease, Tenant agrees to pay Owner a service and
administrative charge of Twenty-five ($25.00) dollars upon such
termination. Said charge shall not be payable in the event that
Owner terminates prior to said 90-day period unless said
termination is due to the default of Tenant. Said charge may be
retained by Owner out the security deposit made by Tenant.
4. Tenant agrees to abide by all rules and regulations
posted upon the premises or within the building or given by
written notice from Owner to Tenant, as Owner may make, from
time to time, for (a) the protection of the building; (b) usage
Tenant of the laundry room, clubhouse, swimming pool or to other
Covenants facilities available for all the Tenants alike and, (c) the
general welfare of all Tenants alike which in Owner's judgment
may be necessary for the safety and cleanliness and for the
preservation of good order in the building.
5. The Tenant, in consideration of the renting of said
premises and the rental rate as herein provided, covenants and
agrees as follow: to comply with all regulations now or
hereafter made for no purpose prohibited by the laws of the
United States or the State of Colorado or by the ordinances of
any municipality or City wherein the premises lie; to comply in
all respects with any insurance policies now upon or covering
said premises or which may hereafter be put upon the same and
not to permit anything to be done at or within the rented
premises which shall vitiate or increase the current rate of
insurance thereupon or upon property kept therein; not to
commit, permit or suffer any objectionable, disorderly conduct,
unreasonable noise or nuisance whatever about the premises on
his part, his family members, guest, servants or employees or
commit, permit or suffer anything to be done by any of them
that will unreasonable disturb or interfere with the rights,
comforts or convenience of other tenants; to keep or have no
roomers or boarders or guests unless the written approval of
the Owner is given; to keep no animals in said
2
<PAGE>
premises without prior written consent of Owner; to keep the
premises in good, clean and sanitary condition and not to
obstruct, place or permit to be placed, any dirt, rubbish or
thing in any of the plumbing fixtures, hallways or stairways of
said building; to change all light bulbs whenever same is
required; to place no additional locks upon any door of the
building or to take off any doors except with the consent of
the Owner; not to sublet the premises or any part thereof or to
transfer or assign this lease without the written consent of
the Owner.
Tenant further covenants and agrees; that Tenant has
examined the premises and the furnishings therein, as itemized
on Exhibit "A" attached hereto and made a part of the
Agreement, and is satisfied with the physical condition and, by
taking possession, admits the receipt of them in good order and
repair except as otherwise specified in writing; that no
representation as to condition or repair has been made except
as is contained in this agreement and that no promise to
decorate, alter, repair or improve the premises has been made
except such as is contained in this Agreement; to drive no
nails or screws or their equivalent into the walls, ceilings or
woodwork in said premises; in the event the premises contain a
patio or a balcony, not to put any roof or covering thereon or
to make any alterations to said patio or balcony except with
the written consent of Owner; to be responsible for the
watering and care of such plants, if any, that Owner may plant
within the patio area except for above ground potted plants;
not to permit or plant any plants in the patio except such
plants as have been planted by Owner; not to attach or hang
from the exterior of the premises or the building of which the
premises are a part, any radio or television antenna, to be
responsible and liable for any injury or damage done to the
rented premises or the building in which the same are located,
by Tenant, his employees or any occupant or other person whom
Tenant permits to be in or about the premises; to pay the
expense of replacing all glass broken and replacing all keys
lost or broken and maintain the premises and furnishings in
good condition, order and repair as the same are in at the
commencement of the term, ordinary wear and tear and damage by
fire or other casualty excepted, and permit no waste of the
rented premises or allow the same to be done, but shall take
good care of the same; to allow Owner, an employee or agent of
Owner to enter said apartment at any reasonable time to make
repairs, inspect or show the premises to persons wishing to
rent or purchase same; the Owner or its agents or employees may
enter the same by use of a master key or forcibly without being
liable for damages thereof, and without affecting the
obligations of Tenant thereunder.
Tenant's
Rights: 6. Tenant shall have a right to peaceable possession of
the subject premises and reasonable access thereto. Tenant
shall have a right to possession of the premises upon
commencement of the lease term specified in this Lease
Agreement and thereafter, upon Tenant's compliance with the
terms of the lease Agreement, shall have a right to exclusive
possession of said premises during the term of the leasehold.
Tenant shall have a right to use the leased premises for all
intended purposes and in accordance with the laws of the United
States, the State of Colorado and any local municipality, and
Tenant shall have a right to so use the common facilities, if
any, applicable to the leased premises.
Public
Utilities: 7. Tenant further agrees to contact Public Service
Company for his electric service within three (3) days from
date of occupancy and agrees to pay promptly for all
electricity which is supplied to Tenant on the demised
premises; that Tenant shall not hold Owner liable for any claim
of damages or rebate or charge of any kind whatsoever in the
case of the interruption of the supply of heat, water or any
other service furnished to Tenant occasioned by accident,
failure of supply or any other reason unless caused by the
affirmative negligence or intentional act of Owner. The
obligation of Tenant to pay the rent specified in this
Agreement and perform all of the other covenants of Tenant
thereunder shall not be affected, impaired, or excused because
Owner is unable to supply or is delayed in supplying any
service, including water, heat, repairs, alterations, additions
etc., expressly or impliedly to be supplied or made by Owner,
if Owner is delayed or prevented from doing so by causes
Tenant's beyond the control of Owner.
Waiver
8. In consideration of the leasing of these premises by
Tenant and in further consideration of Owner permitting Tenant,
subject to Tenant's compliance with all promulgated rules and
regulations, the right of usage,
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to Tenant or members of his household resulting form any cause
whatsoever arising out of their usage of such swimming pool,
clubhouse or other facilities.
Tenant shall neither hold nor attempt to hold Owner,
its agents or its servants, liable for any injury or damage to
persons or property either proximate or remote no matter how
occasioned on account of any defect in the building premises on
account of flooding or fire or any injury or damage arising
from the acts of the owners or occupants of adjoining property
or for any injury or damage from the negligence of the Owner,
or agents or employees of the Owner and Tenant, or from the
acts of other Tenants in the said building, including, but not
by way of limitation, the loss of property stored in the
storage space provided for Tenant, or injury to persons or loss
of property in the laundry room or either losses sustained on
the premises and the said Tenant hereby waives any and all
claims for damages which may be suffered thereby.
Failure to 9. If for any reason the said demised premises shall not
Give Pos- be ready for occupancy or available on the date specified
session: herein for the commencement of the term of this Agreement, or
within twenty (20) days thereafter, the Agreement shall,
nevertheless, continue in all respects in full force and effect
and Tenant shall have no right to rescind, cancel or terminate
the same and Owner shall not be liable for damages, other than
to the extent of the abatement of rent from the date of the
commencement of this Agreement to the date of possession to
Tenant on the rental basis.
Remedies
Of Owner: 10. Upon Tenant's failure to pay any installment of rent
or any part thereof when due, or if Tenant shall violate any of
the terms, provisions or promises of the Agreement, Owner shall
have the right to re-enter and repossesses the apartment,
without notice of any kind and exclude Tenant therefrom without
terminating this Lease Agreement. Owner may thereupon remove
and store, at the expense of Tenant, all Tenant's personal
effects and property found in or around the apartment. In the
event of the seizure of furniture or other movable effects from
the apartment belonging to Tenant, Tenant agrees that in order
to satisfy any unpaid account owing by Tenant to owner, Owner
shall have the right to sell any of the effects seized from the
apartment, by judicial or conventional sale, and at either
public or private sale, all at Owner's option, and the Tenant
waives the benefit of appraisement. In the event Owner elects
to re-enter and repossess the apartment pursuant to this
provision, it is hereby specifically agreed that such re-entry
and repossession by Owner will not serve as termination of this
Lease Agreement nor as a release by Owner of Tenant's duty to
pay the agreed-upon rental for the unexpired portion of the
lease term provided for herein; and in the event of such re-
entry and repossession by Owner, all rights of Tenant as a
resident shall terminate, but Tenant shall remain liable for
the rent herein specified during the remaining term of this
Agreement plus Owner's cost of repossessing the apartment,
including a reasonable attorney's fee in the amount of Two
Hundred Dollars ($200.00), court costs, and all other
expenditures incurred by Owner as a result of Tenant's default.
In the event Owner is required to defend itself in any action
brought by Tenant arising out of this Agreement, Owner shall be
entitled to claim against Tenant all costs incurred in such
defense including reasonable attorney's fees in an amount of
not less than Two Hundred Dollars ($200.00); and in the event
Owner is successful in its defense against Tenant and is found
to be without fault in the contested matter, Tenant agrees to
pay to Owner said costs and attorney fees. The failure on the
part of Owner to re-enter and repossess the apartment, or to
exercise any of its rights thereunder upon default, shall not
preclude Owner from the exercise of any such right during the
continuance of such default or upon any subsequent default.
Acceptance of past-due rent will in no way act as a waiver of
Owner's right to terminate this Lease Agreement for non-payment
of rent when due, and no notice or demand shall be required for
the enforcement thereof. It is understood and agreed that the
mention in this Lease Agreement of any particular remedy shall
no preclude Owner from any other remedy, in law or in equity.
Tenant's
Representation 11. In the event Tenant makes any misrepresentation in
entering the demised premises, either on the application which
he is required to fill out and which is a condition to
effectuating its Agreement or otherwise, Owner may treat the
same as a violation of a covenant of this Agreement and the
remedies, as provided herein for any violation and any other
remedies provided by law, shall become and are applicable.
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Owner's 12. Owner or Owner's agents have made no representations
Representation or promises with respect to the said building or the land which
it is erected, except as herein expressly set forth, and no
rights, easements or licenses are acquired by Tenant by
implication or otherwise except as expressly set forth in the
provisions of this Agreement. The taking possession of the
premises by Tenant shall be conclusive evidence, as against
Tenant, that Tenant accepts same "as is" and that said premises
and the building of which the same form a part where in good
and satisfactory condition at the time such possession was so
taken.
Owner's 13. Owner shall at all times have the right to distrain
Lien: for rent due, and at all times shall retain a valid and first
lien upon all of the property of the Tenant in or about said
apartment, as security for the payment of all rent herein
reserved and no furniture contained in said apartment shall be
removed by Tenant without first obtaining from Owner, or the
person in charge of said building, a permit therefor. Nothing
herein contained shall in any manner be held to restrict or
abridge any remedy otherwise given by law for the collection of
said rent, or for the recovery of the possession of said
apartment.
Joint and
Several 14. It is understood and agreed that each party signing
Liability: this Lease Agreement as Tenant is liable for the full amount of
the rent provided herein. The obligation of the Tenant's is
joint and several.
Subordination: 15. This Agreement is subject and subordinate to all
ground or underlying leases and mortgages and/or deed of trust
and other security instruments executed by owner, or any of its
officers and directors, which may now or hereafter affect the
real property whereon the apartment and the apartment buildings
are situated.
Severability: 16. The construction, validity and effect of this
Agreement shall be governed by the laws of the State of
Colorado. Any provision of this Agreement prohibited by such
laws shall be ineffective to the extent of such prohibition
without invalidating the remaining provisions thereof.
Waiver- 17. None of the provisions of the terms set forth in this
Alteration lease Agreement shall be deemed waived unless such waiver be in
writing and signed by the parties hereto. Any alterations of
the provisions or terms set forth in this Lease Agreement shall
be set forth in writing and signed by the parties hereto.
Successors: 18. The promises, agreements, covenants and conditions
contained in this Agreement shall bind and inure to the benefit
of Owner and Tenant and their respective executors,
administrators, successors, and, except as otherwise provided
in this Agreement, their assigns.
19. Repairs under $50.00 are to be paid by the Tenant.
20. No Pets.
IN WITNESS WHEREOF, the said Owner and Tenant hereunto cause
their respective names to be subscribed the day and year first
above mentioned.
/s/
------------------------------ ---------------------------
/s/
------------------------------ ---------------------------
AGENT FOR OWNER TENANT
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EXHIBIT 10.23
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. Basic Provisions ("Basic Provisions")
1.1 Parties: This Lease ("Lease"), dated for reference purposes only, July
1, 1994, is made by and between Cape Partners ("Lessor") and Cape Composites
Incorporated ("Lessee"), (collectively the "Parties," or individually a
"Party").
1.2 Premises: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
know by the street address of 7014 Carroll Rd., San Diego, California located in
the County of San Diego, State of California and general described as (describe
briefly the nature of the property) an approximate 10,284 square foot portion of
a larger industrial building zoned M-1B.
1.3 Term: 25 year option years and ----- months ("Original Term")
-----
commencing July 1, 1994 ("Commencement Date") and ending June 30, 2019
("Expiration Date"). (See paragraph 3 for further provisions.)
1.4 Early Possession: ("Early Possession Date"). (See paragraphs 3.2 and
3.3 for further provisions.)
1.5 Base Rent: $5100.00 increase year 2 $133.22 per month ("Base Rent"),
payable on the 1st day of each month commencing August 1, 1991. (See Paragraph 4
for further provisions.)
[_] If this box is checked, there are provision in this Lease for the Base Rent
to be adjusted.
1.6 Base Rent Paid Upon Execution: $ _____ as Base Rent for the period.
1.7 Security Deposit: $NONE ("Security Deposit") (See Paragraph 5 for
-----
further provisions.)
1.8 Permitted Use: ________ (See Paragraph 6 for further provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated
herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers (collectively,
the "Brokers") and brokerage relationships exist in the transaction and are
consented to by the Parties (check appropriate boxes):
___________________________________ represents
[_] Lessor exclusively ("Lessor's Broker"); [_] both Lessor and Lessee, and
___________________________________ represents
[_] Lessee exclusively ("Lessee's Broker"); [_] both Lessor and Lessee. (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are to
be guaranteed by _________ ("Guarantor"). (See Paragraph 37 for further
provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs _____ through _____ and Exhibits ______ all of which constitute a
part of this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in the Lease, or that
may have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating and loading
doors, if any, in the Premises, other than those constructed by Lessee, shall be
in good operating condition on the Commencement Date. If a non-compliance with
said warranty exists as of the Commencement Date, Lessor shall, except as
otherwise provided in this Lease, promptly after receipt of written notice from
Lessee setting forth with specificity the nature and extent of such non-
compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within thirty (30) days
after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
<PAGE>
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alternations or Utility Installations (as defined in Paragraph 7.3(a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same relate to Lessee's occupancy of the Premises and/or the
term of the Lease, and (c) that neither Lessor, nor any of Lessor's agents, has
made any oral or written representations or warranties with respect to the said
matters other than as set forth in this Lease.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and Insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of
the Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when
the term actually commences, if possession is not tendered to Lessee when
required by this Lease and Lessee does not terminate this Lease, as aforesaid,
the period free of the obligation to pay Base Rent, if any, that Lessee would
otherwise have enjoyed shall run from the date of delivery of possession and
continue for a period equal to what Lessee would otherwise have enjoyed under
the terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
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4. Rent.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 12.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorney's fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor, sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Base
Provisions. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein, that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons
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entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but in compliance
with all Applicable Law, use any ordinary and customary materials reasonably
required to be used by Lessee in the normal course of Lessee's business
permitted on the Premises, so long as such use is not a Reportable Use and does
not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to the
use or present of any Hazardous Substance, activity or storage tank by Lessee
upon Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefrom or therefor, including, but not limited to, the installation
(and removal on or before Lease expiration or earlier termination) of reasonably
necessary protective modifications to the Premises (such as concrete
encasements) and/or the deposit of an additional Security Deposit under
Paragraph 6 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor, Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground Lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control, Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee shall, at Lessee's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a) shall have the right to enter the Premises at any time, in the
case of an emergency, and
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otherwise at reasonable times, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Lessee with this Lease and all
Applicable Laws (as defined in Paragraph 6.3), and to employ experts and/or
consultants in connection therewith and/or to advise Lessor with respect to
Lessee's activities, including but not limited to the installation, operation,
use, monitoring, maintenance, or removal of any Hazardous Substance or storage
tank on or from the Premises. The costs and expenses of any such inspections
shall be paid by the party requesting same, unless a Default or Breach of this
Lease, violation of Applicable Law or a contamination, caused or materially
contributed to by Lessee is found to exist or be imminent, or unless the
inspection is requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In any such case,
Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case may
be, for the costs and expenses of such inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and
Alterations.
7.1 Lessee's Obligations. Lessor RESPONSIBLE - triple net lease
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as to
condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.), 7.2
(Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises, Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and maintain
contracts, with copies to Lessor, in customary form and substance for, and with
contractors specializing and experienced in, the inspection, maintenance and
service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon,
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or the equipment therein, whether structural or nonstructural, all of which
obligations are intended to be that of the Lessee under Paragraph 7.1 hereof. It
is the intention of the Parties that the terms of this Lease govern the
respective obligations of the Parties as to maintenance and repair of the
Premises. Lessee and Lessor expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease with respect to, or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of, any needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
Interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification. Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
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7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or
deterioration that would have been prevented by good maintenance practice or by
Lessee performing all of its obligations under this Lease. Except as otherwise
agreed or specified in writing by Lessor, the Premises, as surrendered, shall
include the Utility Installations. The obligation of Lessee shall include the
repair of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8, except to the extent of the cost attributable to liability
insurance carrier by Lessor in excess of $1,000,000 per occurrence. Premiums for
policy periods commencing prior to or extending beyond the Lease term shall be
prorated to correspond to the Lease term. Payment shall be made by Lessee to
Lessor within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limited coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not
contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this Lease
as an "insured contract" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
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(b) Carried by Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood and/or earthquake unless
required by a Lender), including coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has
a deductible clause, the deductible amount shall not exceed $1,000 per
occurrence, and Lessee shall be liable for such deductible amount in the event
of an Insured Loss, as defined in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be
liable for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to Insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring
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Party under Paragraph 8.3. Such insurance shall be full replacement cost
coverage with a deductible of not to exceed $1,000 per occurrence. The proceeds
from any such insurance shall be used by Lessee for the replacement of personal
property or the restoration of Lessee Owned Alterations and Utility
Installations. Lessee shall be the Insuring Party with respect to the insurance
required by this Paragraph 8.4 and shall provide Lessor with written evidence
that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall
invalidate the insurance policies referred to in this Paragraph 8. If Lessee is
the Insuring Party, Lessee shall cause to be delivered to Lessor certified
copies of policies of such insurance or certificates evidencing the existence
and amounts of such insurance with the insureds and loss payable clauses as
required by this Lease. No such policy shall be cancellable or subject to
modification except after thirty (30) days prior written notice to Lessor.
Lessee shall at least thirty (30) days prior to the expiration of such policies,
furnish Lessor with evidence of renewals or "insurance binders" evidencing
renewal thereof, or Lessor may order such insurance and charge the cost thereof
to Lessee, which amount shall be payable by Lessee to Lessor upon demand. If
the Insuring Party shall fail to procure and maintain the insurance required to
be carried by the Insuring Party under this Paragraph 8, the other Party may,
but shall not be required to, procure and maintain the same, but at Lessee's
expense.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor ("Waiving Party") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured against
under Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground Lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought
against Lessor by reason of any of the foregoing matters, Lessee upon notice
from Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee. Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
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9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
Improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage-Insured Loss. If a Premises Partial Damage that is an
insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
shall be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.
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9.3 Partial Damage-Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to repair
exceeds one (1) month's Base Rent, whether or not an Insured Loss, Lessor may,
at Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option
during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage-Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b), shall be abated
in proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of Base Rent, Real Property Taxes, insurance premiums, and
other charges, if any, as aforesaid, all other obligations of Lessee hereunder
shall be performed by Lessee, and Lessee shall have no claim against Lessor for
any damage suffered by reason of any such repair or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment, in such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve months.
9.8 Termination-Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor
shall, in addition, return to Lessee so much of Lessee's Security Deposit as
has not been, or is not then required to be, used by Lessor under the terms of
this Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period
of time prior to or after the expiration or earlier termination of the term
hereof, Lessee's share of such taxes shall be equitably prorated to cover only
the period of time within the tax fiscal year this Lease is in effect, and
Lessor shall reimburse Lessee for any overpayment after such proration. If
Lessee shall fail to
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pay any Real Property Taxes required by this Lease to be paid by Lessee, Lessor
shall have the right to pay the same, and Lessee shall reimburse Lessor therefor
upon demand.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by
Lessee under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy, assessment or charge, or any increase therein,
imposed by reason of events occurring, or changes in applicable law taking
effect, during the term of this Lease, including but not limited to a change in
the ownership of the Premises or in the improvements thereon, the execution of
this Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, *
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessee. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor of all charges jointly metered with other premises.
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12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms in Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be *
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to *
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or subLessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
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(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the subLessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the subLessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or subLessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or subLessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interests in all rentals and income arising from any sublease of all or a
portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease.
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of
this or any other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a subLessee, be deemed liable to the subLessee for
any failure to Lessee
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to perform and comply with any of Lessee's obligations to such subLessee under
such sublease. Lessee hereby irrevocably authorizes and directs any such
subLessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublease shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary, Lessee shall have no right or claim against
said subLessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said subLessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any subLessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such subLessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No subLessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the subLessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The subLessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the subLessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with the Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as
a failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" is defined as the occurrence of any one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary * required to
be made by Lessee hereunder, whether to Lessor or to a third party, as and when
due, the failure by Lessee to provide Lessor with reasonable evidence of
insurance or surety bond required under this Lease, or the failure of Lessee to
fulfill any obligation under this Lease which endangers or threatens life or
property, where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to *.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence * executed original
form, if applicable) of (i) compliance with applicable law per Paragraph 6.3,
(ii) the inspection, maintenance and service * required under Paragraph 7.1(b),
(iii) the rescission of an unauthorized assignment or subletting per Paragraph
12.1(b), (iv) a Tenancy Statement * Paragraphs 16 or 37, (v) the subordination
or non-subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of * obligations
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under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution
of any document requested under Paragraph 42 *, or (viii) any other
documentation or information which Lessor may reasonably require of Lessee under
the terms of this Lease, where any such * continues for a period of ten (10)
days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 that are to
be observed, complied with or performed by Lessee, other than those described in
subparagraphs (a), (b), or (c), above, where such * continues for a period of
thirty (30) days after written notice thereof by or on behalf of Lessor to
Lessee; provided, however, that if the nature of * Default is such that more
than thirty (30) days are reasonably required for its cure, then it shall not be
deemed to be a Breach of this Lease by * if Lessee commences such cure within
said thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of * (ii)
Lessee's becoming a "debtor" as defined in 11 U.S.C. (S)101 or any successor
statute thereto (unless, in the case of a petition filed against * same is
dismissed within sixty (60) days); (iii) the appointment of a trustee or
receiver to take possession of substantially all of Lessee's assets * the
Premises or of Lessee's interest in this Lease, where possession is not restored
to Lessee within thirty (30) days; or (iv) the attachment, * other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure * discharged within thirty
(30) days; provided, however, in the event that any provision of this
subparagraph (e) is contrary to any applicable law, provision shall be of no
force or effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder * materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor *
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of *
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach * and
Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with *
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial * of Lessee and
the guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or obligation of
Lessee under this Lease, within ten (10) days after written notice to Lessor (or
in case of an emergency, without notice), Lessor may at its option (but without
obligation to do so), perform such duty or obligation on Lessee's * including
but not limited to the obtaining of reasonably required bonds, insurance
policies, or governmental licenses, permits or approvals. The cost: * expenses
of any such performance by Lessor shall be due and payable by Lessee to Lessor
upon invoice therefor. If any check given to Lessor by Lessee shall not be
honored by the bank upon which it is drawn, Lessor, at its option, may require
all future payments to be made under this Lease by * to be made only by
cashier's check. In the event of a Breach of this Lease by Lessee, as defined
in Paragraph 13.1, with or without further * demand, and without limiting Lessor
in the exercise of any right or remedy which Lessor may have by reason of such
Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease and the term hereof shall terminate * Lessee
shall immediately surrender possession of the Premises to Lessor. In such event
Lessor shall be entitled to recover from Lessee: (i) the * time of the award of
the unpaid rent which had been earned at the time of termination; (ii) the worth
at the time of award of the amount by which * unpaid rent which would have been
earned after termination until the time of award exceeds the amount of such
rental loss that the Lessee or * could have been reasonably avoided; (iii) the
worth at the time of award of the amount by which the unpaid rent for the
balance of the term after the * of award exceeds the amount of such rental loss
that the
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Lessee proves could be reasonably avoided; and (iv) any other amount
necessary to * Lessor for all the detriment proximately caused by the Lessee's
failure to perform its obligations under this Lease or which in the ordinary
course of * would be likely to result therefrom, including but not limited to
the cost of recovering possession of the Premises, expenses of reletting,
including * renovation and alteration of the Premises, reasonable attorneys'
fees, and that portion of the leasing commission paid by Lessor applicable to
the * term of this Lease. The worth at the time of award of the amount referred
to in provision (iii) of the prior sentence shall be computed by discounting *
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessor's right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer. Lessor shall have the right
to recover in such proceeding the unpaid rent and damage * are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a * and grace period
required under subparagraphs 13.1(b), (c) or (d) was not previously given, a
notice to pay rent or quit, or to perform or quit, as the case may be, given to
Lessee under any statute authorizing the forfeiture of leases for unlawful
detainer shall also constitute the applicable notice for grace period purposes
required by subparagraphs 13.1(b), (c) or (d). In such case, the applicable
grace period under subparagraphs 13.1(b), (c) or (d) and under the unlawful
detainer statute shall run concurrently after the one such statutory notice, and
the failure of Lessee to cure the default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of this
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. * Paragraphs
12 and 36 for the limitations on assignment and subletting which limitations
Lessee and Lessor agree are reasonable. Acts of maintenance or preservation,
efforts to relet the Premises, or the appointment of a receiver to protect the
Lessor's interest under the Lease, shall not constitute termination of the
Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor under the
laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination of
Lessee's right to possession shall not relieve Lessee from liability under any
indemnity provisions of this Lease as to matters occurring or accruing during
the term hereof or by reason of Lessee's occupancy of the premises.
13.3 Inducement Recapture in Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or * the giving
or paying by Lessor to or for Lessee of any cash or other bonus, inducement or
consideration for Lessee's entering into this Lease, all of which concessions
are hereinafter referred to as "Inducement Provisions," shall be deemed
conditioned upon Lessee's full and faithful performance of all of the terms,
covenants and conditions of this Lease to be performed or observed by Lessee
during the term hereof as the same may be extended. Upon the occurrence of a
Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such Inducement
Provision shall be immediately due and payable by Lessee to Lessor, and
recoverable by Lessor as additional rent due under this Lease, notwithstanding
any subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent
or the cure of the Breach which initiated the operation of this Paragraph shall
not be deemed a waiver by Lessor of the provisions of this Paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but
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are not limited to processing and accounting charges, and late charges which may
be imposed upon Lessor by the terms of any ground lease, mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent or any other sum
due from Lessee shall not be received by Lessor or Lessor's designee within five
(5) days after such amount shall be due, then, without any requirement for
notice to Lessee, Lessee shall pay to Lessor a late charge equal to six percent
(6%) of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of costs Lessor will incur by reason
of late payment by Lessee. Acceptance of such late charge by Lessor shall in no
event constitute a waiver of Lessee's Default or Breach with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights and
remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments of
Base Rent, then notwithstanding Paragraph 4 * or any other provision of this
Lease to the contrary, Base Rent shall, at Lessor's option, become due and
payable quarterly in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
premises whose name and address shall have been furnished * Lessee in writing
for such purpose, of written notice specifying wherein such obligation of Lessor
has not been performed; provided, however, that if * nature of Lessor's
obligation is such that more than thirty (30) days after such notice are
reasonably required for its performance, then Lessor shall not be in breach of
this Lease if performance is commenced within such thirty (30) day period and
thereafter diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
are of the Premises, or more than twenty-five percent (25%) of the land area not
occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution in value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessee
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation, except to the extent that Lessee
has been reimbursed therefor by the condemning authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to said
Brokers jointly, or in such separate shares as they may mutually designate in
writing a fee as set forth in a separate written agreement between Lessor and
said Brokers (or in the event there is no separate written
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agreement between Lessor and said Brokers, the sum of $_______________) for
brokerage services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) If Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar to an
Option granted to Lessee in this Lease, or (b) if Lessee acquires any rights to
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or (c) if Lessee remains in possession of the Premises,
with the consent of Lessor, after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the premises and/or any adjacent property in which Lessor has interest, or (e)
if Base Rent is increased, whether by agreement or operation of an escalation
clause herein, then as to any of said transactions, Lessor shall pay said
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this Paragraph 15. Each Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor, do each hereby agree to indemnify, protect, defend and hold harmless
from and against liability for compensation or charges which may be claimed by
any such unnamed broker, finder or other similar party by reason of any dealings
or actions of the Indemnifying Party, including any costs, expenses, attorneys'
fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease. Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter
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to be performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only upon
the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereof. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent,
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the acceptance of rent by Lessor shall not be a waiver of any preceding Default
or Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right to Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration of earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation. Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have the Lessee and/or any Option granted hereby
superior to the lien of this Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior Lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior Lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30,
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of the Premises, Lessee and
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Lessor shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. Attorney's Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or Lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon
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receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
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39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of
time any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not be
extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
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partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD
BE CONSULTED.
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The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at San Diego Executed at San Diego
on July 1, 1994 on July 1, 1994
by LESSOR: by LESSEE:
____________________________________ ________________________________________
Cape Partners Cape Composites Incorporated
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By /s/ REX B. GUSNELL By /s/ V.W. JAANICKE
---------------------------------- --------------------------------------
Name Printed: Rex B. Gusnell Name Printed: V.W. Jaanicke
----------------------- ---------------------------
Title: General Partner Title: President
------------------------------ ----------------------------------
By /s/ V.W. JAANICKE By /s/ A.R.LOPEZ
---------------------------------- --------------------------------------
Name Printed: V.W. Jaanicke Name Printed: A.R.LOPEZ
----------------------- ---------------------------
Title: Partner Title: Vice President
------------------------------ ----------------------------------
Address:____________________________ Address:________________________________
____________________________________ ________________________________________
Tel. No. ( ) Fax No. ( ) Tel. No. ( ) Fax No. ( )
---------- --------- ---------- -------------
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figureoa Street, Suite M-1, Los Angeles, CA
90071. (213) 687-6777, Fax No. (213) 687-8616.
*Illegible
27
<PAGE>
SUBLEASE
--------
This Sublease is executed this _____ day of March, 1996, by and
between CAPE COMPOSITES, INCORPORATED, a California corporation to be known from
and after March 1, 1996 as C.C.I. VENDOR CORPORATION ("Sublessor"), whose
address is 4408 Mayapan Drive, La Mesa, California 92041, and WATER TECHNOLOGIES
GROUP, INC. to be known from and after March 1, 1996 as CAPE COMPOSITES,
INCORPORATED ("Sublessee"), whose address is 7014 Carroll Road, San Diego,
California 92121-2215.
RECITALS:
--------
A. CAPE PARTNERS, as Lessor, and Sublessor, as Lessee, executed a
Lease dated July 1, 1994 (the "Master Lease") for a term commencing July 1,
1994, and ending June 30, 2019, for premises located at 7014 Carroll Road, San
Diego, California 92121, consisting approximately of a 10,284 square feet
portion of a larger industrial building (the "Leased Premises"). A copy of the
Master Lease is attached hereto as Exhibit "A."
B. Sublessor desires to sublease the Leased Premises to Sublessee,
and Sublessee desires to sublease the Leased Premises from Sublessor.
NOW, THEREFORE, SUBLESSOR AND SUBLESSEE AGREE AS FOLLOWS:
1. Subject to the terms, conditions and covenants set forth in this
Sublease, Sublessor hereby subleases to Sublessee and Sublessee hereby leases
from Sublessor the Leased Premises.
2. The Sublease shall be for a term of three (3) years commencing on
March 1, 1996 (the "Commencement Date"), and shall end on February 28, 1999.
Sublessee shall pay to Sublessor as rent for the Leased Premises the sum of
$5,233.22 per month on the first day of each month, commencing on the
Commencement Date. For any period during the term which is for less than one
full calendar month, the rent shall be prorated based upon the actual number of
days of the calendar month involved. Payment of rent shall be made to Lessor at
its address stated herein or to such other person or persons or such other
addresses as Lessor or Sublessor may from time to time designate in writing to
Sublessee.
3. Sublessee shall use and occupy the Leased Premises for designing,
developing, manufacturing and marketing composite materials and components for
sale and related uses, and for no other use whatsoever.
4. Subject to the provisions of Article 2 of the Master Lease,
Sublessee agrees that the act of taking possession will be an acknowledgment
that the Leased Premises are in a tenantable and good condition. Sublessee
will, at its expense, maintain the Leased Premises in a thorough state of repair
and good and safe condition.
EXHIBIT B-6.4
<PAGE>
5. The Sublease is subject and subordinate to the terms and
conditions of the Master Lease. The following provisions of the Master Lease
are hereby applicable to this Sublease and are incorporated by this reference:
Paragraphs 2, 4, 6.2, 6.3, 6.4, 7, 8.1, 8.2(a), 8.4, 8.5, 8.6, 8.7, 8.8, 9
through 14 inclusive, 16 and 18 through 48 inclusive.
6. Sublessee shall keep and maintain at Sublessee's sole cost and
expense the insurance required pursuant to the paragraphs 8.2(b) and 8.3 and all
its subparts notwithstanding any provision contained therein to the contrary.
7. Sublessee hereby expressly assumes and agrees to perform and
comply with all the obligations required to be kept or performed by the Lessee
under the provisions of the Master Lease identified in paragraph 5 of this
Sublease.
8. The obligation and covenant to pay rent to the Master Lessor
required by paragraphs 1 and 4.1 of the Master Lease shall be considered
performed by Sublessee to the extent of the amount rent is paid to Sublessor in
accordance with paragraph 2 of this Sublease. Sublessee shall not be
responsible for the payment of rent and taxes provided for in the Master Lease.
9. Sublessee shall have the right at any time, at Sublessor's
expense, to take any action required to be taken, but not timely taken, by
Sublessor, that may be necessary to prevent a default under the terms of the
Master Lease. Nothing contained in this Sublease shall be construed so as to
deprive Sublessee of its right to surrender or otherwise terminate this Sublease
as provided by law.
10. Sublessor agrees to maintain the Master Lease during the entire
term of this Sublease, subject, however, to any earlier termination of the
Master Lease without the fault of Sublessor. Sublessor also agrees to pay all
rentals and other payments provided for in the Master Lease in accordance with
its terms, and to comply with or perform all obligations of the Lessee under the
Master Lease that Sublessee has not assumed under the Sublease. Further,
Sublessor agrees not to modify or surrender the Master Lease as it applies to
the Leased Premises only without the prior consent of Sublessee. Any
modification or surrender made without that consent shall be null and void and
shall have no effect on the rights of Sublessee under this Sublease. Sublessor
does not assume the obligations required to be kept or performed by the Lessor
under the Master Lease.
11. If the Master Lease is terminated, this Sublease shall terminate
simultaneously and the Sublessor and Sublessee shall thereafter be released from
all obligations under this Sublease, and Sublessor shall refund to Sublessee any
unearned rent paid in advance. Sublessor shall not agree to a termination of
this Lease without the written consent of Sublessee.
12. Sublessee is hereby granted and shall, if not in default under
the Sublease, have an option to extend the term of this Sublease for an
additional three (3) years only from the original expiration of this Sublease,
but otherwise on the same terms, covenants and conditions, except that the
annual rent to be paid by Sublessor to Sublessor shall be the fair rental value
of the Leased Premises existent at the time of exercise of the option. The
option shall be exercised by
2
<PAGE>
Sublessee by giving written notice to Sublessor not less than six (6) months
preceding expiration of the original term of this Sublease. The annual rent to
be paid by Sublessee to Sublessor shall be the fair rental value of the Leased
Premises as it is at the time of exercise of the option and shall be fixed by
the parties as follows:
12.1 On or before 120 days before commencement of the extended
term, Sublessor and Sublessee shall meet and if they are able so to do, agree,
upon a rental sum to be paid by Sublessee to Sublessor. If the parties are
unable to agree, each shall appoint and appraise and give written notice of the
name and address of that appraiser to the other parity to this Sublease. The
two appointed appraisers shall, within thirty (30) days after appointment of the
last of the two appraisers to be appointed, appoint a third appraise and serve
written notice of the name and address of that appraiser to the Sublessor and
Sublessee in the manner prescribed by this Sublease for service of notice from
one party to this Sublease to the other.
12.2 All appraisers appointed under this section shall be, at the
time of their appointment, members in good standing of the American Institute of
Real Estate Appraisers.
12.3 Within fifteen (15) days after the appointment of the third
appraiser, the three appraisers shall confer and each shall submit in writing to
the Sublessor and Sublessee his or her appraisal of the fair rental value, as
described in this section, of the Leased Premises. The term "fair rental value"
as used in this section means the rental price a willing tenant would pay to a
willing landlord for the Leased Premises for the highest and best potential use
of the Leased Premises in and for the location where the Leased Premises are
located.
12.4 The appraised value agreed on in writing by any two of the
three appointed appraisers shall be conclusive and binding on the parties to
this Sublease, and shall establish the fair rental value of the Leased Premises
for purposes of this section. If no two or the three appraisers are able to
agree on the full cash market value of the Leased Premises, both the highest
appraisal and the lowest appraisal submitted by any of the three appraisers
shall be disregarded and the remaining appraisal shall be binding and conclusive
on the parties to this Sublease and shall establish the fair rental value of the
Leased Premises for purposes of this section.
12.5 If either Sublessor or Sublessee fails to appoint an
appraiser as required by this section within twenty (20) days after service on
that party of written demand to do so, the appraiser appointed by the other
party shall act for both Sublessor and Sublessee. The decision in writing of
that appraiser shall, in that event, be binding on both Sublessor and Sublessee
and establish the fair rental value of the Leased Premises for purposes of this
section.
12.6 The rent payable by Sublessee to Sublessor each month during
the extended term of this Sublease shall be the amount of rent established
pursuant to this Article 11.
12.7 If the two appraisers appointed respectively by Sublessor
and Sublessee fail, for any reason, to appoint a third appraiser within the time
required by subparagraph 11.1 of this section, either party may petition the
Superior Court for San Diego County to appoint
3
<PAGE>
the third appraiser.
12.8 Sublessor and Sublessee shall each pay the fee and all
expenses incurred by the appraiser appointed by each of them and one-half of all
expenses and the fee incurred by the third appraiser appointed pursuant to
subparagraph 11.1 of this section.
13. In the event Sublessee does not extend the terms of this Sublease
as herein provided, and holds over beyond the expiration of the term of this
Sublease, that holding over shall be deemed a month-to-month tenancy only at the
rental of twice the base rent as provided in this Sublease, payable on the first
day of each and every month thereafter until the tenancy is terminated in a
manner provided by law.
14. All notices, requests, demands and other communications under
this Sublease shall be in writing and shall be deemed duly given (i) on the date
of delivery if personally delivered, (ii) one business day after delivery by
overnight courier, telegram or facsimile, or (iii) three business days after
mailing if mailed by first-class mail, postage prepaid, to the parties at their
addresses set forth below, or such other address designated from time to time in
writing by such party to all other parties.
15. If any action or other proceeding arising out of this Sublease is
commenced by either party to this Sublease concerning the subleased premises,
then as between Sublessor and Sublessee, the prevailing party shall be entitled
to receive from the other party, in addition to any other relief that may be
granted, the reasonable attorneys' fees, costs and expenses incurred in the
action or other proceeding by the prevailing party.
Sublessor:
---------
CAPE COMPOSITES, INCORPORATED
a California corporation
By:_____________________________________
President
By:_____________________________________
Secretary
4
<PAGE>
Sublessee:
---------
WATER TECHNOLOGIES GROUP, INC.,
a California corporation
By:_____________________________________
President
By:_____________________________________
Secretary
5
<PAGE>
CONSENT OF MASTER LESSOR
The undersigned is the Lessor under the Master Lease described in the
foregoing Sublease and hereby consents to the sublease of the Leased Premises
described in this Sublease to WATER TECHNOLOGIES GROUP, INC. In granting this
consent, the undersigned does not waive any of its rights under the Master Lease
as to the Lessee or under the Sublease as to the Sublessee.
CAPE PARTNERS:
-------------
BY: THE MARCH 14, 1991, JAENICKE
FAMILY TRUST
By:_______________________________
Virgil W. Jaenicke, Trustee
By:_______________________________
Gloria W. Jaenicke, Trustee
BY: THE GOSNELL FAMILY TRUST
OF 1990
By:_______________________________
Rex B. Gosnell, Trustee
By:_______________________________
Alice J. Gosnell, Trustee
BY: SUFFREDINI FAMILY 1990
REVOCABLE TRUST
By:_______________________________
Leonard Suffredini, Trustee
By:_______________________________
Constance Suffredini, Trustee
6
<PAGE>
EXHIBIT 10.24
PURCHASE AGREEMENT
THIS AGREEMENT, made and entered into by and between PENTIUMATICS SDN.
BHD., a Malaysian corporation (hereinafter referred to as "Seller"), and SPORTMA
CORPORATION BERHAD, a Malaysian corporation (hereinafter referred to as
"Buyer"), as of the 23rd day of July, 1997.
WHEREAS, Seller is currently completing construction of an extruded
aluminum manufacturing facility in Taiping Malaysia, and Buyer desires to
purchase such extruded aluminum upon completion of the construction of the
facility and production of the extruded aluminum.
WHEREAS, Buyer desires to purchase its requirements of extruded
aluminum from Seller, and Seller desires to supply Buyer's requirements of such
extruded aluminum during the duration of this Agreement and upon the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the promises and of the mutual
covenants and obligations of the parties, it is hereby agreed as follows:
1.0 PRODUCTS
--------
The Buyer shall purchase its requirements of extruded aluminum from
Seller, and Seller shall supply Buyer's entire requirements of extruded aluminum
("Product") upon Seller's commencement of production of the Product. Production
of the Product shall begin as soon as practicable following completion of the
extruded aluminum manufacturing facility in Taiping Malaysia, which is
anticipated to be in the fourth quarter of 1997. The Product shall have the
specifications as may be reasonably required by Buyer.
Seller shall sell the Product exclusively to Buyer during the term of
this Agreement.
Time is of the essence, and therefore, Buyer reserves the right to
refuse any Product and to cancel all or any part of an order with respect to
Product not delivered within the time specified. The acceptance of defective
deliveries of Product shall not be deemed a waiver by Buyer of its right to
cancel an order, or to refuse to accept further deliveries. Seller reserves the
right to sell any Product that Buyer refuses to accept to a buyer of Seller's
choice.
2.0 PRICES
------
2.0 PRICES
------
2.1 Prices for Product will be Seller's full cost to produce the
Product (including direct production and material costs, overhead, interest and
all other costs related to the Product (whether direct or indirect) except
corporate Malaysian and United States income taxes), plus twenty percent (20%).
No additional amounts shall be chargeable to Buyer, including, but not
<PAGE>
limited to, sales, use, value-added, and other taxes of any nature, assessed
upon the Product with regard to this Agreement.
2.2 All prices are F.O.B. destination point. Terms of payment are net
thirty (30) days from the date of the invoice. Seller shall have up to 60 days
from the Buyer's ordering date in which to deliver Product, subject to
availability of materials as outlined in Section 13.0.
2.3 All amounts due hereunder shall be paid in Malaysian Ringgits.
3.0 NOTICES
-------
Written notice shall be construed to mean notification in writing to
the addresses outlined below and shall be deemed to be given: (i) when delivered
to a party, (ii) seven (7) days after mailing by prepaid U.S. first-class mail
(or equivalent Malaysian mail), or (iii) upon confirmation of receipt of
facsimile transmission:
If to the Buyer, addressed to:
Sportma Corporation Berhad
______________________
______________________
Telephone:
Facsimile:
If to the Seller, addressed to:
Pentiumatics Sdn. Bhd.
c/o Coyote Sports, Inc.
2261 Arapahoe Avenue
Boulder, CO 80302
Telephone: (303) 417-0942
Facsimile: (303) 417-1700
4.0 INDEMNIFICATION
---------------
Seller shall indemnify and hold harmless Buyer, its officers,
directors, employees, agents and representatives from and against any claims,
demands, suits and damages, including reasonable attorneys' fees, arising from
any breach by Seller of this Agreement.
2
<PAGE>
Likewise, Buyer shall indemnify and hold harmless Seller, its
officers, directors, employees, agents and representatives from and against any
claims, demands, suits and damages, including reasonable attorneys' fees,
arising from any breach by Buyer of this Agreement.
5.0 APPROVAL OF CHANGES
-------------------
Seller agrees that it will make no change in the design, material,
specifications or manufacturing operation of the Product without Buyer's prior
written approval.
6.0 ACCEPTANCE
----------
Acceptance of any part of an order of Product shall not bind Buyer to
accept future shipments, nor deprive it of any right which it may have to return
Product already accepted and acceptance of all or any part of an order of
Product shall not be deemed to be a waiver of Buyer's right either to cancel or
to return all or any portion of the goods because of failure to conform to
order, or by reason of defects latent or patent or other breach of warranty, or
to make any claim for damages, including manufacturing costs and loss of profits
or other special damages suffered by Purchaser as a result of any default of
Seller or Seller's Product or performance.
All Product, in Buyer's discretion, that are not fully up to standard
and/or not in compliance with the specifications hereof, or shipped contrary to
instructions, or in excess of the quantities specified, or substituted for
Product described, or not shipped in containers conforming to Buyer's
specifications (or, in the absence of such specifications, in recognized
standard containers), or allegedly violating any statute, ordinance, or
administrative order, rule, or regulation, may be rejected by Buyer and returned
or held at Seller's expense and risk.
7.0 RISK OF LOSS AND TITLE
----------------------
Risk of loss on Product shipped to Buyer and title to such Product
shall pass to Buyer at the F.O.B. destination point.
8.0 PURCHASE ORDERS AND ACKNOWLEDGMENTS
-----------------------------------
All purchase orders and acceptances thereof will be upon the terms and
conditions set forth in this Agreement. Buyer may send a purchase order to
Seller and Seller may acknowledge each purchase order; however, no different or
additional terms or conditions set forth in such purchase order or
acknowledgment will modify in any way the terms and conditions of this
Agreement.
9.0 WARRANTY
--------
3
<PAGE>
9.1 Each party represents and warrants to the other that it has the
power, right and authority to enter into this Agreement and to grant the rights
and undertake the obligations set forth in this Agreement.
9.2 IN CONNECTION WITH THIS AGREEMENT, PENTIUMATICS SDN. BHD. MAKES NO
WARRANTY, EITHER EXPRESS OR IMPLIED, INCLUDING THOSE OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE REGARDING THE PRODUCT SOLD HEREUNDER.
NOTWITHSTANDING ANY FAILURE OF THE CENTRAL PURPOSE OF ANY LIMITED REMEDY,
PENTIUMATICS SDN. BHD.'S LIABILITY FOR BREACH OF WARRANTY SHALL BE LIMITED TO
REPAIR OR REPLACEMENT OF DEFECTIVE PRODUCT OR, AT PENTIUMATICS SDN. BHD.'S
OPTION, REFUND OF THE PURCHASE PRICE FOR SUCH PRODUCT.
9.3 If Buyer elects to return defective Product to Seller, Buyer
shall, at Buyer's option, return defective Product to Seller, at Seller's
expense.
10.0 TERM AND TERMINATION
--------------------
10.1 This Agreement shall be effective for three (3) years after the
first shipment of Product hereunder, or until earlier terminated as set forth
hereunder.
10.2 Buyer may terminate this Agreement immediately upon written
notice to Seller, if Seller (i) is adjudicated bankrupt, (ii) makes a general
assignment for the benefit of creditors, (iii) takes the benefit of any
insolvency, reorganization or other relief act, or (iv) has a receiver or
trustee appointed for any of its property.
10.3 The termination of this Agreement will not affect or impair the
rights, liabilities and obligations of either party under any purchase order or
acknowledgment letter issued prior to the termination, will not relieve either
party of any obligation or liability accrued under this Agreement or pursuant to
any order issued prior to the termination, and will not relieve either party of
the continuing obligation pursuant to the Sections regarding Warranty against
Infringement, Indemnification, Arbitration and Confidential Information, which
obligations will survive any termination of this Agreement. Notwithstanding
termination of this Agreement, Buyer is obligated to purchase Product for which
Seller has prepurchased materials.
11.0 FORCE MAJEURE
-------------
Seller shall not be liable for any delay in performance or
nonperformance which is due to causes beyond Seller's control, including, war,
fire, floods, sabotage, civil unrest, strikes, embargoes or other transportation
delays, acts of God, or acts of governmental authority.
4
<PAGE>
12.0 INDEPENDENT CONTRACTOR STATUS
-----------------------------
Seller shall perform its duties under this Agreement as an independent
contractor and not as an agent of Buyer. The relationship between the parties
shall remain that of independent contractors and nothing herein shall imply any
joint venture. Seller shall not in any way by oral or written statements or
other conduct represent itself as being other than an independent contractor,
without any power to bind Buyer.
13.0 CONFIDENTIAL INFORMATION
------------------------
Each party agrees to maintain in confidence trade secret, proprietary,
or other confidential information (jointly and severally hereinafter called
"Confidential Information") which it receives from the other and which is
identified as such at the time of such receipt. Each party shall use
Confidential Information only for the purpose(s) originally contemplated herein.
Each party agrees to inform the other party of its usual security measures for
Confidential Information and agrees to comply with reasonable requests by the
other to modify such security measures. The rights and obligations under this
paragraph shall survive termination of this Agreement and shall continue for the
longest period allowable by law.
The obligations of this Section shall not apply to information which
is or becomes in the public domain through no violation of this Agreement.
14.0 COMPLIANCE WITH LAWS
--------------------
Each of the parties hereto covenant and agree that they shall stay in
compliance with all applicable laws and regulations in connection with the
performance of this Agreement.
15.0 CAPTIONS
--------
Captions set forth herein are for clarity only and in no way alter the
meaning or content of this Agreement.
16.0 ASSIGNMENT
----------
This Agreement shall not be assigned by either party without the prior
written consent of the other party.
17.0 CHOICE OF LAW
-------------
This Agreement and the obligations imposed hereunder shall be governed
by and construed according to the laws of the State of Colorado, without regard
to its conflict of law provisions.
5
<PAGE>
18.0 DISPUTES
--------
Except as provided below, any and all disputes arising under or
related to this Agreement which cannot be resolved through negotiations between
the parties shall be submitted to binding arbitration. If the parties fail to
reach a settlement of their dispute within fifteen (15) days after the earliest
date upon which one of the parties notified the other(s) of its desire to
attempt to resolve the dispute, then the dispute shall be promptly submitted to
arbitration by a single arbitrator through the Judicial Arbiter Group, or any
similar arbitration provider who can provide a former judge to conduct the
arbitration if the Judicial Arbiter Group is no longer in existence ("JAG"). The
arbitrator shall be selected by JAG, if possible, on the basis of his or her
expertise in the subject matter(s) of the dispute. The decision of the
arbitrator shall be final, nonappealable and binding upon the parties, and it
may be entered in any court of competent jurisdiction. The arbitration shall
take place in Boulder, Colorado. The arbitrator shall be bound by the laws of
the State of Colorado applicable to the issues involved in the arbitration and
all Colorado rules relating to the admissibility of evidence, including, without
limitation, all relevant privileges and the attorney work product doctrine. All
discovery shall be completed in accordance with the time limitations prescribed
in the Colorado Rules of Civil Procedure, unless otherwise agreed by the parties
or ordered by the arbitrator on the basis of strict necessity adequately
demonstrated by the party requesting an extension of time. The arbitrator shall
have the power to grant equitable relief where applicable under Colorado law,
and shall be entitled to make an award of punitive damages when applicable under
Colorado law. The arbitrator shall issue a written opinion setting forth his or
her decision and the reasons therefor within thirty (30) days after the
arbitration proceeding is concluded. The obligation of the parties to submit any
dispute arising under or related to this Agreement to arbitration as provided in
this Section shall survive the expiration or earlier termination of this
Agreement. Notwithstanding the foregoing, either party may seek and obtain an
injunction or other appropriate relief from a court to preserve or protect
trademarks, tradenames, copyrights, patents, trade secrets or other intellectual
property or proprietary information or to preserve the status quo with respect
to any matter pending conclusion of the arbitration proceeding, but no such
application to a court shall in any way be permitted to stay or otherwise impede
the progress of the arbitration proceeding.
In the event of any arbitration or litigation being filed or
instituted between the parties concerning this Agreement, the prevailing party
will be entitled to receive from the other party or parties its attorneys' fees,
witness fees, costs and expenses, court costs and other reasonable expenses,
whether or not such controversy, claim or action is prosecuted to judgment or
other form of relief. The "prevailing party" is that party which is awarded
judgment or other legal or equitable relief as a result of trial or arbitration,
or who receives a payment of money from the other party in settlement of claims
asserted by such party. If both parties receive a judgment, settlement payment
or other award or relief, the court or the arbitrator shall determine which
party is the prevailing party, taking into consideration the merits of the
claims asserted by each party, the relative values of the judgments, settlements
or other forms of relief received by each party, and the relative equities
between the parties.
6
<PAGE>
19.0 CONSENT TO JURISDICTION
-----------------------
Each party irrevocably submits to the non-exclusive jurisdiction of
the United States District Court for the District of Colorado and the state
courts of the State of Colorado, sitting in Boulder, for the purposes of any
suit, action or other proceeding arising out of this Agreement or any
transaction contemplated hereby. Each Member irrevocably and unconditionally
waives any objection to the laying of venue of any action, suit or proceeding
arising out of this Agreement or the transactions contemplated hereby in the
United States District Court for the District of Colorado or the state courts of
the State of Colorado, sitting in Boulder, and hereby irrevocably and
unconditionally waives and agrees not to plead or claim in any such court that
any such action, suit or proceeding brought in such court has been brought in an
inconvenient forum.
20.0 SEVERABILITY
------------
The provisions of this Agreement are severable and in the event that
one or more of such provisions shall be illegal, invalid or unenforceable, the
remaining provisions shall remain in full force and effect.
21.0 ENTIRE AGREEMENT; AMENDMENTS
----------------------------
Each party acknowledges that it has read this Agreement, understands
it, and agrees to be bound by its terms, and further agrees that this is the
complete and exclusive statement of the Agreement between the parties, which
supersedes and merges all prior proposals, understandings and all other
agreements, oral and written between the parties relating to this Agreement.
This Agreement may not be modified or altered except by a written instrument
duly executed by both parties.
22.0 BINDER
------
This Agreement is binding on and inures to the benefit of the
respective parties, their permitted assigns, and successors in interest by
merger, sale of stock, or sale of assets.
23.0 NO WAIVER
---------
The failure of Buyer to insist upon strict performance of any of the
terms and conditions of this Agreement, or to exercise any of the rights or
remedies afforded Buyer under this Agreement or applicable law, shall not be
construed as a waiver of its rights to assert any of the same or to rely on any
such terms or conditions or laws at any time thereafter.
24.0 USE OF ENGLISH LANGUAGE
-----------------------
All documents or notices to be delivered pursuant to or in connection
with this Agreement shall be in the English language.
7
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands as of
the date first above written.
PENTIUMATICS SDN. BHD. (SELLER)
By: ______________________________________________________
(Name and Title)
SPORTMA CORPORATION BERHAD (BUYER)
By: ______________________________________________________
(Name and Title)
8
<PAGE>
EXHIBIT 10.25
SHARE RETURN AGREEMENT
THIS AGREEMENT is made as of this 23rd day of July, 1997 among COYOTE
SPORTS, INC. ("Company"), MEL S. STONEBRAKER ("Stonebraker") and JAMES M. PROBST
("Probst").
WHEREAS, Stonebraker and Probst are currently the sole shareholders of the
Company owing 1,897,500 and 1,552,500 shares of Common Stock, respectively; and
WHEREAS, the parties believe that, for good and valid business reasons, it
is in the best interests of the parties for Stonebraker and Probst to return
certain of their shares to the Company on a pro-rata basis for cancellation;
NOW, THEREFORE, for good and valuable consideration, the parties agree as
follows:
1. Stonebraker hereby assigns and transfers to the Company all of his right,
title and interest in 467,500 shares of Common Stock of the Company owned
by him free and clear of all liens, charges and encumbrances.
2. Probst hereby assigns and transfers to the Company all of his right, title
and interest in 382,500 shares of Common Stock of the Company owned by him
free and clear of all liens, charges and encumbrances.
3. Stonebraker and Probst acknowledge and agree that the Company is in no way
obligated to pay them for the respective shares that are being assigned and
transferred by them.
4. This agreement shall be governed by the laws of the State of Nevada and
shall not be modified without the written approval of all parties.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COYOTE SPORTS, INC.
By: /S/ MEL S. STONEBRAKER
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Mel S. Stonebraker, President
/S/ JAMES M. PROBST
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James M. Probst
/S/ MEL S. STONEBRAKER
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Mel S. Stonebraker
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Exhibit 10.26
STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This lease, dated, for reference purpose only, 10/22 , 1996 , is
made by and between AIRPORT BUSINESS COMMONS, 435 W. AIRPORT ROAD, HERBER, UTAH
(herein called "Lessor") and ICE * USA LLC. 2291 ARAPAHOE AVE. BOULDER, CO.
80302 (herein called "Lessee").
2. Premises, Parking and Common Areas.
2.1 Premises. Lessor hereby leases to Lessee and Lessee leases form
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of WASATCH, State of UTAH commonly
known as HERBER AIRPORT INDUSTRIAL PARK, 435 W. AIRPORT ROAD, HERBER, UTAH and
described as OWC-1585-0-007-045, herein referred to as the "Premises", as may
be outlined on an Exhibit attached hereto, including rights to the Common Areas
as hereinafter specified but not including any rights to the roof of the
Premises or to any Building in the Industrial Center. The Premises are a portion
of a building, herein referred to as the "Building: The Premises, the Building,
the Common Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center."
2.2 Vehicle Parking. Lessee shall be entitled to ____________________
vehicle parking spaces, unreserved and unassigned, on those portions of the
Common Areas designated by Lessor for parking Lessee shall not use more parking
spaces than said number. Said parking spaces shall be used only for parking by
vehicles no larger than full size passenger automobiles or pick-up trucks,
herein called "Permitted Size Vehicles." Vehicles other than Permitted Size
Vehicles are herein referred to as "Oversized Vehicles".
2.2.1 Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, than Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
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2.4 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur than Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
2.5 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center.
2.6 Common Areas - Changes. Lessor shall have the right, in lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas including, without
limitation, changes in the location, size, shape and number of driveway,
entrances, parking spaces parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily and of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (c) To designate other land
outside the boundaries of the Industrial Center to be a part of the Common
Areas' (d) To add additional buildings and improvements to the Common Areas; (e)
To use the Common areas while engaged in making additional improvements, repairs
or alterations to the Industrial Center, or any portion thereof; (f) To do and
perform such other acts and make such other changes in, to or with respect to
the Common areas and Industrial Center as Lessor may, in the exercise of sound
business judgment, deem to appropriate.
2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee entitled to under paragraph 2.2 be reduced.
3. Term.
3.1 Term. The term of this Lease shall be for 12 months commencing on
11/15/96 and ending on 11/14/97 unless sooner terminated pursuant to any
provision hereof.
3.2 Delay In Possessions. Not withstanding said commencement date if
for any reason Lessor cannot deliver possession of the Premises to Lessee on
said date, Lessor shall not be subject to
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any liability therefor , nor shall such failure affect the validity of this
Lease or the obligations of Lessee hereunder or extend the term hereof , but
such case , Lessee shall not be obligated to pay rent or perform any other
obligation of lessee under the terms of this Lease, except as may be otherwise
provided in this lease until possession of the Premises is tendered to Lessee,
provided, however, that if Lessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days there after
cancel this lease, in which event the parties shall be discharged from all
obligations hereunder provided further, however, that if such within notice of
Lessee is not received by Lessor within said ten (10) day period, Lessee's right
to cancel this Lease hereunder shall terminate and be of no further force or
effect.
3.3 Early Possession. If Lessee occupies the Premisses prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date and lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. Rent.
4.1 Base rent. Lessee shall pay to Lessor, as Base rent for the
Premises, without any offset or deduction, except as may be otherwise expressly
provided in this Lease, on the 5th day of each month of the term hereof, monthly
payments in advance of $550.00 . Lessee shall pay Lessor upon execution hereof
$1,100.00 As Base Rent for 1ST AND LAST MONTHS RENT. Rent for any period during
the term hereof which is for less than one month shall be a pro rata portion of
the Base Rent. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as lessor may designate in writing.
4.2 Operating Expenses. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as N/A
Percent.
(b) "Operating Expenses" is defined, for purposes of this Lease, as
all cost incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition of the following:
(aa) The Common areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common area
lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;
(ee) Security services;
(ff) Any other service to provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense;"
(ii) The cost of water, gas and electricity to service to
Common Areas.
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(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2 (b) (i) of the definition of Operations Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Industrial
Center already has the same, Lessor already provides the services, or lessor has
agreed elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operation
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the lease term, on the same day as
the Base rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2 (d) during said preceding year exceed Lessee's's Share of as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expenses next falling due.
If Lessee's payments under this paragraph during said proceeding year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by the Lessor
to Lessee of said statement.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$275.00 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease. Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all of any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount then required of Lessee. If the monthly
rent shall, from time to time, increase during the term of this Lease, Lessee
shall, at the time of such increase, deposit with Lessor additional money as a
security deposit so that the total amount of the security deposit held by Lessor
shall at all times bear the same proportion to the then current Base Rent as the
initial security deposit bears to the initial Base Rent set forth in paragraph
4. Lessor shall not be required to keep said security deposit separate from its
general accounts, if Lessee performs all of the Lessee's obligations hereunder,
said deposit, or so much thereof as has not therefore been applied by Lessor,
shall be returned, without payments of interest or other increment for its use,
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder)at the expiration of the term hereof, and after Lessee has
vacated the Premises, no trust relationship is created herein between Lessor and
Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for SALES AND
MARKETING OF SPORTING GOODS or any other use which is reasonably comparable and
for no other purpose.
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6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises in the state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice form Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph 6.2
(a) shall be of no force or effect if, prior to the date of this Lease, Lessee
was an owner or occupant of the Premises and, in such event, Lessee shall
correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2 (a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises and of the Common Areas Lessee shall no use nor permit the use of
the Premises or the Common areas in any manner that will tent top create waste
or a nuisance or shall tend to disturb other occupants of the Industrial Center.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in possession)
and Lessor warrants to Lessee that the plumbing, lighting, air conditioning,
heating and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3 (a) shall be of no force or effect if prior to
the date of this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease Lessee hereby
accepts the Premises in their condition existing as of the Lease commencement
date or the date that Lessee takes possession of the Premises, whichever is
earlier, subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
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7. Maintenance, Repairs, Alterations, and Common Area Services.
7.1 Lessor's Obligations. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage cause by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invites, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice form Lessee of the need for such repairs. Lessee expressly
waives the benefits of any statue now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair. Lessor shall not be liable for damages or loss of
any kind or nature by reason of Lessor's failure to furnish any Common Area
Services when such failure is caused by accident, breakage, repairs, strides,
lockout, or other labor disturbances or disputed of any character, or by any
other cause beyond the reasonable control of Lessor.
7.2 Lessee's Obligations.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the Premises. Lessor reserves
the right to procure and maintain the ventilating and air conditioning system
maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(b) If Lessee falls to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices. Lessee
shall repair any
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damage to the Premises occasioned by the installation or removal of Lessee's
trade fixtures, alterations, furnishings and equipment. Notwithstanding
anything to the contrary otherwise stated in this Lease, Lessee shall leave the
air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, or Utility Installations in, on or
about the Premises, or the Industrial Center, except for nonstructural
alterations to the Premises not exceeding $2,500 in cumulative cost, during the
term of this Lease. In any event, whether or not excess of $2,500 in cumulative
cost. Lessee shall make no change or alteration to the exterior of the Premises
nor the exterior of the Building nor the Industrial Center without Lessor's
prior written consent. As used this paragraph 7.3 the term "Utility
Installation" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing, and fencing. Lessor may require that Lessee remove any
or all of said alterations, improvements, additions or Utility Installations at
the expiration of the term and restore the Premises and the Industrial Center to
their prior condition. Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
installations without the prior approval of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Industrial Center that Lessee
shall desire to make and which requires the consent of the Lessor shall be
presented to Lessor in written form, with proposed detailed plans. If Lessor
shall give its consent, the consent shall be deemed conditioned upon Lessee
acquiring a permit to do so from appropriate government agencies, the furnishing
of copy thereof to Lessor prior to the commencement of the work and the
compliance by Lessee of all conditions of said permit in a prompt and
expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense shall defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the premises or the Industrial Center,
upon the condition that if Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to such contested lien
claim or demand indemnifying Lessor against liability for the same and holding
the Premises and the Industrial Center free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees and
costs in participating in such action if Lessor shall decide it is to Lessor'
best interest to so.
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(d) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Lease term, unless Lessor requires their removal pursuant to
paragraph 7.3(a). Notwithstanding the provisions of this paragraph 7.3(d),
Lessee's machinery and equipment, other than that which is affixed to the
Premises so that it cannot be removed without material damage to the Premises,
and other than utility installations, shall remain the property of Lessee and
may be removed by Lessee subject to the provisions of paragraph 7.2.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance, Indemnity.
8.1 Liability Insurance -- Lessee. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such insurance shall be in an amount
not less than $500,000.00 per occurrence. The policy shall insure performance
by Lessee of the indemnity provisions of paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 Liability Insurance -- Lessor. Lessor shall obtain and keep in
force during the term of this Lease a policy of Combined Single Limit Bodily
Injury and Property Damage Insurance insuring Lessor, but not Lessee, against
any liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during
the term of this Lease a policy or policies of insurance covering loss or damage
to the Industrial Center improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk", as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
8.4 Payment of Premium Increase.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee
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of the Industrial Center, or by the nature of such other lessee's occupancy
which create an extraordinary or unusual risk.
(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
(c) Lessee shall pay to Lessor, during the term hereof, in addition
to the rent, Lessee's Share (as defined in paragraph 4.2(a) of the amount of any
increase in premiums for the insurance required under Paragraphs 8.2 and 8.3
over and above such premiums paid during the Base Period, as hereinafter
defined, whether such premium increase shall be the result of the nature of
Lessee's occupancy, any act or omission of Lessee, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises or general rate increases. In the event that the Premises have been
occupied previously, the words "Base Period" shall mean the last twelve months
of the prior occupancy. In the event that the Premises have never been occupied
previously, the premiums during the "Base Period" shall be deemed to be in the
lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, in lieu of the Base Period, the
parties may insert a dollar amount at the end of this sentence which figure
shall be considered as the insurance premium for the Base Period $ N/A . In no
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event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $500,000 procured
under paragraph 8.2.
(d) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
account was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance, Lessee's liability
for premium increases shall be prorated on an annual basis.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with renewals or "binders"
thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and Lessor shall,
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upon obtaining the policies of insurance required hereunder, give notice to the
insurance carrier or carriers that the foregoing mutual waiver of subrogation is
contained in this Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from any activity, work or things
done, permitted or suffered by Lessee in or about the Premises or elsewhere and
shall further indemnify and hold harmless Lessor from and against any and all
claims arising from any breach or default in the performance of any obligation
on Lessee's part to be performed under the terms of this Lease, or arising from
any act or omission of Lessee, or any of Lessee's agents, contractors, or
employees, and from and against all costs, attorney's fees, expenses and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon, and in case any action or proceeding be brought
against Lessor by reason of any such claim, Lessee upon notice form Lessor shall
defend the same at Lessee's expense by counsel reasonably satisfactory to the
Lessor and Lessor shall cooperate with Lessee in such defense. Lessee, as a
material part of the consideration to Lessor, hereby assumes all risk of damage
to property of Lessee or injury to persons, in, upon or about the Industrial
Center arising from any cause and Lessee hereby waives all claims in respect
thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that
Lessor shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Industrial Center, nor from
the failure of lessor to enforce the provisions of any other lease of the
Industrial Center.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is less than fifty
percent of the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost of repair is less than fifty percent of the then replacement cost of the
Premises.
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(d) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost of repair is fifty percent or more of the then replacement cost of
the Building.
(e) "Industrial Center Buildings" shall mean all of the Buildings
on the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if
the Industrial Center Buildings are damaged or destroyed to the extent that the
cost of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
(g) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an Insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary
to be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2 Premises Partial Damage; Premises Building Partial Damage.
(a) Insured Loss. Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
an Insured Loss and which falls into the classification of either Premises
Partial Damage or Premises Building Partial Damage, then Lessor shall, at
Lessor' expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.
(b) Uninsured Loss. Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises
Partial Damage or Premises Building Partial Damage, unless caused by a negligent
or willful act of Lessee (in which event Lessee shall make the repairs at
Lessee's expense), which damage prevents Lessee from using the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lessor's intention to cancel
and terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor' intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.3 Premises Total Destruction; Premises Building total Destruction;
Industrial Center buildings Total Destruction.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at
any time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classification of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such
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damage or destruction, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible at Lessor's expense, and this Lease
shall continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case this Lease shall be
cancelled and terminated as of the date of the occurrence of such damage.
9.4 Damage Near End of Term.
(a) Subject to the provisions of paragraphs 9.4(b), if at any time
during the last six months of the term of this Lease there is substantial
damage, whether or not an Insured Loss, which falls into the classification of
Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice to
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Partial Damage
during the last six months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period, notwithstanding any term or provision
in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Premises pursuant
to the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair or
restoration within ninety (90) day after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
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9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Tax Increase. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Industrial Center; provided,
however, that Lessee shall pay, in addition to rent, Lessee's Share (as defined
in paragraph 4.2[a]) of the amount, if any, by which real property taxes
applicable to the Premises increase over the fiscal real estate tax year
19 - 19 . Such payment shall be made by Lessee within thirty (30) days
after receipt of Lessor's written statement setting forth the amount of such
increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 Additional Improvements. Lessee shall not be responsible for paying
Lessee's share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 Definition of "Real Property Tax." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or Federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.
10.4 Joint Assessment. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
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10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such
assignment shall not, in any way, affect or limit the liability of Lessee under
the terms of this Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions of Assignment. Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or alter
the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor
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may proceed directly against Lessee without the necessity of exhausting remedies
against said assignee. Lessor may consent to subsequent assignments of this
Lease or amendments or modifications to this Lease with assignees of Lessee,
without notifying Lessee, or any successor of Lessee, and without obtaining its
or their consent thereto and such action shall not relieve Lessee of liability
under this Lease.
12.4 Terms and Conditions Applicable to Subletting. Regardless of
Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be included in
subleases:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor not by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or
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modifications thereto without notifying Lessee or anyone else liable on the
Lease or sublease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease, provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessees for any such defaults cured by the sublessee.
12.5 Attorney's Fees. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. Defaults; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period
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of three (3) days after written notice thereof from Lessor to Lessee. In the
event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to
applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also
constitute the notice required by this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by
Lessee to observe or perform any of the covenants, conditions or provisions of
this Lease to be observed or performed by Lessee, other than described in
paragraph (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Lessor to Lessee, provided, however,
that if the nature of Lessee's noncompliance is such that more than thirty (30)
days are reasonably required for its cure, then Lessee shall not be deemed to be
in default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day notice shall constitute the sole and
exclusive notice required to be given to Lessee under applicable Unlawful
Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. (S) 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days), (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation thereunder, was
materially false.
13.2 Remedies. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid, the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises in such event Lessor shall be
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entitled to enforce all of Lessor's rights and remedies under this Lease,
including the right to recover the rent as it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of this state wherein the Premises are
located. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time, but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of any first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing specifying wherein Lessor has failed to perform such obligation,
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such thirty (30) day period and
thereafter diligently prosecute the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Industrial Center. Accordingly, if any installment of Base
Rent, Operating Expenses, or any other sum due from Lessee shall not be received
by Lessor to Lessor's designee within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a late charge equal to 6% of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid obligations of Lessee, then Base Rent shall
automatically become due and payable quarter in advance, rather than monthly,
notwithstanding paragraph 4.1 or any other provision of this Lease to the
contrary.
14. Condemnation. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the
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Premises. No reduction of rent shall occur if the only area taken is that which
does not have the Premises located thereon. Any award for the taking of all or
any part of the Premises under the power of eminent domain or any payment made
under the threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation far diminution in value of the
leasehold or for the taking of the fee, or as severance damages, provided,
however, that Lessee shall be entitled to any award for loss of or damage to
Lessee's trade fixture and removable personal property. In the event that this
Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of severance damages received by Lessor in connection with such
condemnation, repair any damage to the Premises caused by such condemnation
except to the extent that Lessee has been reimbursed therefor by the condemning
authority. Lessee shall pay any amount in excess of such severance damages
required to complete such repair.
15. Broker's Fee.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
N/A Licensed real estate broker(s), a fee as set forth in a separate
- -----------
agreement between Lessor and said broker(s), or in the event there is no
separate agreement between Lessor and said broker(s), the sum of $ N/A
-------------,
for brokerage services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option, as defined
in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
granted to Lessee under this Lease, or if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this paragraph 15.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less
than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified stating the nature of such modification and certifying
that this Lease as so modified is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such
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<PAGE>
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises or of the business of the requesting party.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial Center
or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Industrial Center, and except as expressly provided in
paragraph 15, in the event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing
20
<PAGE>
only, signed by the parties in interest at the time of the modification. Except
as otherwise stated in this Lease, Lessee hereby acknowledges that neither the
real estate broker listed in paragraph 15 hereof nor any cooperating broker on
this transaction nor the Lessor or any employee or agents of any of said persons
has made any oral or written warranties or representations to Lessee relative to
the condition or use by Lessee of the Premises or the Industrial Center and
Lessee acknowledges that Lessee assumes all responsibility regarding the
Occupational Safety Health Act, the legal use and adaptability of the Premises
and the compliance thereof with all applicable laws and regulations in effect
during the term of this Lease except as otherwise specifically stated in this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designated by notice to
Lessee.
24. Waivers. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consents to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. Holding Over. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
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<PAGE>
30. Subordination.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall
be subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgages, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days after
written demand shall constitute a material default by Lessee hereunder without
further notice to Lessee or, at Lessor's option, Lessor shall execute such
documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does hereby
make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-fact and
in Lessee's name, place and stead, to execute such documents in accordance with
this paragraph 30(b).
31. Attorney's Fees. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. Lessor's Access. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Industrial Center as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities
of Lessor pursuant to this paragraph shall be without abatement of rent, nor
shall Lessor have any liability to Lessee for the same.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
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<PAGE>
34. Signs. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Industrial Center.
39. Options.
39.1 Definition. As used in this paragraph the word "option" has the
following meaning (1) the right or option to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor, (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
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<PAGE>
39.3 Multiple Options. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary, (i) during
the time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the date after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) at any time after an event of default
described in paragraph 13.1(a), 13.1(d), or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) in the event that
Lessor has given to Lessee three or more notices of default under paragraph
13.1(b), or paragraph 13.1(c), whether or not the defaults are cured, during the
12 month period of time immediately prior to the time that Lessee attempts to
exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(c) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessee commits a default described in paragraph 13.1(a), 13.1(d) or
13.1(e) (without any necessity of Lessor to give notice of such default to
Lessee), or (iv) Lessor gives to Lessee three or more notices of default under
paragraph 13.1(b), or paragraph 13.1(c), whether or not the defaults are cured.
40. Security Measures. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Industrial Center or any part
thereof, in which event the cost hereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
41. Easements. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the
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<PAGE>
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, a trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed by Lessor
and Lessee.
46. Addendum. Attached hereto is an addendum or addenda containing paragraphs
47 through 47 which constitute a part of this Lease.
- ---------- ----------
47. Landlord agrees to pay Lessee $3,000/00/ to be applied toward renovation
of leased property described herein.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL.
NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
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LESSOR LESSEE
By IT'S MANAGER
- ------------------------------------- -------------------------------------
By /s/ Coyote Sports Inc.
- ------------------------------------- -------------------------------------
By Gary Finucan /s/
- ------------------------------------- -------------------------------------
MEL STONEBRAKER/PRESIDENT
Executed on Executed on
-------------------------- ----------------------
ADDRESS FOR NOTICES AND RENT ADDRESS
2291 Arapahoe Ave.
- ------------------------------------- -------------------------------------
Boulder, CO
- ------------------------------------- -------------------------------------
80302
- ------------------------------------- -------------------------------------
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, LOS ANGELES, CA (213) 687-8777
26
<PAGE>
EXHIBIT 10.27
STANDARD INDUSTRIAL LEASE - MULTI-TENANT
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES. This lease, dated, for reference purpose only, July 18 , 1997,
--------------
is made by and between AIRPORT BUSINESS COMMONS, 435 W. AIRPORT ROAD, HEBER,
-----------------------------------------------------
UTAH (herein called "Lessor")and ICE * USA LLC (herein called "Lessee").
- ---- -------------
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES. Lessor hereby leases to Lessee and Lessee leases form
Lessor for the term, at the rental, and upon all of the conditions set forth
herein, real property situated in the County of WASATCH, State of UTAH commonly
------- ----
known as HEBER AIRPORT INDUSTRIAL PARK, 435 W. AIRPORT ROAD, HERBER, UTAH and
----------------------------------------------------------------
described as OWC-1585-0-007-045, herein referred to as the "Premises", as may
------------------
be outlined on an Exhibit attached hereto, including rights to the Common Areas
as hereinafter specified but not including any rights to the roof of the
Premises or to any Building in the Industrial Center. The Premises are a portion
of a building, herein referred to as the "Building: The Premises, the Building,
the Common Areas, the land upon which the same are located, along with all other
buildings and improvements thereon, are herein collectively referred to as the
"Industrial Center."
2.2 VEHICLE PARKING. Lessee shall be entitled to 2 vehicle parking
---
spaces, unreserved and unassigned, on those portions of the Common Areas
designated by Lessor for parking Lessee shall not use more parking spaces than
said number. Said parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pick-up trucks, herein called
"Permitted Size Vehicles." Vehicles other than Permitted Size Vehicles are
herein referred to as "Oversized Vehicles".
2.2.1 Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, or invitees to be loaded, unloaded, or parked in areas other than
those designated by Lessor for such activities.
2.2.2 If Lessee permits or allows any of the prohibited activities
described in paragraph 2.2 of this Lease, than Lessor shall have the right,
without notice, in addition to such other rights and remedies that it may have,
to remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
2.3 COMMON AREAS - DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center that are provided and designated by the Lessor from
time to time for the general non-exclusive use of Lessor, Lessee and of other
lessees of the Industrial Center and their respective employees, suppliers,
shippers, customers and invitees, including parking areas, loading and unloading
areas, trash areas, roadways, sidewalks, walkways, parkways, driveways and
landscaped areas.
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2.4 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, customers and
invitees, during the term of this lease, the non-exclusive right to use, in
common with others entitled to such use, the Common Areas as they exist from
time to time, subject to any rights, powers, and privileges reserved by Lessor
under the terms hereof or under the terms of any rules and regulations or
restrictions governing the use of the Industrial Center Under no circumstances
shall the right herein granted to use the Common Areas be deemed to include the
right to store any property, temporarily or permanently, in the Common Areas.
Any such storage shall be permitted only by the prior written consent of Lessor
or Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur than Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost to
Lessee, which cost shall be immediately payable upon demand by Lessor.
2.5 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable rules and regulations with respect thereto Lessee
agrees to abide by and conform to all such rules and regulations, and to cause
its employees, suppliers, shippers, customers, and invitees to so abide and
conform. Lessor shall not be responsible to Lessee for the non-compliance with
said rules and regulations by other lessees of the Industrial Center.
2.6 COMMON AREAS - CHANGES. Lessor shall have the right, in lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas including, without
limitation, changes in the location, size, shape and number of driveway,
entrances, parking spaces parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas and walkways; (b) To close
temporarily and of the Common Areas for maintenance purposes so long as
reasonable access to the Premises remains available; (c) To designate other land
outside the boundaries of the Industrial Center to be a part of the Common
Areas' (d) To add additional buildings and improvements to the Common Areas; (e)
To use the Common areas while engaged in making additional improvements, repairs
or alterations to the Industrial Center, or any portion thereof; (f) To do and
perform such other acts and make such other changes in, to or with respect to
the Common areas and Industrial Center as Lessor may, in the exercise of sound
business judgment, deem to appropriate.
2.6.1 Lessor shall at all times provide the parking facilities
required by applicable law and in no event shall the number of parking spaces
that Lessee entitled to under paragraph 2.2 be reduced.
3. TERM.
3.1 TERM. The term of this Lease shall be for 3 1/2 months/same as unit
-------------------------
A-5 ends commencing on August 1, 1997 and ending on 11-14-97 same as Unit A-5
- -------- -------------- --------------------------
unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN POSSESSIONS. Not withstanding said commencement date if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease or the obligations of Lessee hereunder
or extend the term hereof, but such case, Lessee shall not be obligated to pay
rent or perform any other
2
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obligation of lessee under the terms of this Lease, except as may be otherwise
provided in this lease until possession of the Premises is tendered to Lessee,
provided, however, that if Lessor shall not have delivered possession of the
Premises within sixty (60) days from said commencement date, Lessee may, at
Lessee's option, by notice in writing to Lessor within ten (10) days there after
cancel this lease, in which event the parties shall be discharged from all
obligations hereunder provided further, however, that if such within notice of
Lessee is not received by Lessor within said ten (10) day period, Lessee's right
to cancel this Lease hereunder shall terminate and be of no further force or
effect.
3.3 EARLY POSSESSION. If Lessee occupies the Premisses prior to said
commencement date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not advance the termination date and lessee shall
pay rent for such period at the initial monthly rates set forth below.
4. RENT.
4.1 BASE RENT. Lessee shall pay to Lessor, as Base rent for the Premises,
without any offset or deduction, except as may be otherwise expressly provided
in this Lease, on the 1st day of each month of the term hereof, monthly
---------
payments in advance of $ 550.00 and $25.00 C.A.M. charges = 575.00 Unit B9
--------------------------------------------------
Common Area Maint. Lessee shall pay Lessor upon execution hereof $ 1,150.00
- ----------------- ----------
as Base Rent for 1st and last plus C.A.M. charges. Rent for any period during
--------------------------------
the term hereof which is for less than one month shall be a pro rata portion of
the Base Rent. Rent shall be payable in lawful money of the United States to
Lessor at the address stated herein or to such other persons or at such other
places as lessor may designate in writing.
4.2 OPERATING EXPENSES. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
all Operating Expenses, as hereinafter defined, during each calendar year of the
term of this Lease, in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as 1/10
----
= 25.00 per month C.A.M. Percent.
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(b) "Operating Expenses" is defined, for purposes of this Lease, as
all cost incurred by Lessor, if any, for:
(i) The operation, repair and maintenance, in neat, clean, good
order and condition of the following:
(aa) The Common areas, including parking areas, loading and
unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common area
lighting facilities and fences and gates;
(bb) Trash disposal services;
(cc) Tenant directories;
(dd) Fire detection systems including sprinkler system
maintenance and repair;
(ee) Security services;
(ff) Any other service to provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense;"
(ii) The cost of water, gas and electricity to service to Common
Areas.
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(c) The inclusion of the improvements, facilities and services set
forth in paragraph 4.2 (b) (i) of the definition of Operations Expenses shall
not be deemed to impose an obligation upon Lessor to either have said
improvements or facilities or to provide those services unless the Industrial
Center already has the same, Lessor already provides the services, or lessor has
agreed elsewhere in this Lease to provide the same or some of them.
(d) Lessee's Share of Operating Expenses shall be payable by Lessee
within ten (10) days after a reasonably detailed statement of actual expenses is
presented to lessee by Lessor. At Lessor's option, however, an amount may be
estimated by Lessor from time to time of Lessee's Share of annual Operation
Expenses and the same shall be payable monthly or quarterly, as Lessor shall
designate, during each twelve-month period of the lease term, on the same day as
the Base rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid. Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2 (d) during said preceding year exceed Lessee's's Share of as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expenses next falling due.
If Lessee's payments under this paragraph during said proceeding year were less
than Lessee's Share as indicated on said statement, Lessee shall pay to Lessor
the amount of the deficiency within ten (10) days after delivery by the Lessor
to Lessee of said statement.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$ 0 as security for Lessee's faithful performance of Lessee's obligations
- ----
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease. Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or
applies all of any portion of said deposit, Lessee shall within ten (10) days
after written demand therefor deposit cash with Lessor in an amount sufficient
to restore said deposit to the full amount then required of Lessee. If the
monthly rent shall, from time to time, increase during the term of this Lease,
Lessee shall, at the time of such increase, deposit with Lessor additional money
as a security deposit so that the total amount of the security deposit held by
Lessor shall at all times bear the same proportion to the then current Base Rent
as the initial security deposit bears to the initial Base Rent set forth in
paragraph 4. Lessor shall not be required to keep said security deposit
separate from its general accounts, if Lessee performs all of the Lessee's
obligations hereunder, said deposit, or so much thereof as has not therefore
been applied by Lessor, shall be returned, without payments of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder)at the expiration of the term hereof, and
after Lessee has vacated the Premises, no trust relationship is created herein
between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for Distribution &
--------------
warehousing light manufacturing or any other use which is reasonably comparable
- -------------------------------
and for no other purpose.
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6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises in the state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will occupy the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice form Lessee, to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to
Lessor written notice of the violation of this warranty within six months from
the date that the Lease term commences, the correction of same shall be the
obligation of the Lessee at Lessee's sole cost. The warranty contained in this
paragraph 6.2 (a) shall be of no force or effect if, prior to the date of this
Lease, Lessee was an owner or occupant of the Premises and, in such event,
Lessee shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2 (a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come into effect, whether or not they reflect a change in policy from
that now existing, during the term or any part of the term hereof, relating in
any manner to the Premises and the occupation and use by Lessee of the Premises
and of the Common Areas Lessee shall no use nor permit the use of the Premises
or the Common areas in any manner that will tent top create waste or a nuisance
or shall tend to disturb other occupants of the Industrial Center.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on the Lease commencement date (unless Lessee is already in possession)
and Lessor warrants to Lessee that the plumbing, lighting, air conditioning,
heating and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly, at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3 (a) shall be of no force or effect if prior to
the date of this Lease, Lessee was an owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
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7. MAINTENANCE, REPAIRS, ALTERATIONS, AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of paragraphs 4.2
(Operating Expenses), 6 (Use), 7.2 (Lessee's Obligations) and 9 (Damage or
Destruction) and except for damage cause by any negligent or intentional act or
omission of Lessee, Lessee's employees, suppliers, shippers, customers, or
invites, in which event Lessee shall repair the damage, Lessor, at Lessor's
expense, subject to reimbursement pursuant to paragraph 4.2, shall keep in good
condition and repair the foundations, exterior walls structural condition of
interior bearing walls, and roof of the Premises, as well as the parking lots,
walkways, driveways, landscaping, fences, signs and utility installations of the
common Areas and all parts thereof, as well as providing the services for which
there is an Operating Expense pursuant to paragraph 4.2. Lessor shall not,
however, be obligated to paint the exterior or interior surface of exterior
walls, nor shall Lessor be required to maintain, repair or replace windows,
doors or plate glass of the Premises. Lessor shall have no obligation to make
repairs under this paragraph 7.1 until a reasonable time after receipt of
written notice form Lessee of the need for such repairs. Lessee expressly
waives the benefits of any statue now or hereafter in effect which would
otherwise afford Lessee the right to make repairs at Lessor's expense or to
terminate this Lease because of Lessor's failure to keep the Premises in good
order, condition and repair. Lessor shall not be liable for damages or loss of
any kind or nature by reason of Lessor's failure to furnish any Common Area
Services when such failure is caused by accident, breakage, repairs, strides,
lockout, or other labor disturbances or disputed of any character, or by any
other cause beyond the reasonable control of Lessor.
7.2 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of paragraphs 6 (Use), 7.1 (Lessor's
Obligations), and 9 (Damage or Destruction), Lessee, at Lessee's expense, shall
keep in good order, condition and repair the Premises and every part thereof
(whether or not the damaged portion of the Premises or the means of repairing
the same are reasonably or readily accessible to Lessee) including, without
limiting the generality of the foregoing, all plumbing, heating, ventilating and
air conditioning systems (Lessee shall procure and maintain, at Lessee's
expense, a ventilating and air conditioning system maintenance contract),
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surfaces of exterior walls, ceilings, windows,
doors, plate glass, and skylights located within the Premises. Lessor reserves
the right to procure and maintain the ventilating and air conditioning system
maintenance contract and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(b) If Lessee falls to perform Lessee's obligations under this
paragraph 7.2 or under any other paragraph of this Lease, Lessor may enter upon
the Premises after ten (10) days prior written notice to Lessee (except in the
case of emergency, in which no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowable by law shall be due and payable as additional rent to Lessor
together with Lessee's next Base Rent installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices. Lessee shall
repair any damage to the Premises occasioned by the installation or removal of
Lessee's trade fixtures, alterations, furnishings and equipment.
Notwithstanding anything to the contrary otherwise stated in this Lease, Lessee
shall leave the
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air lines, power panels, electrical distribution systems, lighting fixtures,
space heaters, air conditioning, plumbing and fencing on the Premises in good
operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, or the Industrial Center, except for nonstructural alterations to
the Premises not exceeding $2,500 in cumulative cost, during the term of this
Lease. In any event, whether or not excess of $2,500 in cumulative cost.
Lessee shall make no change or alteration to the exterior of the Premises nor
the exterior of the Building nor the Industrial Center without Lessor's prior
written consent. As used this paragraph 7.3 the term "Utility Installation"
shall mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any or all of said
alterations, improvements, additions or Utility Installations at the expiration
of the term and restore the Premises and the Industrial Center to their prior
condition. Lessor may require Lessee to provide Lessor, at Lessee's sole cost
and expense, a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such improvements to insure Lessor against any
liability for mechanic's and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
installations without the prior approval of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Industrial Center that Lessee shall desire to
make and which requires the consent of the Lessor shall be presented to Lessor
in written form, with proposed detailed plans. If Lessor shall give its
consent, the consent shall be deemed conditioned upon Lessee acquiring a permit
to do so from appropriate government agencies, the furnishing of copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, or the Industrial Center, or any
interest therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense shall defend itself and Lessor against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the premises or the Industrial Center,
upon the condition that if Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to such contested lien
claim or demand indemnifying Lessor against liability for the same and holding
the Premises and the Industrial Center free from the effect of such lien or
claim. In addition, Lessor may require Lessee to pay Lessor's attorneys fees
and costs in participating in such action if Lessor shall decide it is to
Lessor' best interest to so.
(d) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall be the property of Lessor and shall
remain upon and be surrendered with the Premises at the expiration of the
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Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Notwithstanding the provisions of this paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, and other than utility
installations, shall remain the property of Lessee and may be removed by Lessee
subject to the provisions of paragraph 7.2.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Building and the Common Areas for
the benefit of Lessor or Lessee, or any other lessee of the Industrial Center,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. INSURANCE, INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and the Industrial Center. Such insurance shall be in an amount
not less than $500,000.00 per occurrence. The policy shall insure performance
by Lessee of the indemnity provisions of paragraph 8. The limits of said
insurance shall not, however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE - LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Industrial Center in an amount not less than $500,000.00 per occurrence.
8.3 PROPERTY INSURANCE. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Industrial Center improvements, but not Lessee's personal property,
fixtures, equipment or tenant improvements, in an amount not to exceed the full
replacement value thereof, as the same may exist from time to time, providing
protection against all perils included within the classification of fire,
extended coverage, vandalism, malicious mischief, flood (in the event same is
required by a lender having a lien on the Premises) special extended perils
("all risk", as such term is used in the insurance industry), plate glass
insurance and such other insurance as Lessor deems advisable. In addition,
Lessor shall obtain and keep in force, during the term of this Lease, a policy
of rental value insurance covering a period of one year, with loss payable to
Lessor, which insurance shall also cover all Operating Expenses for said period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) After the term of this Lease has commenced, Lessee shall not be
responsible for paying Lessee's Share of any increase in the property insurance
premium for the Industrial Center specified by Lessor's insurance carrier as
being caused by the use, acts or omissions of any other lessee of the Industrial
Center, or by the nature of such other lessee's occupancy which create an
extraordinary or unusual risk.
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(b) Lessee, however, shall pay the entirety of any increase in the
property insurance premium for the Industrial Center over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
(c) Lessee shall pay to Lessor, during the term hereof, in addition to
the rent, Lessee's Share (as defined in paragraph 4.2(a) of the amount of any
increase in premiums for the insurance required under Paragraphs 8.2 and 8.3
over and above such premiums paid during the Base Period, as hereinafter
defined, whether such premium increase shall be the result of the nature of
Lessee's occupancy, any act or omission of Lessee, requirements of the holder of
a mortgage or deed of trust covering the Premises, increased valuation of the
Premises or general rate increases. In the event that the Premises have been
occupied previously, the words "Base Period" shall mean the last twelve months
of the prior occupancy. In the event that the Premises have never been occupied
previously, the premiums during the "Base Period" shall be deemed to be in the
lowest premiums reasonably obtainable for said insurance assuming the most
nominal use of the Premises. Provided, however, in lieu of the Base Period, the
parties may insert a dollar amount at the end of this sentence which figure
shall be considered as the insurance premium for the Base Period $ 0 . In no
---
event, however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $500,000 procured
under paragraph 8.2.
(d) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail, the manner in which such
account was computed. If the term of this Lease shall not expire concurrently
with the expiration of the period covered by such insurance, Lessee's liability
for premium increases shall be prorated on an annual basis.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best's Insurance Guide." Lessee shall
not do or permit to be done anything which shall invalidate the insurance
policies carried by Lessor. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
commencement date of this Lease. No such policy shall be cancelable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior
to the expiration of such policies, furnish Lessor with renewals or "binders"
thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, employees, contractors and/or invitees.
Lessee and Lessor shall, upon obtaining the policies of insurance required
hereunder, give notice to the insurance carrier or carriers that the foregoing
mutual waiver of subrogation is contained in this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Industrial Center,
or from the conduct of Lessee's business or from
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any activity, work or things done, permitted or suffered by Lessee in or about
the Premises or elsewhere and shall further indemnify and hold harmless Lessor
from and against any and all claims arising from any breach or default in the
performance of any obligation on Lessee's part to be performed under the terms
of this Lease, or arising from any act or omission of Lessee, or any of Lessee's
agents, contractors, or employees, and from and against all costs, attorney's
fees, expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon, and in case any action or proceeding be
brought against Lessor by reason of any such claim, Lessee upon notice form
Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to the Lessor and Lessor shall cooperate with Lessee in such
defense. Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to property of Lessee or injury to persons, in, upon
or about the Industrial Center arising from any cause and Lessee hereby waives
all claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee, Lessee's employees, invitees, customers, or any other person in or about
the Premises or the Industrial Center, nor shall Lessor be liable for injury to
the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from fire, steam, electricity, gas,
water or rain, or from the breakage, leakage, obstruction or other defects of
pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Industrial
Center, or from other sources or places and regardless of whether the cause of
such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other lessee, occupant or user of the Industrial Center, nor from
the failure of lessor to enforce the provisions of any other lease of the
Industrial Center.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall mean if the Premises are damaged
or destroyed to the extent that the cost of repair is less than fifty percent of
the then replacement cost of the Premises.
(b) "Premises Total Destruction" shall mean if the Premises are
damaged or destroyed to the extent that the cost of repair is fifty percent or
more of the then replacement cost of the Premises.
(c) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost of repair is less than fifty percent of the then replacement cost of the
Premises.
(d) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost of repair is fifty percent or more of the then replacement cost of the
Building.
(e) "Industrial Center Buildings" shall mean all of the Buildings on
the Industrial Center site.
(f) "Industrial Center Buildings Total Destruction" shall mean if the
Industrial Center Buildings are damaged or destroyed to the extent that the cost
of repair is fifty percent or more of the then replacement cost of the
Industrial Center Buildings.
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(g) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(h) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring excluding all improvements
made by lessees.
9.2 PREMISES PARTIAL DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss. Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls into the classification of either Premises Partial
Damage or Premises Building Partial Damage, then Lessor shall, at Lessor'
expense, repair such damage to the Premises, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect.
(b) Uninsured Loss. Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Partial
Damage or Premises Building Partial Damage, unless caused by a negligent or
willful act of Lessee (in which event Lessee shall make the repairs at Lessee's
expense), which damage prevents Lessee from using the Premises, Lessor may at
Lessor's option either (i) repair such damage as soon as reasonably possible at
Lessor's expense, in which event this Lease shall continue in full force and
effect, or (ii) give written notice to Lessee within thirty (30) days after the
date of the occurrence of such damage of Lessor's intention to cancel and
terminate this Lease as of the date of the occurrence of such damage. In the
event Lessor elects to give such notice of Lessor' intention to cancel and
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's intention to
repair such damage at Lessee's expense, without reimbursement from Lessor, in
which event this Lease shall continue in full force and effect, and Lessee shall
proceed to make such repairs as soon as reasonably possible. If Lessee does not
give such notice within such 10-day period this Lease shall be cancelled and
terminated as of the date of the occurrence of such damage.
9.3 PREMISES TOTAL DESTRUCTION; PREMISES BUILDING TOTAL DESTRUCTION;
INDUSTRIAL CENTER BUILDINGS TOTAL DESTRUCTION.
(a) Subject to the provisions of paragraphs 9.4 and 9.5, if at any
time during the term of this Lease there is damage, whether or not it is an
Insured Loss, and which falls into the classification of either (i) Premises
Total Destruction, or (ii) Premises Building Total Destruction, or (iii)
Industrial Center Buildings Total Destruction, then Lessor may at Lessor's
option either (i) repair such damage or destruction, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible at Lessor's
expense, and this Lease shall continue in full force and effect, or (ii) give
written notice to Lessee within thirty (30) days after the date of occurrence of
such damage of Lessor's intention to cancel and terminate this Lease, in which
case this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
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9.4 DAMAGE NEAR END OF TERM.
(a) Subject to the provisions of paragraphs 9.4(b), if at any time
during the last six months of the term of this Lease there is substantial
damage, whether or not an Insured Loss, which falls into the classification of
Premises Partial Damage, Lessor may at Lessor's option cancel and terminate this
Lease as of the date of occurrence of such damage by giving written notice to
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise such option, if it is to
be exercised at all, no later than twenty (20) days after the occurrence of an
Insured Loss falling within the classification of Premises Partial Damage during
the last six months of the term of this Lease. If Lessee duly exercises such
option during said twenty (20) day period, Lessor shall, at Lessor's expense,
repair such damage, but not Lessee's fixtures, equipment or tenant improvements,
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said twenty (20) day
period then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said twenty (20) day period by giving written notice to Lessee
of Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Premises pursuant to
the provisions of this paragraph 9, the rent payable hereunder for the period
during which such damage, repair or restoration continues shall be abated in
proportion to the degree to which Lessee's use of the Premises is impaired.
Except for abatement of rent, if any, Lessee shall have no claim against Lessor
for any damage suffered by reason of any such damage, destruction, repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence such repair or
restoration within ninety (90) day after such obligation shall accrue, Lessee
may at Lessee's option cancel and terminate this Lease by giving Lessor written
notice of Lessee's election to do so at any time prior to the commencement of
such repair or restoration. In such event this Lease shall terminate as of the
date of such notice.
9.6 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
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10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Industrial Center; provided,
however, that Lessee shall pay, in addition to rent, Lessee's Share (as defined
in paragraph 4.2[a]) of the amount, if any, by which real property taxes
applicable to the Premises increase over the fiscal real estate tax year 19
- - 19 . Such payment shall be made by Lessee within thirty (30) days
after receipt of Lessor's written statement setting forth the amount of such
increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying
Lessee's share of any increase in real property tax specified in the tax
assessor's records and work sheets as being caused by additional improvements
placed upon the Industrial Center by other lessees or by Lessor for the
exclusive enjoyment of such other lessees. Lessee shall, however, pay to Lessor
at the time that Operating Expenses are payable under paragraph 4.2(c) the
entirety of any increase in real property tax if assessed solely by reason of
additional improvements placed upon the Premises by Lessee or at Lessee's
request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Industrial Center or any portion thereof by any
authority having the direct or indirect power to tax, including any city,
county, state or Federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Industrial Center or in any portion
thereof, as against Lessor's right to rent or other income therefrom, and as
against Lessor's business of leasing the Industrial Center. The term "real
property tax" shall also include any tax, fee, levy, assessment or charge (i) in
substitution of, partially or totally, any tax, fee, levy, assessment or charge
hereinabove included within the definition of "real property tax," or (ii) the
nature of which was hereinbefore included within the definition of "real
property tax," or (iii) which is imposed for a service or right not charged
prior to June 1, 1978, or, if previously charged, has been increased since June
1, 1978, or (iv) which is imposed as a result of a transfer, either partial or
total, of Lessor's interest in the Industrial Center or which is added to a tax
or charge hereinbefore included within the definition of real property tax by
reason of such transfer, or (v) which is imposed by reason of this transaction,
any modifications or changes hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Industrial Center is not separately
assessed, Lessee's Share of the real property tax liability shall be an
equitable proportion of the real property taxes for all of the land and
improvements included within the tax parcel assessed, such proportion to be
determined by Lessor from the respective valuations assigned in the assessor's
work sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
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(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to the
Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a breach of
this Lease without the need for notice to Lessee under paragraph 13.1
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate,"
provided that before such assignment shall be effective said assignee shall
assume, in full, the obligations of Lessee under this Lease. Any such
assignment shall not, in any way, affect or limit the liability of Lessee under
the terms of this Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS OF ASSIGNMENT. Regardless of Lessor's consent,
no assignment shall release Lessee of Lessee's obligations hereunder or alter
the primary liability of Lessee to pay the Base Rent and Lessee's Share of
Operating Expenses, and to perform all other obligations to be performed by
Lessee hereunder. Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment. Neither a delay in the
approval or disapproval of such assignment nor the acceptance of rent shall
constitute a waiver or estoppel of Lessor's right to exercise its remedies for
the breach of any of the terms or conditions of this paragraph 12 or this Lease.
Consent to one assignment shall not be deemed consent to any subsequent
assignment. In the event of default by any assignee of Lessee or any successor
of Lessee, in the performance of any of the terms hereof, Lessor may proceed
directly against Lessee without the necessity of exhausting remedies against
said assignee. Lessor may consent to subsequent assignments of this Lease or
amendments or modifications to this Lease with assignees of Lessee, without
notifying Lessee, or any successor of Lessee, and without obtaining its or their
consent thereto and such action shall not relieve Lessee of liability under this
Lease.
12.4 TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of Lessor's
consent, the following terms and conditions shall apply to any subletting by
Lessee of all or any part of the Premises and shall be included in subleases:
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(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor not by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) If Lessee's obligations under this Lease have been guaranteed by
third parties, then a sublease, and Lessor's consent thereto, shall not be
effective unless said guarantors give their written consent to such sublease and
the terms thereof.
(d) The consent by Lessor to any subletting shall not release Lessee
from its obligations or alter the primary liability of Lessee to pay the rent
and perform and comply with all of the obligations of Lessee to be performed
under this Lease.
(e) The consent by Lessor to any subletting shall not constitute a
consent to any subsequent subletting by Lessee or to any assignment or
subletting by the sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or modifications
thereto without notifying Lessee or anyone else liable on the Lease or sublease
and without obtaining their consent and such action shall not relieve such
persons from liability.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or any one else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease, provided,
however, Lessor shall not be
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liable for any prepaid rents or security deposit paid by such sublessee to
Lessee or for any other prior defaults of Lessee under such sublease.
(h) Each and every consent required of Lessee under a sublease shall
also require the consent of Lessor.
(i) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(j) Lessor's written consent to any subletting of the Premises by
Lessee shall not constitute an acknowledgment that no default then exists under
this Lease of the obligations to be performed by Lessee nor shall such consent
be deemed a waiver of any then existing default, except as may be otherwise
stated by Lessor at the time.
(k) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within ten (10) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessees for any such defaults cured by the sublessee.
12.5 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) days after written notice
thereof from Lessor to Lessee. In the event that Lessor serves Lessee with a
Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes
such Notice to Pay Rent or Quit shall also constitute the notice required by
this subparagraph.
(c) Except as otherwise provided in this Lease, the failure by Lessee
to observe or perform any of the covenants, conditions or provisions of this
Lease to be observed or performed by Lessee, other than described in paragraph
(b) above, where such failure shall continue for a period of thirty (30) days
after written notice thereof from Lessor to Lessee, provided, however, that if
the nature of Lessee's noncompliance is such that more than thirty (30) days are
reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion. To the extent
permitted by law, such thirty (30) day
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notice shall constitute the sole and exclusive notice required to be given to
Lessee under applicable Unlawful Detainer statutes.
(d) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. (S) 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days), (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(d) is contrary to
any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation thereunder, was
materially false.
13.2 REMEDIES. In the event of any such material default by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee all damages incurred
by Lessor by reason of Lessee's default including, but not limited to, the cost
of recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorney's fees,
and any real estate commission actually paid, the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises in such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of this state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing
specifying wherein Lessor has
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failed to perform such obligation, provided, however, that if the nature of
Lessor's obligation is such that more than thirty (30) days are required for
performance then Lessor shall not be in default if Lessor commences performance
within such thirty (30) day period and thereafter diligently prosecute the same
to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Industrial Center. Accordingly, if any installment of Base
Rent, Operating Expenses, or any other sum due from Lessee shall not be received
by Lessor to Lessor's designee within ten (10) days after such amount shall be
due, then, without any requirement for notice to Lessee, Lessee shall pay to
Lessor a late charge equal to 6% of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
costs Lessor will incur by reason of late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder. In the event that a late
charge is payable hereunder, whether or not collected, for three (3) consecutive
installments of any of the aforesaid obligations of Lessee, then Base Rent shall
automatically become due and payable quarter in advance, rather than monthly,
notwithstanding paragraph 4.1 or any other provision of this Lease to the
contrary.
14. CONDEMNATION. If the Premises or any portion thereof or the Industrial
Center are taken under the power of eminent domain or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs. If more than ten
percent of the floor area of the Premises or more than twenty-five percent of
that portion of the Common Areas designated as parking for the Industrial Center
is taken by condemnation, Lessee may, at Lessee's option, to be exercised in
writing only within ten (10) days after Lessor shall have given Lessee written
notice of such taking (or in the absence of such notice, within ten (10) days
after the condemning authority shall have taken possession) terminate this Lease
as of the date the condemning authority takes such possession. If Lessee does
not terminate this Lease in accordance with the foregoing, this Lease shall
remain in full force and effect as to the portion of the premises remaining,
except that the rent shall be reduced in the proportion that the floor area of
the Premises taken bears to the total floor area of the Premises. No reduction
of rent shall occur if the only area taken is that which does not have the
Premises located thereon. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under the threat
of the exercise of such power shall be the property of Lessor, whether such
award shall be made as compensation far diminution in value of the leasehold or
for the taking of the fee, or as severance damages, provided, however, that
Lessee shall be entitled to any award for loss of or damage to Lessee's trade
fixture and removable personal property. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of
severance damages received by Lessor in connection with such condemnation,
repair any damage to the Premises caused by such condemnation except to the
extent that Lessee has been reimbursed therefor by the condemning authority.
Lessee shall pay any amount in excess of such severance damages required to
complete such repair.
15. BROKER'S FEE.
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(a) Upon execution of this Lease by both parties, Lessor shall pay to 0
----
Licensed real estate broker(s), a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $ 0 , for brokerage
---
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option, as defined
in paragraph 39.1 of this Lease, which is granted to Lessee under this Lease, or
any subsequently granted option which is substantially similar to an Option
granted to Lessee under this Lease, or if Lessee acquires any rights to the
Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, then as to any of said transactions,
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interests in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) days' prior written notice from the other party ("requesting party")
execute, acknowledge and deliver to the requesting party a statement in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified stating the nature of such modification and certifying that this
Lease as so modified is in full force and effect) and the date to which the rent
and other charges are paid in advance, if any, and (ii) acknowledging that there
are not to the responding party's knowledge, any uncured defaults on the part of
the requesting party, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises or of the business of the requesting party.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Industrial Center
or any part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three (3) years financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
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17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Industrial Center, and except as expressly provided in
paragraph 15, in the event of any transfer of such title or interest, Lessor
herein named (and in case of any subsequent transfers then the grantor) shall be
relieved from and after the date of such transfer of all liability as respects
Lessor's obligations thereafter to be performed, provided that any funds in the
hands of Lessor or the then grantor at the time of such transfer, in which
Lessee has an interest, shall be delivered to the grantee. The obligations
contained in this Lease to be performed by Lessor shall, subject as aforesaid,
be binding on Lessor's successors and assigns, only during their respective
periods of ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and insurance and tax expenses payable shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Industrial Center and Lessee acknowledges that
Lessee assumes all responsibility regarding the Occupational Safety Health Act,
the legal use and adaptability of the Premises and the compliance thereof with
all applicable laws and regulations in effect during the term of this Lease
except as otherwise specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be
in writing and may be given by personal delivery or by certified mail, and if
given personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designated by notice to
Lessee.
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24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consents to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof
restricting assignment or subletting by Lessee and subject to the provisions of
paragraph 17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Industrial Center is located and any litigation concerning this Lease
between the parties hereto shall be initiated in the county in which the
Industrial Center is located.
30. SUBORDINATION.
(a) This Lease, and any Option granted hereby, at Lessor's option, shall be
subordinate to any ground lease, mortgage, deed of trust, or any other
hypothecation or security now or hereafter placed upon the Industrial Center and
to any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgages, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) days
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after written demand shall constitute a material default by Lessee hereunder
without further notice to Lessee or, at Lessor's option, Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocably appoint Lessor as Lessee's attorney-in-
fact and in Lessee's name, place and stead, to execute such documents in
accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker(s) named herein bring an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the court. The
provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
Industrial Center as Lessor may deem necessary or desirable. Lessor may at any
time place on or about the Premises or the Building any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs. All activities
of Lessor pursuant to this paragraph shall be without abatement of rent, nor
shall Lessor have any liability to Lessee for the same.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Industrial
Center without Lessor's prior written consent. Under no circumstances shall
Lessee place a sign on any roof of the Industrial Center.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party such consent shall
not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Industrial Center.
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39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "option" has the
following meaning (1) the right or option to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor, (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Industrial Center or other property of
Lessor or the right of first offer to lease other space within the Industrial
Center or other property of Lessor; (3) the right or option to purchase the
Premises or the Industrial Center, or the right of first refusal to purchase the
Premises or the Industrial Center, or the right of first offer to purchase the
Premises or the Industrial Center, or the right or option to purchase other
property of Lessor, or the right of first refusal to purchase other property of
Lessor or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee, provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the date after a monetary obligation to Lessor is due from Lessee and unpaid
(without any necessity for notice thereof to Lessee) and continuing until the
obligation is paid, or (iii) at any time after an event of default described in
paragraph 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), or (iv) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(b), or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise
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and during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary
obligation of Lessee for a period of thirty (30) days after such obligation
becomes due (without any necessity of Lessor to give notice thereof to Lessee),
or (ii) Lessee fails to commence to cure a default specified in paragraph
13.1(c) within thirty (30) days after the date that Lessor gives notice to
Lessee of such default and/or Lessee fails thereafter to diligently prosecute
said cure to completion, or (iii) Lessee commits a default described in
paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of Lessor to give
notice of such default to Lessee), or (iv) Lessor gives to Lessee three or more
notices of default under paragraph 13.1(b), or paragraph 13.1(c), whether or not
the defaults are cured.
40. SECURITY MEASURES. Lessee hereby acknowledges that Lessor shall have no
obligation whatsoever to provide guard service or other security measures for
the benefit of the Premises or the Industrial Center. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole
option, from providing security protection for the Industrial Center or any part
thereof, in which event the cost hereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
41. EASEMENTS. Lessor reserves to itself the right, from time to time, to
grant such easements, rights and dedications that Lessor deems necessary or
desirable and to cause the recordation of Parcel Maps and restrictions, so long
as such easements, rights, dedications, Maps and restrictions do not
unreasonably interfere with the use of the Premises by Lessee. Lessee shall
sign any of the aforementioned documents upon request of Lessor and failure to
do so shall constitute a material default of this Lease by Lessee without the
need for further notice to Lessee.
42. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, a trust or
partnership, Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions, if any, shall be controlled by the
typewritten or handwritten provisions.
45. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease. This Lease
shall become binding upon Lessor and Lessee only when fully executed by Lessor
and Lessee.
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46. ADDENDUM. Attached hereto is an addendum or addenda containing paragraphs
through which constitute a part of this Lease.
- ------- ------
Lessor to pay
1. Security lights
2. Outside maintenance
3. Water
4. Sewer
5. Building taxes & insurance
Lessee to pay
1. Trash
2. Electric
3. Phone
4. Gas
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
THIS LEASE HAS BEEN PREPARED FOR SUBMISSION TO YOUR ATTORNEY FOR APPROVAL.
NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL
ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER OR ITS AGENTS OR EMPLOYEES
AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES
OF THIS LEASE.
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LESSOR LESSEE
HEBER AIRPORT BUSINESS COMMONS L.L.C. ICE USA LLC
- ------------------------------------- --------------------------------------
By /s/ Gary Finucan By /s/
---------------------------------- -----------------------------------
By By
----------------------------------- ------------------------------------
Executed on Executed on
-------------------------- ---------------------------
ADDRESS FOR NOTICES AND RENT ADDRESS
Airport Business Commons 2291 Arapahoe Ave.
- ------------------------------------- --------------------------------------
340 N. Main Boulder, CO
- ------------------------------------- --------------------------------------
Heber City, UT 84032 80302
- ------------------------------------- --------------------------------------
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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 Amendment 1 on Form
SB-2 of Coyote Sports, Inc. dated August 8, 1997 and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
KPMG PEAT MARWICK LLP
Boulder, Colorado
August 8, 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 for the nine months ended September 30,
1996, which report appears in Amendment 1 on Form SB-2 of Coyote Sports, Inc.
dated August 8, 1997.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Boulder, Colorado
August 8, 1997
