INFORMATION STATEMENT
COYOTE SPORTS, INC.
2291 Arapahoe Avenue
Boulder, CO 80302
April 20, 1998
To the Stockholders of
Coyote Sports, Inc.
This Information Statement relates to the approval of the 1998 Stock
Option Plan (the "1998 Plan") and the authorization of an additional 500,000
shares of common stock of the Company to be reserved for the issuance of options
under the 1997 Stock Option Plan (the "1997 Plan"). This Information Statement
was first mailed or delivered to Stockholders on or about April 20, 1998.
WE ARE NOT ASKING YOU FOR A PROXY
AND YOU ARE REQUESTED NOT TO SEND US A PROXY
This Information Statement is being furnished to Stockholders solely to
provide them with certain information concerning the Coyote Sports, Inc. 1998
Plan and the authorization of an additional 500,000 shares of common stock of
the Company to be reserved for issuing options under the 1997 Plan in accordance
with the requirements of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") and the regulations promulgated thereunder, including
particularly Regulation 14C, and the rules and regulations of the National
Association of Securities Dealers, Inc. Automated Quotation System.
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS INFORMATION STATEMENT. THE FOLLOWING SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE. Stockholders ARE URGED TO CAREFULLY REVIEW THE
ENTIRE INFORMATION STATEMENT AND ACCOMPANYING MATERIALS.
1997 Plan Summary
Following adoption by the Board of Directors on February 10, 1998, a
majority of the stockholders of the Company approved by written consent on the
same date, the reservation of an additional 500,000 shares for grant under the
1997 Plan. The written consents that were executed by stockholders who approved
the 1997 Plan were not solicited since the stockholders are members of the
Company's Board of Directors. No meeting of stockholders will be held in
connection with the 1997 Plan. As more fully discussed below under "Voting and
Beneficial Interests," the 1997 Plan was approved by stockholders holding 67.4%
of the Company's outstanding stock.
All current or prospective employees, consultants, and directors of the
Company or any of its subsidiaries are be eligible to participate in the 1997
Plan. The number of shares of common stock of the Company available for issuance
under the 1997 Plan is set at 1,000,000 shares, subject to adjustment for
dividend, stock split or other relevant changes in the Company's capitalization.
As of March 31, 1998, 470,500 incentive stock options and 95,000 non-statutory
stock options had been granted pursuant to the 1997 Plan. A copy of the 1997
Plan is incorporated by reference into this Information Statement from Form S-8
filed with the Securities and Exchange Commission on March 24, 1998.
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1998 Plan Summary
Following adoption by the Board of Directors on March 10, 1998, a
majority of the stockholders of the Company approved by written consent on the
same date, the 1998 Plan. The written consents that were executed by
stockholders who approved the 1998 Plan were not solicited since the
stockholders are members of the Company's Board of Directors. No meeting of
stockholders will be held in connection with the 1998 Plan. As more fully
discussed below under "Voting and Beneficial Interests," the 1998 Plan was
approved by Stockholders holding 63.8% of the Company's outstanding stock.
All current or prospective employees, consultants, and directors of the
Company or any of its subsidiaries will be eligible to participate in the 1998
Plan. The number of shares of common stock of the Company available for issuance
under the 1998 Plan is set at 1,000,000 shares, subject to adjustment for
dividend, stock split or other relevant changes in the Company's capitalization.
In no event, however, will the total number of shares provided for under the
1998 Plan exceed thirty percent (30%), or such other percentage limitation
approved by the Stockholders pursuant to applicable law, of the then outstanding
shares of the Company.
Administration. The Compensation Committee of the Board of Directors is
responsible for administering the 1998 Plan and has full authority, subject to
the terms of the 1998 Plan, to set the terms and conditions of and to make all
other determinations under the 1998 Plan, including the authority to amend or
terminate the 1998 Plan. The Board of Directors has the authority to appoint and
vest a committee of the Board with powers to administer the 1998 Plan. The 1998
Plan will be administered in compliance with the requirements, if any, of Rule
16b-3 of the Exchange Act, with respect to participation in the 1998 Plan by
"Insiders," as defined by Section 16 of the Exchange Act. The Company shall
indemnify the Board for any suit, action or proceeding arising out of any action
taken in connection with the 1998 Plan.
Incentive and Nonstatutory Stock Options. The Board of Directors may
grant options under the 1998 Plan that qualify as Incentive Stock Options
("Incentive Stock Options") under section 422(b) of the Internal Revenue Code of
1986, as amended, (the "Code") and options which do not so qualify
("Nonstatutory Stock Options").
Eligibility. Current Employees, Consultants and Directors (as those
terms are defined in the 1998 Plan) of the Company and its subsidiaries will be
eligible to receive Incentive Stock Options and Nonstatutory Stock Options under
the 1998 Plan. As of March 31, 1998, the Company and its subsidiaries had
approximately 550 total Employees. There are currently three non-employee
directors of the Company. Prospective Employees, Consultants and Directors will
also be eligible to participate in the 1998 Plan provided that the options are
granted in connection with written offers of employment or other service
relationship with the Company or its subsidiaries. Any person who is not an
Employee on the effective date of the grant of an option may be granted only a
Nonstatutory Stock Option.
The benefits or amounts that will be received by or allocated to
persons eligible to receive options under the 1998 Plan are not determinable.
Exercise Price. The Board has full discretion to determine the exercise
price for each option granted under the 1998 Plan. However, in no case shall the
exercise price (a) for an Incentive Stock Option be less than the fair market
value of a share of common stock of the Company ("Stock") on the effective date
of the option; (b) for a Nonstatutory Stock Option be less than eighty-five
percent (85%) of the fair market value of the Stock on the effective date of
grant of the option; (c) for a Nonstatutory Stock Option granted to a resident
of the United Kingdom be less than the fair market value of a share of Stock on
the effective date of grant of such option; and (d) for an option granted to a
"Ten Percent Owner Optionee" (as defined in the 1998 Plan), be less than one
hundred ten percent (110%) of the fair market value of the Stock on the
effective date of grant of the option. The exercise price of an option may be
paid in cash, a promissory note with terms and in a form acceptable to the Board
at the time the option is granted, or with such other consideration as permitted
by applicable law that the Board deems acceptable. The Board has the sole
discretion to accept or reject payment of the exercise price made by the
assignment of the proceeds of a sale or loan with respect to some or all of the
shares acquired upon the exercise of the option (a "Cashless Exercise"). The
Board may also permit a participant to surrender previously owned shares to the
Company, the fair market value of which is not less than the exercise price and
which would be applied to the option exercise price.
The market price for the Company's Common Stock as of April 14, 1998 was
$5.62 per share.
Non-Transferability. All options granted under the 1998 Plan may be
exercised during the optionee's lifetime only by the optionee, or the optionee's
guardian or legal representative. No option shall be assignable or
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transferrable, except by will or the laws of descent and distribution.
Exercise Period. The duration of each option will be specified by the
Board in written agreements between the Company and the receiver of the option
(the "Option Agreement"), provided that (a) no option will be exercisable after
the expiration of ten (10) years after the effective date of grant of such
option; (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee
shall be exercisable after five (5) years after the effective date of grant of
such option; (c) no option granted to a prospective Employee, Consultant, or
Director may become exercisable prior to the commencement of service with the
Company or its subsidiaries; (d) no option granted to a resident of the United
Kingdom shall be exercisable after the expiration of seven (7) years after the
effective date of grant of such option; and (e) no option shall be exercised by
an option holder other than an Officer, Director or Consultant at a rate less
than twenty percent (20%) per year of a period of five (5) years from the
effective date of grant of such option, subject to the optionee's continued
service with the Company or its subsidiaries. The Board, at its discretion, may
establish a vesting schedule for any option granted under the 1998 Plan.
Effect of Termination of Services. Termination of an optionee's service
with the Company or any of its subsidiaries occurs either after actual
termination or after a Company subsidiary for which the optionee provided
services ceases to be a subsidiary of the Company. The Board has the discretion
to determine what constitutes a termination of service with the Company and any
of its subsidiaries, the effective date of such termination, and the effect of
such termination on the exercisability of any options held by such optionee. The
optionee's service will not be deemed to have terminated, however, merely
because of a change in the capacity of service the optionee renders to the
Company or any of its subsidiaries as long as there is no interruption in or
termination of the optionee's service. Leave of absences of more than ninety
(90) days will be considered terminations of service unless the optionee has a
statutory or contractual right to return to service with the Company or any of
its subsidiaries.
Stock Dividends and Stock Splits. The number, kind and price of the
shares subject to each outstanding option will be proportionately and
appropriately adjusted in the event of any stock dividend, stock split,
recapitalization, combination, reclassification, or other similar change in the
capital structure of the Company. The number of the shares of Common Stock of
the Company reserved for issuance pursuant to options granted under the 1998
Plan will be adjusted by the Board of Directors for any such changes.
Change in Control. If within the duration of the stock option there is
a Change in Control (defined below), the surviving or transferee corporation may
assume the Company's rights and obligations under the 1998 Plan as to
outstanding options or may substitute substantially equivalent options for the
transferee corporation's stock. Any options which are neither assumed nor
substituted shall terminate effective as of the date of the Change in Control.
However, notwithstanding the foregoing, if the surviving corporation following
an Ownership Change Event (defined below) is a subsidiary of the Company and if
immediately after the such event less than fifty percent (50%) of the total
combined voting power of its voting stock is held by another corporation, the
outstanding options shall not terminate unless the Board provides at its sole
discretion.
For purposes of the 1998 Plan, an "Ownership Change Event" occurs upon
the sale or exchange of more than fifty percent (50%) of the voting stock of the
Company, a merger or consolidation involving the Company, the sale, exchange or
transfer of substantially all of the Company's assets, or a liquidation or
dissolution of the Company. A "Change in Control" under the 1998 Plan means an
Ownership Change Event(s) (collectively "Transaction") after which the
Stockholders of the Company immediately before the Transaction directly or
beneficially own less than fifty percent (50%) immediately after the Transaction
of the voting stock of the Company, or of the corporation(s) to which the shares
of the Company were transferred. The Board shall have the sole discretion to
determine whether multiple sales or exchanges of the Company's voting stock or
multiple Ownership Change Events are related so as to constitute a Change in
Control under the 1998 Plan.
Term of 1998 Plan; Amendment. The 1998 Plan will terminate on the
earlier of the termination date by the Board or the date on which all of the
shares of Stock available for issuance under the 1998 Plan have been issued and
all restrictions on such shares under the 1998 Plan and Option Agreements have
lapsed. However, all options shall be granted, if at all, within ten (10) years
of the date the 1998 Plan is adopted by the Board or by the Stockholders,
whichever is earlier. The Board of Directors may terminate or amend the 1998
Plan at its discretion. Notwithstanding the foregoing, the Board may not,
without shareholder approval, increase the number of shares of Common Stock that
may be issued under the 1998 Plan, change the class of persons eligible to
receive Incentive Stock Options, or make any other amendment to the 1998 Plan
that would require approval of the Company's Stockholders under any applicable
law, regulation or rule.
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Certain Federal Income Tax Consequences of Options. Certain of the
federal income tax consequences to optionees and the Company of options with
respect to Company stock granted under the 1998 Plan should generally be as set
forth in the following summary.
An employee to whom as ISO which qualifies under Section 422 of the
Code is granted will not recognize income at the time of grant or exercise of
such option. However, upon the exercise of an ISO, any excess in the fair market
price of the Common Stock over the option price constitutes a tax preference
item which may have alternative minimum tax consequences for the employee. If
the employee sells such shares more than one year after the date of transfer of
such shares and more than two years after the date of grant of such ISO, the
employee will generally recognize a long-term capital gain or loss equal to the
difference, if any, between the sale prices of such shares and the option price.
The Company will not be entitled to a federal income tax deduction in connection
with the grant or exercise of an ISO. If the employee does not hold such shares
for the required period, when the employee sells such shares the employee will
recognize ordinary compensation income and possibly capital gain or loss
(long-term or short-term, depending on the holding period of the stock sold) in
such amounts as are prescribed by the Code and the regulations thereunder and
the Company will generally be entitled to a federal income tax deduction in the
amount of such ordinary compensation income recognized by the employee.
An employee to whom an NSO is granted will not recognize income at the
time of grant of such option. When such employee exercises such NSO, the
employee will recognize ordinary compensation income equal to the excess, if
any, of the fair market value, as of the date of the option exercise, of the
shares that the employee receives upon such exercise over the option price paid.
The tax basis of such shares to such employee will be equal to the option price
paid plus the amount, if any, includable in the employee's gross income, and the
employee's holding period for such shares will commence on the date on which the
employee recognizes taxable income in respect of such shares. Gain or loss upon
a subsequent sale of any Company Common Stock received upon the exercise of a
NSO generally would be taxed as capital gain or loss (long-term or short-term,
depending upon the holding period of the stock sold). Certain additional rules
apply if the employee pays the option price in shares previously owned by the
employee. Subject to the applicable provisions of the Code and regulations
thereunder, the Company will be entitled to a federal income tax deduction in
respect of a NSO in an amount equal to the ordinary compensation income
recognized by the employee. This deduction will, in general, be allowed for the
taxable year of the Company in which the optionee recognizes such ordinary
income.
Participants in the 1998 Plan should consult their own tax advisors to
determine the specific tax consequences of the 1998 Plan for them. A copy of the
1998 Plan is incorporated by reference into this Information Statement from Form
S-8 filed with the Securities and Exchange Commission on March 11, 1998.
VOTING AND BENEFICIAL INTERESTS
Interest of Certain Persons in Matters to be Acted Upon
No person who has served as director or officer of the Company at any
time since the beginning of the last fiscal year, and no associate of any
director or officer of the Company, has any substantial interest, direct or
indirect, in the 1998 Plan. Although certain officers and/or directors of the
Company will be eligible to receive stock options under the 1998 Plan, such
amounts are undeterminable.
Voting Securities of the Company
As of March 10, 1998, the date on which holders of a majority of the
Company's outstanding common stock approved the 1998 Plan by written consent,
there were outstanding 4,073,000 shares of Common Stock issued and outstanding.
As of March 10, 1998, the Company had received written consents approving the
1998 Plan from Stockholders representing 2,800,000 shares (out of a total of
4,073,000 votes) or 68.7 % of the votes represented by the Company's outstanding
Common Stock.
Security Ownership of Certain Beneficial Owners and Management
Information with respect to the beneficial ownership of the Company's
Common Stock by each person known by the Company to own beneficially more than
5% of the issued and outstanding shares of the Company's Common Stock, each
director of the Company, each executive of the Company who received in excess of
$100,000 of salary and bonus compensation from the Company during the year ended
December 31, 1997 (the "Named Executive Officers"), and all executive officers
and directors of the Company as a group is included in the Proxy Statement for
the 1998 Annual Meeting which is attached to this Information Statement.
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