As filed with the Securities and Exchange Commission on March 4, 1999
Registration No. [ ]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
COYOTE SPORTS, INC.
(Exact name of registrant as specified in its charter)
Nevada 3949 88-0326730
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation Classification Code Identification
or organization) Number) Number)
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
(303) 932-8794
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
James M. Probst
c/o Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
(303) 932-8794
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------
Copies to:
Mark B. Segall, Esq. William F. Wynne, Jr., Esq.
Peter G. Smith, Esq. White & Case LLP
Kramer Levin Naftalis & Frankel LLP 1155 Avenue of the Americas
919 Third Avenue New York, New York 10036
New York, New York 10022 (212) 819-8200
(212) 715-9100
Approximate date of commencement of proposed sale of securities to the
public: As soon as practicable after this Registration Statement becomes
effective and all other conditions to the merger contemplated by the Amended and
Restated Agreement and Plan of Merger, dated as of February 2, 1999, described
in the Joint Proxy Statement/Prospectus included in this Registration Statement
have been satisfied or waived.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
<PAGE>
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, please 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: [ ]
2
<PAGE>
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
==================================================================================================================================
Amount Proposed Maximum Proposed Maximum
Title of Each Class of to be Offering Price per Aggregate Amount of
Securities to be Registered Registered(1) Security(2) Offering Price(2) Registration Fee
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series C Convertible 5,996,016 N/A $19,487,052 $5,417.40
Preferred Stock, par value
$.001..................................
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, par value 5,996,016 N/A N/A N/A
$.001 (3)..............................
==================================================================================================================================
</TABLE>
- ----------------
(1) The estimated maximum number of shares to be issued on the consummation of
the merger of a subsidiary of the Registrant with and into Royal Precision,
Inc. (assuming the exercise of all options to acquire shares of Royal
Precision, Inc. common stock that are exercisable prior to consummation of
the merger).
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f) under the Securities Act of 1933, as amended, on
the basis of $3 1/4, the average of the high and low prices of the Royal
Precision, Inc. common stock on the Nasdaq National Market on February 24,
multiplied by 5,996,016, the estimated maximum number of shares of Royal
Precision, Inc. common stock subject to conversion into shares of the
Registrant in the merger.
(3) Shares of the Registrant's common stock which may be issued in the future
upon conversion in accordance with their terms of the shares of the
Registrant's convertible preferred stock registered hereby. Pursuant to
Rule 457(i) under the Securities Act of 1933, as amended, no separate fee
is being paid with respect to such shares of common stock.
---------------
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, as amended, or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
<PAGE>
PRELIMINARY JOINT PROXY STATEMENT/PROSPECTUS
SUBJECT TO COMPLETION, ___________ __, 1999
[COYOTE LOGO] [RP LOGO]
MERGER PROPOSED--YOUR VOTE IS IMPORTANT
The Boards of Directors of Coyote Sports, Inc. ("Coyote") and Royal Precision,
Inc. ("RP") have agreed on a merger. The terms of the merger are governed by an
Agreement and Plan of Merger dated as of February 2, 1999, as amended and
restated (the "Merger Agreement"), by and among Coyote, RP Acquisition Corp. and
RP. The merger is structured so that Coyote will be the surviving publicly
traded company and RP will become a wholly owned subsidiary of Coyote. If the
merger is completed, RP stockholders will receive a number of shares of Coyote
Series C Convertible Preferred Stock (the "Series C Preferred Stock") equal to
the ratio (the "Exchange Ratio") obtained by dividing the number of outstanding
shares of Coyote common stock by the number of outstanding shares of RP common
stock on the effective date of the merger. Based on the number of shares
outstanding on the date of this Joint Proxy Statement/Prospectus, RP
stockholders will receive just over one (1.0195) share of Series C Preferred
Stock for each share of RP common stock that they own, and Coyote will issue a
total of approximately [5,778,000] shares of Series C Preferred Stock to holders
of RP common stock in connection with the merger. Coyote stockholders will
continue to own their existing common stock. Stockholders of RP will not receive
any fractional share of Series C Preferred Stock in the merger, but will instead
receive cash at the rate of $6.00 multiplied by the reciprocal of the Exchange
Ratio per whole share of Series C Preferred Stock for each fractional share of
Series C Preferred Stock which would otherwise be issued. Based on the Exchange
Ratio calculated above, RP stockholders would receive cash at the rate of $5.89
per whole share of Series C Preferred Stock in respect of fractional shares. We
estimate that the number of shares of Series C Preferred Stock to be issued to
RP stockholders will be approximately equal to the number of shares of Coyote
common stock outstanding after the merger. The RP common stock held by RP
stockholders prior to the merger will all be converted either into Series C
Preferred Stock, or into cash in the case of any fractional share, immediately
at the time of the merger.
The merger cannot be completed unless the matters proposed in this Joint
Proxy Statement/Prospectus are approved by both the Coyote stockholders and the
RP stockholders. The RP stockholders must approve and adopt the Merger Agreement
and approve the merger and the other transactions contemplated by the Merger
Agreement. Approval of the Merger Agreement by the RP stockholders is assured
because, in connection with the merger, holders of approximately 53% of the
outstanding shares of RP common stock have agreed to approve this proposal. The
Coyote stockholders must approve an amendment to Coyote's Restated Articles of
Incorporation to increase the number of authorized preferred shares and to
create, and approve the issuance of, a new series of shares, the Series C
Preferred Stock, to be delivered to RP stockholders in connection with the
merger. The approval of the Coyote stockholders is also assured because, in
connection with the merger, holders of approximately 69% of the outstanding
shares of Coyote common stock have agreed to approve this proposal. Both RP and
Coyote have scheduled special meetings for their stockholders to vote on these
matters. Although holders of a majority of the outstanding common stock of both
companies have agreed to vote to complete the merger, we are seeking the vote of
all stockholders in favor of these actions.
Your vote is important to us.
Whether or not you plan to attend your company's stockholders meeting,
please take the time to vote by completing and mailing the enclosed proxy card
to us. If you sign, date and mail your proxy card without indicating how you
want to vote, your proxy will be counted as a vote in favor of the merger.
Coyote common stock is traded under the symbol "COYT" on The Nasdaq Stock
Market, Inc. ("Nasdaq") Small Cap Market and RP common stock is traded under the
symbol "RIFL" on the Nasdaq National Market.
Only stockholders of record of RP as of _________, 1999, and stockholders
of record of Coyote as of __________, 1999, are entitled to attend and vote at
the meetings. The dates, times and places of the meetings are as follows:
For Coyote stockholders:
, 1999
(_____ Time)
[ ]
[ ]
[ ]
For RP stockholders:
, 1999
(_____ Time)
<PAGE>
[ ]
[ ]
[ ]
This document is the Joint Proxy Statement of Coyote and RP for their
respective meetings and the prospectus for the Series C Preferred Stock and
underlying Coyote common stock to be issued in connection with the merger. This
document provides you with detailed information about the proposed merger. We
encourage you to read this entire document carefully. In addition, you may
obtain information about our companies from documents that we have filed with
the Securities and Exchange Commission.
Mel S. Stonebraker
Chairman of the Board of Directors
Coyote Sports, Inc.
Raymond J. Minella
Chairman of the Board of Directors
Royal Precision, Inc.
See "Risk Factors" beginning on page 8 for a discussion of certain risks
which should be considered by stockholders with respect to the proposed merger.
Neither the SEC nor any state securities regulators have approved the Coyote
Series C Preferred Stock or the underlying Coyote common stock to be issued
under this document or determined if this document is accurate or adequate. Any
representation to the contrary is a criminal offense.
Joint Proxy Statement/Prospectus dated March 3, 1999 and first mailed to
stockholders on or about [ ] [ ], 1999.
ii
<PAGE>
ROYAL PRECISION, INC.
(a Delaware Corporation)
15170 North Hayden Road, Suite 1
Scottsdale, Arizona 85260
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ] , 1999
To the Stockholders of Royal Precision, Inc.:
Notice is hereby given that a special meeting of stockholders of Royal
Precision, Inc. ("RP") will be held on [ ], 1999, at 10:00 a.m., local time, at
[ ] to vote on the following proposals:
(1) the approval and adoption of the Amended and Restated Agreement and
Plan of Merger dated as of February 2, 1999 (the "Merger Agreement"), by and
among Coyote Sports, Inc. ("Coyote"), RP Acquisition Corp. ("Merger Sub") and
RP, a copy of which is attached as Annex A to the Joint Proxy
Statement/Prospectus accompanying this notice and the approval of the merger and
the other transactions contemplated by the Merger Agreement. The Merger
Agreement provides for the merger of Merger Sub into RP resulting in RP becoming
a wholly owned subsidiary of Coyote. In the merger, each outstanding share of RP
common stock will be converted into a number of shares of Coyote Series C
Convertible Preferred Stock (the "Series C Preferred Stock") equal to the ratio
(the "Exchange Ratio") obtained by dividing the number of shares of common stock
of Coyote issued and outstanding on the effective date of the merger by the
number of shares of common stock of RP issued and outstanding on the effective
date of the merger. Based on the number of shares of Coyote common stock and RP
common stock issued and outstanding on the date of this Joint Proxy
Statement/Prospectus, RP stockholders will receive just over one (1.0195) share
of Series C Preferred Stock for each share of RP common stock that they own; and
(2) the transaction of such other business as may be properly brought
before the special meeting.
AFTER CAREFUL CONSIDERATION, THE BOARD OF DIRECTORS OF RP HAS UNANIMOUSLY
DETERMINED THAT THE EXCHANGE RATIO AND THE MERGER CONSIDERATION TO BE RECEIVED
BY THE RP STOCKHOLDERS IN THE MERGER ARE FAIR TO, AND THAT THE MERGER AGREEMENT,
THE MERGER AND THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT ARE
FAIR TO AND OTHERWISE ADVISABLE AND IN THE BEST INTERESTS OF, RP AND ITS
STOCKHOLDERS. THE BOARD OF DIRECTORS OF RP RECOMMENDS THAT YOU VOTE "FOR" THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE APPROVAL OF THE MERGER AND
THE OTHER TRANSACTIONS CONTEMPLATED BY THE MERGER AGREEMENT.
The Board of Directors of RP has fixed the close of business on
_________________, 1999 as the record date for the determination of stockholders
of RP entitled to vote at the special meeting. Only stockholders of record at
the close of business on __________________, 1999 are entitled to notice of and
to vote at the special meeting or any adjournments or postponements of the
special meeting.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR approval and adoption of the proposal
described in (1) above.
You are urged to read the attached material carefully. It is important that
your shares be represented at the RP special meeting. Whether or not you plan to
attend the RP special meeting, you are requested to complete, date, sign and
return the enclosed proxy card promptly in the enclosed pre-addressed and
pre-paid envelope so that it will be received no later than [ ], 1999. If you
attend the special meeting, you may vote in person if you wish, even though you
have previously returned your proxy. Any action may be taken on the foregoing
proposal at the RP special meeting on the date specified above or on any dates
to which the original or later adjournment of the special meeting may be
adjourned or postponed.
<PAGE>
Stockholders opposed to the merger are entitled to assert Dissenters' Rights
under Section 262 of the Delaware General Corporation Law in connection with the
merger described above, as more fully described in the Joint Proxy
Statement/Prospectus of which this notice is a part. A copy of Section 262 is
included in the Joint Proxy Statement/Prospectus as Annex D. Stockholders who do
not satisfy the requirements for asserting Dissenters' Rights will forfeit their
right to demand and receive payment of a judicially determined "fair value" for
their shares under Section 262.
By Order of the Board of Directors
Kenneth J. Warren
General Counsel and Corporate Secretary
Scottsdale, AZ
_____________ , 1999
iv
<PAGE>
COYOTE SPORTS, INC.
(a Nevada Corporation)
2291 Arapahoe Avenue
Boulder, Colorado 80302
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON [ ] , 1999
Notice is hereby given that a special meeting of stockholders of Coyote
Sports, Inc. ("Coyote") will be held on [ ] , 1999 at 10:00 a.m., local time, at
[ ], to vote on a proposal recommended by the Board of Directors of Coyote to
approve an amendment to the Amended and Restated Articles of Incorporation of
Coyote to increase the number of authorized preferred shares from 4,000,000 to
10,000,000, and to create, and approve the issuance of, a new series of shares,
the Coyote Series C Convertible Preferred Stock, par value $.001 per share (the
"Series C Preferred Stock"), to be delivered in connection with the merger
contemplated by the Amended and Restated Agreement and Plan of Merger, dated as
of February 2, 1999 (the "Merger Agreement"), by and among Coyote, RP
Acquisition Corp. ("Merger Sub"), a wholly owned subsidiary of Coyote, and Royal
Precision, Inc. ("RP") and to transact such other business as may be properly
brought before the special meeting;
THE BOARD OF DIRECTORS OF COYOTE HAS UNANIMOUSLY DECLARED THAT THE PROPOSAL
TO AMEND COYOTE'S AMENDED AND RESTATED ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF SHARES OF AUTHORIZED PREFERRED STOCK FROM 4,000,000 TO 10,000,000 AND
TO CREATE, AND APPROVE THE ISSUANCE OF, A NEW SERIES OF SHARES, THE SERIES C
PREFERRED STOCK, TO BE DELIVERED IN CONNECTION WITH THE MERGER, IS ADVISABLE AND
IN THE BEST INTERESTS OF THE COYOTE STOCKHOLDERS AND RECOMMENDS THAT THE HOLDERS
OF COYOTE COMMON STOCK VOTE IN FAVOR OF THE APPROVAL OF THIS PROPOSAL.
The Board of Directors of Coyote has fixed the close of business on
_________, 1999 as the record date for the determination of stockholders of
Coyote entitled to vote at the special meeting. Only stockholders of record at
the close of business on ___________________, 1999 are entitled to notice of and
to vote at the special meeting or any adjournments or postponements of the
special meeting.
All shares represented by properly executed proxies will be voted in
accordance with the specifications on the proxy card. If no such specifications
are made, proxies will be voted FOR approval and adoption of the proposal above.
You are urged to read the attached material carefully. It is important that
your shares be represented at the Coyote special meeting. Whether or not you
plan to attend the Coyote special meeting, you are requested to complete, date,
sign and return the enclosed proxy card promptly in the enclosed pre-addressed
and pre-paid envelope so that it will be received no later than [ ], 1999. If
you attend the special meeting, you may vote in person if you wish, even though
you have previously returned your proxy. Any action may be taken on the
foregoing proposal at the Coyote special meeting on the date specified above or
on any dates to which the original or later adjournment of the special meeting
may be adjourned or postponed.
By Order of the Board of Directors
Mel S. Stonebraker
Secretary
Coyote Sports, Inc.
Boulder, CO
[ ], 1999
<PAGE>
WHERE TO FIND MORE INFORMATION
Coyote and RP file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any reports,
statements or other information filed by Coyote or RP at the SEC's public
reference rooms in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C.
20549, in New York, New York at 7 World Trade Center, 13th Floor, New York, New
York 10048 and in Chicago, Illinois at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Please call the SEC at
1-800-SEC-0330 for further information on the public reference rooms. The
filings of Coyote and RP with the SEC are also available to the public from
commercial document retrieval services and at the world wide web site maintained
by the SEC at "http://www.sec.gov."
Coyote filed a Registration Statement on Form S-4 to register with the SEC
the Series C Preferred Stock to be delivered in connection with the merger and
the shares of Coyote common stock issuable upon conversion of the Series C
Preferred Stock. This Joint Proxy Statement/Prospectus is a part of that
Registration Statement and constitutes a prospectus of Coyote in addition to
being a proxy statement of Coyote and RP for the special meetings. As allowed by
SEC rules, this Joint Proxy Statement/Prospectus does not contain all the
information you can find in the Registration Statement or the exhibits to the
Registration Statement.
The SEC allows Coyote and RP to "incorporate by reference" information into
this document, which means that they can disclose important information to you
by referring you to another document filed separately with the SEC. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information in this document. This
document incorporates by reference the documents set forth below that Coyote and
RP have previously filed with the SEC. These documents contain important
information about Coyote and RP and their finances.
Coyote Commission Period
Filings (File No. 5-53827)
i
<PAGE>
Annual Report on Form For the fiscal year ended
10-KSB December 31, 1997
Quarterly Reports on Form For the quarterly periods
10-QSB ended March 31, 1998,
June 30, 1998 and
September 30, 1998
Current Reports on Form 8- Filed April 3, 1998,
K and 8-K/A May 14, 1998,
September 23, 1998, November
20, 1998, January 26, 1999
and February 11, 1999
Registration Statement on Filed November 24, 1998
Form S-3
Reports on Schedule 13D Filed March 30, 1998,
and 13D/A October 13, 1998,
February 5, 1999, February
12, 1999, February 16, 1999
and February 18, 1999
Information Statement on Filed April 20, 1998
Schedule 14A/14C
Registration Statements on Filed March 11, 1998 and
Form S-8 March 24, 1998
i
<PAGE>
RP Commission Filings (File No. 0-22889) Period
Annual Report on Form 10-KSB For the fiscal year ended
May 31, 1998
Quarterly Reports on Form 10-QSB For the quarterly periods
ended August 31, 1998 and
November 30, 1998
Current Reports on Form 8-K Filed January 20, 1999 and
February 5, 1999
Registration Statement on Form S-8 Filed October 30, 1998
Report on Schedule 13G Filed February 17, 1998
Proxy Statement on Schedule 14A Filed September 9, 1998
================================================================================
Coyote has supplied all information contained or incorporated by reference
in this document relating to Coyote, and RP has supplied all such information
relating to RP.
If you are a stockholder, Coyote or RP may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
Coyote, RP or the SEC. Stockholders may obtain, without charge, documents
incorporated by reference in this document by requesting them in writing or by
telephone from the appropriate party at the following address:
Coyote Sports, Inc. Royal Precision, Inc.
If you would like to request documents from Coyote or RP, please do so
by [ ], 1999 to receive them before the special meetings. You should rely only
on the information contained or incorporated by reference in this document to
vote on the matters submitted to you. Neither Coyote nor RP has authorized
anyone to provide you with information that is different from what is contained
in this document. This document is dated [ ], 1999. You should not assume that
the information contained in the document is accurate as of any date other than
such date, and neither the mailing of this document to stockholders nor the
delivery of Series C Preferred Stock pursuant to the merger shall create any
implication to the contrary.
ii
<PAGE>
2291 Arapahoe Avenue 15170 North Hayden Road, Suite 1
Boulder, Colorado 80302 Scottsdale, Arizona 85260
(303) 932-8794 (602) 627-0200
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
WHERE TO FIND MORE
INFORMATION..................................................................................i
QUESTIONS AND ANSWERS ABOUT
THE COYOTE/RP MERGER.........................................................................v
SUMMARY......................................................................................1
The Companies............................................................................1
The Meetings.............................................................................1
Risk Factors Meriting Special Attention..................................................1
The Merger...............................................................................2
The Merger Agreement.....................................................................3
RISK FACTORS.................................................................................8
COMPARATIVE PER SHARE DATA OF COYOTE AND RP.................................................13
COMPARATIVE MARKET VALUE INFORMATION........................................................14
FORWARD-LOOKING INFORMATION.................................................................15
CURRENT COYOTE DEVELOPMENTS.................................................................16
Coyote Results for the Quarter Ended
December 31, 1998...................................................................16
Coyote Results for the Year Ended
December 31, 1998...................................................................16
CURRENT RP DEVELOPMENTS.....................................................................16
RP Results for the twelve months ended
December 31, 1998...........................................................................16
RP SPECIAL MEETING..........................................................................18
Date, Time and Place....................................................................18
Matters to be Considered at the
RP Special Meeting..................................................................18
RP Board Recommendation.................................................................18
Vote Required...........................................................................18
Voting of Proxies.......................................................................18
Revocability of Proxies.................................................................18
Record Date; Stock Entitled to Vote; Quorum.............................................19
Solicitation of Proxies.................................................................19
COYOTE SPECIAL MEETING......................................................................21
Date, Time and Place....................................................................21
Matters to be Considered at the
Coyote Special Meeting..............................................................21
Coyote Board Recommendation.............................................................21
Vote Required...........................................................................21
Voting of Proxies.......................................................................21
Revocability of Proxies.................................................................22
Record Date; Stock Entitled to Vote; Quorum.............................................22
Solicitation of Proxies.................................................................22
THE MERGER..................................................................................24
Background of the Merger................................................................24
Reasons of RP for the Merger................................................................26
Recommendation of the Board of Directors
of RP...............................................................................28
<PAGE>
Opinion of Financial Advisor............................................................28
Reasons of Coyote for the Merger........................................................32
Recommendation of the Board of Directors
of Coyote...........................................................................34
Opinion of Lehman Brothers..............................................................34
Interests of Certain Persons in the Merger..............................................39
Indemnification ......................................................................42
Dissenters' Rights......................................................................42
Material U.S. Federal Income Tax
Consequences........................................................................43
Certain Legal Matters...................................................................44
U.S. Federal Securities Law Consequences................................................45
Dividends...............................................................................45
THE EXCHANGE RATIO AND ITS
EFFECT ON RP SECURITIES AND
EQUITY-BASED BENEFIT PLANS..................................................................45
General.................................................................................46
The Exchange Ratio......................................................................46
Fractional Shares.......................................................................46
Treatment of RP Equity-Based Awards.....................................................46
Stock Exchange Listing..................................................................47
Financing...............................................................................47
PROVISIONS OF THE MERGER
AGREEMENT AND RELATED
AGREEMENTS..................................................................................48
General.................................................................................48
The Merger Agreement....................................................................48
Effective Time..........................................................................48
Exchange of RP Common Stock.............................................................48
Representations and Warranties..........................................................48
Conduct of Business Pending the Merger..................................................49
No-Solicitation - Coyote................................................................50
No-Solicitation - RP....................................................................51
Certain Other Covenants.................................................................53
Affiliate Agreements....................................................................56
[Coyote's Board of Directors]...........................................................55
Termination............................................................................56
Amendment and Waiver; Parties in
Interest............................................................................59
STOCKHOLDER AGREEMENT.......................................................................60
VOTING AGREEMENTS...........................................................................62
The Coyote Voting Agreements............................................................62
The RP Voting Agreements................................................................63
Edwards Option Re-Pricing Agreement.....................................................64
CERTAIN UNDERTAKINGS WITH
RESPECT TO RESALE...........................................................................65
UNAUDITED PRO FORMA
COMBINED CONDENSED
FINANCIAL STATEMENTS........................................................................66
COYOTE SPORTS, INC. AND ROYAL
PRECISION, INC. UNAUDITED PRO
FORMA COMBINED CONDENSED
BALANCE SHEET...............................................................................68
COYOTE SPORTS, INC. AND ROYAL
<PAGE>
PRECISION, INC. UNAUDITED PRO
FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS.....................................................................69
COYOTE SPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED
CONDENSED STATEMENT OF OPERATIONS...........................................................71
ROYAL PRECISION, INC. UNAUDITED PRO
FORMA COMBINED CONDENSED STATEMENT
OF OPERATIONS...............................................................................73
NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL
STATEMENTS..................................................................................74
EXPENSE REDUCTIONS..........................................................................75
EXPENSE REDUCTION ADJUSTMENTS...............................................................76
BUSINESS OF COYOTE..........................................................................78
General.................................................................................78
The Apollo Group and Unifiber...........................................................78
Reynolds Cycle Technology Limited
-- Reynolds Products................................................................81
Sierra Materials........................................................................82
Unggul..................................................................................84
Principal Suppliers and Customers.......................................................84
Government Regulations..................................................................84
Properties..............................................................................85
Legal proceedings.......................................................................86
Employees...............................................................................86
Intellectual Property...................................................................87
Research and Development................................................................87
Management's Discussion and
Analysis of Financial Condition
and Results of Operations...........................................................88
BUSINESS OF RP..............................................................................93
Principal Products; Markets.............................................................93
Competition.............................................................................94
Principal Suppliers and Customers.......................................................95
Patents, Trademarks.....................................................................96
Regulations.............................................................................96
Research and Development................................................................96
Environmental...........................................................................96
Employees...............................................................................97
DESCRIPTION OF SHARE CAPITAL
OF COYOTE...................................................................................98
Authorized Share Capital................................................................98
Coyote Common Stock.....................................................................98
Preferred Stock.........................................................................98
Coyote Series C Preferred Stock.........................................................99
Stock Exchange Listing.................................................................101
COMPARISON OF
STOCKHOLDER RIGHTS.........................................................................102
COMPARISON OF SERIES C PREFERRED
STOCK, RP COMMON STOCK AND
COYOTE STOCK...............................................................................103
VOTING SECURITIES..........................................................................110
<PAGE>
STOCK HOLDING OF CERTAIN
OWNERS AND MANAGEMENT......................................................................110
DIRECTORS AND OFFICERS.....................................................................112
RELATED PARTY TRANSACTIONS.................................................................113
SECTION 16(a) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE.......................................................................113
COMMITTEES OF THE
BOARD OF DIRECTORS.........................................................................114
COMPENSATION OF MANAGEMENT.................................................................114
OPTION GRANTS IN THE FISCAL YEAR ENDED DECEMBER 31, 1998...................................116
AGGREGATE OPTION EXERCISES IN THE FISCAL YEAR ENDED DECEMBER 31, 1997
AND FISCAL YEAR-END OPTION VALUES..................................................116
EMPLOYMENT CONTRACTS AND
CHANGE-IN-CONTROL AGREEMENTS...............................................................116
DIRECTOR COMPENSATION......................................................................117
OTHER MATTERS..............................................................................117
LEGAL MATTERS..............................................................................118
EXPERTS....................................................................................118
FUTURE STOCKHOLDERS PROPOSALS..............................................................118
INDEX OF DEFINED TERMS.....................................................................119
ANNEXES
Annex A--Amended and Restated Agreement and Plan of Merger
Annex B--Opinion of Lehman Brothers, Inc.
Annex C--Opinion of NatCity Investments, Inc.
Annex D--Section 262 of the Delaware General
Corporation Law
</TABLE>
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QUESTIONS AND ANSWERS ABOUT THE COYOTE/RP MERGER
Q. Why are Coyote and RP proposing to merge? How will stockholders benefit?
A. Coyote and RP believe that the combination of the two companies will
create a more competitive company than either Coyote or RP would be on its own.
Coyote and RP are engaged in complementary businesses in the golf and sports
equipment industry, and the merger should create a financially stronger company
better able to compete, to provide superior products and services to its
customers, to pursue attractive business opportunities and to achieve cost
savings and synergies. By synergies we mean that the companies will be able to
sell to one another's customers, offer customers a more comprehensive product
line, use a combined worldwide distribution network and jointly pursue future
acquisitions. Overall, Coyote and RP believe that the merger has the potential
to provide added value to all of their respective stockholders. Coyote and RP
note that achieving their goals with respect to the merger is subject to certain
risks which are more fully discussed in the section entitled "Risk Factors"
which begins on page 8.
Q. When are the special meetings and what proposals am I being asked to
vote upon?
A. The RP special meeting will be held on [_______, 1999] at 10:00 a.m.,
local time at [____________________]. Stockholders of RP will be asked to vote
on the proposal to approve and adopt the Merger Agreement and approve the merger
and the other transactions contemplated by the Merger Agreement (the "RP
Proposal"). The Coyote special meeting will be held on [_____], 1999, at 10:00
a.m., local time at [______]. Stockholders of Coyote will be asked to vote on
the proposal to amend Coyote's Amended and Restated Articles of Incorporation to
increase the number of authorized preferred shares from 4,000,000 to 10,000,000
and to create, and approve the issuance of, a new series of shares, the Series C
Preferred Stock, to be delivered in connection with the merger contemplated by
the Merger Agreement (the "Coyote Proposal").
Q. What vote is required?
A. To approve the RP Proposal, an affirmative vote of a majority of the
shares of RP common stock issued and outstanding and entitled to vote at the RP
special meeting is required. Approval of the RP Proposal is assured because, in
connection with the merger, holders of approximately 53% of the RP common stock
have agreed to vote to approve the RP Proposal. To approve the Coyote Proposal,
an affirmative vote of a majority of the shares of Coyote common stock actually
voted at the Coyote special meeting (assuming that a majority of the issued and
outstanding shares of Coyote common stock are represented at the meeting) is
required. Approval of the Coyote Proposal is assured because, in connection with
the merger, holders of approximately 69% of the Coyote common stock have agreed
to vote to approve the Coyote Proposal.
Q. What will RP stockholders receive in the merger?
A. RP stockholders will receive just over one share of Series C Preferred
Stock in exchange for each of their shares of RP common stock. The actual
Exchange Ratio will be determined based on the number of shares of Coyote common
stock and RP common stock actually issued and outstanding on the day the merger
is consummated. Based on the number of shares of Coyote common stock and RP
common stock outstanding on the date of this Joint Proxy Statement/Prospectus,
RP stockholders will receive just over one (1.0195) share of Series C Preferred
Stock for each share of RP common stock that they own. As both RP and Coyote are
subject to restrictions on issuing any additional capital stock between the date
of the Merger Agreement and the date of the consummation of the merger, it is
unlikely that any change in the Exchange Ratio will be substantial.
Q. When do you expect the merger to be completed?
A: We hope to complete the merger as quickly as possible. We expect to
complete the merger on or shortly after [ ] 1999.
Q. How will stockholders know what the Exchange Ratio is?
A. Stockholders can call toll-free [ ] at any time beginning , 1999, for a
voice recording providing the number of outstanding shares of Coyote and
outstanding shares of RP and the ratio between the two. Coyote and RP will
calculate the Exchange Ratio under the Merger Agreement by dividing the number
of outstanding shares of Coyote by the number of outstanding shares of RP. If
the Exchange Ratio were to be determined on the basis of the number of shares of
Coyote common stock and RP common stock outstanding on the date of this Joint
Proxy Statement/Prospectus, the Exchange Ratio would be 1.0195 (that is,
5,777,692 shares of Coyote divided by 5,667,375 shares of RP). As both RP and
Coyote are subject to restrictions on issuing any additional capital stock
between the date of the Merger Agreement and the date of consummation of the
merger, it is unlikely that any change in the Exchange Ratio will be
substantial.
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Q. What will happen to any fractional shares of Series C Preferred Stock to
which stockholders may be entitled under the Merger Agreement?
A. For the sake of simplicity, the Merger Agreement provides that there
will be no fractional shares of Coyote's Series C Preferred Stock issued once
shares of RP are exchanged for Series C Preferred Stock. Instead of any
fractional shares to which they may be entitled, RP stockholders will be
entitled to receive cash in an amount specified in the Merger Agreement. For
example, using the Exchange Ratio calculated above, a holder of 100 shares of RP
common stock would be entitled to 101.95 shares of Series C Preferred Stock.
Instead of receiving this amount, a RP stockholder will receive 101 shares of
Series C Preferred Stock and a cash payment, instead of 0.95 shares of Series C
Preferred Stock, of $5.60.
Q. What are the tax consequences of the merger?
A. The receipt of Series C Preferred Stock in the merger will generally be
tax free to RP stockholders for United States federal income tax purposes,
except for tax imposed on cash received instead of fractional shares. To review
the tax consequences of the merger in greater detail, see page 43.
Q. What should stockholders do now?
A. Stockholders should complete, sign, date and mail their proxy card in
the enclosed postage paid envelope as soon as possible so that their shares will
be voted at the meetings. RP stockholders can also vote by transmitting both
sides of their proxy card by facsimile to [ ]. Coyote stockholders can also vote
by transmitting both sides of their proxy card by facsimile to [ ]. The Board of
Directors of RP recommends voting FOR approval and adoption of the Merger
Agreement and approval of the merger and the other transactions contemplated by
the Merger Agreement. The Board of Directors of Coyote recommends voting FOR the
amendment of the Amended and Restated Articles of Incorporation to increase the
number of authorized preferred shares from 4,000,000 to 10,000,000, and to
create, and approve the issuance of, a new series of shares, the Series C
Preferred Stock, to be delivered in connection with the merger.
RP stockholders should not send in their share certificates now. After the
merger is completed, Coyote will send RP stockholders written instructions for
exchanging their share certificates.
Q. Can stockholders change their vote?
A. Yes. Stockholders can change their vote at any time prior to the special
meetings by filing with the Secretary of the relevant company at or before the
taking of a vote at the relevant special meeting a written notice of revocation
bearing a later date than their proxy by mailing a later-dated signed proxy
card, submitting via facsimile both sides of a later-dated signed proxy card or
by attending their meeting and voting in person. RP and Coyote stockholders can
fax their vote changes to the numbers provided above.
Q. What are "dissenters' rights" and how are they exercised?
A: If a stockholder of RP dissents from the merger, he or she may be
entitled to receive, instead of Series C Preferred Stock, a judicially
determined "fair value" of the RP shares he or she owns. This is called an
"appraisal right" or a "dissenters' right". That fair value will be determined
exclusive of any element of value arising from the accomplishment or expectation
of the merger. RP stockholders should note that voting against the merger is not
the same as exercising dissenters' rights. See page 42 for information on
dissenters' rights of RP stockholders and how to exercise them. Coyote
stockholders, who will retain their shares of Coyote common stock in the merger,
do not have appraisal rights.
Q. What should stockholders do if they have questions?
A: RP stockholders who have questions about the merger should call [ ] at [
] (toll-free in the United States).
Coyote stockholders who have questions about the merger should call [ ] at
[ ] (toll-free in the United States).
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SUMMARY
This summary highlights selected information from this document and may not
contain all of the information that is important to you. To better understand
the merger and for a more complete description of the legal terms of the merger,
you should read carefully this entire document and the documents to which you
have been referred. See "Where to Find More Information" (page i).
The Companies
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
(303) 932-8794
Coyote Sports, Inc., a Nevada corporation, along with its subsidiaries,
designs, engineers, manufactures, markets and distributes brand name sports
equipment and recreational products including steel and graphite golf shafts,
premium grade cycle tubing and javelins. Coyote also produces graphite and other
advanced composite materials for use in the production of sporting goods
products.
Coyote's business objective is to be a leading provider of sports equipment
and recreational products. Coyote 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.
Coyote's registered and principal executive offices are located at the
address shown above. For further information see "Business of Coyote" beginning
on page 78.
Royal Precision, Inc.
15170 North Hayden Road
Suite 1
Scottsdale, Arizona 85260
(602) 627-0200
Royal Precision, Inc., a Delaware corporation, through its subsidiaries,
develops, produces and markets on a worldwide basis steel and graphite golf
shafts, including the "Rifle," the first modern stepless steel golf shaft,
markets on a worldwide basis technology related to frequency coefficient
matching, a process which insures uniformity of flex among all shafts in a set
of golf clubs, and develops and markets on a worldwide basis golf club grips for
the replacement market and for original equipment manufacturers.
RP's shafts are sold worldwide to manufacturers of golf clubs and component
retailers through RP's direct sales staff and a network of independent
distributors. RP's marketing strategy for its grips has been to use a
single-tier distribution structure in which its independent sales
representatives deal directly with thousands of golf club professionals and
off-course specialty store operators. RP distributes a substantial portion of
its shafts and grips in Japan through Precision Japan, a distributor for over 15
years.
RP's registered and principal executive offices are located at the address
shown above. For further information see "Business of RP" beginning on page [ ].
The Meetings (pages 18 and 21)
The meetings of the RP stockholders and the Coyote stockholders will be
held on , 1999 at [ ].
The record date for RP stockholders entitled to receive notice of and to
vote at the RP special meeting is the close of business on [ ] , 1999. On that
date there were [ ] shares of RP common stock outstanding.
The record date for Coyote stockholders entitled to receive notice of and to
vote at the Coyote special meeting is the close of business on [ ], 1999. On
that date there were [ ] shares of Coyote common stock outstanding.
Risk Factors Meriting Special Attention
Before you decide to vote for the adoption of the RP Proposal, or for the
approval of the Coyote Proposal, you should consider the following risk factors,
which are among those listed and more fully described in the "Risk Factors"
section on pages 8 through 13 of this document.
o There is no assurance that the operations of Coyote and RP will be
effectively integrated. Coyote's future financial success depends
substantially on that integration.
o On a stand alone historical basis, both Coyote and RP have experienced
net losses. There can be no assurance that the combined companies will
be able to achieve their goal of returning to profitability.
o After the merger, the combined companies will have increased debt of
$38 million, compared to the
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existing debt of the two companies totaling approximately $28 million.
There can be no assurance that the companies' combined operations will
achieve their goals of realizing synergies, achieving economies of
scale, and improving profitability and meet Coyote's debt obligations.
o There is no assurance that Coyote can identify and complete
appropriate acquisitions of complementary and compatible businesses
and successfully integrate them with existing operations. Increasing
sales through acquisitions is an important part of Coyote's growth
strategy.
o Certain major stockholders of Coyote and RP have entered into a
stockholder agreement which entitles such stockholders to designate,
in the aggregate, all of the members of the Board of Directors of
Coyote after the merger for a period of up to five years, thereby
reducing or eliminating the ability of other stockholders to affect or
change Coyote's management or Board of Directors.
The Merger (page 24)
The legal document that governs the merger is the Amended and Restated
Agreement and Plan of Merger, dated as of February 2, 1999, by and among Coyote,
RP and Merger Sub. Other agreements entered into in connection with that Merger
Agreement include the stockholder agreement, and the Coyote voting agreements
and the RP voting agreements. The Merger Agreement is attached to the back of
this document as Annex A. The stockholder agreement, the Coyote voting
agreements and the RP voting agreements are filed with the SEC as exhibits to
the registration statement of which this document is a part. You are encouraged
to read these documents.
Stockholder vote required
The affirmative vote of a majority of the RP common stock which is issued
and outstanding and entitled to vote at the RP special meeting is required to
approve and adopt the Merger Agreement and approve the merger and the other
transactions contemplated by the Merger Agreement.
The affirmative vote of a majority of the Coyote common stock actually
voted in respect of the proposal to amend the Amended and Restated Articles of
Incorporation of Coyote to increase the number of authorized preferred shares
and to create, and approve the issuance of, a new series of shares, the Series C
Preferred Stock, to be delivered in connection with the merger at the Coyote
special meeting (assuming that a majority of the issued and outstanding shares
of Coyote common stock are represented at the Coyote special meeting) is
required.
Interests of Certain Persons in the Merger
In considering the recommendation of the RP Board of Directors in favor of
the merger, RP and Coyote stockholders should be aware that some members of the
RP Board of Directors and members of its management will receive certain
benefits as a result of the merger that will be in addition to or different from
benefits received by RP stockholders generally. Certain members of RP's
management and the RP Board of Directors and certain stockholders of RP and
Coyote have interests in the merger that are different from or in addition to
your interests. For example:
James M. Probst, Mel S. Stonebraker, Paragon Coyote Texas Ltd. ("Paragon"),
the Richard P. Johnston and Jayne A. Johnston Charitable Remainder Trust #3
(Richard P. Johnston, Trustee) (the "Trust"), David E. Johnston, Kenneth J.
Warren, Berenson Minella & Company, L.P. ("Berenson Minella") and Coyote have
entered into a stockholder agreement dated as of February 2, 1999, and effective
as of the effective date of the merger, which gives Messrs. Probst and
Stonebraker and Paragon, collectively, the right to designate four persons to
serve as directors of Coyote, Messrs. Johnston and Warren and the Trust,
collectively, the right to designate three persons to serve as directors of
Coyote and Berenson Minella the right to designate one person to serve as a
director of Coyote. Mr. Probst and Mr. Stonebraker are currently directors and
officers of Coyote and Mr. Pappas, the president of the general partner of
Paragon, is currently a director of Coyote. Mr. David Johnston, Mr. Warren and
Richard P. Johnston, the trustee of the Trust, are currently directors and/or
officers of RP and Raymond J. Minella, a managing general partner of Berenson
Minella, is the Chairman of the Board of Directors of RP. The parties to the
stockholder agreement, other than Coyote, have agreed to vote all Coyote voting
securities owned by them in favor of the director nominees designated by the
other parties. Collectively, the parties to the stockholder agreement will
control a majority of the outstanding Coyote voting securities on the effective
date of the merger and as a result, as of the effective date of the merger, will
have the ability to elect all of the directors of Coyote.
Danny Edwards, presently a director of RP, has agreed to waive certain
contractual rights under RP's existing stockholder agreement, in return for
cancellation of certain stock options and the re-issuance of new options with a
lower
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exercise price and an extended term. These options are held by Mr. Edwards and
certain related parties, including Robert Burg II, a director of RP, and Everen
Securities, Inc. and certain of its employees, including Lawrence D. Bain, a
director of RP. In exchange for this waiver, RP has agreed to issue to these
parties new options with otherwise similar terms at an exercise price of $3.19
and expiration date five years from the date of the grant. As a result of this
arrangement, options to purchase the following numbers of shares were canceled
and new options issued to each of the following persons; Mr. Edwards, 62,550;
Mr. Burg, 108,033; and Everen Securities, Inc., 7,500.
In order to induce Christopher Johnston, a major stockholder of RP, to
waive certain contractual rights under RP's existing stockholder agreement, RP
and certain of its stockholders agreed to release Christopher Johnston from his
obligations under that agreement and RP agreed to assist Christopher Johnston in
the sale of the shares of RP common stock held by him. As additional
consideration for RP's agreements in this respect, Christopher Johnston agreed
to waive any appraisal rights to which he may be entitled under Delaware law in
connection with the merger. In addition, Christopher Johnston and Coyote have
agreed that he will be entitled to a fee in the event that a certain future
acquisition opportunity identified by him is successfully pursued.
Mark Pappas serves as a director of Coyote and the president of the general
partner of Paragon. Upon consummation of the merger, a $6,000,000 loan dated
March 19, 1998 from Paragon to Coyote will become immediately due. In addition,
under the terms of the loan, Coyote may be required to issue to Paragon
additional shares of Coyote common stock when the loan is due if the share price
of Coyote's common stock is less than $3.25. For a more in-depth discussion of
the loan agreement and the interests of Mark Pappas in the merger, see
"Interests of Certain Persons in the Merger" beginning on page 39.
Raymond J. Minella, Chairman of the Board of Directors of RP, is a managing
general partner of Berenson Minella. RP has engaged Berenson Minella to provide
financial advisory services in connection with the merger. Berenson Minella's
fee for such services is contingent upon the consummation of a sale transaction
or other business combination involving RP. Upon the consummation of the merger,
Berenson Minella will receive a fee equal to 1.5% of the sum of an amount equal
to the aggregate liquidation preference of the Series C Preferred Stock issued
to the holders of the RP common stock plus an amount equal to the aggregate debt
of RP assumed, refinanced or renegotiated as part of the merger.
Voting Agreements
Stockholders of RP representing 3,085,113 shares of RP common stock, or
approximately 53% of the issued and outstanding shares of RP common stock, have
entered into voting agreements pursuant to which they have agreed to vote their
shares of RP common stock in favor of the approval and adoption of the Merger
Agreement and the approval of the merger and the other transactions contemplated
by the Merger Agreement. As a result the approval of the RP stockholders is
assured.
Stockholders of Coyote representing 3,987,792 shares of Coyote common
stock, or approximately 69% of the issued and outstanding shares of Coyote
common stock, have entered into voting agreements pursuant to which they have
agreed to vote their shares of Coyote common stock in favor of the approval and
adoption of an amendment to Coyote's Amended and Restated Articles of
Incorporation to increase the number of authorized preferred shares and to
create, and approve the issuance of, a new series of shares, the Series C
Preferred Stock to be delivered to RP stockholders in connection with the
merger. As a result, the approval of the Coyote stockholders is assured.
See "Interests of Certain Persons in the Merger" beginning on page 39.
The Merger Agreement
What the Stockholders of RP and Coyote will receive in the Merger
The Merger Agreement provides that the stockholders of RP will receive a
number of shares of Series C Preferred Stock equal to the Exchange Ratio
obtained by dividing the number of shares of common stock of Coyote issued and
outstanding on the effective date of the merger by the number of shares of
common stock of RP issued and outstanding on the effective date of the merger.
Based on the number of shares of Coyote common stock and RP common stock issued
and outstanding on the date of this Joint Proxy Statement/Prospectus, RP
stockholders will receive just over one ([1.0195)] share of Series C Preferred
Stock for each share of RP common stock that they own. The Merger Agreement
provides that no fractional shares of Series C Preferred Stock will be issued
when shares of RP common stock are exchanged for shares of Series C Preferred
Stock in connection with the merger. Instead of any fractional shares to which
they may be entitled RP stockholders will be entitled to receive cash in an
amount per whole share of Series C Preferred Stock equal to $6.00 multiplied by
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the reciprocal of the Exchange Ratio. Based on the Exchange Ratio calculated
above, the amount per whole share of Series C Preferred Stock payable in respect
of fractional shares would be $5.89. RP STOCKHOLDERS SHOULD NOT SEND IN THEIR
STOCK CERTIFICATES FOR EXCHANGE UNTIL SUCH TIME AS THEY ARE INSTRUCTED TO DO SO
AFTER THE COMPLETION OF THE MERGER.
Coyote stockholders will retain their shares of Coyote common stock in the
merger.
The Series C Preferred Stock
The rights of the Series C Preferred Stock will include:
o A liquidation preference per share equal to $6.00 multiplied by the
reciprocal of the Exchange Ratio. Based on the Exchange Ratio
calculated above, the liquidation preference per share would be $5.89.
o A cumulative preferential dividend per share, payable quarterly, when
and if declared, at an annual rate equal to 6.00% of the liquidation
preference.
o The right, on three days' notice, to convert each share of Series C
Preferred Stock into one share of the common stock of Coyote, plus an
amount equal to all declared or accrued (whether or not declared) but
unpaid dividends related to such share of Series C Preferred Stock, to
be paid in cash, to the extent cash payment is not then permitted by
the terms of Coyote's debt agreements or applicable law, either by
delivery of a subordinated promissory note in a principal amount equal
to the amount of such dividends or shares of Coyote common stock with
a value equal to the amount of such dividends (determined based on the
average closing market price of the Coyote common stock over the
twenty-day period immediately preceding conversion), at Coyote's
option.
o The shares of Coyote common stock issuable upon the conversion will be
listed on the Nasdaq Small Cap Market.
o Each share of the Series C Preferred Stock will be redeemable by
Coyote on thirty days' notice to the holder at a cash redemption price
equal to the liquidation preference plus all accrued and unpaid
dividends thereon, whether or not declared.
o The right to vote with the Coyote common stock on all matters
submitted to a vote of the stockholders of Coyote and to vote
separately as a class on certain matters affecting the rights of the
holders of the Series C Preferred Stock.
The rights of the holders of the Series C Preferred Stock are more fully
discussed on page 99.
Conditions of the Merger
The consummation of the merger depends upon satisfaction of a number of
conditions, including:
o approval and adoption of the RP Proposal by the RP stockholders and
approval of the Coyote Proposal by the Coyote stockholders;
o the absence of any law or court order preventing the consummation of
the merger;
o approval of the Coyote common stock issuable upon conversion of the
Series C Preferred Stock for listing on the Nasdaq National Market, if
qualified, or otherwise for quotation on the Nasdaq Small Cap Market;
o the receipt of sufficient financing by Coyote to satisfy ongoing
working capital needs of Coyote and RP following the consummation of
the merger and to refinance existing indebtedness of both Coyote and
RP on terms reasonably satisfactory to each of Coyote and RP;
o the absence of a material adverse change to the consolidated business,
financial condition or results of operations of RP or Coyote; and
o the accuracy of each party's representations and warranties and the
performance by each party in all material respects of its obligations
under the Merger Agreement.
Termination of the Merger Agreement
Either RP or Coyote may call off the merger if:
o both parties consent in writing;
o the merger is not completed by June 2, 1999, provided that this right
is not available to the party whose failure to fulfill its obligations
under the
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Merger Agreement caused the merger not to be completed;
o there exists any law or court order preventing the merger;
o the stockholders of Coyote or RP do not give the required approvals at
the special meetings; or
o the other party breaches, in a material way, its representations,
warranties, covenants or agreements under the Merger Agreement and
that breach is not curable or if it is curable, it is not cured within
30 days after written notice from the other party.
RP may call off the merger if:
o the Board of Directors of Coyote withdraws or adversely modifies its
approval or recommendation of the merger or recommends a business
combination transaction with a third party; or
o the Board of Directors of RP reasonably determines that a third party
proposal constitutes a RP Superior Proposal - that is, a proposal which
the Board of Directors of RP reasonably believes (upon the advice of an
independent financial advisor) to be more favorable from a financial
point of view to its stockholders than the merger, and RP enters into a
definitive agreement to effect the RP Superior Proposal.
Coyote may call off the merger if:
o the Board of Directors of RP withdraws or adversely modifies its
approval or recommendation of the merger or recommends a business
combination transaction with a third party; or
o the Board of Directors of Coyote reasonably determines that a third
party proposal constitutes a Coyote Superior Proposal - that is, a
proposal which the Board of Directors of Coyote reasonably believes
(upon the advice of an independent financial advisor) to be more
favorable from a financial point of view to its stockholders than the
merger, and Coyote enters into a definitive agreement to effect the
Coyote Superior Proposal.
For further details, see "Termination" beginning on page 56.
Certain Non-Solicitation Provisions; Termination Fee and Expenses
The Merger Agreement generally restricts each of Coyote and RP from
directly or indirectly soliciting or encouraging any alternative transactions
for the sale of Coyote or RP, as the case may be, or any significant portion of
their respective assets beyond what is required by their respective fiduciary
duties. Either party may be obligated to make certain substantial payments to
the other if, it withdraws support for the merger or supports an alternative
transaction instead of the merger. Specifically, if either party terminates the
Merger Agreement because the other party (i) withdraws, modifies or changes its
approval or recommendation, (ii) approves or recommends to its stockholders an
alternative acquisition proposal, or (iii) approves or recommends that its
stockholders tender their shares into any tender offer in connection with an
alternative acquisition proposal, then the other party must pay the terminating
party up to $1.0 million of the terminating party's actual, reasonable and
documented expenses relating to the transactions contemplated by the Merger
Agreement and incurred since January 18, 1999. Similarly, if either party
terminates the Merger Agreement because it has received an alternative
acquisition proposal from a third party which is superior to the transactions
contemplated by the Merger Agreement and which proposal such party's Board of
Directors reasonably determines in good faith requires it to terminate the
Merger Agreement and enter into an agreement with the third party making such
superior proposal, the party terminating the Merger Agreement on that basis must
make a comparable payment of the other party's expenses. Moreover, the party
whose change of approval or recommendation or pursuit of an alternative
transaction occasioned the termination of the Merger Agreement under any of the
circumstances described above will be required to pay the other party an
additional fee of $750,000, if, within 365 days after the termination of the
Merger Agreement, such party enters into an alternative transaction with a third
party which directly or indirectly initiated or otherwise had any contact with
that party regarding any alternate transaction prior to the termination of the
Merger Agreement.
See Coyotes, "No Solicitation - RP" beginning on pages 50 and 52.
In general, an alternative transaction for these purposes would be one
involving the acquisition of control of a majority of a party's common stock or
all or substantially all of a party's assets. In addition, if either Coyote or
RP terminates the Merger Agreement because of Coyote's inability to obtain
financing sufficient to satisfy the combined working capital needs of Coyote and
RP on terms reasonably acceptable to each of Coyote and RP, despite the
reasonable best efforts of
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RP to cooperate in satisfying that condition, Coyote will be obligated to
reimburse RP for its actual, reasonable and documented expenses relating to the
transactions contemplated by the Merger Agreement and incurred since January 18,
1999.
See "Termination--Fees and Expenses" beginning on page 57.
The termination fee and expenses and the no-solicitation provisions of the
Merger Agreement may have the effect of discouraging persons who might be
interested in entering into a business combination with RP or Coyote from
proposing such a transaction, even where the consideration payable to RP or
Coyote stockholders in such a transaction would exceed the value that might be
realized from the merger.
Anticipated Tax Consequences
The merger will qualify as a tax free reorganization for U.S. federal
income tax purposes. See "Material U.S. Federal Income Tax Consequences" on page
43.
Restrictions on Resales of Series C Preferred Stock and Coyote Common Stock
by Affiliates of RP
The federal securities laws impose restrictions on the resale of shares of
the Series C Preferred Stock received in the merger, and any shares of Coyote
common stock resulting from the conversion of the Series C Preferred Stock
received in the merger, by persons who are affiliates of RP at the time of the
RP special meeting.
Effect of Certain Agreements
As a result of the voting agreements dated February 2, 1999, between RP and
the holders of approximately 69% of the outstanding shares of Coyote common
stock, namely James M. Probst, Mel S. Stonebraker and Paragon, holders of more
than the number of shares needed to approve the amendment to Coyote's Amended
and Restated Articles of Incorporation to increase the number of authorized
preferred shares and to create, and approve the issuance of, the Series C
Preferred Stock, have agreed to vote in favor of this proposal at the special
meeting of Coyote stockholders to be held on [ ], 1999.
As a result of the voting agreements dated February 2, 1999, between Coyote
and the holders of approximately 53% of the outstanding shares of RP common
stock, namely Kenneth J. Warren, David E. Johnston, Danny Edwards, Lawrence
Bain, the Trust, Berenson Minella and Ronald L. Chalmers, holders of more than
the number of shares needed to approve the Merger Agreement with Coyote have
agreed to vote in favor of this proposal at the special meeting of the RP
stockholders to be held on [ ], 1999.
The voting agreements, as well as the termination fee and expense
provisions in the Merger Agreement, are expected to increase the likelihood that
the merger will occur and make it more difficult for a third party to acquire
control of either company. For a more complete discussion see "Voting
Agreements" on page 62.
Opinion of NatCity Investments, Inc.
NatCity Investments, Inc. ("NatCity") has given a written opinion to the
Board of Directors of RP as to the fairness to RP stockholders, from a financial
point of view, of the Exchange Ratio set forth in the Merger Agreement and of
the merger consideration to be received by the RP stockholders in the merger.
The full text of the written opinion of NatCity dated January 29, 1999, is
attached to the back of this document as Annex C and should be read carefully in
its entirety. The opinion of NatCity is directed to the RP Board of Directors
and does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the merger.
Opinion of Lehman Brothers, Inc.
Lehman Brothers, Inc. ("Lehman Brothers"), has given a written opinion to
the Board of Directors of Coyote as to the fairness to Coyote stockholders, from
a financial point of view, of the consideration to be delivered to RP's
stockholders in the merger. The full text of the written opinion of Lehman
Brothers dated January 28, 1999 is attached to the back of this document as
Annex B and should be read carefully in its entirety. The opinion of Lehman
Brothers is directed to the Coyote Board of Directors and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
amendment to Coyote's Amended and Restated Articles of Incorporation to increase
the number of authorized preferred shares and to create, and approve the
issuance of, a new series of shares, the Series C Preferred Stock.
RP Dissenters' Rights
If you are a RP stockholder opposed to the merger, you may request an
appraisal and seek payment of the "fair value" (exclusive of any element of
value arising from the accomplishment or expectation of the merger) of your
shares of RP common stock. If you vote for the merger you will not
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be entitled to appraisal rights. You must instead follow the following steps:
o Before the vote by the stockholders of RP on the Merger Agreement, you
must notify the Board of Directors of RP in writing of your intent to
demand appraisal of your shares, and you must not vote in favor of the
proposal.
o NOTE: a vote against the merger will not by itself constitute a
request for appraisal rights.
o If you have demanded appraisal rights, within 10 days after the
effective date of the merger, you will be notified by the surviving
corporation that you are entitled to appraisal for your shares.
o You may within 20 days after being notified by the surviving
corporation that you are entitled to appraisal, demand in writing the
appraisal of your shares.
o Any time within 60 days following the effective date of the merger,
you may withdraw your demand for appraisal and accept the Series C
Preferred Stock in the merger.
The fair value of your stock determined through the statutory appraisal process
may be more or less than the value of the Series C Preferred Stock being offered
in the merger.
Stockholders are encouraged to consider the data included in the pro forma
financial statements reflecting the effect of the merger, which appear on p.[].
In addition, stockholders should consider the consolidated financial statements
of RP and its subsidiaries included in RP's annual report on Form 10-KSB as of
May 31, 1998 and for the years ended May 31, 1998 and 1997 which are
incorporated herein by reference and the consolidated financial statements of
Coyote and its subsidiaries included in Coyote's annual report on Form 10-KSB as
of December 31, 1997 and for the years ended December 31, 1997 and 1996 which
are incorporated herein by reference. To find out how to obtain these financial
statements please turn to "Where to Find More Information" beginning p.i.
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RISK FACTORS
In evaluating the merger and the Merger Agreement, stockholders of Coyote
and RP should take into account the following risks, as well as other
information included in or incorporated by reference into this document:
No Assurance the Operations Will Be Effectively Integrated. Coyote's future
financial success depends substantially upon the successful integration of RP's
operations. It could take several fiscal quarters to accomplish complete
integration of the operations, management, personnel and procedures of RP, and
the coordination of sales and marketing and research and development efforts. In
addition, the process of combining Coyote and RP could seriously interrupt the
daily business activities of either or both organizations. Coyote cannot assure
that present and potential customers of Coyote or RP would remain customers
following the acquisition of RP and in the past Coyote has experienced a
significant reduction in order volume in connection with the acquisition of
acquired businesses. Coyote cannot assure that the merger and integration of RP
will be successful and profitable.
Recent Net Losses and Accumulated Deficit; No Assurance of Future Profit.
On a stand alone historical basis, both companies have experienced net losses.
Coyote incurred a net loss of $1,419,878, excluding a nonrecurring charge of
$11,341,332 associated with the write off of goodwill and other assets and
excluding an extraordinary gain of $346,581, for the eleven months ended
November 30, 1998 and a net loss of $4,167,574 for the year ended December 31,
1997. After the nonrecurring charge and extraordinary gain, net loss for the
eleven months ended November 30, 1998 was $12,414,629. As of November 30, 1998,
Coyote had an accumulated deficit of $17,907,796. RP reported a net loss of
$288,000 for the six months ended November 30, 1998 and a net loss of $263,000
for the fiscal year ended May 31, 1998.
There can be no assurance that the expected economies of scale and more
efficient use of plant capacities presently anticipated by Coyote and RP can be
achieved or that the combined companies will be able to effectively achieve
their goal of returning to profitability.
Leverage. After the merger, the combined companies will have $38,000,000 in
debt outstanding compared to the existing debt of approximately $20,000,000 of
Coyote and approximately $8,000,000 of RP as of November 30, 1998. There can be
no assurances that the cash flows of the combined companies will be sufficient
to pay the interest and the principal of these debt obligations. Although Coyote
believes that it will realize identified synergies from the combined companies,
achieve economies of scale, and improve profitability, there can be no
assurances that the combined operations of Coyote and RP will achieve these
goals and meet Coyote's debt obligations.
Risks Associated with Acquisition Strategy. An important part of Coyote's
growth strategy is to increase sales through acquisitions. As a result, Coyote's
future financial success will depend substantially upon the ability to identify
and complete appropriate acquisitions of complementary and compatible businesses
and upon the successful integration of any future acquisitions into Coyote's
operations. Coyote cannot assure that it can identify and complete appropriate
acquisitions or that future acquisitions will successfully or profitably
integrate with Coyote's existing operations.
Competition. The sporting equipment business in general, and the golf
equipment industry in particular, are highly competitive and are characterized
by numerous companies competing in various segments of the market. Many of RP's
and Coyote's competitors have greater name recognition, more extensive
engineering, manufacturing and marketing capabilities, and greater financial,
technological and personnel resources than RP and Coyote. In addition, certain
companies in the golf equipment industry have expanded their product lines in
recent years as a result of acquisitions. Coyote's future success will depend on
its ability to remain competitive with these rival sports equipment
manufacturers. The competitive environment may cause Coyote to accept lower
profit margins, which could materially adversely affect Coyote's operating
results and financial condition. Both Coyote and RP expect that by combining
their operations, they will be more competitive than they were on a stand alone
basis. However, there can be no assurance that the combined company will be able
to compete successfully in the future with existing or new competitors.
Potential Problems with Growth. Coyote has experienced significant growth
in the past two years and expects such growth to continue. This growth may
significantly strain Coyote's future management, working capital and operating
and financial control systems. Coyote cannot assure that its management, working
capital and operating and financial control systems can adequately support
future anticipated growth. If Coyote is unable to continue to upgrade the
operating and financial control systems, to recruit
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qualified staff or to respond effectively to difficulties that arise during
expansion, Coyote's operating results and financial position could be materially
and adversely affected.
Customer Concentration.
The golf shaft business of RP's subsidiary, FM Precision Golf Manufacturing
Corp. ("FMP") is significantly dependent on sales to Taylor Made and Precision
Japan. Sales to these customers represented approximately 28% of FMP's sales for
the fiscal year ended May 31, 1998. FMP does not have a supply agreement with
Taylor Made, and its supply agreement with Precision Japan expires in 2002. The
Precision Japan agreement is terminable by either FMP or Precision Japan or
should Precision Japan fail to meet certain minimum purchase requirements. The
loss of sales to either of these companies could have a material adverse effect
on RP's business.
Coyote has approximately 400 customers principally located in the United
States and Europe. However, sales to Coyote's top two customers for the year
ended December 31, 1998, Callaway and Cobra, represented 20.7% and 15.2%,
respectively, of Coyote's net sales, as compared to 1.9% and 9.9%, respectively,
in 1997. Coyote has a five-year supply agreement with Cobra which expires
December 31, 2003. Either party may terminate the supply agreement in the event
that the other party is in material breach of that supply agreement or the asset
sale agreement between Coyote's Unifiber subsidiary and Cobra. Coyote
anticipates a substantial increase in sales to Cobra and a substantial decrease
in sales to Callaway for the year ended December 31, 1999. Because of the
historical volatility of consumer demand for specific clubs, as well as
continued competition from alternative suppliers, sales to a given customer in a
prior period may not necessarily be indicative of future sales. The loss of a
significant customer or a substantial decrease in sales to a significant
customer could have a material adverse effect on the combined companies'
business or operating results.
Dependence on "Rifle" Shaft Sales. In January 1995, RP introduced the
"Rifle," the first modern stepless steel golf shaft in the industry. RP is
substantially dependent on sales of Rifle shafts. Sales of the Rifle shaft
constituted 35.5% and 54.3% of RP's revenues during the fiscal years ended May
31, 1998 and May 31, 1997, respectively. The Rifle shaft also has a
substantially higher margin than the other shaft products of RP.
Sales of the Rifle shaft decreased $2.0 million for RP's fiscal year ended
May 31, 1998 as compared to RP's fiscal year ended May 31, 1997. RP received a
high concentration of customer orders during fiscal year 1997. Due to production
capacity limitations, RP's lead times for processing these orders were longer
than RP's typical lead times. As a result of the longer lead times, RP lost some
significant customers. In order to reduce lead times and prevent the loss of
additional customers, and in an effort to obtain new customers, RP has installed
additional manufacturing equipment. RP believes that the new equipment will
allow RP to manufacture approximately 1.0 million more Rifle shafts per year
than RP could previously manufacture. There can be no assurance that the new
equipment will increase RP's production capacity to the extent management has
estimated or reduce RP's lead times, that RP will not lose additional
customers, or that the new equipment will help RP regain lost customers or
acquire additional customers.
While RP's management believes that demand for the Rifle shaft should
remain high for the next several years, there can be no assurance that sales of
the Rifle shaft will not decline or that the Rifle shaft will retain its
profitability. If sales or profitability of the Rifle shaft continue to decrease
without the combined companies' introduction of new profitable products, the
combined companies' performance and financial position would be materially
adversely affected.
Liquidity. The combined companies will require substantial capital
resources to meet their obligations and pursue their growth strategy. Management
believes that the combination of cash on hand, projected cash flows from
operations, and the debt agreements for which commitments will exist as of the
date that the Joint Proxy Statement/Prospectus is sent to stockholders 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, or that
Coyote will be able to repay or refinance its existing indebtedness when it
becomes due.
Dependence on Economic Conditions and Consumer Trends. The businesses of
Coyote and RP are subject to economic cycles and changing consumer golf trends.
Their customers are generally manufacturers of finished goods sold primarily to
sporting goods stores and specialty retailers of golf equipment and recreational
products. Any period of economic uncertainty or decline that impacts consumer
spending could significantly harm Coyote's business, results of operations and
financial condition. In addition, any general
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decline in the size of the market for golf grips and shafts, bicycle tubing or
graphite and other advanced composite materials due to market conditions or
otherwise, would substantially harm Coyote's business, results of operations and
financial condition.
Product Protection and Intellectual Property. RP and Coyote currently rely
upon a combination of patents, copyrights, trademarks and trade secret laws to
establish and protect certain of their proprietary rights in their products.
There can be no assurance that the steps taken by RP or Coyote in this regard
will be adequate to prevent misappropriation of proprietary property rights or
that competitors will not independently develop proprietary property that is
substantially equivalent or superior.
Seasonality. Coyote's and RP's customers have historically built inventory
in anticipation of golf club purchases by golfers in the spring and summer, the
principal selling seasons for golf clubs. As a result of Coyote's and RP's
present dependence on golf-related product sales, management expects that for
the foreseeable future business will be seasonal. As a result of the seasonal
nature of the business, the company may be subject to substantial seasonal
swings in liquidity, resulting in cash management challenges and the risk of a
substantial build-up in inventory prior to peak selling periods.
Uncertainty Regarding Grip Supply. RP's subsidiary, Royal Grip, Inc. ("RG")
currently purchases a majority of its supply of non-cord grips from Acushnet
Rubber Company ("Acushnet"). Under RG's existing manufacturing and supply
agreement with Acushnet, either Acushnet or RG may voluntarily terminate the
agreement upon payment of a specified termination fee. RG currently has no
back-up source of supply should Acushnet terminate their contract. The contract
requires Acushnet to provide RG with 10 months notice to terminate the contract.
Acushnet has notified RP's management that it wishes to renegotiate the terms of
the contract. To the extent that Acushnet terminates this contract, RG will be
forced to find alternate sources of supply or resume the in-house manufacture of
grips. Previously, switching suppliers has resulted in manufacturing delays and
quality control problems. A repetition of these problems could materially
adversely affect RG's customer relationships and result in a loss of sales and
key customers, which, in turn could materially adversely affect RG's results of
operations and financial condition.
Environmental Considerations. Both Coyote and RP are subject to
governmental, environmental and health and safety laws and regulations,
including the laws of the United States and the United Kingdom that impose
workplace standards and limitations on the discharge of pollutants into the
environment and establish standards for the handling and disposal of waste
products. The nature of Apollo Sports Technologies, Limited's ("Apollo")
manufacturing and assembly operations in Oldbury and Birmingham, England, and
RP's Torrington, Connecticut facility, could expose Coyote to the risk of claims
with regard to environmental matters. Although compliance with current
governmental requirements relating to the protection of the environment has not
had a material adverse effect on Coyote's or RP's business or results of
operations, there can be no assurance that material costs or liabilities will
not be incurred in connection with such matters in the future or that
governmental requirements will not change in a manner that imposes material
costs or liabilities on the combined companies. During its fiscal year ended May
31, 1998, RP expended $179,000 in environmental remediation fees and permitting
costs and expects to incur in calendar year 1999 an additional $900,000 in
capital expense to upgrade FMP's wastewater treatment facilities at its
Torrington, Connecticut facility. During its fiscal year ended December 31,
1998, Coyote expended $85,000 in connection with environmental remediative and
permitting costs and expects to incur and additional $95,000 in fiscal 1999.
Under the terms of the purchase of the Torrington facility from Brunswick
Corporation, RP is indemnified by Brunswick for the possible leakage of certain
environmentally dangerous compounds which may be present on, under or around the
Torrington facility. However, indemnification by Brunswick would only be
available if RP can prove that any leakage was the result of Brunswick's
operations.
Control by Principal Stockholders. Following the completion of the merger,
Mel S. Stonebraker, James Probst and Paragon (collectively, the "Probst Group")
will control a majority of Coyote's outstanding common stock. Additionally,
Kenneth J. Warren, David E. Johnston and The Richard P. Johnston and Jayne A.
Johnston Charitable Remainder Trust #3 (collectively, the "Johnston Group") and
Berenson Minella (the "BMC Group"), of which Raymond J. Minella, the chairman of
the RP Board of Directors, is a managing general partner, will beneficially own
approximately [ ]% and [ ]%, respectively, of the outstanding Series C Preferred
Stock. The Probst Group, the Johnston Group and the BMC Group have entered into
a stockholder agreement with Coyote with a duration of five years, effective as
of the effective date of the merger, which entitles such stockholders, after
consummation of the merger, to designate, in the aggregate, all of the members
of the Board of Directors of Coyote, thereby reducing or limiting the ability of
other stockholders to affect or change the composition of Coyote's management or
board of directors.
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Government Regulation. Coyote's and RP's operations are subject to laws and
governmental regulations, including the laws of the United States and the United
Kingdom, that regulate activities such as labor practices. Although compliance
with such regulations have not yet had a material impact on the combined
companies' operating results or financial position, there is no assurance that
they will not incur material compliance costs or liabilities in the future.
Changes in such laws or regulations may also give rise to additional compliance
costs or business interruptions with negative consequences on the combined
companies' operational results and financial condition.
Foreign Manufacturing Operations, Country Risks and Exchange Rate
Fluctuations. Coyote's and RP's businesses are subject to the risks generally
associated with doing business abroad, such as delays in shipment, foreign
government 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 their
manufacturing plants are located. They are also subject to any new legislation
or regulation, which could have a material adverse effect on their business. In
addition, 18% of RP's total net sales during the fiscal year ended May 31, 1998
were derived from international sales, which primarily consists of sales of golf
club shafts and grips. Sales to Precision Japan, RP's exclusive distributor for
Japan, account for a substantial percentage of RP's international sales. The
Japanese economy has been relatively stagnant and future sales may be adversely
affected. Coyote has a manufacturing facility in England in which all of its
steel golf shafts are manufactured. In addition, approximately 20% of Coyote's
sales are derived from overseas markets in Europe, Asia and Australia.
Fluctuation in international exchange rates may have a material adverse effect
on results of these operations.
Labor Unions. Employees of the combined companies at their plants in
Oldsbury and Tyseley, England and Torrington, Connecticut, respectively, are
represented by several trade unions for collective bargaining purposes. Although
Coyote and RP presently believe their relations with employees are good, there
is no assurance that work stoppages or slowdowns will not be experienced in the
future. Any work stoppage or slowdown could have a material adverse effect on
the business, results of operations and financial condition of Coyote. In
addition, there is no assurance that Coyote's and RP's current non-union
facilities will not at some time in the future become subject to labor disputes
and union organizational efforts.
Volatility of Stock Price; Lack of Liquidity for Series C Preferred Stock.
From the time of Coyote's initial public offering in September 1997, its common
stock has publicly traded on the Nasdaq Small Cap Market. To date the secondary
market for Coyote common stock has been limited. Although Coyote is actively
taking measures to improve the liquidity of its stock, the development of an
active secondary trading market for Coyote common stock will depend on many
factors, not all of which are within Coyote's control, including the financial
performance of Coyote and its subsidiaries, the number of shares of Coyote
common stock held by persons other than stockholders party to the stockholders
agreement, the ability to attract coverage offered by financial analysts and the
number of dealers making a market in the Coyote common stock. Other factors
which will also influence the price and trading market of Coyote common stock
include investor confidence in the sports equipment market generally and in
Coyote. If the trading market for the common stock is limited the price that may
be received by an investor seeking to dispose of its stock may be materially
adversely affected. Similarly, RP stockholders should not assume that there will
be an active secondary market for the Series C Preferred Stock or that there
will be liquidity in any trading market that does develop. Coyote does not plan
to list the Series C Preferred Stock on any stock exchange or inter-dealer
quotation system and Coyote is not aware of any person who intends to make a
market in the Series C Preferred Stock.
Junior Rights Of Present Coyote Stockholders and Potential Future Dilution.
After the consummation of the merger, Coyote and RP estimate that there will be
approximately [5,777,692] million shares of Coyote common stock, and [ ] million
shares of Series C Preferred Stock, which will be entitled to vote with the
common stock on a share-for-share basis, outstanding. Immediately following the
merger, the former RP stockholders will control approximately 50% of the
outstanding voting securities of Coyote and the present Coyote stockholders will
control the remaining outstanding voting securities. Accordingly, the present
Coyote stockholders will have less influence over the management and policies of
Coyote than they currently exercise. In addition, the rights of the holders of
Coyote common stock will be junior to the rights of the holders of Series C
Preferred Stock. The terms of the Series C Preferred Stock provide for payment
of dividends at a rate of 6% of the stated liquidation preference per year
whether or not any dividends at all are paid on the Coyote common stock, and the
holders of the Series C Preferred Stock will receive their dividends prior to
the payment of any dividends on the Coyote common stock. In any dissolution or
winding up of Coyote's affairs, the holders of Series C Preferred Stock will
receive distributions, if any, made to the extent of the liquidation preference
plus accrued dividends of the
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Series C Preferred Stock before the holders of the Coyote common stock receive
any distributions in liquidation. Additionally, current Coyote common equity
holders may be diluted if the current holders of RP common stock convert their
Series C Preferred Stock into Coyote common stock, which may be done at any
time.
Absence of Dividends. Coyote has never paid cash dividends on its capital
stock. Coyote currently intends to retain earnings, if any, for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future.
Dependence Upon Key Personnel. Coyote's success has historically depended
on the continued service of certain executive officers, including James M.
Probst, Chief Executive Officer, and John Paul McNeill, Chief Financial Officer.
Both of these officers have employment contracts which expire May 31, 2000. If
one or both of these executives decides to end his employment with Coyote, it
could have a negative impact on Coyote's business operations and financial
condition. As a result of the merger with RP, the composition of the management
team will probably change.
Year 2000 Issue. Coyote is aware of the issues associated with the
programming code in existing computer systems and is working to resolve the
potential impact of the year 2000 on the ability of its computerized information
systems to accurately process information that may be date sensitive. Any of
Coyote's programs that recognize a date using "00" as the year 1900 rather than
the year 2000 could result in errors or system failures ("Year 2000 Issue").
Coyote utilizes a number of computer programs across its operations. Coyote has
developed a Year 2000 project team to address the Year 2000 Issue. An initial
assessment has been completed for each of its operations. The evaluation
revealed that a number of computer hardware and software systems utilized by
Coyote have Year 2000 compliance issues. These systems will need to be replaced
or upgraded. The majority of the systems and/or programs are "off the shelf"
products with Year 2000 compliant versions now available. However, there are
some custom programs which will need to be reprogrammed to be Year 2000
compliant. A Year 2000 plan has been developed for most of Coyote's operations,
some of which are in the implementation and testing stages. The systems and
programs are scheduled to be replaced or upgraded at various times over the next
6 months. Coyote expects to have all critical systems and/or programs Year 2000
compliant by August 1999.
RP believes that its critical internal systems including versions of
Macola, Oracle, Microsoft Exchange, and Microsoft Office 97 products are Year
2000 compliant. In addition, RP tracks the version and available updates for
these products to ensure Year 2000 compliance.
RP has completed a comprehensive evaluation of its internal systems and
equipment that addresses both information technology systems (i.e. business
systems and the software development environment) and non-information technology
systems (i.e. elevator, building security and HVAC systems) including hardware,
software and firmware. In addition, RP has completed the upgrade of certain
critical systems to meet with Year 2000 requirements. During the previous
two-year period, RP incurred approximately $100,000 in costs to purchase and
install new computer hardware and software in order to make all RP hardware and
software used for accounting purposes Year 2000 compliant. Expenses associated
with evaluation of RP's internal systems for Year 2000 problems have been
approximately $20,000. The final phase of RP's internal Year 2000 project has
been completed with the conversion of the E-mail system to Microsoft Exchange at
a cost of $10,000. RP believes that any future internal Year 2000 costs will be
immaterial.
Coyote and RP rely on third parties for many products and services and they
may be adversely impacted if these companies are unable to address this issue in
a timely manner, which could result in a material financial risk to Coyote or
RP. Coyote has not performed an assessment on the state of readiness and/or
compliance of key suppliers and customers. Management plans to identify key
suppliers and customers by March 31, 1999. Management expects that completion of
its Year 2000 compliance project will result in additional expenditures of
approximately $100,000. RP is in the process of conducting a review of its
suppliers to ensure that those suppliers' operations, products and services are
Year 2000 compliant. All significant suppliers and utilities have indicated that
they are Year 2000 compliant, except for one of RP's golf grip suppliers which
has indicated that it is in the last phase of its Year 2000 plan and expects to
be compliant by the end of March 1999. The combined companies' failure to
resolve the Year 2000 Issue on or before December 31, 1999 could result in
system failures or miscalculations causing disruption in operations including,
among other things, a temporary inability to process transactions, send
invoices, send and/or receive e-mail and voice mail, or engage in similar normal
business activities. Additionally, failure of third parties upon whom the
combined companies' business relies to timely remediate their Year 2000 Issues
could result in disruptions in the combined companies' supply of parts and
materials, late, missed or unapplied payments, temporary disruptions in order
processing and other general problems related to their daily operation. While
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Coyote believes its Year 2000 compliance actions will adequately address its
internal Year 2000 Issue, until Coyote completes its assessment of its suppliers
and customers, the overall risks cannot be accurately described and quantified,
and there can be no guarantee that the Year 2000 Issue will not have a material
adverse effect on the combined companies and their operations. Coyote has not,
to date, implemented a Year 2000 contingency plan. Coyote's goal is to have the
major Year 2000 Issues resolved by mid-1999. Final verification and validation
is scheduled to occur by August 1999. However, Coyote intends to develop and
implement a contingency plan by mid-1999, in the event that its Year 2000 Issue
plan should fall behind schedule.
Tax Treatment. As described below, RP and Coyote will receive an opinion
from Fabian & Clendenin, as tax counsel, based upon certain representations and
assumptions, that the merger will qualify as a tax-free reorganization for U.S.
federal income tax purposes, but no ruling from the Internal Revenue Service to
that effect has been or will be sought. See "Material U.S. Federal Income Tax
Consequences" on page 43. If the merger does not qualify as a tax-free
reorganization, then, in general, although the matter is not entirely free from
doubt, for U.S. federal income tax purposes it is likely that each RP
stockholder would recognize gain measured by the excess, if any, of the fair
market value of the Series C Preferred Stock received in the merger plus the
amount of cash received in lieu of any fractional share over the RP
stockholder's tax basis in such stockholder's RP common stock.
COMPARATIVE PER SHARE DATE OF COYOTE AND RP
The market value of Coyote common stock and RP common stock may fluctuate
based upon general market and economic conditions, the two companies' business
and prospects and other factors both within and beyond the control of Coyote and
RP. The common stock of Coyote has been traded on the Nasdaq Small Cap Market
since September 18, 1997 under the symbol "COYT." The common stock of RP has
been traded on the Nasdaq National Market since September 2, 1997 under the
symbol "RIFL". The following table sets forth the high and low sales prices for
the common stock of both companies, as reported by the Nasdaq Small Cap Market
and the Nasdaq National Market, for the periods indicated below since September
1997. Coyote's fiscal year ends on December 31 each year and RP's fiscal year
ends on May 31 each year.
Coyote RP
------ --
High Low High Low
1997:
Third Quarter................ $6 1/4 $5 13/16 $10 1/4 $8
Fourth Quarter............... 5 13/16 4 9 7/8 6 5/8
1998:
First Quarter................ 6 3/8 4 3/8 7 1/4 4 1/2
Second Quarter............... 6 3/16 4 9/16 6 1/16 4 5/8
Third Quarter................ 5 7/16 3 5/8 4 15/16 3 7/8
Fourth Quarter .............. 5 3 4 7/8 5/8
1999:
First Quarter
(through March 2, 1999)........ 4 13/16 3 1/8 3 7/16 1 5/8
On March [ ], 1999, the last reported sale price of the common stock of
each company on its respective market was $[ ] per share in the case of Coyote
and $[ ] per share in the case of RP. On March [ ], 1999, there were
approximately ____ holders of record of the common stock of Coyote and _____
holders of record of common stock of RP.
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COMPARATIVE MARKET VALUE INFORMATION
The following table sets forth the closing prices per share and
aggregate market values of Coyote common stock and RP common stock on the Nasdaq
Small Cap Market and the Nasdaq National Market respectively on January 15,
1999, the last trading day prior to the public announcement of the proposed
merger, and on_______, 1999, the most recent date for which prices were
available prior to printing this document.
Coyote RP RP
Historical Historical Equivalent(1)
On January 15, 1999
Closing price per share of common $ 4 1/2 $ 2 9/16 $4.5876
stock............................. $25,999,614 $ 14,522,648 $25,999,614
Market value of common stock (2)..
On _________, 1999
Closing price per share of common
stock.............................
Market value of common stock (2)..
(1) The equivalent data related to RP for January 15, 1999 corresponds to an
Exchange Ratio of 1.0195, and the RP equivalent data for [ ], 1999
corresponds to an Exchange Ratio of ______.
(2) Market value based on 5,777,692 shares of Coyote common stock and 5,667,375
shares of RP common stock outstanding as of January 15, 1999, and ______
shares of Coyote common stock and _____ shares of RP common stock
outstanding as of ______, 1999.
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FORWARD-LOOKING INFORMATION
Coyote and RP have made forward-looking statements in this document and in
the documents to which we have referred you. These statements are subject to
risks and uncertainties, including, but not limited to, the risks set forth
under the caption "Risk Factors" beginning on page 8, and therefore may prove
not to be correct. Forward-looking statements may include assumptions as to how
the combined companies will perform after the merger and, accordingly, it is
uncertain whether any of the events anticipated by the forward-looking
statements will occur, or if so, what impact, if any, they will have on the
results of operations and financial condition of Coyote or the price of the
Series C Preferred Stock or the Coyote common stock.
When words like "believes", "expects", "anticipates" or similar expressions
are used, they indicate that the statement in which the word is used constitutes
a forward-looking statement. For these statements Coyote and RP claim the
protection of the safe harbor for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995.
You should understand that the following important factors, in addition to
those discussed elsewhere in this document and in the documents which are
incorporated by reference, and in our other public filings and press releases,
could affect the future results of the combined companies and could cause actual
results to differ materially from those expressed in the forward looking
statements and include among other things:
o the ability to integrate the operations of RP and Coyote,
o the ability of Coyote and RP to reverse net losses and return to
profitability,
o inadequate capital, unexpected costs, lower revenues and net income
than forecasted,
o the timing, impact and other uncertainties of future acquisitions by
Coyote, and the ability to integrate such acquisitions and to achieve
anticipated synergies and other cost savings in connection with such
acquisitions,
o loss of significant customers,
o general decreases in consumer spending for sports equipment and
recreational products,
o overall economic and business conditions,
o the demand for Coyote's and RP's goods and services,
o competitive factors in the golf products industries in which Coyote
and RP compete,
o changes in government regulation,
o interest rate fluctuations, foreign currency rate fluctuations and
other capital market conditions,
o economic and political conditions in international markets, including
governmental changes and restrictions on the ability to transfer
capital across borders,
o dependence upon key management personnel,
o the ability of Coyote and RP, and the ability of their respective
customers and suppliers, to replace, modify or upgrade computer
programs in order to adequately address the Year 2000 Issue,
o changes in tax requirements, including tax rate changes, new tax laws
and revised tax law interpretations, and
o price increases for raw materials.
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CURRENT COYOTE DEVELOPMENTS
Coyote Results for the Quarter Ended December 31, 1998
On February 26, 1999, Coyote announced its results for the quarter and year
ended December 31, 1998. For the quarter ended December 31, 1998, Coyote had
revenues of $7,328,237 as compared to $7,528,516 for the comparable period in
1997. Net loss for the quarter ended December 31, 1998 was $2,924,913 or $0.54
loss per share, excluding a nonrecurring charge of $11,341,332 or $2.10 loss per
share from a write off of goodwill and other assets, as described below,
compared to a net loss of $1,987,358 or $0.52 loss per share for the comparable
period in 1997. After the nonrecurring charge, Coyote reported a net loss of
$14,266,245 or $2.64 loss per share for the quarter ended December 31, 1998.
During the fourth quarter of 1998, Coyote incurred approximately $300,000
in merger related charges. Additionally, in the fourth quarter, management of
Coyote determined that its graphite shaft production facility in Carlsbad,
California was preferable to the graphite shaft production facility in San
Diego, California due to the proximity to its customers and other name brand
golf equipment companies and in the belief that the Carlsbad facility could be
operated more efficiently. As a result, in the fourth quarter Coyote started to
amortize the remaining book value of the leasehold improvements with respect to
the San Diego facility that were impaired over the remaining estimated use
period. Coyote also recognized as a liability and expense, in the fourth
quarter, eight months of lease payments and estimated executory costs for the
San Diego facility. Should these estimates not accurately reflect the experience
associated with the San Diego facility, Coyote will recognize additional expense
in the future.
In addition, during the fourth quarter, Coyote determined the goodwill
acquired with its acquisition of Unifiber had been significantly impaired due to
a significant reduction in order volume. Impairment was determined by evaluating
the estimated amount at which the assets acquired in the Unifiber acquisition
could be sold in a current transaction between willing parties. Accordingly, the
remaining goodwill associated with the acquisition of Unifiber, totaling
$10,815,119, was expensed.
Coyote Results for the Year Ended December 31, 1998
For the year ended December 31, 1998, revenues were $38,217,632, a 38%
increase, as compared to $27,685,918 reported in 1997. Net loss decreased to
$2,700,459 or $0.57 loss per share, excluding an extraordinary gain of $346,581
and a nonrecurring charge of $11,341,332 from a write off of goodwill and other
assets, for the year ended December 31, 1998 compared to a net loss of
$4,167,574 or $1.22 loss per share reported in 1997. After the nonrecurring
charge and extraordinary gain, Coyote reported a net loss of $13,695,210 or
$2.88 loss per share for 1998.
CURRENT RP DEVELOPMENTS
RP Results for the twelve months ended December 31, 1998
For the twelve months ended December 31, 1998 revenues were $26,790,000, a
14.8% increase, as compared to $23,336,000 for the twelve months ended December
31, 1997. The net loss was $179,000 for the twelve months ended December 31,
1998 as compared to a net loss of $631,000 for the twelve months ended December
31, 1997.
Roxxi, Inc. a wholly owned subsidiary of RG, manufactures and distributes
athletic headwear. During the fiscal year ending May 31, 1999, Roxxi's operating
results have not met RP's profitability goals for that subsidiary. In January
1999, the RP Board of Directors authorized management to negotiate an
outsourcing agreement with a third party to manufacture headwear on behalf of
RP. As a result of subsequent discussions with Paramount Headwear, Inc. RP
entered into an agreement on February 26, 1999, to sell the Roxxi trademark,
Roxxi's customer list, design database and related computer software and
hardware to Paramount in return for a royalty in an amount equal to 16% of net
sales (gross sales less returns and allowances) collected for the two-year
period following April 30, 1999. Roxxi's net sales for the twelve months ended
January 31, 1999 were approximately $3.2 million. RP management is separately
negotiating with another third party to sell Roxxi's inventory and fixed assets,
which have a net book value of approximately $1.3 million as of January 31,
1999. RP management believes the combined proceeds from both transactions will
approximate the net book value of Roxxi's inventory and fixed assets. RP will
account for the anticipated royalty income in future periods as revenues are
earned and will record a loss on disposal of this business segment in the
quarter ending February 28, 1999, equal to the difference between the expected
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proceeds related to the sale of inventory and fixed assets and the net book
value of those assets. The loss is currently estimated to be approximately $1.0
million.
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RP SPECIAL MEETING
Date, Time and Place
This document is being furnished to the holders of RP common stock with the
solicitation of proxies by the RP Board of Directors for use at the RP special
meeting to be held on [ ], 1999 at [ ], commencing at 10:00 a.m., local time.
Matters to be Considered at the RP Special Meeting
At the RP special meeting, RP stockholders will be asked to consider and
vote upon a proposal to approve and adopt the Merger Agreement, a copy of which
is attached as Annex A to this Joint Proxy Statement/Prospectus, and the
approval of the merger and the other transactions contemplated by the Merger
Agreement.
RP Board Recommendation
After careful consideration, the Board of Directors of RP has unanimously
determined that the Exchange Ratio and the merger consideration to be received
by RP stockholders in the merger are fair to, and that the Merger Agreement, the
merger and the other transactions contemplated by the Merger Agreement are fair
to and otherwise advisable and in the best interests of, RP and its
stockholders. The Board of Directors of RP recommends that you vote "FOR" the
approval and adoption of the Merger Agreement and the approval of the merger and
the other transactions contemplated by the Merger Agreement.
Vote Required
The approval and adoption of the Merger Agreement requires an affirmative
vote by the holders of a majority of the shares of RP common stock entitled to
vote on such proposal at the RP special meeting. The consummation of the merger
is conditioned upon the approval of this proposal by the RP stockholders.
Approval of this proposal is assured because, in connection with the merger,
holders of approximately 53% of the RP common stock have agreed to vote to
approve it.
A broker nonvote (which occurs when a nominee holding shares for a
beneficial owner does not vote on a proposal because the nominee does not have
the discretionary voting power and has not received instructions from the
beneficial owner) or a failure to vote will have the effect of a vote against
the approval and adoption of the Merger Agreement. An abstention with respect to
this proposal will have the effect of a vote against this proposal.
Voting of Proxies
All shares of RP common stock which are entitled to vote and are
represented at the RP special meeting by the properly executed proxies received
prior to or at the RP special meeting, and not revoked, will be voted at the RP
special meeting in accordance with the instructions indicated on such proxies.
If no instructions are indicated, such proxies will be voted for approval and
adoption of the Merger Agreement.
If any other matters are properly presented at the RP special meeting for
consideration, including, among other things, consideration of a motion to
adjourn the RP special meeting to another time or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions of the merger), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best judgment. Shares voted
against the approval and adoption of the Merger Agreement will not be voted in
favor of adjournment for the purpose of the continued solicitation of proxies.
Revocability of Proxies
Any proxy given by a RP stockholder pursuant to this solicitation may be
revoked by the person giving it at any time before it is voted. Proxies may be
revoked by:
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o filing with the Secretary of RP, at or before the taking of the vote
at the RP special meeting, a written notice of revocation bearing a
later date than the proxy;
o duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of RP by mail or by facsimile before
the taking of the vote at the RP special meeting; or
o attending the RP special meeting and voting in person (although
attendance at the meeting will not, in and of itself, constitute a
revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to Royal
Precision, Inc., 15170 North Hayden Road, Suite 1, Scottsdale, Arizona 85260,
Attention: Secretary, transmitted by facsimile to the Secretary of RP to [ ], or
hand delivered to the Secretary of RP before the taking of the vote at the RP
special meeting.
Record Date; Stock Entitled to Vote; Quorum
The RP Board of Directors has fixed the close of business on ________, 1999 as
the record date for the determination of the RP stockholders entitled to notice
of and to vote at the RP special meeting. Accordingly, only RP stockholders of
record as of the close of business on the record date will be entitled to notice
of and to vote at the RP special meeting. As of the record date, there were
outstanding and entitled to vote ______ shares of RP common stock (constituting
all of the voting stock of RP), which shares were held by approximately [ ]
stockholders of record. Each holder of record of shares of RP common stock as of
the record date is entitled to cast one vote per share, which may be cast either
in person or by properly executed proxy, at the RP special meeting.
The presence, in person, or by properly executed proxy, of the holders of a
majority of the outstanding shares of RP common stock entitled to vote at the RP
special meeting is necessary to constitute a quorum at the RP special meeting.
Shares of RP common stock represented in person or by proxy will be counted for
the purposes of determining whether a quorum is present at the RP special
meeting. Broker nonvotes and shares that are present and entitled to vote which
abstain from voting as to a particular matter will be treated as shares that are
present and entitled to vote at the RP special meeting for purposes of
determining whether a quorum exists.
As of the record date, directors and executive officers of RP and their
affiliates may be deemed to have or share beneficial ownership of 53% of the
outstanding shares of RP and have signed binding agreements with Coyote,
pledging that they will vote their shares in favor of the approval and adoption
of the Merger Agreement and the approval of the merger and the other
transactions contemplated by the Merger Agreement. Because this is more than the
number of shares required to approve the above proposal, the Board of Directors
of RP believes that there is a high probability that the Merger Agreement will
be approved and adopted. See "Voting Agreements" on page 62.
Solicitation of Proxies
The RP Board of Directors is soliciting proxies for the RP special meeting in
favor of the proposal submitted to RP stockholders. A proxy card is enclosed
with this document. You are requested to complete and return this [______] form
of proxy as soon as possible. In order to be valid, the proxy card for the RP
special meeting must be completed in accordance with the instructions on it and
received by the times and dates set forth below at any of the offices of [RP's
agents or ________________________________, RP's Registrar], whose names and
addresses are set out below:
by 10:00 a.m. on , 1999 (Eastern Daylight Time):
by hand delivery at:
[to come]
by mail to:
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[to come]
As an alternative to appointing a proxy, a RP stockholder which is a
corporation may appoint any person to act as its representative by delivering
written evidence of the appointment of the representative, by hand or mail, at
any of the offices of [RP's agents or Registrar], whose names and addresses are
set forth above, up to one hour before the time fixed for the commencement of
the RP special meeting. A representative so authorized may exercise the same
powers, including voting rights, as the appointing corporation could exercise if
it were an individual stockholder.
The solicitation of the enclosed proxies from RP stockholders is made on
behalf of the Board of Directors of RP. The expenses of the solicitation of
proxies, including preparing, handling, printing and mailing the proxy
soliciting material, will be borne by RP. Solicitation will be made primarily
through the mail but may also be made, if necessary, by electronic
telecommunications or in person. RP will reimburse banks, brokers, nominees,
custodians and fiduciaries for their expenses in forwarding copies of the proxy
soliciting material to the beneficial owners of the shares held by such persons
and in requesting authority for the execution of proxies.
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COYOTE SPECIAL MEETING
Date, Time and Place
This document is being furnished to the holders of Coyote common stock with
the solicitation of proxies by the Coyote Board of Directors for use at the
Coyote special meeting to be held on [ ], 1999 at [ ], commencing at 10:00 a.m.,
local time.
Matters to be Considered at the Coyote Special Meeting
At the Coyote special meeting, Coyote stockholders will be asked to
consider and vote upon a proposal to amend Coyote's Amended and Restated
Articles of Incorporation to increase the number of shares of authorized
preferred stock from 4,000,000 to 10,000,000 and to create, and approve the
issuance of, a new series of shares, the Series C Preferred Stock, par value
$.001 per share, to be delivered in connection with the merger contemplated by
the Merger Agreement, dated as of February 2, 1999, by and among RP, Coyote and
Merger Sub, a wholly owned subsidiary of Coyote.
Coyote Board Recommendation
The Board of Directors of Coyote has unanimously declared that the proposal
to amend Coyote's Amended and Restated Articles of Incorporation to increase the
number of shares of authorized preferred stock from 4,000,000 to 10,000,000 and
to create, and approve the issuance of, a new series of shares, the Series C
Preferred Stock, par value $.001 per share, to be delivered in connection with
the merger, is advisable and in the best interests of the Coyote stockholders
and recommends that the holders of Coyote common stock vote in favor of the
approval of this proposal.
Vote Required
The approval of the Coyote proposal requires the affirmative vote of a
majority of the shares of Coyote entitled to vote on such proposal at the Coyote
special meeting, provided that the total number of shares present at the meeting
represent more than 50% of all the shares of Coyote that are entitled to vote on
the proposal. The consummation of the merger is conditioned upon the approval by
the Coyote stockholders of an amendment to Coyote's Amended and Restated
Articles of Incorporation to increase the number of authorized preferred shares
and to create, and approve the issuance of, a new series of shares, the Series C
Preferred Stock to be delivered to RP stockholders in connection with the
merger. If this proposal is not approved, the Merger Agreement will not be
implemented. Approval of this proposal is assured because, in connection with
the merger, holders of approximately 69% of the Coyote common stock have agreed
to vote to approve it.
A broker nonvote (which occurs when a nominee holding shares for a
beneficial owner does not vote on a proposal because the nominee does not have
the discretionary voting power and has not received instructions from the
beneficial owner) or a failure to vote will have the effect of a vote against
the amendment of the Amended and Restated Articles of Incorporation of Coyote.
An abstention will have the effect of a vote against this proposal.
Voting of Proxies
All shares of Coyote common stock which are entitled to vote and are
represented at the Coyote special meeting by the properly executed proxies
received prior to or at the Coyote special meeting, and not revoked, will be
voting at the Coyote special meeting in the accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted for approval of the Coyote proposal.
If any other matters are properly presented at the Coyote special meeting
for consideration, including, among other things, consideration of a motion to
adjourn the Coyote special meeting to another time or place (including, without
limitation, for the purposes of soliciting additional proxies or allowing
additional time for the satisfaction of conditions of the merger), the persons
named in the enclosed forms of proxy and acting thereunder will have discretion
to vote on such matters in accordance with their best
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judgment. Shares voted against the Coyote proposal will not be voted in favor of
adjournment for the purpose of the continued solicitation of proxies.
Revocability of Proxies
Any proxy given by a Coyote stockholder pursuant to this solicitation may
be revoked by the person giving it at any time before it is voted. Proxies may
be revoked by:
o filing with the Secretary of Coyote, at or before the taking of the
vote at the Coyote special meeting, a written notice of revocation
bearing a later date than the proxy;
o duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Coyote by mail or by facsimile
before the taking of the vote at the Coyote special meeting; or
o attending the Coyote special meeting and voting in person (although
attendance at the meeting will not in and of itself constitute a
revocation of a proxy).
Any written notice of revocation or subsequent proxy should be sent to
Coyote Sports, Inc., 2291 Arapahoe Avenue, Boulder, Colorado 80302, Attention:
Secretary, transmitted by facsimile to the Secretary of Coyote to (303)
417-1700, or hand delivered to the Secretary of Coyote, 2291 Arapahoe Avenue,
Boulder, Colorado 80302 before the taking of the vote at the Coyote special
meeting.
Record Date; Stock Entitled to Vote; Quorum
The Coyote Board of Directors has fixed the close of business on
___________, 1999 as the record date for the determination of the Coyote
stockholders entitled to notice of and to vote at the Coyote special meeting.
Accordingly, only Coyote stockholders as of the close of business on the record
date will be entitled to notice of and to vote at the Coyote special meeting. As
of the record date, there were outstanding and entitled to vote _________ shares
of Coyote common stock (constituting all of the voting stock of Coyote), which
shares were held by approximately [ ] stockholders of record. Each holder of
record of shares of Coyote common stock as of the record date is entitled to
cast one vote per share, which may be cast either in person or by properly
executed proxy, at the Coyote special meeting.
The presence, in person, or by properly executed proxy, of the holders of a
majority of the outstanding shares of Coyote common stock entitled to vote at
the Coyote special meeting is necessary to constitute a quorum at the Coyote
special meeting. Shares of Coyote common stock represented in person or by proxy
will be counted for the purposes of determining whether a quorum is present at
the Coyote special meeting. Broker nonvotes and shares that are present and
entitled to vote which abstain from voting as to a particular matter will be
treated as shares that are present and entitled to vote at the Coyote special
meeting for purposes of determining whether a quorum exists.
As of the record date, directors and executive officers of Coyote and their
affiliates who may be deemed to have or share beneficial ownership of 69% of the
outstanding shares of Coyote, have signed binding agreements with RP, pledging
that they will vote their shares in favor of the above proposal. Because this is
more than the number of shares required to approve the above proposal, the
Coyote Board of Directors believes that there is a high probability that the
above proposal will be approved. See "Voting Agreements" on page 62.
Solicitation of Proxies
The Coyote Board of Directors is soliciting proxies for the Coyote special
meeting in favor of the proposal submitted to Coyote stockholders. A proxy card
is enclosed with this document. You are requested to complete and return this
[______] form of proxy as soon as possible. In order to be valid, the proxy card
for the Coyote special meeting must be completed in accordance with the
instructions on it and received by the times and dates set forth below at any of
the offices of [Coyote's agents or ________________________________, Coyote's
Registrar], whose names and addresses are set out below:
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by 10:00 a.m. on , 1999 (Eastern Standard Time):
by hand delivery at:
[to come]
by mail to:
[to come]
As an alternative to appointing a proxy, a Coyote stockholder which is a
corporation may appoint any person to act as its representative by delivering
written evidence of the appointment of the representative, by hand or mail, at
any of the offices of [Coyote's agents or Registrar], whose names and addresses
are set forth above, up to one hour before the time fixed for the commencement
of the Coyote special meeting. A representative so authorized may exercise the
same powers, including voting rights, as the appointing corporation could
exercise if it were an individual stockholder.
The solicitation of the enclosed proxies from Coyote stockholders is made
on behalf of the Board of Directors of Coyote. The expenses of the solicitation
of proxies, including preparing, handling, printing and mailing the proxy
soliciting material, will be borne by Coyote. Solicitation will be made
primarily through the mail but may also be made, if necessary, by electronic
telecommunications or in person. Coyote will reimburse banks, brokers, nominees,
custodians and fiduciaries for their expenses in forwarding copies of the proxy
soliciting material to the beneficial owners of the shares held by such persons
and in requesting authority for the execution of proxies.
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THE MERGER
Background of the Merger
In July 1997, James M. Probst, President of Coyote, met with Christopher
Johnston, then Chief Executive Officer of RP, and Raymond J. Minella, then a
member of the Board of RP, in Jackson, Wyoming. At that meeting Mr. Johnston
preliminarily raised, the possibility of an acquisition of Coyote by RP. In
November 1997, Mr. Probst met with members of the Board of RP and discussed the
possibility of combining Coyote and RP. Mr. Probst responded that Coyote would
consider the prospect. Later that month, Coyote and RP entered into a
non-disclosure agreement providing for the mutual exchange of certain
confidential information in order to begin to evaluate the viability of
combining the two companies. During the winter of 1997-1998 and early spring of
1998, RP and Coyote continued to evaluate each other's businesses and the
advisability of a possible business combination, and there were sporadic
contacts among the senior management of the two companies.
Thereafter, representatives of Coyote, RP and Lehman Brothers continued to
hold exploratory discussions about the possibility of combining the two
businesses. In April 1998, Mr. Probst met with Mr. Minella and other
representatives of RP at the offices of Berenson Minella in New York City.
Although those discussions primarily centered on the strategic logic of a
business combination and the synergies which might be generated, the parties
also had preliminary discussions concerning the relative possible valuations of
the two businesses. In May 1998, representatives of RP expressed a willingness,
subject to the approval of the RP Board of Directors, to consider a potential
offer by Coyote to acquire either RP or its business for $6.00 per share in
cash.
On May 9, 1998, following Coyote's annual stockholders' meeting, Mr. Probst
presented to the Coyote Board of Directors an analysis of the strategic logic
and potential synergies of a combination of Coyote and RP. The Coyote Board of
Directors authorized Mr. Probst to continue to pursue the possibility of such a
combination.
On June 8, 1998, Coyote delivered to RP a letter formally proposing to
acquire RP for a price of $6.00 per share of RP common stock in cash, common
stock or a combination of the two. Coyote's offer was subject to various
conditions, including the satisfactory completion of its diligence
investigation. On June 19, 1998, the Board of Directors of RP responded by
authorizing discussions with Coyote with respect to a cash transaction by RP's
Strategic Development Committee, comprised of Mr. Minella, Richard P. Johnston,
Allen Ritchie, Kenneth J. Warren and Christopher Johnston. Between June and
August 1998, representatives of Coyote commenced a diligence investigation of
RP, including matters relevant to a possible combination with Coyote. During
that period representatives of RP, Coyote and Lehman Brothers had intermittent
contacts regarding the possible terms and structure of a potential business
combination.
On September 24, 1998, Coyote retained CIBC Oppenheimer Corp. ("CIBC") as
placement agent to assist Coyote in raising funds to finance the potential RP
transaction, to refinance the indebtedness of both companies, and to provide for
the prospective working capital needs of the combined companies. On October 9,
1998, Coyote formally engaged Lehman Brothers to act as Coyote's financial
advisor in respect of a potential business combination with RP.
During the third and fourth quarters of 1998, Coyote and CIBC conducted a
diligence investigation of RP and Coyote and CIBC entered into discussions with
potential financing sources regarding the possibility of financing a prospective
business combination with RP. During this period there were periodic discussions
between representatives of RP and Coyote regarding the basis on which any
potential transaction would be pursued. On November 3, 1998, RP engaged Berenson
Minella to act as RP's financial advisor in respect of a potential business
combination with Coyote.
In late December 1998, CIBC and Coyote concluded that Coyote would be
unlikely to raise sufficient funds on terms satisfactory to Coyote to finance a
cash offer for RP. On December 24, 1998, Mr. Probst telephoned Mr. Minella to
propose changing the terms of Coyote's proposal to provide for a stock-for-stock
merger of RP and a subsidiary of Coyote. From late December 1998 through January
18, 1999, representatives of Coyote, RP and the parties' respective legal and
financial advisors held intensive negotiations concerning the relative value of
RP and Coyote and the basis on which a stock transaction could be submitted to
and approved by the Boards of Directors of both companies. The negotiations
centered upon such matters as the nature of the security to be issued (including
the possible conversion, redemption, dividend, voting and other terms of the
contemplated preferred stock), the appropriate exchange ratios, the timing of a
transaction, and whether Coyote would go forward with certain other contemplated
transactions.
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During this period members of the Board of RP had informal discussions among
themselves regarding the merits of a stock-for-stock transaction and the terms
on which such a transaction would be advisable and in the best interest of RP's
stockholders.
Throughout the weekend of January 16-18, 1999, representatives of Coyote
and RP and their respective legal and financial advisors conducted extensive
negotiations regarding a proposed non-binding letter of intent between the
parties outlining the structure of the contemplated transaction.
On January 17, 1999, the Board of Directors of RP met to consider the
proposed letter of intent and discussed the status of the negotiations with
Coyote. Berenson Minella orally presented to the RP Board of Directors a summary
of certain analyses it had prepared regarding a potential transaction with
Coyote on the terms specified in the draft letter of intent that had been
presented to the RP Board. The RP Board of Directors then authorized Mr. Minella
to continue his discussions with Coyote regarding the transaction set forth in
the letter of intent.
On January 18, 1999, the Boards of Directors of Coyote and RP,
respectively, unanimously approved the proposed letter of intent and that letter
was executed and delivered that evening. In addition, the executive committee of
RP's Board of Directors was directed to engage an additional financial advisor
for purposes of evaluating the proposed transaction and evaluating the fairness
of the contemplated merger consideration from a financial point of view.
The letter of intent contemplated a merger of RP with and into Coyote, or a
subsidiary of Coyote, in a tax-free transaction in which RP stockholders would
receive shares of Series C Preferred Stock on terms substantially equivalent,
but not identical, to those later embodied in the definitive Merger Agreement.
On January 19, 1999, RP and Coyote issued a joint press release announcing
the execution and delivery of the letter of intent.
Between January 19, 1999 and January 28, 1999, the representatives of each
party concluded additional diligence with respect to the other company, and
negotiated the terms of a definitive Merger Agreement and related documents. On
January 20, 1999, RP engaged NatCity to advise the RP Board of Directors
regarding the fairness of the merger consideration and the exchange ratio to
RP's stockholders from a financial point of view.
Over the weekend of January 23-24, 1999, representatives of Coyote and RP
met together with their legal and financial advisors to negotiate the terms of
the Merger Agreement, the stockholder agreement and the voting agreements.
Although substantial progress was made in those discussions, areas of
disagreement remained, including the scope of the restrictions proposed by
Coyote on either party's solicitation or consideration of an alternative
transaction and the circumstances, if any, under which the Merger Agreement and
the proposed voting agreements could be terminated in that connection, as well
as the appropriate fees and expenses that might be payable as a result.
Differences also remained regarding the terms of the preferred stock terms and
other matters.
On January 25, 1999, Mr. Minella telephoned Mr. Probst to discuss the
outstanding issues regarding the Merger Agreement. During that conversation,
Messrs. Probst and Minella agreed on a proposed resolution of the
non-solicitation, termination and termination fee and expense reimbursement
issues and other open matters.
On January 26, 1999, the parties' legal advisors prepared drafts of the
Merger Agreement, including the provisions of the certificate of designation
with respect to the preferred stock, for circulation to the Boards of Directors
of the respective companies.
On January 28, 1999, the Board of Directors of Coyote met to consider and
take action with respect to the Merger Agreement and related matters. All
directors participated either in person or by conference telephone. At that
meeting presentations were made by Coyote's President and by its legal and
financial advisors. Lehman Brothers provided to the Board of Coyote its oral
opinion that as of January 28, 1999, and based upon and subject to certain
matters stated therein, the consideration to be paid by Coyote to RP
stockholders in the merger was fair from a financial point of view to Coyote.
Following discussion among the directors, the Board of Directors of Coyote
unanimously authorized the execution and delivery on behalf of Coyote of the
Merger Agreement and related documents. The Coyote Board also unanimously
approved the amendment of Coyote's Amended and Restated Articles of
Incorporation to increase the number of shares of authorized preferred stock
from 4,000,000 to 10,000,000 and to create a new series
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of shares, the Series C Preferred Stock, to be delivered in connection with the
merger, and unanimously determined that such action is advisable and in the best
interests of the Coyote stockholders and to recommend that the holders of Coyote
common stock vote in favor thereof. The Coyote Board delegated to its President
the authority to approve any required changes in the terms of the Merger
Agreement and related documents. See "Reasons of Coyote for the Merger."
On January 28, 1999, the Board of Directors of RP met to consider and take
action with respect to the Merger Agreement and related matters. At that
meeting, at which all directors participated either in person or by telephone,
the Board of Directors of RP received advice from its legal advisors regarding
its fiduciary duties under the law of the State of Delaware, received an update
regarding the history of the negotiations in respect of the Merger Agreement and
the merger and various related matters, reviewed the terms of the Merger
Agreement, the voting agreements, the stockholder agreement and the Certificate
of Designation in respect of the Series C Preferred Stock, received a report in
respect of the results of RP's diligence investigation of Coyote, and received
an oral financial presentation from NatCity, including a discussion of the
analyses performed in evaluating the proposed transaction. NatCity provided to
the Board of Directors of RP an oral opinion, subject to the execution of
definitive documentation, that, as of January 28, 1999, and subject to the
assumptions and qualifications contained in its opinion, the Exchange Ratio and
the merger consideration that the RP stockholders will receive in the merger
pursuant to the Merger Agreement were fair, from a financial point of view, to
the stockholders of RP. During this meeting the Board considered the risks and
advantages of the proposed merger transaction to RP and its stockholders.
Subject to finalizing the wording of the Merger Agreement in a manner approved
by the Board of Directors of RP, the Board of Directors of RP (i) unanimously
determined that the exchange ratio and the merger consideration that the RP
stockholders will receive in the merger were fair to, and that the Merger
Agreement, the merger and the other transactions contemplated by the Merger
Agreement were fair to and otherwise advisable and in the best interests of, RP
and its stockholders; (ii) approved the Merger Agreement, the merger and the
other transactions contemplated by the Merger Agreement; and (iii) resolved to
recommend that the stockholders of RP vote "FOR" the approval and the adoption
of the Merger Agreement and the approval of the merger and the other
transactions contemplated by the Merger Agreement. The Board of Directors of RP
delegated to its executive committee the authority to approve the execution and
delivery of the Merger Agreement, subject to finalizing the wording of the
Merger Agreement in a manner approved by the Board of Directors of RP.
On January 31, 1999, at a meeting of the Board of Directors of RP at which
all directors participated either in person or by telephone, the Board of
Directors of RP considered the advisability of obtaining the waiver of certain
provisions of the existing RP stockholder agreement and in connection therewith
considered the cancellation and reissuance of certain options held by Danny
Edwards, a director of RP, and certain persons associated with him, including
Robert Burg II, a director of the Company, and Everen Securities, Inc, and
certain of its employees (including Lawrence Bain, a director of the Company).
Mr. Edwards had required such cancellation and reissuance as a condition to
waiving certain contractual rights which he possessed under the existing RP
stockholder agreement. By a unanimous vote, all participating directors, with
Messrs. Edwards, Burg and Bain abstaining, the Board of Directors approved the
cancellation and reissuance of such options. For additional details regarding
the cancellation and reissuance of these options, see p. 40. By a unanimous
vote of the Board of RP then approved certain amendments to the existing RP
stockholder agreement, which amendments were necessary to facilitate the merger.
The Board of RP was then apprised by management of certain additional
information regarding Coyote. NatCity then orally reaffirmed its oral opinion
delivered on January 28, 1999, subject to the receipt of an executed copy of the
Merger Agreement. The Board of Directors of RP then unanimously reaffirmed its
determinations made at its meeting of January 28, 1999, and again authorized its
executive committee to approve the execution and delivery of the Merger
Agreement, subject to finalizing the wording of the Merger Agreement in a manner
approved by the Board of Directors of RP. See "Reasons of RP for the Merger."
On February 1, 1999, Coyote, RP and their respective advisors finalized the
terms of the Merger Agreement.
Early in the morning of February 2, 1999, Messrs. Probst and Minella
executed the definitive Merger Agreement on behalf of Coyote and RP,
respectively, and later that morning, the parties issued a joint press release
announcing the execution of the Merger Agreement. Thereafter, on March 1, 1999,
the Board of Directors of RP met to consider certain proposed amendments to the
Merger Agreement and Form of Certificate of Designation for the Series C
Preferred Stock attached as an exhibit to the Merger Agreement, including
provisions which would allow Coyote, at Coyote's option, to pay any accrued and
unpaid dividends payable to the holders of Series C Preferred Stock upon
conversion of Series C Preferred Stock into Coyote common stock or a
subordinated promissory note of Coyote to the extent that Coyote is not
permitted under the terms of its then outstanding debt agreements or applicable
law to pay such dividends in cash. At this Board meeting, NatCity reaffirmed its
opinion that the Exchange Ratio and the merger consideration to be received by
the holders of RP common stock are fair from a financial point of view to the
holders of the RP common stock. By a unanimous vote of all directors
participating, the RP Board of Directors reaffirmed its determinations made on
January 28, 1999, and authorized the execution and delivery of the Amended and
Restated Agreement and Plan of Merger.
On March 3, 1999, Messrs. Probst and Minella executed the Amended and
Restated Merger Agreement, dated as of February 2, 1999, on behalf of Coyote &
RP, respectively.
Reasons of RP for the Merger
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In reaching its decision to approve the merger at its meeting on January
28, 1999, and in reconfirming that determination at its meeting of January 31,
1999, the Board of Directors of RP carefully considered a number of factors,
including the following:
(i) its belief the merger will result in a strong combined entity with (a)
complementary businesses, corporate goals and management philosophies, and
(b) the financial and managerial resources necessary to compete in the
increasingly competitive market for golf products;
(ii) its view of (a) the business, assets, financial condition and results
of operation or RP, Coyote and the combined companies and (b) the strategic
fit between RP and Coyote, including the opportunities for synergies and
cost savings. The RP Board of Directors considered that:
o the merger should provide the combined companies with an enhanced
competitive position as one of the leading manufacturers of golf club
shafts and other related items. The merger will create a company
capable of offering a broader range of products than either RP or
Coyote can currently offer alone, including complete lines of steel
golf shafts, graphite golf shafts, and golf grips to both the pro
grade and commercial grade markets.
o the combined enterprise should have greater earnings and cash flows,
higher market capitalization and greater critical mass than RP
currently does. As a result, the combined companies will be more able
to realize their growth potential and pursue additional business
development opportunities than RP would on its own. Further, the RP
Board of Directors believes that the complementary nature of the two
businesses should result in operational synergies and cost savings.
RP's Board of Directors believes that the combined enterprise could
realize significant reductions in corporate overhead by integrating
certain administrative and marketing functions, and should be able to
exploit the expertise of their combined technical, operations, and
sales and marketing personnel to more efficiently run the existing
operations and to pursue additional business development
opportunities.
o the merger would add strong European distribution to RP's existing
North American and Asian distribution networks and help create a large
global and diversified customer base for the combined companies.
(iii) the stated desire of stockholders of RP representing a majority of
the issued and outstanding shares of RP common stock that RP enter into the
merger and the fact that those stockholders were willing to agree to vote
all of their shares of RP common stock in favor of the merger pursuant to
the RP voting agreements;
(iv) its assessment of RP's strategic alternatives, which included
remaining a publicly owned independent company. In this regard, the Board
of Directors of RP concluded, following extensive analysis and discussion
that the terms of the Merger Agreement provide the best means for the
holders of RP's common stock to maximize the value of their holdings;
(v) the terms and conditions of the Merger Agreement, including the right
of RP to negotiate and provide information to third parties and terminate
the Merger Agreement in the event of an unsolicited acquisition proposal,
if such action were required in the exercise of the fiduciary duties of the
RP Board of Directors. If such fiduciary duty termination provision were
exercised, RP would be obligated to pay Coyote up to $1.0 million of its
actual, reasonable and documented expenses and $750,000 upon completion of
an alternative transaction. The Board of Directors of RP did not view these
obligations as unreasonably precluding any third party from proposing an
alternate transaction;
(vi) the terms of the Series C Preferred Stock to be received by the
holders of RP common stock in the merger, including the liquidation
preference, preferred dividend and redemption features of the Series C
Preferred Stock and the fact that the Series C Preferred Stock will be
convertible into Coyote common stock on a share-for-share basis and, prior
to conversion, will vote as one class with the Coyote common stock;
(vii) the ability of the RP stockholders to have an equal equity
participation with the present Coyote stockholders in the combined entity;
(viii) the terms and provisions of the stockholder agreement and the voting
agreements;
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(ix) the ability to consummate the merger as a tax-free reorganization
under the Internal Revenue Code of 1986, as amended (the "Code");
(x) the current and historical trading prices and values of the RP common
stock and the Coyote common stock, the relative liquidity of the two
companies' common stocks, the prospective liquidity of the Coyote common
stock and the prospective liquidity of the Series C Preferred Stock; and
(xi) the oral presentation of NatCity and its oral opinion (later confirmed
in writing) that as of January 28, 1999 and subject to the assumptions and
qualifications contained in its opinion the Exchange Ratio and the merger
consideration that the RP stockholders will receive in the merger are fair
from a financial point of view to the holders of RP common stock.
In connection with its deliberations at its January 28, 1999, and January
31, 1999, meetings, the Board of Directors of RP was aware of the potential
benefits to be received in the merger by various directors, as more fully
described under the caption "The Merger--Interests of Certain Persons in the
Merger" beginning on page 39, other than the severance payments to certain
managers of RP, which arrangements were approved by the executive committee of
the Board of Directors of RP with the consent of Coyote subsequent to the
execution of the Merger Agreement.
In view of the wide variety of factors considered by the Board of Directors
of RP in connection with its evaluation of the merger and the complexity of such
matters, the Board of Directors of RP did not consider it practicable to, nor
did it attempt to, quantify, rank or otherwise assign relative weights to the
specific factors it considered in reaching its decision. In addition, the Board
of Directors of RP did not undertake to make any specific determination as to
whether any particular factor (or any particular aspect of any particular
factor) was favorable or unfavorable to its ultimate determination, but rather
conducted a discussion of the factors described above, including asking
questions of RP's management and its legal and financial advisors, and reached a
general consensus that the Exchange Ratio is fair to, and that the Merger
Agreement, the merger and the other transactions contemplated by the Merger
Agreement are fair to and otherwise advisable and in the best interests of, RP
and its stockholders. In considering the factors described above, individual
members of the Board of Directors of RP may have given different weight to
different factors.
Recommendation of the Board of Directors of RP
After careful consideration, the Board of Directors of RP has unanimously
determined that the Exchange Ratio and the merger consideration that the RP
stockholders will receive in the merger are fair to, and that the Merger
Agreement, the merger and the other transactions contemplated by the Merger
Agreement are fair to and otherwise advisable and in the best interests of, RP
and its stockholders. The Board of Directors of RP recommends that you vote
"FOR" the approval and adoption of the Merger Agreement and the approval of the
merger and the other transactions contemplated by the Merger Agreement.
Opinion of NatCity Investments, Inc.
On January 29, 1999, NatCity Investments, Inc. ("NatCity") delivered its
opinion that, as of such date, the Exchange Ratio and the merger consideration
that the holders of the shares of RP common stock will receive in the Merger is
fair, from a financial point of view, to them.
The full text of the written opinion of NatCity, which sets forth the
assumptions made, procedures followed, matters considered and limitations on the
review undertaken by NatCity in connection with the opinion, is attached as
Annex C to this Joint Proxy Statement/Prospectus. The summary of the opinion set
forth in this Joint Proxy Statement/Prospectus is qualified in its entirety by
the full text of such opinion, which is incorporated herein by reference.
Shareholders of RP are urged to and should read such opinion in its entirety.
In connection with its opinion, NatCity reviewed, among other things:
o the Form of Merger Agreement;
o the Form of Certificate of Designation;
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o the Form of Coyote voting agreements;
o the Form of stockholder agreement;
o RP's Annual Report to Shareholders and Annual Report on Form 10-KSB for the
fiscal year ended May 31, 1998 and Quarterly Reports on Form 10-QSB for the
preceding four fiscal quarters, RP's Current Report on Form 8-K dated
January 20, 1999 and RP's proxy statement dated September 9, 1998;
o Coyote's Annual Report to Shareholders and Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1997 and Quarterly Reports on Form
10-QSB for the preceding three fiscal quarters, Coyote's Current Report on
Form 8-K dated January 26, 1999 and Coyote's proxy statement dated April
20, 1998; and
o certain internal financial analyses and other information furnished to it
by RP and Coyote.
NatCity also:
o discussed the business and prospects of RP and Coyote with members of the
senior management of each company;
o visited the domestic manufacturing facilities of the respective
subsidiaries of RP and Coyote;
o reviewed the reported price and trading activity for the RP common stock
and for the Coyote common stock;
o compared certain financial and stock market information for RP and Coyote
with similar information for comparable publicly-traded companies
identified by NatCity;
o reviewed the financial terms of certain comparable recent business
combinations identified by NatCity; and
o reviewed such other financial studies and analyses and performed such other
investigations and took into account such other matters as it deemed
appropriate, including its assessment of general economic, market, monetary
and other conditions existing on the date its opinion was delivered to the
RP Board of Directors.
NatCity relied upon the accuracy and completeness of all of the financial
and other information reviewed by it and assumed the accuracy and completeness
of that information for purposes of its opinion. In addition, NatCity has not
made an independent evaluation or appraisal of the assets and liabilities of RP
or Coyote or any of their respective subsidiaries and NatCity has not been
furnished with any such evaluation or appraisal. No limitations were imposed by
RP's Board of Directors or management on the scope of NatCity's investigation or
analysis. NatCity did not determine or negotiate the Exchange Ratio or the
amount of the merger consideration payable to the holders of the RP common
stock. NatCity's opinion is based upon the economic and market conditions
existing on the date of its opinion. NatCity's opinion is provided for the
information and assistance of the Board of Directors of RP in connection with
its consideration of the transaction contemplated by the Merger Agreement.
The following is a summary of certain of the financial analyses conducted
by NatCity preparing its opinion. NatCity reviewed the assumptions upon which
such analyses were based and other factors, including the current financial
results of and future prospects for RP, with RP's management. NatCity did not
assign any particular weight to any factor or analysis it considered in
preparing its opinion.
Discounted Cash Flow Analysis. NatCity performed a discounted cash flow
analysis using RP's management projections. NatCity calculated a net present
value of free cash flows for the fiscal years 1999 through 2003 using discount
rates ranging from 18% to 26%. These discount rates were chosen as NatCity
believes they represent a viable range of internal rates of return required by
institutional equity investors. NatCity calculated RP's terminal values in
fiscal year 2003 based on multiples of 4.0 times earnings before interest and
taxes ("EBIT") to 6.0 times EBIT. These terminal values were then discounted to
present value using discount rates from 18% to 26%. Using RP's terminal values
in the year 2003 based on multiples ranging from 4.0 times EBIT to 6.0 times
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EBIT and discounting these terminal values to present value using discount rates
ranging from 18% to 26%, the implied per share values ranged from $1.36 to $2.19
per outstanding share of RP Common Stock.
Comparable Company Analysis. NatCity also compared certain historical and
projected operating and financial information, ratios and public market
multiples for RP to the corresponding publicly-available operating and financial
information, ratios and public market multiples for four publicly-traded North
American manufacturers of golf products (the "Comparable Companies"). The
Comparable Companies were Adams Golf, Inc., Aldila, Inc., Teardrop Golf Company
and S2 Golf, Inc. The Comparable Companies were chosen because they were
publicly traded companies with operations that, for the purposes of analysis,
NatCity considered similar to RP. NatCity analyzed, among other things, the
market value, market capitalization, and certain historical and forecasted
operating and financial data, ratios and public market multiples for each of the
Comparable Companies. The principal Comparable Company valuation indicators
produced these results:
o The latest twelve months ("LTM") earnings per share and the multiple for
each company. NatCity discounted this method of valuation because RP and
two of the Comparable Companies reported losses for the period.
o The estimates of earnings per share for the next twelve months and the
multiple for each company. This analysis produced multiples ranging from
5.35 times to 13.97 times, implying a per share price range of $1.04 to
$2.71 per outstanding share of RP common stock.
o The LTM earnings before interest, taxes, depreciation and amortization
("LTM EBITDA") and the multiple for each company. This analysis produced a
range in multiples of 5.2 times to 5.5 times, implying a per share price
range of $1.93 to $2.04 per outstanding share of RP common stock.
o The LTM net sales and the multiple for each company. NatCity discounted the
high multiple for Adams Golf, and this analysis produced multiples ranging
from 0.6 times to 1.7 times, implying a per share price range of $2.81 and
$8.40 per outstanding share of RP common stock.
NatCity derived average multiples for each method of valuation for the
Comparable Companies from its analysis. The average projected P/E multiple was
10.1 times. The average LTM EBITDA multiple was 5.3 times. Discounting the
extreme of Adams Golf, the average LTM net sales multiple was 0.8 times. These
average multiples were applied to RP's historical and projected financial
information, to produce a range of equity values for RP common stock of $1.95 to
$4.13. NatCity also calculated multiples for RP using a price of $3.13 per
share, the closing price of RP common stock on the Nasdaq National Market System
as of January 28, 1999. RP's projected P/E was calculated by averaging estimated
earnings for both fiscal years 1999 and 2000 to create an estimate for calendar
year 1999 which produced a projected P/E ratio of 16.4 times. The LTM EBITDA
multiple for RP was calculated to be 8.7 times. The net sales multiple for RP
was calculated to be .64 times. The multiples and ratios for RP were based on
information provided by RP's management and the multiples for each of the
Comparable Companies were based on the most recent publicly available
information. NatCity based its estimated results for the Comparable Companies on
compilations of analysts' earnings estimates.
NatCity also calculated 1999 projected P/E's for RP and Coyote. Coyote and
the Comparable Companies all report earnings on a calendar year basis. For
comparison purposes, RP 's projected P/E was calculated by averaging estimated
earnings for both fiscal years 1999 and 2000 to create an estimate for calendar
year 1999 which produced a projected P/E ratio of 16.4 times. Coyote's projected
1999 P/E was 14.4 times. This analysis implies that the Exchange Ratio is
favorable to RP shareholders from a financial point of view.
Pricing and Trading Analysis. NatCity compared certain historical data for RP
and Coyote, respectively, including:
o daily share prices and trading ranges;
o daily trading volume; and
o market maker activity
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NatCity made specific comparisons including data through a range of 13
months prior to January 28, 1999. NatCity also compared data through a range of
two months prior to January 28, 1999. For the thirteen months ending January 28,
1999, RP's stock price achieved a high of $7.25 per share, a low of $1.63 per
share and an average price of $4.63 per share. For the two months ending January
28, 1999, RP 's common stock achieved a high of $3.50 per share, a low of $1.28
per share and an average of $2.44 per share.
NatCity made similar comparisons to the common stock of Coyote. For the
thirteen months prior to January 28, 1999, Coyote's common stock achieved a high
of $6.31 per share, a low of $3.00 per share and an average of $4.75 per share.
For the two months prior to January 28, 1999, Coyote's common stock achieved a
high of $4.88 per share, a low of $3.00 per share and an average of $3.78 per
share.
NatCity analyzed the daily trading volume for a date range through 13
months prior to January 28, 1999. This analysis indicated that the common stock
for Coyote traded 5,126,700 shares and that RP 's common stock traded 783,800
shares for that period. This analysis of share prices and trading volume implies
that the Exchange Ratio is favorable to RP shareholders from a financial point
of view.
Comparable Transaction Analysis. NatCity is actively engaged in merger and
acquisition transactions as part of its normal investment banking business. In
such activities, NatCity typically represents "Middle Market Companies", in sale
transactions. These companies are of a comparable size in terms of revenues,
EBIT, EBITDA and income to that expected for RP over the coming year. For this
transaction NatCity utilized a Median Middle Market EBIT multiple of 8.8 times
which implies a value of $2.33 per outstanding share of RP common stock. In
addition to comparing this transaction to such multiples as NatCity sees in the
marketplace for Middle Market Companies, NatCity also reviewed four recent
merger transactions for North American manufacturers of golf products that
NatCity considered reasonably comparable to the Merger for purposes of its
analysis (the "Comparable Transactions"). The Comparable Transactions included:
o The Parkside Group's acquisition of MacGregor Golf Co. in 1998;
o Callaway Golf Company's acquisition of Odyssey Sports, Inc. in 1997;
o Teardrop Golf Company's acquisition of Tommy Armour Golf Company in 1998;
and
o Teardrop Golf Company's acquisition of RAM Golf Corporation in 1998.
NatCity derived transaction multiples by comparing values to revenues for
each of these respective transactions. For the Merger, NatCity used revenue
multiples ranging from .28 times to .84 times which implied a range of values of
$1.38 to $4.15 per outstanding share of RP common stock. For purposes of its
analysis, NatCity discounted Callaway's acquisition of Odyssey because, at the
time of the Callaway acquisition, Odyssey's products were considered to have
unusually strong growth potential.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
all of the analyses, could produce an incomplete view of the processes
underlying NatCity's opinion. In arriving at its fairness determination, NatCity
considered the results of all such analyses.
No company or transaction used in the above analyses as a comparison is
directly comparable to RP or Coyote or the Merger. NatCity prepared its analyses
solely for purposes of providing its opinion to the RP Board of Directors as to
the fairness, from a financial point of view, of the Exchange Ratio and the
merger consideration to be received by the holders of RP Shares in the Merger
and such analyses do not purport to be appraisals or necessarily reflect the
prices at which businesses or securities actually may be sold. Analyses based
upon forecasts of future results do not necessarily indicate actual future
results, which may be significantly more or less favorable than the analyses may
suggest. Such analyses are based upon numerous factors or events beyond the
control of the parties or their advisors and are inherently subject to
uncertainty, and none of RP, Coyote, NatCity or any other person assumes
responsibility if future results are materially different from those forecast.
As described above, NatCity's opinion to the Board of Directors of RP was one of
many factors taken into consideration by the RP Board of Directors in making its
determination to approve
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the Merger Agreement. NatCity's opinion to the RP Board of Directors addresses
only the fairness, from a financial point of view, of the consideration to be
received by the RP stockholders in the Merger and does not constitute a
recommendation to any stockholder of RP as to how to vote at the RP Special
Meeting.
This description of NatCity's opinion is a summary of the analysis
performed by NatCity and is qualified by reference to the written opinion of
NatCity attached as Annex C to this Joint Proxy Statement/Prospectus.
Pursuant to the terms of the engagement of NatCity, RP has paid NatCity,
upon delivery of its opinion to the RP Board of Directors, a fee of $100,000 for
the preparation and delivery of its opinion without regard to the conclusions
set forth in the opinion. RP has agreed to reimburse NatCity for its reasonable
out-of-pocket expenses, including attorney's fees, and to indemnify NatCity
against certain liabilities, including certain liabilities under the federal
securities laws.
NatCity, as a customary part of its investment banking business, is engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, private placements and valuations
for estate, corporate and other purposes. RP selected NatCity to render a
fairness opinion to RP 's Board of Directors because NatCity has substantial
experience in transactions similar to the Merger.
Reasons of Coyote for the Merger
At a meeting held on January 28, 1999, at which all directors participated
either in person or by telephone, the Board of Directors of Coyote reviewed and
discussed, among other things:
o its fiduciary duties as a board;
o a transaction overview including the history of the transaction, its
strategic rationale, the financial profile of the two companies, and
key terms of the transaction and the associated risks;
o the financial, operational and legal due diligence investigations of
RP;
o the financial opinion of Lehman Brothers and its supporting analyses;
and
o the specific provisions of the Merger Agreement.
In reaching its determination at the January 28, 1999 meeting, the Board of
Directors of Coyote consulted with Coyote's management as well as its financial
and legal advisors, and considered the following matters:
o Strategic Rationale. Coyote believes the merger should provide it with
an enhanced competitive position as one of the leading manufacturers
in the sports equipment industry, particularly in the manufacture of
golf shafts and other related items. After the merger, Coyote will be
capable of supplying complete lines of steel golf shafts, graphite
golf shafts, and golf grips to both the pro grade and commercial grade
markets. In addition, the merger should enable Coyote to make
significant progress toward achieving other strategic goals, including
maintaining market leadership, improving profitability, and increasing
the stability of revenues and cash flows.
o Stronger Company Positioned to Exploit Growth Opportunities. The
combined enterprise should have greater earnings and cash flows,
higher market capitalization and a stronger balance sheet. The
resulting improvement in financial flexibility should enhance the
ability of Coyote to realize its growth potential and pursue
additional business development opportunities.
o Ability to Leverage Manufacturing, Technology and Expertise over
Higher Margin Branded Products. The Company believes the acquisition
of RP combined with the acquisition of West Coast Composites ("West
Coast") and the consolidation with Unifiber creates a unique and
substantial platform to manufacture both golf shaft products and other
specialty branded products.
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o Complementary Distribution Capabilities. Coyote management believes
that RP offers an opportunity to improve Coyote's distribution
capability. The combination of Apollo's strong presence in Europe and
global OEM relationships and RP's strong U.S. and Asian presence and
aftermarket distribution capability are believed to create an improved
unique platform to serve the Company's customers worldwide.
o Strong Relationship with a Diversified Customer Base. Coyote
management believes the acquisition of RP will help create a leading
golf shaft manufacturer with a large global diversified customer base.
The combined companies would be a significant supplier to virtually
every major club manufacturer, including: Callaway, Cobra, Dunlop,
Goldwin, Hogan, Lynx, MacGregor, Mizuno, Odyssey, PING, Ram,
Slazenger, Spalding, Taylor Made, Teardrop, Titleist and Wilson.
Combined, Coyote and RP will have more than 640 customers for steel
and graphite shaft products, including more than 600 golf club
manufacturers, more than 40 distributors and various custom club
assemblers. In addition, RP has more than 3,000 customers of golf grip
products, including more than 300 golf club manufacturers, more than
2,700 distributors and various custom club assemblers.
o Capitalize on Perceived Favorable Trends Affecting the Golf Equipment
Industry. The combined companies would be better positioned to
meaningfully benefit from what management perceives as the positive
trends affecting the golf equipment industry. These trends include:
i) increased consumer spending since 1990 on recreational activities
in general and on golf equipment in particular;
ii) growth in the number of golf courses;
iii) increased interest in golf by women, juniors and minority
golfers;
iv) projected population growth of golfers who are 40 to 60 years old,
the segment of the population which generally plays the most rounds
and spends the most on golf equipment;
v) projected population growth of individuals entering their 20s, the
age when golfers generally begin playing the game;
vi) significant increases in consumer advertising by the golf
equipment industry; and
vii) the rapid evolution of golf club design and technology.
o Anticipated Operating Synergies and Strategic Benefits. Management
believes the complementary nature of the two businesses should result
in operational synergies and other strategic benefits which should
provide improved economies of scale. Coyote believes that the combined
enterprise could realize significant reductions in corporate overhead
by integrating administrative functions, and that Coyote could
leverage the expertise of the combined company's technical,
operational, and sales and marketing functions to more efficiently run
the existing operations and to pursue additional business development
opportunities while spreading the cost of these functions over a
larger asset and revenue base. Additionally, Coyote expects to achieve
other cost and revenue enhancing benefits from combining the
proprietary technologies of RP and Coyote.
o Potential Earnings per Share Accretion. The transaction is believed to
have the potential to be accretive to Coyote's 1999 and 2000 earnings
per share because of anticipated operational savings and strategic
benefits associated with the merger.
o Opinion of Lehman Brothers. The receipt of the opinion from Coyote's
financial advisor, Lehman Brothers (described below) as to the
fairness to Coyote from a financial point of view of the consideration
proposed to be issued in the merger. See "Annex B Opinion of Lehman
Brothers".
o Certain Risks. The potential risks associated with the merger,
including the possibilities that the combined companies may not
realize the potential operational and financial synergies as and when
anticipated, and that the merger could be disruptive to the business
or operations of Coyote or RP.
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In view of the wide variety of factors considered by the Board of Directors
of Coyote in connection with its evaluation of the merger and the complexity of
such matters, the Board of Directors of Coyote did not consider it practicable
to, nor did it attempt to, quantify, rank or otherwise assign relative weights
to the specific factors it considered in reaching its decision. The Board of
Directors of Coyote relied on the experience of Lehman Brothers, its financial
advisor, for quantitative analysis of the financial terms of the merger. See "-
Opinion of Lehman Brothers" on page [ ]. In addition, the Board of Directors of
Coyote did not undertake to make any specific determination as to whether any
particular factor (or any aspect of a particular factor) was determinative to
its ultimate determination to assign any particular weight to any factor, but
rather conducted a discussion of the factors described above, including asking
questions of Coyote's management and legal and financial advisors, and reached a
general consensus that the merger was advisable and in the best interest of
Coyote and Coyote's stockholders. In considering the factors described above,
individual members of the Board of Directors of Coyote may have given different
weight to different factors.
Recommendation of the Board of Directors of Coyote
Based on the foregoing, and the opinion of Lehman Brothers referred to
above, the Board of Directors of Coyote unanimously approved the Merger
Agreement and the transactions contemplated thereby and the amendment of the
Amended and Restated Articles of Incorporation to increase the number of
authorized preferred shares and the creation and the issuance of a new series of
shares, the Series C Preferred Stock to be delivered in connection with the
merger. The Board of Directors of Coyote believes that the merger is fair to and
in the best interest of the Coyote stockholders and recommends that Coyote's
stockholders vote FOR the proposal to amend the Amended and Restated Articles of
Incorporation to increase the number of authorized preferred shares and to
create and issue a new series of shares, the Series C Preferred Stock, to be
delivered in connection with the merger.
Opinion of Lehman Brothers
General.
In October 1998, the Coyote Board of Directors engaged Lehman Brothers to
act as its financial advisor with respect to pursuing an acquisition of RP. On
January 28, 1999, Lehman Brothers rendered its oral opinion (subsequently
confirmed in writing) to the Coyote Board of Directors that as of such date and,
based upon and subject to certain matters stated therein, the consideration to
be paid by Coyote to the stockholders of RP in the merger was fair from a
financial point of view to Coyote.
The full text of the Lehman Brothers Opinion dated January 28, 1999 (the
"Lehman Brothers Opinion") is included in Annex B to this Joint Proxy
Statement/Prospectus and is incorporated in this document by reference. Lehman
Brothers' advisory services and opinion were provided for the information and
assistance of the Coyote Board of Directors in connection with its consideration
of the merger. The Lehman Brothers Opinion is addressed to the Coyote Board of
Directors and does not address the merits of the underlying decision of Coyote
to engage in the merger and does not constitute a recommendation to any
stockholder of Coyote as to how such holder should vote on the amendment to
Coyote's Amended and Restated Articles of Incorporation and the issuance of the
Series C Preferred Stock to be delivered in connection with the merger. Lehman
Brothers was not requested to opine as to, and its opinion does not address,
Coyote's underlying business decision to proceed with or effect the merger. The
summary of the Lehman Brothers Opinion set forth in this Joint Proxy
Statement/Prospectus is qualified in its entirety by reference to the full text
of the Lehman Brothers Opinion. Holders of Coyote common stock are urged to, and
should, read the Lehman Brothers Opinion in its entirety for the procedures
followed, factors considered, assumptions made and qualifications and
limitations of the review undertaken by Lehman Brothers in connection with its
opinion.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
o the Merger Agreement and the specific terms of the proposed
transaction and the Series C Preferred Stock;
o such publicly available information concerning Coyote and RP as it
believed to be relevant to its analysis, including Coyote and RP
Annual Reports on Form 10-KSB for the fiscal years ended December 31,
1997 and May 31, 1998, respectively,
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and Coyote and RP Quarterly Reports on Form 10-QSB for the quarters
ended September 30, 1998 and November 30, 1998, respectively;
o financial and operating information with respect to the business,
operations and prospects of Coyote and RP furnished to it by Coyote
and RP, including information relating to the financial condition and
results of operations of Coyote for the fiscal year ended December 31,
1998;
o a trading history of RP common stock from September 2, 1997, to the
present and a comparison of that trading history with those of
companies that it deemed relevant;
o a trading history of Coyote common stock from September 18, 1997 to
the present and a comparison of that trading history with those of
companies that it deemed relevant;
o a comparison of the historical financial results and present financial
condition of Coyote with those of other companies that it deemed
relevant;
o a comparison of the historical financial results and present financial
condition of RP with those of other companies that it deemed relevant;
o a comparison of the financial terms of the proposed merger transaction
with the financial terms of certain other transactions that it deemed
relevant;
o the potential pro forma impact of the proposed merger transaction,
including cost savings, operating synergies and strategic benefits
expected by management of Coyote to result from the combination of the
businesses of Coyote and RP; and
o the results of efforts by Coyote and one of its financial advisors to
raise financing in connection with the proposed merger transaction.
In addition, Lehman Brothers had discussions with the management of Coyote
and RP concerning their business, operations, assets, financial condition and
prospects and undertook such other studies, analyses and investigations as it
deemed appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information. Lehman Brothers further relied upon the assurances of the
managements of Coyote and RP that they are not aware of any facts or
circumstances that would make such information inaccurate or misleading. With
respect to the financial projections of Coyote and RP, upon advice of Coyote and
RP, Lehman Brothers assumed that such projections were reasonably prepared on a
basis reflecting the best currently available estimates and judgments of the
management of Coyote and RP as to their future financial performance and that
they would perform substantially in accordance with such projections. With
respect to the operating synergies and strategic benefits expected by the
management of Coyote to result from a combination of the businesses of Coyote
and RP, upon advice of Coyote, Lehman Brothers assumed that such estimated
operating synergies and strategic benefits will be achieved substantially in
accordance with such expectations. In arriving at its opinion, Lehman Brothers
did not make or obtain any evaluations or appraisals of the assets or
liabilities of RP and Coyote. Upon advice of Coyote, Lehman Brothers assumed
that the merger will be accounted for as a purchase for accounting purposes, and
based upon discussions with RP and its advisors, Lehman Brothers assumed that
the merger will qualify as a tax-free reorganization within the meaning of
Section 368(a) of the Code, and therefore qualify for tax-free treatment for RP
stockholders. The Lehman Brothers Opinion was necessarily based upon market,
economic and other conditions as they existed on, and could be evaluated as of,
the date of such opinion.
In arriving at its opinion, Lehman Brothers did not ascribe a specific range
of value to RP or Coyote, but rather made its determination as to the fairness,
from a financial point of view, to Coyote of the consideration to be paid by
Coyote in the proposed merger transaction on the basis of financial and
comparative analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial and
comparative analysis and the application of those methods to the particular
circumstances, and therefore, such an opinion is not readily susceptible to
summary description.
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Furthermore, in arriving at its opinion, Lehman Brothers did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Lehman Brothers believes that its analyses must be
considered as a whole and that considering any portion of such analyses and
factors, without considering all analyses and factors as a whole, could create a
misleading or incomplete view of the process underlying its opinion. In its
analyses, Lehman Brothers made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of Coyote and RP. None of Coyote, RP, Lehman
Brothers or any other person assumes responsibility if future results are
materially different from those discussed. Any estimates contained in these
analyses were not necessarily indicative of actual values or predictive of
future results or values, which may be significantly more or less favorable than
as set forth therein. In addition, analyses relating to the value of businesses
do not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.
The following is a summary of the material financial analyses used by
Lehman Brothers in connection with providing its opinion to the Coyote Board of
Directors. Certain of the summaries of financial analyses include information
presented in tabular format. In order to fully understand the financial analyses
used by Lehman Brothers, the tables must be read together with the text of each
summary. The tables alone do not constitute a complete description of the
financial analyses. In particular, you should note that in applying the various
valuation methods to the particular circumstances of the Coyote, RP and the
merger, Lehman Brothers made qualitative judgments as to the significance and
relevance of each analysis and factor. In addition, Lehman Brothers made
numerous assumptions with respect to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
the Coyote and RP. Accordingly, the analyses listed in the tables and described
below must be considered as a whole. Considering any portion of such analyses
and of the factors considered, without considering all analyses and factors,
could create a misleading or incomplete view of the process underlying the
Lehman Brothers Opinion.
Purchase Price Ratio Analysis. The purchase price ratio analysis provides
enterprise value multiples and equity value multiples of key operating
statistics for a range of transaction values. Assuming the conversion of the
Series C Preferred Stock into Coyote common stock and using the average closing
stock price for Coyote's common stock for the five trading days prior to
announcement, the implied equity value to be received by holders of RP common
stock is $3.85 per share. Based on this implied equity value per share, Lehman
Brothers calculated the ratio of implied equity value to net income as well as
the ratio of enterprise value to revenue, earnings before interest and taxes
("EBIT") and earnings before interest, taxes, depreciation and amortization
("EBITDA") derived from RP's financial projections. RP's enterprise value was
obtained by adding the implied equity value and short- and long-term debt, and
subtracting its cash and cash equivalents.
Based upon the purchase price ratio analysis, the implied equity value per
share yielded a premium to market price of 50.2% over the closing price of RP
shares of $2.563 on January 15, 1999, the last trading day prior to
announcement, and a 7.6% premium to RP's average closing price for the preceding
six month period commencing July 15, 1998. The following table presents the
ratios of implied equity value to estimated 1998 and projected 1999 net income
and the ratios of enterprise value to estimated 1998 and projected 1999 revenue,
EBITDA and EBIT.
With 50% of
Without Synergies Estimated Synergies
Equity Value Multiples
1998 Net Income 24.9x 9.8x
1999 Net Income 19.0x 8.7x
Enterprise Value Multiples
1998 Revenue 1.17x 1.09x
1999 Revenue 1.07x 1.00x
1998 EBITDA 9.5x 5.7x
1999 EBITDA 7.6x 5.0x
1998 EBIT 14.9x 7.3x
1999 EBIT 11.2x 6.3x
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Comparable Coyote Trading Analysis. The comparable company trading analysis
provides a market valuation benchmark based on the common stock trading
multiples of selected comparable companies. For this analysis, Lehman Brothers
reviewed the public stock market trading multiples for selected companies that
Lehman Brothers deemed comparable to RP. Using publicly available information,
Lehman Brothers calculated and analyzed the common equity market value multiples
of certain historical and projected financial criteria (such as net income) and
the enterprise value multiples of certain historical financial criteria (such as
revenues, EBITDA, and EBIT) as of January 15, 1999, the last trading day prior
to the announcement of the merger transaction. Net income for the selected
companies was based on research analysts' estimates published on First Call, a
service reporting equity analyst estimates.
The following table presents the net income, and LTM revenue, EBITDA, and
EBIT multiples.
With 50% of
Mean Without Estimated
Comparables Synergies Synergies
Equity Value Multiples
1998 Net Income 9.4x 24.9x 9.8x
1999 Net Income 7.5x 19.0x 8.7x
Enterprise Value Multiples
LTM Revenue 0.70x 1.17x 1.09x
LTM EBITDA 8.1x 9.5x 5.7x
LTM EBIT 19.8x 14.9x 7.3x
Because of the inherent differences between the businesses, operations,
financial conditions and prospects of RP and the businesses, operations,
financial conditions and prospects of the companies included in the comparable
company group, Lehman Brothers believed that it was inappropriate to, and
therefore did not, rely solely on the quantitative results of the analysis, and
accordingly, also made qualitative judgments concerning differences between the
financial and operating characteristics of RP and companies in the comparable
company group that would affect the public trading values of RP and such
comparable companies.
Comparable Transaction Analysis. The comparable transaction analysis
provides a market benchmark based on the consideration paid in selected
comparable transactions. For this analysis, Lehman Brothers reviewed publicly
available information to determine the purchase prices and multiples paid in
certain transactions that were publicly announced since January 1, 1992 in the
golf equipment manufacturing industry involving target companies which were
similar to RP in terms of business mix, product portfolio, and/or markets
served.
Lehman Brothers calculated the enterprise value of the relevant
transactions (calculated as the consideration offered for the common equity and
short- and long-term debt, and subtracting the enterprise's cash and cash
equivalents), and applied it to certain historical financial criteria (including
revenue, EBITDA, and EBIT) of the acquired business for the LTM period. The
following table presents the LTM revenue, LTM EBITDA and LTM EBIT multiples for
the selected transactions.
With 50% of
Mean Without Estimated
Enterprise Value Multiples Comparables Synergies Synergies
LTM Revenue 1.22x 1.17x 1.09x
LTM EBITDA 8.8x 9.5x 5.7x
LTM EBIT 19.0x 14.9x 7.3x
Because the reasons for and the circumstances surrounding each of the
transactions analyzed were so diverse and because of the inherent differences in
the businesses, operations, financial conditions and prospects of RP and
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the businesses, operations, and financial conditions of the companies included
in the comparable transactions group, Lehman Brothers believed that a purely
quantitative comparable transaction analysis would not be particularly
meaningful in the context of the merger. Lehman Brothers believed that the
appropriate use of a comparable transaction analysis in this instance would
involve qualitative judgments concerning the differences between the
characteristics of these transactions and the merger which would affect the
acquisition values of the acquired companies and RP.
Discounted Cash Flow Analysis. The discounted cash flow analysis provides a
net present valuation of management projections of the projected after-tax
unlevered free cash flows (defined as operating cash flow available after
working capital, capital spending, tax and other operating requirements) based
upon RP's financial projections and estimated operating synergies and strategic
benefits expected by Coyote to result from the merger. Utilizing such financial
forecasts, Lehman Brothers calculated a range of present values for RP using a
range of after-tax discount rates from 11% to 13% and a terminal value based
upon a range of multiples of estimated EBITDA in 2003 from 6.5x to 8.5x. The
following table presents the range of implied equity values per share of RP
common stock based upon the midpoint of the discount rates and the range of the
terminal values.
With 50% of
Without Synergies Estimated Synergies
----------------- -------------------
$3.50 - $4.25 $4.75 - $6.25
Leveraged Acquisition Analysis. The leveraged acquisition analysis measures
the price which would be attractive to a potential financial buyer based upon
current market conditions. For this analysis, Lehman Brothers reviewed RP's
financial projections and assumed the following in performing this analysis: (i)
a capital structure comprised of approximately $23 million in senior debt, (ii)
an equity investment that would achieve a 20% to 30% rate of return over a five
year period, and (iii) an exit multiple of 6.5x to 8.5x projected 2003 EBITDA.
Based on these assumptions, the range of implied leveraged acquisition prices
per share of RP common stock was $3.50 to $4.00.
Contribution Analysis. The contribution analysis measures the relative
contribution of RP to the combined company for various measures such as EBITDA,
EBIT and net income. Lehman Brothers analyzed the respective financial
contributions of Coyote and RP to the combined companies' estimated results for
calendar year 1998 and projected results for calendar year 1999 based on
Coyote's financial projections and RP's financial projections. In addition,
using the Coyote projections and RP projections, Lehman Brothers prepared a
contribution analysis that added estimated operating synergies and strategic
benefits expected by Coyote to result from the merger and sensitivity scenarios
assuming different levels of estimated operating synergies and strategic
benefits contributed by RP. After the conversion of all Series C Preferred
Stock, but before dilution for warrants attached to subordinated debt, if any,
issued in connection with any financing, RP stockholders would own approximately
50% of the equity of Coyote.
The following table presents the relative contribution of RP to the
combined company's 1998 and 1999 EBITDA and EBIT and the companies' 1999 Net
Income assuming different levels of estimated operating synergies contributed by
RP.
Without Assumed Level of Synergies Contributed by RP
Synergies 50% 75% 100%
--------- --- --- ----
1998 EBITDA 57.2% 55.2% 62.1% 68.9%
1999 EBITDA 43.3% 44.5% 49.2% 53.9%
1998 EBIT 69.5% 61.3% 71.8% 82.3%
1999 EBIT 44.5% 45.9% 52.4% 58.8%
1999 Net Income 45.7% 47.1% 55.6% 64.1%
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Pro Forma Merger Analysis. Lehman Brothers analyzed the pro forma impact of
the merger on Coyote's earnings per share based on Coyote's financial
projections and RP's financial projections. In connection with these analyses,
management of Coyote provided Lehman Brothers with projections for estimated
operating synergies and strategic benefits expected by Coyote to result from the
merger and such projections were incorporated in Lehman Brothers' analyses.
Using Coyote's projections, Lehman Brothers concluded that the merger would be
accretive to Coyote's earnings in 1999 and 2000.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Coyote Board of Directors
selected Lehman Brothers because of its expertise, reputation and familiarity
with Coyote and the golf equipment industry generally and because its investment
banking professionals have substantial experience in transactions comparable to
the merger.
As compensation for its services in connection with the merger, Coyote has
agreed to pay Lehman Brothers a fee of $250,000, payable upon the delivery of
the fairness opinion. In addition, Coyote has agreed to reimburse Lehman
Brothers for reasonable out-of-pocket expenses incurred in connection with the
merger and to indemnify Lehman Brothers for certain liabilities that may arise
out of its engagement by Coyote and the rendering of the Lehman Brothers
Opinion. Lehman Brothers has previously rendered investment banking services to
Coyote and received customary fees for such services.
In the ordinary course of its business, Lehman Brothers may actively trade
in the debt or equity securities of RP and Coyote for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
Interests Of Certain Persons In The Merger
General.
In considering the recommendation of the RP Board of Directors with respect
to the Merger Agreement, and the recommendation of the Coyote Board of Directors
with regard to the amendment of Coyote's Amended and Restated Articles of
Incorporation and the creation and issuance of the Series C Preferred Stock in
connection with the merger, RP and Coyote stockholders should be aware that
certain stockholders, directors and members of the management of RP and certain
stockholders, directors and members of the management of Coyote have interests
in the merger and the related transactions which are different from, and in
addition to, the interests of stockholders of RP, generally, or of stockholders
of Coyote, generally, as the case may be.
o Each of James M. Probst, Mel S. Stonebraker, Paragon, the Trust, David
E. Johnston, Kenneth J. Warren, Berenson Minella and Coyote have
entered into a stockholder agreement dated as of February 2, 1999, and
effective as of the effective date of the merger pursuant to which the
parties thereto will have the ability to designate certain nominees
for election as directors of Coyote. Pursuant to the stockholder
agreement, Messrs. Probst and Stonebraker and Paragon will have the
right to designate four persons to serve as directors of Coyote,
Messrs. Johnston and Warren and the Trust will have the right to
designate three persons to serve as directors of Coyote and Berenson
Minella will have the right to designate one person to serve as a
director of Coyote. Each of Mr. Probst and Mr. Stonebraker is a
director and officer of Coyote and Mark Pappas, the president of the
general partner of Paragon, is a director of Coyote. Each of Mr. David
Johnston, Mr. Warren and Mr. Richard P. Johnston, the trustee of the
Trust, is a director and/or officer of RP and Mr. Raymond J. Minella,
a managing general partner in Berenson Minella, is the Chairman of the
Board of Directors of RP. Each of the parties to the stockholder
agreement, other than Coyote, has agreed to vote all Coyote voting
securities owned by it in favor of the director nominees designated by
the other parties. Collectively, the parties to the
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stockholder agreement will control a majority of the outstanding
Coyote voting securities on the effective date of the merger and, as a
result, as of the effective date of the merger, will have the ability
to elect all of the directors of Coyote. The stockholder agreement
will terminate five years after the effective date of the merger.
o In connection with obtaining the waiver of certain of his contractual
rights under RP's existing stockholders agreement, Danny Edwards, a
director of RP, required RP to cancel certain stock options of RP with
exercise prices of between $5.50 and $13.00 dollars per share held by
Mr. Edwards and certain related parties, including Robert Burg II, a
director of RP, and Everen Securities, Inc. and certain of its
employees, including Lawrence D. Bain, a director of RP, and to issue
to such persons new options with otherwise similar terms at an
exercise price of $3.19 and an expiration date five years from the
date of grant. As a result of this arrangement, options to purchase
the following numbers of shares were canceled and new options issued
to each of the following persons; Mr. Edwards, 62,550; Mr. Burg,
108,033; and Everen Securities, Inc., 7,500.
o In order to induce Christopher Johnston, a major stockholder of RP, to
waive certain contractual rights under RP's existing stockholder
agreement, RP and certain of its stockholders agreed to release
Christopher Johnston from his obligations under that agreement and RP
agreed to assist Christopher Johnston in the sale of the shares of RP
common stock held by him. As additional consideration for RP's
agreements in this respect Christopher Johnston agreed to waive any
appraisal rights to which he may be entitled under Delaware law in
connection with the merger. In addition, Christopher Johnston and
Coyote have agreed that he will be entitled to a fee in the event that
a certain future acquisition opportunity identified by him is
successfully pursued.
o As of March 19, 1998, Coyote entered into a $6,000,000 Promissory Note
(the "Note") and Loan Agreement as amended December 30, 1998 (the
"Loan Agreement") with Paragon. Paragon is an unrelated third party to
Coyote, although as a condition of the Loan Agreement, the Coyote
Board of Directors appointed Mr. Mark Pappas, the president of the
general partner of Paragon, to Coyote's Board of Directors, a capacity
in which he currently serves. In the ordinary course of business, this
loan would be due September 19, 1999. Interest is payable quarterly at
an interest rate of 12% per year. The consummation of the Merger
Agreement would cause the Note to be due immediately.
Under the Loan Agreement, Coyote issued Paragon 163,265 shares of
Coyote common stock as of March 19, 1998, which represented $1,000,000
divided by the closing price of the common stock on the Nasdaq Small
Cap Market on the day immediately preceding the closing of the loan.
The Loan Agreement provides that the Issuer shall issue to Paragon
such additional number of shares of Coyote common stock, if any, as
are necessary to make the aggregate value of all shares of common
stock issued equal $1,000,000 on December 30, 1998, upon the maturity
of the loan and upon the prepayment, if any, of the loan. Pursuant to
this formula, and based on a December 29, 1998 closing price of the
common stock on the Nasdaq Small Cap Market of $3.25 per share, Coyote
issued Paragon an additional 144,427 shares of the Coyote common stock
effective December 30, 1998. Coyote may be required to issue Paragon
additional shares of common stock under the referenced formula
depending on the price of the Coyote common stock at the maturity date
(September 19, 1999) and on any date that the Note is prepaid in full
prior to the maturity date.
In connection with the loan, Coyote and Paragon entered into a
Registration Rights Agreement pursuant to which Coyote generally has
granted Paragon the right at any time until March 19, 2003 to require
that Coyote register Paragon's shares of common stock under the
Securities Act at Coyote's expense.
The Loan Agreement provides that the Note is secured by 1,430,000
shares of Coyote's common stock owned by Mel S. Stonebraker, Director,
and by 1,170,000 shares of Coyote's common stock owned by James M.
Probst, President and Chief Executive Officer. Under the Loan
Agreement, Messrs.
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Stonebraker and Probst retain the power to vote their shares of Coyote
common stock as long as Coyote is not in default under the Loan
Agreement.
o The Board of Directors of Coyote has awarded Messrs. John Paul McNeill
and Andrew Taylor, the Chief Financial Officer of Coyote and the
Managing Director of Apollo, respectively, options to purchase 50,000
shares of Coyote common stock each, at a price equal to $2.55 and
$3.00, respectively.
o The Board of Directors of RP has awarded Mr. Thomas A. Schneider, the
President, Chief Operating Officer and Chief Financial Officer of RP,
a bonus of $100,000, payable upon completion of the merger and Kevin
Neill, the Vice President, Finance, and Corporate Controller of RP a
bonus of $10,000, payable upon completion of this merger, as
compensation for their efforts on behalf of RP in connection with the
merger and otherwise.
o On February 12, 1999, the Compensation Committee of the RP Board of
Directors approved the award of certain new severance benefits to each
of thirteen RP employees including Mr. Schneider. The new severance
benefits include the following:
o immediate vesting of all non-vested options;
o extension of the exercise period for all stock options to one
year after termination of employment; and
o severance pay and continued medical and dental benefits for
periods ranging from four to twelve months.
The new severance benefits are effective upon the employee's termination by
RP for any reason other than gross or willful misconduct. The new severance
benefits may also be triggered by termination by the employee for any of the
following reasons:
o RP requires the employee to relocate from the Phoenix
metropolitan area;
o RP reduces the employee's current rate of pay;
o RP demotes the employee from his or her current position;
o RP materially reduces the employee's authority or duties as they
existed prior to the merger; or
o RP requires the employee to travel more than 10 days per month.
o Raymond J. Minella, Chairman of the Board of Directors of RP, is a managing
general partner of Berenson Minella. RP has engaged Berenson Minella to
provide financial advisory services in connection with the merger. Berenson
Minella's fee for such services is contingent upon the consummation of a
sale transaction or other business combination involving RP. Upon the
consummation of the merger, Berenson Minella will receive a fee equal to
1.5% of the sum of an amount equal to the aggregate liquidation preference
of the Series C Preferred Stock issued to the holders of the RP common
stock plus an amount equal to the aggregate debt of RP assumed, refinanced
or renegotiated as part of the merger.
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Indemnification
Following the merger Coyote will continue for a period not less than six
years all rights to indemnification now existing in favor of any director or
officer of RP as provided in RP's Amended and Restated Certificate of
Incorporation or By-laws. Coyote will also maintain the current policies of
directors' and officers' liability insurance coverage maintained by RP on the
date of the Merger Agreement or policies that are no less favorable than RP's
existing policies for a period of not less than six years after consummation of
the merger.
Dissenters' Rights
By reason of the merger, stockholders of RP are entitled to assert
dissenters' rights to demand the judicially determined "fair value" in cash
(exclusive of any element of value arising from the accomplishment or
expectation of the merger) of their shares of RP common stock under Section 262
of the Delaware General Corporation Law. A copy of Section 262 is included as
Annex D. The following discussion of dissenters' rights is qualified in its
entirety by reference to the provisions of Section 262, which is incorporated in
this document by reference.
It is important to note that dissent is not the same as voting against the
merger.
Notice of Intent to Demand Payment. Any RP stockholder who wishes to assert
dissenters' rights must do both of the following:
1. Cause RP to receive, before the vote on the merger is taken at the RP
special meeting, written notice of the stockholder's intention to demand payment
for the stockholder's RP shares if the merger becomes effective; and
2. Not vote the shares in favor of the merger.
Any RP stockholder who does not satisfy the requirements of Items 1 and 2 above
is not entitled to demand payment for the stockholder's shares under Section
262.
Demanding Payment for Shares. If the merger is approved, RP will give a
written dissenters' notice to all stockholders who have satisfied the
requirements of Items 1 and 2 above and are entitled to demand payment for their
shares. The notice will be given no later than 10 days after the effective date
of the merger and will describe the procedures dissenting stockholders must
follow to demand payment for their shares. The notice will also inform
dissenting stockholders of any restrictions on the transfer of their shares
after the payment demand is received by RP. At any time within 60 days after the
effective date of the merger, any stockholder shall have the right to withdraw
his or her demand for appraisal and accept the terms offered upon the merger (in
this case, shares of Series C Preferred Stock).
Stockholders who do not demand payment and deposit their share certificates
in the manner required, and by the date or dates set forth in the dissenters'
notice given by RP, are not entitled to payment for their shares under Section
262.
Payment for Shares. Within 20 days of receiving notice from the surviving
corporation that the merger was effective, any stockholder entitled to appraisal
rights may demand in writing from the surviving corporation, payment for the
fair value of the dissenting stockholder's shares. The payment will be
accompanied by a statement of the surviving company's estimate of the fair value
of the shares and an explanation of how interest was calculated.
Procedure if Dissatisfied with Payment Amount. Within 120 days after the
effective date of the merger, any stockholder who is entitled to appraisal
rights may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
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Each dissenting stockholder who is made a party to the court action is
entitled to the amount, if any, by which the court finds the fair value of the
dissenting stockholder's shares, plus interest, exceeds the amount paid by the
surviving company. The fair value will be determined exclusive of any element of
value arising from the accomplishment or expectation of the merger.
The foregoing summary of the rights of objecting shareholders does not
purport to be a complete statement of the provisions of Section 262 or the
procedures to be followed by shareholders desiring to exercise any available
dissenters' rights and is qualified in its entirety by reference to Section 262.
The preservation and exercise of dissenters' rights require strict adherence to
the applicable provisions of the Delaware Law.
THIS STATEMENT IS MEANT TO SERVE AS A SUMMARY ONLY AND SHOULD NOT BE TAKEN AS A
DEFINITIVE STATEMENT OF STOCKHOLDERS' APPRAISAL RIGHTS. THE PROVISIONS OF
SECTION 262 ARE COMPLEX AND TECHNICAL IN NATURE. DISSENTING STOCKHOLDERS
INTERESTED IN APPRAISAL RIGHTS ARE ENCOURAGED TO CONSULT WITH THEIR INDEPENDENT
LEGAL ADVISORS SINCE THE FAILURE TO COMPLY STRICTLY WITH THESE PROVISIONS WILL
RESULT IN THE LOSS OF THEIR DISSENTERS' RIGHTS.
Material U.S. Federal Income Tax Consequences
The following discussion is a summary of the material U.S. federal income
tax consequences of the exchange of RP common stock for Series C Preferred Stock
in the merger and of the disposition and conversion of the Series C Preferred
Stock. The discussion which follows is based on the Code, Treasury Regulations
promulgated thereunder, administrative rulings and pronouncements and judicial
decisions as of the date hereof, all of which are subject to change, possibly
with retroactive effect.
The discussion below, except where specifically noted, does not address the
effects of any state, local or foreign tax laws. In addition, the discussion
below relates to persons who hold RP common stock and will hold Series C
Preferred Stock as capital assets. The tax treatment of a RP stockholder may
vary depending upon such stockholder's particular situation, and certain
stockholders may be subject to special rules not discussed below. Such
stockholders would include, for example, non-U.S. persons, insurance companies,
tax-exempt organizations, financial institutions, dealers or traders in
securities or commodities, and individuals who received RP common stock pursuant
to the exercise of employee stock options or otherwise as compensation.
Each RP stockholder should consult its own tax advisor with respect to the
U.S. federal, state, local and foreign tax consequences of the merger and of the
disposition and conversion of the Series C Preferred Stock.
1. Consequences of the Merger
The material U.S. federal income tax consequences that will result from the
merger are as follows:
a. A RP stockholder will not recognize any income, gain or loss as a
result of the receipt of Series C Preferred Stock in exchange for RP
common stock pursuant to the merger, except with respect to cash
received in lieu of a fractional share of Series C Preferred Stock.
b. The aggregate tax basis to a RP stockholder of the Series C Preferred
Stock received in exchange for RP common stock pursuant to the merger
will equal such RP stockholder's tax basis in the RP common stock
surrendered in exchange therefor reduced by the portion of such basis
allocable to cash received in lieu of a fractional share of Series C
Preferred Stock.
c. The holding period of a RP stockholder for the Series C Preferred
Stock received pursuant to the merger will include the holding period
of the RP common stock surrendered in exchange therefor.
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d. Neither RP, Coyote nor Merger Sub will recognize gain or loss as a
result of the merger and the issuance of Series C Preferred Stock to
the RP stockholders pursuant to the merger.
e. A RP stockholder who receives cash in lieu of a fractional share
interest in Series C Preferred Stock pursuant to the merger will be
treated as having received such cash in exchange for such fractional
share interest and generally will recognize capital gain or loss on
such deemed exchange in an amount equal to the difference between the
amount of cash received and the basis of the RP common stock allocable
to such fractional share.
The above discussion of the consequences of the merger is based on an
opinion as of the date hereof of Fabian & Clendenin that the merger will
constitute a reorganization within the meaning of Section 368 of the Code. Such
opinion is based on facts existing as of the date hereof and as of the
consummation of the merger and on certain representations as to factual matters
made by Coyote and RP. Such representations, if incorrect in certain material
respects, could jeopardize the conclusions reached in the opinion. Such opinion
is not binding on the Internal Revenue Service or the courts.
2. Conversion and Disposition of the Series C Preferred Stock
A holder of Series C Preferred Stock will not recognize gain or loss upon
the conversion of the Series C Preferred Stock into Coyote common stock pursuant
to the terms of the Series C Preferred Stock, other than with respect to any
Coyote common stock that may be received attributable to accrued but unpaid
dividends on the Series C Preferred Stock, which will be taxable as such. The
aggregate tax basis and holding period of the Coyote common stock received by a
former RP stockholder who converts Series C Preferred Stock into Coyote common
stock will be the same as the respective aggregate tax basis and holding period
of the Series C Preferred Stock surrendered in any such conversion transaction,
except that with respect to any Coyote common stock received attributable to
accrued but unpaid dividends on the Series C Preferred Stock, the basis of such
stock will be its fair market value and the holding period of such stock will
begin on the day following the conversion.
In general, a holder of Series C Preferred Stock should recognize capital
gain or loss upon a sale, exchange or other taxable disposition of the Series C
Preferred Stock. However, the character of gain from the disposition of the
Series C Preferred Stock may be treated as ordinary income rather than capital
gain if the Series C Preferred Stock is "Section 306 stock." In addition, no
loss is generally recognized on the disposition of Section 306 stock. Provided
that, at the time of the merger, a RP stockholder does not have a plan to
convert less than all of such stockholder's Series C Preferred Stock into Coyote
common stock, the Series C Preferred Stock should not be Section 306 stock, and,
therefore, any gain or loss from the disposition of the Series C Preferred Stock
should be capital gain or loss. In general, a redemption of Series C Preferred
Stock will be treated in the same manner as a disposition of such stock,
provided such stock is not Section 306 stock and provided the redemption meets
one of the tests set forth in Section 302(b) of the Code. RP stockholders should
consult their tax advisors as to whether the Series C Preferred Stock will be
Section 306 stock and as to the treatment of a redemption of Series C Preferred
Stock.
Certain Legal Matters
Coyote and RP do not believe that any material governmental filings in the
United States or the European Economic Area, other than the Certificate of
Merger, are required with respect to the merger. In addition to the United
States and the European Economic Area, Coyote and RP conduct operations in a
number of countries where regulatory filings or approvals may be required in
connection with the consummation of the merger. Coyote and RP believe that all
such material filings and approvals have been made or obtained, or will be made
or obtained, as the case may be.
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The respective obligations of Coyote and RP to consummate the merger are
subject to the condition that none of the parties to the Merger Agreement are
subject to any order or injunction of a court of competent jurisdiction which
prohibits the consummation of the merger or has a material adverse effect on
Coyote, RP or Merger Sub.
U.S. Federal Securities Law Consequences
Recipients of Series C Preferred Stock issued in connection with the merger
can convert their shares of such preferred stock into Coyote common stock and
freely transfer such shares under the Securities Act, except that persons who
are deemed to be "affiliates" (as such term is defined under the Securities Act)
of RP prior to the merger may only sell shares they receive in the merger in
transactions permitted by the resale provisions of Rule 145 under the Securities
Act, or as otherwise permitted under the Securities Act. Individuals or entities
that control, are controlled by, or are under common control with, RP, including
directors and certain officers of RP, are typically considered to be affiliates.
In general, under Rule 145, for one year following the consummation of the
merger, RP affiliates will be subject to the following restrictions on the
public sale of Coyote common stock acquired in the merger:
o a RP affiliate, together with certain related persons, may sell only
through unsolicited "broker transactions" or in transactions directly
with a "market maker," as such terms are defined in Rule 144 under the
Securities Act,
o the number of shares that RP affiliate may sell (together with certain
related persons and certain persons acting in concert) within any
three-month period for purposes of Rule 145 may not exceed the greater
of 1% of the outstanding Coyote common stock or the average weekly
trading volume of such stock during the four calendar weeks preceding
such sale,
o a RP affiliate may sell only if Coyote remained current with its
informational filings with the SEC under the Securities Exchange Act
of 1934, as amended.
After the end of one year from the consummation of the merger, a RP
affiliate may sell Coyote common stock received in exchange for the Series C
Preferred Stock in the merger without such manner of sale or volume limitations
provided that Coyote was current with its Exchange Act informational filings and
such RP affiliate was not then an affiliate of Coyote. Two years after the
consummation of the merger, an affiliate of RP may sell such Coyote common stock
without any restrictions so long as such affiliate had not been an affiliate of
Coyote for at least three months prior to such sale.
See Certain Undertakings With Respect to Resale beginning on p.65.
Dividends
Coyote has never paid a dividend on its common stock and does not
anticipate paying a dividend in the foreseeable future. The Merger Agreement
restricts each of RP and Coyote from declaring, setting aside, making or paying
any dividend or other distribution or payment in respect of its capital stock,
during the period from the date of the Merger Agreement until the earlier of the
termination of the Merger Agreement or the consummation of the merger. In
addition, Coyote will be restricted from declaring or paying dividends on its
common stock until such time as all cumulative dividends have been paid on
outstanding shares of the new Series C Preferred Stock.
The Exchange Ratio and its Effect on RP Securities and Equity-Based Benefit
Plans
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General
As a result of the merger, all outstanding shares of RP common stock will be
converted into Series C Preferred Stock in accordance with the terms of the
Merger Agreement, and all outstanding equity-based awards under RP's benefit
plans will be assumed by Coyote and appropriately adjusted to reflect the merger
in accordance with the Merger Agreement. The following is a summary of these
effects of the merger and is qualified in its entirety by the full description
set forth in Sections 1.4, 1.7 and 1.8 of the Merger Agreement attached as Annex
A to this document.
The Exchange Ratio
The Exchange Ratio will be determined as follows:
o All shares of RP common stock which are held by RP or any subsidiary
of RP shall be canceled. Each remaining outstanding share of RP common
stock shall be converted into that number of fully paid and
nonassessable shares of the Series C Preferred Stock, having the
rights and preferences set forth in Exhibit 1.4.1 to the Merger
Agreement, determined by dividing (i) the number of shares of Coyote's
common stock actually issued and outstanding as of the effective date
of the merger by (ii) the number of shares of RP common stock actually
issued and outstanding as of the effective date of the merger, carried
to four decimal places.
o For example, if the Exchange Ratio for purposes of the Merger
Agreement were to be determined on the basis of the number of shares
of common stock in Coyote and common stock in RP stated to be
outstanding on February 2, 1999, the Exchange Ratio would be 1.0195
(that is, 5,777,692 divided by 5,667,375).
Fractional Shares
In the merger, RP stockholders will be entitled to receive only whole
numbers of Series C Preferred Stock for their shares of RP common stock. If
applying the Exchange Ratio would entitle a stockholder to receive a fractional
share of Series C Preferred Stock, such stockholder will be paid cash, without
interest, in an amount equal to such fractional interest multiplied by the
product of $6.00 multiplied by the reciprocal of the Exchange Ratio. FOR
EXAMPLE: ASSUMING AN EXCHANGE RATIO OF 1.0195 , A RP STOCKHOLDER THAT OWNED 100
SHARES OF RP COMMON STOCK IMMEDIATELY BEFORE THE MERGER WILL OWN 101 SHARES OF
SERIES C PREFERRED STOCK IMMEDIATELY AFTER THE MERGER AND RECEIVE A CHECK FOR
$5.60.
Treatment of RP Equity-Based Awards
Each option or warrant to purchase RP common stock issued pursuant to the
RP Stock Option Plan and the FM Precision Golf Corp. 1997 Stock Option Plan, or
otherwise which is set forth in the RP disclosure schedule to the Merger
Agreement, and is outstanding as of the date of the consummation of the merger
(individually, an "RP Option" and, collectively, the "RP Options") shall be
assumed by Coyote and converted into an option or warrant (or a substitute
option shall be granted) to purchase the number of shares of Coyote common stock
(rounded to the nearest whole share) equal to the number of shares of Series C
Preferred Stock into which the number of shares of RP common stock subject to
such RP Option would have been converted pursuant to the merger (that is, the
number of shares of RP common stock subject to such RP Option multiplied by the
Exchange Ratio), at an exercise price per share of Series C Preferred Stock
(rounded to the nearest penny) equal to the former exercise price per share of
RP common stock under the RP Option immediately prior to the date of the
consummation of the merger multiplied by the reciprocal of the Exchange Ratio;
provided, however, that in the case of any RP Option to which Section 421 of the
Code applies by reason of its qualification under Section 422 of the Code, the
conversion formula shall be adjusted, if necessary, to comply with Section
424(a) of the Code and the regulations issued
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thereunder. Except as otherwise provided in the applicable plan or agreement
granting the RP Options, the duration, vesting and other terms of each new
option to purchase shares of Coyote common stock shall be the same as the
original RP Option except that all references in the option agreement to RP
shall be deemed to be references to Coyote. Coyote and RP agree to take such
action as may be necessary to effectuate the foregoing provisions.
Stock Exchange Listing
It is a condition to the merger that the Coyote common stock issuable upon
conversion of the Series C Preferred Stock to be delivered in connection with
the merger be authorized for listing on the Nasdaq National Market, if
qualified, or otherwise the Nasdaq Small Cap Market.
FINANCING
[Description of Financing arrangements to come]
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PROVISIONS OF THE MERGER AGREEMENT AND RELATED AGREEMENTS
General
This section of the document describes the material provisions of the
Merger Agreement, the stockholder agreement, the Coyote voting agreements, the
RP voting agreements and the Edwards option re-pricing agreement. This
description is not intended to be complete and is qualified in its entirety by
the full texts of these agreements which are annexed to this document. In
addition, important information about the Merger Agreement and the merger is
provided in the previous section entitled "The Merger" beginning on page 24.
The Merger Agreement
Effective Time
Promptly after the satisfaction or waiver of the conditions to the merger
set forth in the Merger Agreement, RP will file a Certificate of Merger with the
Secretary of State of the State of Delaware, as prescribed by Delaware law. The
effect of this filing is that Coyote's subsidiary, Merger Sub, will be merged
with and into RP, thereby resulting in RP becoming a wholly owned subsidiary of
Coyote.
Exchange of RP Common Stock
As soon as reasonably practicable after the consummation of the merger,
Coyote will instruct the exchange agent to mail to each holder of record of RP
common stock a letter of transmittal and instructions as to how to surrender
certificates of RP common stock in exchange for Series C Preferred Stock and
payment in lieu of any fractional shares. RP stockholders should not return
stock certificates with the enclosed proxy.
After the consummation of the merger, each certificate or other authorized
evidence of ownership that previously represented shares of RP common stock will
represent only the right to receive the Series C Preferred Stock into which such
RP shares were converted in the merger and the right to receive cash in lieu of
fractional shares as described above.
Holders of certificates previously representing RP common stock will not be
paid dividends or distributions on the Series C Preferred Stock and will not be
paid cash in lieu of a fractional share of Series C Preferred Stock until such
certificates are surrendered to the exchange agent for exchange. When such
certificates are surrendered, any unpaid dividends declared by Coyote after the
consummation of the merger and any cash in lieu of a fractional share of Series
C Preferred Stock will be paid without interest. For all other corporate
purposes, certificates that represented shares of RP common stock prior to the
consummation of the merger will represent from and after the consummation of the
merger, the right to receive the number of shares of Series C Preferred Stock
and cash in lieu of a fractional share, into which such shares of RP common
stock actually converted in the merger.
Representations and Warranties
The Merger Agreement contains various representations and warranties of
Coyote and RP including those concerning:
o corporate existence and good standing
o authorization, validity and effect of the Merger Agreement
o capital stock
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o subsidiaries
o no violation of existing arrangements
o documents and other reports filed with the Securities and Exchange
Commission
o litigation
o absence of certain changes or events
o tax matters
o employee plans
o labor matters
o environmental laws and regulations
o real property
o limitation on business conduct
o title to property
o insurance
o intellectual property
o brokers
o conflicts of interest
o takeover statute issues
The Merger Agreement also contains a representation and warranty of Coyote
relating to the interim operations of Merger Sub and its intentions regarding
the post-merger disposition of RP. The representations and warranties do not
survive the merger.
Conduct of Business Pending the Merger
Prior to the effective time, unless the other party otherwise agrees in
writing, Coyote and RP are to conduct, and cause each of their subsidiaries to
conduct, their business only in the ordinary course consistent with past
practice. Specifically, the Merger Agreement precludes Coyote and RP from a
multitude of specific corporate acts (without the consent of the other party
unless set forth in the Coyote or RP disclosure schedules), including among
other things, the issuance of stock or options, the amendment of the certificate
or articles of incorporation or by-laws, incurring debt not in the ordinary
course of business (with certain exceptions), the increase of compensation, the
entry into or amendment of any employment, severance or termination agreement
(except as specifically permitted under the Merger Agreement), entering into
business combinations, selling material assets, declaring dividends, making
capital expenditures individually in excess of $25,000 or, in the aggregate in
excess of $150,000 and entering into material contracts. In each case, the
prohibitions are designed to ensure that Coyote and RP are in generally the same
condition at the time of the merger as they were at the time of execution of the
Merger Agreement. In addition, Coyote and RP are to use their reasonable efforts
to, and cause each of their subsidiaries
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to, preserve intact their present business organization and goodwill, keep
available the services of their present officers and employees and maintain
satisfactory relationships with their existing business relationships.
No-Solicitation - Coyote
Coyote has agreed that it will not directly or indirectly, or through any of its
subsidiaries, officers, directors, employees, representatives or agents solicit
or encourage the initiation of any inquiries or proposals regarding any merger,
sale of assets, sale of shares of capital stock or similar transactions
involving Coyote or any of its subsidiaries if any such inquiry or proposal
would constitute a Coyote Alternative Transaction if consummated. An inquiry or
proposal described in the preceding sentence is a "Coyote Acquisition Proposal"
if when consummated it would constitute a "Coyote Alternative Transaction,"
which means any of the following:
o a transaction pursuant to which any person (or group of persons) other
than RP or its affiliates acquires or would acquire beneficial
ownership or the right to acquire beneficial ownership of more than
50% of the outstanding shares of any class of equity securities of
Coyote, whether from Coyote or pursuant to a tender offer or exchange
offer or otherwise;
o a merger or other business combination involving Coyote pursuant to
which any person (or group of persons) other than RP or its affiliates
acquires more than 50% of the outstanding equity securities of Coyote
or the entity surviving such merger or business combination;
o any transaction pursuant to which any person (or group of persons)
other than RP or its affiliates acquires or would acquire control of
assets of Coyote (including for this purpose the outstanding equity
securities of any of its subsidiaries and securities of the entity
surviving any merger or business combination to which any of Coyote's
subsidiaries is a party) or any of Coyote's subsidiaries having a fair
market value (as determined by the Board of Directors of Coyote in
good faith) equal to more than 20% of the fair market value of all the
assets of Coyote and its subsidiaries, taken as a whole, immediately
prior to such transaction, but not an acquisition of securities by a
broker-dealer in connection with a bona fide public offering of such
securities; or
o any other consolidation, business combination, recapitalization or
similar transaction involving Coyote or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement.
Additionally, Coyote has agreed that it and its subsidiaries will not make
or authorize, and will instruct their officers, directors, employees,
representatives and agents not to make or authorize any public statement or
solicitation in support of or commenting positively on any Coyote Acquisition
Proposal unless it is required to do so by law.
However, under the limited circumstances discussed below, Coyote is
permitted to take certain actions in response to an inquiry or proposal from a
third party to acquire Coyote so long as that inquiry or proposal also qualifies
as a Coyote Superior Proposal. A "Coyote Superior Proposal" means any proposal
made by a third party to acquire, directly or indirectly, for cash and/or
securities, all or a majority of the voting equity securities of Coyote or all
or substantially all of the assets of Coyote, on terms which the Board of
Directors of Coyote reasonably believes are more favorable than the merger:
o from a financial point of view to the Coyote stockholders, based upon
the advice of an independent financial advisor, taking into account at
the time any changes to the financial terms of the merger proposed by
RP; and
o to Coyote after taking into account all pertinent factors deemed
relevant by the Board of Directors of Coyote under the laws of the
State of Nevada.
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Until the Coyote stockholders approve and adopt the Merger Agreement and if
the Coyote Board of Directors reasonably determines in good faith after
consultation with independent legal counsel, that any of the following actions
is required to discharge properly its fiduciary duties, the Coyote Board of
Directors, after notice to RP is permitted to:
1. furnish information to a third party which has made an acquisition
proposal that the Coyote Board of Directors reasonably believes is a
Coyote Superior Proposal (as defined above) which was not solicited in
violation of the Merger Agreement, provided that such third party has
executed a confidentiality agreement substantially similar to the one
in effect between RP and Coyote; and
2. consider and negotiate such a Coyote Superior Proposal and recommend
it to the Coyote stockholders and, in connection with its
recommendation, withdraw or modify its recommendation of the merger.
Notwithstanding the foregoing points 1 and 2, Coyote and the Coyote Board
of Directors may not under any circumstance withdraw or modify in a manner
adverse to RP, the Coyote Board of Directors' approval of the merger unless the
Merger Agreement has been terminated in accordance with its terms.
The Merger Agreement expressly provides that the foregoing restrictions
shall not prohibit Coyote from taking or disclosing to its stockholders a
position regarding a Coyote Alternative Transaction or Coyote Acquisition
Proposal or from making any disclosure to its stockholders required by law.
Coyote has agreed to notify RP immediately after receipt of any acquisition
proposal from a third party involving Coyote or any of its subsidiaries, or any
material change to such an acquisition proposal, or any request for non-public
information relating to Coyote or its subsidiaries or for access to any of its
properties, books or records by any person that informs Coyote that it is
considering making or has already made such an acquisition proposal. The Merger
Agreement also requires Coyote to inform RP of the identity of the person making
such an acquisition proposal, or requesting such information or access, the
terms of such an acquisition proposal or any proposed change to such an
acquisition proposal, and whether Coyote intends to provide the access to the
information requested. Coyote must also provide notice to RP if it enters
negotiations regarding any such acquisition proposal. Coyote's obligation to
provide notice set forth in this paragraph may be limited to the extent that the
Board of Directors of Coyote reasonably believes, based on the advice of
independent counsel, that it may do so without violating its fiduciary duties.
Coyote has agreed to cease any discussions or negotiations with any third
party that were ongoing at the time of the execution of the Merger Agreement.
Coyote has also agreed not to release any third party from the confidentiality
and standstill provisions of any agreement to which Coyote is a party.
Coyote will ensure that the officers and directors of Coyote and its
subsidiaries and any investment banker or other advisor or representative
retained by Coyote are aware of the no-solicitation restrictions described in
the Merger Agreement.
No-Solicitation - RP
RP has agreed that it will not directly or indirectly, or through any of its
subsidiaries, officers, directors, employees, representatives or agents solicit
or encourage the initiation of any inquiries or proposals regarding any merger,
sale of assets, sale of shares of capital stock or similar transactions
involving RP or any of its subsidiaries if any such inquiry or proposal would
constitute a RP Alternative Transaction if consummated. An inquiry or proposal
described in the preceding sentence is an "RP Acquisition Proposal" if when
consummated it would constitute an "RP Alternative Transaction," which means any
of the following:
o a transaction pursuant to which any person (or group of persons) other
than Coyote or its affiliates acquires or would acquire beneficial
ownership or the right to acquire beneficial ownership of more than
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50% of the outstanding shares of any class of equity securities of RP,
whether from RP or pursuant to a tender offer or exchange offer or
otherwise;
o a merger or other business combination involving RP pursuant to which
any person (or group of persons) other than Coyote or its affiliates
acquires more than 50% of the outstanding equity securities of RP or
the entity surviving such merger or business combination;
o any transaction pursuant to which any person (or group of persons)
other than Coyote or its affiliates acquires or would acquire control
of assets of RP (including for this purpose the outstanding equity
securities of any of its subsidiaries and securities of the entity
surviving any merger or business combination to which any of RP's
subsidiaries is a party) or any of RP's subsidiaries having a fair
market value (as determined by the Board of Directors of RP in good
faith) equal to more than 20% of the fair market value of all of the
assets of RP and its subsidiaries, taken as a whole, immediately prior
to such transaction, but not an acquisition of securities by a
broker-dealer in connection with a bona fide public offering of such
securities; or
o any other consolidation, business combination, recapitalization or
similar transaction involving RP or any of its subsidiaries, other
than the transactions contemplated by the Merger Agreement.
Additionally, RP has agreed that it and its subsidiaries will not make or
authorize, and will instruct their officers, directors, employees,
representatives and agents not to make or authorize any public statement or
solicitation in support of or commenting positively on any RP Acquisition
Proposal unless it is required to do so by law.
However, under the limited circumstances discussed below, RP is permitted
to take certain actions in response to an inquiry or proposal from a third party
to acquire RP so long as that inquiry or proposal also qualifies as a RP
Superior Proposal. A "RP Superior Proposal" means any proposal made by a third
party to acquire, directly or indirectly, for cash and/or securities, all or a
majority of the voting equity securities of RP or all or substantially all of
the assets of RP, on terms which the Board of Directors of RP reasonably
believes are more favorable than the merger:
o from a financial point of view to the RP stockholders, based upon the
advice of an independent financial advisor, taking into account at the
time any changes to the financial terms of the merger proposed by
Coyote; and
o to RP after taking into account all pertinent factors deemed relevant
by the Board of Directors of RP under the laws of the State of
Delaware.
Until the RP stockholders approve and adopt the Merger Agreement and if the
RP Board of Directors reasonably determines in good faith after consultation
with independent legal counsel, that any of the following actions is required to
discharge properly its fiduciary duties, the RP Board of Directors, after notice
to Coyote is permitted to:
1. furnish information to a third party which has made an acquisition
proposal that the RP Board of Directors reasonably believes is a RP
Superior Proposal (as defined above) which was not solicited in
violation of the Merger Agreement, provided that such third party has
executed a confidentiality agreement substantially similar to the one
in effect between RP and Coyote; and
2. consider and negotiate such a RP Superior Proposal and recommend it to
the RP stockholders and, in connection with its recommendation,
withdraw or modify its recommendation of the merger.
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Notwithstanding the foregoing points 1 and 2, RP and the RP Board of
Directors may not under any circumstance withdraw or modify in a manner adverse
to Coyote, the RP Board of Directors' approval of the merger unless the Merger
Agreement has been terminated in accordance with its terms.
The Merger Agreement expressly provides that the foregoing restrictions
shall not prohibit RP from taking or disclosing to its stockholders a position
regarding a RP Alternative Transaction or RP Acquisition Proposal or from making
any disclosure to its stockholders required by law.
RP has agreed to notify Coyote immediately after receipt of any acquisition
proposal from a third party involving RP or any of its subsidiaries, or any
material change to such an acquisition proposal, or any request for non-public
information relating to RP or its subsidiaries or for access to any of its
properties, books or records by any person that informs RP that it is
considering making or has already made such an acquisition proposal. The Merger
Agreement also requires RP to inform Coyote of the identity of the person making
such an acquisition proposal, or requesting such information or access, the
terms of such an acquisition proposal or any proposed change to such an
acquisition proposal, and whether RP intends to provide the access to the
information requested. RP must also provide notice to Coyote if it enters
negotiations regarding any such acquisition proposal. RP's obligation to provide
notice set forth in this paragraph may be limited to the extent that the Board
of Directors of RP reasonably believes, based on the advice of independent
counsel, that it may do so without violating its fiduciary duties.
RP has agreed to cease any discussions or negotiations with any third party
that were ongoing at the time of the execution of the Merger Agreement. RP has
also agreed not to release any third party from the confidentiality and
standstill provisions of any agreement to which RP is a party.
RP will ensure that the officers and directors of RP and its subsidiaries
and any investment banker or other advisor or representative retained by RP are
aware of the no-solicitation restrictions described in the Merger Agreement.
Certain Other Covenants
Consents; Approvals.
Coyote and RP will each use its reasonable efforts to obtain all consents,
approvals, permits or authorizations, and Coyote and RP will make all filings,
required in connection with the authorization, execution and delivery of the
Merger Agreement and the consummation by each of them of the transactions
contemplated thereby.
Indemnification and Insurance.
After consummation of the merger, for a period of not less than six years,
Coyote will, or will cause the surviving corporation to, indemnify and hold
harmless each present director or officer of RP against any claim, liability,
loss, damage, judgment, fine, penalty, amount paid in settlement or compromise,
cost or expense, including reasonable fees and expenses of legal counsel,
arising in whole or part out of, any matter existing or occurring at or prior to
the consummation of the merger whether commenced, asserted or claimed before or
after such date to the same extent as provided in RP's Amended and Restated
Certificate of Incorporation or By-laws as in effect on the date of the Merger
Agreement.
Coyote will or will cause the surviving corporation to maintain, for a
period of not less than six years after consummation of the merger, the current
policies of directors' and officers' liability insurance maintained by RP on the
date of the Merger Agreement or policies that are no less favorable than RP's
existing policies.
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Notification of Certain Matters.
Coyote and RP will each give each other prompt notice of the occurrence of
any material emergency or other material change in the condition (financial or
otherwise), of such party's or any subsidiary's business, properties, assets,
liabilities, prospects or the normal course of its businesses or in the
operation of its properties, any material litigation or material governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the failure of the notifying party materially to
comply with any covenant, condition or agreement in the Merger Agreement.
RP Stock Plans.
Coyote has agreed to file a registration statement related to any RP Stock
Option Plan to the extent that any such filings are required to enable holders
of the replacement options for Coyote common stock granted under the Merger
Agreement to freely exercise those replacement options and (except for holders
who may be deemed to be affiliates of Coyote) to freely sell shares acquired by
the exercise of such replacement options (assuming such shares would be freely
salable pursuant to an effective registration statement covering such plans).
Tax treatment.
Coyote and RP intend to cause the merger to qualify as a reorganization
under the provisions of Section 368 of the Code as specified in the Merger
Agreement and have agreed to report the merger as a reorganization for income
tax purposes under Section 368 of the Code and any comparable state or local
law, and will not (both before and after consummation of the merger) take any
actions which could reasonably be expected to prevent the merger from so
qualifying.
Public Announcements.
Coyote and RP will not issue any press release or make any public written
statement with respect to the merger or the Merger Agreement without consulting
with each other and using reasonable efforts to agree, subject to their
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies). Conditions to the Merger
Conditions to Obligation of Each Party to Effect the Merger.
Each of Coyote's and RP's respective obligations to complete the merger are
subject to the satisfaction at or prior to the consummation of the merger of the
following conditions:
o the approval of the Merger Agreement and the transaction contemplated
thereby in the manner required by applicable law or by applicable
regulations of any stock exchange or other regulatory body and the
approval and adoption of the Merger Agreement by the RP stockholders
and the approval of the amendment to Coyote's Amended and Restated
Articles of Incorporation to increase the number of authorized
preferred shares and to create, and approve the issuance of, a new
series of shares, the Series C Preferred Stock to be delivered to RP
stockholders in connection with the merger by the Coyote stockholders;
o the absence of any order or injunction of a court of competent
jurisdiction which prohibits the consummation of the merger or has a
material adverse effect on Coyote, RP or Merger Sub;
o the receipt of all necessary governmental or other regulatory body
consents, authorizations, orders and approvals and the making of all
filings or registrations except for filings in connection with the
merger or where the failure to have obtained or made any such consent,
authorization, order, approval, filing
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or registration would not have a material adverse effect on either
Coyote or RP following the consummation of the merger;
o the approval for listing on the Nasdaq National Market, if qualified,
or otherwise for quotation on Nasdaq of the Coyote common stock
issuable upon conversion of the Series C Preferred Stock;
o the compliance with all applicable Blue Sky laws;
o the effectiveness of the registration statement of which this document
forms a part; and
o the receipt of sufficient financing by Coyote to satisfy ongoing
working capital needs of Coyote and RP following the consummation of
the merger and to refinance existing indebtedness of both companies
(and their respective subsidiaries to the extent applicable) on terms
substantially no less favorable than the terms of the most current
proposals furnished by Coyote to RP prior to the date of the Merger
Agreement or otherwise reviewed and approved by each party in good
faith.
Additional Conditions to Obligation of RP.
The obligation of RP to complete the merger is also subject to the
following conditions:
o Coyote shall have performed in all material respects its agreements
contained in the Merger Agreement and the representations and
warranties of Coyote in the Merger Agreement shall be true and correct
in all material respects on and as of the date of the consummation of
the merger, with the same force and effect as if made on and as of the
date of the consummation of the merger, and RP shall have received a
certificate to such effect signed by the President or Vice President
of Coyote;
o absence of any change in the financial condition, business, operations
or prospects of Coyote and its subsidiaries, taken as a whole, that
would reasonably be expected to have a material adverse effect on
Coyote; and
o the absence of any change in the applicable law as a result of which
the merger would fail to qualify as a tax-free reorganization within
the meaning of Section 368(a) of the Code.
Additional Conditions to Obligation of Coyote.
The obligation of Coyote to complete the merger is also subject to the
following conditions:
o RP shall have performed in all material respects its agreements
contained in the Merger Agreement and the representations and
warranties of RP in the Merger Agreement shall be true and correct in
all material respects on and as of the date of the consummation of the
merger, with the same force and effect as if made on and as of the
date of the consummation of the merger, and Coyote shall have received
a certificate to such effect signed by the President or Vice President
of RP;
o absence of any change in the financial condition, business, operations
or prospects of RP and its subsidiaries, taken as a whole, that would
reasonably be expected to have a material adverse effect on RP;
o the receipt of a certificate by Coyote from the Secretary of RP
certifying the adoption of resolutions by the Board of Directors and
stockholders of RP in favor of the Merger Agreement, the merger and
the transactions contemplated by the Merger Agreement; and
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o the amendment by RP of the FM Precision Golf Manufacturing Corp 401(k)
Plan effective no later than the date of the consummation of the
merger, to restrict eligibility to participate in that 401(k) Plan, to
employees of RP, by replacing the standardized prototype form of plan
with a nonstandardized prototype form of plan, in form and substance
reasonably satisfactory to Coyote.
Affiliate Agreements
o RP shall use its reasonable best efforts to obtain and deliver to
Coyote prior to the date of consummation of the merger from each
person who is identified as an "affiliate" of RP an agreement to
comply with restrictions on such affiliates pursuant to Rule 145 under
the Securities Act.
Termination
Grounds for Termination.
The Merger Agreement may be terminated at any time prior to the
consummation of the merger, notwithstanding the approval and adoption by the RP
stockholders of the Merger Agreement and the approval of the Coyote stockholders
of the Coyote Proposal:
1. By mutual written consent of both Coyote and RP.
2. By the Board of Directors of either Coyote or RP, if the merger has not
been consummated by June 2, 1999 (other than for reasons set forth in 4 below),
PROVIDED, HOWEVER, that this right to terminate is not available to the party
whose failure to fulfill its obligations under the Merger Agreement caused the
merger not to be consummated before June 2, 1999.
3. By the Board of Directors of either Coyote or RP, if a court of
competent jurisdiction or governmental, regulatory or administrative agency or
commission issues a nonappealable final order, decree or ruling or takes any
other action which permanently prohibits the merger; provided, however, that the
party seeking to terminate the Merger Agreement must have used reasonable
efforts to remove such injunction, order or decree.
4. By the Board of Directors of either Coyote or RP, if
o the RP stockholders do not approve and adopt the Merger Agreement
at the RP special meeting or at an adjournment thereof; or
o the stockholders of Coyote do not approve the Coyote Proposal at
the Coyote special meeting or at an adjournment thereof.
5. By RP, if, whether or not permitted to do so by the Merger Agreement,
Coyote or the Coyote Board of Directors
o withdraws, modifies or changes its approval or recommendation of
the Merger Agreement or the merger in a manner adverse to RP;
o approves or recommends to the stockholders of Coyote a Coyote
Acquisition Proposal or Coyote Alternative Transaction;
o approves or recommends that the Coyote stockholders tender their
shares in any tender offer or exchange offer that is a Coyote
Alternative Transaction; or
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o takes any position or makes any disclosures permitted under the
exception to the no-solicitation provisions in the Merger
Agreement.
6. By Coyote, if, whether or not permitted to do so by the Merger
Agreement, RP or the RP Board of Directors
o withdraws, modifies or changes its approval or recommendation of
the Merger Agreement or the merger in a manner adverse to Coyote;
o approves or recommends to the stockholders of RP a RP Acquisition
Proposal or RP Alternative Transaction;
o approves or recommends that the RP stockholders tender their
shares in any tender offer or exchange offer that is a RP
Alternative Transaction; or
o takes any position or makes any disclosures permitted under the
exception to the no-solicitation provisions in the Merger
Agreement that has the effect of any of the foregoing.
7. By the Board of Directors of either Coyote or RP,
o if there has been a material breach of any representation or
warranty of the other party set forth in the Merger Agreement, or
if there has been a material breach of any covenant or agreement
set forth in the Merger Agreement by the other party, which is
not curable or, if curable, is not cured within 30 days after
written notice of that breach is given by either Coyote or RP to
the breaching party.
8. By Coyote, if the Coyote Board of Directors has received a proposal for
an acquisition proposal that constitutes a Coyote Superior Proposal and
determines in good faith (upon the advice of independent outside legal counsel)
that a failure to terminate the Merger Agreement and accept that proposal would
constitute a breach of its fiduciary duties; provided, however, that Coyote may
not terminate the Merger Agreement on this basis unless simultaneously with such
termination, Coyote enters into a definitive acquisition, merger or similar
agreement to effect the Coyote Superior Proposal.
9. By RP, if the RP Board of Directors has received a proposal for an
Acquisition Proposal that constitutes a RP Superior Proposal and determines in
good faith (upon the advice of independent outside legal counsel) that a failure
to terminate the Merger Agreement and accept that proposal would constitute a
breach of its fiduciary duties; provided, however, that RP may not terminate the
Merger Agreement on this basis unless simultaneously with such termination, RP
enters into a definitive acquisition, merger or similar agreement to effect the
RP Superior Proposal.
Fees and Expenses.
Except as set forth below, each of Coyote or RP will pay its own fees and
expenses incurred in connection with the Merger Agreement and the merger,
whether or not the merger is completed, provided that Coyote and RP will share
equally all printing expenses incurred in connection with the printing and
filing of this Joint Proxy Statement/Prospectus and the related Registration
Statement.
RP will pay Coyote's actual, reasonable and documented out-of-pocket
expenses (including the costs of financing those expenses) incurred after
January 18, 1999 relating to the merger, up to $1 million, upon the first to
occur of any of the following events:
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o the termination of the Merger Agreement for any reason, if at the
time of such termination Coyote was entitled to terminate the
Merger Agreement due to the RP Board of Directors' withdrawal or
change of its approval or recommendation of the merger, approval
or recommendation of a RP Acquisition Proposal or RP Alternative
Transaction or approval or recommendation to RP stockholders to
tender their shares in a RP Alternative Transaction; or
o RP's termination of the Merger Agreement as the result of the RP
Board of Directors determining that a proposal for a RP
Alternative Transaction constitutes a RP Superior Proposal.
In addition, if within twelve months of such termination if RP enters into
a transaction which would constitute a RP Alternative Transaction with or
involving a third party who directly or indirectly initiated or otherwise had
contact with RP with respect to any such transaction prior to the termination of
the Merger Agreement, RP will pay Coyote a termination fee of $750,000.
Coyote will pay RP's actual, reasonable and documented out-of-pocket
expenses (including the cost of financing those expenses) incurred after January
18, 1999 relating to the merger, of up to $1 million, upon the first to occur of
any of the following events:
o the termination of the Merger Agreement for any reason, if at the
time of such termination RP was entitled to terminate the Merger
Agreement due to the Coyote Board of Directors' withdrawal or
change of its approval or recommendation of the merger, approval
or recommendation of a Coyote Acquisition Proposal or Coyote
Alternative Transaction or approval or recommendation to Coyote
stockholders to tender their shares in a Coyote Alternative
Transaction;
o Coyote's termination of the Merger Agreement as the result of the
Coyote Board of Directors determining that a proposal for a
Coyote Alternative Transaction constitutes a Coyote Superior
Proposal; or
Coyote will pay RP's actual, reasonable and documented out-of-pocket
expenses (including the costs of financing those expenses) incurred after
January 18, 1999 relating to the merger upon:
o the termination of the Merger Agreement as a result of a failure
to consummate the merger by June 2, 1999 due to Coyote's failure
to have received sufficient financing to satisfy the ongoing
working capital needs of Coyote and RP following the consummation
of the merger and to refinance existing indebtedness of both
companies; provided, however, that the expenses shall only be
payable until the time notice is given by Coyote to RP that such
financing condition will not be, or is not likely to be,
satisfied.
In addition, if within twelve months of such termination, Coyote enters
into a transaction which would constitute a Coyote Alternative Transaction with
or involving a third party who directly or indirectly initiated or otherwise had
contact with Coyote with respect to any such transaction prior to the
termination of the Merger Agreement, Coyote will pay RP a termination fee of
$750,000.
The termination fee and/or reimbursement of expenses discussed in this
section are payable within five business days after a demand for payment
following the occurrence of the event requiring such payment, provided that, in
no event will a party be required to pay such termination fee and/or
reimbursement of expenses to the other if, immediately prior to the termination
of the Merger Agreement, the party to receive the termination fee and/or
reimbursement of expenses was in material breach of its obligations under the
Merger Agreement.
The fees payable under certain circumstances by Coyote to RP or by RP to
Coyote, are intended, among other things, to compensate such party for its
costs, including lost opportunity costs, if certain actions or inactions by the
other party or its stockholders lead to the abandonment of the merger. This may
have the effect of increasing
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the likelihood of consummation of the merger in accordance with the terms of the
Merger Agreement. The fee may also have the effect of discouraging persons from
making an offer to acquire all of or a significant interest in Coyote or RP by
increasing the cost of any such acquisition.
Amendment and Waiver; Parties in Interest
Coyote and RP may amend the Merger Agreement in writing by action taken by
or on behalf of their respective Boards of Directors at any time prior to
consummation of the merger.
At any time prior to consummation of the merger, Coyote or RP may, to the
extent allowed by law, extend the time for the performance of any of the
obligations or other acts of the other, waive any inaccuracies in the
representations and warranties made by the other contained in the Merger
Agreement or in any document delivered pursuant to the Merger Agreement, and
waive compliance by the other with any of the agreements or conditions for the
benefit of such party contained in the Merger Agreement. Any such extension or
waiver will be valid only if set forth in writing by the party or parties
granting such extension or waiver.
The Merger Agreement is binding upon and inures solely to the benefit of
the parties thereto, and nothing in the Merger Agreement confers upon any other
person any right, benefit or remedy, other than certain indemnification and
insurance obligations of Coyote following consummation of the merger which are
intended for the benefit of certain specified officers and directors of RP and
may be enforced by such individuals.
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STOCKHOLDER AGREEMENT
In connection with the Merger Agreement, Coyote and the individuals listed
below have entered into a stockholder agreement which has the effect of
determining in advance aspects of the composition of the Board of Directors of
Coyote for a period of five years after the merger. If the merger is successful,
the stockholders listed below will control [ ] shares of Coyote common stock and
Series C Preferred Stock in Coyote, representing approximately [ ]% of the
outstanding Coyote stock. Voting together they will be able to control the
composition of the Board of Directors of Coyote and thus control the management
of Coyote. For the purposes of the stockholder agreement, they have been
designated as comprising three groups:
The Probst Group: James M. Probst, Mel S. Stonebraker and Paragon
Coyote Texas Ltd.
The Johnston Group: David E. Johnston, Richard P. Johnston and Jayne A.
Johnston Charitable Remainder Trust #3 and Kenneth
J. Warren.
The BMC Group: Berenson Minella
For a discussion of the ownership interests of Paragon Coyote Texas Ltd.,
Berenson Minella and Richard P. Johnston and Jayne A. Johnston Charitable
Remainder Trust #3, see the discussion of "Voting Agreements" on page 62 and
"Interests of Certain Persons in the Merger" beginning on page 39.
The Board of Directors of Coyote will consist of eight directors after the
Merger Agreement becomes effective. As a result of the stockholder agreement,
the groups listed above will be entitled to appoint the following number of
directors:
The Probst Group: 4 directors
The Johnston Group: 3 directors
The BMC Group: 1 director
According to the stockholder agreement, if the number of directors increases,
the proportion of directors that the groups above are entitled to appoint will
remain the same unless any group owns less than 10% of the outstanding stock.
The Johnston Group and the BMC Group will each be entitled to designate one
director to sit on the Executive Committee. The Probst Group will be entitled to
designate two directors to sit on the Executive Committee. The Executive
Committee, when the Board of Directors is not in session, has the authority of
the Board of Directors as limited by the resolution of the Board appointing it.
Additionally, the Executive Committee does not have the authority of the Board
of Directors to:
o amend the Amended and Restated Articles of Incorporation;
o adopt a plan of merger or consolidation;
o recommend to the stockholders 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;
o recommend to the stockholders a voluntary dissolution of the
corporation or to revoke such a dissolution; or
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o amend the By-laws of the corporation.
The Johnston Group and the BMC Group, acting together, will be entitled to
designate one member of the Board of Directors of Coyote to serve as Chairman of
the Board of Directors and one member of the Board of Directors' Compensation
Committee. The function of the Compensation Committee is to make recommendations
to the Board of Directors with respect to the compensation of management and
employees and to administer plans and programs relating to stock options,
pension and other retirement plans, employee benefits, incentives and
compensation.
The Probst Group will be entitled to designate the President and Chief
Executive Officer of Coyote and the Chairman of the Executive Committee.
The stockholder agreement also provides for the removal of directors from
the Board of Directors. If a Group notifies the other Groups that it wishes the
removal of a director appointed by it, the other Groups agree to vote for the
removal of that director.
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Voting Agreements
In connection with the execution of the Merger Agreement, Coyote and RP have
each entered into separate voting agreements with most of the large stockholders
of the other. Stockholders of RP who together hold approximately 53% of the
common stock of RP as of the record date, have agreed with Coyote to vote in
favor of the Merger Agreement. Stockholders of Coyote who together hold
approximately 69% of the common stock of Coyote as of the record date, have
agreed with RP to vote in favor of the amendment of Coyote's Amended and
Restated Articles of Incorporation to increase the authorized preferred stock
and the issuance of a new series of preferred shares, the Series C Preferred
Stock, in connection with the merger. Because together the stockholders who have
signed these voting agreements control over half the issued and outstanding
stock of each company, the practical effect of these agreements is to secure the
adoption of the Merger Agreement by stockholders of RP and the authorization and
issuance of the Series C Preferred Stock by Coyote stockholders.
We discuss the particulars of these agreements below.
The Coyote Voting Agreements
James M. Probst, Mel S. Stonebraker and Paragon Coyote Texas Ltd. have each
entered into a voting agreement with RP as of February 2, 1999. James M. Probst,
the President and CEO of Coyote, owns 1,170,100 shares of common stock of
Coyote, or 20.25% of the outstanding stock in Coyote. Mr. Probst also holds
options to purchase another 90,000 shares of Coyote common stock. Mel S.
Stonebraker, the Chairman of the Board of Directors of Coyote, owns 1,430,000
shares of common stock in Coyote or 24.75% of the outstanding stock. Mr.
Stonebraker also holds options to purchase another 90,000 shares of Coyote
common stock. Paragon, a Texas limited partnership owns 685,953 shares of common
stock of Coyote, or 11.87% of the outstanding stock in Coyote and holds options
to purchase another 521,739 shares of Coyote common stock; Mark A. Pappas, who
serves on the Board of Directors of Coyote, is president of the general partner
of Paragon. Together these stockholders beneficially own 3,286,053 shares of
common stock of Coyote or approximately 69% of all the outstanding shares.
In the voting agreements into which each of these Coyote stockholders entered
into with RP, they agreed:
o Not to sell, pledge or encumber their stock before the Merger Agreement
with RP has either become effective or been terminated;
o To vote their shares in favor of the Merger Agreement with RP and the
related transactions and against any action or agreement that would
have the effect of interfering with or adversely affecting the
consummation of the merger;
o To vote for the authorization and issuance of a new series of stock in
Coyote, the Series C Preferred Stock, which will have certain rights
superior to those of existing common stock in Coyote;
o To vote their shares against any action by Coyote that would result in
a breach of the Merger Agreement with RP;
o To vote their shares against any other Merger Agreement other than the
one with RP;
o To grant to certain officers of RP a proxy, that is, the right to vote
these 3,286,053 shares as RP sees fit, with respect to the approval of
the Merger Agreement.
Because the Coyote stockholders identified above hold more than half the
outstanding stock in Coyote, and they have agreed to approve the Merger
Agreement with RP and to approve the authorization and issuance of the Series C
Preferred Stock at the special meeting on [ ], 1999, we expect that the Merger
Agreement and the amendment to Coyote's Amended and Restated Articles of
Incorporation to increase the
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authorized preferred stock, and to create and approve, the issuance of a new
series of shares, the Series C Preferred Stock, will be approved.
The RP Voting Agreements
Kenneth J. Warren, David E. Johnston, Danny Edwards, Lawrence Bain, Richard
P. Johnston and Jayne A. Johnston Charitable Remainder Trust #3, Berenson
Minella and Ronald L. Chalmers have each entered into a voting agreement with
Coyote as of February 2, 1999.
Kenneth J. Warren owns 334,031 shares of common stock of RP, or
approximately 5.8% of the outstanding RP common stock. Mr. Warren also holds
options to purchase another 15,323 shares of RP common stock.
David E. Johnston owns 208,769 shares of common stock of RP or approximately
3.6% of the outstanding stock. Mr. Johnston also holds options to purchase
another 11,106 shares of RP common stock.
Danny Edwards owns 526,502 shares of common stock in RP or approximately 9%
of the outstanding stock. Mr. Edward also holds options to purchase another
62,550 shares of RP common stock.
Lawrence Bain owns 12,500 shares of common stock of RP or approximately 0.2%
of the outstanding RP common stock. Mr. Bain also holds options to purchase
another 5,625 shares of RP common stock.
Ronald L. Chalmers owns 125,261 shares of common stock of RP or
approximately 2.2% of the outstanding RP common stock. Mr. Chalmers also
holds options to purchase another 15,553 shares of RP common stock.
Richard P. Johnston and Jayne A. Johnston Charitable Remainder Trust #3 owns
646,309 shares of common stock of RP or approximately 11.1% of the
outstanding RP common stock. The Trust holds no options to purchase shares
of RP common stock.
Berenson Minella, a limited partnership of which Raymond J. Minella, who
serves as Chairman of the Board of Directors of RP, is a managing general
partner, owns 1,231,741 shares of common stock of RP or approximately 21.2%
of the outstanding RP common stock and holds no options to purchase shares
of RP common stock.
Together these seven stockholders own 3,085,113 shares of common stock of RP or
approximately 53% of all the outstanding shares of RP common.
In the voting agreements into which each of these RP stockholders entered into
with Coyote, they agreed:
o Not to sell their stock before the Merger Agreement with Coyote has
either become effective or terminated;
o To vote the shares they own in favor of the Merger Agreement with
Coyote;
o To vote their shares against any action by RP that would result in a
breach of the Merger Agreement with Coyote;
o To vote their shares against any other Merger Agreement other than the
one with Coyote;
o To grant to certain officers of Coyote a proxy, that is, the right to
vote these 3,085,113 shares as Coyote sees fit, with respect to the
approval of the Merger Agreement.
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Because the RP stockholders noted above hold more than half the outstanding
stock in RP, and they have agreed to approve the Merger Agreement with Coyote at
the special meeting on [ ], 1999, we expect that the Merger Agreement will be
approved.
Edwards Option Re-Pricing Agreement
As of January 28, 1999, RP entered into a letter agreement with Danny
Edwards, one of RP's directors. In addition to holding 526,502 shares of RP
common stock, par value $.001 per share, Edwards is the holder of options to
purchase 62,550 shares of RP common stock at exercise prices ranging from $5.50
to $6.60 per share. Various other parties affiliated with Mr. Edwards, including
Everen Securities, Inc. (by which another RP director, Lawrence D. Bain, is
employed) and Robert Burg II, also a RP director, hold options to purchase a
total of 115,533 of RP common stock at exercise prices ranging from $5.50 to
$13.00 per share.
Mr. Edwards had required such cancellation and reissuance as a condition to
waiving certain contractual rights which he possessed under the existing RP
stockholder agreement. Mr. Edwards entered into an amendment of the existing RP
stockholder agreement in order to permit certain other parties to that agreement
to enter into the RP voting agreements, the execution and delivery of which was
a condition to Coyote's willingness to enter into the Merger Agreement.
In exchange for Mr. Edwards agreeing to cancel the above options and for
entering into the amendment, Mr. Edwards, Everen Securities, Inc. and Robert
Burg II will be granted an equivalent number of new options in RP that will be
immediately vested, which will have an exercise price of $3.19 per share and
which will expire five years from the date of their grant.
When the Merger Agreement becomes effective, the options granted to Danny
Edwards, Everen Securities, Inc. and Robert Burg II will convert into options to
purchase an aggregate of 178,083 shares of Coyote common stock at an exercise
price of $3.19.
64
<PAGE>
Certain Undertakings with Respect to Resale
Coyote has agreed that for a period of [ten] years after the merger, at
the request of holders of Coyote common stock, or Series C Preferred Stock
convertible into Coyote common stock, representing at least 10% of the Coyote
common stock outstanding on a fully diluted basis, Coyote will use its
reasonable best efforts to obtain a nationally recognized underwriter or
underwriters for the purpose of underwriting a public offering of such stock (or
a portion thereof if such underwriter deems it practical that it be offered in
such manner), to join with such holders in entering into an underwriting
agreement in customary form with such underwriter or underwriters selected by
Coyote and reasonably satisfactory to such holders, and to take such other
action (including, without limitation, filing any required registration
statement pursuant to the Securities Act, if none is then in effect, or filing
pursuant to any such registration statement then in effect any necessary
amendment thereto or prospectus thereunder) as may be reasonably required to
permit such holders to sell in an underwritten public offering. If no
underwriter can be obtained, or no registration and public offering can be
completed, on the foregoing basis, Coyote will use its reasonable best efforts
to otherwise facilitate an orderly and effective disposition of such common
stock.
65
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
give effect to the merger between Coyote Sports, Inc. ("Coyote") and Royal
Precision, Inc.("RP"). The merger between Coyote and RP ("the Merger") will be
accounted for in accordance with the purchase method pursuant to APB Opinion No.
16. (See "The Merger Agreement" for further discussion on the Merger.)
The accompanying unaudited pro forma combined condensed balance sheet gives
effect to the Merger as if it had occurred on November 30, 1998. The
accompanying unaudited pro forma combined condensed statements of operations
give effect to the Merger as if it had occurred on January 1, 1997. These
unaudited pro forma combined condensed financial statements have been derived
from the audited consolidated financial statements of Coyote as of and for the
year ended December 31, 1997, the unaudited condensed consolidated financial
statements of Coyote as of and for the eleven months ended November 30, 1998,
the unaudited consolidated financial statements of RP as of and for the twelve
months ended December 31, 1997, and the unaudited consolidated financial
statements of RP as of and for the eleven months ended November 30, 1998.
Additionally, these pro forma financial statements give effect to Coyote's
acquisition of Unifiber Corporation and to the merger between FM Precision (the
predecessor of RP) and Royal Grip as if the Merger, Coyote's acquisition of
Unifiber Corporation and the merger between FM Precision and Royal Grip had
occurred on January 1, 1997. Assets acquired and liabilities assumed are
reflected at their estimated fair values, which values are subject to further
refinement after the closing of the Merger. Coyote and RP do not expect that the
final allocation of the aggregate purchase price for the Merger will differ
materially from the preliminary allocation reflected in the accompanying pro
forma combined condensed financial statements. No adjustments have been included
in the pro forma amounts for anticipated cost savings or other synergies.
The unaudited pro forma combined condensed financial statements should be
read in conjunction with (i) Coyote's audited consolidated financial statements
and notes thereto included in Coyote's Annual Report on form 10-KSB for the year
ended December 31, 1997, (ii) RP's audited consolidated financial statements and
notes thereto included in RP's Annual Report on form 10-KSB for the fiscal year
ended May 31, 1998, (iii) Coyote's unaudited condensed consolidated financial
statements and notes thereto for the quarterly periods ended March 31, 1998,
June 30, 1998 and September 30, 1998, filed on form 10-QSB, (iv) Coyote's
unaudited condensed consolidated financial statements and notes thereto for the
eleven months ended November 30, 1998, included herein and elsewhere in this
Joint Proxy Statement/Prospectus, (iv) Coyote's unaudited pro forma condensed
combined consolidated financial statements and notes thereto and Unifiber
Corporation's audited financial statements for the fiscal years ended March 29,
1997 and March 30, 1996, included in Coyote's 8-K/A ("amendment No. 2) filed on
April 3, 1998, in connection with Coyote's acquisition of Unifiber Corporation,
(v) RP's unaudited condensed consolidated financial statements and notes thereto
for the quarterly periods ended August 31, 1998 and November 30, 1998, filed on
Form 10-QSB, and (vi) RP's unaudited pro forma condensed consolidated financial
statements and notes thereto for the Proxy Statement/Prospectus filed on August
18, 1997, in connection with the merger of FM Precision and Royal Grip.
66
<PAGE>
The unaudited pro forma combined condensed financial statements have been
prepared in accordance with generally accepted accounting principles. The pro
forma information is presented for illustrative purposes only and is not
necessarily indicative of the combined operating results or financial position
that would have occurred if the Merger had been consummated January 1, 1997 or
November 30, 1998, as the case may be, nor are they necessarily indicative of
future combined operating results or future financial position. Operating
results are subject to both seasonal fluctuations and the impact of planned
annual temporary plant shutdowns. Coyote and RP both recorded losses in December
and for the twelve months ended December 31, 1998. (See "Current Developments")
The unaudited pro forma combined condensed financial statements and notes
thereto contain forward looking statements that involve risks and uncertainties,
including those described in "Risk Factors" or elsewhere herein. Therefore, the
actual results of Coyote may differ materially from those discussed herein. See
"Risk Factors". Coyote undertakes no obligations publicly to release the result
of any revisions to these forward-looking statements that may be made to reflect
any future events or circumstances.
Refer to the accompanying notes to unaudited pro forma combined condensed
financial statements for an explanation of each pro forma adjustment.
67
<PAGE>
COYOTE SPORTS, INC. AND ROYAL PRECISION, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET
As of November 30, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Adjustments Adjustments Pro Forma
Coyote RP (Note 1) (Note 2) Combined
---------------- ----------- ------------ ------------- ------------
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 1,411,258 71,000 4,838,320 (a) (3,232,740)(h) 3,087,838
Restricted cash 90,000 - 90,000
Trade receivables, net 4,576,241 2,268,000 6,844,241
Inventories 6,431,962 5,339,000 11,770,962
Prepaid expenses and other current assets 1,160,486 560,000 1,720,486
---------------- ----------- ------------
Total current assets 13,669,947 8,238,000 23,513,527
Property, plant and equipment, net 14,291,205 4,766,000 3,893,000 (i) 22,950,205
Intangible assets, net - 9,767,000 7,156,860 (i) 16,923,860
Other assets, net 3,457,513 2,500,000 (333,336)(b)
3,375,000 (a) 8,999,177
---------------- ----------- ------------ ------------- ------------
$ 31,418,665 25,271,000 7,879,984 7,817,120 72,386,769
================ =========== ============ ============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable $ 10,197,293 2,732,000 (12,929,293)(a) -
Current portion of long term debt 6,775,007 1,686,000 (8,461,007)(a) -
1,700,000 (a) 1,700,000
Accounts payable 4,949,646 1,014,000 5,963,646
Accrued expenses 3,679,602 1,874,000 5,553,602
---------------- ----------- ------------
Total current liabilities 25,601,548 7,306,000 13,217,248
Long-term debt, net of current portion 3.034,380 3,862,000 (6,896,380)(a) -
(1,742,552)(c) -
36,300,000 (a) 34,557,448
Deferred tax liability and other long-term liabilities 1,189,058 47,000 1,236,058
---------------- ----------- ------------
Total liabilities 29,824,986 11,215,000 49,010,754
---------------- ----------- ------------
Stockholders' equity (deficit):
Preferred stock 75 - (75)(a) -
Convertible preferred stock - - 5,777 (i) 5,777
Common stock 5,508 6,000 (6,000)(i) 5,508
Additional paid-in capital 19,004,887 13,838,000 1,742,552 (c) (13,838,000)(i)
(1,499,925)(a) 22,917,343 (i)
(1,050,000)(h) 41,114,857
Retained earnings (accumulated deficit) (17,907,796) 212,000 (333,336)(b) (212,000)(i) (18,241,132)
Foreign currency translation adjustment 491,005 - 491,005
---------------- ----------- ------------
Total stockholders' equity 1,593,679 14,056,000 23,376,015
---------------- ----------- ------------ ------------- ------------
Commitments and contingencies
$ 31,418,665 25,271,000 7,879,984 7,817,120 72,386,769
================ =========== ============ ============= ============
</TABLE>
68
<PAGE>
COYOTE SPORTS, INC. AND ROYAL PRECISION, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Eleven Months Eleven Months Eleven Months
Ended Ended Ended
November 30, November 30, November 30,
1998 1998 Pro Forma Pro Forma 1998
Pro Forma Historical Adjustments Adjustments Pro Forma
Coyote RP (Note 1) (Note 2) Combined
--------------- ------------ ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $ 39,851,823 25,631,000 65,482,823
Cost of goods sold (31,920,666) (16,902,000) (191,168)(j) (49,013,834)
--------------- ------------ --------------
Gross profit 7,931,157 8,729,000 16,468,989
Selling, general and administration expenses (9,489,884) (7,709,000) (328,023)(k) (17,526,907)
Nonrecurring write off of goodwill
and other assets (11,341,332) - (11,341,332)
Nonrecurring merger related expenses - (134,000) (134,000)
--------------- ------------ --------------
Operating income (loss) (12,900,059) 886,000 (12,533,250)
Other income (expense):
Interest expense (1,363,484) (781,000) (1,655,099) (d) (3,799,583)
Debt financing costs (694,907) - 694,907 (e) -
(712,599) (e)
(228,191) (f) (940,791)
Other 104,871 213,000 317,871
--------------- ------------ --------------
Income (loss) before income taxes
and minority interests (14,853,579) 318,000 (16,955,753)
Income tax expense (715,961) (272,000) (987,961)
Minority interests in
subsidiaries' income and losses, net 212,035 - 212,035
--------------- ------------ --------------
Net income (loss) before extraordinary item (15,357,505) 46,000 (17,731,679)
Convertible preferred stock dividend - - (1,871,683)(m) (1,871,683)
--------------- ------------ ------------- --------------- --------------
Net income (loss) before extraordinary item
available to common stockholders $ (15,357,505) 46,000 (1,900,983) (2,390,874) (19,603,362)
=============== ============ ============= =============== ==============
Basic and diluted income (loss) per share
before extraordinary item $ (3.27) 0.01 (4.18)
=============== ============ ==============
Shares used in calculating
per share amounts 4,692,800 5,617,536 4,692,800
=============== ============ ==============
</TABLE>
69
<PAGE>
COYOTE SPORTS, INC. AND ROYAL PRECISION, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Months Twelve Months Twelve Months
Ended Ended Ended
December 31, December 31, December 31,
1997 1997 Pro Forma Pro Forma 1997
Pro Forma Pro Forma Adjustments Adjustments Pro Forma
Coyote RP (Note 1) (Note 2) Combined
-------------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net sales $ 47,237,918 31,275,000 78,512,918
Cost of goods sold (38,294,617) (23,198,000) (280,547)(j) (61,701,164)
-------------- --------------- -------------
Gross profit 8,943,301 8,077,000 16,811,754
Selling, general and administration expenses (12,523,629) (9,230,000) (357,843)(k) (22,111,472)
Nonrecurring merger related expenses - (708,000) (708,000)
-------------- --------------- -------------
Operating loss (3,580,328) (1,861,000) (6,007,718)
Other income (expense):
Interest expense (1,481,250) (700,000) (1,963,750) (d) (4,145,000)
Debt financing costs (1,219,353) - 1,219,353 (e)
(777,381) (e)
(248,936) (f) (1,026,317)
Loss on relinquishment of assets (933,790) - (933,790)
Other (111,466) 92,000 (19,466)
-------------- --------------- -------------
Loss before income taxes
and minority interests (7,326,187) (2,469,000) (12,132,291)
Income tax benefit 12,273 304,000 316,273
Minority interests in
subsidiaries' income and losses, net 406,991 - 406,991
-------------- --------------- -------------
Net loss before extraordinary item (6,906,923) (2,165,000) (11,409,027)
Convertible preferred stock dividend - - (2,041,836)(m) (2,041,836)
-------------- --------------- ------------- ------------- -------------
Net loss before extraordinary item
available to common stockholders $ (6,906,923) (2,165,000) (1,770,714) (2,608,226) (13,450,863)
============== =============== ============= ============= =============
Basic and diluted loss per share
before extraodinary item $ (1.68) (0.39) (3.27)
============== =============== =============
Shares used in calculating
per share amounts 4,111,949 5,562,880 4,111,949
============== =============== =============
</TABLE>
70
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Eleven Months Unifiber Eleven Months
Ended Period from Ended
November 30, January 1, November 30,
1998 1998 to Pro Forma 1998
Historical March 27, Adjustments Pro Forma
Coyote 1998 (Note 3) Coyote
----------------- -------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 36,092,906 3,758,917 39,851,823
Cost of goods sold (27,903,134) (4,017,532) (31,920,666)
----------------- -------------- -----------------
Gross profit (loss) 8,189,772 (258,615) 7,931,157
Selling, general and administration expenses (8,201,778) (1,219,530) (68,740) (n)
164 (o) (9,489,884)
Nonrecurring write off of goodwill
and other assets (11,341,332) (11,341,332)
----------------- -------------- -----------------
Operating loss (11,353,338) (1,478,145) (12,900,059)
Other income (expense):
Interest expense (1,135,638) (97,634) (130,212) (p) (1,363,484)
Debt financing costs (544,358) - (150,549) (q) (694,907)
Other 73,089 31,782 104,871
----------------- -------------- -----------------
Loss before income taxes
and minority interests (12,960,245) (1,543,997) (14,853,579)
Income tax expense (13,000) (702,961) (715,961)
Minority interests in
subsidiaries' income and losses, net 212,035 - 212,035
----------------- -------------- ----------------- -----------------
Net loss before extraordinary item $ (12,761,210) (2,246,958) (349,337) (15,357,505)
================= ============== ================= =================
Basic and diluted loss per share
before extraordinary item $ (3.27)
=================
Shares used in calculating
per share amounts 4,692,800
=================
</TABLE>
71
<PAGE>
COYOTE SPORTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Twelve Months Twelve Months
Year Ended Ended Ended
December 31, December 27, December 31,
1997 1997 Pro Forma 1997
Historical Historical Adjustments Pro Forma
Coyote Unifiber (Note 3) Coyote
---------------- ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Net sales $ 27,685,918 19,552,000 47,237,918
Cost of goods sold (22,111,617) (16,183,000) (38,294,617)
---------------- ------------------ -----------------
Gross profit 5,574,301 3,369,000 8,943,301
Selling, general and administration expenses (8,243,325) (4,006,000) (274,961) (n)
657 (o) (12,523,629)
---------------- ------------------ -----------------
Operating loss (2,669,024) (637,000) (3,580,328)
Other income (expense):
Interest expense (473,402) (487,000) (520,848) (p) (1,481,250)
Debt financing costs (617,156) (602,197) (q) (1,219,353)
Loss on relinquishment of assets (933,790) - (933,790)
Unfavorable lease commitment - (736,000) 736,000 (r) -
Other (162,466) 51,000 (111,466)
---------------- ------------------ -----------------
Loss before income taxes
and minority interests (4,855,838) (1,809,000) (7,326,187)
Income tax benefit (expense) 281,273 (269,000) 12,273
Minority interests in
subsidiaries' income and losses, net 406,991 - 406,991
---------------- ------------------ ----------------- -----------------
Net loss $ (4,167,574) (2,078,000) (661,349) (6,906,923)
================ ================== ================= =================
Basic and diluted loss per share $ (1.68)
=================
Shares used in calculating
per share amounts 4,111,949
=================
</TABLE>
72
<PAGE>
ROYAL PRECISION, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Royal Grip
Twelve Months Entities Twelve Months
Ended Period from Ended
December 31, January 1, December 31,
1997 1997 to Pro Forma 1997
Historical August 29, Adjustments Pro Forma
RP 1997 (Note 4) RP
-------------------- ------------------ --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 23,336,000 7,939,000 31,275,000
Cost of goods sold (17,334,000) (5,864,000) (23,198,000)
-------------------- ------------------ ----------------
Gross profit 6,002,000 2,075,000 8,077,000
Selling, general and administration expenses (5,733,000) (3,150,000) (347,000)(s) (9,230,000)
Nonrecurring merger related expenses (708,000) (637,000) 637,000 (t) (708,000)
-------------------- ------------------ ----------------
Operating loss (439,000) (1,712,000) (1,861,000)
Other income (expense):
Interest expense (578,000) (122,000) (700,000)
Other 82,000 10,000 92,000
-------------------- ------------------ ----------------
Loss before income taxes
and minority interests (935,000) (1,824,000) (2,469,000)
Income tax benefit 304,000 - 304,000
-------------------- ------------------ --------------- ----------------
Net loss $ (631,000) (1,824,000) 290,000 (2,165,000)
==================== ================== =============== ================
Basic and diluted loss per share $ (0.39)
================
Shares used in calculating
per share amounts 5,562,880 (u)
================
</TABLE>
73
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1.
The pro forma combined condensed balance sheet gives effect to $40,000,000
in senior debt ("Senior Debt"), consisting of a $10,000,000 revolving line of
credit and $30,000,000 in senior term debt, and $8,000,000 in senior
subordinated debt ("Subordinate Debt") (collectively, the "Financing") as if the
Financing had occurred on November 30, 1998. As of February 23, 1999, the
Financing had not been committed. Consummation of the Merger is contingent upon
obtaining the Financing. Coyote's senior management believe that the
aforementioned Financing will be obtained substantially with the terms described
below. However, there can be no assurance that Coyote will obtain the Financing
necessary to consummate the Merger, nor that it will be obtained on the terms
described below. The Senior Debt and Subordinate Debt are being separately
negotiated by the management of Coyote.
The Coyote and RP pro forma combined condensed statements of operations
give effect to the Financing as if it had occurred at the beginning of each
period presented. Also reflected in the Coyote and RP pro forma combined
condensed financial statements are the estimated finance costs including
payments to financial advisors and closing fees. Adjustments included in the
Coyote and RP pro forma combined condensed financial statements are as follows:
(a) Adjustment to record the net effect of proceed from Senior Debt and
Subordinate Debt from and payments of existing notes payable and long-term
debt. Coyote expects to receive proceeds from a note payable of
$18,000,000, at an interest rate of 9.75%, a note payable of $12,000,000,
at an interest rate of 11.25% and a subordinate note payable of $8,000,000,
at an interest rate of 13%. The $18,000,000 note payable is expected to be
repaid over four years as follows: year one $1,700,000; year two
$5,000,000; year three $6,000,000; year four $5,300,000. The $12,000,000
note payable matures with a balloon payment four years after the note
commences. The $8,000,000 note payable matures with a balloon payment seven
years after the note commences. Coyote expects to use these proceeds to (i)
repay $28,286,680 in notes payable and long-term debt of Coyote and RP,
(ii) to pay $3,375,000 in total estimated financing costs, (iii) to redeem
$1,500,000 of Coyote Series A Preferred Stock and (iv) use the remaining
$4,838,320 to pay $3,232,740 in estimated Merger and Joint Proxy
Statement/Prospectus costs. The remaining $1,605,580 would be available for
general corporate purposes. Under the Senior Debt, Coyote expects to have
an available line of credit facility of $10,000,000 for future working
capital needs.
(b) Adjustment to other assets reflecting write-off of unamortized debt
financing costs on existing Coyote outstanding debt at November 30, 1998.
(c) Adjustment to reflect the estimated fair value of 462,215 warrants to
purchase common stock at $0.01 per share to be issued in connection with
the Subordinate Debt. The estimated fair value of the warrants is $3.77 per
warrant, which amount was determined using the Black Scholes valuation
model. Each warrant, when exercised, would entitle the holders thereof to
acquire approximately one share of Coyote's common stock. The warrants will
have an exercise period of nine years. As part of the terms and conditions
of the Subordinate Debt currently being negotiated by Coyote's senior
management, warrants are expected to be issued to the Subordinate Debt
Lender(s). Actual warrants issued may be more or less than the estimate.
(d) Adjustment to record effect of net additional interest expense on
indebtedness.
(e) Adjustment to record amortization of financing costs, using the interest
method, over the life of the loans of four and seven years and to eliminate
amortization of financing costs on existing debt.
(f) Adjustment to record amortization of discount on Subordinate Debt for
warrants expected to be issued, using the interest method, over the life of
the loans of seven years .
74
<PAGE>
(g) Coyote will incur early termination penalties of approximately $240,000 in
connection with early repayment of existing debt. The early termination
penalties will be recorded as an extraordinary loss on early extinguishment
of debt, and has not been reflected in the pro forma combined condensed
financial information.
NOTE 2.
The unaudited pro forma combined condensed balance sheet gives effect to
the Merger and to the Financing as if they had occurred on November 30, 1998.
The Coyote and RP unaudited pro forma combined condensed statements of
operations give effect to the Merger and to the Financing as if they had
occurred at the beginning of each period. Also reflected in the Coyote and RP
unaudited pro forma combined condensed financial statements are the estimated
Merger and Joint Proxy Statement/Prospectus costs, including payments to
financial advisors, independent accountants, attorneys and others. The operating
results of Roxxi, Inc. ("Roxxi"), which will be reflected as a discontinued
operation by RP in February, 1999 (see "Current Developments"), are not material
to the unaudited pro forma combined condensed statements of operations and,
accordingly, no pro forma adjustments have been made to remove Roxxi's operating
results from those financial statements. The pro forma combined condensed
balance sheet includes an adjustment to reflect the value of Roxxi's property,
plant and equipment based on the estimated net proceeds from the anticipated
sale of such assets. Adjustments included in the Coyote and RP unaudited pro
forma combined condensed financial statements are as follows:
(h) Total estimated Merger and Joint Proxy Statement/Prospectus costs are
$3,232,740, consisting of $2,182,740 in estimated Merger costs and
$1,050,000 in estimated Joint Proxy Statement/Prospectus costs.
(i) Adjustment to reflect the purchase price which represents the sum of (i)
the estimated fair value ($21,828,120) of 5,777,692 shares of Convertible
Preferred Stock, $0.001 par value, to be issued in exchange for 5,667,375
shares of RP common stock outstanding as of January 31, 1999 (the estimated
fair value of the consideration to be paid for the RP common stock is $3.78
per share of Convertible Preferred Stock issued based on an independent
valuation performed by Lehman Brothers Inc.), (ii) the estimated fair value
of the 602,434 options to purchase Coyote common stock of $1,095,000 which
amount was determined using the Black Scholes valuation model and (iii)
estimated Merger costs of $2,182,740. The excess purchase price over the
net book value of the assets acquired of $11,049,860 resulted in an
increase in the carrying value of property, plant and equipment of
$3,893,000 with the balance of $7,156,860 allocated to goodwill. The net
book value of all remaining net assets approximate their fair value.
(j) Adjustment to record additional depreciation expense related to the
$3,893,000 increase to property, plant and equipment.
(k) Adjustment to record amortization of goodwill resulting from the Merger
over the expected benefit period of 20 years.
(l) The Coyote and RP pro forma combined basic and diluted loss per share
amounts are based on the combined weighted average number of common shares
outstanding for the periods presented. Conversion of Convertible Preferred
Stock issued in connection with the Merger would be antidilutive and thus
is not reflected in the diluted amounts.
(m) Adjustment to reflect dividends on 6% Convertible Preferred Stock issued
based upon a $5.89 per share redemption value assuming no conversion taken
by holders of the Convertible Preferred Stock.
EXPENSE REDUCTIONS
Management has identified annualized cost savings in excess of $2,250,000
that have not been reflected in the pro forma combined condensed statements of
operations. Coyote expects to realize these cost savings as well as additional
cost reductions by benchmarking best practices at each manufacturing facility,
through vendor consolidation and through improved distribution capabilities.
However, there can be no assurance that these cost savings will be realized.
75
<PAGE>
NOTE 3.
The Coyote and Subsidiaries unaudited pro forma combined condensed
statements of operations reflect Coyote's acquisition of Unifiber Corporation as
if it had occurred as of the beginning of the periods presented. On March 19,
1998, Coyote acquired all of the outstanding stock of Unifiber Corporation
(Unifiber), a supplier of graphite golf shafts to premium original equipment
manufacturers, for a purchase price of $3,000,000 in cash and 521,739 shares of
Coyote's Common Stock. The acquisition was accounted for by the purchase method.
The results of operations of Unifiber were included in the operations of the
Company beginning April 1, 1998, since the results for the period from March 20,
1998 to March 31, 1998 were not significant. The following pro forma adjustments
give effect to the purchase and related debt financing as of the beginning of
the period presented for the unaudited pro forma combined condensed statement of
operations.
(n) Adjustment to record amortization of goodwill recorded in the acquisition
on a straight-line basis over the expected benefit period of 20 years.
(o) Adjustment to record additional depreciation expense related to equipment
purchased and to eliminate depreciation expense of equipment sold.
(p) Adjustment to record net effect of additional interest expense on
indebtedness.
(q) Adjustment to record amortization of debt financing costs on the interest
method over an 18-month period.
(r) Adjustment to eliminate expense related to unfavorable lease commitment as
Coyote recognized the liability for the lease in purchase accounting for
pro forma purposes.
EXPENSE REDUCTION ADJUSTMENTS
The unaudited Coyote and Subsidiaries pro forma combined condensed statements
of operations do not reflect expected cost reductions for Unifiber under
Coyote's management. Management identified annualized cost savings in excess of
$1,328,000, incurred by the previous owner and management that would not have
been incurred under Coyote's management. Coyote realized these cost savings as
well as additional expense reductions subsequent to acquiring Unifiber.
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NOTE 4.
The RP pro forma combined condensed statement of operations for the twelve
months ended December 31, 1997 reflects RP's acquisition of Royal Grip, Inc.
(Royal Grip). On August 29, 1997, RP acquired all of the outstanding stock of
Royal Grip, a manufacturer of golf club grips and athletic headwear for an
aggregate purchase price of $13,883,000 reflecting the fair value of all of
Royal Grip's common stock outstanding, the fair value of all outstanding options
and warrants to purchase Royal Grip's common stock and certain merger related
costs. The acquisition was accounted for by the purchase method. The results of
Royal Grip were included in RG's operating results commencing on August 30,
1997. The following pro forma adjustments give effect to the purchase as of
January 1, 1997:
(s) Adjustment to reflect amortization of goodwill of $10,418,000 resulting
from the Merger of FM Precision Golf Corp. and Royal Grip, Inc. over an
estimated life of 20 years for the eight month period ending August 29,
1997.
(t) Adjustment to eliminate $637,000 of costs related to the merger of FM
Precision Golf Corp. and Royal Grip, Inc. which were expensed by Royal Grip
prior to August 29, 1997, the effective date of the merger between the two
companies.
(u) Adjustment to the pro forma shares used in computing the pro forma basic
and diluted loss per share for the period presented representing the
weighted average common (4,175,394 shares) and common equivalent shares
outstanding for RP, the issuance of 1,371,048 shares of RP's common stock
to Royal Grip shareholders and exercise of 50,000 warrants issued in
connection with the merger of FM Precision Golf Corp. and Royal Grip, Inc.
The consolidated financial statements of RP and subsidiaries included in
RP's annual report on Form 10-KSB as of May 31, 1998 and for the years ended May
31, 1998 and 1997 are incorporated herein by reference. The consolidated
financial statements of Coyote and subsidiaries included in Coyote's annual
report on Form 10-KSB as of December 31, 1997 and for the years ended December
31, 1997 and 1996 are incorporated herein by reference.
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BUSINESS OF COYOTE
General
Coyote Sports, Inc., a Nevada corporation, is a diversified
manufacturing company that, along with its subsidiaries:
o designs, engineers, manufactures, markets and distributes brand name
sports equipment and recreational products including steel and graphite golf
shafts, premium grade bicycle tubing and carbon composite bicycle components;
and
o designs, manufactures and distributes graphite and other advanced
composite materials for use in the production of golf shafts, fishing poles,
hockey sticks and other sporting goods products;
Coyote was incorporated in Nevada on October 24, 1994, Coyote's principal
offices are located at 2291 Arapahoe Avenue, Boulder, Colorado 80302.
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 recreation
products industry. Coyote intends to continue to purchase companies within the
sports equipment and recreation products industry with experienced management,
that have well-established brand names and product lines, and strong engineering
and design capabilities. Management intends to strengthen and foster the growth
of these companies through the introduction of additional manufacturing
capabilities and techniques, expanded sales and marketing efforts and vertical
integration of company-wide manufacturing and distribution capabilities.
Through an aggressive acquisition strategy, Coyote has a controlling ownership
interest in five operating companies: Apollo, Reynolds Cycle Technology, Limited
("Reynolds"), Apollo Golf, Inc. ("Apollo U.S."), Unifiber Corporation
("Unifiber") and Sierra Materials, LLC ("Sierra Materials"). In addition, Coyote
has a minority interest in Unggul Galakan Sdn. Bhd. ("Unggul").
The Apollo Group and Unifiber
Apollo and Unifiber Products
The Apollo Group and Unifiber have two main product areas: steel golf shafts and
graphite golf shafts. Additionally, the Apollo Group supplies high performance
steel alloy tubing and Unifiber supplies high performance carbon composite
bicycle components for use by Reynolds, Coyote's premium brand for bicycling
components. The Apollo Group also sells specialized steel tubing for wheelchairs
and javelins.
Apollo is the only manufacturer of seamless steel golf shafts in the world.
Management believes that the physical integrity of the golf shaft is superior
using a seamless tube. For this reason, a seamless tube is usually specified for
safety-critical applications, such as power generation plants. Seamless tubes
provide a more homogeneous shaft which produces a more consistent product and
reduces the potential for structural defects. Seamless tubing also gives more
opportunities to use a greater variety of high carbon, high strength alloy
steels as compared to welded shafts. Apollo also uses high carbon alloys to
maximize strength for golf shafts which are not obtainable in a welded form.
Apollo and Unifiber manufacture a variety of unique 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. Coyote's golf shafts are generally
designed and engineered by Apollo and Unifiber in partnership with its club
manufacturer customers.
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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 a variety of 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 and Unifiber Sales and Marketing
Apollo and Unifiber together rank as one of the leading steel and graphite
shaft manufacturers in the world and with the largest golf shaft manufacturing
facility in all of Europe. Management believes that Apollo has a dominant
position in the European market for golf shafts. The market for golf clubs, and
therefore golf shafts, is driven not only by the growth in the golfing
population, but also by the frequency of club purchases, which is determined
principally by product innovation. In the United States and Europe, Coyote sells
and markets its golf shafts through a salaried sales force directly to golf club
manufacturers and custom club makers. Apollo and Unifiber'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 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.
Apollo and Unifiber Design, Engineering 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 and Unifiber both
have separate advanced test and inspection facilities, which use "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 for steel golf
shafts, while Unifiber has its own test and inspection laboratory for graphite
golf shafts. 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. Coyote's manufacturing processes
involve a number of specialized processes requiring specific know-how.
Unifiber purchased substantially all of the assets of West Coast, a wholly
owned subsidiary of Cobra Golf Incorporated ("Cobra") in September 1998, through
which Unifiber has access to Autoclave technology. Autoclave units are used in
the aerospace industry to achieve high compaction of composite components
ensuring high strength and structural integrity. Unifiber is the only U.S.
premium graphite shaft manufacturer with Autoclave units and believes that it
would require a capital investment of approximately $1.0 million and significant
expertise to acquire this technology. Management believes that Autoclave
technology will enable Coyote to design more consistent, lower weight, higher
strength shafts utilizing specialty cure resin systems. Management believes that
the Company's shafts, which use the Autoclave, will be technologically superior
to existing shafts in the market.
Coyote's research and development team is the leader in the graphite market with
numerous innovations and patents, including: (i) Construction for Fiber
Reinforced Shaft (Patent 4,097,626) - original patent for high modulus graphite
shafts; (ii) Lynx Transmitter Shaft - first gripless graphite shaft (forerunner
of the "Big Butt" technology); (iii) Flare Shaft (Patent 5,265,872); (iv) AVDP
woods and irons - original Big Butt technology; (v) Prince woods and irons -
unique high performance designs; and (vi) lightweight golf shaft with
controllable "feel" (Patent 5,620,380). In addition, Unifiber designed the
Callaway RCH 90, RCH 96 and RCH 99 shafts which management estimates to be the
most popular designs in graphite shaft history.
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Coyote is the only manufacturer of steel shafts with an ISO 9001 quality
certificated steel manufacturing facility and is also the only manufacturer of
graphite shafts with an ISO 9001 quality certificated graphite manufacturing
facility. Apollo manufactures its golf shafts in a 132,000 sq. ft. facility in
Oldbury, England. Coyote owns the land, building and equipment used in
manufacturing its golf shafts. Unifiber manufactures its golf shafts in a 56,000
sq. ft. facility in Carlsbad, California.
Competition
The golf shaft market has more than 35 competitors worldwide. The major
competitors are Aldila, True Temper, HST, UST, Fujikura and Royal Precision. The
industry is maturing and management anticipates a consolidation will occur over
the next several 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.
Market
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, based on invitations to bid, golf
shafts represent a total worldwide wholesale market of approximately 60 million
units, representing $250 million in gross revenues. The market for steel golf
shafts has decreased over the last ten years due to the introduction of graphite
golf shafts. With the acquisition of Unifiber, Coyote is in a position to
continue as a leader in the golf shaft industry.
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.
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 the 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 (the "USGA"), 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 who play 8 or more rounds per
year. Of these core golfers, approximately 5 million play 25 or more rounds per
year. According to the National Golf Foundation (the "NGF"), in 1997, the number
of first-time players reached a record high of nearly three million, a 51.2%
increase over the nearly two million beginners in 1996. 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.
Currently, there are approximately 78 million "baby boomers" in the United
States. According to the NGF, the average golfer in their 40s or 50s plays 32.8%
and 93.6% more rounds annually than the average golfer in their 30s,
respectively. In addition, the average golfer in their 60s plays 217.6% more
rounds than the average golfer in their 30s. As a result, Coyote believes that
as the "baby boom" population reaches its "peak" golf-playing age, sales of
golf-related equipment will continue to increase. Similarly, "echo boomers," or
the children of the baby boom generation, who now constitute a large portion of
new golfers, will have a similar impact on the golf equipment industry as they
continue to age.
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Reynolds Cycle Technology Limited
Reynolds Products
Reynolds and its predecessor businesses have been manufacturing steel tubing
for high end bicycle frames for 100 years. Reynolds' cycle tubing has been used
in the winning bike in 27 of the last 41 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 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.
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. Accordingly, the
853(TM) gives the greatest tensile strength and stiffness to weight ratio and
the greatest performance features of tubesets in Reynold's product line.
Through Reynolds and Unifiber, Coyote manufactures and distributes premium
carbon composite bicycle components. Reynolds currently designs a broad line of
frames and components including premium composite frames, forks, handlebars, bar
ends, seat posts and swing arms. Management has established a separate research
and development group to focus on developing new products for the cycling
industry and has hired leading research and development engineers from Easton,
Trek and Unifiber. The carbon composite bicycle components are manufactured at
Unifiber.
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
Birmingham, 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
produces cycle tubing for a wide variety of cycling applications. The tubing is
designed and engineered for road racing bikes, track bikes, time trial bikes,
touring bikes, mountain bikes and tandem bikes. Reynolds shares its research and
development function with its main steel tubing supplier, Apollo (a subsidiary
of Coyote). Through this joint effort, Apollo and Reynolds have developed
products such as the Reynolds 853(TM) / 631(TM) "Air Hardened" products, which
demonstrate an exceptional weight to strength and stiffness ratio not normally
seen with conventional steel alloys. Reynolds offers 525 and 725 series tubing
for its lower Carbon content, which makes it suitable for TIG-welded frames.
This welding technique and production method has become extremely important for
mountain-bike frames, because lugs are not normally required and design changes
can be implemented easily. Reynolds' 531 brand of tubing utilizes
Manganese-Molybdenum and is mainly used in lugged, brazed framesets when it
produces a strong and durable racing frameset. In the heavier gauges, it can be
used for BMX or touring framesets.
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Reynolds Design, Engineering and Manufacturing
Reynolds currently manufactures its tubesets in a 20,000 square foot leased
facility in Birmingham, England. Coyote 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.
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 carbon composites.
Market
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 fall in the $200 to
$400 range. While in general these bikes use lower cost steel and are sold
through mass merchants for recreational use, there are some examples of branded
components appearing on the higher end of these models. Approximately 5% (5
million) of all bicycles sold are sold for greater than $400, mainly through
specialist dealer networks. The latter models are Reynolds' targeted market
since these bikes are sold on a combination of performance, tensile strength,
endurance, brand and price to sports and recreation enthusiasts with above
average income and education levels. Both bicycle brands and branded components
tend to predominate in this segment, as potential purchasers will research
competing specifications. In addition, the specialist dealer network also sells
high margin after market 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 in which it competes has annual revenues 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.
Sierra Materials
Sierra Materials Products
Sierra Materials produces three primary types of finished advanced composite
materials, consisting of unidirectional pre-impregnated tape, made primarily
from carbon fiber and fiberglass; solvent coated impregnated tape, primarily
woven fiberglass and Kevlar(TM); and carbon fiber laminates and molded products.
Sierra Materials' current customer base is comprised exclusively of commercial
product manufacturers. The majority of Sierra Materials' customers are
manufacturers of sporting goods. Because carbon fiber is as strong and durable
as metal but much lighter and more versatile, it is used in many sporting goods
applications where weight and performance are critical factors. Some typical
uses for products made of carbon fiber which combine the features of strength,
durability and lightness, include backpack frames, snowshoes, sailboat masts,
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golf shafts, bicycles, hockey sticks, ski poles, tennis rackets, tent poles, and
other products where weight and strength are primary concerns. Coyote's finished
composite materials are principally sold in rolls, sheets or in granular or
chopped forms and are subsequently incorporated by Sierra Materials' customers
into manufactured products.
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 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).
Sierra Materials recently expanded its manufacturing capabilities by opening
a new, state-of-the-art 35,000 square foot facility. Sierra Materials has
finished a $3.0 million capital expenditures investment in new machinery and
equipment, which increased capacity by nearly 5 times, from 1,700 pounds per day
to 8,500 pounds per day.
Sierra Materials Sales and Marketing
Sierra Materials' sales force contacts its customers directly and plans to
expand its customer base through advertising, trade shows (both industry and
customer specific) and direct marketing. Beginning in September 1998, Sierra
Materials began an advertising campaign to increase its market exposure,
advertising in two popular trade journals once each quarter for a total of seven
advertisements per year. Sierra Materials will adjust its future advertising
plans based upon the response from the fourth quarter (October/November)
advertisements. Additionally, Sierra Materials began exhibiting at three
industry trade shows for the first time in 1998. Sierra Materials gained
significant exposure through these new shows as many industry journals and
newsletters wrote articles covering Sierra Materials' announcements about
increased capacity and lower prices. Sierra Materials intends to have one new
product introduction or market announcement for each of these trade shows to
gain additional market exposure.
Competition
Sierra Materials' primary competitors in its existing markets are Newport
Composites in California and Toray Composites America in Washington.
Additionally, Cytec-Fiberite (Formerly Cyctec Industries and ICI Fiberite) and
Hexcel Corporation (formerly Ciba Geigy and Hexcel Corporation) supply products
in Sierra Materials' primary markets, but are focused on aerospace markets.
Other competitors include Aldila, Inc.,
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which is a vertically integrated manufacturer of golf shafts and has started
marketing its excess capacity in the recreational products markets.
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.
Unggul
On July 23, 1998 Coyote exchanged its 77% ownership interest in Pentiumatics
Sdn Bhd ("Pentiumatics") for a 28% ownership interest in the outstanding common
stock of Unggul. Unggul wholly owns Action Wear Sdn. Bhd, a southeast Asian
manufacturer of athletic apparel. For the nine months ended September 30, 1998
(unaudited), Action Wear reported net income of $330,000 on sales of $5,869,000
As of September 30,1998 (unaudited), Action Wear had net assets of $1,812,000.
Coyote has been passively involved in Unggul since its minority investment was
made in July 1998.
Principal Suppliers and Customers
Coyote, through Apollo and Reynolds, has an exclusive supply contract with a
steel tube supplier which supplies essentially all of the steel for golf shaft
and bicycle tube processing. The agreement establishes the price for annual
periods but does not require the Company to purchase specified units or pounds.
If the supplier ceased shipping steel tubing to the Company, the Company would
have to contract with other steel tubing suppliers. In the opinion of
management, changing suppliers would not have a material adverse effect on the
Company's results of operations or liquidity.
Coyote has approximately 400 customers principally located in the United
States and Europe. However, sales to Coyote's top two customers for the year
ended December 31, 1998, Callaway and Cobra, represented 20.7% and 15.2%,
respectively, of the Coyote's sales, as compared to 1.9% and 9.9%, respectively,
in 1997. Because of the historical volatility of consumer demand for specific
clubs, as well as continued competition from alternative suppliers, sales to a
given customer in a prior period may not necessarily be indicative of future
sales. The loss of a significant customer or a substantial decrease in sales to
a significant customer could have a material adverse effect on Coyote's business
or operating results. Coyote anticipates a substantial increase in net sales to
Cobra and a substantial decrease in sales to Callaway for the year ended
December 31, 1999.
Coyote, through Unifiber, has entered into a five-year supply agreement
expiring December 31, 2003 with Cobra under which Unifiber will manufacture
premium graphite golf shafts for Cobra. Either party may terminate the supply
agreement upon a material breach by the other party of that supply agreement or
the asset sale agreement between Unifiber and Cobra. While Coyote currently
enjoys a strong relationship with Cobra, the loss of Cobra as a customer would
have a significant adverse effect on Coyote's business.
Government Regulations
UNITED KINGDOM
Apollo and Reynolds are established in England and are, accordingly, subject
to the laws of England and Wales with regard to their activities generally.
These laws relate to employment, including, for example,
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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. Coyote believes 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, which imposes a duty on employers to maintain "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 At Work Act of 1974. 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, Coyote's future operations could expose it 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 Coyote'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.
UNITED STATES
Environmental Regulations. Coyote's operations which are located in the
United States, including Sierra Materials, Apollo U.S. and Unifiber, 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, the Clean Air Act, as amended, and the Resource Conservation and
Recovery Act of 1976, as amended. Management believes Coyote 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 Coyote'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.
Properties
Coyote's executive offices are located in Boulder, Colorado pursuant to a
month to month lease. Apollo operates its golf shaft manufacturing in a facility
in Birmingham, England, which is a heavy industrial area. Coyote owns the land,
building and equipment used in manufacturing its steel golf shafts. Reynolds
conducts its manufacturing operations out of a 20,000 sq. ft. facility in
Birmingham, England pursuant to a month to month lease. Apollo U.S. operates a
8,153 square foot facility in Elk Grove Village, Illinois, pursuant to a lease
which expires January 31, 2000. Sierra Materials conducts its manufacturing
operations out of a 35,000 sq. ft. facility in San Diego, California, pursuant
to a sublease which expires in March 2008. Unifiber conducts its manufacturing
operations out of a 55,000 sq. ft. facility in Carlsbad, California pursuant to
a lease
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which expires in December 2007. Unifiber has a semi-vacant 60,000 sq. ft.
facility in San Diego, California pursuant to a lease which expires in March
2006 which it is looking to sublet.
Legal Proceedings
Coyote has no material legal proceedings.
Employees
As of December 31, 1998, Coyote had 373 full time employees. Coyote hires
additional temporary employees as may be required to support expansion of
Coyote'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.
Executive Officers of the Registrant:
The executive officers of Coyote as of February 15, 1999 are as follows:
James M. Probst, Chief Executive Officer and President - Mr. Probst is a
co-founder of Coyote and has been an officer of Coyote since February 1995. Mr.
Probst currently owns 1,170,100 shares of Coyote Sports common stock,
representing 21.7% of the total outstanding shares on September 30, 1998. Mr.
Probst's purchase price for his ownership in his shares was $4,250,000 or $3.63
per share. From 1986 to 1995, Mr. Probst was employed by Schuller International
Corporation, a wholly owned subsidiary of Manville Corporation. During that
time, Mr. Probst worked through the Research and Development group to managing a
business unit that manufactured a specific type of fiberglass insulation. He was
responsible for all strategic aspects of the business which included significant
capital investment and production technology development. Mr. Probst received a
B.S. degree in Mechanical Engineering from the University of Colorado, Denver in
1986 and a Masters in Business Administration from the University of Denver in
1990.
John Paul McNeill, Chief Financial Officer and Treasurer - Mr. McNeill
joined Coyote in July 1997 as Controller and was elected Chief Financial Officer
and Treasurer in February 1998. From 1996 to 1997, Mr. McNeill was Controller of
Cobra, a wholly owned subsidiary of Fortune Brands. Prior to his position at
Cobra, he spent four years as a certified public accountant with 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.
James A. Pfeil, Vice President - Operations - Mr. Pfeil joined Coyote in May
1997 as Vice President. From May 1995 to May 1997, Mr. Pfeil was Senior Vice
President of Operations of Cobra, a wholly owned subsidiary of Fortune Brands.
From May 1992 to May 1995, he was Vice President, General Manager of West Coast
Composites, a wholly owned subsidiary of Cobra. West Coast Composites
manufactured all the graphite shafts used by Cobra. From April 1990 to May 1992,
he was director of materials at Cobra. Mr. Pfeil received a B.S. in Business
from San Diego State University in 1980.
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Mel S. Stonebraker, Secretary - Mr. Stonebraker, co-founder of Coyote, has
been an officer and director of Coyote since its incorporation in 1994. Mr.
Stonebraker currently owns 1,430,000 shares of Coyote Sports common stock,
representing 26.6% of the total outstanding shares on September 30, 1998. Mr.
Stonebraker's purchase price for his ownership in his shares was $4,250,000 or
$2.97 per share. 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.
Intellectual Property
Coyote's success depends and will continue to depend in part on the goodwill
associated with its various trademarks, including "APOLLO", "ACCULITE",
"MATCHFLEX", "MASTERFLEX", "SHADOW", "FLARE SHAFT" and others. Coyote 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.
Coyote has certain confidential and proprietary information including
confidential information relating to the operation of Coyote's business, sales
and customer information, supplier information and certain portions of the
manufacturing process which may be proprietary. While Coyote has taken
reasonable steps to safeguard such information, there can be no assurance that
the steps that have been and are taken by Coyote in this regard will be adequate
to prevent misappropriation of its technology or that Coyote's competitors will
not independently develop technologies that are substantially equivalent or
superior to Coyote'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 $783,000 for the year ended December 31, 1997 compared to
$220,000 in 1996.
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Management's Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Coyote designs, engineers, manufactures, markets and distributes brand name
sports equipment and recreational products worldwide. Through an aggressive
acquisition strategy, Coyote wholly owns or has a controlling interest in five
operating entities worldwide; Apollo, Reynolds, Apollo U.S., Sierra Materials,
and Unifiber. Coyote's products include steel and graphite golf shafts, premium
grade cycle tubing and javelins. Coyote also produces graphite and other
advanced composite materials for use in the production of golf shafts, fishing
poles, ski poles, hockey sticks and other sporting goods products.
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 recreation
products industry. Coyote intends to continue to purchase companies within the
sports equipment and recreation products industry with experienced management,
that have well-established brand names and product lines, and strong engineering
and design capabilities. Management intends to strengthen and foster the growth
of these companies through the introduction of additional manufacturing
capabilities and techniques, expanded sales and marketing efforts and vertical
integration of company-wide manufacturing and distribution capabilities.
Results of Operations
As discussed in greater detail below, the acquisition of Unifiber on March
19, 1998, the acquisition of West Coast on September 9, 1998 and the acquisition
of Sierra Materials on March 27, 1997 have resulted in material increases in
Coyote's net sales, cost of goods sold and operating expenses for the eleven
months ended November 30, 1998 in comparison to the eleven months ended November
30, 1997.
Coyote's results of operations could be materially adversely affected by the
traditional volatility in consumer demand for specific golf club brands. Coyote
also believes that while it will often be impossible to predict such shifts in
advance, Coyote's broad range of customers should reduce the extent of the
impact on Coyote's financial results.
The following table sets forth, for the periods indicated, certain statement
of operations data as a percentage of net sales. The 1997 data reflects the
consolidated results of Apollo, Reynolds, Apollo U.S., ICE*USA (ICE) and general
corporate expenses from January 1, 1997 through November 30, 1997 and includes
Sierra Materials and Pentiumatics from April 1, 1997 through November 30, 1997
as these entities were acquired as of April 1, 1997. The 1998 data reflects the
consolidated results of all entities except for Unifiber from January 1, 1998
through November 30, 1998. Unifiber was acquired on March 19, 1998 and is
included in Coyote's results from April 1, 1998 through November 30, 1998, since
the results for the period from March 20, 1998 to March 31, 1998 are not
significant. The assets of West Coast Composites were consolidated into Unifiber
on September 9, 1998 and are included in Coyote's results from September 9, 1998
through November 30, 1998.
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<TABLE>
<CAPTION>
Eleven Months Ended
November 30,
-------------------
<S> <C> <C>
1998 1997
------ -----
Net sales 100% 100%
Cost of goods sold (77) (79)
Gross profit 23 21
Selling, general and administrative costs (23) (29)
Nonrecurring write off of goodwill
and other assets (31) -
Operating income (loss) (31) (8)
Interest expense, net (3) (2)
Debt financing costs (2) (2)
Income (loss) before income taxes, minority
interests and extraordinary item (36) (12)
Income tax (expense) benefit - 2
Minority interests 1 -
Net income (loss) before extraordinary item (35) (10)
Extraordinary item, net of taxes 1 -
Net income (loss) (34) (10)
</TABLE>
On June 15, 1998, Coyote relinquished the rights to certain intangible
assets to the previous owner and stopped distributing winter sports products
under the ICE*USA trade name. Coyote removed all of the assets and liabilities
of ICE*USA from its consolidated financial statements which resulted in an
extraordinary gain of $346,581 for the eleven months ended November 31, 1998.
On July 23, 1998, Coyote exchanged its 77% ownership interest in
Pentiumatics Sdn. Bhd for a 28% ownership in the outstanding common stock of
Unggul Galakan Sdn. Bhd (Unggul). Unggul wholly owns Action Wear Sdn. Bhd
(Action Wear), a Southeast Asian manufacturer of athletic apparel. For the nine
months ended September 30, 1998 (unaudited), Action Wear reported net income of
$330,000 on revenues of $5,869,000. As of September 30, 1998 (unaudited), Action
Wear had net assets of $1,812,000.
On September 9, 1998, Coyote purchased substantially all of the assets of
West Coast, a wholly owned subsidiary of Cobra, for a purchase price of $500,000
in cash and $5,500,000 in the form of a note payable due March 31, 1999. As a
result of the acquisition, total assets recorded were $6,500,000. Liabilities
assumed were $500,000. The acquisition has been accounted for by the purchase
method.
In conjunction with the acquisition of all the assets of West Coast, Coyote
assumed the operating lease of the West Coast facility. In December 1998, Coyote
determined that the West Coast production facility of the West Coast facility in
Carlsbad, California was preferable to the Unifiber facility in San Diego,
California due to the close proximity of the West Coast facility to its largest
customer and to other significant golf club companies. In addition, management
believes it will be able to manufacture graphite golf shafts more efficiently
and at lower costs at the West Coast facility.
As a result of consolidating Unifiber into the West Coast facility, the
significant operating losses associated with the Unifiber facility, and the loss
of significant customers of the Unifiber acquisition, management determined that
goodwill arising out of the Unifiber acquisition had been significantly impaired
and recorded a nonrecurring charge of $11,341,332 associated with the
nonrecurring write off of goodwill and other assets associated with the
facility.
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Coyote evaluated long-lived assets, which included goodwill, at the lowest
level for which there are identifiable cash flows in accordance with Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" and in accordance
with APB Opinion No. 17 "Intangible Assets". Impairment was determined by
evaluating the estimated amount at which the assets of the Unifiber acquisition
could be sold in a current transaction between willing parties. In the two
months ended November 30, 1998, it was determined the goodwill acquired from the
Unifiber acquisition had been significantly impaired due to a significant loss
in customers. Accordingly, the remaining goodwill associated with the
acquisition of Unifiber totaling $10,815,119 was expensed. Additionally, Coyote
estimated the remaining periods that the Unifiber facility would be in use and
amortized the remaining book value of leasehold improvements and other
long-lived assets that were impaired over the remaining estimated use period.
Coyote has also recognized as a liability and expense in the two months ended
November 30, 1998, eight months of lease payments and estimated executory costs
for the Unifiber facility based on estimates received from local real estate
brokers. Should actual events vary from these estimates, Coyote will recognize
additional expense in the future.
Eleven Months Ended November 30, 1998 and 1997
Net sales for the eleven months ended November 30, 1998 increased 41% to
$36,092,906 as compared to $25,606,239 for the comparable period of 1997. The
increase in net sales is primarily attributable to an increase in golf shaft
sales from the acquisition of Unifiber and an increase in sales from the
acquisition of Sierra Materials. Gross profit for the eleven months ended
November 30, 1998 and 1997 was 23% and 21% of net sales, respectively. The
increase in gross margins is primarily attributable to an improvement in product
mix to higher margin golf shafts.
Selling, general and administrative expenses for the eleven months ended
November 30, 1998 were 23% of net sales or $8,201,778 as compared to 29% or
$7,301,179 for the comparable period of 1997. The increase in operating expenses
is primarily due to the acquisition of Unifiber Corporation and approximately
$305,000 in expenses incurred in connection with the merger between Coyote and
Royal, which were offset by reductions in operating expenses for Apollo.
Excluding the nonrecurring charge, Coyote had an operating loss of $12,006
for the eleven months ended November 30, 1998, as compared to an operating loss
of $1,891,588 for the comparable period in 1997. The significant turnaround is
attributable to an increase in sales, an improvement in the product mix to
higher margin golf shafts and a tight control on operating expenses, which was
partially offset by approximately $305,000 in costs incurred in connection with
the merger between Coyote and RP. After the nonrecurring charge of $11,341,332
relating to the nonrecurring write off of goodwill and other assets as noted
above, Coyote had an operating loss of $11,353,338 for the eleven months ended
November 30, 1998.
Interest expense was $1,135,638 for the eleven months ended November 30,
1998 as compared to $406,806 for the comparable period of 1997. The increase in
interest expense is primarily attributable to the $6,000,000 note payable
entered into on March 19, 1998 to acquire Unifiber and the $5,500,000 note
payable entered into on September 9, 1998 to acquire the assets of West Coast.
Minority interests in subsidiaries' losses were $212,035 and $87,312 for
the eleven months ended November 30, 1998 and 1997, respectively. Minority
interests in subsidiaries' losses are a result of the net effect on profits and
losses of Sierra Materials, ICE (prior to the relinquishment of ICE's assets)
and Pentiumatics (prior to the exchange of ownership) and is based on the
minorities' percentage ownership in Sierra Materials (20%), ICE (prior to the
relinquishment of ICE's assets) (20%) and Pentiumatics (prior to the exchange of
ownership) (23%).
Excluding the nonrecurring charge and an extraordinary gain, net loss for
the eleven months ended November 30, 1998 was $1,419,878 or $0.30 loss per
share, as compared to a net loss of $2,598,853 or $0.77
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loss per share for the comparable period of 1997. After the nonrecurring charge
of $ 11,341,332 and the extraordinary gain of $346,581, net loss for the eleven
months ended November 30, 1998 was $12,414,629 or $2.65 loss per share. The
increase in net loss is primarily attributable to the nonrecurring charge from
the write off of goodwill and other assets and due to an increase in interest
expense offset by an increase in revenues and gross profit.
In order to become profitable, Coyote must continue to 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, more efficiently use existing plant capacities at Apollo,
Reynolds and Sierra Materials and by acquiring companies whose businesses would
be complementary to, and compatible with, the existing business of Coyote's
subsidiaries. There can be no assurance that Coyote will be able to achieve
these goals or become profitable in the future.
Liquidity and Capital Resources
As of November 30, 1998, Coyote had an accumulated deficit of $17,907,796
compared to an accumulated deficit of $5,493,167 at December 31, 1997. Net loss
for the eleven months ending November 30, 1998 was $12,414,629, compared to a
net loss of $2,598,853 for the comparable period in 1997.
As of November 30, 1998, Coyote had eight outstanding notes payable. The
notes are broken out by operating entity and discussed below.
Coyote-Parent
As of March 19, 1998, Coyote entered into a $6,000,000 Promissory Note (the
"Note") and Loan Agreement as amended December 30, 1998 (the "Loan Agreement")
with Paragon. Paragon is an unrelated third party to Coyote, although as a
condition of the Loan Agreement, the Coyote Board of Directors appointed Mr.
Mark Pappas, the president of the general partner of Paragon, to Coyote's Board
of Directors, a capacity in which he currently serves. In the ordinary course of
business, this loan would be due September 19, 1999. Interest is payable
quarterly at an interest rate of 12% per year. The consummation of the Merger
Agreement would cause the Note to be due immediately.
Under the Loan Agreement, Coyote issued Paragon 163,265 shares of Coyote
common stock as of March 19, 1998, which represented $1,000,000 divided by the
closing price of the common stock on the Nasdaq Small Cap Market on the day
immediately preceding the closing of the loan. The Loan Agreement provides that
the Issuer shall issue to Paragon such additional number of shares of Coyote
common stock, if any, as are necessary to make the aggregate value of all shares
of common stock issued equal $1,000,000 on December 30, 1998, upon the maturity
of the loan and upon the prepayment, if any, of the loan. Pursuant to this
formula, and based on a December 29, 1998 closing price of the common stock on
the Nasdaq Small Cap Market of $3.25 per share, Coyote issued Paragon an
additional 144,427 shares of the Coyote common stock effective December 30,
1998. Coyote may be required to issue Paragon additional shares of common stock
under the referenced formula depending on the price of the Coyote common stock
at the maturity date (September 19, 1999) and on any date that the Note is
prepaid in full prior to the maturity date.
In connection with the loan, Coyote and Paragon entered into a Registration
Rights Agreement pursuant to which Coyote generally has granted Paragon the
right at any time until March 19, 2003 to require that Coyote register Paragon's
shares of common stock under the Securities Act at Coyote's expense.
The Loan Agreement provides that the Note is secured by 1,430,000 shares of
Coyote's common stock owned by Mel Stonebraker, Director, and by 1,170,000
shares of Coyote's common stock owned by Jim Probst, President and Chief
Executive Officer. Under the Loan Agreement, Messrs. Stonebraker and Probst
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retain the power to vote their shares of Coyote common stock as long as Coyote
is not in default under the Loan Agreement.
On December 30, 1998, the value of the initial consideration was reset and
Coyote issued an additional 144,427 shares of Coyote's common stock in
connection with the loan.
Apollo
One note payable provides for borrowings under a foreign line of credit up
to 600,000 Pounds Sterling ("PS") (approximately $1,020,000 U.S. at November 30,
1998) with an interest rate of 1.5% plus the LIBOR rate. Amounts outstanding on
the note are secured by the land and buildings owned by Apollo. As of November
30, 1998, $789,000 was outstanding under this note payable.
On November 21, 1998, Apollo entered into a five-year note payable for up
to 400,000 PS (approximately $680,000 U.S. at November 30, 1998) with an
interest rate of 1.75% plus the LIBOR rate. Amounts outstanding on the note are
secured by the land and buildings owned by Apollo. As of November 30, 1998,
$660,000 was outstanding under this note payable.
In March 1997, Apollo entered into an agreement with a lender to advance
loans secured by trade receivables. As of November 30, 1998, $236,000 was
outstanding under this agreement. The Agreement continues indefinitely until
notice to terminate is given by either party.
Apollo U.S.
In January 1998, Apollo U.S. entered into a Loan and Security Agreement
with a lender to advance loans up to $2,300,000 at an interest rate of prime
plus 1.5 percent secured by substantially all of the assets of Apollo U.S.
Advances are guaranteed by Sierra Materials and Coyote. Advances are calculated
on a daily basis and are based on defined eligible accounts receivable and
inventories. Under the terms of the agreement, the borrowings may be immediately
callable by the lender. The term of the agreement is two years. At November 30,
1998, the outstanding balance on the loan was $1,758,000. Coyote may not declare
or pay dividends without the written consent of the lender.
Unifiber
In March 1998, Unifiber entered into a Loan and Security Agreement with a
lender. The agreement provides advance loans up to $2,300,000, a term loan of
$1,100,000 and a capital equipment term loan not to exceed $200,000, at an
interest rate of prime plus 1.5 percent. Borrowings are secured by substantially
all of the assets of Unifiber and are guaranteed by Apollo U.S., Sierra
Materials and Coyote. Advances are calculated on a daily basis and are based on
defined eligible accounts receivable and inventories. Borrowings on the capital
equipment term loan can not exceed a defined percentage of invoice prices for
selected capital equipment. Under the terms of the agreement, the borrowings may
be immediately callable by the lender. The formal term of the agreement is two
years. As of November 30, 1998, the total outstanding balance under the
agreement was $1,751,546. Coyote may not declare or pay dividends without the
written consent of the lender.
On September 9, 1998, Unifiber entered into a note payable for $5,500,000
with an interest rate of 10%. Accrued interest and principal are due March 31,
1999. Borrowings are secured by the shares of Unifiber and by the assets
purchased from Cobra.
Sierra Materials
In January 1998, Sierra Materials entered into a Loan and Security
Agreement with a lender. The agreement provides advance loans up to $2,500,000,
a term loan of $169,365 and a capital equipment term loan not to exceed
$2,100,000, at an interest rate of prime plus 1.5 percent. Borrowings are
secured by substantially all of the assets of Sierra Materials and are
guaranteed by Apollo U.S., and Coyote. Advances are calculated on a daily basis
and are based on defined eligible accounts receivable and inventories.
Borrowings on the capital equipment term loan can not exceed a defined
percentage of invoice prices for selected capital equipment. Under the terms of
the agreement, the borrowings may be immediately callable by the lender. The
formal term of the agreement is two
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years. As of November 30, 1998, the total outstanding balance under the
Agreement was $2,428,839. Coyote may not declare or pay dividends without the
written consent of the lender.
At November 30, 1998, $90,000 in cash was restricted and held as collateral
against a standby letter of credit to secure an operating lease obligation.
Management believes that the combination of cash on hand of $1,411,258,
restricted cash on hand of $90,000, its borrowing availability of $282,000 at
November 30, 1998, projected cash flows from operations, extending the due dates
of current debt agreements and entering into new debt agreements will provide
sufficient cash to meet its obligations as they come due. A note payable for
$5,500,000 is due March 31, 1999. Management believes that prior to March 31,
1999 it will receive from another lender a commitment letter for a replacement
loan, the proceeds of which will be used to pay the $5,500,000 note payable and
the related accrued interest. Coyote has historically built inventory in the
spring in order to meet demand, thereby increasing Coyote's working capital
needs in the spring. There can be no assurance that operations will generate
positive cash flows, that the debt agreements will be extended or that new debt
agreements will provide sufficient cash to meet its obligations as they come
due. If management is unable to secure a commitment or extend the payment date
of the $5,500,000 note payable, Coyote may be required to seek alternative
short-term financing arrangements for the note payable and to meet working
capital needs and this could have a material adverse effect on Coyote's business
or operating results.
Net cash used in operating activities was $2,192,341 for the eleven months
ending November 30, 1998 primarily due to an increase in inventories and a
decrease in accrued expenses offset by a decrease in restricted cash.
Net cash used in investing activities of $6,545,037 for the eleven months
ending November 30, 1998 was a result of the acquisition of Unifiber, the
purchase of the assets of West Coast and the purchase of machinery and equipment
by Sierra Materials.
Net cash provided by financing activities was $9,422,346 for the eleven
months ending November 30, 1998 primarily due to the borrowings made to acquire
Unifiber.
Coyote continues to consider the acquisition of additional businesses
complementary to Coyote's business. Coyote would require additional debt or
equity financing, if it were to engage in a material acquisition in the future.
BUSINESS OF RP
RP (formerly FM Precision Golf Corp.) and its subsidiary, FM Precision Golf
Manufacturing Corp. ("FMP"), were incorporated on May 3, 1996 by a group of
investors who acquired, through such companies, substantially all of the assets
of the golf shaft manufacturing business of Brunswick Corporation. In 1997, RP
acquired, through a merger, RG, a Nevada corporation incorporated on July 16,
1993, and RP simultaneously changed its name from FM Precision Golf Corp. to RP.
RP is a holding company which carries on its business through its directly and
indirectly wholly owned subsidiaries including FMP and RG.
Principal Products; Markets
FMP produces steel golf shafts for golfers of all ability levels. FMP
developed the "Rifle," the first modern stepless steel golf shaft in the
industry. Management believes that this shaft combines the accuracy of steel
with the feel and vibration-damping effect of graphite.
The value of certain FMP shaft product lines is enhanced by a process known
as Frequency Coefficient Matching which determines shaft flex by measuring the
shaft's frequency (via oscillation) using an electronically
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calibrated analyzer. This proprietary method results in producing shafts with
consistency in flex and, when applied to a set of golf clubs, assures the user
that the flex from one club to the next throughout a set is exactly the same.
FMP's shafts are sold worldwide to manufacturers of golf clubs and
component retailers through FMP's direct sales staff and a network of
independent distributors located in Canada, Japan, Europe, Australia and New
Zealand. In addition, FMP's team of engineers provides field support to FMP's
sales representatives. Each of FMP's products are sold by the original equipment
manufacturers ("OEMs") as a component of the complete golf club through a
variety of channels including sporting goods stores, discount stores, mail order
catalogs, pro shops, and mass merchandisers. Sales of golf club shafts to OEMs
accounted for the vast majority of FMP's sales in fiscal 1998, with the
remainder to distributors, custom club assemblers, pro shops, and repair shops.
Of FMP's top 25 accounts, three are international. Precision Japan, a
distributor for over 15 years, is FMP's third largest account. Lamkin
International, from the U.K., is the fifteenth largest account. Lamkin has been
associated with FMP for over 15 years and represents all of FMP's European
sales. Infinity of Canada has been an FMP distributor for ten years and is the
eighteenth largest account.
RG designs and distributes golf club grips. In 1989, RG introduced a rubber
wrap golf grip that gained widespread acceptance in the golf industry and
enabled RG to achieve brand name recognition. RG currently offers a wide variety
of standard and custom models, all of which feature a distinctive feel,
appearance and durability. These grips are sold into the replacement market,
which serves those golfers seeking to replace grips that have become worn and
slick due to prolonged use, as well as to OEMs, who incorporate these grips on
their newly manufactured golf clubs.
Many golf grip manufacturers sell their products to wholesale distributors
who in turn sell to dealers and other representatives. In the United States, RG
uses a single-tier distribution strategy in which its independent sales
representatives deal directly with thousands of golf club professionals and
off-course specialty store operators. Although RG's independent sales
representatives are permitted to sell other golf products, they do not sell
competing golf club grips. RG distributes a substantial portion of its grips in
Japan through Precision Japan.
Roxxi, a wholly owned subsidiary of RG, maufactures and distributes athletic
headwear. During the fiscal year ending May 31, 1999, Roxxi's operating results
have not met RP's profitability goals for the subsidiary. In January 1999, the
RP Board of Directors authorized management to negotiate an outsourcing
agreement with a third party to manufacture headwear on behalf of RP. As a
result of subsequent discussions with Paramount Headwear, Inc. ("Paramount"),
Roxxi entered into an agreement on February 26, 1999, to sell the Roxxi
trademark, Roxxi's customer list, design database and related computer software
and hardware to Paramount in return for a royalty in an amount equal to 16% of
net sales (gross sales less returns and allowances) collected for the two-year
period following April 30, 1999. Roxxi's net sales for the twelve months ended
January 31, 1999 were approximately $3.2 million. RP management is separately
negotiating with another third party to sell Roxxi's inventory and fixed assets,
which have a net book value of approximately $1.3 million as of January 31,
1999. RP management believes the combined proceeds from both transactions will
approximate the net book value of Roxxi's inventory and fixed assets. RP will
account for the anticipated royalty income in future periods as revenues are
earned and will record a loss on disposal of this business segment in the
quarter ending February 28, 1999, equal to the difference between the expected
proceeds related to the sale of inventory and fixed assets and the net book
value of those assets. The loss is currently estimated to be approximately $1.0
million.
Competition
The sporting goods industry is highly competitive. FMP competes primarily
on the basis of quality, product specifications and design, quick response and
customer relationships. FMP competes primarily with two national and
international companies which manufacture and distribute steel golf shafts to
end users. There are numerous
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companies competing in various segments of the golf equipment markets. Some of
FMP's competitors have greater name recognition, more extensive engineering,
manufacturing and marketing capabilities, and greater financial, technological
and personnel resources than those available to FMP. FMP is the second largest
producer of steel golf shafts, after True Temper Sports. Management believes
that its market share in steel golf shafts is approximately 26% while True
Temper Sports' market share in steel golf shafts is believed to be 48%. Other
competitors in steel golf shafts include Apollo Golf and Nippon Shaft Co., Ltd.
RG's principal competitors in the golf grip market include Eaton/Golf Pride
and Lamkin Corp., with Eaton's Golf Pride division currently maintaining a
majority of the total golf grip market. These companies, as well as several
other grip manufacturers with which RG competes, have greater financial,
marketing and other resources than RG. In addition, several OEMs that do not
currently manufacture premium quality grips could, in light of their substantial
resources, enter into this market segment.
Principal Suppliers and Customers
FMP uses Worthington Industries as its sole supplier for strip steel but
has no supply contract with Worthington Steel. Should Worthington Industries
fail to deliver steel, there may be a disruption of operations at FMP until an
alternate supplier is procured. Worthington Industries provides steel from two
separate plant locations. If one Worthington Industries plant becomes unable to
fill the necessary requirements, orders could be filled from the alternate
location. Although FMP has elected to use Worthington Industries as its sole
supplier of strip steel, management believes that there are other acceptable
supply sources at comparable prices and that the loss of Worthington Industries
as a supplier would not have a material adverse effect on RP.
FMP and RG have entered into five-year and ten-year agreements with
Precision Japan expiring in 2002 and 2001, respectively, under which Precision
Japan was granted exclusive distribution rights for FMP and RG products in Japan
and certain other Far Eastern countries. Precision Japan may renew its agreement
with FMP for successive two-year terms and its agreement with RG for successive
five-year terms. The FMP agreement is terminable by either party for cause or by
FMP if Precision Japan fails to meet certain minimum purchase requirements. The
RG agreement is terminable by either party for cause or if they fail to agree
upon pricing terms, or by Precision Japan at any time upon six months prior
notice to RG. While FMP and RG currently enjoy a strong relationship with
Precision Japan, the loss of Precision Japan as a distributor of FMP's and RG's
products would have a significant adverse effect on FMP's and RG's business.
In December 1996, RG outsourced all of its production of non-cord grips to
Acushnet. Acushnet experienced start-up delays and quality control problems in
the production of grips, which adversely affected RG. However, quality is now
significantly better and the timing of deliveries is good. Under RG's existing
manufacturing and supply agreement with Acushnet, either Acushnet or RG may
voluntarily terminate the agreement upon payment of a specified termination fee.
RG currently has no back-up source of supply should Acushnet terminate their
contract. The contract requires Acushnet to provide RG with 10 months notice to
terminate the contract. Acushnet has notified RP's management that it intends to
terminate the contract. The termination of this contract will force RG to find
alternate sources of supply or resume the in-house manufacture of grips.
Previously, switching suppliers has resulted in manufacturing delays and quality
control problems. A repetition of these problems could materially adversely
affect RG's customer relationships and result in a loss of sales and key
customers, which, in turn could materially adversely affect RG's results of
operations and financial condition.
Sales of golf equipment historically have been dependent on discretionary
spending by consumers, which may be adversely affected by general economic
conditions and the popularity of golf in general. A decrease in consumer
spending on golf equipment could have an adverse effect on RG's business and
operating results.
FMP is significantly dependent on sales to Taylor Made and Precision Japan.
These two customers represented in the aggregate approximately 28% of FMP's
sales for the year ended May 31, 1998. Taylor Made
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<PAGE>
represents less than 1% of RG sales and revenues, and 17% of FMP sales and
revenues. Precision Japan represents 44.7% of RG sales and revenues, and 11% of
FMP sales and revenues. FMP does not have a supply agreement with Taylor Made.
The loss of sales to either of these companies could have a material adverse
effect on FMP's business. RG's market share in golf grips is approximately 3%.
Patents, Trademarks
Patents held by RP on frequency matching and the manufacture of shafts and
clubs have expired. While there can be no assurance that competitors will not
use the technology of the expired patents in the future, RP's competitors, True
Temper and Apollo, have not adopted, nor does management believe that they have
plans to copy, the expired patents. RP has obtained a trademark on its Rifle
product and has filed for a utility patent. Management believes that the only
patents material to its future success are its patent #4,736,093, which enables
a club maker to take frequency sorted steel shafts and calculate what new
frequency shafts are needed to produce a Frequency Matched product, patent
#5,040,270 which relates to the same frequency sorting, but for graphite shafts
and patent #5,857,921 which relates to the manipulation of flex distribution
within a shaft or set of shafts. These patents expire on May 9, 2006, October
19, 2008, and January 12, 2016, respectively.
RP relies upon trademarks to establish and protect RP's proprietary rights
in its products and technologies. Its logo and the name "Royal Grip" have been
registered as trademarks in the United States, Japan, and in other foreign
countries. In addition, RP has filed trademark applications relating to the
names and configurations of several of its products in the United States and in
foreign countries, including Japan. RP has also obtained design patents on some
of its grips and applied for others that are pending. RP protects its
proprietary rubber compound and related technologies as trade secrets. Despite
such safeguards, there can be no assurance that its proprietary rights are
adequately protected or that competitors will not be able to produce golf club
grips that successfully imitate RP's designs and materials without infringing
RP's proprietary rights.
Regulations
The design of new golf clubs is greatly influenced by rules and
interpretations of the USGA. Although the golf equipment standards established
by the USGA generally apply only to competitive events sanctioned by that
organization, it has become critical for designers of new products to assure
compliance with USGA standards. Although RP believes that all of its grips and
shafts comply with current USGA standards, no assurance can be given that any
new products will receive USGA approval or that existing USGA standards will not
be altered in ways that adversely affect the sales of products.
Research and Development
RP has two full-time employees and utilizes one consultant in research and
development. During the fiscal years ended May 31, 1997 and 1998, RP spent
approximately $157,000 and $120,000 respectively, on research and development.
In addition, sales and other personnel of RP work to conceive new product
opportunities by creating prototypes and masters and by working with suppliers
and customers to design and produce finished products. New grip products are
tested through RP's PGA Tour representatives and sales force.
Environmental
During the fiscal year ended May 31, 1998, RP expended $129,000 on the
treatment, storage and disposal of hazardous waste which included a $72,000
expenditure for the removal of accumulated sludge from an outdoor holding basin
at FMP's Torrington, Connecticut manufacturing facility. Regulatory fees for
various environmental permits and costs were $50,000. RP estimates that it will
incur an estimated $900,000 in capital expense during 1999 for upgrading FMP's
wastewater treatment facilities due to EPA mandates on water quality adopted by
the State of Connecticut.
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Employees
As of December 31, 1998, RP employed 346 persons, three of whom are
part-time employees. FMP's hourly employees are subject to a collective
bargaining agreement, which expires on November 14, 1999. RP believes its
relationship with its employees is satisfactory.
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DESCRIPTION OF SHARE CAPITAL OF COYOTE
The summary of the terms of the share capital of Coyote set forth below
does not purport to be complete and is qualified by reference to Coyote's
Amended and Restated Articles of Incorporation and the Coyote By-Laws, which are
incorporated by reference in this document and copies of will be sent to holders
of RP and Coyote shareholders upon request. See "Where To Find More Information"
on page i.
Authorized Share Capital
Coyote's authorized share capital consists of 25,000,000 shares of Coyote
common stock, par value $.001 per share and 10,000,000 preferred shares, par
value $.001 per share. As of ________ __, 1999, there were ________ shares of
Coyote common stock outstanding and based on the Exchange Ratio as of the date
of this Joint Proxy/Prospectus after giving effect to the merger, there will be
______ shares of Series C Preferred Stock outstanding.
Coyote Common Stock
Voting Rights
At any meeting of Coyote, votes may be given in person or by proxy. Each
holder of Coyote common stock is entitled to one vote for each Coyote common
share held by him. Each fractional share is entitled to a corresponding
fractional vote. Except as subject to the Nevada General Corporation Law,
one-third of the outstanding shares of the corporation entitled to vote shall
constitute a quorum at a general meeting. Cumulative voting is not allowed in
the election of directors.
Preemptive Rights
Coyote shares do not have preemptive rights.
Transfers
A Coyote share may be transferred in any manner the Coyote Board of
Directors deems appropriate. Coyote will not issue certificates representing
fractional shares. Additionally, Coyote is not obliged to make any transfer
creating a fractional interest.
Dividends
The Coyote Board of Directors may from time to time declare dividends to
any series of stock although to date, it has never done so. Coyote does not
anticipate paying any cash dividends in the foreseeable future. Additionally,
the Coyote Board of Directors has the authority to determine dividend rights and
dividend rates for such stock.
Liquidation
The Coyote Board of Directors has the power to determine liquidation
preferences for the preferred stock.
Preferred Stock
General
The Board of Directors shall have the authority to fix the rights, powers,
preferences and privileges, and the qualifications, limitations or restrictions,
of any series of preferred stock, including but not limited to dividend
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<PAGE>
rights, dividend rates, conversion rights, voting rights and liquidation
preferences and to fix the number of shares constituting any such series and the
designation thereof.
Coyote Series C Preferred Stock
General
The Series C Preferred Stock to be issued pursuant to the merger will be
duly authorized, validly issued, fully paid and non-assessable. All such shares
will be in registered form.
Dividends and Distributions.
The holders of the Series C Preferred Stock shall be entitled to
preferential cumulative cash dividends with respect thereto at the rate of 6% of
the stated value thereof per annum, payable quarterly per share of Series C
Preferred Stock outstanding if, as and when declared by the Coyote Board of
Directors or any duly authorized committee of the Board of Directors out of
funds legally available for the payment thereof.
Whenever dividends or distributions payable on the Series C Preferred
Stock, as provided in the certificate of designation of the Series C Preferred
Stock, are in arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series C Preferred Stock
outstanding shall have been paid in full, Coyote shall not:
o declare or pay dividends on or make any other distributions on any
shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series C Preferred Stock;
or
o declare or pay dividends on or make any other distributions on any
shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series C Preferred
Stock except dividends or distributions paid ratably on the Series C
Preferred Stock and all such parity stock on which dividends or
distributions are payable or in arrears in proportion to the total
amounts to which the holders of all such shares are then entitled.
Powers of the Board of Directors and Preferred Shares
Under the Coyote Amended and Restated Articles of Incorporation, the Coyote
Board of Directors, may fix the rights and powers of the preferred stock.
However, so long as shares of Series C Preferred Stock are outstanding, Coyote
shall not without first obtaining the approval (by vote or written consent, as
provided by law) of the holders of two-thirds of the then outstanding shares of
Series C Preferred Stock, voting together as a single class:
o designate or issue any additional shares of Series C Preferred Stock or
in any manner authorize, create, designate, issue or sell any class or
series of capital stock (including any shares of treasury stock) or
rights, options, warrants or other securities convertible into or
exercisable or exchangeable for capital stock or any debt security which
by its terms is convertible into or exchangeable for any equity security
or has any other equity feature or any security that is a combination of
debt and equity, which, in each case, as to the payment of dividends or
distribution of assets, including, without limitation, distributions to
be made upon the liquidation, dissolution or winding up of Coyote, is
senior to or on a parity with the Series C Preferred Stock;
o in any manner alter or change the terms, designations, powers,
preferences or relative, participating, optional or other special
rights, or the qualifications, limitations or restrictions, of the
Series C Preferred Stock;
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o reclassify the shares of any class or series of junior stock into shares
of any class or series of capital stock ranking, either as to payment of
dividends, distributions of assets or redemptions, including, without
limitation, distributions to be made upon the liquidation, dissolution
or winding up of Coyote senior to or on a parity with the Series C
Preferred Stock;
o take any action to voluntarily dissolve, liquidate or wind up Coyote; or
o take any action to cause any amendment, alteration or repeal of any of
the provisions of (i) the Amended and Restated Articles of Incorporation
or (ii) the By-laws, if such amendment, alteration or repeal would
adversely affect in any material respect the rights of the holders of
the Series C Preferred Stock in their capacity as such.
Conversion
Each share of Series C Preferred Stock will be convertible into one share
of common stock of Coyote at the option of the stockholder. Upon conversion each
share of Series C Preferred Stock will represent the right to receive one share
of Coyote common stock plus payment of any declared or accrued but unpaid
dividends related to such share of Series C Preferred Stock, to be paid in cash,
or, to the extent that cash payment is not then permitted by the terms of
Coyote's existing debt agreements or applicable law, either by delivery of a
subordinated promissory note in a principal amount equal to the amount of such
dividends or shares of Coyote common stock with a value, equal to the amount of
such dividends (determined based on the average closing market price of the
Coyote common stock over the twenty-day period on the day immediately preceding
conversion), at Coyote's option.
Description of Subordinated Promissory Note Potentially Issuable in Respect
of Unpaid Dividends Upon Conversion of Series C Preferred Stock
Each subordinated promissory note which may be issued, at Coyote's option,
upon the conversion of Series C Preferred Stock for the payment of accrued but
unpaid dividends on such preferred stock under the circumstances described above
will:
o not be issued in a principal amount less than $1,000;
o accrue interest at a rate of 6% per year, compounded quarterly;
o mature 24 months from the date of conversion;
o be payable in cash upon maturity unless Coyote is not permitted
to do so under the terms of its then outstanding debt agreements
or applicable law, in which case Coyote will issue to the note
holder shares of Coyote common stock with a value equal to the
amount of such note plus all accrued and unpaid interest on such
note (determined based on the average closing market price of the
Coyote common stock over the twenty-day period immediately
preceding maturity);
o be mandatorily prepayable, without premium, upon a change of
control of Coyote or as required from time to time to the extent
permitted by the terms of Coyote's indebtedness or applicable law
pro rata with the accrued but unpaid dividends on Series C
Preferred Stock still outstanding; and
o be subordinate to all of Coyote's existing and future senior and
senior subordinated indebtedness but will be senior to all of
Coyote's other indebtedness.
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Redemption
Coyote, upon resolution by its Board of Directors who are not holders of or
affiliates of holders of Series C Preferred Stock, is entitled to redeem the
Series C Preferred Stock on a pro rata basis, in whole or in part, at any time
or from time to time. After this redemption, should it occur, the holder is no
longer entitled to any dividends. The redemption price is the stated value and
any accrued and unpaid dividends to the date of redemption.
Liquidation Preference
After all mature claims of creditors of Coyote have been paid in full, the
holders of the Series C Preferred Stock are entitled to be paid an amount equal
to the liquidation preference of the Series C Preferred Stock out of the assets
of Coyote prior to the holders of Coyote common stock and any preferred stock
ranking junior to the Series C Preferred Stock. Additionally, the holders of
two-thirds of the outstanding Series C Preferred Stock must approve the creation
of any equity security which has seniority or parity with these liquidation
rights.
Stock Exchange Listing
The Coyote common stock is listed on the Nasdaq Small Cap Market. It is a
condition to the merger that the Coyote common stock issuable upon conversion of
the Series C Preferred Stock shall have been listed or approved for listing upon
notice of issuance on the Nasdaq National Market, if qualified, or otherwise on
the Nasdaq Small Cap Market.
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<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
The rights of Coyote stockholders are governed by Nevada law, the Amended
and Restated Articles of Incorporation of Coyote and the Amended and Restated
By-laws of Coyote. The rights of RP stockholders are governed by Delaware law,
the Amended and Restated Certificate of Incorporation of RP and the By-laws of
RP. Upon consummation of the merger, Nevada law, the Amended and Restated
Articles of Incorporation of Coyote and the Amended and Restated By-laws of
Coyote will govern the rights of RP stockholders who become Coyote stockholders.
The following is a summary of certain material differences between the current
rights of RP stockholders and those of Coyote stockholders following the merger.
The following summary of stockholder rights is not intended to be complete,
and it is qualified by reference to Nevada law, Delaware law, the Amended and
Restated Articles of Incorporation of Coyote, the Amended and Restated By-laws
of Coyote, the Amended and Restated Certificate of Incorporation of RP and the
RP By-laws. Copies of the Amended and Restated Articles of Incorporation of
Coyote, the Amended and Restated By-laws of Coyote, the Amended and Restated
Certificate of Incorporation of RP and the RP By-laws have been filed with the
SEC and will be sent to holders of Coyote common stock and RP common stock upon
request. See "Where To Find More Information" on page i.
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<PAGE>
COMPARISON OF SERIES C PREFERRED STOCK,
RP COMMON STOCK AND COYOTE STOCK
The following is a summary comparison of certain of the principal terms
of the Series C Preferred Stock and the RP common stock. The merger immediately
converts the RP shares of common stock into Series C Preferred Stock. This
Series C Preferred Stock will have a value based on the total issued and
outstanding stock of Coyote and RP. Each share of Series C Preferred Stock will
be convertible into one share of common stock of Coyote at the option of the
stockholder. See "The Merger Agreement--Conversion of Securities."
<TABLE>
<CAPTION>
Coyote Series C
RP Common Stock Preferred Stock Coyote Common Stock
<S> <C> <C> <C>
Market The Nasdaq National Market. The Series C Preferred Stock The Nasdaq Small Cap
will not be listed on any stock Market.
exchange or inter-dealer
quotation system.
Liquidation First, the creditors of RP and After all mature claims of After the mature claims of
then the holders of shares of creditors of Coyote have been creditors of Coyote have been
any class or series of RP paid in full, the holders of the paid in full and the holders of
Preferred Stock are entitled to Series C Preferred Stock are any class or series of Coyote
the ratable receipt of the RP entitled to be paid an amount preferred stock have been paid
assets. Thereafter, the equal to the liquidation an amount equal to the
common stock holders are preference of the Series C liquidation preference of such
entitled to the ratable receipt Preferred Stock out of the preferred stock, plus an
of the assets of RP. assets of Coyote prior to the amount equal to all dividends
holders of Coyote common accrued and unpaid on such
stock and any preferred stock share, if any, on the date
ranking junior to the Series C fixed for distribution of assets
Preferred Stock. Additionally, of Coyote, the holders of
the holders of two-thirds of the common stock are entitled to
outstanding Series C Preferred ratable receipt of the assets of
Stock must approve the Coyote.
creation of any equity security
which has seniority to or parity
with these liquidation rights.
State Law Delaware. Nevada. Nevada.
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<PAGE>
Coyote Series C
RP Common Stock Preferred Stock Coyote Common Stock
Quorum A majority of shares entitled Same as Coyote common One-third of the outstanding
to vote at a meeting stock. Coyote stock entitled to vote
constitutes a quorum. on any matter constitutes a
quorum.
Generally, a majority of Generally, a majority of
affirmative votes will affirmative votes will
constitute an act of the constitute an act of the
stockholders. However, stockholders.
directors are elected by a
plurality of votes by holders
entitled to vote on the
election.
As a matter of law, shares As a matter of law, shares held
by RP shall neither be by Coyote shall neither
entitled to vote nor be counted be entitled to vote nor be
for quorum purposes. counted for quorum purposes.
Super- None. The holders of two-thirds of None.
majority the outstanding Series C
Voting Preferred Stock, voting
as a class must approve:
o any creation of liquidation
rights or liquidation of
Coyote;
o alterations or
reclassification to the
rights of holders of Series
C Preferred Stock;
o reclassification of any
junior stock; or
o certain amendments to the
Amended and Restated
Articles of Incorporation
or Amended and Restated
By-laws.
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Coyote Series C
RP Common Stock Preferred Stock Coyote Common Stock
Voting Each holder of RP common Each holder has a right to one Each holder of Coyote
stock is entitled to one vote vote for each share of Coyote common stock is entitled to
for each share held. common stock into which the one vote for each share held.
Series C Preferred Stock could The Series C Preferred Stock
be converted. The Series C Preferred and the Coyote common stock
Stock and the Coyote common stock vote as a class on all matters
vote as a class on all matters submitted to the shareholders
submitted to the shareholders of of Coyote.
Coyote.
Cumulative Cumulative voting of Coyote See Coyote common stock. Cumulative voting of Coyote
Voting common stock is not allowed common stock is not allowed
in the election of directors. in the election of directors.
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<PAGE>
Coyote Series C
RP Common Stock Preferred Stock Coyote Common Stock
Dividends If declared by the RP Holders are entitled to If declared by the Coyote
Board of Directors. To date, preferential cash dividends at a Board of Directors. To date,
no dividends have been rate per annum equal to 6% of no dividends have been
declared for holders of RP the $____ stated value per declared for holders of Coyote
common stock. share and any accrued but common stock.
unpaid dividends from the date
of the consummation of the merger.
Accrued but unpaid dividends
bear a 6% interest rate per year
until paid.
If declared payable by the
Coyote Board of Directors,
Who are not holders of or
affiliates of holders of Series
C Preferred Stock the dividends
are generally payable on January 1,
April 1, July 1 and October 1.
If any dividends are in arrears
and have not been paid in full,
Coyote may not:
o declare dividends to any
stock which is junior to
the Series C Preferred
Stock; or
o declare dividends to any
parity stock unless the
holders are paid ratably
and the dividends are
payable in arrears in
proportion to the total
amounts to which the
holders of all such shares
are entitled.
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<PAGE>
Coyote Series C
RP Common Stock Preferred Stock Coyote Common Stock
Optional Not applicable. Coyote, upon resolution by its Not applicable.
Redemption Board of Directors, is entitled
to redeem the Series C
Preferred Stock on a pro rata
basis, in whole or in part, at
any time or from time to time
on 30 day's notice to the
holders thereof. After this
redemption, should it occur,
the holder is no longer entitled
to any dividends. Holders of
Series C Preferred Stock do not
get to vote on conversion.
Redemption Not applicable. The liquidation preference and Not applicable.
Price any accrued and unpaid
dividends to date of
redemption.
Removal of Any director may be removed Any director may be removed Same as Series C Preferred
Directors for cause by the holders of a with or without cause by Stock.
majority of shares entitled to holders of two-thirds of the
vote at an election. issued and outstanding stock
entitled to vote at a meeting
called for this purpose.
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<PAGE>
Coyote Series C
RP Common Stock Preferred Stock Coyote Common Stock
Conversion Not applicable. Each share of Series C Not applicable.
Preferred Stock will be
convertible into one share of
common stock of Coyote at the
option of the stockholder.
Upon conversion each share of
Series C Preferred Stock will
represent the right to receive
one share of Coyote common
stock plus an amount equal to
either the payment of
any declared or accrued
(whether or not declared) but
unpaid dividends related to
such shares of Series C
Preferred Stock, to be paid,
to the extent cash payment is not
then permitted by the terms of
Coyote's indebtedness or
applicable law, either by delivery
of a subordinated promissory note
in a principal amount equal to the
amount of such dividends or shares
of common stock with a value equal
to the amount of such dividends
(determined based on the average
closing market price of the Coyote
common stock over the twenty-day
period immediately preceding
conversion) at Coyote's option.
Ability to Any action which may be See Coyote common stock. Any action required or
Act by taken at any special or annual permitted to be taken at a
Consent meeting of stockholders may meeting of the stockholders
be taken without a meeting may be taken without a
with the written consent of not meeting if a written consent
less than the minimum thereto is signed by
number of votes that would be stockholders holding at least a
necessary to authorize or take majority of the voting power,
such action at a meeting at unless a different proportion
which all shares entitled to of voting power is required
vote thereon were present. for the action taken without a
meeting.
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Coyote Series C
RP Common Stock Preferred Stock Coyote Common Stock
Consent Not less than the minimum See Coyote common stock. At least a majority of the
Threshold number of votes that would be voting power, subject to the
necessary to authorize or take requirement of two-thirds of
such action at a meeting at the issued and outstanding
which all shares entitled to stock with respect to the
vote thereon were present. removal of directors.
Special May be called by the Board of See Coyote common stock. A special meeting shall be
Meeting Directors. called by the CEO of Coyote
at the request of the holders
of not less than one-tenth
of all outstanding shares
of Coyote entitled to vote
at such a meeting. If all
of the stockholders meet at
any time, they may unanimously
waive notice of such a
meeting.
</TABLE>
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<PAGE>
VOTING SECURITIES
Holders of record of Coyote at the close of business on _______, 1999,
will be entitled to vote at the Coyote special meeting. On that date,
_________shares of Coyote common stock were issued and outstanding. Each share
of Coyote common stock is entitled to one vote on every matter submitted to the
stockholders at the special meeting.
STOCK HOLDINGS OF CERTAIN OWNERS AND MANAGEMENT
The following table sets forth the number of shares of Coyote's common stock
beneficially owned or anticipated to be beneficially owned (i) each person known
to Coyote to be the beneficial owner of more than 5 percent of Coyote's common
stock, (ii) each director of Coyote, (iii) each executive officer listed in the
Summary Compensation Table ("Named Officers"), and (iv) all nominees, Named
Officers, and other executive officers as a group (a) as of ________, 1999 and
(b) immediately following the merger for purposes of which all shares of common
stock into which Series C Preferred Stock shall be convertible shall be deemed
outstanding.
<TABLE>
<CAPTION>
Prior to the Merger Following the Merger
------------------- --------------------
<S> <C> <C> <C> <C>
Shares Shares
Name and Address of Beneficially Percent of Class Beneficially Percent of Class
Beneficial Owner Owned(1) Owned (1) Owned(1) Owned (1)
Mel S. Stonebraker(2) 1,460,000(7) 25.3% ___________________ ____%
James M. Probst(3) 1,200,100(7) 20.8% ___________________ ____%
Jeffrey T. Kates(4) 800 Less
than .1% ___________________ ____%
Don A. Forte(5) 2,208 Less
than .1% ___________________ ____%
Mark Pappas(6) 1,207,692(8) 20.9% ___________________ ____%
Paragon Coyote Texas Ltd. 1,207,692(9)(10) 20.9% ___________________ ____%
Paragon Management Group, Inc. 1,207,692(10) 20.9% ___________________ ____%
Richard P. Johnston (11) - % ___________________ ____%
Richard P. Johnson and - -% ___________________ ____%
Jayne A. Johnston Charitable
Remainder Trust #3 ("Johnston
CRT #3") (12)
---------------------------------
Berenson Minella & Company (13) - -% ___________________ ____%
Raymond J. Minella (14) - -% ___________________ ____%
Kenneth J. Warren (15) - -% ___________________ ____%
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All directors and Named Officers %
as a group ([__] persons) ----------------- ------- -------
</TABLE>
(1) A person is considered to beneficially own any shares: (a) over which such
person exercises sole or shared voting or investment power, or (b) of which such
person has the right to acquire beneficial ownership at any time within 60 days
(i.e., through conversion of securities or exercise of stock options). Unless
otherwise indicated, voting and investment power relating to the above shares is
exercised solely by the beneficial owner or shared by such owner and such
owner's spouse or children.
(2) Mr. Stonebraker's address is 2291 Arapahoe Avenue, Boulder, CO 80302.
(3) Mr. Probst's address is 2291 Arapahoe Avenue, Boulder, CO 80302.
(4) Mr. Kates' address is 3200 Robert T. Longway Blvd., Flint, MI 48506.
(5) Mr. Forte's address is 717 Seventeenth Street, Denver, CO 80202.
(6) Mr. Pappas' address is 307 W. Seventh Street, Suite 1210, Fort Worth, Texas
76102.
(7) These shares are pledged to Paragon Coyote Texas Ltd. as collateral for a
loan made to Coyote in March 1998.
(8) Represents 685,953 shares owned by Paragon and an option to purchase 521,739
shares of common stock which are currently owned by a third party. Mr. Pappas is
the President of Paragon Management Group, Inc., the sole general partner of
Paragon. Because of that position, Mr. Pappas may, pursuant to Rule 13d-3, be
deemed to be the beneficial owner of the shares. Mr. Pappas disclaims beneficial
ownership of these shares.
(9) Power to vote these shares is exercised through Paragon Management Group,
Inc.
(10) This figure assumes exercise in full of Paragon's option to purchase
521,739 shares of common stock.
(11) Mr. Johnston's mailing address is c/o Royal Precision, Inc., 15170 North
Hayden Road, Suite 1, Scottsdale, Arizona 85260. This amount includes: (i)
658,912 shares of Series C Preferred Stock which will be acquired as a result of
the merger by Johnston CRT #3 over which Mr. Johnston will have voting and
dispositive power as trustee and (ii) 25,540 options to acquire Coyote common
stock that will be owned by Mr. Johnston personally as a result of the merger.
(12) The mailing address of Johnston CRT #3 is Attention: Richard P. Johnston,
Trustee, Teton Pines, 4350 Greens Place, Wilson, Wyoming 83014. Richard P.
Johnston, as trustee of Johnston CRT #3, will have voting and investment power
over these shares.
(13) The mailing address of Berenson Minella & Company is 667 Madison Avenue,
New York, New York 10021. Raymond J. Minella, as a managing general partner of
Berenson Minella, may be deemed to have shared voting and shared investment
power over these shares. Jeffrey L. Berenson is also a general partner of
Berenson Minella.
(14) Mr. Minella's mailing address is c/o Berenson Minella & Co., 667 Madison
Avenue, New York, New York 10021. This amount includes 1,255,759 shares of
Series C Preferred Stock which will be acquired as a result of the merger by
Berenson Minella, of which Mr. Minella is a managing general partner (see note
(13)). As such, Mr. Minella shares voting power and investment power over these
shares. This amount also includes
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<PAGE>
8,512 options to acquire Coyote common stock that will be owned by Mr. Minella
personally as a result of the merger.
(15) Mr. Warren's address is c/o Royal Precision, Inc., 15170 North Hayden Road,
Suite 1, Scottsdale, Arizona 85260. This amount also includes 15,621 options to
acquire Coyote common stock as a result of the merger.
DIRECTORS AND OFFICERS
Board of Directors
It is anticipated that, following the merger, the Board of Directors of
Coyote will be composed of James M. Probst, Jeffrey T. Kates, Don A. Forte, Mark
A. Pappas, Richard P. Johnston, Kenneth J. Warren, Raymond J. Minella and
______________________, as the individuals expected to be designated for such
purpose pursuant to the stockholder agreement (see "Stockholder Agreement" p.
62).
Background information regarding such individuals as of February 1999,
appears below:
James M. Probst, 40, a co-founder of Coyote, has been an officer and
Director of Coyote since February 1995 and is currently President, CEO 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.
Jeffrey T. Kates, 37, became a director of Coyote 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, 50, became a director of Coyote in June 1997. For the past 25
years, Mr. Forte has been employed by Johns Manville a leading manufacturer of
building products. Mr. Forte has held numerous positions in his career with
Johns Manville. 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 fiberglass
insulation products for residential and commercial applications. Prior to this
assignment, Mr. Forte was Vice President and General Manager of Johns Manville'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
Xavier University in 1982.
Mark A. Pappas, 37, became a director of Coyote in March 1998. Mr. Pappas is
the President of Paragon Management Group, Inc., a private investment management
firm located in Fort Worth, Texas. Prior to the formation of Paragon Management
Group, Inc. in June 1997, Mr. Pappas was employed in the field of public
accounting, five years as President of Pappas & Company, P.C., CPAs and two
years with the national accounting firm of Ernst & Young, LLP Mr. Pappas also
spent several years as the Chief Financial Officer of a national home building
company. Mr. Pappas received a B.B.A. degree in Accounting from the University
of Texas, Arlington in 1983 and has been a licensed Certified Public Accountant
in the State of Texas since 1985.
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After the Effective Time of the Merger Agreement, the following directors have
been designated to sit on the Board of Directors of Coyote pursuant to a
stockholder agreement. See "Stockholder Agreement" beginning on p. [ ].
Raymond J. Minella, 49, has been a director of RP since its organization in
1996 and Chairman of the Board since August 1998. Since 1990, Mr. Minella has
been a managing general partner of Berenson Minella & Company, an investment and
merchant banking firm. Mr. Minella is a director of NEXClaim, Inc., an insurance
recovery business.
Kenneth J. Warren, 55, has been Secretary of RP and a director since its
organization in 1996. Mr. Warren has been a practicing attorney for over 30
years (see "Interests of Certain Reasons in the Merger" beginning on p. 37 and
"Stockholder Agreement" beginning on p. 62). Before 1996, he was a partner in
Schwartz, Kelm, Warren & Ramirez. During 1996, he was of counsel to its
successor, Schwartz, Warren & Ramirez L.L.C. In January 1997, he opened his own
office for the practice of law. Mr. Warren is also Secretary of PH Group Inc., a
manufacturer of presses, and Cable Link, Inc., a cable television equipment
refurbisher.
Richard P. Johnston, 68, served as Chairman of the Board of Merbanco, Inc.
("Merbanco"), a merchant banking company, from 1991 until the end of 1998,
served as Chairman of the Board of Republic Realty Mortgage Co., a commercial
mortgage company, from 1992 to 1995, and was Managing Director of Hamilton
Robinson & Co., an investment advisory company from 1991 to 1994. Mr. Johnston
has been a director of RP since its organization in 1996 and served as Chairman
of the Board of RP from May 1996 to October 1997. Mr. Johnston is a founder and
a director of AGCO Corporation a farm implement manufacturer and distributor,
and a director of Myers Industries, Inc., a plastic and rubber products
manufacturer. Richard P. Johnston is the father of Leslie Reesing and David E.
Johnston.
Executive Officers
Following the merger, James M. Probst will serve as Chief Executive Officer
and President. John Paul McNeill will serve as Chief Financial Officer and
Secretary.
RELATED PARTY TRANSACTIONS
Coyote Related Party Transactions
See "Interests of Certain Persons in the Merger," beginning on page 39.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Coyote's
directors and executive officers, and persons who own more than 10 percent of a
registered class of Coyote's equity securities, to file with the SEC and the
Nasdaq Stock Exchange initial reports of ownership and reports of changes in
ownership of common stock and other equity securities of Coyote. Officers,
directors and greater than 10 percent stockholders are required by the
regulations of the SEC to furnish Coyote with copies of all Section 16(a) forms
they file. To Coyote's knowledge, based solely on review of the copies of such
reports furnished to Coyote and written representations that no other reports
were required, during the fiscal year ended December 31, 1998, all Section 16(a)
filing requirements applicable to its officers, directors and greater than 10
percent beneficial owners were complied with.
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COMMITTEES OF THE BOARD OF DIRECTORS
The Coyote Board currently has an Audit Committee and a Compensation
Committee. The Coyote Board of Directors does not have a Nominating Committee
and the functions of such a committee are performed by the Board of Directors.
Presently Coyote has not appointed an Executive Committee. However, Coyote
will appoint an Executive Committee at the time of the consummation of the
merger. The Executive Committee, when the Board of Directors is not in session,
will have the authority of the Board of Directors as limited by the resolution
of the Board appointing it. Additionally, the Executive Committee does not have
the authority of the Board of Directors to:
o amend the Amended and Restated Articles of Incorporation;
o adopt a plan of merger or consolidation;
o recommend to the stockholders 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;
o recommend to the stockholders a voluntary dissolution of
the corporation or to revoke such a dissolution; or
o amend the By-laws of the corporation.
There were five meetings of the Board of Directors during the last full fiscal
year. Each director attended all meetings of the Board of Directors.
The Compensation Committee makes 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 eligibility and levels of participation under Coyote's 1997 Stock Option
Plan (the "1997 Plan") and Coyote's 1998 Stock Option Plan (the "1998 Plan").
There were four meetings of the Compensation Committee during the last fiscal
year. Messrs. Kates, Stonebraker and Pappas are the current members of Coyote's
Compensation Committee.
The Audit Committee reviews and makes recommendations to the Coyote Board
regarding services provided by the independent accountants, reviews with the
independent accountants the scope and results of their annual audit of Coyote's
consolidated financial statements and any recommendations they may have, and
makes recommendations to the Coyote Board with respect to the engagement or
discharge of the independent accountants. The Audit Committee also reviews
Coyote's internal procedures with respect to maintaining books and records, the
adequacy and implementation of internal auditing, accounting and financial
controls, and Coyote's policies concerning financial reporting and business
practices. The Audit Committee did not meet during the last fiscal year. Messrs.
Kates, Pappas and Probst are the current members of Coyote's Audit Committee.
COMPENSATION OF MANAGEMENT
Summary Compensation Table
The following table sets forth certain information concerning the annual and
long term compensation of the chief executive officer of Coyote and the other
executive officers, whose total annual salary and bonus exceeded $100,000 during
the last fiscal year (the "Named Officers"), for Coyote's fiscal years ended
December 31, 1997, 1996 and 1995.
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<TABLE>
<CAPTION>
Annual Compensation Long Term
Compensation
Awards
Security
Name and Principal Other Annual Underlying
Position Year Salary ($) Bonus ($) Compensation($) Options/SARs (#)
- -------- ----
<S> <C> <C> <C> <C> <C>
Mel S. Stonebraker 1997 117,116 0 8,700 (1) 45,000
Director
1996 115,000 0 6,529 (1) 0
1995 115,000 0 6,805 (1) 0
</TABLE>
- -------------------
(1) Includes annual cost of company car and life insurance.
Coyote's 1997 Plan
Coyote's 1997 Plan was adopted by the Coyote Board of Directors and
stockholders on June 10, 1997. The Plan provided for the grant of options to
purchase 500,000 shares. The Plan was amended by the Board of Directors and
approved by a majority of the stockholders on February 10, 1998. The amendment
provided for a total of 1,000,000 shares under the 1997 Plan. The shares of
Coyote's common stock are intended to qualify as either incentive stock options
within the meaning of Section 422 of the Internal Revenue Code ("Incentive Stock
Options") 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 Coyote 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 Coyote.
As of February 18, 1999, 570,000 Incentive Stock Options and 130,000
Nonstatutory Stock Options had been granted under the 1997 Plan.
The 1997 Plan is administered by the Coyote Compensation Committee of
the Board of Directors. The Coyote 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.
Coyote's 1998 Plan
Coyote's 1998 Plan was adopted by the Coyote Board of Directors and
stockholders in March 1998. The Plan provides for the grant of options to
purchase up to 1,000,000 shares of Coyote's common stock that are intended to
qualify as either Incentive Stock Options or as 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 Coyote or
its subsidiaries), or, in the case of Nonstatutory Stock Options, are employees
(including officers of Coyote or its subsidiaries), non-employee directors or
consultants of Coyote. As of February 18, 1999, 152,500 options had been granted
under the 1998 Plan.
The 1998 Plan is administered by the Coyote Compensation Committee of
the Board of Directors. The Coyote Compensation Committee has full discretionary
authority, subject to certain restrictions, to determine
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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.
The following table presents information concerning individual grants of
options to purchase common stock made during the fiscal year ended December 31,
1997, to the Chief Executive Officer.
Option Grants in the Fiscal Year Ended December 31, 1997
<TABLE>
% of Total Potential As
Options Granted Exercise or Appreciation
Options to Employees Base Price Expiration
Name Granted in Fiscal Year ($/Share) Date 5%($) 10%($)
---- ------- -------------- --------- ---- ----- ------
<S> <C> <C> <C> <C> <C>
Mel S. Stonebraker 45,000 9.2 5.50 9/18/04 69,098 190,962
- ------------
Note: Assumed annual appreciation rates are set by the SEC and are not a
forecast of future appreciation. The actual realized value depends on the market
value of the Common Stock on the exercise date, and no gain to the optionees is
possible without an increase in the price of the Common Stock. All assumed
values are before taxes.
AGGREGATE OPTION EXERCISES IN THE FISCAL YEAR ENDED
DECEMBER 31, 1997 AND FISCAL YEAR-END OPTION VALUES (1)
Number of Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
at Fiscal Year End (#) At Fiscal Year-End(#)
Shares Acquired Value Realized at
Name on Exercise Fiscal Year-End (#) Exercisable Unexercisable Exercisable Unexercisable
---- --------- ------------------- ----------- ------------- ----------- -------------
Mel S. Stonebraker: 0 0 0 45,000 0 0
</TABLE>
- ------------
(1) Based on a fair market value as of December 31, 1997 of $4 3/8 per share.
Values are stated on a pre-tax basis.
EMPLOYMENT CONTRACTS AND CHANGE-IN-CONTROL ARRANGEMENTS
Coyote has entered into employment agreements with Mr. Stonebraker and
Mr. Probst expiring on May 31, 2000, pursuant to which they are employed as
officers of Coyote. The agreements automatically renew for additional two-year
periods unless either party notifies the other party that it does not intend to
renew the agreements. The employment agreements provide for employment of Mr.
Stonebraker and Mr. Probst on a full-time basis at an annual salary of $150,000
and $125,000, respectively, beginning September 1, 1997. Mr. Probst's annual
salary was increased to $145,000 on August 1, 1998 with his appointment as CEO
of Coyote. 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 over a seven year term at $5.50 per share. The
options vest over a three year period if Coyote achieves 90% of its targeted
earnings before deduction of interest and taxes. In February 1998, the Board of
Directors approved a waiver of the specified 90% earnings target.
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Mr. Stonebraker and Mr. Probst may be terminated by Coyote for cause,
which is defined as excessive unauthorized absenteeism, actual fraud or material
acts of dishonesty, destruction of material Coyote's property; willful
disclosure of Coyote's 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 Coyote up
to $62,500, on a pro-rata basis depending on the date of termination. If Coyote
terminates Mr. Stonebraker or Mr. Probst without cause, the terminated officer
is entitled to 18 months' salary as a severance payment. If termination without
cause occurs after the end of the original contract term, the terminated officer
is entitled to 12 months' salary. The employment agreements provide that the
officers may not compete with Coyote 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 Coyote pursuant to
which they are entitled to a continuation of salary benefits for 24 months if
employment is terminated by Coyote without cause or for good reason (such as a
reduction in his compensation) within two years after a change of control.
Additionally, Coyote has entered into an employment agreement with Mr.
McNeill, expiring on December 31, 1998, pursuant to which he is employed as
Chief Financial Officer of Coyote. The agreement automatically renews for
additional one-year periods unless either party notifies the other party that it
does not intend to renew the agreement. The employment agreement provides for
employment of Mr. McNeill on a full-time basis at an annual salary of $96,000.
Mr. McNeill is entitled to receive a bonus and stock options based on certain
objectives determined by the Board of Directors. Mr. McNeill may be terminated
by Coyote for cause, which is defined as excessive unauthorized absenteeism,
actual fraud or material acts of dishonesty, destruction of material Coyote
property; willful disclosure of Coyote's proprietary information, or a material
violation of internal controls or procedures. If Mr. McNeill is terminated
without cause, he is entitled to 6 months salary. The employment agreement
provides that Mr. McNeill may not compete with Coyote for a period of the
greater of (i) nine months subsequent to his termination date, or (ii) the
severance pay period. Mr. McNeill also has a change of control agreement with
Coyote pursuant to which he is entitled to a continuation of salary benefits for
24 months if his employment is terminated by Coyote without cause or by him for
good reason (such as a reduction in his compensation) within two years after a
change of control.
DIRECTOR COMPENSATION
Messrs. Stonebraker and Probst do not receive additional compensation
for their services as directors. Outside directors, Don A. Forte, Jeffrey T.
Kates and Mark A. Pappas are compensated in stock options under Coyote's 1997
Plan and 1998 Plan and reimbursed for travel and other reasonable out-of-pocket
expenses incurred in attending Board and committee meetings. During fiscal year
ended December 31, 1997, Don A. Forte and Jeffrey T. Kates received 25,000 stock
options with an exercise price of $5.00 with respect to 15,000 of these stock
options and an exercise price of $5.06 with respect to 10,000 of these stock
options. During fiscal year ended December 31, 1998, each of Don A. Forte and
Jeffrey T. Kates received 10,000 stock options with an exercise price of $4.375.
During fiscal year ended December 31, 1998, Mark A. Pappas received 35,000 stock
options with an exercise price of $5.375.
OTHER MATTERS
It is not expected that any matters other than those described in this
document will be brought before the special meetings. If any other matters are
presented, however, it is the intention of the persons named in the appropriate
proxy to vote the proxy in accordance with the discretion of the persons named
in such proxy.
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LEGAL MATTERS
The validity of the Series C Preferred Stock to be issued to RP
stockholders in connection with the merger will be passed upon by Chrisman,
Bynum & Johnson, P.C., counsel to Coyote. Certain other legal matters in
connection with the merger will be passed upon for Coyote by Kramer Levin
Naftalis & Frankel LLP, New York, New York special counsel to Coyote. Fabian &
Clendenin has given its opinion that the merger will be a reorganization within
the meaning of Section 368 of the Code and will have the material U.S. federal
income tax consequences referred to under the caption "The Merger -- Material
U.S. Federal Income Tax Consequences."
EXPERTS
The consolidated financial statements of Coyote and subsidiaries as of
December 31, 1997 and 1996 and for the years then ended, have been incorporated
by reference herein in reliance upon the report of KPMG LLP independent
certified public accountants, incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Royal Precision, Inc. and
subsidiaries included in Royal Precision Inc.'s annual report on Form 10-KSB as
of May 31, 1998 and for the years ended May 31, 1998 and 1997, incorporated by
reference in this Joint Proxy Statement/Prospectus, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The audited historical financial statements of Unifiber Corporation
incorporated in this Prospectus by reference to Coyote's Current Report on Form
8-K/A Amendment No. 2 dated March 19, 1998 have been so incorporated in reliance
on the report (which contains an explanatory paragraph relating to Unifiber
Corporation's ability to continue as a going concern as described in Note 1 to
the financial statements) of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
FUTURE STOCKHOLDER PROPOSALS
Due to the contemplated consummation of the merger, RP does not
currently expect to hold a 1999 Annual Meeting of Stockholders because RP will
be a wholly owned subsidiary of Coyote following the merger. In the event the
merger is not consummated, proposals of RP stockholders to be included in the
proxy statement to be mailed to all RP stockholders entitled to vote at the 1999
Annual Meeting of RP stockholders must have been received at RP's principal
executive offices not later than [ ].
Any stockholder proposal intended for inclusion in Coyote's proxy
statement for Coyote's 1999 annual general meeting of stockholders must have
been received by Coyote no later than [ ], 1999.
118
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<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
<S> <C>
Defined Term
1997 Plan..................................................................................114
1998 Plan..................................................................................114
Acushnet....................................................................................10
Apollo......................................................................................10
Apollo U.S..................................................................................78
BMC Group...................................................................................10
Berenson Minella.............................................................................2
CIBC........................................................................................24
Cobra.......................................................................................79
Code........................................................................................28
Comparable Companies........................................................................30
Comparable Transactions.....................................................................31
Coyote.......................................................................................I
Coyote Acquisition Proposal.................................................................50
Coyote Alternative Transaction..............................................................50
Coyote Proposal..............................................................................V
Coyote Superior Proposal....................................................................50
EBIT........................................................................................29
EBITDA......................................................................................36
Exchange Ratio...............................................................................I
FMP..........................................................................................9
Incentive Stock Options....................................................................115
Johnston Group..............................................................................10
Lehman Brothers..............................................................................6
Lehman Brothers Opinion.....................................................................34
Loan Agreement..............................................................................40
LTM.........................................................................................30
LTM EBITDA..................................................................................30
Merger Agreement.............................................................................I
Merger Sub.................................................................................III
Named Officers.............................................................................110
Nasdaq.......................................................................................I
NatCity......................................................................................6
NGF.........................................................................................80
NGCL.......................................................................................121
Nonstatutory Stock Options.................................................................115
Note........................................................................................40
OEMs........................................................................................94
Paragon......................................................................................2
Pentiumatics................................................................................84
Probst Group................................................................................10
RG..........................................................................................10
Reynolds....................................................................................78
RP...........................................................................................I
RP Acquisition Proposal.....................................................................51
RP Option...................................................................................46
RP Options..................................................................................46
RP Proposal..................................................................................V
RP Superior Proposal........................................................................52
Series C Preferred Stock.....................................................................I
Sierra Materials............................................................................78
119
<PAGE>
Trust........................................................................................2
Unggul......................................................................................78
Unifiber....................................................................................78
USGA........................................................................................80
West Coast..................................................................................32
Year 2000 Issue.............................................................................12
120
</TABLE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Article X of the Coyote's Amended and Restated Articles of Incorporation
provides for the indemnification, to the maximum extent permitted by Nevada law,
of any person for liabilities or expenses that arise by reason of the fact that
the person is or was a director, officer, employee, fiduciary, or agent of
Coyote.
Section 78.7502 of the Nevada General Corporation Law ("NGCL") permits
indemnification only when the person acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of Coyote.
In criminal actions or proceedings the person may be indemnified only if he had
no reasonable cause to believe his conduct was unlawful. The termination of any
action upon the plea of nolo contendere or its equivalent, does not, of itself,
create a presumption that the person did not act in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
Coyote. Similarly, such a plea in any criminal action does not, of itself,
create a presumption that the person did not have reasonable cause to believe
his conduct was unlawful. To the extent that such person is successful on the
merits of any claim covered by the NGCL, Coyote shall indemnify him against any
expense, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense.
Coyote maintains $5,000,000 of insurance to reimburse its directors and
officers for costs, charges and expenses in defense of certain claims against
them by reason of their being or having been directors or officers of Coyote.
Such insurance specifically excludes reimbursement of any director or officer
for certain costs, charges or expenses. Some examples of these specific
exclusions are claims made in connection with any claim of actual or alleged
bodily injury, sickness, disease, death, false arrest, false imprisonment,
assault, battery, invasion of privacy, damage to or destruction of tangible
property, or dishonest, fraudulent or criminal acts or omissions.
Item 21. Exhibits
2.1 -Amended and Restated Agreement and Plan of Merger, dated as of February
2, 1999, by and among Royal Precision, Inc., Coyote Sports, Inc. and RP
Acquisition Corp. (included as Annex A to the Joint Proxy
Statement/Prospectus which forms a part of this Registration Statement)
3.2 -Restated Articles of Incorporation, as amended, incorporated by
reference as Exhibit 3.1 in Form SB- 2, No. 333-29077
3.3 -By-laws of the Company, as amended, incorporated by reference as
Exhibit 3.3 in Form SB-2, No. 333-29077
5.1 -Opinion of Chrisman, Bynum & Johnson, P.C. regarding the validity of
the Coyote Series C Convertible Preferred Shares registered hereunder**
5.2 -Opinion of Kramer Levin Naftalis & Frankel LLP**
8.1 -Tax Opinion of Fabian & Clendenin**
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
capital of TI Apollo Limited, Apollo Golf, Inc. and TI Reynolds 531
Limited, dated September 18, 1996, incorporated by reference as Exhibit
10.1 in Form SB-2, No. 333-29077
10.2 -ICE*USA LLC Agreement between Coyote Sports, Inc. and Expedition
Trading Company dated September 18, 1996, incorporated by reference as
Exhibit 10.2 in Form SB-2, No. 333-29077
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<PAGE>
10.3 -Agreement between David B. Abrams, Coyote Sports, Inc. and Mark H.
Snyder (regarding Sierra Materials, inc.), dated March 27, 1997,
incorporated by reference as Exhibit 10.3 in Form SB-2, No.
333-29077
10.4 -Employment Agreement for Mel S. Stonebraker, incorporated by reference
as Exhibit 10.4 in Form SB-2, No. 333-29077
10.5 -Change of Control Agreement for Mel S. Stonebraker, incorporated by
reference as Exhibit 10.5 in Form SB-2, No. 333-29077
10.6 -Employment Agreement for James M. Probst, incorporated by reference as
Exhibit 10.6 in Form SB-2, No. 333-29077
10.7 -Change of Control Agreement for James M. Probst, incorporated by
reference as Exhibit 10.7 in Form SB-2, No. 333-29077
10.8 -Agreement dated March 1, 1997 between Sportma Corporation Berhad and
Apollo Golf, Inc., incorporated by reference as Exhibit 10.8 in Form
SB-2, No. 333-29077
10.9 -Employment Agreement for Paul Andrew Taylor incorporated by reference
as Exhibit 10.9 in Form SB-2, No. 333-29077
10.10 -1997 Stock Option Plan, incorporated by reference as Exhibit 10.10 in
Form SB-2, No. 333-29077
10.11 -Transfer of Oldbury Property located in UK from TI Reynolds Limited to
Apollo Sports Holdings Limited dated September 18, 1996, incorporated by
reference as Exhibit 10.11 in Form SB-2, No. 333-29077
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., incorporated by reference as Exhibit 10.12 in Form SB-2, No.
333-29077
10.20 -Lease between Hamann-Chambers-Ramsey-Burns and Apollo Golf, Inc.,
located in El Cajon, California, incorporated by reference as Exhibit
10.20 in Form SB-2, No. 333-29077
10.21 -Lease between American National Bank and Trust Company of Chicago and
TI Steel Tube (USA) Inc. located in Cook County, Illinois, incorporated
by reference as Exhibit 10.21 in Form SB-2, No. 333-29077
10.22 -Lease between Coyote Sports, Inc. and Accent Properties located in
Boulder, Colorado, incorporated by reference as Exhibit 10.22 in Form
SB-2, No. 333-29077
10.23 -Lease between Hamann-Chambers-Ramsey-Burns and Cape Composites
Incorporated, located in San Diego, California, incorporated by
reference as Exhibit 10.23 in Form SB-2, No. 333-29077
10.24 -Purchase Agreement, dated July 23, 1997 between Pentiumatics Sdn.,
Bhd., and Sportma Corporation Berhard, incorporated by reference as
Exhibit 10.24 in Form SB-2, No. 333-29077
10.25 -Share Return Agreement dated July 23, 1997 among Mel S. Stonebraker,
James Probst and Coyote Sports, Inc., incorporated by reference as
Exhibit 10.25 in Form SB-2, No. 333-29077
10.26 -Lease between Airport Business Commons and ICE*USA LLC dated October
22, 1996, incorporated by reference as Exhibit 10.26 in Form SB-2, No.
333-29077
10.27 -Lease between Airport Business Commons and ICE*USA LLC dated July 18,
1997, incorporated by reference as Exhibit 10.27 in Form SB-2, No.
333-29077
122
<PAGE>
10.28 -Amendment No. 1 to Change of Control Agreement for James M. Probst,
incorporated by reference as Exhibit 10.28 in Form 10-KSB, No. 000-23085
10.29 -Amendment No. 1 to Change of Control Agreement for Mel S. Stonebraker,
incorporated by reference as Exhibit 10.29 in Form 10-KSB, No. 000-23085
10.30 -Employment Agreement for John P. McNeill, incorporated by reference as
Exhibit 10.30 in Form 10-KSB, No. 000-23085
10.31 -Change of Control Agreement for John P. McNeill, incorporated by
reference as Exhibit 10.31 in Form 10-KSB, No. 000-23085
10.32 -Employment Agreement for James A. Pfeil, incorporated by reference as
Exhibit 10.32 in Form 10-KSB, No. 000-23085
10.33 -Change of Control Agreement for James A. Pfeil, incorporated by
reference as Exhibit 10.33 in Form 10-KSB, No. 000-23085
10.34 -1998 Stock Option Plan, incorporated by reference form S-8, filed on
March 10, 1998
10.35 -Stock Purchase Agreement entered into and effective as of February 3,
1998, between and among Unifiber Corporation, Richard L. Tennent, Judy
R. Tennent, Richard L. Tennent and Judy R. Tennent, or their successor
as Trustees of the Tennent Family Trust dated as of November 20, 1989,
and Coyote Sports, Inc., incorporated by reference as Exhibit 10.1 in
Form 8-K filed on April 3, 1998.
10.36 -Shareholder Agreement dated March 19, 1998 between Coyote Sports, Inc.,
and Richard L. Tennent and Judy R. Tennent, incorporated by reference as
Exhibit 10.2 in Form 8-K filed on April 3, 1998.
10.37 -First Amendment to Stock Purchase Agreement dated March 19, 1998,
incorporated by reference as Exhibit 10.3 in Form 8-K/A filed on April
3, 1998.
10.38 -Loan Agreement with Paragon Coyote Texas Ltd., dated March 19, 1998,
incorporated by reference as Exhibit 10.1 in Form 8-K/A filed on April
3, 1998.
10.39 -Promissory Note dated March 19, 1998, incorporated by reference as
Exhibit 10.2 in Form 8-K/A filed on April 3, 1998.
10.40 -Security Agreement dated March 19, 1998, between Mel S.Stonebraker and
Paragon Coyote Texas Ltd., incorporated by reference as Exhibit 10.3 in
Form 8-K/A filed on April 3, 1998.
10.41 -Security Agreement dated March 19, 1998, between James M. Probst and
Paragon Coyote Texas Ltd., incorporated by reference as Exhibit 10.4 in
Form 8-K/A filed on April 3, 1998.
10.42 -Stockholder Agreement, dated as of February 2, 1999, among James M.
Probst, Mel S. Stonebraker, Paragon Coyote Texas Ltd., Richard P.
Johnston and Jayne A. Johnston Charitable Remainder Trust #3, David E.
Johnston, Kenneth J. Warren and Berenson Minella & Company, L.P. and
Coyote Sports, Inc.*
10.43 -Coyote Sports, Inc. Voting Agreement, dated as of February 2, 1999, by
and between Royal Precision, Inc. and Mel S. Stonebraker*
10.44 -Coyote Sports, Inc. Voting Agreement, dated as of February 2, 1999, by
and between Royal Precision, Inc. and Paragon Coyote Texas Ltd.*
123
<PAGE>
10.45 -Coyote Sports, Inc. Voting Agreement, dated as of February 2, 1999, by
and between Royal Precision, Inc. and James M. Probst*
10.46 -Royal Precision, Inc. Voting Agreement, dated as of February 2, 1999,
by and between Coyote Sports, Inc. and Kenneth J. Warren*
10.47 -Royal Precision, Inc. Voting Agreement, dated as of February 2, 1999,
by and between Coyote Sports, Inc. and David E. Johnston*
10.48 -Royal Precision, Inc. Voting Agreement, dated as of February 2, 1999,
by and between Coyote Sports, Inc. and Danny Edwards*
10.49 -Royal Precision, Inc. Voting Agreement, dated as of February 2, 1999,
by and between Coyote Sports, Inc. and Lawrence Bain*
10.50 -Royal Precision, Inc. Voting Agreement, dated as of February 2, 1999,
by and between Coyote Sports, Inc. and Richard P. Johnston and Jayne A.
Johnston Charitable Remainder Trust #3*
10.51 -Royal Precision, Inc. Voting Agreement, dated as of February 2, 1999,
by and between Coyote Sports, Inc. and Berenson Minella & Company, L.P.*
10.52 -Royal Precision, Inc. Voting Agreement, dated as of February 2, 1999,
by and between Coyote Sports, Inc. and Ronald L. Chalmers*
10.53 -Edwards Option Re-Pricing Agreement, dated as of January 28, 1999, by
and between Danny Edwards and Royal Precision, Inc.*
10.54 -Opinion of Lehman Brothers, Inc., dated as of January 28, 1999
(included as Annex B to this Joint Proxy Statement/Prospectus which
forms a part of this Registration Statement).
10.55 -Opinion of NatCity Investments, Inc., dated as of January 29, 1999
(included as Annex C to this Joint Proxy Statement/Prospectus which
forms a part of this Registration Statement).
11.1 -Computation of per share income (1055), incorporated by reference as
Exhibit 11.1 in Form 10-QSB, filed on November 16, 1998.
21.1 -List of Subsidiaries of the Registrant*
23.1 -Consent of KPMG LLP*
23.2 -Consent of Arthur Andersen LLP*
23.3 -Consent of Chrisman, Bynum & Johnson, P.C. (contained in Exhibit 5.1)**
23.4 -Consent of Kramer Levin Naftalis & Frankel LLP (contained in Exhibit
5.2)**
23.5 -Consent of Fabian & Clendenin (contained in Exhibit 8.1)**
23.6 -Consent of PriceWaterhouseCoopers LLP*
24.1 -Power of Attorney*
99.1 -Consent of Lehman Brothers, Inc.*
124
<PAGE>
99.2 -Consent of NatCity Investments, Inc. (contained in Exhibit 10.55)
99.3 -Form of Proxy Card of Coyote Sports, Inc.*
99.4 -Form of Proxy Card of Royal Precision, Inc.*
99.5 -Consent of Kenneth J. Warren**
99.6 -Consent of Raymond J. Minella*
99.7 -Consent of Richard P. Johnston*
- --------------------------------
* Filed herewith
** To be filed by amendment
- --------------------------------
Item 22. Undertakings
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 in any prospectus required by Section
10(a)(3) of the Securities Act;
(ii) To reflect in the Prospectus any facts or events
arising after the effective date of this Registration Statement
(or most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in this Registration Statement.
Notwithstanding the foregoing, any increase or decrease in volume
of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any
deviation from the maximum aggregate offering price may be
reflected in the form of prospectus filed with the SEC pursuant
to Rule 424(b) under the Securities Act, if in the aggregate, the
changes in volume and price represent no more than a 20% change
in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in this
Registration Statement or any material change to such information
in this Registration Statement;
provided, however, that paragraphs (1)(i) and (1)(ii) above do not apply is the
Registration Statement if 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 or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities and Exchange Act of
1934 that are incorporated by reference in the Registration Statement.
(2) That, for the purposes of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities
125
<PAGE>
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.
The undersigned Registrant undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the Registration Statement 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.
The Registrant undertakes that prior to any public reoffering of
the securities registered hereunder through use of a prospectus which is a part
of this Registration Statement, by any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
The Registrant undertakes that every prospectus: (i) that is
filed pursuant to the paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes 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.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) for
purposes of determining any liability under the Securities Act of 1933, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and (2) for the purpose of
determining any liability under the Securities Act of 1933, each post-effective
amendment that contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the Registration Statement
through the date of responding to the request.
126
<PAGE>
The undersigned Registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
127
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies and has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of San Diego, State of California, on the 22nd day of February, 1999.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
------------------------------------
James M. Probst
Director, Chief Executive Officer
and President (Principal Executive
Officer)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James M. Probst and John Paul McNeill, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
such attorneys-in-fact and agents and each of them 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, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons on March 2, 1999
in the capacities indicated below.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ James M. Probst
- -------------------------------------
James M. Probst Director, Chief Executive Officer and President
(Principal Executive Officer)
/s/ Mel S. Stonebraker
- -------------------------------------
Mel S. Stonebraker Chairman of the Board and Secretary
/s/ John Paul McNeill
- -------------------------------------
John Paul McNeill Chief Financial Officer and Treasurer (Principal
Financial and Accounting Officer)
/s/ Jeffrey T. Kates
- -------------------------------------
Jeffrey T. Kates Director
/s/ Don A. Forte
- -------------------------------------
Don A. Forte Director
/s/ Mark A. Pappas
- -------------------------------------
Mark A. Pappas Director
128
</TABLE>
<PAGE>
Annex A
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER
AMONG
ROYAL PRECISION, INC.,
COYOTE SPORTS, INC. AND
RP ACQUISITION CORP.
Dated as of February 2, 1999
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1. THE TRANSACTION............................................................. 1
1.1. THE MERGER.................................................................. 1
1.2. EFFECTIVE DATE OF THE MERGER................................................ 1
1.3. TAX-FREE REORGANIZATION..................................................... 1
1.4. CONVERSION OF SECURITIES.................................................... 2
1.5. TERMS OF EXCHANGE........................................................... 2
1.6. DIVIDENDS; TRANSFER TAXES................................................... 3
1.7. NO FRACTIONAL SHARES........................................................ 3
1.8. STOCK OPTIONS............................................................... 4
1.9. STOCKHOLDER APPROVAL........................................................ 4
1.10. CLOSING OF RP'S TRANSFER BOOKS.............................................. 5
1.11. ASSISTANCE IN CONSUMMATION OF THE MERGER.................................... 5
1.12. CLOSING..................................................................... 5
1.13. ILLUSTRATIVE COMPUTATION.................................................... 5
ARTICLE 2. SURVIVING CORPORATION....................................................... 5
2.1. CERTIFICATE OF INCORPORATION................................................ 5
2.2. BY-LAWS..................................................................... 5
2.3. OFFICERS; BOARD OF DIRECTORS................................................ 5
2.4. EFFECTS OF THE MERGER....................................................... 6
ARTICLE 3. REPRESENTATIONS OF CSI...................................................... 6
3.1. CSI DISCLOSURE SCHEDULE..................................................... 6
3.2. EXISTENCE AND GOOD STANDING OF CSI.......................................... 6
3.3. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT............................. 7
3.4. CAPITAL STOCK............................................................... 7
3.5. SUBSIDIARIES................................................................ 8
3.6. NO VIOLATIONS............................................................... 8
3.7. SEC DOCUMENTS............................................................... 8
3.8. LITIGATION.................................................................. 9
3.9. ABSENCE OF CERTAIN CHANGES.................................................. 9
3.10. TAX MATTERS................................................................. 10
3.11. CERTAIN EMPLOYEE PLANS...................................................... 12
3.12. LABOR MATTERS............................................................... 13
3.13. ENVIRONMENTAL LAWS AND REGULATIONS.......................................... 14
3.14. REAL PROPERTY............................................................... 15
3.15. LIMITATION ON BUSINESS CONDUCT.............................................. 16
3.16. TITLE TO PROPERTY........................................................... 16
3.17. INSURANCE................................................................... 16
3.18. INTELLECTUAL PROPERTY....................................................... 16
3.19. CERTAIN CONTRACTS........................................................... 17
3.20. NO BROKERS.................................................................. 17
3.21. CONFLICTS OF INTEREST....................................................... 17
3.22. PERSONAL PROPERTY........................................................... 17
3.23. TAKEOVER STATUTE............................................................ 17
- i -
<PAGE>
Page
----
3.24. DISCLOSURE.................................................................. 18
3.25. STATUS AS REORGANIZATION.................................................... 18
ARTICLE 4. REPRESENTATIONS OF RP....................................................... 19
4.1. RP DISCLOSURE SCHEDULE...................................................... 19
4.2. EXISTENCE AND GOOD STANDING OF RP........................................... 19
4.3. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT............................. 20
4.4. CAPITAL STOCK............................................................... 20
4.5. SUBSIDIARIES................................................................ 21
4.6. NO VIOLATIONS............................................................... 21
4.7. SEC DOCUMENTS............................................................... 21
4.8. LITIGATION.................................................................. 22
4.9. ABSENCE OF CERTAIN CHANGES.................................................. 22
4.10. TAX MATTERS................................................................. 23
4.11. CERTAIN EMPLOYEE PLANS...................................................... 24
4.12. LABOR MATTERS............................................................... 25
4.13. ENVIRONMENTAL LAWS AND REGULATIONS.......................................... 26
4.14. REAL PROPERTY............................................................... 27
4.15. LIMITATION ON BUSINESS CONDUCT.............................................. 27
4.16. TITLE TO PROPERTY........................................................... 28
4.17. INSURANCE................................................................... 28
4.18. INTELLECTUAL PROPERTY....................................................... 28
4.19. CERTAIN CONTRACTS........................................................... 29
4.20. NO BROKERS.................................................................. 29
4.21. CONFLICTS OF INTEREST....................................................... 29
4.22. PERSONAL PROPERTY........................................................... 29
4.23. TAKEOVER STATUTE............................................................ 29
4.24. DISCLOSURE.................................................................. 30
4.25. ADDITIONAL DISCLOSURE....................................................... 30
ARTICLE 5. COVENANTS................................................................... 31
5.1. NO SOLICITATION BY RP....................................................... 31
5.2 NO SOLICITATION BY CSI...................................................... 33
5.3 CONDUCT OF BUSINESSES....................................................... 35
5.4 MEETINGS OF STOCKHOLDERS.................................................... 38
5.5 FILINGS; OTHER ACTION....................................................... 39
5.6 INSPECTION OF RECORDS; ACCESS............................................... 39
5.7 PUBLICITY................................................................... 39
5.8 REGISTRATION STATEMENT/PROXY STATEMENT...................................... 40
5.9 COMPLIANCE WITH THE SECURITIES ACT; RESALE
PROSPECTUS.................................................................. 40
5.10. TAKEOVER PROVISIONS INAPPLICABLE............................................ 40
5.11. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION
STATEMENTS, ETC............................................................. 41
5.12. FURTHER ACTION.............................................................. 41
5.13. FEES AND EXPENSES........................................................... 41
5.14 STOCKHOLDERS' AGREEMENT; VOTING AGREEMENTS.................................. 43
- ii -
<PAGE>
Page
----
5.15 DIRECTORS' AND OFFICERS' INSURANCE AND
INDEMNIFICATION............................................................. 43
5.16 RP STOCK PLANS.............................................................. 43
5.17 REORGANIZATION.............................................................. 44
ARTICLE 6. CONDITIONS.................................................................. 44
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER...................................................................... 44
6.2. CONDITIONS TO OBLIGATION OF RP TO EFFECT THE
MERGER...................................................................... 45
6.3. CONDITIONS TO OBLIGATION OF CSI TO EFFECT THE
MERGER...................................................................... 45
ARTICLE 7. TERMINATION................................................................. 46
7.1. TERMINATION BY MUTUAL CONSENT............................................... 46
7.2. TERMINATION BY EITHER RP OR CSI............................................. 46
7.3. TERMINATION BY RP........................................................... 46
7.4. TERMINATION BY CSI.......................................................... 47
7.5. EFFECT OF TERMINATION AND ABANDONMENT....................................... 49
7.6. EXTENSION; WAIVER........................................................... 49
ARTICLE 8. GENERAL PROVISIONS.......................................................... 49
8.1. NONSURVIVAL, REPRESENTATIONS AND WARRANTIES................................. 49
8.2. NOTICES..................................................................... 49
8.3. ASSIGNMENT; BINDING EFFECT; BENEFIT......................................... 50
8.4. ENTIRE AGREEMENT............................................................ 50
8.5. AMENDMENT................................................................... 50
8.6. GOVERNING LAW............................................................... 50
8.7. COUNTERPARTS................................................................ 50
8.8. HEADINGS.................................................................... 50
8.9. INTERPRETATION.............................................................. 50
8.10. WAIVERS..................................................................... 51
8.11. SEVERABILITY................................................................ 51
8.12. ENFORCEMENT OF AGREEMENT.................................................... 51
8.13. SUBSIDIARIES................................................................ 51
8.14 KNOWLEDGE................................................................... 51
</TABLE>
- iii -
<PAGE>
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER (the "Agreement")
dated as of February 2, 1999 among ROYAL PRECISION, INC., a Delaware corporation
("RP"), COYOTE SPORTS, INC., a Nevada corporation ("CSI") and RP ACQUISITION
CORP., a Delaware corporation and a wholly owned subsidiary of CSI ("Merger
Sub"), evidences that, for and in consideration of the mutual covenants set
forth herein, the parties hereto, intending to be legally bound, hereby agree as
follows:
RECITALS
A. The Boards of Directors of CSI and Merger Sub and the Board of
Directors of and RP have approved the merger of Merger Sub into RP upon the
terms and subject to the conditions set forth herein (the "Merger") and have
determined that the Merger is advisable, fair to, and in the best interests of,
their respective shareholders.
B. For U.S. federal income tax purposes, it is intended that the Merger
shall qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code").
C. Concurrently herewith, certain holders of voting stock of RP and CSI,
respectively, have entered into agreements ("Shareholder Agreements") pursuant
to which they agree to vote such stock beneficially owned by them in favor of
the transactions contemplated by this Agreement.
ARTICLE 1. THE TRANSACTION.
1.1. THE MERGER. Upon the terms and subject to the conditions hereof, on
the Effective Date (as defined in Section 1.2), Merger Sub shall be merged with
and into RP which shall be the surviving corporation in the Merger (the
"Surviving Corporation"), the separate existence of Merger Sub shall thereupon
cease, and the name of the Surviving Corporation shall by virtue of the Merger
remain "Royal Precision, Inc."
1.2. EFFECTIVE DATE OF THE MERGER. The Merger shall become effective
when a properly executed Certificate of Merger is duly filed with the Secretary
of State of the State of Delaware, which filing shall be made concurrently with
the closing of the transaction contemplated by this Agreement in accordance with
Section 1.12. When used in this Agreement, the term "Effective Date" shall mean
the date and time at which such Certificate of Merger is so filed or at such
time thereafter as is provided in such Certificate of Merger.
1.3. TAX-FREE REORGANIZATION. The parties intend to adopt this Agreement
as a tax-free plan of reorganization and to consummate the Merger in accordance
with the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code. In
this regard, CSI represents that it presently intends, and that at the Effective
Date it will intend, to continue RP's historic business or use a significant
portion of RP's business assets in a business.
<PAGE>
1.4. CONVERSION OF SECURITIES.
1.4.1. As of the Effective Date, by virtue of the Merger and
without any action on the part of any holder of any shares of RP's
Common Stock, $.001 par value ("RP Shares" or "RP Common Stock"):
(a) All shares of RP Common Stock which are held by RP or
any Subsidiary (as defined in Section 8.13) of RP shall be
canceled.
(b) Subject to Section 1.7, each remaining outstanding
share of RP Common Stock shall be converted into that number of
fully paid and nonassessable shares of the Convertible Preferred
Stock, $.001 par value, of CSI ("CSI Preferred Stock"), having
the rights and preferences set forth in Exhibit 1.4.1 hereto,
determined by dividing (i) the number of shares of CSI's Common
Stock, par value $.001 per share ("CSI Common Stock"), actually
issued and outstanding as of the Effective Date by (ii) the
number of shares of RP Common Stock actually issued and
outstanding as of the Effective Date, carried to four decimal
places (the "Exchange Ratio").
(c) Each issued and outstanding share of Common Stock,
without par value, of Merger Sub ("Merger Sub Common Stock")
shall be converted into and become one fully paid and
nonassessable share of Common Stock, $.001 par value, of the
Surviving Corporation.
1.5. TERMS OF EXCHANGE. The manner of exchanging RP Common Stock for CSI
Preferred Stock in the Merger shall be as follows:
1.5.1. On the Effective Date, CSI shall make available to such
United States federally or state chartered commercial bank or trust
company having net capital of not less than $100,000,000 (or a
subsidiary thereof) as may be selected as exchange agent by CSI (the
"Exchange Agent"), for the benefit of each holder of RP Common Stock, a
sufficient number of certificates representing CSI Preferred Stock to
effect the delivery of CSI Preferred Stock required to be issued
pursuant to Section 1.4. CSI shall enter into an agreement (the
"Exchange Agent Agreement") with the Exchange Agent pursuant to which
the Exchange Agent shall be obligated to provide the services set forth
in Section 1.5.2.
1.5.2. The Exchange Agent Agreement shall provide that promptly
after the Effective Date, the Exchange Agent shall mail to each holder
of record (as shown on the books of RP's transfer agent as of the
Effective Date) of a certificate or certificates which immediately prior
to the Effective Date represented outstanding shares of RP Common Stock
(individually, a "Certificate" and collectively, the "Certificates") (a)
a form of letter of transmittal (which shall specify that delivery shall
be effected, and risk of loss and title to the Certificates shall pass,
only upon proper delivery of the Certificates to the Exchange Agent) and
(b) instructions for use in effecting the surrender of the Certificates
for exchange. Upon surrender of
- 2 -
<PAGE>
Certificates for cancellation to the Exchange Agent, together with such
letter of transmittal duly executed and any other required documents,
the holder of such Certificates shall be entitled to receive for each of
the shares of RP Common Stock represented by such Certificates the
number of shares of CSI Preferred Stock into which such shares of RP
Common Stock are converted in the Merger and the Certificates so
surrendered shall forthwith be canceled. Until so surrendered,
Certificates shall represent solely the right to receive the number of
shares of CSI Preferred Stock into which such shares of RP Common Stock
are converted in the Merger and any cash in lieu of fractional shares of
CSI Preferred Stock as contemplated by Section 1.7 with respect to each
of the shares of RP Common Stock represented thereby. The Exchange Agent
shall not be entitled to vote or exercise any rights of ownership with
respect to the CSI Preferred Stock held by it from time to time
hereunder, except that it shall receive and hold all dividends or other
distributions paid or distributed with respect to such CSI Preferred
Stock for the account of the persons entitled thereto.
1.5.3. Certificates surrendered for exchange by any Affiliate (as
defined in Section 5.9.1) shall not be exchanged for certificates
representing shares of CSI Preferred Stock until CSI has received the
written agreements from such Affiliate as provided in Section 5.9.2.
1.6. DIVIDENDS; TRANSFER TAXES. No dividends or other distributions that
are declared or made on CSI Preferred Stock will be paid to persons entitled to
receive certificates representing CSI Preferred Stock pursuant to this Agreement
until such persons surrender their Certificates representing RP Common Stock.
Upon such surrender, there shall be paid to the person in whose name the
certificates representing such CSI Preferred Stock shall be issued any dividends
or other distributions which shall have become payable with respect to such CSI
Preferred Stock in respect of a record date after the Effective Date. In no
event shall the person entitled to receive such dividends be entitled to receive
interest on such dividends. If any cash in lieu of fractional shares or any
certificate representing CSI Preferred Stock is to be paid to or issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of certificates for
such CSI Preferred Stock in a name other than that of the registered holder of
the Certificate surrendered, or shall establish to the satisfaction of the
Exchange Agent that such tax has been paid or is not applicable. Notwithstanding
the foregoing, neither the Exchange Agent nor any party hereto shall be liable
to a holder of shares of RP Common Stock for any shares of CSI Preferred Stock
or dividends thereon properly delivered to a public official pursuant to any
applicable escheat laws.
1.7. NO FRACTIONAL SHARES. No certificates or scrip representing less
than one share of CSI Preferred Stock shall be issued upon the surrender for
exchange of Certificates representing RP Common Stock pursuant to Section 1.5.2.
In lieu of any such fractional share, each holder of RP Common Stock who would
otherwise have been entitled
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to a fraction of a share of CSI Preferred Stock upon surrender of Certificates
for exchange pursuant to Section 1.5.2 shall be paid upon such surrender cash
(without interest) in an amount equal to (x) such fractional interest multiplied
by (y) the product of $6.00 multiplied by the reciprocal of the Exchange Ratio.
As soon as practicable after the determination of the amount of cash to be paid
to former stockholders of RP in lieu of any fractional interests, CSI shall make
available to the Exchange Agent, which shall in turn make available in
accordance with this Agreement, such amounts to such former stockholders.
1.8. STOCK OPTIONS.
1.8.1. Each option or warrant to purchase RP Common Stock issued
pursuant to the Royal Precision, Inc. Stock Option Plan and the FM
Precision Golf Corp. 1997 Stock Option Plan, or otherwise which is (a)
set forth in the RP Disclosure Schedule (as hereinafter defined), and
(b) outstanding as of the Effective Date (individually, an "RP Option"
and, collectively, the "RP Options") shall be assumed by CSI and
converted into an option or warrant (or a substitute option shall be
granted) to purchase the number of shares of CSI Common Stock (rounded
to the nearest whole share) equal to the number of shares of CSI
Preferred Stock into which the number of shares of RP Common Stock
subject to such RP Option would have been converted pursuant to the
Merger (that is, the number of shares of RP Common Stock subject to such
RP Option multiplied by the Exchange Ratio), at an exercise price per
share of CSI Preferred Stock (rounded to the nearest penny) equal to the
former exercise price per share of RP Common Stock under the RP Option
immediately prior to the Effective Date multiplied by the reciprocal of
the Exchange Ratio; provided, however, that in the case of any RP Option
to which Section 421 of the Code applies by reason of its qualification
under Section 422 of the Code, the conversion formula shall be adjusted,
if necessary, to comply with Section 424(a) of the Code and the
regulations issued thereunder. Except as otherwise provided in the
applicable plan or agreement granting the RP Options, the duration,
vesting and other terms of each new option to purchase shares of CSI
Common Stock shall be the same as the original RP Option except that all
references in the option agreement to RP shall be deemed to be
references to CSI. CSI and RP agree to take such action as may be
necessary to effectuate the foregoing provisions.
1.8.2. As soon as practicable after the Effective Date, CSI shall
deliver to each holder of an option to purchase CSI Common Stock a
notice that accurately reflects the changes to such option contemplated
by this Section 1.8.
1.9. STOCKHOLDER APPROVAL. Each of RP and CSI shall take all action
reasonably necessary, in accordance with applicable law and their respective
certificate or articles of incorporation and by-laws, to convene a special
meeting of the holders of RP Common Stock (the "RP Meeting") and a special
meeting of the holders of CSI Common Stock (the "CSI Meeting") as promptly as
practicable for the purpose of considering and taking action upon this
Agreement. Subject to Section 5.1, the Board of Directors of RP will recommend
that holders of RP Common Stock vote to approve the Merger and to adopt this
Agreement at the RP Meeting and the Board of Directors of CSI will recommend
that
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holders of CSI Common Stock vote to approve an increase in the number of
authorized shares of the CSI Preferred Stock and the issuance of CSI Preferred
Stock pursuant to the Merger at the CSI Meeting.
1.10. CLOSING OF RP'S TRANSFER BOOKS. At the Effective Date, the stock
transfer books of RP shall be closed and no transfer of shares of RP Common
Stock shall be made thereafter. In the event that, after the Effective Date,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged for CSI Preferred Stock and/or cash as provided in Sections 1.4,
1.5, 1.6 and 1.7.
1.11. ASSISTANCE IN CONSUMMATION OF THE MERGER. Each of CSI,
Merger Sub and RP shall provide all reasonable assistance to, and shall
cooperate with, each other to bring about the consummation of the Merger as soon
as practicable in accordance with the terms and conditions of this Agreement.
CSI shall cause Merger Sub to perform all of its obligations in connection with
this Agreement.
1.12. CLOSING. The closing of the transaction contemplated by this
Agreement shall take place (a) at the offices of Kramer Levin Naftalis & Frankel
LLP, New York, New York at 10:00 A.M. local time on the day which is not more
than one business day after the day on which the last of the conditions set
forth in Article 6 (other than those requiring an exchange of a certificate,
opinion or other document, or the taking of other action, at the closing) is
fulfilled or waived or (b) at such other time and place as CSI and RP shall
agree in writing.
1.13. ILLUSTRATIVE COMPUTATION. For the avoidance of doubt, if the
Exchange Ratio for purposes of Section 1.4.1(b) were to be determined on the
basis of the number of shares of CSI Common Stock and RP Common Stock stated to
be outstanding in Sections 3.4 and 4.4 hereof, the Exchange Ratio would be
1.0195 (that is, 5,777,692 divided by 5,667,375) and the reciprocal of the
Exchange Ratio would be .9809.
ARTICLE 2. SURVIVING CORPORATION.
2.1. CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
RP as of the Effective Date shall be the Certificate of Incorporation of the
Surviving Corporation until duly amended by the stockholder of the Surviving
Corporation subsequent to the Effective Date.
2.2. BY-LAWS. The By-Laws of Merger Sub as in effect immediately prior
to the Effective Date shall be the By-Laws of the Surviving Corporation, and
thereafter may be amended in accordance with their terms and as provided by law.
2.3. OFFICERS; BOARD OF DIRECTORS.
2.3.1. The directors of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving
Corporation until their successors have been duly elected or appointed
or until their earlier death, resignation
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or removal, in accordance with the Surviving Corporation's Certificate
of Incorporation and By-Laws.
2.3.2. The officers of RP at the Effective Time and such other
persons as may be designated by CSI shall, from and after the Effective
Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed or until their earlier
death, resignation or removal, in accordance with the Surviving
Corporation's Certificate of Incorporation and By-Laws.
2.4. EFFECTS OF THE MERGER. The Merger shall have the effects set forth
in Section 259 of the Delaware General Corporation Law ("DGCL").
ARTICLE 3. REPRESENTATIONS OF CSI. CSI hereby represents and warrants to RP
that:
3.1. CSI DISCLOSURE SCHEDULE
3.1.1. The CSI Disclosure Schedule sets forth all of the
information concerning CSI, its Subsidiaries and the CSI Shares required
in this Article 3. To the extent any statement in this Article 3 is
untrue, the CSI Disclosure Schedule sets forth the statements necessary
to make the statements in this Article 3 true. All information and
statements set forth in the CSI Disclosure Schedule shall be deemed to
supersede and correct the statements made in this Article 3 and to be
additional representations and warranties of CSI. The CSI Disclosure
Schedule sets forth all of the information and statements required in
numbered sections bearing the number of the Section of this Agreement
calling for such information and in the order of such numbers in this
Agreement.
3.1.2. CSI has delivered to RP complete and accurate copies of
(a) any written contract or other document referred to in the CSI
Disclosure Schedule or herein and (b) the CSI Reports referred to in
Section 3.7 of this Agreement.
3.2. EXISTENCE AND GOOD STANDING OF CSI. CSI is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted. CSI is duly qualified or licensed as a foreign corporation to do
business, and is in good standing in each jurisdiction in which the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified or licensed would not reasonably be expected to
have a material adverse effect on the consolidated business, financial condition
or results of operations of CSI and its Subsidiaries (a "CSI Material Adverse
Effect"). Each of CSI's Subsidiaries is a corporation or limited liability
company duly organized, validly existing and in good standing under the laws of
the state of its incorporation or formation, has the corporate or other power
and corporate or other authority to own its properties and to carry on its
business as it is now being conducted, and is duly licensed or qualified to do
business
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and is in good standing in each jurisdiction in which the ownership of its
property or the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so licensed or qualified or to be in
good standing would not reasonably be expected to have, individually or in the
aggregate, a CSI Material Adverse Effect. Neither CSI nor any of its
Subsidiaries is in violation of any order of any court, governmental authority
or arbitration board or tribunal, or any law, ordinance, governmental rule or
regulation to which CSI or any CSI Subsidiary or any of their respective
properties or assets is subject, except where such violation would not have,
individually or in the aggregate, a CSI Material Adverse Effect. CSI and its
Subsidiaries have obtained all licenses, permits and other authorizations and
have taken all actions required by applicable law or governmental regulations in
connection with their business as now conducted, where the failure to obtain any
such items or to take any such action would reasonably be expected to have a CSI
Material Adverse Effect. The copies of the certificate or articles of
incorporation and ByLaws of CSI, Merger Sub and each other CSI Subsidiary
previously delivered to RP are true and correct. Neither CSI nor any of the CSI
Subsidiaries is in violation of any of the provisions of their restated articles
of incorporation or By-Laws.
3.3. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. Each of CSI and
Merger Sub has the requisite corporate power and corporate authority to execute
and deliver this Agreement and all agreements and documents contemplated hereby
and consummate the transactions contemplated hereby and thereby. Subject only to
the approval of the amendment of CSI's articles of incorporation and the
issuance of the CSI Preferred Stock pursuant to this Agreement and the
transaction contemplated hereby by the holders of a majority of the outstanding
CSI Shares, the consummation by CSI of the transaction contemplated hereby has
been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents contemplated hereby (when executed
and delivered pursuant hereto for value received) will constitute, the valid and
legally binding obligations of CSI, enforceable in accordance with their
respective terms subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
3.4. CAPITAL STOCK. CSI has an authorized capitalization consisting of
25,000,000 shares of Common Stock, par value $.001 per share, of which 5,777,692
shares are issued and outstanding, and 4,000,000 shares of preferred stock, par
value $.001 per share, of which 75,000 shares are issued and outstanding. On or
immediately prior to the Effective Date, CSI will have authorized capitalization
as set forth in Exhibit 3.4.1 (including the CSI Preferred Stock to be issued
pursuant to the Merger). Except as set forth in the CSI Disclosure Schedule, CSI
has no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of CSI on any matter.
All such outstanding shares have been and will be duly authorized and validly
issued and are and will be fully paid and non-assessable. Except as set forth in
the CSI Disclosure Schedule, there are, and at the Effective Date, there will be
no outstanding subscriptions, options, warrants, rights, calls, commitments,
conversion rights, convertible securities, rights of exchange, plans or other
agreements providing for the purchase, issuance or sale of any shares of the
capital stock of CSI by or to CSI, other than as contemplated by this Agreement.
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3.5. SUBSIDIARIES. Except as set forth in the CSI Disclosure Schedule,
CSI owns each of the outstanding shares of capital stock of each of CSI's
Subsidiaries. Each of the outstanding shares of capital stock of each of CSI's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable,
and except as set forth in the CSI Disclosure Schedule, is owned by CSI free and
clear of all liens, pledges, security interests, claims or other encumbrances.
The CSI Disclosure Schedule sets forth with respect to each CSI Subsidiary (a)
its name and jurisdiction of incorporation, (b) its authorized capital stock,
and (c) the number of issued and outstanding shares of capital stock. Except for
interests in the CSI Subsidiaries, neither CSI nor any CSI Subsidiary owns
directly or indirectly any interest or investment (whether equity or debt) in
any corporation, partnership, joint venture, limited liability company,
business, trust or entity.
3.6. NO VIOLATIONS. The execution and delivery of this Agreement by CSI
and the consummation of the transaction contemplated hereby (a) will not violate
any provision of the articles of incorporation or by-laws of CSI or its
Subsidiaries, (b) will not violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of CSI or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which CSI or any of its
Subsidiaries is a party, or by which CSI or any of its Subsidiaries or any of
their properties is bound or affected, except for any of the foregoing matters
which would not reasonably be expected to have, individually or in the
aggregate, a CSI Material Adverse Effect; (c) will not violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to CSI or any of
its Subsidiaries or any of their respective properties or assets (assuming
completion of the Regulatory Filings as defined in (d) below), except for
violations which would not reasonably be expected to have, individually or in
the aggregate, a CSI Material Adverse Effect, or (d) other than the filings
provided for in Section 1, filings under the Securities Exchange Act of 1934
(the "Exchange Act"), the Securities Act of 1933, as amended (the "Securities
Act") or applicable state securities and "Blue Sky" laws or filings in
connection with the maintenance of qualification to do business in other
jurisdictions (collectively, the "Regulatory Filings"), will not require any
material consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority, the
failure to obtain or make which would reasonably be expected to have,
individually or in the aggregate, a CSI Material Adverse Effect.
3.7. SEC DOCUMENTS.
3.7.1. CSI has furnished RP with each registration statement,
Quarterly Report on Form 10-QSB, Report on Form 8-KSB, report, proxy
statement or information statement, including all exhibits thereto,
prepared by CSI since September 18, 1997, including, without limitation,
(a) its Annual Report on Form 10-KSB for its fiscal year ended December
31, 1997 (the "CSI Balance Sheet Date") which includes
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the consolidated balance sheets of CSI and its Subsidiaries (the "CSI
Balance Sheet") as of such date (the "CSI Balance Sheet Date") and CSI's
Quarterly Reports on Form 10- QSB, and Reports on Form 8-K filed since
the filing of such Annual Report and (b) its proxy statement for its
annual meeting of Stockholders held on May 9, 1998, each of (a) and (b)
in the form (including exhibits and any amendments thereto) filed with
the Securities and Exchange Commission (the "SEC") and the items in (a)
and (b), the "CSI Reports." As of their respective dates, the CSI
Reports (including, without limitation, any financial statement or
schedules included or incorporated by reference therein) (i) were
prepared in all material respects in accordance with the applicable
requirements of the Exchange Act, and the respective rules and
regulations thereunder, and (ii) did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. The
1996 and 1997 consolidated financial statements of CSI included in or
incorporated by reference into the CSI Reports (including the related
notes and schedules) present fairly, in all material respects the
consolidated financial position of CSI and its Subsidiaries as of
December 31, 1997 and 1996 and the consolidated results of their
operations and their cash flows for such fiscal periods, in conformity
with generally accepted accounting principles ("GAAP"), consistently
applied during the periods involved. Except as and to the extent set
forth on the CSI Balance Sheet, including all notes thereto, or as set
forth in the CSI Reports or the CSI Disclosure Schedule, neither CSI nor
any of its Subsidiaries has any material liabilities or obligations of
any nature (whether accrued, absolute, contingent or otherwise) whether
or not required to be reflected on, or reserved against in, a
consolidated balance sheet of CSI, prepared in accordance with GAAP,
consistently applied, except liabilities arising in the ordinary course
of business since such date which would not reasonably be expected to
have, individually or in the aggregate, a CSI Material Adverse Effect.
3.8. LITIGATION. There is no action, suit or proceeding pending against
CSI or the CSI Subsidiaries, or, to the knowledge of CSI, overtly threatened
against CSI or its Subsidiaries or any of their respective properties or assets,
at law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality which would reasonably be expected to have,
individually or in the aggregate, a CSI Material Adverse Effect, or would
prevent or delay the consummation of the transaction contemplated by this
Agreement. Neither CSI nor any of its Subsidiaries is subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, in the future would have a CSI Material
Adverse Effect or would prevent or delay the consummation of the transaction
contemplated hereby.
3.9. ABSENCE OF CERTAIN CHANGES. Since the CSI Balance Sheet Date, each
of CSI and its Subsidiaries has conducted its business only in the ordinary
course of such business and there has not been (a) any event or changes with
respect to CSI and its Subsidiaries (other than events or changes in general
economic conditions or developments affecting the industry generally) having,
individually or in the aggregate, a CSI Material Adverse Effect, (b) any
declaration, setting aside or payment of any dividend or other
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distribution with respect to its capital stock, (c) any material change in its
accounting principles, practices or methods, (d) any amendments or changes in
the Amended and Restated Articles of Incorporation or By-Laws of CSI, (e) any
material revaluation by CSI of any of its assets, including writing down the
value of inventory or writing off notes or accounts receivable other than in the
ordinary course of business, (f) any sale of a material amount of property of
CSI or its Subsidiaries, except in the ordinary course of business, or (g) any
increase in the compensation or benefits or establishment of any bonus,
insurance, severance deferred compensation, pension, retirement, profit sharing,
stock option (including, without limitation, the granting of stock options,
stock appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit plan, or any other increase in the
compensation payable or to become payable to any executive officers of CSI or
any of the CSI Subsidiaries except in the ordinary course of business consistent
with past practice or except as required by applicable law.
3.10. TAX MATTERS.
Except as set forth in the CSI Disclosure Schedule:
3.10.1. For purposes of this Agreement "Taxes" shall mean all
taxes, assessments, charges, duties, fees, levies or other governmental
charges, including, without limitation, all federal, state, local,
foreign and other income, franchise, profits, capital gains, capital
stock, transfer, sales, use, occupation, property, excise, severance,
windfall profits, stamp, license, payroll, withholding and other taxes,
assessments, charges, duties, fees, levies or other governmental charges
of any kind whatsoever (whether payable directly or by withholding and
whether or not requiring the filing of a Return), and all estimated
taxes, deficiency assessments, additions to tax, penalties and interest
and shall include any liability for such amounts as a result either of
being a member of a combined, consolidated, unitary or affiliated group
or of a contractual obligation to indemnify any person or other entity.
3.10.2. Each of CSI and its Subsidiaries has timely filed or
caused to be timely filed all returns, statements, forms, declarations
and reports for Taxes ("Returns") which are required to be filed by, or
with respect to, any of them on or prior to the Effective Date (taking
into account all applicable extensions). The Returns have accurately
reflected and will accurately reflect all liability for Taxes of CSI and
its Subsidiaries for the periods covered thereby.
3.10.3. All Taxes and Tax liabilities of CSI and its Subsidiaries
for all taxable years or periods that end on or before the Effective
Date and, with respect to any taxable year or period beginning before
and ending after the Effective Date, the portion of such taxable year or
period ending on and including the Effective Date, have been timely paid
or will be timely paid in full on or prior to the Effective Date or
accrued and adequately disclosed and fully provided for on the books and
records of CSI in accordance with GAAP.
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3.10.4. Complete and accurate copies of all CSI federal, state
and local income tax returns have been made available to RP.
3.10.5. Neither CSI nor any of its Subsidiaries has been the
subject of an audit or other examination of Taxes by the tax authorities
of any nation, state or locality nor has CSI or any of its Subsidiaries
received any notices from any taxing authority relating to any issue
which could affect the Tax liability of CSI or any of its Subsidiaries.
Neither CSI nor any of its Subsidiaries, as of the Effective Date, (A)
has entered into an agreement or waiver or been requested to enter into
an agreement or waiver extending any statute of limitations relating to
the payment or collection of Taxes of CSI or any of its Subsidiaries or
(B) is presently contesting the Tax liability of CSI or any of its
Subsidiaries before any court, tribunal or agency. Neither CSI nor any
of its Subsidiaries has granted a power-of-attorney relating to Tax
matters to any person. All final adjustments made by the Internal
Revenue Service ("IRS") with respect to any federal tax return of CSI or
its Subsidiaries have been reported for state and local income tax
purposes to the relevant state or local taxing authorities.
3.10.6. Neither CSI nor any of its Subsidiaries has been included
in any "consolidated," "unitary" or "combined" Return provided for under
the law of the United States, any foreign jurisdiction or any state or
locality with respect to Taxes for any taxable period for which the
statute of limitations has not expired (other than a Return with respect
to which CSI was the common parent).
3.10.7. All Taxes which CSI or any of its Subsidiaries is (or
was) required by law to withhold or collect have been duly withheld or
collected and have been timely paid over to the proper authorities to
the extent due and payable.
3.10.8. There are no Tax sharing, allocation, indemnification or
similar agreements in effect as between CSI or any predecessor or
affiliate thereof and any other party under which CSI or any of its
Subsidiaries could be liable for any Taxes or other claims of any party
other than of CSI and its Subsidiaries.
3.10.9. No requests for ruling or determination letters relating
to federal, state or local income taxes paid or payable by CSI or any of
its Subsidiaries are pending with any taxing authority.
3.10.10. (a) Neither CSI nor any CSI Subsidiary has agreed to or
is required to make any adjustment pursuant to Section 481 of the Code
or the corresponding tax laws of any nation, state or locality by reason
of a change in accounting method initiated by CSI or its Subsidiaries or
required by law, (b) CSI has no knowledge that the IRS or any other
taxing authority has proposed or purported to require any such
adjustment or change in accounting method and (c) CSI has no knowledge
or belief that any such adjustment under Section 481 of the Code or the
corresponding tax laws of any nation, state or locality will be required
of CSI or its Subsidiaries upon the completion of, or by reason of, the
transaction contemplated by this Agreement.
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3.10.11. (a) There are no deferred intercompany transactions
between CSI and any of its Subsidiaries or between its Subsidiaries
which will or may result in the recognition of income upon the
consummation of the transaction contemplated by this Agreement, and (b)
there are no other transactions or facts existing with respect to CSI
and/or its Subsidiaries which by reason of the consummation of the
transaction contemplated by this Agreement will result in CSI and/or its
Subsidiaries recognizing income.
3.10.12. There are no Tax liens on any of the assets or property
of CSI or its Subsidiaries.
3.10.13. There are no contracts, agreements or plans entered into
by CSI or its Subsidiaries covering any person that individually or
collectively would require CSI or any of its Subsidiaries to make any
payments of any amount which would not be deductible by reason of the
provisions of Section 162(m) or Section 280G of the Code.
3.10.14. Neither CSI nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f) of the Code) owned by it.
3.11. CERTAIN EMPLOYEE PLANS.
3.11.1. (a) "Benefit Plan" means any "employee benefit plan" as
defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), any fringe benefit plan, any equity
compensation plan or arrangement (including without limitation, stock
option, restricted stock and stock purchase plans), any plan, policy or
arrangement for the provision of executive compensation, incentive
benefits, bonuses or severance benefits, any employment contract,
collective bargaining agreement, deferred compensation agreement, Code
section 125 cafeteria plan or split dollar arrangement, any
participation or similar agreement with a multi-employer pension fund,
or any other plan, policy, arrangement or scheme for the provision or
funding of employee benefits with respect to which an CSI or RP
Controlled Group Member in the past or present, directly or indirectly
maintained or maintains, sponsored or sponsors, or had or has any
liability or obligation.
(b) "CSI Controlled Group Member" means CSI and each other person
or entity required to be aggregated with CSI under Code section 414(b),
(c), (m) or (o).
(c) "RP Controlled Group Member" means RP and each other person
or entity required to be aggregated with RP under Code section 414(b),
(c), (m) or (o).
3.11.2. Each Benefit Plan maintained by any CSI Controlled Group
Member (the "CSI Benefit Plans") complies with, and has been
administered in accordance
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with, in all material respects, all applicable requirements of law,
except for instances of non-compliance that would not reasonably be
expected to have caused, individually or in the aggregate, a CSI
Material Adverse Effect. The CSI Benefit Plans are listed
in the CSI Disclosure Schedule and copies or descriptions of all
material Plans have previously been provided to RP.
3.11.3. With respect to each CSI Benefit Plan intended to qualify
under section 401(a) of the Code, (a) a favorable determination letter
has been issued by or an application is pending with the IRS with
respect to the qualification of each CSI Benefit Plan, and (b) no
"reportable event" or "prohibited transaction" (as such terms are
defined in ERISA and the Code) or termination has occurred under
circumstances which present a risk of material liability by any CSI
Controlled Group Member to any governmental entity or other person,
including an CSI Benefit Plan. Each CSI Benefit Plan which is subject to
Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code has
been maintained in compliance with the minimum funding standards of
ERISA and the Code and no such CSI Benefit Plan has incurred any
"accumulated funding deficiency" (as defined in Section 412 of the Code
and Section 302 of ERISA), whether or not waived. No CSI Controlled
Group Member directly or indirectly contributes to, has an obligation to
contribute to or has, or could be reasonably expected to have, liability
with respect to, and has not directly or indirectly maintained,
sponsored, contributed to or had an obligation to contribute to at any
time within the 10 year period ending on the date of the Closing, any
employee benefit plan which is a multi-employer plan subject to the
requirements of Subtitle E of Title IV of ERISA.
3.11.4. Except as required by Code section 4980B or 162 or Part 6
of Subtitle B of Title I of ERISA, no CSI Controlled Group Member
provides any health, welfare or life insurance benefits to any of its
former or retired employees, which benefits would be material either
individually or in the aggregate to CSI.
3.12. LABOR MATTERS.
3.12.1. Except as set forth in the CSI Disclosure Schedule,
neither CSI nor any of its Subsidiaries is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of CSI, overtly threatened against CSI or its Subsidiaries
relating to their business, except for any such proceeding which would
not reasonably be expected to have, individually or in the aggregate, a
CSI Material Adverse Effect. To the knowledge of CSI, there are no
organizational efforts with respect to the formation of a collective
bargaining unit presently being made or overtly threatened involving
employees of CSI or any of its Subsidiaries.
3.12.2. CSI has delivered to RP copies of all employment
agreements, consulting agreements, severance agreements, bonus and
incentive plans, profit-sharing plans and other material agreements,
plans or arrangements with respect
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to compensation of the employees of CSI and its Subsidiaries (the "CSI
Compensation Arrangements"). The Merger will not accelerate or otherwise
give rise to payments pursuant to the CSI Compensation Arrangements.
3.13. ENVIRONMENTAL LAWS AND REGULATIONS.
3.13.1. CSI and each of its Subsidiaries is in compliance in all
material respects with all applicable federal, state and local laws and
regulations of the United States and national and local laws and
regulations of the United Kingdom relating to pollution, hazardous
substances, or protection of human health or the environment
(collectively, "Environmental Laws") which compliance includes, but is
not limited to, the possession by CSI and its Subsidiaries of all
material permits and other governmental authorizations required under
applicable Environmental Laws, and compliance with the terms and
conditions thereof. Neither CSI nor any of its Subsidiaries has received
written notice of, or, to the knowledge of CSI, is the subject of, any
action, cause of action, claim, investigation, demand or notice,
including without limitation, non-compliance orders, warning letters, or
notices of violation, by any person or entity alleging liability under
or non-compliance with any Environmental Law (an "CSI Environmental
Claim"), nor to the knowledge of CSI is there any basis for any CSI
Environmental Claim that would reasonably be expected to have,
individually or in the aggregate, a CSI Material Adverse Effect. To the
knowledge of CSI there are no circumstances that are reasonably likely
to prevent or interfere with such material compliance or give rise to
such liability in the future.
3.13.2. There are no CSI Environmental Claims, which would
reasonably be expected to have, individually or in the aggregate, a CSI
Material Adverse Effect, that are pending or, to the knowledge of CSI,
overtly threatened against CSI or any of its Subsidiaries or, to the
knowledge of CSI, against any person or entity whose liability for any
CSI Environmental Claim CSI or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
3.13.3. Neither CSI nor any CSI Subsidiary (a) has handled or
discharged, nor has it allowed or arranged for any third party to handle
or discharge, any hazardous substances to, at or upon: (i) any location
other than a site lawfully permitted to receive such hazardous
substances, (ii) any parcel of real property owned or leased by CSI or
any CSI Subsidiary, except in compliance with applicable Environmental
Laws; (iii) any site which, pursuant to CERCLA or any similar state law
or law of the U.K. (x) has been placed on the National Priorities List
or its state or U.K. equivalent, or (y) the Environmental Protection
Agency or any equivalent agency in the U.K. or the relevant state agency
has notified CSI that it has proposed or is proposing to place on the
National Priorities List or its state equivalent or equivalent in the
U.K.; or (b) has any knowledge that there has occurred or is presently
occurring a discharge, or threatened discharge, of any hazardous
substance on, into or beneath the surface of, or adjacent to, any real
property owned or leased by CSI or any CSI Subsidiary.
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3.13.4. The CSI Disclosure Schedule identifies (a) all
environmental audits, assessments, or occupational health studies
undertaken by CSI or its agents on its behalf, or, to the knowledge of
CSI, undertaken by any governmental authority, or any third party,
relating to or affecting any real property owned or leased by CSI or
any CSI Subsidiary; (b) the results of any ground, water, soil, air or
asbestos monitoring undertaken by CSI or its agents on its behalf, or,
to the knowledge of CSI, undertaken by any governmental authority or any
third party, relating to or affecting any real property owned or leased
by CSI or any CSI Subsidiary; (c) all material written communications
between CSI and any governmental authority arising under or related to
Environmental Laws; and (d) all outstanding citations issued under OSHA,
or similar state or local statutes, laws, ordinances, codes, rules,
regulations, orders, rulings or decrees relating to or affecting any
real property owned or leased by CSI or any CSI Subsidiary.
3.14. REAL PROPERTY.
3.14.1. CSI has delivered to RP either copies or fair and
accurate summaries (the "CSI Property Documents") of each of its leases,
subleases, deeds, material licenses or other material agreements or
instruments (and any amendments thereto) under which CSI or any of its
Subsidiaries owns, uses or occupies or has the right to use or occupy,
now or in the future, any real property (the "CSI Real Estate
Agreements"). Each CSI Real Estate Agreement is valid, binding and in
full force and effect, all rent and other sums and charges payable by
CSI and its Subsidiaries as tenants thereunder are current, no
termination event or condition or uncured default of a material nature
on the part of CSI or any such Subsidiary or, to the knowledge of CSI,
as to a landlord, exists under any CSI Real Estate Agreement, except for
any of the foregoing matters which would not reasonably be expected to
have, individually or in the aggregate, a CSI Material Adverse Effect.
The information contained in the CSI Property Documents is true and
correct in all material respects.
3.14.2. Except for any of the following matters which would not
reasonably be expected to have, individually or in the aggregate, a CSI
Material Adverse Effect:
(a) CSI has not granted, and to the best of CSI's
knowledge, no other person has granted, any leases, subleases,
licenses or other agreements granting to any person other than
CSI any right to possession, use, occupancy or enjoyment of the
property covered by the CSI Real Estate Agreements, or any
portion thereof, and
(b) CSI is not obligated under any option, right of first
refusal or any contractual right to purchase, acquire, sell or
dispose of any real property covered by the CSI Real Estate
Agreements.
3.14.3. None of the CSI Real Estate Agreements contains
continuous operating covenants, radius restrictions or provisions
requiring the consent of the landlord to the Merger or the assumption of
CSI's obligations under the CSI Real
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Estate Agreements in the manner contemplated by this Agreement, except
for any of the foregoing matters which would not reasonably be expected
to have, individually or in the aggregate, a CSI Material Adverse
Effect.
3.15. LIMITATION ON BUSINESS CONDUCT. Neither CSI nor any of the CSI
Subsidiaries is a party to, or has any obligation under, any contract or
agreement, written or oral, which contains any covenants currently or
prospectively limiting in any material respect the freedom of CSI or any of the
CSI Subsidiaries to engage in any line of business or to compete with any entity
or which would prohibit the business of RP, CSI or any of their respective
Subsidiaries from being conducted in substantially the same manner as it was
conducted prior to the Merger.
3.16. TITLE TO PROPERTY. Each of CSI and each of the CSI Subsidiaries
owns the material properties and assets that it purports to own free and clear
of all liens, security interests, charges or encumbrances, except for any liens,
security interests, charges or encumbrances which arise in the ordinary course
of business (including mechanics' liens and other similar statutory liens) and
do not materially impair CSI's or any CSI Subsidiary's ownership or use of any
such properties or assets, or liens for taxes not yet due. The rights,
properties and assets presently owned, leased or licensed by CSI include all
rights, properties and assets necessary to permit CSI and the CSI Subsidiaries
to conduct their business in all material respects in the same manner as their
businesses have been conducted prior to the date hereof.
3.17. INSURANCE. CSI and its Subsidiaries maintain with respect to their
operations and their assets, in full force and effect, policies of insurance in
the ordinary course of business as is usual and customary for businesses
similarly situated to CSI. CSI has provided RP copies of all insurance policies
so maintained and all claims associated with its operations and the operations
of its Subsidiaries for the past 18 months.
3.18. INTELLECTUAL PROPERTY. Every material trade secret (including
know-how, inventions, designs and processes), patent, patent right, trademark,
trademark right, logo, service mark, trade name or copyright, or application
thereof, and licenses and rights with respect to the foregoing, used in
connection with the business of CSI and its Subsidiaries (the "CSI Intellectual
Property"), is protected by CSI in a manner which, under the circumstances, is
prudent and commercially reasonable, and owned by CSI or its Subsidiaries free
and clear of any liens, encumbrances, claims or restrictions whatsoever which
would have a CSI Material Adverse Effect, direct or indirect. There are no valid
grounds for any bona fide claims (i) to the effect that the business of CSI or
any of the CSI Subsidiaries infringes on any copyright, patent, trademark,
service mark or trade secret; (ii) against the use by CSI or any of the CSI
Subsidiaries, of any patents, patent rights, trademarks, trademark rights,
logos, trade names, service marks, trade secrets, copyrights, technology,
know-how or computer software programs and applications used in the business of
CSI or any of the CSI Subsidiaries as currently conducted or as proposed to be
conducted; (iii) challenging the ownership, validity or effectiveness of any of
the patents, patent rights, registered and material unregistered trademarks,
logos and service marks, registered copyrights, trade names and any applications
therefor owned by CSI or any of the CSI Subsidiaries or other trade secret
material to CSI or any of the CSI Subsidiaries; or (iv) challenging the license
or legally enforceable right to use of any third-party patents, patent rights,
trademarks, trademark rights, logos, service marks, trade names and copyrights
by CSI or any of the CSI
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Subsidiaries, except, in each case, for claims that, if determined adversely to
CSI, would not reasonably be expected to have, individually or in the aggregate,
a CSI Material Adverse Effect. Neither CSI nor any of its Subsidiaries has
granted to any other person the right to use the CSI Intellectual Property, or
any part thereof. CSI is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner of, licensor
of, or other claimant to, any patent, patent rights, trademark, trademark
rights, logo, service mark, trade name, trade name rights, copyright or other
intangible assets, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
3.19. CERTAIN CONTRACTS. CSI has delivered copies of each contract to
which CSI or any of its Subsidiaries is a party (i) calling for payments in
excess of $100,000 in the case of any contract or series of related contracts or
(ii) otherwise material to CSI or any of its Subsidiaries, or by which any of
their respective properties or assets are bound. CSI and its Subsidiaries, and
to CSI's knowledge the other parties thereto, are in compliance in all material
respects with all material terms of such contracts.
3.20. NO BROKERS. Neither CSI nor any CSI Subsidiary has entered into
any contract, arrangement or understanding with any person or firm which may
result in the obligation of CSI or RP or Merger Sub to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby, except that CSI has retained Lehman Brothers as its
financial advisor and to render a fairness opinion as set forth herein. The
arrangements with Lehman Brothers have been disclosed in writing to RP prior to
the date hereof.
3.21. CONFLICTS OF INTEREST. No officer, or director, or, to the
knowledge of CSI, no significant shareholder, employee or consultant of CSI or
any CSI Subsidiary, or any affiliate of such person has any direct or indirect
interest (except a passive investment in less than 5% of the publicly traded
stock of a public company) (a) in any corporation, partnership, proprietorship,
association, or other person or entity which does business with CSI or any CSI
Subsidiary, (b) in any property, asset or right which is used by CSI or any CSI
Subsidiary in the conduct of its business, or (c) in any contract to which CSI
is a party or by which CSI or any CSI Subsidiary may be bound nor are any
amounts owing to any such person by, or due to any such person from, CSI or any
CSI Subsidiary.
3.22. PERSONAL PROPERTY. CSI owns all of its material personal property,
including, without limitation, the material personal property reflected in the
CSI Balance Sheet, except for personal property disposed of in the ordinary
course of business since the CSI Balance Sheet Date, subject to no mortgage,
pledge, lien, charge, security interest, encumbrance or restriction, except
those which are shown and described in the CSI Balance Sheet or the notes
thereto. All personal properties purported to be leased by CSI are subject to
valid and effective leases.
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3.23. TAKEOVER STATUTE. The Board of Directors of CSI has taken all
appropriate action so that no former shareholder of RP will be an "interested
stockholder" of CSI subject to Sections 78.438 and 78.439 of the Nevada General
Corporation Law (the "NGCL") by virtue of the transactions contemplated by this
Agreement.
3.24. DISCLOSURE. Neither CSI nor any CSI Subsidiary has knowingly
withheld from RP any material facts relating to CSI's and any CSI Subsidiary's
assets, business, operations, financial conditions, or prospects. No
representation or warranty in this Agreement contains any untrue statement of a
material fact.
3.25. STATUS AS REORGANIZATION.
3.25.1. CSI has no plan or intent to:
(a) Liquidate RP;
(b) Merge RP with or into another corporation;
(c) Sell or otherwise dispose of the stock of RP except
for transfers of stock to corporations "controlled" (within the
meaning of Section 368(c) of the Code) by CSI;
(d) Reacquire any of its stock issued in connection with
the Merger;
(e) Cause RP to issue additional shares of stock of RP
that would result in CSI losing "control" (within the meaning of
Section 368(c) of the Code) of RP;
(f) Cause RP to sell or otherwise dispose of any of its
assets or any assets of Merger Sub acquired in the Merger except
for dispositions made in the ordinary course of business or
transfers described in Section 368(a)(2)(C) of the Code or
described in Treasury Regulation Section 1.368-2(k)(2); or
(g) Take any other action that might otherwise cause the
Merger not to be treated as a reorganization within the meaning
of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Code.
3.25.2. Except as provided in this Agreement, each of CSI and its
stockholders will pay their respective expenses, if any, incurred in
connection with the Merger.
3.25.3. There is no intercorporate indebtedness existing between
CSI and RP, or between Merger Sub and RP, that was issued, acquired or
will be settled at a discount.
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3.25.4. CSI and any of the major stockholders of CSI do not own,
nor have they owned during the past five years, any shares of stock of
RP.
3.25.5. Neither CSI nor Merger Sub is an "investment company"
(within the meaning of Sections 368(a)(2)(F)(iii) and (iv) of the Code);
3.25.6. Merger Sub is being formed solely for the purpose of
merging with and into RP and, as of the Effective Date, will not have
had any existing operation, assets or liabilities (other than
liabilities for franchise taxes, if applicable, and liabilities under
this Agreement); and
3.25.7. CSI will, as of the Effective Date, own all of the stock
of Merger Sub.
ARTICLE 4. REPRESENTATIONS OF RP. RP hereby represents and warrants to CSI
that:
4.1. RP DISCLOSURE SCHEDULE.
4.1.1. The RP Disclosure Schedule sets forth all of the
information concerning RP and its Subsidiaries and the RP Shares
required in this Article 4. To the extent any statement in this Article
4 is untrue, the RP Disclosure Schedule sets forth the statements
necessary to make the statements in this Article 4 true. All information
and statements set forth in the RP Disclosure Schedule shall be deemed
to supersede and correct the statements made in this Article 4 and to be
additional representations and warranties of RP. The RP Disclosure
Schedule sets forth all of the information and statements required in
numbered sections bearing the number of the Section of this Agreement
calling for such information and in the order of such numbers in this
Agreement.
4.1.2. RP has delivered to CSI complete and accurate copies of
(a) any written contract or other document referred to in the RP
Disclosure Schedule or herein and (b) the RP Reports referred to in
Section 4.7 of this Agreement.
4.2. EXISTENCE AND GOOD STANDING OF RP. RP is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has all requisite corporate power and corporate authority to own,
lease and operate its properties and to carry on its business as now being
conducted. RP is duly qualified or licensed as a foreign corporation to do
business, and is in good standing in each jurisdiction in which the character or
location of the property owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so duly qualified or licensed would not reasonably be expected to
have a material adverse effect on the consolidated business, financial condition
or results of operations of RP and its Subsidiaries (an "RP Material Adverse
Effect"). Each of RP's Subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
has the corporate power and corporate authority to own
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its properties and to carry on its business as it is now being conducted, and is
duly licensed or qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so licensed or qualified or to be in good standing would not
reasonably be expected to have, individually or in the aggregate, an RP Material
Adverse Effect. Neither RP nor any of its Subsidiaries is in violation of any
order of any court, governmental authority or arbitration board or tribunal, or
any law, ordinance, governmental rule or regulation to which RP or any RP
Subsidiary or any of their respective properties or assets is subject, except
where such violation would not have, individually or in the aggregate, an RP
Material Adverse Effect. RP and its Subsidiaries have obtained all licenses,
permits and other authorizations and have taken all actions required by
applicable law or governmental regulations in connection with their business as
now conducted, where the failure to obtain any such items or to take any such
action would reasonably be expected to have an RP Material Adverse Effect. The
copies of the articles of incorporation and by-laws of RP and each other RP
Subsidiary previously delivered to CSI are true and correct. Neither RP nor any
of the RP Subsidiaries is in violation of any of the provisions of its Amended
and Restated Certificate of Incorporation or By-Laws.
4.3. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. RP has the
requisite corporate power and corporate authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby and consummate
the transactions contemplated hereby and thereby. Subject only to the approval
of this Agreement and the transaction contemplated hereby by the holders of a
majority of the outstanding RP Shares, the consummation by RP of the transaction
contemplated hereby has been duly authorized by all requisite corporate action.
This Agreement constitutes, and all agreements and documents contemplated hereby
(when executed and delivered pursuant hereto for value received) will
constitute, the valid and legally binding obligations of RP, enforceable in
accordance with their respective terms subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights and
general principles of equity.
4.4. CAPITAL STOCK. The authorized capital stock of RP consists of
50,000,000 shares of common stock and 5,000,000 shares of preferred stock, par
value $.001 per share. As of December 31, 1998, there were 5,667,375 shares of
common stock issued and outstanding none of which is held by RP or any
Subsidiary of RP and no shares of preferred stock issued and outstanding. Since
such date, no additional shares of capital stock of RP have been issued. RP has
no outstanding bonds, debentures, notes or other obligations the holders of
which have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of RP on any matter.
All such issued and outstanding RP Shares are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. Other than as
contemplated by this Agreement or the RP Option Plans, there are not at the date
of this Agreement any outstanding subscriptions, options, warrants, rights,
calls, commitments, conversion rights, convertible securities, rights of
exchange, plans or other agreements providing for the purchase, issuance or sale
of any of the shares of the capital stock of RP by or to RP. As of December 31,
1998, 602,433 RP Shares were reserved for issuance and are issuable upon or
otherwise deliverable in connection with the exercise of outstanding options;
since that date, no options
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have been granted under the RP Option Plans or otherwise and no new option plans
have been authorized or adopted.
4.5. SUBSIDIARIES. Except as set forth in the RP Disclosure Schedules,
RP owns each of the outstanding shares of capital stock of each of RP's
Subsidiaries. All of the outstanding shares of capital stock of the RP
Subsidiaries are duly authorized, validly issued, fully paid and nonassessable,
and are owned by RP free and clear of all liens, pledges, security interests,
claims or other encumbrances. The RP Disclosure Schedule sets forth with respect
to each RP Subsidiary (a) its name and jurisdiction of incorporation, (b) its
authorized capital stock, and (c) the number of issued and outstanding shares of
capital stock. Except for interests in the RP Subsidiaries, neither RP nor any
RP Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, limited
liability company, business, trust or entity.
4.6. NO VIOLATIONS. The execution and delivery of this Agreement by RP
and the consummation of the transaction contemplated hereby (a) will not violate
any provision of the articles of incorporation or by-laws of RP or its
subsidiaries, (b) will not violate or conflict with, or result in a breach of
any provision of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or cancellation of, or accelerate the performance required by, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the material properties of RP or its Subsidiaries under, or result
in being declared void, voidable, or without further binding effect, any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, deed of
trust or any material license, franchise, permit, lease, contract, agreement or
other instrument, commitment or obligation to which RP or any of its
subsidiaries is a party, or by which RP or any of its subsidiaries or any of
their properties is bound or affected, except for any of the foregoing matters
which would not reasonably be expected to have, individually or in the
aggregate, an RP Material Adverse Effect; (c) will not violate any order, writ,
injunction, decree, law, statute, rule or regulation applicable to RP or any of
its subsidiaries or any of their respective properties or assets (assuming
completion of the Regulatory Filings), except for violations which would not
reasonably be expected to have, individually or in the aggregate, an RP Material
Adverse Effect, or (d) other than the Regulatory Filings, will not require any
material consent, approval or authorization of, or declaration, filing or
registration with, any domestic governmental or regulatory authority, the
failure to obtain or make which would reasonably be expected to have,
individually or in the aggregate, an RP Material Adverse Effect.
4.7. SEC DOCUMENTS. RP has furnished CSI each registration statement,
proxy statement or information statement, including all exhibits thereto,
prepared by RP since August 29, 1997, including, without limitation, (a) its
Annual Report on Form 10-K for its fiscal year ended May 31, 1998 (the "RP
Balance Sheet Date"), which includes the consolidated balance sheet for RP as of
such date (the "RP Balance Sheet") and RP's Quarterly Reports on Form 10-Q and
Reports on Form 8-K filed since the filing of such Annual Report and (b) its
proxy statement for its annual meeting of Stockholders held on October 1, 1998,
each of (a) and (b) in the form (including exhibits and any amendments thereto)
filed with the SEC and the items in (a) and (b), the "RP Reports." As of their
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respective dates, the RP Reports (including, without limitation, any financial
statements or schedules included or incorporated by reference therein) (i) were
prepared in all material respects in accordance with the applicable requirements
of the Exchange Act, and the respective rules and regulations thereunder, and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they were made, not
misleading. The 1997 and 1998 consolidated financial statements of RP and its
Subsidiaries included in or incorporated by reference into the RP Reports
(including the related notes and schedules) present fairly, in all material
respects, the consolidated financial position of RP at May 31, 1997 and 1998,
and the consolidated results of their operations and their cash flows such
fiscal years in conformity with GAAP. Except as and to the extent set forth on
the RP Balance Sheet, including all notes thereto, or as set forth in the RP
Reports or the RP Disclosure Schedule, neither RP nor any of its Subsidiaries
has any material liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) whether or not required to be reflected on,
or reserved against in, a consolidated balance sheet of RP prepared in
accordance with GAAP, except liabilities arising in the ordinary course of
business since such date which would not reasonably be expected to have,
individually or in the aggregate, an RP Material Adverse Effect.
4.8. LITIGATION. There is no action, suit or proceeding pending against
RP or the RP Subsidiaries, or, to the knowledge of RP, overtly threatened
against RP or its Subsidiaries or any of their respective properties or assets,
at law or in equity, or before or by any federal or state commission, board,
bureau, agency or instrumentality which would reasonably be expected to have,
individually or in the aggregate, an RP Material Adverse Effect, or would
prevent or delay the consummation of the transaction contemplated by this
Agreement. Neither RP nor any of its Subsidiaries is subject to any outstanding
order, writ, injunction or decree which, insofar as can be reasonably foreseen,
individually or in the aggregate, in the future would have an RP Material
Adverse Effect or would prevent or delay the consummation of the transaction
contemplated hereby.
4.9. ABSENCE OF CERTAIN CHANGES. Since the RP Balance Sheet Date, each
of RP and the RP Subsidiaries has conducted its business only in the ordinary
course of such business and there has not been (a) any event or changes with
respect to RP and the RP Subsidiaries (other than events or changes in general
economic conditions or developments affecting the industry generally) having,
individually or in the aggregate, an RP Material Adverse Effect, (b) any
declaration, setting aside or payment of any dividend or other distribution with
respect to its capital stock, (c) any material change in its accounting
principles, practices or methods, (d) any amendments or changes in the Amended
and Restated Certificate of Incorporation or By-Laws of RP, (e) any material
revaluation by RP of any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business, (f) any sale of a material amount of property of RP or its
Subsidiaries, except in the ordinary course of business, or (g) any increase in
the compensation or benefits or establishment of any bonus, insurance, severance
deferred compensation, pension, retirement, profit sharing, stock option
(including, without limitation, the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards), stock
purchase or other employee benefit
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plan, or any other increase in the compensation payable or to become payable to
any executive officers of RP or any of the RP Subsidiaries except in the
ordinary course of business consistent with past practice or except as required
by applicable law.
4.10. TAX MATTERS.
Except as set forth in the RP Disclosure Schedule:
4.10.1. Each of RP and its Subsidiaries has timely filed or
caused to be timely filed all Returns which are required to be filed by,
or with respect to, any of them on or prior to the Effective Date
(taking into account all applicable extensions). The Returns have
accurately reflected and will accurately reflect all liability for Taxes
of RP and its Subsidiaries for the periods covered thereby.
4.10.2. All Taxes and Tax liabilities of RP and its Subsidiaries
for all taxable years or periods that end on or before the Effective
Date and, with respect to any taxable year or period beginning before
and ending after the Effective Date, the portion of such taxable year or
period ending on and including the Effective Date, have been timely paid
or will be timely paid in full on or prior to the Effective Date or
accrued and adequately disclosed and fully provided for on the books and
records of RP in accordance with GAAP.
4.10.3. Complete and accurate copies of all RP federal, state and
local income tax returns have been made available to CSI.
4.10.4. Neither RP nor any of its Subsidiaries has been the
subject of an audit or other examination of Taxes by the tax authorities
of any nation, state or locality nor has RP or any of its Subsidiaries
received any notices from any taxing authority relating to any issue
which could affect the Tax liability of RP or any of its Subsidiaries.
Neither RP nor any of its Subsidiaries, as of the Effective Date, (A)
has entered into an agreement or waiver or been requested to enter into
an agreement or waiver extending any statute of limitations relating to
the payment or collection of Taxes of RP or any of its Subsidiaries or
(B) is presently contesting the Tax liability of RP or any of its
Subsidiaries before any court, tribunal or agency. Neither RP nor any of
its Subsidiaries has granted a power-of-attorney relating to Tax matters
to any person. All final adjustments made by the IRS with respect to any
federal tax return of RP or its Subsidiaries have been reported for
state and local income tax purposes to the relevant state or local
taxing authorities.
4.10.5. Neither RP nor any of its Subsidiaries has been included
in any "consolidated," "unitary" or "combined" Return provided for under
the law of the United States, any foreign jurisdiction or any state or
locality with respect to Taxes for any taxable period for which the
statute of limitations has not expired (other than a Return with respect
to which RP was the common parent).
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4.10.6. All Taxes which RP or any of its Subsidiaries is (or was)
required by law to withhold or collect have been duly withheld or
collected and have been timely paid over to the proper authorities to
the extent due and payable.
4.10.7. There are no Tax sharing, allocation, indemnification or
similar agreements in effect as between RP or any predecessor or
affiliate thereof and any other party under which RP or any of its
Subsidiaries could be liable for any Taxes or other claims of any party
other than of RP and its Subsidiaries.
4.10.8. No requests for ruling or determination letters relating
to federal, state or local income taxes paid or payable by RP or any of
its Subsidiaries are pending with any taxing authority.
4.10.9. (a) Neither RP nor any RP Subsidiary has agreed to or is
required to make any adjustment pursuant to Section 481 of the Code or
the corresponding tax laws of any nation, state or locality by reason of
a change in accounting method initiated by RP or its Subsidiaries or
required by law, (b) RP has no knowledge that the IRS or any other
taxing authority has proposed or purported to require any such
adjustment or change in accounting method and (c) RP has no knowledge or
belief that any such adjustment under Section 481 of the Code or the
corresponding tax laws of any nation, state or locality will be required
of RP or its Subsidiaries upon the completion of, or by reason of, the
transaction contemplated by this Agreement.
4.10.10. (a) There are no deferred intercompany transactions
between RP and any of its Subsidiaries or between its Subsidiaries which
will or may result in the recognition of income upon the consummation of
the transaction contemplated by this Agreement, and (b) there are no
other transactions or facts existing with respect to RP and/or its
Subsidiaries which by reason of the consummation of the transaction
contemplated by this Agreement will result in RP and/or its Subsidiaries
recognizing income.
4.10.11. There are no Tax liens on any of the assets or property
of RP or its Subsidiaries.
4.10.12. There are no contracts, agreements or plans entered into
by RP or its Subsidiaries covering any person that individually or
collectively would require RP or any of its Subsidiaries to make any
payments of any amount which would not be deductible by reason of the
provisions of Section 162(m) or Section 280G of the Code.
4.10.13. Neither RP nor any of its Subsidiaries has filed a
consent pursuant to Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as such term is defined in Section 341(f) of the Code) owned by it.
4.11. CERTAIN EMPLOYEE PLANS.
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4.11.1. Each Benefit Plan maintained by any RP Controlled Group
Member (the "RP Benefit Plans") complies with, and has been administered
in accordance with, in all material respects, all applicable
requirements of law, except for instances of non-compliance that would
not reasonably be expected to have caused, individually or in the
aggregate, an RP Material Adverse Effect. The RP Benefit Plans are
listed in the RP Disclosure Schedule and copies or descriptions of all
material Plans have previously been provided to CSI.
4.11.2. With respect to each RP Benefit Plan intended to qualify
under Section 401(a) of the Code, (a) a favorable determination letter
has been issued by or an application is pending with the IRS with
respect to the qualification of each RP Benefit Plan and (b) no
"reportable event" or "prohibited transaction" (as such terms are
defined in ERISA and the Code) or termination has occurred under
circumstances which present a risk of material liability by any RP
Controlled Group Member to any governmental entity or other person,
including an RP Benefit Plan. Each RP Benefit Plan which is subject to
Part 3 of Subtitle B of Title I of ERISA or Section 412 of the Code has
been maintained in compliance with the minimum funding standards of
ERISA and the Code and no such RP Benefit Plan has incurred any
"accumulated funding deficiency" (as defined in Section 412 of the Code
and Section 302 of ERISA), whether or not waived. No RP Controlled Group
Member directly or indirectly contributes to, has an obligation to
contribute to or has or could be reasonably expected to have liability
with respect to, and has not directly or indirectly maintained,
sponsored, contributed to or had an obligation to contribute to at any
time within the 10 year period ending on the date of the Closing, any
employee benefit plan which is a multi-employer plan subject to the
requirements of Subtitle E of Title IV of ERISA.
4.11.3. Except as required by Code section 4980B or 162 or Part 6
of Subtitle B of Title I of ERISA, no RP Controlled Group Member
provides any health, welfare or life insurance benefits to any of its
former or retired employees, which benefits would be material either
individually or in the aggregate to RP.
4.12. LABOR MATTERS.
4.12.1. Except as set forth in the RP Disclosure Schedule,
neither RP nor any of its Subsidiary is a party to, or bound by, any
collective bargaining agreement, contract or other agreement or
understanding with a labor union or labor organization. There is no
unfair labor practice or labor arbitration proceeding pending or, to the
knowledge of RP, overtly threatened against RP or its Subsidiaries
relating to their business, except for any such proceeding which would
not reasonably be expected to have, individually or in the aggregate, an
RP Material Adverse Effect. To the knowledge of RP, there are no
organizational efforts with respect to the formation of a collective
bargaining unit presently being made or overtly threatened involving
employees of RP or any of its Subsidiaries.
4.12.2. RP has delivered to CSI copies of all employment
agreements, consulting agreements, severance agreements, bonus and
incentive plans, profit-sharing plans and other material agreements,
plans or arrangements with respect to compensation of the employees of
RP and its Subsidiaries (the "RP Compensation Arrangements"). The Merger
will not accelerate or otherwise give rise to payments pursuant to the
RP Compensation Arrangements.
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4.13. ENVIRONMENTAL LAWS AND REGULATIONS.
4.13.1. RP and each of its Subsidiaries is in compliance in all
material respects with all applicable Environmental Laws which
compliance includes, but is not limited to, the possession by RP and the
RP Subsidiaries of all material permits and other governmental
authorizations required under applicable Environmental Laws, and
compliance with the terms and conditions thereof. Neither RP nor any of
its Subsidiaries has received written notice of, or, to the knowledge of
RP, is the subject of, any action, cause of action, claim,
investigation, demand or notice, including without limitation,
non-compliance orders, warning letters or notices of violation, by any
person or entity alleging liability under or non-compliance with any
Environmental Law (an "RP Environmental Claim"), nor to the knowledge of
RP is there any basis for any RP Environmental Claim that would
reasonably be expected to have, individually or in the aggregate, an RP
Material Adverse Effect. To the knowledge of RP there are no
circumstances that are reasonably likely to prevent or interfere with
such material compliance or give rise to such liability in the future.
4.13.2. There are no RP Environmental Claims which would
reasonably be expected to have, individually or in the aggregate, an RP
Material Adverse Effect that are pending or, to the knowledge of RP,
overtly threatened against RP or any of its Subsidiaries or, to the
knowledge of RP, against any person or entity whose liability for any RP
Environmental Claim RP or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
4.13.3. Neither RP nor any RP Subsidiary (a) has handled or
discharged, nor has it allowed or arranged for any third party to handle
or discharge, any hazardous substances to, at or upon: (i) any location
other than a site lawfully permitted to receive such hazardous
substances, (ii) any parcel of real property owned or leased by RP or
any of its Subsidiaries, except in compliance with applicable
Environmental Laws; (iii) any site which, pursuant to CERCLA or any
similar state law (x) has been placed on the National Priorities List or
its state equivalent, or (y) the Environmental Protection Agency or the
relevant state agency has notified RP that it has proposed or is
proposing to place on the National Priorities List or its state
equivalent; or (b) has any knowledge that there has occurred or is
presently occurring a discharge, or threatened discharge, of any
hazardous substance on, into or beneath the surface of, or adjacent to,
any real property owned or leased by RP or the RP Subsidiaries.
4.13.4. The RP Disclosure Schedule identifies (a) all
environmental audits, assessments, or occupational health studies
undertaken by RP or its agents on its
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behalf, or, to the knowledge of RP, undertaken by any governmental
authority, or any third party, relating to or affecting any real
property owned or leased by RP or any RP Subsidiary; (b) the results of
any ground, water, soil, air or asbestos monitoring undertaken by RP or
its agents on its behalf, or, to the knowledge of RP, undertaken by any
governmental authority or any third party, relating to or affecting any
real property owned or leased by RP or any RP Subsidiary; (c) all
material written communications between RP and any governmental
authority arising under or related to Environmental Laws; and (d) all
outstanding citations issued under OSHA, or similar state or local
statutes, laws, ordinances, codes, rules, regulations, orders, rulings
or decrees relating to or affecting any real property owned or leased by
RP or the RP Subsidiaries.
4.14. REAL PROPERTY.
4.14.1. RP has delivered to CSI either copies or fair and
accurate summaries (the "RP Property Documents") of each of its leases,
subleases, deeds, material licenses or other material agreements or
instruments (and any amendments thereto) under which RP or any of its
Subsidiaries owns, uses or occupies or has the right to use or occupy,
now or in the future, any real property (the "RP Real Estate
Agreements"). Each RP Real Estate Agreement is valid, binding and in
full force and effect, all rent and other sums and charges payable by RP
and its Subsidiaries as tenants thereunder are current, no termination
event or condition or uncured default of a material nature on the part
of RP or any RP Subsidiary or, to the knowledge of RP, as to a landlord,
exists under any RP Real Estate Agreement, except for any of the
foregoing matters which would not reasonably be expected to have,
individually or in the aggregate, an RP Material Adverse Effect. The
information contained in the RP Property Documents is true and correct
in all material respects.
4.14.2. Except for any of the following matters which would not
reasonably be expected to have, individually or in the aggregate, an RP
Material Adverse Effect:
(a) RP has not granted, and to the best of RP's knowledge,
no other person has granted, any leases, subleases, licenses or
other agreements granting to any person other than RP any right
to possession, use, occupancy or enjoyment of the property
covered by the RP Real Estate Agreements, or any portion thereof,
and
(b) RP is not obligated under any option, right of first
refusal or any contractual right to purchase, acquire, sell or
dispose of any real property covered by the RP Real Estate
Agreements.
4.14.3. None of the RP Real Estate Agreements contains continuous
operating covenants, radius restrictions or provisions requiring the
consent of the landlord to the Merger or the assumption of RP's
obligations under the RP Real Estate Agreements in the manner
contemplated by this Agreement, except for any of the foregoing
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matters which would not reasonably be expected to have, individually or
in the aggregate, an RP Material Adverse Effect.
4.15. LIMITATION ON BUSINESS CONDUCT. Neither RP nor any of the RP
Subsidiaries is a party to, or has any obligation under, any contract or
agreement, written or oral, which contains any covenants currently or
prospectively limiting in any material respect the freedom of RP or any of the
RP Subsidiaries to engage in any line of business or to compete with any entity
or which would prohibit the business of RP, CSI or any of their respective
Subsidiaries from being conducted in substantially the same manner as it was
conducted prior to the Merger.
4.16. TITLE TO PROPERTY. Each of RP and each of the RP Subsidiaries owns
the material properties and assets that it purports to own free and clear of all
liens, security interests, charges or encumbrances, except for any liens,
security interests, charges or encumbrances which arise in the ordinary course
of business (including mechanics' liens and other similar statutory liens) and
do not materially impair RP's or any RP Subsidiary's ownership or use of any
such properties or assets, or liens for taxes not yet due. The rights,
properties and assets presently owned, leased or licensed by RP include all
rights, properties and assets necessary to permit RP and the RP Subsidiaries to
conduct their business in all material respects in the same manner as their
businesses have been conducted prior to the date hereof.
4.17. INSURANCE. RP and the RP Subsidiaries maintain with respect to
their operations and their assets, in full force and effect, policies of
insurance in the ordinary course of business as is usual and customary for
businesses similarly situated to RP. RP has provided CSI copies of all insurance
policies so maintained and all claims associated with its operations and the
operations of its Subsidiaries since their incorporation.
4.18. INTELLECTUAL PROPERTY. Every material trade secret (including
know-how, inventions, designs and processes), patent, patent right, trademark,
trademark right, logo, service mark, trade name or copyright, or application
thereof, and licenses and rights with respect to the foregoing, used in
connection with the business of RP and its Subsidiaries, (the "RP Intellectual
Property"), is protected by RP in a manner which, under the circumstances, is
prudent and commercially reasonable and owned by RP or its Subsidiaries free and
clear of any liens, encumbrances, claims or restrictions whatsoever which would
have an RP Material Adverse Effect, direct or indirect. There are no valid
grounds for any bona fide claims (i) to the effect that the business of RP or
any of the RP Subsidiaries infringes on any copyright, patent, trademark,
service mark or trade secret; (ii) against the use by RP or any of the RP
Subsidiaries, of any patents, patent rights, trademarks, trademark rights,
logos, trade names, service marks, trade secrets, copyrights, technology,
know-how or computer software programs and applications used in the business of
RP or any of the RP Subsidiaries as currently conducted or as proposed to be
conducted; (iii) challenging the ownership, validity or effectiveness of any of
the patents, patent rights, registered and material unregistered trademarks,
logos and service marks, registered copyrights, trade names and any applications
therefor owned by RP or any of the RP Subsidiaries or other trade secret
material to RP or any of the RP Subsidiaries; or (iv)
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challenging the license or legally enforceable right to use of any third-party
patents, patent rights, trademarks, trademark rights, logos, service marks,
trade names and copyrights by RP or any of the RP Subsidiaries, except, in each
case, for claims that, if determined adversely to RP, would not reasonably be
expected to have, individually or in the aggregate, an RP Material Adverse
Effect. Neither RP nor any of its Subsidiaries has granted to any other person
the right to use the RP Intellectual Property, or any part thereof. RP is not
obligated or under any liability whatsoever to make any payments by way of
royalties, fees or otherwise to any owner of, licensor of, or other claimant to,
any patent, patent rights, trademark, trademark rights, logo, service mark,
trade name, trade name rights, copyright or other intangible assets, with
respect to the use thereof or in connection with the conduct of its business or
otherwise.
4.19. CERTAIN CONTRACTS. RP has delivered copies of each contract to
which RP or any of its Subsidiaries is a party (i) calling for payments in
excess of $100,000 in the case of any contract or series of related contracts or
(ii) otherwise material to RP or any of its Subsidiaries, or by which any of
their respective properties or assets are bound. RP and its Subsidiaries, and to
RP's knowledge the other parties thereto, are in compliance in all material
respects with all material terms of such contracts.
4.20. NO BROKERS. Neither RP nor any RP Subsidiary has entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of RP or CSI or Merger Sub to pay any finder's fees, brokerage
or agent's commissions or other like payments in connection with the
negotiations leading to this Agreement or the consummation of the transaction
contemplated hereby, except that RP has retained NatCity Investments, Inc. and
Berenson Minella & Company, L.P. as its financial advisors and NatCity
Investments, Inc. to render a fairness opinion as set forth herein. The
arrangements with NatCity Investments, Inc. and Berenson Minella & Company, L.P.
have been disclosed in writing to CSI prior to the date hereof.
4.21. CONFLICTS OF INTEREST. No officer, or director, or, to the
knowledge of RP, no significant shareholder, employee or consultant of RP or any
RP Subsidiary, or any affiliate of such person has any direct or indirect
interest (except a passive investment in less than 5% of the publicly traded
stock of a public company) (a) in any corporation, partnership, proprietorship,
association, or other person or entity which does business with RP or any RP
Subsidiary, (b) in any property, asset or right which is used by RP or any RP
Subsidiary in the conduct of its business, or (c) in any contract to which RP is
a party or by which RP may or any RP Subsidiary be bound, nor are any amounts
owing to any such person by, or due to such person from, RP or any RP
Subsidiary.
4.22. PERSONAL PROPERTY. RP owns all of its material personal property,
including, without limitation, the material personal property reflected in the
RP Balance Sheet, except for personal property disposed of in the ordinary
course of business since the RP Balance Sheet Date, subject to no mortgage,
pledge, lien, charge, security interest, encumbrance or restriction, except
those which are shown and described in the RP Balance Sheet or the notes
thereto. All personal properties purported to be leased by RP are subject to
valid and effective leases.
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4.23. TAKEOVER STATUTE. The Board of Directors of RP has taken all
appropriate action so that neither CSI nor Merger Sub will be an "interested
stockholder" of RP within the meaning of or subject to Section 203 of the DGCL.
4.24. DISCLOSURE. Neither RP nor any RP Subsidiary has knowingly
withheld from CSI any material facts relating to RP's and any RP Subsidiary's
assets, business, operations, financial conditions, or prospects. No
representation or warranty in this Agreement contains any untrue statement of a
material fact.
4.25. ADDITIONAL DISCLOSURE. Prior to and in connection with the Merger,
RP has no intention to redeem any RP Common Stock or make any extraordinary
distributions with respect thereto, and the persons that are related to RP
within the meaning of Temporary Treasury Regulation ss. 1.368-1T(e)(2)(ii) have
not and will not acquire any RP Common Stock from any holder thereof with
consideration other than RP Common Stock.
(a) Following the Merger, RP intends to hold at least 90 percent
of the fair market value of its net assets and at least 70 percent of the fair
market value of its gross assets held immediately prior to the Effective Date.
For purposes of this representation, amounts paid by RP to stockholders who
receive cash or other property pursuant to the Merger, amounts paid by RP to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by RP immediately preceding the Effective Date,
will be included as assets of RP held immediately prior to the Effective Date.
(b) RP has no plan or intention to issue additional shares of its
stock (or securities, options, warrants or instruments giving the holder thereof
the right to acquire RP stock) that would (or if exercised would) result in CSI
losing control of RP within the meaning of Section 368(c) of the Code.
(c) RP will not assume any liabilities of Merger Sub (other than
those liabilities, if any, incurred by Merger Sub in the ordinary course of its
business) or acquire any assets of Merger Sub that are subject to liabilities
(other than those liabilities, if any, incurred by Merger Sub in the ordinary
course of its business).
(d) Following the Merger, RP intends to continue its historic
business or use a significant portion of its historic business assets in a
business.
(e) Except as provided in this Agreement, each of RP and its
stockholders will pay their respective expenses, if any, incurred in connection
with the Merger.
(f) There is no intercorporate indebtedness existing between CSI
and RP, or between Merger Sub and RP, that was issued, acquired or will be
settled at a discount.
(g) RP is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
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(h) On the date of the Merger, the fair market value of the
assets of RP will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
(i) RP is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
(j) RP will not take any action that might otherwise cause the
Merger not to be treated as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
ARTICLE 5. COVENANTS.
5.1. NO SOLICITATION BY RP. (a) RP shall not, directly or indirectly,
through any officer, director, employee, representative or agent of RP or any of
the RP Subsidiaries, solicit or encourage the initiation of (including by way of
furnishing information) any inquiries or proposals regarding any merger, sale of
assets, sale of shares of capital stock (including without limitation by way of
a tender offer) or similar transactions involving RP or any of the RP
Subsidiaries that if consummated would constitute an RP Alternative Transaction
(as defined in Section 7.4.2) (any of the foregoing inquiries or proposals being
referred to herein as an "RP Acquisition Proposal"). In addition, subject to the
other provisions of this Section 5.1(a) (including the following sentence), from
and after the date of this Agreement until the earlier of the Effective Time or
termination of this Agreement pursuant to its terms, RP and its subsidiaries
will not, and will instruct their officers, directors, employees,
representatives and agents not to, directly or indirectly, make or authorize any
public statement, recommendation or solicitation in support of, or commenting
positively regarding, any RP Acquisition Proposal made by any Person or group of
Persons (other than the Merger provided, that nothing in this Section 5.1 shall
prevent the Board of Directors of RP from taking and disclosing to RP's
stockholders a position contemplated by Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act, with respect to any tender offer or from making such
disclosure to RP's stockholders (not constituting a recommendation or
solicitation), upon the advice of its independent outside legal counsel, as is
necessary to make under applicable law. Nothing contained in this Agreement
shall prevent the Board of Directors of RP from (i) furnishing information to a
third party which has made a bona fide RP Acquisition Proposal that the RP Board
of Directors reasonably determines in good faith contains the material terms of
an RP Superior Proposal (as defined below) not solicited in violation of this
Agreement, provided that such third party has executed an agreement with
confidentiality provisions substantially similar to those then in effect between
RP and CSI, or (ii) subject to compliance with the other terms of this Section
5.1, including Section 5.1(c), (A) considering and negotiating a bona fide RP
Acquisition Proposal that the RP Board of Directors has reasonably determined in
good faith is likely to constitute an RP Superior Proposal not solicited in
violation of this Agreement, or (B) recommending to its stockholders an RP
Acquisition Proposal that the RP Board of Directors reasonably determines in
good faith is a Superior Proposal and, in connection therewith, withdrawing or
modifying its recommendation of the Merger and the transactions
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contemplated thereby (which action shall entitle CSI to terminate this Agreement
pursuant to Section 7.4.2 and to receive the CSI Expenses and CSI Fee, if
applicable, as defined in Section 5.13.2); provided that, as to each of clauses
(i) and (ii), (x) such actions occur at a time prior to approval of the Merger
and this Agreement at the RP Stockholders Meeting, and (y) the Board of
Directors of RP reasonably determines in good faith upon the advice of
independent counsel that it is required to do so in order to discharge properly
its fiduciary duties. For purposes of this Agreement, a "RP Superior Proposal"
means any proposal made by a third party to acquire, directly or indirectly, for
consideration consisting of cash and/or securities, all or a majority of the
equity securities of RP entitled to vote generally in the election of directors
or all or substantially all the assets of RP, on terms which the Board of
Directors of RP reasonably believes (i) (upon the advice of an independent
financial advisor) to be more favorable from a financial point of view to its
stockholders than the Merger and the transactions contemplated by this Agreement
taking into account at the time of determination any changes to the financial
terms of this Agreement proposed by CSI and (ii) to be more favorable to RP than
the Merger and the transactions contemplated by this Agreement after taking into
account all pertinent factors deemed relevant by the Board of Directors of RP
under the laws of the State of Delaware.
(b) RP shall immediately notify CSI after receipt of any RP
Acquisition Proposal, or any material modification of or amendment to any RP
Acquisition Proposal, or any request for nonpublic information relating to RP or
any of its subsidiaries in connection with an RP Acquisition Proposal or for
access to the properties, books or records of RP or any RP Subsidiary by any
person or entity that informs the Board of Directors of RP or such RP Subsidiary
that it is considering making, or has made, an RP Acquisition Proposal. Such
notice to CSI shall be made as soon as practicable orally and confirmed in
writing, if requested, and shall indicate the identity of the person making the
RP Acquisition Proposal or intending to make an RP Acquisition Proposal or
requesting non-public information or access to the books and records of RP, the
terms of any such RP Acquisition Proposal or material modification or amendment
to an RP Acquisition Proposal, and whether RP is providing or intends to provide
the person making the RP Acquisition Proposal with access to information
concerning RP as provided in Section 5.1(a). RP shall also immediately notify
CSI, as soon as practicable orally and confirmed in writing, if requested, if it
enters into negotiations concerning any RP Acquisition Proposal. In each case,
the notice to CSI required by this clause (b) may be limited to the extent that
the Board of Directors of RP reasonably determines in good faith upon the advice
of independent counsel that it is prohibited from giving such notice in order to
properly discharge its fiduciary duties.
(c) Unless this Agreement shall have been terminated in
accordance with its terms, neither RP nor the Board of Directors of RP shall
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
CSI, the approval by such Board of Directors of this Agreement or the Merger.
(d) Without the prior written consent of CSI, RP and the Board of
Directors of RP shall not enter into any agreement with respect to, or otherwise
approve or recommend, or propose to approve or recommend, any RP Acquisition
Proposal or RP Alternative Transaction, unless the Merger Agreement is
terminated prior to or substantially
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simultaneously with such time pursuant to Sections 7.1 or 7.2 or is terminated
prior to such time by RP pursuant to Section 7.3.
(e) RP shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than CSI and Merger
Sub) conducted heretofore with respect to any of the foregoing. RP agrees not to
release any third party from the confidentiality and standstill provisions of
any agreement to which RP is a party.
(f) RP shall ensure that the officers and directors of RP and the
RP Subsidiaries and any investment banker or other advisor or representative
retained by RP are aware of the restrictions described in this Section 5.1.
(g) No action by the Board of Directors of RP expressly permitted
by this Section 5.1 shall constitute a breach or violation of any other
provision of this Agreement, provided that nothing in this Section 5.1 shall
narrow the obligations of RP under Section 5.4.1.
5.2 NO SOLICITATION BY CSI. (a) CSI shall not, directly or indirectly,
through any officer, director, employee, representative or agent of CSI or any
of the CSI Subsidiaries, solicit or encourage the initiation of (including by
way of furnishing information) any inquiries or proposals regarding any merger,
sale of assets, sale of shares of capital stock (including without limitation by
way of a tender offer) or similar transactions involving CSI or any of the CSI
Subsidiaries that if consummated would constitute a CSI Alternative Transaction
(as defined in Section 7.3.2) (any of the foregoing inquiries or proposals being
referred to herein as "CSI Acquisition Proposal"). In addition, subject to the
other provisions of this Section 5.2(a) (including the following sentence), from
and after the date of this Agreement until the earlier of the Effective Time or
termination of this Agreement pursuant to its terms, CSI and its subsidiaries
will not, and will instruct their officers, directors, employees,
representatives and agents not to, directly or indirectly, make or authorize any
public statement, recommendation or solicitation in support of or commenting
positively regarding, any CSI Acquisition Proposal made by any Person or group
of Persons (other than the Merger), provided, that nothing in this Section 5.2
shall prevent the Board of Directors of CSI from taking and disclosing to CSI's
stockholders a position contemplated by Rule 14d-9 and Rule 14e-2 promulgated
under the Exchange Act with respect to any tender offer or from making such
disclosure to stockholders (not constituting a recommendation or solicitation)
upon the advice of its independent outside legal counsel, as is necessary to
make under applicable law. Nothing contained in this Agreement shall prevent the
Board of Directors of CSI from (i) furnishing information to a third party which
has made a bona fide CSI Acquisition Proposal that the CSI Board of Directors
reasonably determines in good faith contains the material terms of a CSI
Superior Proposal (as defined below) not solicited in violation of this
Agreement, provided that such third party has executed an agreement with
confidentiality provisions substantially similar to those then in effect between
RP and CSI, or (ii) subject to compliance with the other terms of this Section
5.2 including Section 5.2 (c), (A) considering and negotiating a bona fide CSI
Acquisition Proposal that the CSI Board of Directors has reasonably determined
in good faith is likely to constitute a CSI Superior Proposal not solicited in
violation of this Agreement,
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or (B) or recommending to its stockholders a CSI Acquisition Proposal that the
CSI Board of Directors reasonably determines in good faith is a Superior
Proposal and, in connection therewith, withdrawing or modifying its
recommendation of the Merger and the transactions contemplated thereby (which
action shall entitle RP to terminate this Agreement pursuant to Section 7.3.2
and to receive the RP Expenses and RP Fee, if applicable, as defined in Section
5.13.3); provided that, as to each of clauses (i) and (ii), (x) such actions
occur at a time prior to approval of the Merger and this Agreement at the CSI
Stockholders Meeting, and (y) the Board of Directors of CSI reasonably
determines in good faith upon the advice of independent counsel that it is
required to do so in order to discharge properly its fiduciary duties. For
purposes of this Agreement, a "CSI Superior Proposal" means any proposal made by
a third party to acquire, directly or indirectly, for consideration consisting
of cash and/or securities, all or a majority of, the equity securities of CSI
entitled to vote generally in the election of directors or all or substantially
all the assets of CSI, on terms which the Board of Directors of CSI reasonably
believes (i) (upon the advice of an independent financial advisor) to be more
favorable from a financial point of view to its stockholders that the Merger and
the transactions contemplated by this Agreement taking into account at the time
of determination any changes to the financial terms of this Agreement proposed
by CSI and (ii) to be more favorable to CSI than the Merger and the transactions
contemplated by this Agreement after taking into account all pertinent factors
deemed relevant by the Board of Directors of CSI under the laws of the State of
Nevada.
(b) CSI shall immediately notify RP after receipt of any CSI
Acquisition Proposal, or any material modification of or amendment to any CSI
Acquisition Proposal, or any request for nonpublic information relating to RP or
any of its subsidiaries in connection with a CSI Acquisition Proposal or for
access to the properties, books or records of CSI or any CSI Subsidiary by any
person or entity that informs the Board of Directors of CSI or such CSI
Subsidiary that it is considering making, or has made, a CSI Acquisition
Proposal. Such notice to RP shall be made as soon as practicable orally and
confirmed in writing, if requested, and shall indicate the identity of the
person making the CSI Acquisition Proposal or intending to make a CSI
Acquisition Proposal or requesting non-public information or access to the books
and records of CSI, the terms of any such CSI Acquisition Proposal or material
modification or amendment to an CSI Acquisition Proposal, and whether CSI is
providing or intends to provide the person making the CSI Acquisition Proposal
with access to information concerning CSI as provided in Section 5.2(a). CSI
shall also immediately notify RP, as soon as practicable orally and confirmed in
writing, if requested, if it enters into negotiations concerning any CSI
Acquisition Proposal. In each case, the notice to RP required by this clause (b)
may be limited to the extent that the Board of Directors of CSI reasonably
determines in good faith upon the advice of independent counsel that it is
prohibited from giving such notice in order to properly discharge its fiduciary
duties.
(c) Unless this Agreement shall have been terminated in
accordance with its terms, neither CSI nor the Board of Directors of CSI shall
withdraw or modify, or propose to withdraw or modify, in a manner adverse to RP,
the approval by such Board of Directors of this Agreement or the Merger.
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(d) Without the prior written consent of RP, CSI and the Board of
Directors of CSI shall not enter into any agreement with respect to, or
otherwise approve or recommend, or propose to approve or recommend, any CSI
Acquisition Proposal or CSI Alternative Transaction, unless the Merger Agreement
is terminated prior to or substantially simultaneously with such time pursuant
to Sections 7.1 or 7.2 or is terminated prior to such time by CSI pursuant to
Section 7.4.
(e) CSI shall immediately cease and cause to be terminated any
existing discussions or negotiations with any persons (other than RP) conducted
heretofore with respect to any of the foregoing. CSI agrees not to release any
third party from the confidentiality and standstill provisions of any agreement
to which CSI is a party.
(f) CSI shall ensure that the officers and directors of CSI and
the CSI Subsidiaries and any investment banker or other advisor or
representative retained by CSI are aware of the restrictions described in this
Section 5.2.
(g) No action by the Board of Directors of CSI expressly
permitted by this Section 5.2 shall constitute a breach or violation of any
other provision of this Agreement, provided that nothing in this Section 5.2
shall narrow the obligations of CSI under Section 5.4.2.
5.3 CONDUCT OF BUSINESSES. Prior to the Effective Date, except as set
forth in the CSI Disclosure Schedule, the RP Disclosure Schedule or as
contemplated by any other portion of this Agreement, unless both parties have
consented in writing thereto, which consent will not be unreasonably withheld,
each party:
5.3.1 Shall, and shall cause each of its Subsidiaries to, conduct
its operations according to its usual, regular and ordinary course in
substantially the same manner as heretofore conducted;
5.3.2 Shall use its reasonable efforts, and shall cause each of
its Subsidiaries to use its reasonable efforts, to preserve intact its
business organization and goodwill, keep available the services of its
officers and employees and maintain satisfactory relationships with
those persons having business relationships with it;
5.3.3 Except to the extent, if any, prohibited by applicable law
or binding confidentiality agreements with third parties, shall confer
on a regular basis with one or more representatives of the other party
to report operational matters of materiality and any proposals to engage
in material transactions;
5.3.4 Shall not amend its articles or certificate of
incorporation or by-laws (except to the extent the Articles of
Incorporation of CSI are amended to authorize the CSI Preferred Stock);
5.3.5 Shall promptly notify the other party of (a) any material
emergency or other material change in the condition (financial or
otherwise), of such party's or any
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Subsidiary's business, properties, assets, liabilities, prospects or the
normal course of its businesses or in the operation of its properties,
(b) any material litigation or material governmental complaints,
investigations or hearings (or communications indicating that the same
may be contemplated), or (c) the breach in any material respect of any
representation or warranty or covenant contained herein;
5.3.6 Shall promptly deliver to the other party true and correct
copies of any report, statement or schedule filed by such party with the
SEC subsequent to the date of this Agreement;
5.3.7 Shall not (a) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any shares
of its capital stock, effect any stock split or otherwise change its
capitalization as it exists on the date hereof, (b) grant, confer or
award any option, warrant, conversion right or other right not existing
on the date hereof to acquire any shares of its capital stock, (c)
increase any compensation or enter into or amend any employment
severance, termination or similar agreement with any of its present or
future officers or directors, except for normal increases in
compensation to employees not earning more than $50,000 in annual base
compensation, consistent with past practice, and the payment of cash
bonuses to employees pursuant to and consistent with existing plans or
programs, nor (d) adopt any new employee benefit plan (including any
stock option, stock benefit or stock purchase plan) or amend any
existing employee benefit plan in any material respect, except for
changes which are less favorable to participants in such plans or as may
be required by applicable law;
5.3.8 Shall not (a) declare, set aside or pay any dividend or
make any other distribution or payment with respect to any shares of its
capital stock, (b) except in connection with the use of shares of
capital stock to pay the exercise price or tax withholding in connection
with stock-based RP Benefit Plans or as required or otherwise
contemplated by this Agreement (including any refinancing in connection
therewith), directly or indirectly redeem, purchase or otherwise acquire
any shares of its capital stock or capital stock of any of its
Subsidiaries, or make any commitment for any such action, nor (c) split,
combine or reclassify any of its capital stock;
5.3.9 Shall not, and shall not permit any of its Subsidiaries to
sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) which are material, individually or in the
aggregate, except in the ordinary course of business;
5.3.10 Shall not (a) incur or assume any long-term or short-term
debt or issue any debt securities except for borrowings under existing
lines of credit and indebtedness for working capital in the ordinary
course of business and refinancing of existing indebtedness in the same
amount and on substantially the same terms (and except that either party
may incur indebtedness for the payment of expenses related to the
transactions contemplated by this Agreement and any financing therefor,
provided
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such indebtedness does not include any material prepayment penalty or
equity component), (b) except for obligations of wholly-owned
Subsidiaries; assume, guarantee, endorse or otherwise become liable or
responsible (whether directly, indirectly, contingently or otherwise)
for the obligations of any other person except in the ordinary course of
business consistent with past practices in an amount not material to
such party, taken as a whole, (c) other than to wholly-owned
Subsidiaries, make any loans, advances or capital contributions to or
investments in, any other person, (d) pledge or otherwise encumber
shares of capital stock of such party or its Subsidiaries, nor (e)
mortgage or pledge any of its material assets, tangible or intangible,
or create or suffer to create any material mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect to such
asset;
5.3.11 Shall not acquire, sell, lease or dispose of any assets
outside the ordinary course of business or any assets which in the
aggregate are material to such party taken as a whole, or enter into any
commitment or transaction outside the ordinary course of business
consistent with past practice which would be material to such party
taken as a whole;
5.3.12 Except as may be required as a result of a change in law
or in GAAP, shall not change any of the accounting principles or
practices used by such party;
5.3.13 Shall not (a) acquire (by merger, consolidation or
acquisition of stock or assets) any corporation, partnership, limited
liability company or other business organization or division thereof or
any equity interest therein, (b) enter into any contract or agreement
other than in the ordinary course of business consistent with past
practice which would be material to such party taken as a whole, (c)
authorize any new capital expenditure or expenditures which,
individually, is in excess of $25,000 or, in the aggregate, is in excess
of $150,000; provided, that none of the foregoing shall limit any
capital expenditure within the aggregate amount previously authorized by
such party's Board of Directors for capital expenditures and written
evidence thereof has been previously provided to the other party, nor
(d) enter into or amend any contract, agreement, commitment or
arrangement providing for the taking of any action which would be
prohibited hereunder;
5.3.14 Shall not (a) make any Tax election with respect to such
party or its Subsidiaries or settle or compromise any Tax liability
material to such party or its Subsidiaries taken as a whole or (b) file
or cause to be filed any amended Return or claims for refund with
respect to such party or its Subsidiaries;
5.3.15 Shall not pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction of business liabilities reflected or reserved against in,
and contemplated by, the financial statements (or the notes thereto) of
such party or incurred in the ordinary course of business consistent
with past practice;
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5.3.16 Shall not settle or compromise any pending or threatened
suit, action or claim relating to the transaction contemplated hereby;
5.3.17 Shall not adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization; or
5.3.18 Shall not take, or agree in writing or otherwise to take,
any of the actions described in Section 5.3.1 through 5.3.17 or any
action that would make any of the representations and warranties of a
party hereto contained in this Agreement untrue or incorrect as of the
date when made.
5.4 MEETINGS OF STOCKHOLDERS.
5.4.1 RP has received from NatCity Investments, Inc. its opinion
on the fairness to the holders of RP Shares, from a financial point of
view, of the terms of the Merger, pursuant to the terms of an engagement
letter presented to CSI. RP will take all action reasonably necessary in
accordance with applicable law and its Certificate of Incorporation and
By-laws to convene a meeting of its stockholders as promptly as
practicable to consider and vote upon the approval of this Agreement and
the transaction contemplated hereby. The Board of Directors of RP shall
recommend such approval and RP shall take all reasonable lawful action
to solicit such approval, including, without limitation, timely mailing
the Proxy Statement (as defined in Section 5.11); provided, however,
that the Board of Directors of RP shall not be required to make such
recommendation if the Board of Directors of RP reasonably determines in
good faith, based as to legal matters on the advice of outside legal
counsel, that such action would violate its fiduciary duties. CSI shall
coordinate and cooperate with RP with respect to the timing of such
meeting and RP shall use its best efforts to hold such meeting as soon
as is practicable.
5.4.2 CSI has received from Lehman Brothers its opinion on the
fairness to the holders of CSI Shares, from a financial point of view,
of the terms of the Merger, pursuant to the terms of an engagement
letter presented to RP. CSI will take all action reasonably necessary in
accordance with applicable law and its Articles of Incorporation and
By-laws to convene a meeting of its stockholders as promptly as
practicable to consider and vote upon the approval of this Agreement and
the transaction contemplated hereby. The Board of Directors of CSI shall
recommend such approval and CSI shall take all reasonable lawful action
to solicit such approval, including, without limitation, timely mailing
the Proxy Statement (as defined in Section 5.11); provided, however,
that the Board of Directors of CSI shall not be required to make such
recommendation if the Board of Directors of CSI reasonably determines in
good faith, based as to legal matters on the advice of outside legal
counsel, that such action would violate its fiduciary duties. RP shall
coordinate and cooperate with CSI with respect to the timing of such
meeting and CSI shall use its best efforts to hold such meeting as soon
as is practicable.
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5.4.3 The Board of Directors of either CSI or RP may delay the
meeting of such party's stockholders required by this Section 5.4 for no
more than 30 days to the extent such Board of Directors reasonably
determines in good faith, based on the advice of outside legal counsel,
that it is required by its fiduciary duties to delay such meeting to
consider a bona fide Acquisition Proposal that such Board of Directors
reasonably determines in good faith contains the material terms of a
Superior Proposal received without violation of this Agreement (provided
that in such event the party which has so delayed such meeting may not
terminate this Agreement pursuant to Section 7.2(a) until at least 5
days after the date on which such meeting is actually held).
5.5 FILINGS; OTHER ACTION. Subject to the terms and conditions herein
provided, each party shall: (a) use all reasonable efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Effective Date with, and which consents, approvals, permits or authorizations
are required to be obtained prior to the Effective Date from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transaction contemplated hereby, and (ii) timely
making all such filings and timely seeking all such consents, approvals, permits
or authorizations; and (b) use all reasonable efforts to take, or cause to be
taken, all other action and do, or cause to be done, all other things necessary,
proper or appropriate to consummate and make effective the transaction
contemplated by this Agreement. If, at any time after the Effective Date, any
further action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of each party shall take all such
necessary action.
5.6 INSPECTION OF RECORDS; ACCESS. Except to the extent, if any,
prohibited by applicable law or binding confidentiality agreements with third
parties, from the date hereof to the Effective Date, each party shall allow all
designated officers, attorneys, accountants and other representatives of the
other party (the "Other Party's Representatives") access at all reasonable times
to all employees, stores, offices, warehouses, and other facilities and to the
records and files, correspondence, audits and properties, as well as to all
information relating to commitments, contracts, titles and financial position,
or otherwise pertaining to the business and affairs, of such party and its
Subsidiaries; provided, however, the Other Party's Representatives shall use
their reasonable best efforts to avoid interfering with, hindering or otherwise
disrupting the employees of such party in the execution of their employment
duties during any visit to, or inspection of, such party's facilities.
5.7 PUBLICITY. The initial press release relating to this Agreement
shall be a joint press release and thereafter each party shall, subject to its
respective legal obligations (including requirements of stock exchanges and
other similar regulatory bodies), consult with each other, and use reasonable
efforts to agree upon the text of any press release, before issuing any such
press release or otherwise making public statements with respect to the
transaction contemplated hereby and in making any filings with any federal or
state governmental or regulatory agency or with any national securities exchange
with respect thereto.
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5.8 REGISTRATION STATEMENT/PROXY STATEMENT.
5.8.1 As promptly as practicable after the execution of this
Agreement, CSI and RP shall prepare and file with the SEC preliminary
proxy materials which shall constitute the preliminary Proxy Statement
(as defined in Section 5.11) and a preliminary prospectus with respect
to the CSI Preferred Stock to be issued in connection with the Merger.
As promptly as practicable after comments are received from the SEC with
respect to the preliminary proxy materials and after the furnishing by
RP and CSI of all information required to be contained therein, RP shall
file with the Commission the definitive Proxy Statement and CSI shall
file with the Commission the definitive Proxy Statement and Registration
Statement (as defined in Section 5.11) and CSI and RP shall use all
reasonable efforts to cause the Registration Statement to become
effective as soon thereafter as practicable.
5.8.2 CSI and RP shall make all necessary filings with respect to
the Merger under the Securities Act and the Exchange Act and the rules
and regulations thereunder, under applicable Blue Sky or similar
securities laws, and shall use all reasonable efforts to obtain required
approvals and clearances with respect thereto.
5.9 COMPLIANCE WITH THE SECURITIES ACT; RESALE PROSPECTUS
5.9.1 Prior to the Effective Date, RP shall deliver to CSI a
letter setting forth a true and complete list of persons whom the
Company believes may be deemed to be "affiliates" of RP as that term is
used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Affiliates").
5.9.2 RP shall use its reasonable best efforts to obtain as
promptly as practicable a written agreement from each person who is
identified as an Affiliate in the letter referred to in Section 5.9.1
above, in the form previously approved by the parties, that he or she
will not offer to sell, sell or otherwise dispose of any of the CSI
Preferred Stock (or CSI Common Stock issuable upon conversion thereof)
issued to him or her pursuant to the Merger, except in compliance with
Rule 145 under the Securities Act or another exemption from the
registration requirements of the Securities Act. RP shall deliver all
such written agreements obtained by it to CSI on or prior to the
Effective Date.
5.9.3 CSI shall use its reasonable best efforts to file with the
SEC as promptly as practicable following the Effective Date, and cause
to become effective, a registration statement for the purpose of
permitting the CSI Preferred Stock (or CSI Common Stock issuable upon
conversion thereof) issued to any such Affiliate to be resold by such
Affiliate, and to maintain such registration statement in effect until
such time as such Affiliates may resell such stock pursuant to an
applicable exemption therefrom.
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5.10. TAKEOVER PROVISIONS INAPPLICABLE. RP agrees that it will not take
any action to render Section 203 of the DGCL applicable to the Merger and the
other transactions contemplated hereby, and CSI agrees that it will not take any
action to render Sections 78.438 and 78.439 the NGCL applicable to (x) the
acquisition of CSI Preferred Stock pursuant to the Merger or (y) the conversion
of the CSI Preferred Stock into the CSI Common Stock.
5.11. INFORMATION IN DISCLOSURE DOCUMENTS, REGISTRATION STATEMENTS, ETC.
Each of CSI, Merger Sub and RP agree that none of the information supplied by it
for inclusion in (a) the Registration Statement to be filed with the SEC by CSI
on Form S-4 under the Securities Act for the purpose of registering shares of
CSI Preferred Stock to be issued in the Merger (the "Registration Statement")
and all other documents required to be filed by CSI with the SEC and (b) the
prospectus/proxy statement of RP and CSI (the "Proxy Statement") to be mailed to
the stockholders of RP and CSI in connection with the Merger will, in the case
of the Proxy Statement or any amendments or supplements thereto, at the time of
mailing of the Proxy Statement or any amendments or supplements thereto, and at
the time of the RP Meeting to be held in connection with the Merger and the CSI
meeting to be held in connection with the Merger, or, in the case of the
Registration Statement, at the time it becomes effective and at the Effective
Date, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. CSI and Merger Sub agree that the Registration Statement will comply
as to form in all material respects with the provisions of the Securities Act
and the rules and regulations promulgated thereunder. RP and CSI agree that the
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder. Each of
CSI and RP agrees to make all reasonable representations and covenants in
connection with the opinions of counsel, if any, required to be attached to the
Registration Statement and Proxy Statement with respect to the correctness of
the discussion therein as to the material federal income tax consequences of the
Merger.
5.12. FURTHER ACTION. Each party hereto shall, subject to the
fulfillment at or before the Effective Date of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
5.13. FEES AND EXPENSES.
5.13.1 Except as provided below in this Section 5.13, if the
Merger is not effected, all costs and expenses incurred in connection
with this Agreement and in the transaction contemplated hereby shall be
paid by the party incurring such expense except that (a) to the extent
that the RP Fee or the CSI Fee (each as defined below) is not payable,
RP and CSI each agree to pay 50% of all printing expenses incurred by
either party in connection with the Registration Statement and the Proxy
Statement and (b) as provided in Section 5.13.2 or 5.13.3, as
applicable, below.
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5.13.2 If this Agreement is terminated by RP pursuant to Section
7.3.3 or this Agreement is terminated by CSI pursuant to Section 7.4.2,
RP shall pay to CSI an amount equal to CSI's and Merger Sub's actual,
reasonable and documented expenses (including without limitation
financing therefor) incurred after January 18, 1999 and on or prior to
the termination date of this Agreement relating to the transactions
contemplated by this Agreement (the "CSI Expenses"), provided that RP
shall not be responsible for any CSI Expenses in excess of $1,000,000 in
the aggregate. If during the 365 day period immediately following the
termination of this Agreement, RP shall enter into a transaction which
would constitute an RP Alternative Transaction with or involving an RP
Third Party who directly or indirectly initiated or otherwise had any
contact with RP with respect to any such transaction prior to the
termination of this Agreement, RP will pay to CSI, in addition to the
CSI Expenses, a fee equal to $750,000 (the "CSI Fee"), and, if RP enters
into such a transaction following a termination of this Agreement
pursuant to Section 7.2(b), RP shall also then pay to CSI the CSI
Expenses to the extent, if any, that such CSI Expenses were not
otherwise due and payable at the time of such termination.
5.13.3 If this Agreement is terminated by CSI pursuant to Section
7.4.3 or this Agreement is terminated by RP pursuant to Section 7.3.2,
CSI shall pay to RP an amount equal to RP's actual, reasonable and
documented expenses (including without limitation financing therefor)
incurred after January 18, 1999 and on or prior to the termination date
of this Agreement relating to the transactions contemplated by this
Agreement (the "RP Expenses"), provided that CSI shall not be
responsible for any RP Expenses in excess of $1,000,000 in the
aggregate. If during the 365 day period immediately following the
termination of this Agreement, CSI shall enter into a transaction which
would constitute an CSI Alternative Transaction with or involving a CSI
Third Party who directly or indirectly initiated or otherwise had any
contact with CSI with respect to any such transaction prior to the
termination of this Agreement, CSI will pay to RP, in addition to the RP
Expenses, a fee equal to $750,000 (the "RP Fee"), and, if CSI enters
into such a transaction following a termination of this Agreement
pursuant to Section 7.2(c), CSI shall also then pay to RP the RP
Expenses to the extent, if any, that such RP Expenses were not otherwise
due and payable at the time of such termination.
5.13.4 If this Agreement is terminated pursuant to Section 7.2(a)
because the condition set forth in Section 6.1.7 has not been satisfied
despite the reasonable best efforts of RP to cooperate in satisfying
such condition, CSI shall pay the RP Expenses to the extent incurred
prior to notice from CSI to RP that such condition will not be, or is
not likely to be, satisfied.
5.13.5 Any CSI or RP Fee and/or CSI or RP Expenses payable
pursuant to Section 5.13.2, 5.13.3 or 5.13.4 as the case may be, shall
be paid in immediately available funds within five business days after a
demand for payment following the first to occur of any of the events
described in Section 5.13.2, 5.13.3 or 5.13.4, as the case may be, and
entitling a party to payment; provided that, in no event shall RP or
CSI, as the case may be, be required to pay such Fee and/or Expenses to
the
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entities entitled thereto, if, immediately prior to the termination of
this Agreement, the entity entitled to receive such Fee and/or Expenses
was in material breach of its obligations under this Agreement (and such
breach, if curable, was not cured within 30 days after written notice of
such breach is given to such entity by the other party).
5.14 STOCKHOLDERS' AGREEMENT; VOTING AGREEMENTS.
(a) Simultaneously with the execution of this Agreement CSI is entering into (i)
a Stockholder Agreement with certain stockholders or prospective stockholders of
CSI identified in Exhibit 5.14(a)(i) hereto providing for the election of
directors of CSI and (ii) Voting Agreements pursuant to which certain
stockholders of RP identified in Exhibit 5.14(a)(ii) hereto agree to vote all
shares of RP Common Stock over which they have voting power in favor of the
Merger and the transactions contemplated hereby. (b) Simultaneously with the
execution of this Agreement, RP is entering into Voting Agreements pursuant to
which certain stockholders of CSI identified in Exhibit 5.14(b) hereto agree to
vote all shares of CSI Common Stock over which they have power in favor of the
Merger and the transactions contemplated hereby.
5.15 DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION.
CSI agrees that at all times after the Effective Date, it will and shall cause
the Surviving Corporation to, for not less than six years, indemnify each person
who is a director or officer of RP on the date hereof (individually an
"Indemnified Party" and collectively the "Indemnified Parties"), with respect to
any claim, liability, loss, damage, judgment, fine, penalty, amount paid in
settlement or compromise, cost or expense, including reasonable fees and
expenses of legal counsel ("Indemnified Liability"), to the extent such
Indemnified Party would have been indemnified pursuant to RP's articles of
incorporation or by-laws as in effect as of the date hereof, based in whole or
in part on, or arising in whole or in part out of, any matter existing or
occurring at or prior to the Effective Date whether commenced, asserted or
claimed before or after the Effective Date, and shall advance expenses to such
Indemnified Party to the extent such Indemnified Party would have been advanced
expenses pursuant to RP's articles of incorporation or by-laws as in effect as
of the date hereof. CSI shall, and shall cause the Surviving Corporation to,
maintain in effect for not less than six years after the Effective Date, the
current policies of directors' and officers' liability insurance maintained by
RP on the date hereof (provided that CSI may substitute therefor policies having
at least the same coverage and containing terms and conditions which are no less
advantageous to the persons currently covered by such policies as insured) with
respect to matters existing or occurring on or prior to the Effective Date.
5.16 RP STOCK PLANS. CSI agrees to file a registration statement with
respect to any RP stock option plan, to the extent that such filings are
required to enable holders of options granted under Section 1.8.1 to freely
exercise such options and (except for holders who may be deemed to be affiliates
of CSI) to freely sell shares acquired by the exercise of such options (assuming
such shares would be freely salable pursuant to an effective registration
statement covering such plans). Nothing set forth herein shall require CSI to
register such exercises on any form other than Form S-8. On and after the
Effective Date, CSI will assume and discharge all obligations of RP with respect
to registration rights agreements disclosed on the RP Disclosure Schedule.
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<PAGE>
5.17 REORGANIZATION. The parties hereto intend to adopt this Agreement
and the transactions contemplated hereby as a plan of reorganization under
Section 368(a) of the Code. No party hereto, without the consent of the other
parties hereto, will take any action that could reasonably be expected to cause
the Merger to fail to qualify as a reorganization within the meaning of Section
368(a) of the Code. Each of the parties shall report the Merger for income tax
purposes as a reorganization within the meaning of Section 368(a) of the Code
(and any comparable state or local statute).
ARTICLE 6. CONDITIONS.
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing of the following
conditions:
6.1.1. This Agreement and the transaction contemplated hereby
shall have been approved in the manner required by applicable law or by
applicable regulations of any stock exchange or other regulatory body
and by the holders of the issued and outstanding shares of capital stock
of each of RP and CSI entitled to vote thereon.
6.1.2. None of the parties hereto shall be subject to any order
or injunction of a court of competent jurisdiction which prohibits the
consummation of the transaction contemplated by this Agreement or has a
material adverse effect on a party hereto (including the requirement
that either party divest any material portion of its assets). In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable efforts to have any such injunction lifted.
6.1.3. All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or
other regulatory body required in connection with the execution,
delivery and performance of this Agreement shall have been obtained or
made, except for filings in connection with the Merger and any other
documents required to be filed after the Effective Date and except where
the failure to have obtained or made any such consent authorization,
order, approval, filing or registration would not have a CSI Material
Adverse Effect or an RP Material Adverse Effect following the Effective
Date.
6.1.4. The CSI Common Stock issuable upon conversion of the CSI
Preferred Stock shall have been listed or approved for listing upon
notice of issuance on the NASDAQ National Market System, if qualified,
or otherwise quoted on NASDAQ.
6.1.5. The Registration Statement shall have been declared
effective.
6.1.6. All applicable Blue Sky laws shall have been complied
with.
6.1.7. CSI shall have received sufficient financing to satisfy
ongoing working capital needs of CSI and RP following the Transaction
and to refinance existing indebtedness of both companies (and their
respective Subsidiaries to the extent
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<PAGE>
applicable) on terms substantially no less favorable than the terms of
the most current proposals therefor furnished by CSI to RP prior to the
date of this Agreement, or otherwise reviewed and approved by each party
in good faith.
6.2. CONDITIONS TO OBLIGATION OF RP TO EFFECT THE MERGER. The obligation
of RP to effect the Merger shall be subject to the fulfillment at or prior to
the Closing of the following conditions:
6.2.1. CSI shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or
prior to the Closing and the representations and warranties of CSI
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all material respects (or, to the
extent any such representation is qualified by reference to materiality
or to a CSI Material Adverse Effect, is entirely true and correct) as of
the Closing Date, and RP shall have received a certificate of the
President or a Vice President of CSI, dated the Closing Date, certifying
to such effect.
6.2.2. From the date of this Agreement through the Effective
Date, there shall not have occurred any change in the financial
condition, business, operations or prospects of CSI and its
Subsidiaries, taken as a whole, that would reasonably be expected to
have a CSI Material Adverse Effect.
6.2.3 RP shall have received a certificate from the Secretary of
CSI and Merger Sub, in form and substance reasonably satisfactory to RP,
common certifying the adoption of approving an amendment to the Amended
and Restated Articles of Incorporation of CSI to increase the number of
authorized preferred shares from 4,000,000 to 10,000,000, and to create,
and improve the issuance of, a new series of shares, the Series C
Convertible Preferred Stock, par value $.001 per share, to be delivered
in connection with the Merger. resolutions by the Board of Directors and
stockholders of CSI of transactions contemplated by this Agreement.
6.2.4 There shall have been no change of applicable law after the
date hereof as a result of which the Merger will fail to qualify as a
tax-free reorganization within the meaning of Section 368(a) of the
Code.
6.3. CONDITIONS TO OBLIGATION OF CSI TO EFFECT THE MERGER.
The obligations of CSI to effect the Merger shall be subject to the fulfillment
at or prior to the Closing of the following conditions:
6.3.1. RP shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or
prior to the Closing and the representations and warranties of RP
contained in this Agreement and in any document delivered in connection
herewith shall be true and correct in all material respects (or, to the
extent any such representation is qualified by reference to materiality
or to an RP Material Adverse Effect, is entirely true and correct) as of
the Closing Date, and CSI shall have received a certificate of the
President or a Vice President of RP, dated the Closing Date, certifying
to such effect;
6.3.2. From the date of this Agreement through the Effective
Date, there shall not have occurred any change in the financial
condition, business, operations or
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<PAGE>
prospects of RP and the RP Subsidiaries, taken as a whole, that would
reasonably be likely to have an RP Material Adverse Effect.
6.3.3 CSI shall have received a certificate from the Secretary of
RP, in form and substance reasonably satisfactory to CSI certifying the
adoption of resolutions by the RP Board of Directors and stockholders in
favor of this Agreement, the Merger and the transactions contemplated by
this Agreement.
6.3.4 RP shall take all actions necessary to amend the FM
Precision Golf Manufacturing Corp 401(k) Plan (the "401(k) Plan") to
restrict eligibility to participate in the 401(k) Plan, effective no
later than the Closing Date, to employees of RP, by replacing the
standardized prototype form of plan with a non-standardized prototype
form of plan, in form and substance reasonably satisfactory to CSI.
ARTICLE 7. TERMINATION.
7.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Date, before or after the approval of this Agreement by the stockholders of RP
and CSI, by the mutual consent of the parties hereto.
7.2. TERMINATION BY EITHER RP OR CSI. This Agreement may be terminated
and the Merger may be abandoned by action of the Board of Directors of either RP
or CSI if: (a) the Merger shall not have been consummated on or before 120 days
after the date of this Agreement; (b) RP's stockholders have voted against the
approval required by Section 6.1.1 at a meeting duly convened therefor or at an
adjournment thereof; (c) CSI's shareholders have voted against the approval
required by Section 6.1.1 at a meeting duly convened therefor or at an
adjournment thereof; (d) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or ruling
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the transaction contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
provided, that the party seeking to terminate this Agreement pursuant to this
clause (d) shall have used all reasonable efforts to remove such injunction,
order or decree; and provided, in the case of a termination pursuant to clause
(a) above, that the terminating party shall not have breached in any material
respect its obligations under this Agreement in any manner that shall have
proximately contributed to the occurrence of the failure referred to in said
clause.
7.3. TERMINATION BY RP. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date, before or after the
adoption and approval by the stockholders of RP referred to in Section 6.1.1, by
action of the Board of Directors of RP, if :
7.3.1 (a) There has been a breach by CSI of any
representation or warranty contained in this Agreement which
would reasonably be expected to have a CSI
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<PAGE>
Material Adverse Effect, or (b) there has been a material breach
of any of the covenants or agreements set forth in this
Agreement on the part of CSI, which breach is not curable or, if
curable, is not cured within 30 days after written notice of
such breach is given by RP to CSI.
7.3.2 Whether or not permitted to do so by this
Agreement, the Board of Directors of CSI or CSI shall (i)
withdraw, modify or change its approval or recommendation of
this Agreement or the Merger in a manner adverse to RP, (ii)
approve or recommend to the stockholders of CSI a CSI
Acquisition Proposal or CSI Alternative Transaction, (iii)
approve or recommend that the stockholders of CSI tender their
shares in any tender or exchange offer that is a CSI Alternative
Transaction or (iv) take any position or make any disclosures to
CSI's stockholders permitted pursuant to Section 5.2 which has
the effect of any of the foregoing. As used herein, "CSI
Alternative Transaction" means any of (i) a transaction pursuant
to which any person (or group of persons) other than CSI or its
affiliates (a "CSI Third Party") acquires or would acquire
beneficial ownership or the right to acquire beneficial
ownership of more than 50% of the outstanding shares of any
class of equity securities of CSI, whether from CSI or pursuant
to a tender offer or exchange offer or otherwise, (ii) a merger
or other business combination involving CSI pursuant to which
any CSI Third Party acquires more than 50% of the outstanding
equity securities of CSI or the entity surviving such merger or
business combination (iii) any transaction pursuant to which any
CSI Third Party acquires control of assets of CSI (including for
this purpose the outstanding equity securities of any of the CSI
Subsidiaries and securities of the entity surviving any merger
or business combination to which any of the CSI Subsidiaries is
a party) or any of the CSI Subsidiaries having a fair market
value (as determined by the Board of Directors of CSI in good
faith) equal to more than 20% of the fair market value of all
the assets of CSI and the CSI Subsidiaries, taken as a whole,
immediately prior to such transaction or (iv) any other
consolidation, business combination, recapitalization or similar
transaction involving CSI or any of the CSI Subsidiaries, other
than the transactions contemplated by this Agreement; provided,
however, that the term CSI Alternative Transaction shall not
include any acquisition of securities by a broker dealer in
connection with a bona fide public offering of such securities.
7.3.3 The Board of Directors of RP has received an RP
Superior Proposal and the Board of Directors of RP reasonably
determines in good faith (upon the advice of independent outside
counsel) that a failure to terminate this Agreement and enter
into an agreement to effect such RP Superior Proposal would
constitute a breach of its fiduciary duties; provided that this
Agreement shall not be terminated pursuant to this Section 7.3.3
unless simultaneously with such termination, RP enters into a
definitive acquisition, merger or similar agreement to effect
the RP Superior Proposal.
7.4. TERMINATION BY CSI. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date by action of the Board
of Directors of CSI, if:
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<PAGE>
7.4.1. (a) There has been a breach by RP of any representation or
warranty contained in this Agreement which would have or would be
reasonably likely to have an RP Material Adverse Effect, or (b) there
has been a material breach of any of the covenants or agreements set
forth in this Agreement on the part of RP, which breach is not curable
or, if curable, is not cured within 30 days after written notice of such
breach is given by CSI to RP
7.4.2. Whether or not permitted to do so by this Agreement, the
Board of Directors of RP or RP shall (i) withdraw, modify or change its
approval or recommendation of this Agreement or the Merger in a manner
adverse to CSI, (ii) approve or recommend to the stockholders of RP an
RP Acquisition Proposal or RP Alternative Transaction, (iii) approve or
recommend that the stockholders of RP tender their shares in any tender
or exchange offer that is an RP Alternative Transaction or (iv) take any
position or make any disclosures to RP's stockholders permitted pursuant
to Section 5.1 which has the effect of any of the foregoing. As used
herein, "RP Alternative Transaction" means any of (i) a transaction
pursuant to which any person (or group of persons) other than CSI or its
affiliates (an "RP Third Party") acquires or would acquire beneficial
ownership or the right to acquire beneficial ownership of more than 50%
of the outstanding shares of any class of equity securities of RP,
whether from RP or pursuant to a tender offer or exchange offer or
otherwise, (ii) a merger or other business combination involving RP
pursuant to which any RP Third Party acquires more than 50% of the
outstanding equity securities of RP or the entity surviving such merger
or business combination (iii) any transaction pursuant to which any RP
Third Party acquires or would acquire control of assets of RP (including
for this purpose the outstanding equity securities of any of the RP
Subsidiaries and securities of the entity surviving any merger or
business combination to which any of the RP Subsidiaries is a party) or
any of the RP Subsidiaries having a fair market value (as determined by
the Board of Directors of RP in good faith) equal to more than 20% of
the fair market value of all the assets of RP and the RP Subsidiaries,
taken as a whole, immediately prior to such transaction, or (iv) any
other consolidation, business combination, recapitalization or similar
transaction involving RP or any of the RP Subsidiaries, other than the
transactions contemplated by this Agreement; provided, however, that the
term RP Alternative Transaction shall not include any acquisition of
securities by a broker dealer in connection with a bona fide public
offering of such securities.
7.4.3 The Board of Directors of CSI has received a CSI Superior
Proposal and the Board of Directors of CSI reasonably determines in good
faith (upon the advice of independent outside counsel) that a failure to
terminate this Agreement and enter into an agreement to effect CSI
Superior Proposal would constitute a breach of its fiduciary duties;
provided that this agreement shall not be terminated pursuant to this
Section 7.4.3 unless simultaneously with such termination CSI enters
into a definitive acquisition, merger or similar agreement to effect the
CSI Superior Proposal.
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<PAGE>
7.5. EFFECT OF TERMINATION AND ABANDONMENT. In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article 7, all obligations of the parties hereto shall terminate, except the
obligations of the parties pursuant to Sections 5.11, 5.13, and this 7.5 and
Article 8 and the Confidentiality Agreement referred to in Section 8.4.
Moreover, in the event of termination of this Agreement pursuant to Section 7.3
or 7.4, nothing herein shall prejudice the ability of the non-breaching party
from seeking damages from the other party for any breach of this Agreement,
including without limitation, attorneys' fees and the right to pursue any remedy
at law or in equity.
7.6. EXTENSION; WAIVER. At any time prior to the Effective Date, any
party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties made to such party contained herein or in
any document to be delivered pursuant hereto, and (c) waive compliance with any
of the agreements or conditions for the benefit of such party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in an instrument in writing signed by or on
behalf of the party granting such extension or waiver.
ARTICLE 8. GENERAL PROVISIONS.
8.1. NONSURVIVAL, REPRESENTATIONS AND WARRANTIES. All
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall be deemed to the extent expressly provided
herein to be conditions to the Merger and shall not survive the Merger.
8.2. NOTICES. Any notice required to be given hereunder shall be
sufficient if in writing, and sent by facsimile transmission and by courier
service (with proof of service), hand delivery or certified or registered mail
(return receipt requested and first-class postage prepaid), addressed as
follows:
If to RP: If to CSI:
Royal Precision, Inc. Coyote Sports, Inc.
15170 North Hayden Road 2291 Arapahoe Avenue
Scottsdale, Arizona 89260 Boulder, Colorado 80302
Telecopier No.: (602) 627-0206 Telecopier No.: (303) 818-4626
Telephone No.: (602) 627-0270 Telephone No.: (303) 933-6609
Attn: Chairman of the Board Attn: President
or to such other address as any party shall specify by written notice so given
and such notice shall be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
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<PAGE>
8.3. ASSIGNMENT; BINDING EFFECT; BENEFIT. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the parties
hereto or their respective successors, and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.4. ENTIRE AGREEMENT. This Agreement, the Exhibits, the CSI Disclosure
Schedule, the RP Disclosure Schedule, the Confidentiality Agreement dated
November 16, 1997, between RP and CSI and any documents delivered by the parties
in connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings (oral and written) among the parties with respect thereto. No
addition to or modification of any provision of this Agreement shall be binding
upon any party hereto unless made in writing and signed by all parties hereto.
During the term of this Agreement, the Confidentiality Agreement may not be
terminated by either party thereto.
8.5. AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the RP Merger by the
stockholders of RP and CSI, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed by or on behalf of each of the
parties hereto.
8.6. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its rules of
conflict of laws.
8.7. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute one and the
same instrument. Each counterpart may consist of a number of copies of this
Agreement, each of which may be signed by less than all of the parties hereto,
but together all such copies are signed by all of the parties hereto.
8.8. HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and shall be given no substantive
or interpretive effect whatsoever.
8.9. INTERPRETATION. In this Agreement, unless the context otherwise
requires, words describing the singular number shall include the plural and vice
versa, and
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<PAGE>
words denoting any gender shall include all genders and words denoting natural
persons shall include corporations and partnerships and vice versa.
8.10. WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
giving such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or otherwise affecting the validity or enforceability of any of the
terms or provisions of this Agreement in any other jurisdiction. If any
provision of this Agreement is so broad as to be unenforceable, the provision
shall be interpreted to be only so broad as is enforceable.
8.12. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any provision of this Agreement
was not performed in accordance with its specific terms or was otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court having jurisdiction of
the matter, this being in addition to any other remedy to which they may be
entitled at law or in equity.
8.13. SUBSIDIARIES. As used in this Agreement, the word "Subsidiary"
when used with respect to any party means any corporation or other organization,
whether incorporated or unincorporated, of which such party directly or
indirectly owns or controls at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation or other organization, or any organization of which such party is a
general partner.
8.14 KNOWLEDGE. When references are made in this Agreement to any
representation or warranty being "to the knowledge" of CSI or RP, or similar
language, "knowledge" shall mean (a) the actual knowledge of any director or
senior executive officer of such party or (b) such knowledge as any director or
senior executive officer of such party could reasonably be expected to have
following a reasonably comprehensive investigation of the matter subject to such
representation or warranty.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf as of the day and year first
written above.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
--------------------------------
Name: James M. Probst
Title: President and CEO
RP ACQUISITION CORP.
By: /s/ James M. Probst
--------------------------------
Name: James M. Probst
Title:
ROYAL PRECISION, INC.
By: /s/ Raymond J. Minella
--------------------------------
Name: Raymond J. Minella
Title: Chairman of the Board
<PAGE>
Exhibit 1.4.1
Form of Certificate of Designation
RESTATED FORM OF
CERTIFICATE OF DESIGNATION
(Pursuant to the provisions of Section 78.1955
of the General Corporation Law of the State of Nevada)
It is hereby certified that:
1. The name of the corporation (the "Corporation") is Coyote Sports,
Inc.
2. Set forth hereinafter is a copy of a resolution, containing a
statement of the voting powers, preferences, limitations, restrictions, and
relative rights of the Series C Preferred Stock hereinafter designated, adopted
by the Board of Directors of the Corporation, pursuant to a provision of the
Amended and Restated Articles of Incorporation relating to the issuance of said
Series C Preferred Stock by resolution of the Board of Directors:
RESOLVED, that a series of the authorized preferred stock, par value
$.001 per share, of the Corporation be created hereby, and that the designations
and amounts thereof and the voting powers, preferences, and relative,
participating, optional and other special rights, of the shares of such series,
and the qualifications, limitations, or restrictions thereof, are as follows:
8.12.1. Designations and Numbers of Shares.
----------------------------------
_____________________________ (________) shares of the Series C Convertible
Redeemable Preferred Stock of the Corporation are hereby constituted as a series
of preferred stock, $.001 par value per share, stated value $_______1 per share
(the "Stated Value") and designated as "Series C Convertible Redeemable
Preferred Stock" (hereinafter called the "Series C Preferred Stock").
8.12.2. Dividends and Distributions.
---------------------------
(i) The holders of the Series C Preferred Stock shall be entitled
to preferential cash dividends with respect thereto at the rate of 6% of the
Stated Value thereof per annum, payable ratably per share of Series C Preferred
Stock outstanding if, as and when declared by the board of directors of the
Corporation or any duly authorized committee of that board (the "Board of
Directors") out of funds legally available for the payment thereof. Such
preferential dividends shall accrue daily from the date of issuance of the
applicable preferred share (the "Issuance Date") and shall be payable on the 1st
day of January, April,
- ---------------------
1 Stated value to be set at (x) $6.00 multiplied by (y) the reciprocal of the
final merger exchange ratio of shares of Series C Preferred Stock to shares of
Royal Precision, Inc. Common Stock in the merger pursuant to which the Series C
Preferred Stock is to be issued. (For the avoidance of doubt, based on the
shares of common stock of the Corporation and Royal Precision, Inc. stated to be
outstanding in the Agreement and Plan of Merger with respect to such merger,
such exchange ratio would be 1.0195, such reciprocal would be .9809, and such
Stated Value would be $5.8854.)
<PAGE>
July, and October, or if any such dividend payment date is a Saturday, Sunday or
legal holiday, then on the next day which is not a Saturday, Sunday or legal
holiday.
(ii) Dividends on the Series C Preferred Stock shall be
cumulative so that if, for any dividend accrual period, cash dividends in the
amount specified in paragraph (a) of this Section 2 are not declared and paid or
set aside for payment, the amount of accrued but unpaid dividends shall
accumulate, and such accrued but unpaid dividends shall be added to the
preferential cash dividends payable for subsequent dividend accrual periods.
Accrued but unpaid dividends shall bear interest at the rate of 6% per annum
until paid.
(iii) Whenever dividends or distributions payable on the Series C
Preferred Stock, as provided in this Section 2, are in arrears, thereafter and
until all accrued and unpaid dividends and distributions, whether or not
declared, on shares of Series C Preferred Stock outstanding shall have been paid
in full, the Corporation shall not:
1) declare or pay dividends on or make any other
distributions on any shares of stock ranking junior
(either as to dividends or upon liquidation,
dissolution or winding up) to the Series C
Preferred Stock; or
2) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a
parity (either as to dividends or upon liquidation,
dissolution or winding up) with the Series C
Preferred Stock except dividends or distributions
paid ratably on the Series C Preferred Stock and
all such parity stock on which dividends or
distributions are payable or in arrears in
proportion to the total amounts to which the
holders of all such shares are then entitled.
8.12.3. Redemption.
----------
3.1 Redemption at Option of the Corporation. The Corporation may,
by resolution of its Board of Directors (excluding any director who is, or is
designated by, any holder of the Series C Preferred Stock or any Affiliate of
such a holder) subject to any applicable law, at any time, or from time to time,
in whole or in part, on a pro-rata basis among the holders of Series C Preferred
Stock in proportion to the number of shares of Series C Preferred Stock held by
them, redeem the shares of Series C Preferred Stock from each holder thereof
(each date set for redemption being referred to herein as a "Redemption Date")
at a price per share of Series C Preferred Stock payable in cash equivalent to
(i) the Stated Value plus (ii) all accrued and unpaid dividends (whether or not
declared or due) to the Redemption Date fixed for the redemption of such shares
of Series C Preferred Stock (the "Redemption Price").
3.2 Procedures Applicable to Redemptions.
------------------------------------
(a) Redemption Notice. At least thirty (30) days but not more
than sixty (60) days prior to a Redemption Date, written notice (a "Redemption
Notice") shall be delivered by the Corporation to each holder of Series C
Preferred Stock which the
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<PAGE>
Corporation seeks to redeem on such Redemption Date (in each case, a "Redeeming
Holder"). The Redemption Notice shall state:
(i) the number of shares of Series C Preferred Stock to
be redeemed from such Redeeming Holder;
(ii) the Redemption Date and the Redemption Price; and
(iii) the manner and place designated for the Redeeming
Holders to surrender to the Corporation their
certificates representing the shares of Series C
Preferred Stock to be redeemed in exchange for the
Redemption Price.
(b) Deliveries of Stock Certificates. On or before the Redemption
Date, each Redeeming Holder shall surrender to the Corporation the certificate
or certificates representing the shares of Series C Preferred Stock to be
redeemed, in the manner and the place designated in the Redemption Notice and
thereupon the Redemption Price for those shares shall be payable on the
Redemption Date to the order of the person whose name appears on that
certificate or certificates, and each surrendered certificate shall be canceled
and retired. In the event that less than all of the shares of Series C Preferred
Stock represented by a certificate surrendered for redemption are redeemed as
aforesaid, a new certificate or certificates shall be issued representing the
unredeemed shares. The Redemption Notice shall not be given effect in the case
of any shares of Series C Preferred Stock as to which a proper notice of
conversion, specifying an effective date prior to the Redemption Date, has been
duly received by the Corporation prior to the Redemption Date, which shares
shall be converted into Common Stock in accordance with such notice of
conversion pursuant to the terms hereof.
(c) Cessation of Dividend Accrual, etc. If on the Redemption Date
the Redemption Price is either paid or made available for payment through the
deposit arrangement specified in clause (d) below, then notwithstanding that
certificates evidencing any of the shares of Series C Preferred Stock so elected
to be redeemed shall not have been surrendered, dividends on such shares shall
cease to accrue after the Redemption Date and all rights with respect to the
redeemed shares of Series C Preferred Stock shall forthwith after the Redemption
Date terminate, except only the right of the Redeeming Holders to receive the
Redemption Price without interest upon surrender of their certificate or
certificates representing the shares of Series C Preferred Stock that have been
redeemed, subject to applicable law. If the Corporation shall default in the
payment of the Redemption Price, then, with respect to all shares of Series C
Preferred Stock for which the Redemption Price shall not have been paid,
dividends shall continue to accrue on such redeemed shares of Series C Preferred
Stock and all other rights shall remain in effect with respect to such shares
until the Corporation shall pay the Redemption Price on such shares.
(d) Deposit of Funds for Redemption. On or prior to the
Redemption Date, the Corporation shall deposit in a segregated trust account
with any United States federally or state chartered commercial bank or trust
company having net capital of not less than $100,000,000 (or a subsidiary
thereof) a sum equal to the aggregate Redemption Price (either in cash or
certificates representing shares of Common Stock) of all shares of Series C
Preferred Stock to be redeemed, with irrevocable instructions and authority to
the bank or
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<PAGE>
trust company to pay, or deliver on or after the Redemption Date or prior
thereto, the Redemption Price to the respective holders upon the surrender of
their share certificates. From and after the Redemption Date if such deposit
shall have been made, the shares so called for redemption shall be redeemed and
shall after such redemption be canceled and no longer be available for issuance
as shares of Series C Preferred Stock by the Corporation but shall have the
status of authorized but unissued shares of Preferred Stock of the Corporation
without designation as to rights, preferences, limitations or series until such
shares are once more designated as part of a particular series with particular
rights, preferences or limitations by the Board of Directors of the Corporation.
The deposit shall constitute full payment of the redeemed shares of Series C
Preferred Stock to their holders, and from and after the Redemption Date the
shares shall be deemed to be no longer outstanding, and the holders thereof
shall cease to be stockholders with respect thereto except for the right to
receive from the bank or trust company payment or delivery of the Redemption
Price of the shares, without interest, upon surrender of their certificates
therefor. Any funds so deposited and unclaimed at the end of one year from the
Redemption Date shall be released or repaid to the Corporation, after which time
the holders of shares redeemed shall be entitled to receive payment of the
Redemption Price only from the Corporation. No sinking fund shall be established
in relation to the redemption of Series C Preferred Stock.
8.12.4. Conversion Rights; Certain Issuances to Affiliates. (a) All
holders of record of shares of Series C Preferred Stock shall have the option,
upon notice to the Corporation, to convert any or all of their shares of Series
C Preferred Stock in the ratio of one share of Common Stock for each share of
Series C Preferred Stock (the "Conversion") effective on the date specified in
each such holder's notice to the Corporation, which shall be at least three (3)
days but not more than twenty (20) days after the date such notice is given.
Upon the giving of such notice, such holder of shares of Series C Preferred
Stock shall surrender his or its certificate or certificates for all such shares
to the Corporation and shall thereafter receive certificates for the number of
shares of Common Stock to which such holder is entitled pursuant to this Section
4. On the effective date of the Conversion, all rights with respect to the
Series C Preferred Stock so converted, including the rights, if any, to receive
notices and vote, will terminate, except only the rights of the holders thereof,
upon surrender of their certificate or certificates therefor, to receive
certificates for the number of shares of Common Stock into which such Series C
Preferred Stock has been converted, and payment of any declared or accrued but
unpaid dividends thereon. Payment of such dividends upon Conversion shall be
made in cash as promptly as practicable after the effective date of the
Conversion; provided that to the extent that such payment is not then permitted
by the terms of the Corporation's then-outstanding indebtedness and applicable
law, payment may, at the option of the Board of Directors of the Corporation
(excluding any director who is, or is designated by, any holder of the Series C
Preferred Stock or any Affiliate of such a holder), be made either (i) by
delivery of a promissory note of the Corporation on the terms set forth in Annex
A hereto in a principal amount equal to the cash amount of such dividends or
(ii) by delivery of shares of Common Stock in a number equal to (x) the cash
amount of such dividends divided by (y) the average daily closing prices of the
Common Stock on the Nasdaq Small Cap Market (or the principal securities
exchange or securities market on which the Common Stock is then being traded)
over the twenty (20) consecutive trading days ending on the trading day
immediately prior to the effective date of the Conversion. If so required by the
Corporation, certificates surrendered for conversion shall be endorsed or
accompanied by written instrument or instruments of transfer, in form
satisfactory to the Corporation, duly executed by the registered holder or by
his or its attorney duly authorized in writing. As soon as practicable after the
effective date of the Conversion and the surrender of the certificate or
certificates for Series C Preferred Stock, the Corporation shall cause to be
issued and delivered to such holder, or on his or its written order, a
certificate or certificates for the number of shares of Common Stock issuable on
such conversion in accordance with the provisions hereof.
(b) In the event the Corporation shall, at any time after the
issuance of any share of Series C Preferred Stock, declare or pay any dividend
or make any distribution on Common Stock payable in shares of Common Stock, or
effect a subdivision or split or a combination, consolidation or reverse split
of the outstanding shares of Common Stock into a greater or lesser number of
shares of Common Stock, then in each such case a provision shall be made, as
applicable, for either (i) delivery upon conversion of the Series C Preferred
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<PAGE>
Stock of, on a per share basis, the number of shares of Common Stock paid on
each share of Common Stock into which such Series C Preferred Stock is
converted, or (ii) a subdivision or split or a combination, consolidation or
reverse split of the Common Stock into which the Series C Preferred Stock is
convertible.
(c) If and whenever on or after the Issuance Date of the Series C
Preferred Stock (except pursuant to the exercise, in accordance with their
terms, of any rights, options or warrants, or other securities convertible into
or exercisable or exchangeable for Common Stock, outstanding as of such Issuance
Date), the Corporation issues or sells any shares of Common Stock to any
Affiliate of the Corporation for a consideration per share less than the average
closing market price for such Common Stock for the thirty (30) consecutive
trading days ending three (3) trading days immediately preceding the date of
such issuance or sale (the "Market Price"), then forthwith upon such issuance or
sale, the number of shares of Common Stock issuable upon conversion in respect
of each share of Series C Preferred Stock shall be adjusted so that such number
of shares shall equal (A) the number of shares of Common Stock issuable upon
conversion in respect of a share of Series C Preferred Stock immediately prior
to the date of such issuance or sale multiplied by (B) a fraction, (x) the
numerator of which shall be (i) the number of shares of Common Stock outstanding
on the date of such issuance or sale, plus (ii) the number of additional shares
of Common Stock issued or sold, and (y) the denominator of which shall be (i)
the number of shares of Common Stock outstanding on the date of such issuance or
sale, plus (ii) the number of additional shares of Common Stock which the
aggregate consideration received by the Corporation upon such issuance or sale
would purchase at such Market Price per share of Common Stock. Notwithstanding
the foregoing, no such adjustment shall be required by this Section 4(c) or
otherwise in respect of (x) the issuance or exercise of any warrants issued in
connection with any financing transaction involving an Affiliate of the
Corporation on terms substantially equivalent to those customary in transactions
of a similar nature as determined in good faith by, and reflected in written
resolutions of, the Corporation's Board of Directors, or (y) the issuance or
exercise of any options issued to officers or employees of the Corporation as
approved by the Corporation's Board of Directors. In case any shares of Common
Stock are issued for consideration consisting of securities or other property
other than cash, the value of such consideration shall be as determined in good
faith by, and reflected in written resolutions of, the Corporation's Board of
Directors. In the case of the issuance or sale of Common Stock pursuant to the
exercise of any rights, options or warrants, or other securities convertible
into or exercisable or exchangeable for Common Stock, the date as of which the
"Market Price" of Common Stock shall be determined for purposes of this Section
4(c) shall be the initial date of issuance of such rights, options or warrants
or other securities, and not, for example, the date of such exercise.
(d) Except as specifically provided in Section 4(b) or (c), the
number of shares of Common Stock issuable upon conversion of a share of Series C
Preferred Stock shall not be adjusted by reason of any issuance or sale of
Common Stock by the Corporation regardless of the consideration received
therefor.
8.12.5. Liquidation. Upon any voluntary or involuntary dissolution,
liquidation, or winding up of the Corporation (a "Liquidation"), the holder of
each share of Series C Preferred Stock then outstanding shall be entitled to be
paid out of the assets of the Corporation available for distribution to its
stockholders, before any distribution of assets shall be made to the holders of
Common Stock of the Corporation or to the holders of other
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<PAGE>
stock of the Corporation that ranks junior to such series of the Series C
Preferred Stock in respect to distributions upon a Liquidation of the
Corporation ("Junior Stock"), an amount equal to the Stated Value of such Series
C Preferred Stock, plus an amount equal to all dividends accrued and unpaid on
such share on the date fixed for distribution of assets of the Corporation to
the holders of the Series C Preferred Stock. Neither a consolidation or merger
of the Corporation with or into any other entity, nor a merger of any other
entity with or into the Corporation, nor a sale or transfer of all or any part
of the Corporation's assets for cash or securities or any other property, shall
be considered a Liquidation. Written notice of any Liquidation shall be given to
the holders of the Series C Preferred Stock not less than thirty (30) days prior
to any payment date stated therein.
8.12.6. Voting Rights. The holder of each share of Series C Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series C Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock,
and shall be entitled, notwithstanding any provision hereof, to notice of any
shareholders' meeting or any action by written consent of the shareholders in
accordance with the Bylaws of this Corporation, and shall vote separately as a
class to the extent, if any, required by applicable law.
8.12.7. Protective Provisions. So long as shares of Series C Preferred
Stock are outstanding, this Corporation shall not without first obtaining the
approval (by vote or written consent, as provided by law) of the holders of
two-thirds of the then outstanding shares of Series C Preferred Stock, voting
together as a single class:
(i) designate or issue any additional shares of Series C
Preferred Stock or in any manner authorize, create, designate, issue or sell any
class or series of capital stock (including any shares of treasury stock) or
rights, options, warrants or other securities convertible into or exercisable or
exchangeable for capital stock or any debt security which by its terms is
convertible into or exchangeable for any equity security or has any other equity
feature or any security that is a combination of debt and equity, which, in each
case, as to the payment of dividends or distribution of assets, including,
without limitation, distributions to be made upon the liquidation, dissolution
or winding up of the Corporation, is senior to or on a parity with the Series C
Preferred Stock;
(ii) in any manner alter or change the terms, designations,
powers, preferences or relative, participating, optional or other special
rights, or the qualifications, limitations or restrictions, of the Series C
Preferred Stock;
(iii) reclassify the shares of any class or series of Junior
Stock into shares of any class or series of capital stock ranking, either as to
payment of dividends, distributions of assets or redemptions, including, without
limitation, distributions to be made upon the liquidation, dissolution or
winding up of the Corporation senior to or on a parity with the Series C
Preferred Stock;
(iv) take any action to voluntarily dissolve, liquidate or wind
up the Corporation; or
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<PAGE>
(v) take any action to cause any amendment, alteration or repeal
of any of the provisions of (i) the Amended and Restated Articles of
Incorporation or (ii) the By-laws, if such amendment, alteration or repeal would
adversely affect in any material respect the rights of the holders of the Series
C Preferred Stock in their capacity as such.
8.12.8. Affirmative Covenants of the Corporation.
----------------------------------------
(i) The Corporation shall at all times preserve, renew and keep
in full force and effect its legal existence and material rights and franchises
with respect thereto, provided, however, that the Corporation shall not be
required to preserve any such right or franchise, if the Board of Directors of
the Corporation shall determine in its good faith judgment that the preservation
thereof is no longer desirable in the conduct of the business of the Corporation
and its subsidiaries, taken as a whole.
(ii) The Corporation shall comply in all material respects with
all applicable requirements of law, the necessity of compliance therewith in
good faith by appropriate proceedings diligently pursued, except where the
failure to so comply or contest would not reasonably be expected to have a
material adverse effect on the Corporation and its subsidiaries, taken as a
whole.
(iii) The Corporation shall deliver to each holder of Series C
Preferred Stock:
1) as soon as available and in any event within one
hundred (100) days after the end of each Fiscal
Year of the Corporation, an audited or reviewed
consolidated balance sheet of the Corporation and
its subsidiaries as of the end of such Fiscal Year
and the related audited or reviewed consolidated
statements of income and cash flows for such Fiscal
Year, setting forth in each case in comparative
form the figures for the previous Fiscal Year;
2) as soon as available and in any event within fifty
five (55) days after the end of each fiscal quarter
of each Fiscal Year of the Corporation, a
consolidated balance sheet of the Corporation and
its subsidiaries as of the end of such fiscal
quarter and related consolidated statements of
income for such quarter and for the portion of the
Corporation's Fiscal Year then ended, setting forth
in each case in comparative form the figures for
the corresponding fiscal quarter and the
corresponding portion of the Corporations's
previous Fiscal Year;
(iv) The Corporation shall file all material tax returns
applicable to the Corporation in a timely manner.
8.12.9. Holder; Notices. The term "holder" or "holders" wherever used
herein with respect to a holder or holders of shares of Series C Preferred Stock
shall mean the holder or holders of record of such shares as set forth on the
stock transfer records of the Corporation. Whenever any notice is required to be
given under this Certificate of Designation, such notice may be given personally
or by mail. Any notice given to a holder
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<PAGE>
of any share of Series C Preferred Stock shall be sufficient if given to the
holder of record of such share at the last address set forth for such holder on
the stock transfer records of the Corporation. Any notice given by mail shall be
deemed to have been given when deposited in the United States mail with postage
thereon prepaid. The Corporation shall send to the holders of the Series C
Preferred Stock copies of any notices, statements, or other communications sent
to the holders of the Common Stock and of the setting of a record date for the
holders of the Common Stock for any purpose.
8.12.10. Affiliate. The term "Affiliate" wherever used herein shall
mean, as to any person, any other person directly or indirectly controlling,
controlled by or under common control with such person (for which purpose
"control" of any person shall mean the power to direct the management of such
person, whether by ownership of securities or by contract or otherwise),
including without limitation any person who is the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
10% or more of any class of voting securities of such person.
IN WITNESS WHEREOF, Coyote Sports, Inc. has caused this Certificate of
Designation of the Series C Preferred Stock to be executed by its duly
authorized officers this ___ day of ____________, 1999.
COYOTE SPORTS, INC.
By:
--------------------------------
Name:
Title:
By:
--------------------------------
Name:
Title:
STATE OF )
) SS.:
COUNTY OF )
On __________________, 1999, personally appeared before me, a Notary
Public, for the State and County aforesaid, __________________________________,
as _______ of Coyote Sports, Inc., who acknowledged that he executed the above
instrument.
------------------------------
Notary Public
[Notarial Seal]
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<PAGE>
Exhibit 3.4.1
Capital Stock of CSI
25,000,000 shares of Common Stock, par value $.001 per share
_________ shares of CSI Preferred Stock, par value $.001 per share*
* Subject to the Exchange Ratio in the Merger.
<PAGE>
Exhibit 5.14(a)(i)
Stockholder Agreement Signatories
James M. Probst
Mel S. Stonebraker
Paragon Coyote Texas, Ltd.
Richard P. Johnston and Jayne A. Johnston Charitable Remainder Trust #3
David E. Johnston
Berenson Minella & Company, L.P.
Kenneth J. Warren
<PAGE>
Exhibit 5.14(a)(ii)
RP Voting Agreement Signatories
Kenneth J. Warren
Lawrence Bain
Richard P. Johnston and Jayne A. Johnston Charitable Remainder Trust #3
Berenson Minella & Company, L.P.
David E. Johnston
Danny Edwards
Ronald L. Chambers
<PAGE>
Exhibit 5.14(b)
CSI Voting Agreement Signatories
Paragon Coyote Texas, Ltd.
James M. Probst
Mel S. Stonebraker
<PAGE>
Annex A to
Form of Certificate
of Designation
Summary Terms of Potential Dividend Notes
-----------------------------------------
Issuance Issuable upon conversion of Series
C Preferred Stock at Company's
option, to the extent, if any, that
payment of accrued but unpaid
dividends on Preferred Stock
converted is not then permitted by
terms of Company indebtedness or
applicable law
Principal Amount Amount of such dividends accrued
but unpaid prior to conversion
Minimum Principal Amount No Note will be issued in a
principal amount of less than
$1,000.00
Interest 6% interest per annum, compounded
quarterly, payable at maturity
(including upon prepayment)
Maturity 24 months from date of Note
issuance; to the extent that
Company is not then permitted by
terms of Company indebtedness or
applicable law to pay amounts due
on maturity of any Note, Company
will satisfy such Note on maturity
by issuing shares of Company Common
Stock in a number equal to (x) cash
amount due in respect of such Note
(including accrued interest)
divided by (y) average daily
closing prices of Company Common
Stock on Nasdaq Small Cap Market
(or principal securities exchange
or securities market on which
Common Stock is then being traded)
over 20 consecutive days ending on
trading day immediately prior to
maturity of such Note
Mandatory Prepayment Prepayment, without premium,
required (x) from time to time to
extent then permitted by terms of
Company indebtedness and applicable
<PAGE>
law, pro rata with accrued but
unpaid dividends on Preferred Stock
still outstanding and (y) upon
consolidation, merger or similar
business combination with, or sale
or other disposition of all or
substantially all assets to, a third
party in which the Company Common
Stock is exchanged for cash or
property other than equity
securities of surviving company or
parent
Ranking Junior in right of payment to
Company's existing and future
senior and senior subordinated
indebtedness; senior to all other
indebtedness of Company (i.e., to
any other indebtedness which is
junior to senior and senior
subordinated indebtedness)
Covenants, etc. Covenants for payment of Notes in
accordance with Note terms, and as
set forth in Section 8 of
Certificate of Designation with
respect to Preferred Stock; cross-
defaults with other Company
indebtedness, with right to
accelerate to extent permitted by
terms of such other indebtedness
<PAGE>
Annex B
LEHMAN BROTHERS
January 28, 1999
Board of Directors
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, CO 80302
Members of the Board:
We understand that Coyote Sports, Inc., a Nevada corporation ("Coyote" or
the "Company"), RP Acquisition Corp., a Delaware corporation and a wholly owned
subsidiary of Coyote ("Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are proposing to enter into an Agreement and Plan of Merger, dated as
of February 2, 1999 (the "Agreement"). The Agreement provides, among other
things, for Royal to combine with Sub or, at Coyote's option, directly with
Coyote (the "Merger" or the "Proposed Transaction"). Upon effectiveness of the
Merger, each issued and outstanding share of Royal's common stock ("Royal Common
Stock") shall be converted into the right to receive one share of a new class of
Coyote Convertible Preferred Stock (the "Preferred Stock"). The Preferred Stock
will have a liquidation preference and redemption price of $6.00 per share, a
quarterly cumulative cash dividend of 6% per annum, and will be convertible into
Coyote common stock initially representing an aggregate of 50% of the common
stock outstanding at the effective time of the Merger on a primary share basis
(before dilution for certain events). Assuming conversion of the Preferred Stock
and using the average closing stock price for Coyote's common stock for the five
days prior to announcement, and without giving any value to proposed dividends,
the implied value of the consideration to be paid for Royal common stock is
$3.85 per share. The terms and conditions of the Proposed Transaction and the
Preferred Stock are set forth in more detail in the Agreement.
We have been requested by the Board of Directors of the Company to render
our opinion with respect to the fairness, from a financial point of view, to the
Company of the consideration to be paid by the Company in the Proposed
Transaction. We have not been requested to opine as to, and our opinion does not
in any manner address, the Company's underlying business decision to proceed
with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction and the Preferred Stock, (2) such
publicly available information concerning the Company and Royal that we believe
to be relevant to our analysis, including Annual Reports on Form 10-K for the
fiscal years ended December 31, 1997 and May 31, 1998, respectively, and
Quarterly Reports on Form 10-Q for the quarters ended September 30, 1998 and
November 30, 1998, respectively, (3) financial and operating information with
respect to the business, operations and prospects of the Company and Royal
furnished to us by the Company and Royal, including information relating to the
financial condition and results of
<PAGE>
Board of Directors
Coyote Sports, Inc.
January 28, 1999
Page 2
operations of the Company for the fiscal year ended December 31, 1998, (4) a
trading history of Royal Common Stock from September 2, 1997 to the present and
a comparison of that trading history with those of companies that we deemed
relevant, (5) a trading history of Coyote common stock from September 18, 1997
to the present and a comparison of that trading history with those of companies
that we deemed relevant, (6) a comparison of the historical financial results
and present financial condition of the Company with those of other companies
that we deemed relevant, (7) a comparison of the historical financial results
and present financial condition of Royal with those of other companies that we
deemed relevant, (8) a comparison of the financial terms of the Proposed
Transaction with the financial terms of certain other transactions that we
deemed relevant, (9) the potential pro forma impact of the Proposed Transaction,
including cost savings, operating synergies and strategic benefits expected by
management of the Company to result from the combination of the businesses of
Coyote and Royal, and (10) the results of efforts by the Company and one of its
financial advisors to raise financing in connection with the Proposed
Transaction. In addition, we have had discussions with the management of the
Company and Royal concerning their business, operations, assets, financial
condition and prospects and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us without
assuming any responsibility for independent verification of such information and
have further relied upon the assurances of managements of Coyote and Royal that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of Coyote and Royal, upon advice of the Company and Royal we have assumed that
such projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company and
Royal as to the future financial performance of Coyote and Royal and that Coyote
and Royal will perform substantially in accordance with such projections. With
respect to the cost savings, operating synergies and strategic benefits expected
by the management of the Company and Royal to result from a combination of the
businesses of Coyote and Royal, upon advise of the Company and Royal we have
assumed that such cost savings, operating synergies and strategic benefits will
be achieved substantially in accordance with such expectations. In arriving at
our opinion, we have not conducted a physical inspection of the properties and
facilities of Royal or the Company and have not made or obtained any evaluations
or appraisals of the assets or liabilities of Royal and the Company. Our opinion
necessarily is based upon market, economic and other conditions as they exist
on, and can be evaluated as of, the date of this letter.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be paid
by the Company in the Proposed Transaction is fair to the Company.
<PAGE>
Board of Directors
Coyote Sports, Inc.
January 28, 1999
Page 3
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, the Company has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed investment banking services
for the Company in the past and have received customary fees for such services.
In the ordinary course of our business, we may actively trade in the debt and
equity securities of the Company and Royal for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
This opinion is for the use and benefit of the Board of Directors of the
Company and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of the Company as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
/s/ LEHMAN BROTHERS
<PAGE>
Annex C
January 29, 1999
The Board of Directors
Royal Precision, Inc.
15170 North Hayden Road
Suite 1
Scottsdale, AZ 85260
Lady and Gentlemen:
You have requested our opinion as to the fairness, from a financial
point of view, of the exchange ratio and the consideration to be received by the
holders of the common stock, par value $.001 per share (the "Shares"), of Royal
Precision, Inc. (the "Company") pursuant to an Agreement and Plan of Merger
dated as of the date hereof (the "Merger Agreement"), by and among the Company,
Coyote Sports, Inc. ("Coyote") and RP Acquisition Corp., which is a wholly-owned
subsidiary of Coyote ("Sub"). The Merger Agreement provides for, among other
things, the merger (the "Merger") of Sub into the Company pursuant to which each
Share will be converted into one share of the Convertible Preferred Stock, par
value $.001 per share, of Coyote (the "Coyote Preferred Stock").
NatCity Investments, Inc., as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes. We have
acted as financial advisor to the Board of Directors of the Company in
connection with the transactions described above and will receive a fee for our
services.
In connection with this opinion, we have reviewed certain publicly
available financial information concerning the Company and Coyote and certain
internal financial analyses and other information furnished to us by the Company
and Coyote. We have also held discussions with members of the senior management
of the Company and Coyote regarding the business and prospects of their
respective enterprises. In addition, we have (i) reviewed the reported price and
trading activity for the Shares, and for the common stock, par value $.001 per
share, of Coyote; (ii) compared certain financial and stock market information
for the Company and Coyote, respectively, with similar information for certain
comparable companies whose securities are publicly traded; (iii) reviewed the
financial terms of certain recent business combinations which we deemed
comparable in whole or in part; and (iv) performed such other studies and
analyses and considered such other factors as we deemed appropriate.
<PAGE>
The Board of Directors
Royal Precision, Inc.
January 29, 1999
We have not independently verified the information described above and
for purposes of this opinion have assumed the accuracy, completeness and
fairness thereof. With respect to information relating to the prospects of the
Company and Coyote, we have assumed that such information reflects the best
currently available estimates and judgments of the respective managements of the
Company and Coyote as to the likely future financial performance of the Company
and Coyote. In addition, we have not made an independent evaluation or appraisal
of the assets or liabilities of either the Company or Coyote, nor have we been
furnished with any such evaluation or appraisal. Our opinion is based on market,
economic and other conditions as they exist and can be evaluated as of the date
of this letter.
Our opinion set forth below is directed to the Board of Directors of
the Company and does not constitute a recommendation to any shareholder of the
Company with respect to the approval of the transactions contemplated by the
Agreement. This letter is for the information of the Board of Directors of the
Company only in connection with its consideration of the Merger Agreement and
may not be quoted or referred to, in whole or in part, in any document prepared
in connection with the transactions contemplated by the Merger Agreement, nor
shall this letter be used for any other purpose or publicly disclosed without
our prior written consent; provided, however, that the Company and Coyote are
authorized to include this letter in its entirety and, subject to our approval,
summaries of the procedures we performed and references to this letter in the
proxy materials contemplated by the Merger Agreement. It is understood that this
letter and the proxy materials contemplated by the Merger Agreement will be
filed with the Securities and Exchange Commission.
In the ordinary course of business, NatCity Investments, Inc. may
actively trade the equity securities of the Company and/or Coyote for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities.
Based upon and subject to the foregoing, it is our opinion that, as of
the date of this letter, the exchange ratio and the receipt of the merger
consideration pursuant to the Merger Agreement is fair, from a financial point
of view, to the holders of the Shares of Royal Precision, Inc.
Very truly yours,
/s/ NATCITY INVESTMENTS, INC.
<PAGE>
Annex D
Delaware General Corporation Law
ss. 262. Appraisal rights.
(a) Any stockholder of a corporation of this State who holds shares of stock on
the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to ss. 228 of this
title shall be entitled to an appraisal by the Court of Chancery of the fair
value of the stockholder's shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to ss. 251 (other than a merger effected pursuant to ss. 251(g) of this
title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock,
which stock, or depository receipts in respect thereof, at the record
date fixed to determine the stockholders entitled to receive notice of
and to vote at the meeting of stockholders to act upon the agreement
of merger or consolidation, were either (i) listed on a national
securities exchange or designated as a national market system security
on an interdealer quotation system by the National Association of
Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof)
<PAGE>
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and
b. of this paragraph; or
d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or
fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware
corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of
this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote
on the merger or consolidation, a written demand for appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares. A proxy or vote
against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective
date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
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(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, each consitutent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constitutent corporation who are entitled to appraisal
rights of the approval of the merger or consolidation and that appraisal
rights are available for any or all shares of such class or series of
stock of such constituent corporation, and shall include in such notice
a copy of this section; provided that, if the notice is given on or
after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such
holders of any class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may, and, if given on
or after the effective date of the merger or consolidation, shall, also
notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within
20 days after the date of mailing of such notice, demand in writing from
the surviving or resulting corporation the appraisal of such holder's
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger
or consolidation, either (i) each such constitutent corporation shall
send a second notice before the effective date of the merger or
consolidation notifying each of the holders of any class or series of
stock of such constitutent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to
all such holders on or within 10 days after such effective date;
provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only
be sent to each stockholder who is entitled to appraisal rights and who
has demanded appraisal of such holder's shares in accordance with this
subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constitutent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of
the merger or consolidation, the record date shall be such effective
date. If no record date is fixed and the notice is given prior to the
effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to
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<PAGE>
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
5
STOCKHOLDER AGREEMENT
AGREEMENT, dated as of February 2, 1999, among James M. Probst, an
individual residing at ______________, Mel S. Stonebraker, an individual
residing at _____, Paragon Coyote Texas Ltd., a Texas limited partnership
("Paragon") (Messrs. Probst and Stonebraker and Paragon collectively referred to
as the "Probst Group"), Richard P. Johnston and Jayne A. Johnston Charitable
Remainder Trust #3 (Richard P. Johnston, Trustee) ("Johnston" CRT #3"), having
an office at Teton Pines, 4350 Greens Place, Wilson, Wyoming 83014, David E.
Johnston, an individual residing at 1935 W. Muirhead Loop, Oro Valley, Arizona
85737, Kenneth J. Warren, an individual residing at 5567 Caplestone Lane,
Dublin, Ohio 43017 (Messrs. David E. Johnston and Warren, and Johnston CRT #3,
collectively referred to as the "Johnston Group") and Berenson Minella &
Company, L.P., a New York limited partnership having an office at 667 Madison
Avenue, New York, New York 10021 (the "BMC Group"), and each member of the
Probst Group, the Johnston Group and the BMC Group individually referred to as a
"Stockholder" and collectively as "Stockholders"), and Coyote Sports, Inc., a
Nevada corporation (the "Company").
WHEREAS, the Company and Royal Precision, Inc., a Delaware corporation
("RPI"), are entering into an Agreement and Plan of Merger dated as of even date
herewith (the "Merger Agreement"), providing for the merger of a wholly-owned
subsidiary of the Company with and into RPI (the "Merger") pursuant to the terms
and conditions of the Merger Agreement, and setting forth certain
representations, warranties and agreements which each of the parties thereto is
making thereby in connection with the Merger; and
WHEREAS, in connection with the Merger, each Stockholder hereto desires
to provide for the voting of the Common Stock, par value $.005 per share, of the
Company (the "Common Stock") and the Preferred Stock, par value $.005 per share,
of the Company (the "Preferred Stock" and, collectively with the Common Stock,
the "Stock"), for directors for the Company Board; and
NOW, THEREFORE, the parties hereto agree as follows:
<PAGE>
SECTION 1. Representations of Stockholders. Each Stockholder
represents and warrants:
1.1. Such Stockholder is the sole, true, lawful and beneficial owner of
the number of shares of Stock (the "Shares") listed on the signature page hereof
as being owned by such Stockholder with no restrictions on such Stockholder's
voting rights or rights of disposition pertaining thereto, except those under
the Securities Act of 1933, as amended (the "1933 Act"), and those that would
not in any material way limit or otherwise adversely affect the obligations of
such Stockholder under this Agreement or by the proxy to be delivered by such
Stockholder pursuant hereto. At the Effective Date (as defined in the Merger
Agreement), such Stockholder will have good and valid title to the Shares listed
on the signature page hereof as being owned by such Stockholder free and clear
of any and all claims, liens, charges, encumbrances and security interests. None
of the Shares owned by such Stockholder is subject to any voting trust or other
agreement or arrangement with respect to the voting of such shares that would in
any way limit or otherwise adversely affect the voting rights granted by such
Stockholder under this Agreement. Such Stockholder does not "beneficially own"
(as such term is defined in the Securities Exchange Act of 1934, as amended (the
"1934 Act")), any shares of Stock other than the Shares listed on the signature
page hereof as being beneficially owned by such Stockholder and other than any
shares of Stock which such Stockholder may obtain upon the exercise of the
options described in the Company's proxy statement relating to the Merger.
1.2. The execution, delivery and performance by such Stockholder of
this Agreement does not and will not contravene or constitute a default under or
give rise to a right of termination, cancellation or acceleration of any right
or obligation of such Stockholder or to a loss of any benefit of such
Stockholder under any provision of applicable law or regulation or of any
agreement, judgment, injunction, order, decree, or other instrument binding on
such Stockholder or result in the imposition of any lien on any asset of such
Stockholder.
1.3. This Agreement is the valid and binding Agreement of such
Stockholder. If this Agreement is being executed in a representative or
fiduciary capacity for such Stockholder, the person signing this Agreement for
such Stockholder has full power and authority to enter into and perform such
Agreement for such Stockholder.
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<PAGE>
SECTION 2. Composition of the Board.
2.1. The Company Board shall consist of eight members each serving for
a term of one year. The Johnston Group shall be entitled, but not required, to
designate three members of the Company Board (the "Johnston Directors"), the BMC
Group shall be entitled, but not required, to designate one member of the
Company Board (the "BMC Director") and the Probst Group shall be entitled, but
not required, to designate four members of the Company Board (the "Probst
Directors"). At any time that the number of directors constituting the full
Board shall be increased, the director designation ratio of the Johnston Group,
the BMC Group and the Probst Group hereunder shall continue until a Group no
longer owns at least 10% of the outstanding Stock; in which event this Agreement
shall no longer apply to such Group and the members of the Board designated by
such Group, to the extent, if any requested by the remaining members of the
Board. Each of the Johnston Group and the BMC Group shall be entitled to
designate one director designated by such Group to serve on the Board to serve
on the Executive Committee, and the Probst Group shall be entitled to designate
two directors designated by such Group to serve on the Board to serve on the
Executive Committee (one of whom shall be designated as the Chairman of the
Executive Committee). The Johnston Group and the BMC Group, acting collectively,
shall be entitled to designate (i) one member of the Company Board to be elected
as Chairman of the Board, and (ii) one member to the Compensation Committee of
the Company Board. The Probst Group shall be entitled to designate the President
and Chief Executive Officer of the Company. Each Stockholder entitled to vote
for the election of directors to the Company Board agrees that such Stockholder
will vote all of such Stockholder's Shares or execute consents, as the case may
be, and take all other necessary action (including causing the Company to call a
special meeting of stockholders) in order to ensure that the composition of the
Board is as set forth in this Section 2.1.
2.2. Each Stockholder agrees that if, (i) such Stockholder receives a
notice from a Group that such Group requests that a director designated by such
Group be removed, each Stockholder will vote all of such Stockholder's Shares or
execute consents, as the case may be, to call a special meeting of the
stockholders of the Company and to vote for the removal of such director at such
meeting, and (ii) at any time such Stockholder is entitled to vote for the
removal of one or more directors of the Company, except as set forth in (i)
above, such Stockholder will not vote any of such Stockholder's Shares in favor
of the removal of any director who shall have been designated pursuant to
Section 2.1, unless such removal shall be for Cause or the Group entitled to
designate such director shall have consented to such removal in writing. Removal
for "Cause" shall mean removal of a director because of such director's (a)
willful and continued failure to substantially perform his duties as a director
of the Company, (b) willful conduct which is significantly injurious to the
Company, monetarily or otherwise, or (c) conviction for, or a guilty plea to, a
felony.
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<PAGE>
2.3. If, as a result of death, disability, retirement, resignation,
removal (with or without cause) or otherwise, there shall exist or occur any
vacancy on the Company's Board:
2.3.1. the Group entitled under Section 2.1 to designate or
nominate such director whose death, disability, retirement, resignation, removal
(with or without cause) or otherwise resulted in such vacancy may designate
another individual (a "Designee") to fill such capacity and serve as a director
of the Company. The selection of a Designee by such Group shall be decided by
the Stockholders of such Group by a majority vote where the number of votes each
Stockholder has is determined by the number of Shares such Stockholder has; and
2.3.2. each Stockholder then entitled to vote for the election of
a Designee as a director of the Company agrees that such Stockholder will vote
all of such Stockholder's Shares or execute a written consent, as the case may
be, in order to ensure that a Designee be elected to the Company Board.
2.4. This Agreement is intended to bind the Stockholders only with
respect to the specific matters set forth herein, and shall not restrict any
Stockholder from taking any other action or failing to take any other action in
his capacity as an officer or director of the Company in accordance with his
fiduciary duties.
SECTION 3. Termination. The provisions of this Agreement shall only be
effective on and after the Effective Date, and shall terminate and be of no
further force and effect five years from and after the Effective Date.
SECTION 4. No Voting Trusts. Each Stockholder agrees that such
Stockholder will not, and will not permit any entity under any Stockholder's
control to, deposit any of such Stockholder's Shares in a voting trust or
subject any of his Shares to any arrangement or agreement with respect to the
voting of such Shares with respect to the election of directors, other than this
Agreement.
SECTION 5. No Proxy Solicitations. No Stockholder will, nor permit any
entity under such Stockholders' control to, (a) solicit proxies or become a
"participant" in a "solicitation" (as such terms are defined in Regulation l4A
under the 1934 Act) in connection with the election of directors of the Company
(or any election contest with respect thereto), in opposition to the provisions
of Section 2.1; (b) initiate a stockholders' vote or action by consent of the
Company stockholders in connection with the election of directors of the Company
(or any election contest with respect thereto) in opposition to the provisions
of Section 2.1; or (c) become a member of a "group" (as such term is used in
Section 13(d) of the 1934 Act) with respect to any voting securities of the
Company which group proposes to take any action with respect to the election of
any director of the Company (or any election contest with respect thereto) with
the purpose or effect of opposing the provisions of Section 2.1.
SECTION 6. Transfer and Encumbrance. Each Stockholder agrees not to
transfer, sell
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or otherwise dispose of any of the Shares beneficially owned by such Stockholder
to an "Affiliate" (as hereinafter defined) for a period of five years, unless
such "Affiliate" agrees to be bound by the terms hereof, and signs an agreement
in the form of Exhibit 6 hereof to such effect. As used in this Agreement,
"Affiliate" means any person, firm or corporation directly or indirectly
controlling, controlled by, or under common control with, such person, firm or
corporation. For purposes of this Agreement, "control" (including, with
correlative meaning, the terms "controlling", "controlled by" and "under common
control with"), as applied to any person, firm or corporation, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, firm or corporation,
whether through the ownership of voting securities, by contract or otherwise.
"Affiliate" includes any spouse, child or parent of a Stockholder. All
certificates representing the Shares or New Shares shall be endorsed on the
reverse side thereof substantially as follows:
BY THE TERMS OF A STOCKHOLDER AGREEMENT, CERTAIN RESTRICTIONS HAVE BEEN
PLACED UPON CERTAIN TRANSFERS OF THE SHARES REPRESENTED BY THIS
CERTIFICATE AND SUCH SHARES ARE SUBJECT TO A VOTING AGREEMENT. THE
COMPANY WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER OF THIS
CERTIFICATE WITHOUT CHARGE UPON WRITTEN REQUEST TO THE COMPANY AT ITS
PRINCIPAL PLACE OF BUSINESS OR REGISTERED OFFICE.
SECTION 7. Additional Purchases. Each Stockholder agrees that such
Stockholder will not purchase or otherwise acquire beneficial ownership of any
Stock after the execution of this Agreement ("New Shares") nor will such
Stockholder acquire the right to vote or share in the voting of any shares of
Stock, other than the Shares, unless such Stockholder delivers to the Company
promptly after such purchase or acquisition a written notice setting forth the
total number of New Shares. Each Stockholder also agrees that any New Shares
acquired or purchased by such Stockholder shall be subject to the terms of this
Agreement to the same extent as if they constituted Shares.
SECTION 8. Specific Performance. Each party hereto acknowledges that it
will be impossible to measure in money the damage to the other parties if a
party hereto fails to comply with any of the obligations imposed by this
Agreement, that every such obligation is material and that, in the event of any
such failure, the other parties will not have an adequate remedy at law or in
damages, and accordingly, each party hereto agrees that the issuance of an
injunction or other equitable remedy is the appropriate remedy for any such
failure.
SECTION 9. Entire Agreement. This Agreement supersedes all prior
agreements among the parties hereto with respect to the subject matter hereof
and contains the entire agreement among the parties with respect to the subject
matter hereof. This Agreement may not be amended, supplemented or discharged,
and no provision hereof may be modified or waived, except expressly by an
instrument in writing signed by all the parties hereto. No waiver of any
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provision hereof by any party shall be deemed a waiver by any other party nor
shall any such waiver be deemed a continuing waiver of any matter by such party.
SECTION 10. Effective Date. This Agreement shall become effective on
the Effective Date (as defined in the Merger Agreement).
SECTION 11. Miscellaneous.
11.1. The parties, being concerned that either party may
obtain some advantage by having the law of the jurisdiction of such parties
principal place of business apply, and agreeing in concept to have this
Agreement subject to the laws of a neutral jurisdiction, whose laws are
perceived as being fair in general to the business community at large, have
determined and agreed as follows: THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE,
WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS. EACH OF THE PARTIES AGREES
THAT ANY LEGAL ACTION BETWEEN OR AMONG THE PARTIES RELATING TO THE ENTRY INTO OR
PERFORMANCE OF THIS AGREEMENT, OR THE INTERPRETATION OR ENFORCEMENT OF TERMS
HEREOF, SHALL BE BROUGHT IN A FEDERAL OR STATE COURT LOCATED IN NEW CASTLE
COUNTY, DELAWARE, HAVING JURISDICTION OF THE SUBJECT MATTER THEREOF, AND EACH
PARTY IRREVOCABLY CONSENTS TO PERSONAL JURISDICTION IN ANY SUCH FEDERAL OR STATE
COURT, WAIVES ANY RIGHT TO OBJECT TO SUCH VENUE OR TO ASSERT THE DEFENSE OF
FORUM NON-CONVENIENS, AND AGREES THAT SERVICE OF PROCESS MAY BE MADE BY
CERTIFIED OR REGISTERED MAIL ADDRESSED TO SUCH PARTY AT SUCH PARTY'S ADDRESS SET
FORTH IN, OR DETERMINED IN ACCORDANCE WITH, SECTION 11.5 HEREOF.
11.2. If any provision of this Agreement or the application of
any such provision to any person or circumstances shall be held invalid by a
court of competent jurisdiction, the remainder of this Agreement, including the
remainder of the provision held invalid, or the application of such provision to
persons or circumstances other than those as to which it is held invalid, shall
not be affected.
11.3. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
11.4. All Section headings herein are for convenience of
reference only and are not part of this Agreement and no construction or
inference shall be derived therefrom.
11.5. Any notices or other communications required or
permitted by this Agreement shall be in writing and shall be delivered either by
personal delivery, by nationally recognized overnight courier service, by
facsimile, by first class mail or by registered or certified
-6-
<PAGE>
mail, return receipt requested, addressed to the party at the address appearing
below the signature of such party, or to such other address as any party shall
have previously designated to the others by written notice given in the manner
hereinabove set forth. Notices shall be deemed given one day after being sent,
if sent by overnight courier; when delivered and receipted for, if hand
delivered; when received, if sent by facsimile or other electronic means or by
first class mail; or when receipted for (or upon the date of attempted delivery
where delivery is refused or unclaimed), if sent by certified or registered
mail, return receipt requested.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
-------------------
James M. Probst, President
2291 Arapahoe Avenue
Boulder, Colorado 80302
STOCKHOLDERS:
Signature of Stockholder: /s/ James M. Probst
-------------------
James M. Probst
_________________________
_________________________
Shares owned: _____________________
Signature of Stockholder: /s/ Mel S. Stonebraker
-------------------------
Mel S. Stonebraker
_________________________
_________________________
Shares owned: _____________________
-7-
<PAGE>
Signature of Stockholder: PARAGON COYOTE TEXAS, LTD.
By: Paragon Management Group, Inc.,
its General Partner
By: /s/ Mark Pappas
------------------------------
Mark Pappas
President
Shares owned: _____________________
Signature of Stockholder: By: /s/ Bennett Dorrance
------------------------------
Bennett Dorrance, Trustee of the
Bennett Dorrance Trust dated
April 21, 1989, as amended
Shares owned: _____________________
Signature of Stockholder: By: /s/ Christopher A. Johnston
------------------------------
Christopher A. Johnston
Shares owned: _____________________
Signature of Stockholder: RICHARD P. JOHNSTON AND JAYNE A.
JOHNSTON CHARITABLE
REMAINDER TRUST #3
By: /s/ Richard P. Johnston
------------------------------
Richard P. Johnston, Trustee
Teton Pines
4350 Greens Place
Wilson, Wyoming 83014
Shares owned: ______________________
Signature of Stockholder: /s/ David E. Johnston
--------------------------------
David E. Johnston
1935 W. Muirhead Loop
Oro Valley, Arizona 85737
Shares owned: _____________________
Signature of Stockholder: BERENSON MINELLA & COMPANY, L.P.
By: /s/ Raymond J. Minella
---------------------------
Raymond J. Minella, General
Partner
667 Madison Avenue
New York, New York 10021
Shares owned: _________________________
-8-
<PAGE>
Signature of Stockholder: /s/ Kenneth J. Warren
----------------------------
Kenneth J. Warren
5567 Caplestone Lane
Dublin, Ohio 43017
Shares owned: ___________________________
-9-
<PAGE>
EXHIBIT 6
FORM OF AGREEMENT TO BE BOUND
m
[DATE]
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, CO 80302
Dear Sirs:
Reference is made to the Stockholder Agreement dated as of January __,
1999 (the "Agreement"), among James M. Probst, Mel S. Stonebraker, Paragon
Coyote Texas Ltd., Richard P. Johnston and Jayne A. Johnston Charitable
Remainder Trust #3, David E. Johnston, Berenson Minella & Company, L.P., Kenneth
J. Warren and Coyote Sports, Inc. (the "Company"). Capitalized terms not defined
herein have the meanings assigned to them in the Agreement.
In consideration of the covenants and agreements contained in the
Agreement and the transfer of the common stock and/or preferred stock of the
Company (the "Shares") to the undersigned by a Stockholder, the undersigned
hereby confirms and agrees to be bound by all of the provisions thereof.
[The undersigned acknowledges that it is a condition to an effective
pledge of the Shares under the Agreement that the pledgee agree, and the
undersigned hereby confirms and agrees, that upon foreclosure of such pledge,
the undersigned will take the Shares subject to all of the restrictions
applicable to the pledgor under the Agreement.]**
This letter shall be construed and enforced in accordance with the laws
of the State of Delaware.
Very truly yours,
____________________________
[Transferee]
** Include in the case of a pledge
-10-
COYOTE SPORTS, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Royal Precision, Inc., a Delaware corporation
("Royal"), and Mel S. Stonebraker (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote Sports,
Inc., a Nevada corporation ("Coyote"), RP Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Coyote ("Coyote Sub"), and Royal
are entering into an Agreement and Plan of Merger (the "Merger Agreement") which
provides for the merger (the "Merger") of Coyote Sub with and into Royal.
Pursuant to the Merger, each share of capital stock of Royal will be converted
into the right to receive one share of a new class of Coyote Convertible
Preferred Stock, authorized by Coyote, on the basis described in the Merger
Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Coyote as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Royal to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Coyote acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Coyote so as to approve an increase in the number of authorized
shares of Coyote Preferred Stock and the issuance of Coyote Convertible
Preferred Stock and to facilitate consummation of the Merger and to grant Royal
a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise
<PAGE>
dispose of or encumber any of the Shares or any New Shares, as defined
in Section 1.2 below, or to make any offer or agreement relating to any
such action, at any time prior to the Expiration Date. As used herein,
the term "Expiration Date" shall mean the earlier to occur of (i) such
date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement and (ii) such date and
time as the Merger Agreement shall be validly terminated pursuant to the
terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Coyote (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Coyote) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Coyote affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Coyote called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Coyote with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Coyote under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Coyote or its subsidiaries, (y) a sale, lease or transfer of a material amount
of assets by Coyote or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Coyote, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Coyote
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Royal as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Coyote (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Coyote), other than
- 2 -
<PAGE>
the Shares (and other than options to purchase the number of shares of
the common stock of Coyote, if any, indicated on the signature page of
this Agreement); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement.
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to a CSI
Acquisition Proposal or CSI Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Coyote stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Coyote with respect to an
Acquisition Proposal or Alternative Transaction. Notwithstanding the
above, the Stockholder may take any actions in the Stockholder's role as
a director of Coyote permitted under the Merger Agreement.
3.4 Royal Reliance. The Stockholder understands and acknowledges
that Royal is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement. The Stockholder
acknowledges that the irrevocable proxy set forth in Section 4 is
granted in consideration for the execution and delivery of the Merger
Agreement by Royal.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent
- 3 -
<PAGE>
(in such agency capacity) of the Stockholder to, directly or indirectly,
(i) solicit, engage in discussions or negotiate with any Person (whether
such discussions or negotiations are initiated by the Stockholder or
otherwise) or take any other action intended or designed to facilitate
the efforts of any Person, other than Royal, relating to an Alternative
Transaction, (ii) provide information with respect to Coyote or any of
its Subsidiaries to any Person, other than Royal, relating to a possible
Alternative Transaction by any Person, other than Royal, (iii) enter
into an agreement with any person, other than Royal, providing for a
possible Alternative Transaction, or (iv) make or authorize any
statement, recommendation or solicitation in support of any possible
Alternative Transaction by any Person, other than by Royal.
Notwithstanding the above, the Stockholder may take any actions in the
Stockholder's role as a director of Coyote permitted under the Merger
Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Raymond J. Minella and Tom Schneider or either of them, the
Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of the Stockholder,
to vote such Stockholder's Shares, or grant or not grant a consent or
approval in respect of such Shares, at any meeting of shareholders of
Coyote or at any adjournment thereof or in any other circumstances,
including, without limitation, a solicitation of stockholder consents to
action without a meeting, upon which the Stockholder's vote, consent or
other approval is sought, in respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Royal Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Nevada General Corporation Law (the "NGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
- 4 -
<PAGE>
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Royal, to carry out the intent of this Agreement.
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Royal.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Royal will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Royal upon any such violation, Royal shall have the right to enforce
such covenants and agreements by specific performance, injunctive relief
or by any other means available to Royal at law or in equity without
posting any bond and without proving that monetary damages would be
inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
- 5 -
<PAGE>
If to Royal: Royal Precision, Inc.
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn: Chairman of the Board
With a copy to: White & Case
1155 Avenue of the Americas
New York, New York 10036
Telecopier No.: (212) 819-8200
Telephone No.: (212) 354-8331
Attn: Ward Atterbury, Esq.
If to the Stockholder: Mel S. Stonebraker
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 417-1700
Telephone No.: (303) 417-0942
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
- 6 -
<PAGE>
9.10 Waiver of Jury Trial. ROYAL AND THE STOCKHOLDER EACH HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement
to be duly executed on the day and year first above written.
ROYAL PRECISION, INC.
By: /s/ Raymond J. Minella
-----------------------
Raymond J. Minella
President
MEL S. STONEBRAKER
By: /s/ Mel S. Stonebraker
----------------------
Mel S. Stonebraker
Chairman of the Board and
Secretary
1,430,000 shares of Common Stock
90,000 shares of Common Stock
subject to options
COYOTE SPORTS, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Royal Precision, Inc., a Delaware corporation
("Royal"), and Paragon Coyote Texas, Ltd. (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote Sports,
Inc., a Nevada corporation ("Coyote"), RP Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Coyote ("Coyote Sub"), and Royal
are entering into an Agreement and Plan of Merger (the "Merger Agreement") which
provides for the merger (the "Merger") of Coyote Sub with and into Royal.
Pursuant to the Merger, each share of capital stock of Royal will be converted
into the right to receive one share of a new class of Coyote Convertible
Preferred Stock, authorized by Coyote, on the basis described in the Merger
Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Coyote as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Royal to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Coyote acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Coyote so as to approve an increase in the number of authorized
shares of Coyote Preferred Stock and the issuance of Coyote Convertible
Preferred Stock and to facilitate consummation of the Merger and to grant Royal
a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise
<PAGE>
dispose of or encumber any of the Shares or any New Shares, as defined
in Section 1.2 below, or to make any offer or agreement relating to any
such action, at any time prior to the Expiration Date. As used herein,
the term "Expiration Date" shall mean the earlier to occur of (i) such
date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement and (ii) such date and
time as the Merger Agreement shall be validly terminated pursuant to the
terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Coyote (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Coyote) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Coyote affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Coyote called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Coyote with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Coyote under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Coyote or its subsidiaries, (y) a sale, lease or transfer of a material amount
of assets by Coyote or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Coyote, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Coyote
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Royal as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Coyote (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Coyote), other than
the Shares (and other than
- 2 -
<PAGE>
options to purchase the number of shares of the common stock of Coyote,
if any, indicated on the signature page of this Agreement); and (iii)
has full power and authority to make, enter into and carry out the terms
of this Agreement.
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to a CSI
Acquisition Proposal or CSI Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Coyote stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Coyote with respect to an
Acquisition Proposal or Alternative Transaction. Notwithstanding the
above, the Stockholder may take any actions in the Stockholder's role as
a director of Coyote permitted under the Merger Agreement.
3.4 Royal Reliance. The Stockholder understands and acknowledges
that Royal is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement. The Stockholder
acknowledges that the irrevocable proxy set forth in Section 4 is
granted in consideration for the execution and delivery of the Merger
Agreement by Royal.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent
- 3 -
<PAGE>
(in such agency capacity) of the Stockholder to, directly or indirectly,
(i) solicit, engage in discussions or negotiate with any Person (whether
such discussions or negotiations are initiated by the Stockholder or
otherwise) or take any other action intended or designed to facilitate
the efforts of any Person, other than Royal, relating to an Alternative
Transaction, (ii) provide information with respect to Coyote or any of
its Subsidiaries to any Person, other than Royal, relating to a possible
Alternative Transaction by any Person, other than Royal, (iii) enter
into an agreement with any person, other than Royal, providing for a
possible Alternative Transaction, or (iv) make or authorize any
statement, recommendation or solicitation in support of any possible
Alternative Transaction by any Person, other than by Royal.
Notwithstanding the above, the Stockholder may take any actions in the
Stockholder's role as a director of Coyote permitted under the Merger
Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Raymond J. Minella and Tom Schneider or either of them, the
Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of the Stockholder,
to vote such Stockholder's Shares, or grant or not grant a consent or
approval in respect of such Shares, at any meeting of shareholders of
Coyote or at any adjournment thereof or in any other circumstances,
including, without limitation, a solicitation of stockholder consents to
action without a meeting, upon which the Stockholder's vote, consent or
other approval is sought, in respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Royal Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Nevada General Corporation Law (the "NGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
- 4 -
<PAGE>
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Royal, to carry out the intent of this Agreement.
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Royal.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Royal will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Royal upon any such violation, Royal shall have the right to enforce
such covenants and agreements by specific performance, injunctive relief
or by any other means available to Royal at law or in equity without
posting any bond and without proving that monetary damages would be
inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
If to Royal: Royal Precision, Inc.
- 5 -
<PAGE>
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn:
With a copy to: White & Case
1155 Avenue of the Americas
New York, New York 10036
Telecopier No.: (212) 819-8200
Telephone No.: (212) 819-8331
Attn: Ward Atterbury, Esq.
If to the Stockholder: Paragon Coyote Texas, Ltd.
307 West 7th Street
Suite 1210
Fort Worth, TX 76102
Telecopier No.: (817) 810-0014
Telephone No.: (817) 810-0089
Attn.: Mark A. Pappas
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
- 6 -
<PAGE>
9.10 Waiver of Jury Trial. ROYAL AND THE STOCKHOLDER EACH HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement
to be duly executed on the day and year first above written.
ROYAL PRECISION, INC.
By: /s/ Raymond J. Minella
-----------------------
Title: President
PARAGON COYOTE TEXAS, LTD.
By: Paragon Management Group, Inc.,
its General Partner
By: /s/ Mark Pappas
-----------------------------
Mark Pappas
President
685,953 shares of Common Stock
521,739 shares of Common Stock
subject to options
COYOTE SPORTS, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Royal Precision, Inc., a Delaware corporation
("Royal"), and James M. Probst (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote Sports,
Inc., a Nevada corporation ("Coyote"), RP Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Coyote ("Coyote Sub"), and Royal
are entering into an Agreement and Plan of Merger (the "Merger Agreement") which
provides for the merger (the "Merger") of Coyote Sub with and into Royal.
Pursuant to the Merger, each share of capital stock of Royal will be converted
into the right to receive one share of a new class of Coyote Convertible
Preferred Stock, authorized by Coyote, on the basis described in the Merger
Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Coyote as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Royal to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Coyote acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Coyote so as to approve an increase in the number of authorized
shares of Coyote Preferred Stock and the issuance of Coyote Convertible
Preferred Stock and to facilitate consummation of the Merger and to grant Royal
a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise
<PAGE>
dispose of or encumber any of the Shares or any New Shares, as defined
in Section 1.2 below, or to make any offer or agreement relating to any
such action, at any time prior to the Expiration Date. As used herein,
the term "Expiration Date" shall mean the earlier to occur of (i) such
date and time as the Merger shall become effective in accordance with
the terms and provisions of the Merger Agreement and (ii) such date and
time as the Merger Agreement shall be validly terminated pursuant to the
terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Coyote (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Coyote) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Coyote affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Coyote called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Coyote with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Coyote under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Coyote or its subsidiaries, (y) a sale, lease or transfer of a material amount
of assets by Coyote or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Coyote, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Coyote
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Royal as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Coyote (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Coyote), other than
- 2 -
<PAGE>
the Shares (and other than options to purchase the number of shares of
the common stock of Coyote, if any, indicated on the signature page of
this Agreement); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement.
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to a CSI
Acquisition Proposal or CSI Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Coyote stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Coyote with respect to an
Acquisition Proposal or Alternative Transaction. Notwithstanding the
above, the Stockholder may take any actions in the Stockholder's role as
a director of Coyote permitted under the Merger Agreement.
3.4 Royal Reliance. The Stockholder understands and acknowledges
that Royal is entering into the Merger Agreement in reliance upon the
Stockholder's execution and delivery of this Agreement. The Stockholder
acknowledges that the irrevocable proxy set forth in Section 4 is
granted in consideration for the execution and delivery of the Merger
Agreement by Royal.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent
- 3 -
<PAGE>
(in such agency capacity) of the Stockholder to, directly or indirectly,
(i) solicit, engage in discussions or negotiate with any Person (whether
such discussions or negotiations are initiated by the Stockholder or
otherwise) or take any other action intended or designed to facilitate
the efforts of any Person, other than Royal, relating to an Alternative
Transaction, (ii) provide information with respect to Coyote or any of
its Subsidiaries to any Person, other than Royal, relating to a possible
Alternative Transaction by any Person, other than Royal, (iii) enter
into an agreement with any person, other than Royal, providing for a
possible Alternative Transaction, or (iv) make or authorize any
statement, recommendation or solicitation in support of any possible
Alternative Transaction by any Person, other than by Royal.
Notwithstanding the above, the Stockholder may take any actions in the
Stockholder's role as a director of Coyote permitted under the Merger
Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Raymond J. Minella and Tom Schneider or either of them, the
Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of the Stockholder,
to vote such Stockholder's Shares, or grant or not grant a consent or
approval in respect of such Shares, at any meeting of shareholders of
Coyote or at any adjournment thereof or in any other circumstances,
including, without limitation, a solicitation of stockholder consents to
action without a meeting, upon which the Stockholder's vote, consent or
other approval is sought, in respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Royal Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Nevada General Corporation Law (the "NGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
- 4 -
<PAGE>
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Royal, to carry out the intent of this Agreement.
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Royal.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Royal will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Royal upon any such violation, Royal shall have the right to enforce
such covenants and agreements by specific performance, injunctive relief
or by any other means available to Royal at law or in equity without
posting any bond and without proving that monetary damages would be
inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
- 5 -
<PAGE>
If to Royal: Royal Precision, Inc.
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn: Chairman of the Board
With a copy to: White & Case
1155 Avenue of the Americas
New York, New York 10036
Telecopier No.: (212) 819-8200
Telephone No.: (212) 354-8331
Attn: Ward Atterbury, Esq.
If to the Stockholder: James M. Probst
5455 South Simms Way
Littleton, Colorado 80127
Telecopier No.: (303) 933-6609
Telephone No.: (303) 972-9012
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
- 6 -
<PAGE>
9.10 Waiver of Jury Trial. ROYAL AND THE STOCKHOLDER EACH HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.
7
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement
to be duly executed on the day and year first above written.
ROYAL PRECISION, INC.
By: /s/ Raymond J. Minella
--------------------------
Title: President
JAMES M. PROBST
/s/ James M. Probst
--------------------------------
1,170,100 shares of Common Stock
90,000 shares of Common Stock
subject to options
ROYAL PRECISION, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Coyote Sports, Inc., a Nevada corporation
("Coyote"), and Kenneth J. Warren (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote, RP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Coyote ("Coyote Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Coyote Sub with and
into Royal. Pursuant to the Merger, each share of capital stock of Royal will be
converted into the right to receive one share of a new class of Coyote
Convertible Preferred Stock on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as
defined in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of such number of shares of the outstanding capital stock
of Royal as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Coyote to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Royal acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Royal so as to facilitate consummation of the Merger and to
grant Coyote a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order),
sell, exchange, pledge or otherwise dispose of or encumber any of the
Shares or any New Shares, as defined in Section 1.2 below, or to make
any offer or agreement relating to any such action, at any time prior
<PAGE>
to the Expiration Date. As used herein, the term "Expiration Date"
shall mean the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement and (ii) such date and time as the
Merger Agreement shall be validly terminated pursuant to the terms
thereof.
1.2 Additional Purchases. The Stockholder agrees that any
shares of capital stock of Royal (or securities convertible into,
exchangeable for or constituting the right to acquire, capital stock
of Royal) that the Stockholder purchases or with respect to which the
Stockholder otherwise acquires beneficial ownership after the
execution of this Agreement and prior to the Expiration Date
(including, without limitation, in the event of any stock split, stock
dividend, merger, reorganization, recapitalization or other change in
the capital structure of Royal affecting the Shares, or pursuant to
the exercise of any option) ("New Shares") shall be subject to the
terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Royal called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Royal with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Royal under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Royal or its subsidiaries, (y) a sale, lease or transfer of a material amount of
assets by Royal or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Royal, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Royal
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Coyote as follows:
3.1 Ownership of Shares. The Stockholder (i) is the
record holder and beneficial owner of the Shares, which at the date
hereof and at all times up until the Expiration Date will be free and
clear of any liens, claims, options, charges, voting trusts or
agreements, proxies or other encumbrances; (ii) does not beneficially
own any shares of capital stock of Royal (or securities convertible
into, exchangeable for or constituting the right to acquire, capital
stock of Royal), other than the Shares (and other than options to
purchase the number of shares of the common stock of Royal, if any,
indicated on the signature page of this Agreement); and (iii) has full
power and authority to make, enter into and carry out the terms of
this Agreement.
- 2 -
<PAGE>
3.2 Stockholder Authority; No Conflict. This Agreement
has been duly authorized (to the extent that the Stockholder is not a
natural person), executed and delivered by the Stockholder and
constitutes the legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with
its terms, except as limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding
in equity or at law. Neither the execution and delivery of this
Agreement nor the consummation by the Stockholder of the transactions
contemplated hereby will result in a violation of, or a default under,
or conflict with, any contract, trust, commitment, agreement,
understanding, arrangement or restriction of any kind to which the
Stockholder is a party or bound or to which the Stockholder's Shares
are subject. Consummation by the Stockholder of the transactions
contemplated hereby will not violate, or require any consent,
approval, or notice under (except for any notice which may be required
pursuant to the Exchange Act), any provision of any judgment, order,
decree, statute, law, rule or regulation applicable to the Stockholder
or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to an RP
Acquisition Proposal or RP Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Royal stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act)
with respect to any voting securities of Royal with respect to an
Acquisition Proposal or Alternative Transaction. Notwithstanding the
above, the Stockholder may take any actions in the Stockholder's role
as a director of Royal permitted under the Merger Agreement.
3.4 Coyote Reliance. The Stockholder understands and
acknowledges that Coyote is entering into, and causing Coyote Sub to
enter into, the Merger Agreement in reliance upon the Stockholder's
execution and delivery of this Agreement. The Stockholder acknowledges
that the irrevocable proxy set forth in Section 4 is granted in
consideration for the execution and delivery of the Merger Agreement
by Coyote and Coyote Sub.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative
Transaction. From and after the date of this Agreement until the
earlier of the Effective Time (as defined in the Merger Agreement) or
the termination of this Agreement in accordance with its terms, the
Stockholder shall not, and shall not permit any officer, director,
employee, controlled Affiliate, investment banker or other agent (in
such agency capacity) of the Stockholder to, directly or indirectly,
(i) solicit, engage in discussions or negotiate with any Person
(whether such discussions or negotiations are initiated by the
Stockholder or otherwise) or take any other action intended or
designed
- 3 -
<PAGE>
to facilitate the efforts of any Person, other than Coyote, relating
to an Alternative Transaction, (ii) provide information with respect
to Royal or any of its Subsidiaries to any Person, other than Coyote,
relating to a possible Alternative Transaction by any Person, other
than Coyote, (iii) enter into an agreement with any person, other than
Coyote, providing for a possible Alternative Transaction, or (iv) make
or authorize any statement, recommendation or solicitation in support
of any possible Alternative Transaction by any Person, other than by
Coyote. Notwithstanding the above, the Stockholder may take any
actions in the Stockholder's role as a director of Royal permitted
under the Merger Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Jim Probst and J.P. McNeill or either of them, the
Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of the
Stockholder, to vote such Stockholder's Shares, or grant or not grant
a consent or approval in respect of such Shares, at any meeting of
shareholders of Royal or at any adjournment thereof or in any other
circumstances, including, without limitation, a solicitation of
stockholder consents to action without a meeting, upon which the
Stockholder's vote, consent or other approval is sought, in respect of
any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder
represents that any proxies heretofore given in respect of the
Stockholder's Shares are not irrevocable, and that any such proxies
are hereby revoked.
4.3 Proxy Granted to Coyote Irrevocable. The Stockholder
hereby affirms that the irrevocable proxy set forth in this Section
4.1 is given in connection with the execution of the Merger Agreement,
and that such irrevocable proxy is given to secure the performance of
the duties of the Stockholder under this Agreement. The Stockholder
hereby further affirms that the irrevocable proxy is coupled with an
interest and may under no circumstances be revoked, except, that this
proxy shall expire on the Expiration Date. The Stockholder hereby
ratifies and confirms all that such irrevocable proxy may lawfully do
or cause to be done by virtue hereof. Such irrevocable proxy (expiring
on the Expiration Date) is executed and intended to be irrevocable in
accordance with the provisions of the Delaware General Corporation Law
(the "DGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Coyote, to carry out the intent of this Agreement.
- 4 -
<PAGE>
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no
further force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder
of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted
assigns, but, except as otherwise specifically provided herein,
neither this Agreement nor any of the rights, interests or obligations
of the Stockholder may be assigned by the Stockholder without the
prior written consent of Coyote.
9.3 Amendments and Modification. This Agreement may not
be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the party
against whom enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Coyote will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants
or agreements of the Stockholder set forth herein. Therefore, it is
agreed that, in addition to any other remedy or remedies that may be
available to Coyote upon any such violation, Coyote shall have the
right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to
Coyote at law or in equity without posting any bond and without
proving that monetary damages would be inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if
delivered in person, by cable, telegram or telex, or sent by mail
(registered or certified mail, postage prepaid, return receipt
requested) or overnight courier (prepaid) to the respective parties as
follows:
If to Coyote: Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 933-6609
Telephone No.: (303) 818-4626
Attn: James Probst
- 5 -
<PAGE>
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attn: Peter G. Smith, Esq.
If to the Stockholder: Law Offices of Kenneth J. Warren
592 Crondale Drive
Suite 1
Dublin, Ohio 43107
Telecopier No.: (614) 776-1974
Telephone No.: (614) 776-1960
Attn.: Kenneth J. Warren
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject
matter.
9.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but which together
shall constitute one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or
interpretation of this Agreement.
9.10 Waiver of Jury Trial. COYOTE AND THE STOCKHOLDER
EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
- 6 -
<PAGE>
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING
OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
--------------------------
Title: President
Kenneth J. Warren
/s/ Kenneth J. Warren
-----------------------------
334,031 shares of Common Stock
15,323 shares of Common Stock
subject to options
ROYAL PRECISION, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Coyote Sports, Inc., a Nevada corporation
("Coyote"), and David E. Johnston (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote, RP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Coyote ("Coyote Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Coyote Sub with and
into Royal. Pursuant to the Merger, each share of capital stock of Royal will be
converted into the right to receive one share of a new class of Coyote
Convertible Preferred Stock on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as
defined in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) of such number of shares of the outstanding capital stock
of Royal as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Coyote to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Royal acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Royal so as to facilitate consummation of the Merger and to
grant Coyote a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order),
sell, exchange, pledge or otherwise dispose of or encumber any of the
Shares or any New Shares, as defined in Section 1.2 below, or to make
any offer or agreement relating to any such action, at any time prior
<PAGE>
to the Expiration Date. As used herein, the term "Expiration Date"
shall mean the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and
provisions of the Merger Agreement and (ii) such date and time as the
Merger Agreement shall be validly terminated pursuant to the terms
thereof.
1.2 Additional Purchases. The Stockholder agrees that any
shares of capital stock of Royal (or securities convertible into,
exchangeable for or constituting the right to acquire, capital stock
of Royal) that the Stockholder purchases or with respect to which the
Stockholder otherwise acquires beneficial ownership after the
execution of this Agreement and prior to the Expiration Date
(including, without limitation, in the event of any stock split, stock
dividend, merger, reorganization, recapitalization or other change in
the capital structure of Royal affecting the Shares, or pursuant to
the exercise of any option) ("New Shares") shall be subject to the
terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Royal called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Royal with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Royal under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Royal or its subsidiaries, (y) a sale, lease or transfer of a material amount of
assets by Royal or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Royal, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Royal
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Coyote as follows:
3.1 Ownership of Shares. The Stockholder (i) is the
record holder and beneficial owner of the Shares, which at the date
hereof and at all times up until the Expiration Date will be free and
clear of any liens, claims, options, charges, voting trusts or
agreements, proxies or other encumbrances; (ii) does not beneficially
own any shares of capital stock of Royal (or securities convertible
into, exchangeable for or constituting the right to acquire, capital
stock of Royal), other than the Shares (and other than options to
purchase the number of shares of the common stock of Royal, if any,
indicated on the signature page of this Agreement); and (iii) has full
power and authority to make, enter into and carry out the terms of
this Agreement.
- 2 -
<PAGE>
3.2 Stockholder Authority; No Conflict. This Agreement
has been duly authorized (to the extent that the Stockholder is not a
natural person), executed and delivered by the Stockholder and
constitutes the legal, valid and binding obligation of the
Stockholder, enforceable against the Stockholder in accordance with
its terms, except as limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally and (ii) general
principles of equity, regardless of whether asserted in a proceeding
in equity or at law. Neither the execution and delivery of this
Agreement nor the consummation by the Stockholder of the transactions
contemplated hereby will result in a violation of, or a default under,
or conflict with, any contract, trust, commitment, agreement,
understanding, arrangement or restriction of any kind to which the
Stockholder is a party or bound or to which the Stockholder's Shares
are subject. Consummation by the Stockholder of the transactions
contemplated hereby will not violate, or require any consent,
approval, or notice under (except for any notice which may be required
pursuant to the Exchange Act), any provision of any judgment, order,
decree, statute, law, rule or regulation applicable to the Stockholder
or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will not
permit any entity under the Stockholder's control to: (i) solicit proxies or
become participants in a solicitation with respect to an RP Acquisition Proposal
or RP Alternative Transaction or otherwise encourage or assist any party in
taking or planning any action that would compete with, restrain or otherwise
serve to interfere with or inhibit the timely consummation of the Merger in
accordance with the terms of the Merger Agreement; (ii) initiate a stockholders'
vote or action by consent of Royal stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a "group" (as
such term is used in Section 13(d) of the Exchange Act) with respect to any
voting securities of Royal with respect to an Acquisition Proposal or
Alternative Transaction. Notwithstanding the above, the Stockholder may take any
actions in the Stockholder's role as a director of Royal permitted under the
Merger Agreement.
3.4 Coyote Reliance. The Stockholder understands and
acknowledges that Coyote is entering into, and causing Coyote Sub to
enter into, the Merger Agreement in reliance upon the Stockholder's
execution and delivery of this Agreement. The Stockholder acknowledges
that the irrevocable proxy set forth in Section 4 is granted in
consideration for the execution and delivery of the Merger Agreement
by Coyote and Coyote Sub.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative
Transaction. From and after the date of this Agreement until the
earlier of the Effective Time (as defined in the Merger Agreement) or
the termination of this Agreement in accordance with its terms, the
Stockholder shall not, and shall not permit any officer, director,
employee, controlled Affiliate, investment banker or other agent (in
such agency capacity) of the Stockholder to, directly or indirectly,
(i) solicit, engage in discussions or negotiate with any Person
(whether such discussions or negotiations are initiated by the
Stockholder or otherwise) or take any other action intended or
designed
- 3 -
<PAGE>
to facilitate the efforts of any Person, other than Coyote, relating
to an Alternative Transaction, (ii) provide information with respect
to Royal or any of its Subsidiaries to any Person, other than Coyote,
relating to a possible Alternative Transaction by any Person, other
than Coyote, (iii) enter into an agreement with any person, other than
Coyote, providing for a possible Alternative Transaction, or (iv) make
or authorize any statement, recommendation or solicitation in support
of any possible Alternative Transaction by any Person, other than by
Coyote. Notwithstanding the above, the Stockholder may take any
actions in the Stockholder's role as a director of Royal permitted
under the Merger Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Jim Probst and J.P. McNeill or either of them, the
Stockholder's proxy and attorney-in-fact (with full power of
substitution), for and in the name, place and stead of the
Stockholder, to vote such Stockholder's Shares, or grant or not grant
a consent or approval in respect of such Shares, at any meeting of
shareholders of Royal or at any adjournment thereof or in any other
circumstances, including, without limitation, a solicitation of
stockholder consents to action without a meeting, upon which the
Stockholder's vote, consent or other approval is sought, in respect of
any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder
represents that any proxies heretofore given in respect of the
Stockholder's Shares are not irrevocable, and that any such proxies
are hereby revoked.
4.3 Proxy Granted to Coyote Irrevocable. The Stockholder
hereby affirms that the irrevocable proxy set forth in this Section
4.1 is given in connection with the execution of the Merger Agreement,
and that such irrevocable proxy is given to secure the performance of
the duties of the Stockholder under this Agreement. The Stockholder
hereby further affirms that the irrevocable proxy is coupled with an
interest and may under no circumstances be revoked, except, that this
proxy shall expire on the Expiration Date. The Stockholder hereby
ratifies and confirms all that such irrevocable proxy may lawfully do
or cause to be done by virtue hereof. Such irrevocable proxy (expiring
on the Expiration Date) is executed and intended to be irrevocable in
accordance with the provisions of the Delaware General Corporation Law
(the "DGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Coyote, to carry out the intent of this Agreement.
- 4 -
<PAGE>
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no
further force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, void or unenforceable, then the remainder
of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted
assigns, but, except as otherwise specifically provided herein,
neither this Agreement nor any of the rights, interests or obligations
of the Stockholder may be assigned by the Stockholder without the
prior written consent of Coyote.
9.3 Amendments and Modification. This Agreement may not
be modified, amended, altered or supplemented except upon the
execution and delivery of a written agreement executed by the party
against whom enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties
hereto acknowledge that Coyote will be irreparably harmed and that
there will be no adequate remedy at law for a violation of any of the
covenants or agreements of the Stockholder set forth herein.
Therefore, it is agreed that, in addition to any other remedy or
remedies that may be available to Coyote upon any such violation,
Coyote shall have the right to enforce such covenants and agreements
by specific performance, injunctive relief or by any other means
available to Coyote at law or in equity without posting any bond and
without proving that monetary damages would be inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if
delivered in person, by cable, telegram or telex, or sent by mail
(registered or certified mail, postage prepaid, return receipt
requested) or overnight courier (prepaid) to the respective parties as
follows:
If to Coyote: Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 933-6609
Telephone No.: (303) 818-4626
Attn: James Probst
- 5 -
<PAGE>
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attn: Peter G. Smith, Esq.
If to the Stockholder: Royal Precision, Inc.
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn.: David E. Johnston
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject
matter.
9.8 Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but which together
shall constitute one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or
interpretation of this Agreement.
9.10 Waiver of Jury Trial. COYOTE AND THE STOCKHOLDER
EACH HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
- 6 -
<PAGE>
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING
OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
--------------------------
Title: President
David E. Johnston
/s/ David E. Johnston
------------------------------
208,769 shares of Common Stock
11,106 shares of Common Stock
subject to options
ROYAL PRECISION, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Coyote Sports, Inc., a Nevada corporation
("Coyote"), and Danny Edwards (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote, RP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Coyote ("Coyote Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Coyote Sub with and
into Royal. Pursuant to the Merger, each share of capital stock of Royal will be
converted into the right to receive one share of a new class of Coyote
Convertible Preferred Stock on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Royal as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Coyote to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Royal acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Royal so as to facilitate consummation of the Merger and to
grant Coyote a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Shares
or any New Shares, as defined in Section 1.2 below, or to make any offer
or agreement relating to any such action, at any time prior
<PAGE>
to the Expiration Date. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Merger Agreement and (ii) such date and time as the Merger Agreement
shall be validly terminated pursuant to the terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Royal (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Royal) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Royal affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Royal called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Royal with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Royal under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Royal or its subsidiaries, (y) a sale, lease or transfer of a material amount of
assets by Royal or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Royal, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Royal
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Coyote as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Royal (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Royal), other than
the Shares (and other than options to purchase the number of shares of
the common stock of Royal, if any, indicated on the signature page of
this Agreement); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement.
- 2 -
<PAGE>
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to an RP
Acquisition Proposal or RP Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Royal stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Royal with respect to an Acquisition
Proposal or Alternative Transaction. Notwithstanding the above, the
Stockholder may take any actions in the Stockholder's role as a director
of Royal permitted under the Merger Agreement.
3.4 Coyote Reliance. The Stockholder understands and acknowledges
that Coyote is entering into, and causing Coyote Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder acknowledges that the
irrevocable proxy set forth in Section 4 is granted in consideration for
the execution and delivery of the Merger Agreement by Coyote and Coyote
Sub.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent (in such agency capacity) of
the Stockholder to, directly or indirectly, (i) solicit, engage in
discussions or negotiate with any Person (whether such discussions or
negotiations are initiated by the Stockholder or otherwise) or take any
other action intended or designed
- 3 -
<PAGE>
to facilitate the efforts of any Person, other than Coyote, relating to
an Alternative Transaction, (ii) provide information with respect to
Royal or any of its Subsidiaries to any Person, other than Coyote,
relating to a possible Alternative Transaction by any Person, other than
Coyote, (iii) enter into an agreement with any person, other than
Coyote, providing for a possible Alternative Transaction, or (iv) make
or authorize any statement, recommendation or solicitation in support of
any possible Alternative Transaction by any Person, other than by
Coyote. Notwithstanding the above, the Stockholder may take any actions
in the Stockholder's role as a director of Royal permitted under the
Merger Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Jim Probst and J.P. McNeill or either of them, the Stockholder's
proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of the Stockholder, to vote such Stockholder's
Shares, or grant or not grant a consent or approval in respect of such
Shares, at any meeting of shareholders of Royal or at any adjournment
thereof or in any other circumstances, including, without limitation, a
solicitation of stockholder consents to action without a meeting, upon
which the Stockholder's vote, consent or other approval is sought, in
respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Coyote Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Coyote, to carry out the intent of this Agreement.
- 4 -
<PAGE>
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Coyote.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Coyote will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Coyote upon any such violation, Coyote shall have the right to
enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Coyote at law or in
equity without posting any bond and without proving that monetary
damages would be inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
If to Coyote: Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 933-6609
Telephone No.: (303) 818-4626
Attn: James Probst
- 5 -
<PAGE>
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attn: Peter G. Smith, Esq.
If to the Stockholder: Royal Precision, Inc.
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn.: Danny Edwards
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
9.10 Waiver of Jury Trial. COYOTE AND THE STOCKHOLDER EACH
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
- 6 -
<PAGE>
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
--------------------------
Title: President
Danny Edwards
/s/ Danny Edwards
--------------------------------
526,502 shares of Common Stock
62,550 shares of Common Stock
subject to options
ROYAL PRECISION, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Coyote Sports, Inc., a Nevada corporation
("Coyote"), and Lawrence Bain (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote, RP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Coyote ("Coyote Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Coyote Sub with and
into Royal. Pursuant to the Merger, each share of capital stock of Royal will be
converted into the right to receive one share of a new class of Coyote
Convertible Preferred Stock on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Royal as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Coyote to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Royal acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Royal so as to facilitate consummation of the Merger and to
grant Coyote a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Shares
or any New Shares, as defined in Section 1.2 below, or to make any offer
or agreement relating to any such action, at any time prior
<PAGE>
to the Expiration Date. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Merger Agreement and (ii) such date and time as the Merger Agreement
shall be validly terminated pursuant to the terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Royal (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Royal) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Royal affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Royal called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Royal with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Royal under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Royal or its subsidiaries, (y) a sale, lease or transfer of a material amount of
assets by Royal or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Royal, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Royal
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Coyote as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Royal (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Royal), other than
the Shares (and other than options to purchase the number of shares of
the common stock of Royal, if any, indicated on the signature page of
this Agreement); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement.
- 2 -
<PAGE>
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to an RP
Acquisition Proposal or RP Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Royal stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Royal with respect to an Acquisition
Proposal or Alternative Transaction. Notwithstanding the above, the
Stockholder may take any actions in the Stockholder's role as a director
of Royal permitted under the Merger Agreement.
3.4 Coyote Reliance. The Stockholder understands and acknowledges
that Coyote is entering into, and causing Coyote Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder acknowledges that the
irrevocable proxy set forth in Section 4 is granted in consideration for
the execution and delivery of the Merger Agreement by Coyote and Coyote
Sub.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent (in such agency capacity) of
the Stockholder to, directly or indirectly, (i) solicit, engage in
discussions or negotiate with any Person (whether such discussions or
negotiations are initiated by the Stockholder or otherwise) or take any
other action intended or designed
- 3 -
<PAGE>
to facilitate the efforts of any Person, other than Coyote, relating to
an Alternative Transaction, (ii) provide information with respect to
Royal or any of its Subsidiaries to any Person, other than Coyote,
relating to a possible Alternative Transaction by any Person, other than
Coyote, (iii) enter into an agreement with any person, other than
Coyote, providing for a possible Alternative Transaction, or (iv) make
or authorize any statement, recommendation or solicitation in support of
any possible Alternative Transaction by any Person, other than by
Coyote. Notwithstanding the above, the Stockholder may take any actions
in the Stockholder's role as a director of Royal permitted under the
Merger Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Jim Probst and J.P. McNeill or either of them, the Stockholder's
proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of the Stockholder, to vote such Stockholder's
Shares, or grant or not grant a consent or approval in respect of such
Shares, at any meeting of shareholders of Royal or at any adjournment
thereof or in any other circumstances, including, without limitation, a
solicitation of stockholder consents to action without a meeting, upon
which the Stockholder's vote, consent or other approval is sought, in
respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Coyote Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Coyote, to carry out the intent of this Agreement.
- 4 -
<PAGE>
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Coyote.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Coyote will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Coyote upon any such violation, Coyote shall have the right to
enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Coyote at law or in
equity without posting any bond and without proving that monetary
damages would be inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
If to Coyote: Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 933-6609
Telephone No.: (303) 818-4626
Attn: James Probst
- 5 -
<PAGE>
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attn: Peter G. Smith, Esq.
If to the Stockholder: Royal Precision, Inc.
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn.: Lawrence Bain
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
9.10 Waiver of Jury Trial. COYOTE AND THE STOCKHOLDER EACH
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
- 6 -
<PAGE>
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
---------------------
Title: President
Lawrence Bain
/s/ Lawrence Bain
--------------------------
12,500 shares of Common Stock
5,625 shares of Common Stock
subject to options
ROYAL PRECISION, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
Februay 2, 1999, by and between Coyote Sports, Inc., a Nevada corporation
("Coyote"), and Richard P. Johnston and Jayne A. Johnston Charitable Remainder
Trust #3 (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote, RP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Coyote ("Coyote Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Coyote Sub with and
into Royal. Pursuant to the Merger, each share of capital stock of Royal will be
converted into the right to receive one share of a new class of Coyote
Convertible Preferred Stock on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Royal as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Coyote to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Royal acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Royal so as to facilitate consummation of the Merger and to
grant Coyote a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Shares
or any New Shares, as defined in Section 1.2 below, or to make any offer
or agreement relating to any such action, at any time prior
<PAGE>
to the Expiration Date. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Merger Agreement and (ii) such date and time as the Merger Agreement
shall be validly terminated pursuant to the terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Royal (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Royal) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Royal affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Royal called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Royal with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Royal under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Royal or its subsidiaries, (y) a sale, lease or transfer of a material amount of
assets by Royal or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Royal, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Royal
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Coyote as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Royal (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Royal), other than
the Shares (and other than options to purchase the number of shares of
the common stock of Royal, if any, indicated on the signature page of
this Agreement); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement.
- 2 -
<PAGE>
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to an RP
Acquisition Proposal or RP Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Royal stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Royal with respect to an Acquisition
Proposal or Alternative Transaction. Notwithstanding the above, the
Stockholder may take any actions in the Stockholder's role as a director
of Royal permitted under the Merger Agreement.
3.4 Coyote Reliance. The Stockholder understands and acknowledges
that Coyote is entering into, and causing Coyote Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder acknowledges that the
irrevocable proxy set forth in Section 4 is granted in consideration for
the execution and delivery of the Merger Agreement by Coyote and Coyote
Sub.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent (in such agency capacity) of
the Stockholder to, directly or indirectly, (i) solicit, engage in
discussions or negotiate with any Person (whether such discussions or
negotiations are initiated by the Stockholder or otherwise) or take any
other action intended or designed
- 3 -
<PAGE>
to facilitate the efforts of any Person, other than Coyote, relating to
an Alternative Transaction, (ii) provide information with respect to
Royal or any of its Subsidiaries to any Person, other than Coyote,
relating to a possible Alternative Transaction by any Person, other than
Coyote, (iii) enter into an agreement with any person, other than
Coyote, providing for a possible Alternative Transaction, or (iv) make
or authorize any statement, recommendation or solicitation in support of
any possible Alternative Transaction by any Person, other than by
Coyote. Notwithstanding the above, the Stockholder may take any actions
in the Stockholder's role as a director of Royal permitted under the
Merger Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Jim Probst and J.P. McNeill or either of them, the Stockholder's
proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of the Stockholder, to vote such Stockholder's
Shares, or grant or not grant a consent or approval in respect of such
Shares, at any meeting of shareholders of Royal or at any adjournment
thereof or in any other circumstances, including, without limitation, a
solicitation of stockholder consents to action without a meeting, upon
which the Stockholder's vote, consent or other approval is sought, in
respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Coyote Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Coyote, to carry out the intent of this Agreement.
- 4 -
<PAGE>
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Coyote.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Coyote will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Coyote upon any such violation, Coyote shall have the right to
enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Coyote at law or in
equity without posting any bond and without proving that monetary
damages would be inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
If to Coyote: Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 933-6609
Telephone No.: (303) 818-4626
Attn: James Probst
- 5 -
<PAGE>
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attn: Peter G. Smith, Esq.
If to the Stockholder: Royal Precision, Inc.
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn.: Richard P. Johnston and
Jayne A. Johnston Charitable
Remainder Trust #3
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
9.10 Waiver of Jury Trial. COYOTE AND THE STOCKHOLDER EACH
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
- 6 -
<PAGE>
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
-----------------------------
Title: President
RICHARD P. JOHNSTON AND JAYNE A.
JOHNSTON CHARITABLE REMAINDER
TRUST #3
By: /s/ Richard P. Johnston
----------------------------
Richard P. Johnston, Trustee
646,309 shares of Common Stock
______ shares of Common Stock
subject to options
ROYAL PRECISION, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Coyote Sports, Inc., a Nevada corporation
("Coyote"), and Berenson Minella & Company, L.P. (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote, RP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Coyote ("Coyote Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Coyote Sub with and
into Royal. Pursuant to the Merger, each share of capital stock of Royal will be
converted into the right to receive one share of a new class of Coyote
Convertible Preferred Stock on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Royal as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Coyote to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Royal acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Royal so as to facilitate consummation of the Merger and to
grant Coyote a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Shares
or any New Shares, as defined in Section 1.2 below, or to make any offer
or agreement relating to any such action, at any time prior
<PAGE>
to the Expiration Date. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Merger Agreement and (ii) such date and time as the Merger Agreement
shall be validly terminated pursuant to the terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Royal (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Royal) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Royal affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Royal called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Royal with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Royal under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Royal or its subsidiaries, (y) a sale, lease or transfer of a material amount of
assets by Royal or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Royal, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Royal
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Coyote as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Royal (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Royal), other than
the Shares (and other than options to purchase the number of shares of
the common stock of Royal, if any, indicated on the signature page of
this Agreement); and (iii) has full power and authority to make, enter
into and carry out the terms of this Agreement.
- 2 -
<PAGE>
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to an RP
Acquisition Proposal or RP Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Royal stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Royal with respect to an Acquisition
Proposal or Alternative Transaction. Notwithstanding the above, the
Stockholder may take any actions in the Stockholder's role as a director
of Royal permitted under the Merger Agreement.
3.4 Coyote Reliance. The Stockholder understands and acknowledges
that Coyote is entering into, and causing Coyote Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder acknowledges that the
irrevocable proxy set forth in Section 4 is granted in consideration for
the execution and delivery of the Merger Agreement by Coyote and Coyote
Sub.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent (in such agency capacity) of
the Stockholder to, directly or indirectly, (i) solicit, engage in
discussions or negotiate with any Person (whether such discussions or
negotiations are initiated by the Stockholder or otherwise) or take any
other action intended or designed
- 3 -
<PAGE>
to facilitate the efforts of any Person, other than Coyote, relating to
an Alternative Transaction, (ii) provide information with respect to
Royal or any of its Subsidiaries to any Person, other than Coyote,
relating to a possible Alternative Transaction by any Person, other than
Coyote, (iii) enter into an agreement with any person, other than
Coyote, providing for a possible Alternative Transaction, or (iv) make
or authorize any statement, recommendation or solicitation in support of
any possible Alternative Transaction by any Person, other than by
Coyote. Notwithstanding the above, the Stockholder may take any actions
in the Stockholder's role as a director of Royal permitted under the
Merger Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Jim Probst and J.P. McNeill or either of them, the Stockholder's
proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of the Stockholder, to vote such Stockholder's
Shares, or grant or not grant a consent or approval in respect of such
Shares, at any meeting of shareholders of Royal or at any adjournment
thereof or in any other circumstances, including, without limitation, a
solicitation of stockholder consents to action without a meeting, upon
which the Stockholder's vote, consent or other approval is sought, in
respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Coyote Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Coyote, to carry out the intent of this Agreement.
- 4 -
<PAGE>
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Coyote.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Coyote will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Coyote upon any such violation, Coyote shall have the right to
enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Coyote at law or in
equity without posting any bond and without proving that monetary
damages would be inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
If to Coyote: Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 933-6609
Telephone No.: (303) 818-4626
Attn: James Probst
- 5 -
<PAGE>
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attn: Peter G. Smith, Esq.
If to the Stockholder: Berenson Minella & Company, L.P.
667 Madison Avenue, 27th Floor
Mew York, New York 10021
Telecopier No.: (212) 935-1499
Telephone No.: (602) 935-7676
Attn.: Raymond J. Minella
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
9.10 Waiver of Jury Trial. COYOTE AND THE STOCKHOLDER EACH
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
- 6 -
<PAGE>
COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE)
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the day and year first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
-------------------------
Title: President
BERENSON MINELLA & COMPANY, L.P.
By: /s/ Raymond J. Minella
------------------------
Raymond J. Minella, General Partner
1,231,741 shares of Common Stock
______ shares of Common Stock
subject to options
ROYAL PRECISION, INC.
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") is made and entered into as of
February 2, 1999, by and between Coyote Sports, Inc., a Nevada corporation
("Coyote"), and Ronald L. Chalmers (the "Stockholder").
RECITALS
A. Concurrently with the execution of this Agreement, Coyote, RP
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Coyote ("Coyote Sub"), and Royal Precision, Inc., a Delaware corporation
("Royal"), are entering into an Agreement and Plan of Merger (the "Merger
Agreement") which provides for the merger (the "Merger") of Coyote Sub with and
into Royal. Pursuant to the Merger, each share of capital stock of Royal will be
converted into the right to receive one share of a new class of Coyote
Convertible Preferred Stock on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of such number of shares of the outstanding capital stock of
Royal as is indicated on the signature page of this Agreement (the "Shares").
C. As an inducement to Coyote to enter into the Merger Agreement, the
Stockholder is willing to enter into and be bound by this Agreement pursuant to
which the Stockholder agrees not to transfer or otherwise dispose of any of the
Shares, or any other shares of capital stock of Royal acquired hereafter and
prior to the Expiration Date (as defined in Section 1.1 below, except as
otherwise permitted hereby), to vote the Shares and any other such shares of
capital stock of Royal so as to facilitate consummation of the Merger and to
grant Coyote a proxy with respect to the Shares upon the terms set forth herein.
D. All terms not otherwise defined herein shall have their respective
meanings set forth in the Merger Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:
1. Agreement to Retain Shares.
1.1 Transfer and Encumbrance. The Stockholder agrees not to
transfer (except as may be specifically required by court order), sell,
exchange, pledge or otherwise dispose of or encumber any of the Shares
or any New Shares, as defined in Section 1.2 below, or to make any offer
or agreement relating to any such action, at any time prior
<PAGE>
to the Expiration Date. As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the
Merger Agreement and (ii) such date and time as the Merger Agreement
shall be validly terminated pursuant to the terms thereof.
1.2 Additional Purchases. The Stockholder agrees that any shares
of capital stock of Royal (or securities convertible into, exchangeable
for or constituting the right to acquire, capital stock of Royal) that
the Stockholder purchases or with respect to which the Stockholder
otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date (including, without
limitation, in the event of any stock split, stock dividend, merger,
reorganization, recapitalization or other change in the capital
structure of Royal affecting the Shares, or pursuant to the exercise of
any option) ("New Shares") shall be subject to the terms and conditions
of this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. At every meeting of the stockholders of
Royal called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Royal with respect to any of the following, the Stockholder shall vote
(including any class vote) the Shares: (i) in favor of approval of the Merger
Agreement and the Merger, the terms thereof and each of the transactions
contemplated thereby, and any matter necessary to facilitate the Merger; (ii)
against any action or agreement that would result in a breach of any covenant,
representation or warranty or any other agreement or obligation of Royal under
the Merger Agreement; (iii) against (x) any extraordinary corporate transaction,
such as a merger, consolidation or any other business combination involving
Royal or its subsidiaries, (y) a sale, lease or transfer of a material amount of
assets by Royal or its subsidiaries (other than in the ordinary course of
business) or (z) any reorganization, recapitalization, dissolution or
liquidation of Royal, in each case other than the Merger and the transactions
contemplated by the Merger Agreement); or (iv) any other action involving Royal
or its subsidiaries which is intended or which reasonably could be expected to
impede, interfere with, delay, postpone or materially adversely affect the
Merger and the transactions contemplated by the Merger Agreement (each of the
matters referred to in clauses (i) through (iv), a "Subject Matter"). This
Agreement is intended to bind the Stockholder only with respect to the specific
matters set forth herein.
3. Representations, Warranties and Covenants of the Stockholder. The
Stockholder hereby represents, warrants and covenants to Coyote as follows:
3.1 Ownership of Shares. The Stockholder (i) is the record holder
and beneficial owner of the Shares, which at the date hereof and at all
times up until the Expiration Date will be free and clear of any liens,
claims, options, charges, voting trusts or agreements, proxies or other
encumbrances; (ii) does not beneficially own any shares of capital stock
of Royal (or securities convertible into, exchangeable for or
constituting the right to acquire, capital stock of Royal), other than
the Shares (and other than options to purchase the number of shares of
the common stock of Royal, if any, indicated on the
- 2 -
<PAGE>
signature page of this Agreement); and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement.
3.2 Stockholder Authority; No Conflict. This Agreement has been
duly authorized (to the extent that the Stockholder is not a natural
person), executed and delivered by the Stockholder and constitutes the
legal, valid and binding obligation of the Stockholder, enforceable
against the Stockholder in accordance with its terms, except as limited
by (i) applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors'
rights generally and (ii) general principles of equity, regardless of
whether asserted in a proceeding in equity or at law. Neither the
execution and delivery of this Agreement nor the consummation by the
Stockholder of the transactions contemplated hereby will result in a
violation of, or a default under, or conflict with, any contract, trust,
commitment, agreement, understanding, arrangement or restriction of any
kind to which the Stockholder is a party or bound or to which the
Stockholder's Shares are subject. Consummation by the Stockholder of the
transactions contemplated hereby will not violate, or require any
consent, approval, or notice under (except for any notice which may be
required pursuant to the Exchange Act), any provision of any judgment,
order, decree, statute, law, rule or regulation applicable to the
Stockholder or the Stockholder's Shares.
3.3 No Proxy Solicitations. The Stockholder will not, and will
not permit any entity under the Stockholder's control to: (i) solicit
proxies or become participants in a solicitation with respect to an RP
Acquisition Proposal or RP Alternative Transaction or otherwise
encourage or assist any party in taking or planning any action that
would compete with, restrain or otherwise serve to interfere with or
inhibit the timely consummation of the Merger in accordance with the
terms of the Merger Agreement; (ii) initiate a stockholders' vote or
action by consent of Royal stockholders with respect to an Acquisition
Proposal or Alternative Transaction; or (iii) become members of a
"group" (as such term is used in Section 13(d) of the Exchange Act) with
respect to any voting securities of Royal with respect to an Acquisition
Proposal or Alternative Transaction. Notwithstanding the above, the
Stockholder may take any actions in the Stockholder's role as a director
of Royal permitted under the Merger Agreement.
3.4 Coyote Reliance. The Stockholder understands and acknowledges
that Coyote is entering into, and causing Coyote Sub to enter into, the
Merger Agreement in reliance upon the Stockholder's execution and
delivery of this Agreement. The Stockholder acknowledges that the
irrevocable proxy set forth in Section 4 is granted in consideration for
the execution and delivery of the Merger Agreement by Coyote and Coyote
Sub.
3.5 No Solicitation. Upon execution of this Agreement, the
Stockholder shall not have, or shall immediately terminate any
discussions with, any third party concerning an Alternative Transaction.
From and after the date of this Agreement until the earlier of the
Effective Time (as defined in the Merger Agreement) or the termination
of this Agreement in accordance with its terms, the Stockholder shall
not, and shall not permit any officer, director, employee, controlled
Affiliate, investment banker or other agent
- 3 -
<PAGE>
(in such agency capacity) of the Stockholder to, directly or indirectly,
(i) solicit, engage in discussions or negotiate with any Person (whether
such discussions or negotiations are initiated by the Stockholder or
otherwise) or take any other action intended or designed to facilitate
the efforts of any Person, other than Coyote, relating to an Alternative
Transaction, (ii) provide information with respect to Royal or any of
its Subsidiaries to any Person, other than Coyote, relating to a
possible Alternative Transaction by any Person, other than Coyote, (iii)
enter into an agreement with any person, other than Coyote, providing
for a possible Alternative Transaction, or (iv) make or authorize any
statement, recommendation or solicitation in support of any possible
Alternative Transaction by any Person, other than by Coyote.
Notwithstanding the above, the Stockholder may take any actions in the
Stockholder's role as a director of Royal permitted under the Merger
Agreement.
4. Grant of Irrevocable Proxy; Appointment of Proxy.
4.1 The Stockholder hereby irrevocably grants to, and appoints,
each of Jim Probst and J.P. McNeill or either of them, the Stockholder's
proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of the Stockholder, to vote such Stockholder's
Shares, or grant or not grant a consent or approval in respect of such
Shares, at any meeting of shareholders of Royal or at any adjournment
thereof or in any other circumstances, including, without limitation, a
solicitation of stockholder consents to action without a meeting, upon
which the Stockholder's vote, consent or other approval is sought, in
respect of any Subject Matter.
4.2 Revocation of Any Other Proxies. The Stockholder represents
that any proxies heretofore given in respect of the Stockholder's Shares
are not irrevocable, and that any such proxies are hereby revoked.
4.3 Proxy Granted to Coyote Irrevocable. The Stockholder hereby
affirms that the irrevocable proxy set forth in this Section 4.1 is
given in connection with the execution of the Merger Agreement, and that
such irrevocable proxy is given to secure the performance of the duties
of the Stockholder under this Agreement. The Stockholder hereby further
affirms that the irrevocable proxy is coupled with an interest and may
under no circumstances be revoked, except, that this proxy shall expire
on the Expiration Date. The Stockholder hereby ratifies and confirms all
that such irrevocable proxy may lawfully do or cause to be done by
virtue hereof. Such irrevocable proxy (expiring on the Expiration Date)
is executed and intended to be irrevocable in accordance with the
provisions of the Delaware General Corporation Law (the "DGCL").
5. Certain Events. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation the Stockholder's constituent partners or its successors.
- 4 -
<PAGE>
6. Additional Documents. The Stockholder hereby covenants and agrees to
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Coyote, to carry out the intent of this Agreement.
7. Consent and Waiver. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreements to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
8. Termination. This Agreement shall terminate and shall have no further
force or effect as of the Expiration Date.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, then the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns,
but, except as otherwise specifically provided herein, neither this
Agreement nor any of the rights, interests or obligations of the
Stockholder may be assigned by the Stockholder without the prior written
consent of Coyote.
9.3 Amendments and Modification. This Agreement may not be
modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the party against whom
enforcement is sought.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Coyote will be irreparably harmed and that there will
be no adequate remedy at law for a violation of any of the covenants or
agreements of the Stockholder set forth herein. Therefore, it is agreed
that, in addition to any other remedy or remedies that may be available
to Coyote upon any such violation, Coyote shall have the right to
enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Coyote at law or in
equity without posting any bond and without proving that monetary
damages would be inadequate.
9.5 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and sufficient if delivered
in person, by cable, telegram or telex, or sent by mail (registered or
certified mail, postage prepaid, return receipt requested) or overnight
courier (prepaid) to the respective parties as follows:
- 5 -
<PAGE>
If to Coyote: Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Telecopier No.: (303) 933-6609
Telephone No.: (303) 818-4626
Attn: James Probst
With a copy to: Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attn: Peter G. Smith, Esq.
If to the Stockholder: Royal Precision, Inc.
15170 North Hayden Road
Scottsdale, Arizona 89260
Telecopier No.: (602) 627-0206
Telephone No.: (602) 627-0270
Attn.: Ronald L. Chalmers
With a copy to:
Telecopier No.:
Telephone No.:
Attn:
or to such other address or person's attention as any party may have
furnished to the other in writing in accordance herewith, except that
notices of change of address shall only be effective upon receipt.
9.6 Governing Law. The laws of the State of New York
(irrespective of its choice of laws, rules or principles) will govern
the validity of this Agreement, the construction of its terms and the
interpretation and enforcement of the rights and duties of the parties
hereto.
9.7 Entire Agreement. This Agreement and the Merger Agreement
contain the entire understanding of the parties with respect to the
subject matter hereof, and supersede all prior negotiations and
understandings between the parties with respect to such subject matter.
9.8 Counterparts. This Agreement may be executed in counterparts,
each of which shall be an original, but which together shall constitute
one and the same agreement.
- 6 -
<PAGE>
9.9 Effect of Headings. The section headings herein are for
convenience only and shall not affect the construction or interpretation
of this Agreement.
9.10 Waiver of Jury Trial. COYOTE AND THE STOCKHOLDER EACH HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ALL RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT,
TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT.
- 7 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement
to be duly executed on the day and year first above written.
COYOTE SPORTS, INC.
By: /s/ James M. Probst
----------------------
Title: President
By: /s/ Ronald L. Chalmers
----------------------
Ronald L. Chalmers
125,261 shares of Common Stock
15,553 shares of Common Stock
subject to options
ROYAL PRECISION, INC.
15170 North Hayden Road
Suite 1
Phoenix, Arizona 85260
As of January 28, 1999
Mr. Danny Edwards
6724 North Whispering Hills Road
Paradise Valley, Arizona 85253
Dear Mr. Edwards:
Reference is made to that certain Stockholder Agreement, dated as of May
12, 1997 (the "Stockholder Agreement"), among you, Drew M. Brown, DMB Property
Ventures Limited Partnership, Mark N. Sklar, and Bennett Dorrance, Trustee of
the Bennett Dorrance Trust dated April 21, 1989, as amended, Christopher A.
Johnston, RPJ/JAJ Partners, Ltd., David E. Johnston, Berenson Minella & Company,
L.P., Kenneth J. Warren, and Royal Precision, Inc. (f/k/a FM Precision Golf
Corp.), a Delaware corporation ("RP"), and to that certain proposed Amendment
No. 1 (the "Amendment") to the Stockholders Agreement by and among you, Drew M.
Brown, DMB Property Ventures Limited Partnership, Mark N. Sklar, and Bennett
Dorrance, Trustee of the Bennett Dorrance Trust dated April 21, 1989, as
amended, Christopher A. Johnston, the Richard P. Johnston and Jayne A. Johnston
Charitable Remainder Trust #3, David E. Johnston, Berenson Minella & Company,
L.P., Kenneth J. Warren, and RP.
RP is contemplating entering into an Agreement and Plan of Merger (the
"Merger Agreement") by and among RP, Coyote Sports, Inc. ("CSI") and RP
Acquisition Corp. ("Sub") pursuant to which Sub will be merged with and into RP
(the "Merger") and Sub will become a wholly-owned subsidiary of CSI and each
outstanding share of common stock, par value $.001 per share, of RP ("Common
Stock") will be converted into a number of outstanding shares of CSI Preferred
Stock, as specified in the Merger Agreement. As a condition to entering into the
Merger Agreement, CSI has required that certain stockholders of RP who are
parties to the Stockholders Agreement enter into Voting Agreements (the "Voting
Agreements") pursuant to which such stockholders will agree to vote their shares
of Common Stock in favor of the adoption and approval of the Merger Agreement
and the approval of the Merger and against certain transactions which might
delay, impede or oppose the Merger and, concurrently therewith, grant to CSI a
proxy to vote such shares in favor of the adoption and approval of the Merger
Agreement and the approval of the Merger and against certain transactions which
might delay, impede or oppose the Merger. Section 4 of the Stockholder Agreement
prohibits the parties thereto from entering into certain Voting Agreements. In
order to clarify the rights of the parties to the Stockholder Agreement, the
parties to the Stockholder Agreement have agreed to enter into the Amendment.
You are currently the holder of options to purchase 62,550 shares of Common
Stock, which such options have exercise prices ranging from $5.50 to $6.60 per
share (the "Edwards Options"). In addition, certain parties associated with you
(the "Related Parties") are the holders of the following options to purchase
shares of Common Stock: Everen
<PAGE>
Securities Inc. (together with its employees, including but not limited to
Lawrence D. Bain): 7,500 shares, at an exercise price of $13.00 per share; and
Robert Burg III: 108,033 shares, at exercise prices of $5.50 to $6.00 per share
(the "Related Price Options" and, together with the Edwards Options, the
"Options"). In order to induce you to enter into the Amendment, RP hereby agrees
that, subject to the cancellation of the Options, RP will issue to you and your
Related Parties an equivalent number of new options under the Royal Precision,
Inc. Stock Option Plan (the "New Options"), which such New Options will (x) be
immediately vested, (y) have an exercise price of $3.19 per share of Common
Stock, (z) expire on the fifth anniversary of this letter agreement.
This letter shall be governed by, and construed in accordance with, the
laws of the State of New York, applicable to agreements made and to be performed
therein. The parties hereto expressly agree that the Related Parties are made
express third-party beneficiaries hereof and may rely on this letter agreement
as additional signatories thereto.
This letter may be executed in one or more counterparts, each of which
shall be an original, but all such counterparts shall together constitute but
one and the same instrument.
If the foregoing correctly sets forth our mutual agreement, please so
indicate by signing the enclosed copy of this letter and returning it to us.
ROYAL PRECISION, INC.
By: /s/ Raymond J. Minella
----------------------
Name: Raymond J. Minella
Title: President
Accepted and Agreed this 28th day
of January, 1999:
/s/ Danny Edwards
- --------------------------
Danny Edwards
- 2 -
Exhibit 21.1
List of Subsidiaries of the Registrant
--------------------------------------
o Sierra Materials LLC (formerly known as Cape Composites LLC)
o Unifiber Corporation
o Reynolds Cycle Technology Limited (formerly known as TI 531 Limited)
o Apollo Sports Technologies Limited (formerly known as TI Apollo Limited)
o Apollo Sports Holdings Limited
Exhibit 23.1
The Board of Directors
Coyote Sports, Inc. and subsidiaries:
We consent to the incorporation by reference in this registration statement on
Form S-4 of Coyote Sports, Inc. and subsidiaries of our report dated March 23,
1998 relating to the consolidated balance sheets of Coyote Sports, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended, which report appears in the December 31, 1997, Annual Report on Form
10-KSB of Coyote Sports, Inc. and subsidiaries and to the reference to our firm
under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Boulder, Colorado
March 2, 1999
Consent of Independent Public Accountants
-----------------------------------------
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated July 2, 1998
included in Royal Precision Inc.'s Form 10-KSB for the year ended May 31, 1998
and to all references to our Firm included in this registration statement.
/s/ Arthur Andersen LLP
Hartford, Connecticut
- ---------------------
March 3, 1999
Exhibit 23.6
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of this Registration Statement on Form S-4 of Coyote Sports,
Inc. of our report dated May 23, 1997, except as to Note 1, which is as of
December 19, 1997, relating to the financial statements of Unifiber Corporation,
which appears on page 3 of Coyote Sports, Inc.'s Current Report on Form 8-K/A
Amendment No. 2 dated March 19, 1998. We also consent to the reference to us
under the headings "Experts" in such Prospectus.
PRICEWATERHOUSECOOPERS LLP
San Diego, California
March 2, 1999
CONSENT OF LEHMAN BROTHERS
We hereby consent to the use of our opinion letter dated January 28,
1999 to the Board of Directors of Coyote Sports, Inc. (the "Company") attached
as Annex B to the Company's Joint Proxy Statement/Prospectus on Form S-4 (the
"Prospectus") and to the references to our firm in the Prospectus under the
headings [Summary, The Merger, Index of Defined Terms, and Annexes]. In giving
such consent, we do not admit that we come within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended,
or the rules and regulations of the Securities and Exchange Commission
thereunder and we do not thereby admit that we are experts with respect to any
part of the Registration Statement under the meaning of the term "expert" as
used in the Securities Act.
/s/ LEHMAN BROTHERS INC.
New York, New York
March 3, 1999
Exhibit 99.3
COYOTE LOGO
FORM OF PROXY
FOR COYOTE SPORTS, INC. _________________, 1999
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY CARD MUST BE RECEIVED, AT THE APPROPRIATE ADDRESS INDICATED BELOW, BY
_____________, PRIOR TO 10:00 A.M. (EASTERN DAYLIGHT TIME) ON ________, 1999.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF COYOTE SPORTS, INC., A COMPANY
ORGANIZED UNDER THE LAWS OF NEVADA, FOR THE SPECIAL MEETING OF SHAREHOLDERS TO
BE HELD ON ___________, 1999 AT 10:00 A.M.(LOCAL TIME).
The undersigned, being a holder of common shares, par value $0.001 per share
(the "Coyote Common Shares"), of Coyote Sports, Inc., ("Coyote"), hereby
appoints James M. Probst, John Paul McNeill or either of them, as his proxy at
the Special Meeting to be held on ___________, 1999 (and any adjournment
thereof) and to vote on behalf of the undersigned (or abstain from voting) as
indicated on the reverse of this card or, to the extent that no such indication
is given, as set forth herein. The Special Meeting has been convened to consider
(1) an amendment to the Amended and Restated Articles of Incorporation of Coyote
to increase the number of authorized preferred shares from 4,000,000 to
10,000,000, and to create, and approve the issuance of, a new series of shares,
the Coyote Series C Convertible Preferred Stock, par value $.001 per share to be
delivered in connection with the merger and (2) the transaction of such other
business as may be properly brought before the special meeting. In his
discretion, the proxy is authorized to vote upon such other business as may
properly come before the meeting or any adjournments thereof, except that in the
case of any proposal to adjourn the meeting, the proxy will vote as indicated on
the reverse of this card or, to the extent that no such indication is given, as
set forth herein. The undersigned hereby revokes any previously dated forms of
proxy with respect to the Special Meeting.
PLEASE INDICATE ON THE REVERSE OF THIS CARD HOW YOUR SHARES ARE TO BE VOTED. THE
COYOTE BOARD RECOMMENDS A VOTE FOR THE PROPOSAL. IF THIS CARD IS RETURNED SIGNED
BUT NOT MARKED WITH ANY INDICATION AS TO HOW TO VOTE, THE UNDERSIGNED WILL BE
DEEMED TO HAVE DIRECTED THE PROXY TO VOTE FOR THE PROPOSAL.
Completed proxy cards should be returned to: [insert information for each
jurisdiction]. An instrument evidencing the appointment of a corporate
representative may be delivered to any of the above addresses up to __:00 a.m.
on __________, 1998. IF YOU HAVE QUESTIONS OR NEED ASSISTANCE, PLEASE CONTACT
_____________ at 1-800-XXX-XXXX (toll-free in the United States).
PLEASE SIGN AND DATE ON REVERSE SIDE
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
<PAGE>
Please mark
your votes as
indicated in
this example. [X]
PROPOSAL
THE BOARD OF DIRECTORS OF COYOTE SPORTS, INC. RECOMMENDS THAT YOU VOTE FOR
THE FOLLOWING PROPOSAL:
1. To approve the amendment of the Amended FOR AGAINST ABSTAIN
and Restated Articles of Incorporation [ ] [ ] [ ]
to increase the number of authorized
Preferred Shares from 4,000,000 to
10,000,000 and to create, and approve the
issuance of, a new series class of shares,
the Coyote Series C Convertible Preferred
Stock to be delivered in connection with
the merger.
2. In their discretion, the proxies are
authorized to vote upon such other business
as may be properly brought before the
special meeting.
Signature(s)(and Title(s), (if any)_________________________Date:_________, 1999
Please sign your name above exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or other representative capacity,
please give full title as such. If a corporation, please sign in full corporate
name by a duly authorized director or other officer, indicating title, or
execute under the corporation's common seal. In the case of joint holders, any
one may sign but the first-named in the share register may exclude the voting
rights of the other joint holder(s) by voting in person or by proxy.
-------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
Exhibit 99.4
ROYAL PRECISION LOGO
FORM OF PROXY
FOR ROYAL PRECISION, INC. _________________, 1999
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY CARD MUST BE RECEIVED, AT THE APPROPRIATE ADDRESS INDICATED BELOW, BY
_____________, PRIOR TO 10:00 A.M. (EASTERN DAYLIGHT TIME) ON ________, 1999.
PROXY SOLICITED BY THE BOARD OF DIRECTORS OF ROYAL PRECISION, INC., A COMPANY
ORGANIZED UNDER THE LAWS OF DELAWARE, FOR THE SPECIAL MEETING OF SHAREHOLDERS TO
BE HELD ON ___________, 1999 AT 10:00 A.M.(LOCAL TIME).
The undersigned, being a holder of common shares, par value $0.001 per share
(the "RP Common Shares"), of Royal Precision, Inc., ("RP"), hereby appoints
Raymond J. Minella, Tom Schneider or either of them, as his proxy at the Special
Meeting to be held on ___________, 1999 (and any adjournment thereof) and to
vote on behalf of the undersigned (or abstain from voting) as indicated on the
reverse of this card or, to the extent that no such indication is given, as set
forth herein. The Special Meeting has been convened to consider (1) approval of
the merger agreement and (2) the transaction of such other business as may be
properly brought before the special meeting. In his discretion, the proxy is
authorized to vote upon such other business as may properly come before the
meeting or any adjournments thereof, except that in the case of any proposal to
adjourn the meeting, the proxy will vote as indicated on the reverse of this
card or, to the extent that no such indication is given, as set forth herein.
The undersigned hereby revokes any previously dated forms of proxy with respect
to the Special Meeting.
PLEASE INDICATE ON THE REVERSE OF THIS CARD HOW YOUR SHARES ARE TO BE VOTED. THE
RP BOARD RECOMMENDS A VOTE FOR THE PROPOSAL. IF THIS CARD IS RETURNED SIGNED BUT
NOT MARKED WITH ANY INDICATION AS TO HOW TO VOTE, THE UNDERSIGNED WILL BE DEEMED
TO HAVE DIRECTED THE PROXY TO VOTE FOR THE PROPOSAL.
Completed proxy cards should be returned to: [insert information for each
jurisdiction]. An instrument evidencing the appointment of a corporate
representative may be delivered to any of the above addresses up to __:00 a.m.
on __________, 1998. IF YOU HAVE QUESTIONS OR NEED ASSISTANCE, PLEASE CONTACT
_____________ at 1-800-XXX-XXXX (toll-free in the United States).
PLEASE SIGN AND DATE ON REVERSE SIDE
- --------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
<PAGE>
Please mark
your votes as
indicated in
this example. [X]
PROPOSAL
THE BOARD OF DIRECTORS OF ROYAL PRECISION, INC. RECOMMENDS THAT YOU VOTE FOR
THE FOLLOWING PROPOSAL:
1. To approve the Merger Agreement FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. In their discretion, the proxies are
authorized to vote upon such other
business as may be properly bought
before the special meeting.
Signature(s)(and Title(s), (if any)_________________________Date:_________, 1999
Please sign your name above exactly as it appears hereon. When signing as
attorney, executor, administrator, trustee or other representative capacity,
please give full title as such. If a corporation, please sign in full corporate
name by a duly authorized director or other officer, indicating title, or
execute under the corporation's common seal. In the case of joint holders, any
one may sign but the first-named in the share register may exclude the voting
rights of the other joint holder(s) by voting in person or by proxy.
-------------------------------------------------------------------------------
*FOLD AND DETACH HERE*
Exhibit 99.6
February 26, 1999
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Attention: Secretary
Dear Sirs:
The undersigned hereby consents to being named in the registration statement
containing the proxy statement/prospectus relating to the merger of Royal
Precision, Inc. with a wholly-owned subsidiary of Coyote Sports, Inc. as a
person about to become a director of Coyote Sports, Inc.
Sincerely,
/s/ Raymond J. Minella
Raymond J. Minella
Exhibit 99.7
February 26, 1999
Coyote Sports, Inc.
2291 Arapahoe Avenue
Boulder, Colorado 80302
Attention: Secretary
Dear Sirs:
The undersigned hereby consents to being named in the registration statement
containing the proxy statement/prospectus relating to the merger of Royal
Precision, Inc. with a wholly-owned subsidiary of Coyote Sports, Inc. as a
person about to become a director of Coyote Sports, Inc.
Sincerely,
/s/ Richard P. Johnston
Richard P. Johnston
