U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
AMERICAN QUANTUM CYCLES, INC.
(Name of Small Business Issuer in its charter)
FLORIDA 59-2651232
(State of incorporation) (I.R.S. Employer Identification No.)
731 Washburn Road, Melbourne, FL 32934
(Address of principal executive offices) (Zip Code)
Issuer's Telephone Number (407) 752-0008
Securities to be registered pursuant to 12(b) of the Act: None
Securities to be registered pursuant to 12(g) of the Act:
Common Stock $.001 Par Value
(Title of Class)
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
ITEM 1. DESCRIPTION OF BUSINESS
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OVERVIEW
American Quantum Cycles, Inc. ("AQC/Company"), a development stage
company, designs, manufactures, promotes, markets, distributes and sells
American-made, high performance V-twin engine cruiser and touring style
motorcycles. These motorcycle products include stock models, and motorcycles
built to customer specified configurations. Utilizing its "just in time"
approach (i.e. ordering parts on an as-needed basis to minimize inventory and
work-in-progress costs, as well as the "build to order" production process) to
manufacturing, the Company believes that it can manufacture a high quality
product utilizing mass production. The Company believes that this approach is
also advantageous for configure-to-order products, which in turn, will likely
yield greater customer satisfaction and reduce the need for added cash flow. The
Company also expects that its motorcycles will be lower in price compared to the
other major source of high performance, customer specified motorcycles, which is
small customization shops.
The Company intends to initially focus on the manufacture and sale of
heavyweight motorcycles and has commenced small-scale production of its initial
heavyweight cruiser, the Q2, which was first unveiled at the Sturgis Motorcycle
Rally in Sturgis, South Dakota, in August 1997.
The Company was originally incorporated as a Florida corporation on
March 20, 1986 as "Norbern, Inc." and on May 8, 1997, the Company changed its
name to "American Quantum Cycles, Inc." The Company had no operations prior to
May 9, 1997, when it issued 2,414,285 shares of its common stock in exchange
shares for management, equipment and other assets to enable the Company to
manufacture, promote, distribute and sell American-made motorcycles, motorcycle
parts and related products. The Company's fiscal year end is April 30. Its
executive offices are located at 731 Washburn Road, Melbourne, Florida 32934;
Telephone (407) 752-0008.
THE INDUSTRY AND MARKET
According to the 1997 Motorcycle Statistical Annual from the Motorcycle
Industry Council, there were an estimated 3.16 million motorcycles in use in the
United States during 1996. Over 75% of these vehicles were licensed for
"on-highway" use. Florida, California, Texas, New York and Illinois were the
leading states with motorcycles and together represented over one-third (35%) of
the motorcycles in use during 1996. The South had the highest motorcycle
population in 1996 with 28% of the national total of motorcycle registrations.
The West had the highest motorcycle penetration with 1.4 vehicles per 100
persons. The six leading brands, accounting for 97.5% of the new motorcycle
sales during 1996, were: Honda-29.5%; Harley-Davidson-25.4%; Kawasaki-14.3%;
Yamaha-13.4%; Suzuki-13.4%; and BMW-1.5%.
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During 1996, sales of new motorcycles equaled a retail value of $2.5 billion and
the overall motorcycle industry in the United States generated an estimated $8.7
billion in consumer sales, services, taxes and licenses.
According to statistics published in Harley-Davidson's 1997 public
reports, touring and cruiser models represented approximately 80% of retail unit
sales in the U.S. heavyweight market. Heavyweight motorcycles, in turn,
represented approximately half of retail motorcycle unit sales in the overall
United States market in 1996. Touring and cruiser motorcycles are the only types
of heavyweight motorcycles that the Company plans to design, market, distribute
and sell, and its first product will be a heavyweight cruiser.
In 1996, U.S. registrations of new heavyweight motorcycles increased by
approximately 9.6% over 1995 registrations, and U.S. registrations of new
heavyweight motorcycles increased by 59% from 1992 through 1996. Based on
informal surveys, the Company believes that the typical customer for heavyweight
American touring and cruiser motorcycles is a male between the ages of 30 and
60, with a household income of approximately $50,000. These potential customers
are generally experienced motorcycle riders who purchase motorcycles for
recreational purposes rather than for transportation.
The international market for heavyweight motorcycles has seen strong
growth in the last few years. The European market grew at a 7.2% rate during
1997. Based on information provided to the Company by its International Export
Manager, Ferrex International, Inc., an export management company ("Ferrex"),
Germany was the largest purchaser of American manufactured heavyweight
motorcycles with $76.6 million in sales for 1996, followed by Canada ($67.9
million), Japan ($46.8 million), Australia ($31.1 million), and the Netherlands
($21.8 million).
Motorcycle buyers today have three choices: (i) to buy new American
made products (excluding Harley-Davidson products) and potentially wait up to a
year for the product to be delivered; or (ii) to buy a foreign made product; or
(iii) to buy a new Harley Davidson product and pay up to $15,000 extra to
custom-build to desired specifications. The Company intends to fill this market
gap by providing an American-made, American-styled motorcycle with advanced
engineering and technology delivering high performance.
STRATEGY
AQC's goal is to develop a superior U.S. made V-twin motorcycle
utilizing quality materials and workmanship to build a financially successful
Company. The Company will seek to establish a strong market share, both
domestically and internationally, by offering a high level custom-built
motorcycles and motorcycle products to customers through the development and
installation of a proprietary Intranet/Extranet system for use by dealers,
customers and the Company designed to continually track and control inventory
and production. See "The Company Intranet/Extranet System."
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PRODUCTS
The Company's first model, a heavyweight cruiser motorcycle (the Q2),
has been designed with major product goals including: (i) American styling; (ii)
Handling; (iii) Durability; and (iv) Performance.
American Styling: The Company believes the dimensions, angles,
components and selection of materials (including the use of polished aluminum as
opposed to chrome) used in the Q2 incorporates the heritage of American styled
motorcycles from the 1950's, and at the same time, integrates technologies of
the late 1990's. For example, the painting process used by the Company prevents
paint from chipping, since the paint is electrically charged and baked at
extremely high temperatures for a glossy, durable finish (which the Company
believes also makes the motorcycle frame more durable). Additionally, there is
an expansive variety of customized colors and designs available through this
powder coating process. The Company believes that this painting process is not
currently used by any other American motorcycle manufacturer today.
Handling: A number of factors contribute to the ease of handling of the
Q2, which has been designed to be completely balanced so that the center of
gravity is in line with its rider. The inverted front forks of the Q2 model,
typically only seen on racing motorcycles, absorb shock and provide steady
contact with the road, to deliver ease of handling under high performance
conditions. The engine and transmission are rubber mounted (triple isolation),
based on the Company's proprietary design to minimize vibration and further
enhance smooth and easy handling. Many of the materials used in the Q2 have been
selected for high strength-to-weight ratios.
The Company believes that while competitive products in the Q2's price
class require annual repairs and continual upgrades and enhancements, these
repairs, upgrades and enhancements will not be not necessary with the Q2 model.
The Company believes that the Q2's frame wears well through all environmental
and use conditions, and its aluminum parts can be polished to a soft gleam
without corroding or peeling. The balanced components and engine/transmission
triple isolation mounts dramatically reduce vibration, which adds to durability
and longevity. Additionally, a number of components (including the oil tanks),
are made from stainless steel which also add to the corrosion resistant
durability. Aluminum parts dissipate heat better than the low-grade steel used
by competitors, further increasing long-term durability.
The Company believes the single most outstanding feature of the AQC
product line is its proprietary design of the four stroke, four valve V-twin
engine, which it expects will deliver the greatest power efficiency (measured by
horsepower over key rpm ranges) in its model class (heavyweight cruisers). The
Company's proprietary engine includes head designs licensed on an exclusive
basis from Feuling Advanced Technologies, Inc. ("Feuling"), a company which
develops engine head technologies. See "Intellectual Property Rights." The
resulting engine design delivers great power, less pollutants, cooler operating
temperatures and greater mileage all at the same time. Based on preliminary
results from the Environmental Protection Agency ("EPA") testing facility in
Fort Worth, Texas, the Company believes that its engine is one of the
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cleanest, most powerful engines in its motorcycle class on the road today. EPA
testing is continuing and certification is expected by early summer 1998.
MANUFACTURING
The Company has manufactured 20 motorcycles since October 1997, 13 of
which are sold, five are used for marketing purposes, and two are for
engineering and regulatory testing. During the next eight months (calendar
1998), the Company anticipates producing an additional 700 motorcycles. This
projection is based on the capacity to produce approximately 20 motorcycles per
month per shift, assuming two eight-hour shifts with AQC's present facilities.
Currently, the Company's existing manufacturing process consists of outsourcing
all manufacturing of parts and subassemblies to subcontractors with only final
assembly, testing and quality control being carried out at AQC's facilities. In
order to obtain acceptable control over supply and cost of parts, a number of
parts and subassembly manufacturing processes will be maintained in-house in the
future. In the meantime, AQC has established long-term contracts with major
subcontractors, vendors and secondary and tertiary backup suppliers to insure
the constant and scalable flow of parts to the Company's plant in Melbourne,
Florida.
The Company has developed a detailed plan for scaling up its production
capacity and reducing the cost of goods of the product over the next two years.
Depending on the availability of financing and other resources, the Company
expects to purchase certain equipment over the next two years including, among
others, materials handling conveyor belts, motorized pulleys and lifts; bar code
sensing and tracking devices; larger aluminum buffing and polishing equipment;
dynamometer testing stations; robotic welders; custom paint trailers and
equipment; incoming inspection tools and devices; and inventory storage
buildout, shelving and drawers. At the same time, the Company will also
determine the number of personnel and type of processing required at each stage
of production, and the related costs. Based on the Company's forecasts, it
expects that the installation of this equipment and the integration into a
tightly organized production process (including the Intranet/Extranet System
described below and electronic commerce software) will increase production
capacity over 500% and reduce the cost of goods by 30% or more.
THE COMPANY INTRANET/EXTRANET SYSTEM
One of the Company's goals is to provide its customers with an
efficient means of selecting the exact product configuration desired, as well to
provide an effective manner to continually track the progress of the production
of any specific product at any given time. To help implement these strategies,
the Company is developing a PC-based kiosk Intranet/Extranet System (the "Kiosk
System"), using an interactive CD-ROM (or DVD) storing three-dimensional images
of its products that it expects will be installed at dealer locations by summer
1998. By selecting alternate choices viewed on a computer screen, a customer
will be able to select a precise motorcycle configuration with selected options
tailored to that customer's requirements. The customer will also know the cost
of each option, and continuously be apprised of a corresponding graphic image,
which can be easily modified. Once a customer agrees to purchase
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an AQC motorcycle that meets his or her unique specifications, a contract for
sale can then be executed. Each sales order will then be assigned a unique bar
code number that will serve as an order and tracking number for the dealer, the
customer, and the Company's production plant, enabling each to monitor the
progress of the production of product. Prototypes of the Kiosk System are
currently being developed and portions will soon be available for viewing at the
Company's website (www.quantumcycle.com) ("Website"). The date at which the
major development of the kiosk system will be largely dependent on the net
proceeds received from the Series A Offering, as described herein. See "Recent
Sales of Unregistered Securities."
MARKETING
The Company's marketing program will focus on two primary objectives.
First, corporate and product image building is expected to be accomplished
through advertising, promotions, public relations and participation in major
motorcycle events (such as the Sturgis Race and Rally in Sturgis, SD and the
Daytona Beach Rally). The Company will also sponsor racing activities and
special promotional events and will attempt to participate in most major
motorcycle consumer shows and rallies. Additionally, the Company intends to
market and sell a variety of apparel products such as hats, T-shirts and jackets
which will incorporate the Company's logos. The Company also intends to license
certain of its trademarks a broad range of consumer items, to increase public
exposure and familiarization with its brand identity.
Second, lead generation activities will be geared to support each
product line, including primarily motorcycles, engines/parts, accessories and
tailored to each sales channel, as well as to dealers, Internet and third party
distribution partners. In particular, AQC will use print media advertising and
direct marketing to generate leads to support its dealer sales programs,
focusing on national motorcycle magazines (typically with full-page, full-color
advertisements), and local newspaper advertisements in concert with dealers'
local promotional activities. The use of local radio and cable TV advertisements
will be evaluated on a location by location basis, depending on market span,
frequency, and cost.
The type and amount of marketing used to support each of the Company's
local dealers will be determined by the Company's market research program.
Demographic market research complemented by focus group feedback on the product
will be undertaken to confirm and refine the target demographics for the
Company's product line. AQC will then target magazine mailing lists and
motorcycle registration lists cross-referenced by geo-demographic databases
(e.g. Claritas), to support tightly targeted direct mail and telesales programs.
All direct marketing campaigns will be carried out with a local focus and will
be timed to support the launch of new dealers. Direct mail programs including
expensive give-aways (such as promotional CD-ROMs, high quality posters and
merchandise) can be cost-justified on a tightly focused, local basis. All ad and
promotional campaigns will be available on the Company's Website.
All leads generated at the dealer will be tracked by a corporate lead
tracking and management system and the Company expects that this system will
provide sales management support to dealers. The lead management and tracking
system will also allow the Company to
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monitor the sales progress of the dealers. The demographic data of customers
will be cross- referenced to the lead data base to further narrow the
demographic focus for the product line and subsequent marketing programs.
Geographic regions of unusually low sales productivity (with high targeted
demographic densities), can be identified and targeted for special promotional
efforts.
DISTRIBUTION AND SALES
The Company's distribution channels will typically consist of
independently-owned full-service dealerships to whom the Company will sell
directly. The Company will also sell directly to consumers through various media
including the Internet, but only in those geographic regions in which there are
no authorized AQC dealerships. The Company anticipates that approximately 15% of
its dealerships will sell AQC motorcycles exclusively. Additionally, all AQC
dealers will carry AQC replacement parts and aftermarket accessories and perform
servicing of AQC motorcycle products.
The Company has entered into its first dealership agreement with a
dealer located in Tampa, Florida (who has an option and plans for a dealership
in the Orlando, Florida territory), and a distribution agreement with Ferrex.
Ferrex is presently doing business in Europe, the Pacific Rim and various
countries in Latin America. AQC's agreement with Ferrex stipulates that Ferrex
has the opportunity to sell AQC products to any country outside North America,
but Ferrex must first establish a dealership in any single country in order to
have the exclusive rights to that country. The Company is currently evaluating
applications from eight potential new dealers located in Connecticut, Chicago,
Milwaukee, Dallas, Houston, Denver, Las Vegas, and Nova Scotia, Canada.
Additionally, the Company has sent out 200 dealer information packets in
response to requests for information.
The Company's criteria for dealership approval include favorable
building locations, display area size, traffic surveys, local geo-demographics
and financial condition. Each dealer will be expected to provide adequate
storefront and service areas. The Company anticipates that a minimum of 2,000
square feet will be required and traffic exposure will need to be at a level of
not less than 35,000 cars per day. Dealers will purchase product and stock parts
and engines via AQC's dealer Intranet system.
The Company also intends to enter into distribution agreements for the
sale and delivery of 4-VALVE(R) engine kits, and may include national catalog
distributors or major parts and subassembly suppliers. The Company will also
have a direct sales staff to promote and sell the 4-VALVE(R) engine to the
Harley-Davidson customization aftermarket.
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INTELLECTUAL PROPERTY RIGHTS
The Company believes that it has the exclusive right to use the
trademarks AMERICAN QUANTUM CYCLES, Q, Q2, and QX, along with certain related
word and design trademarks in the United States and in certain foreign countries
in connection with the manufacture and sale of motorcycles and related
structural parts. In addition, the Company believes that it has the right to use
certain of these marks on ancillary merchandise and apparel. The Company also
believes that it has obtained common law rights through the use of these marks
on its prototype motorcycles and ancillary merchandise and apparel that are
independent of the United States Patent and Trademark Office ("PTO")
registration process. In addition, the Company has filed for trademark
protection for the marks "American Quantum Cycles(TM)", the "Q(TM)", "Q2(TM)"
and "QX(TM)". In some instances, these rights may be dependent upon pending
applications to register the marks in a foreign country. A failure to obtain
such registrations could impair the Company's rights to use a mark in a
particular country.
The Company owns copyrights for its designs used as trademarks on
documents generated in the course of its operations. The Company intends to
register its copyrights, designs and promotional materials and other works with
the U.S. Copyright Office as appropriate.
The Company owns no patents directly, nor has it filed or been assigned
any patent applications. The Company believes, however, that a number of
elements of the Q-series of motorcycle design have the potential to receive
patents. In the foreseeable future, the Company intends to file patent
applications for certain of the patentable elements. The Company will also
actively seek to license and/or purchase additional intellectual property rights
to enhance the market competitiveness of its product line.
The Company is not aware of any claims of infringement against the
Company and the Company is not, and has not, been involved in any court
proceedings regarding its intellectual property rights. From time to time, the
Company has been involved in inter partes opposition proceedings in the PTO to
protect its trademark rights. All such proceedings have been resolved to the
Company's satisfaction, and there are no material proceedings pending. There are
no outstanding claims by the Company against anyone for violation of the
Company's intellectual property rights.
In August 1997, the Company entered into a license agreement (the
"Agreement") with Feuling whereby the Company, as licensee, obtained a license
to use certain proprietary technologies including, among other things, patents,
trade secrets, techniques, tooling designs, product designs, and trademarks
(including AR(R), 4-VALVE(R), CVX(R), RAM CHAMBER(R) and RACE FEET(R)). Pursuant
to the terms of the Agreement, so long as the Company pays Feuling certain
royalty payments of approximately $235,000 (which have been paid in full), and
complies with certain other provisions including non-disclosure of the
proprietary technology, the Company has been granted a exclusive license (for
motorcycle applications) in perpetuity for the 4-Valve technology. This
technology will be used in connection with the manufacture of AQC Motorcycles
and bolt-on kits for the Harley Davidson motorcycles which feature the evolution
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engine, evolution big twin, other Harley Davidson clones and aftermarket parts.
COMPETITION
As of December 31, 1996, Harley-Davidson, Honda, Suzuki, Kawasaki, and
Yamaha had the largest market share of the U.S. heavy motorcycle market. The
Company's primary competitor in the U.S. heavyweight market is expected to be
Harley-Davidson (which, in 1996, had a market share of 48% of new U.S. and 7% of
the European heavyweight motorcycle registrations). Harley Davidson has been the
only significant American heavyweight cruiser and touring motorcycle
manufacturer since 1953. Several of the major foreign manufacturers compete
against Harley-Davidson in the domestic market by selling motorcycles with a
"nostalgic" American design. The Company believes, however, that Harley-Davidson
products have not kept up with technology changes in the motorcycle industry and
such products are sold primarily as nostalgia products, not for performance.
Management believes that Harley-Davidson's failure to keep up with such changes
is primarily due to the lack of competition in the American Market.
Two new American made motorcycle competitors will enter the marketplace
in 1998. Polaris, a one billion dollar manufacturer of snow mobiles, jet skis
and other recreational vehicles has announced its heavyweight cruiser, the
Victory, for sale through some of its dealers. Excelsior-Henderson a publicly
funded start-up is expected to offer a heavyweight cruiser in late 1998.
The U.S. and worldwide motorcycle markets are highly competitive and
all of the Company's existing major competitors have resources that are
substantially greater than those of the Company, as well as larger overall sales
volumes and are more diversified than the Company.
GOVERNMENT REGULATIONS
Commercial sales of the Company's motorcycles depend upon compliance
with certain government regulations and the Company is designing its motorcycles
to comply with all such regulations. Both federal and state authorities have
various environmental control requirements relating to air, water and noise
pollution which affect the business and operations of the Company. In
particular, the Company's motorcycles will be subject to the emissions and noise
standards of the U.S. Environmental Protection Agency and the more stringent
emissions standards of the State of California Air Resources Board ("CARB"). The
Company has initiated the testing of its motorcycles in January, 1998 to meet
the emission standards designated by the CARB. Preliminary results indicate that
the Q2 and its associated 4-VALVE(R) engine will pass all CARB requirements. The
Company's motorcycles also will be subject to the National Traffic and Motor
Vehicle Safety Act and the rules promulgated thereunder by the National Highway
Traffic Safety Administration. The Company has carried out an audit of the Q2
prototype design and has found that only a few minor changes are required for
full compliance. These modifications are being incorporated into the engineering
change releases which will be reflected in units produced in June 1998.
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The State of Florida requires that the Company be licensed as a
manufacturer of motor vehicles and each of the Company's dealers are required to
be licensed as a motor vehicle dealer in the jurisdiction (s) where the
businesses are located.
EMPLOYEES
The Company currently has 28 employees, six of which are in management
and administration, four are in engineering and design, five are in
Inventory/Quality Control, ten are in production and manufacturing, and three
are in marketing and sales. The Company retains a number of part and full-time
consultants in the areas of management, engineering drawing maintenance,
advertising artwork and Website maintenance.
ITEM 2. DESCRIPTION OF PROPERTY.
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The Company currently leases approximately 7,820 square feet of
warehouse space and an additional 3,760 square feet of office space, for a total
of approximately 11,580 square feet, located at 711-731 Washburn Road,
Melbourne, Florida. The current monthly rental amount is $4,240, including
Florida sales tax. The lease on this property commenced on May 1, 1997 and
continues through April 1999, with two additional three-year options for renewal
at the Company's option. If the Company elects to renew its lease after the
first two years, the annual rental will be adjusted by an additional 5% per
year.
As of January 1, 1998, the Company entered into an agreement to amend
the current lease to occupy the remaining 12,466 square feet available from the
lesser, 2,256 of which will be additional office space and was available for
occupancy on February 1, 1998 and the remaining will be available in two stages.
The first stage, warehouse space of approximately 4,620 square feet was
available February 1, 1998 and the second stage of approximately 4,590 square
feet was available on March 1, 1998. The total payment commencing March 1, 1998
will be $6,189, tax included, with a four year lease and the option to vacate
after two years with six months notice. The payment is based on a variable rate
mortgage. The interest on the loan decreases which shall reduce payments to
approximately $886.81 over a four-year period.
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND SIGNIFICANT EMPLOYEES
------------------------------------------------------------------
The following table sets forth the names, positions with the Company
and ages of the executive officers and directors of the Company. Directors will
be elected at the Company's annual meeting of shareholders and serve for one
year or until their successors are elected and qualify. Officers are elected by
the Board and their terms of office are, except to the extent governed by
employment contract, at the discretion of the Board.
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Executive Officers and Directors
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Richard K. Hagen 40 Chief Executive Officer, President, and Chairman of
the Board of Directors
Jim Cheal 53 Vice President, Director
Robert L. Guess 36 Vice President,
Douglas W. Paik 55 Vice President, Director
Michael Smith 47 Vice President
Jeffrey W. Starke 42 Vice President, Director
Denise O'Brien 45 Director
Significant Employees
Gary Irving 54 Acting Chief Operating Officer
Linda Condon 49 Director of Finance
</TABLE>
Unless otherwise noted, the address of each of the executive officers,
directors and significant employees is 731 Washburn Road, Melbourne, FL 32934.
Richard K. Hagen has served as the Company's Chief Executive Officer, President
and Chairman of the Board since November 1, 1997. From March 1994 to November
1997, Mr. Hagen was the founder and principal of MARKTECH Group, Inc., an
Internet/Extranet consulting company. Between November, 1990 and March 1994, Mr.
Hagen was the operating officer and general manager of Syscon Services, an
engineering services and system integration subsidiary of Harnischfeger
Industries, a Fortune 250 company. Mr. Hagen is a 1981 graduate of the U.S.
Naval Academy.
Jim Cheal has been employed by the Company since May 1997 and has served as Vice
President and Director since February 1998. Mr. Cheal was a professional
photojournalist with Time-Life Publications from 1975 to 1997.
Robert L. Guess has served as a Vice President of the Company since November 1,
1997, as its President from May 1997 to November 1, 1997, and a member of the
Board of Directors since July 1997. From December 1996 to May 1997, Mr. Guess
served as consultant to Messrs. Cheal and Starke each of whom are Vice
Presidents and Directors of the Company, in connection with the development and
implementation of the business plan of the entity from whom the Company
purchased substantially all of its assets. From March 1996 to December 1996, Mr.
Guess was the owner of Team Enterprise Miami, Inc., a direct product marketing
company. From July 1995 to March 1996, Mr. Guess was the Southeast District
Manager of marketing of Toast of the Town, Inc. a direct product marketing
company. From February 1995 through April 1996, Mr. Guess was the owner,
president and director of Snack Shack, Inc. which distributed wholesale snacks
and novelty candies. From March 1980 through September 1994, Mr. Guess served as
an Officer
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in United States Navy.
Douglas W. Paik has served as a Vice President, Secretary and a member of the
Board of Directors of the Company since July 1997. From January 1997 to July
1997, Mr. Paik worked in the Human Resources division of Sprint and from January
1982 to January 1997, Mr. Paik was Senior Manager of Human Resources, with the
Harris Corporation, a publicly trading company (NYSE : HSL) that manufactures
electronics equipment with over $3.5 billion in revenues.
Michael Smith has served as the Company's Vice President and Sales Manager since
February 22, 1998. From March 1997 to February 1998, Mr. Smith was a consultant
for Carl's Speed Shop in Daytona Beach, Florida. Between March 1996 and March
1997 Mr. Smith was a retail sales consultant with Arlen Ness Enterprises, Inc.,
a producer and marketer of motorcycle apparel and accessories located in
California. From February 1995 to March 1996, Mr. Smith served as the Customer
Relations Manager for Stone Ridge Motors, an automobile dealership in San
Francisco, CA. From January 1993 to February 1995, Mr. Smith was a sales and
leasing consultant with the Ford Motor Company dealership in Dublin, California.
Jeff Starke has been Director and Vice President of the Company since February
1998. Between May 1997 and February 1998, Mr. Starke served as Director of
Engineering, Manufacturing and Design of the Company. From January 1995 to
January 1996, Mr. Starke was a Director and Vice President of American Motor
Works, Inc., which designed and manufactured motorcycles. From March 1992 to
January 1995, Mr. Starke was Vice President of Harley Motor Works, Inc., which
designs, builds and sells Harley Davidson motorcycles and motorcycle parts.
Denise O'Brien has served as a Director of the Company since July 1997. She has
been the trading manager for Wanger Asset Management since 1992, where she is an
investment advisor.
Ms. O'Brien is the sister of Mr. Starke.
Significant Personnel
Gary W. Irving has served as the acting Chief Operating Officer of the Company
since January 5, 1998. Between March 1997 and December 1997, Mr. Irving was Vice
President and General Manager for Strategic Product Management at Litton-PRC, a
$1 billion subsidiary of Litton Industries (NYSE : LIT) an aerospace design and
commercial electronics company. Between May 1994 to February 1997, Mr. Irving
was Executive Vice President and Chief Operating Officer of the MARTECH Group,
Inc., an Internet/Extranct consulting company. From June 1993 to January 1994,,
Mr. Irving was Vice President and General Manager at Instant Video Technologies,
Inc. From December 1993 to June 1993, Mr. Irving was director for imaging system
sales at I-Net. From October 1989 to October 1992, Mr. Irving was a Vice
President at Litton-PRC.
Linda L. Condon joined the Company on October 20, 1997 as the Director of
Finance. From April 1994 through July 1997, Ms. Condon was a Senior Accountant
with K.L. Smith &
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Associates. From January 1993 to April 1994, Ms. Condon was an accountant with
Armstrong & Company.
ITEM 4. EXECUTIVE COMPENSATION
----------------------
The Company's fiscal year ended April 30. The Company had no operations
prior to May 9, 1997. No compensation was paid to, no options were granted to,
and no options were exercised by any of the Company's executive officers or
directors, including its Chief Executive Officers during fiscal 1997.
Employment Agreements
Richard K. Hagen, Chief Executive Officer, President and Chairman of the Board.
Pursuant to a verbal employment agreement between the Company and Mr. Hagen, in
consideration for his services to the Company, Mr. Hagen receives an annual base
salary of $175,000 as of April 1, 1998. As additional compensation, the Company
has also granted Mr. Hagen options to purchase up to (i) 150,000 shares of
Common Stock of the Company, par value $.001 ("Common Stock") at $5.00 per share
exercisable through February 21, 2003, (ii) 100,000 shares of Common Stock of
the Company at $7.00 per share, which performance options vest on April 30, 1998
and are exercisable for a period of five years thereafter based on the pro-rata
performance of the Company based upon a goal of $1.2 million in sales orders for
fiscal year 1998, (iii) 200,000 shares of Common Stock at $6.00 per share which
options vest at such time as the Company receives no less than $4,000,000 from a
private offering of its securities and which will be exercisable for a period of
five years thereafter; and (iv) 200,000 shares of Common Stock at $7.00 per
share which will vest at such time as the Company completes an offering for a
minimum of $10 million of its securities.
Jim Cheal, Vice President, Secretary and Director. Pursuant to a verbal
employment agreement with Mr. Cheal, in consideration for his services to the
Company, Mr. Cheal receives an annual base salary of $75,000 and performance
options to purchase 100,000 shares of Common Stock at $8.00 per share, which
will vest on April 30, 1998 and be exercisable through April 30, 2003, based on
the pro-rata performance of the Company based upon a goal of $1.2 million in
sales orders for fiscal year 1998.
Robert L. Guess, Vice President and Director. Pursuant to a verbal agreement
with Mr. Guess, in consideration for his services to the Company, Mr. Guess
receives an annual base salary of $50,000. As additional compensation, Mr. Guess
received 50,000 shares of Common Stock in October 1997 and was granted
performance options to purchase up to 50,000 shares of Common Stock at $8.00 per
share, which will vest on April 30, 1998 and be exercisable through April 30,
2003, based on
12
<PAGE>
the pro-rata performance of the Company based upon a goal of $1.2 million in
sales orders for fiscal year 1998.
Douglas W. Paik, President and Director. Pursuant to a verbal agreement with Mr.
Paik, in consideration for his services to the Company, Mr. Paik receives an
annual base sale of $50,000. As additional compensation, Mr. Paik received
50,000 shares of Common Stock in October 1997 and was granted performance
options to purchase up to 50,000 shares of Common Stock at $8.00 per share,
which will vest on April 30, 1998 and be exercisable through April 30, 2003,
based on the pro-rata performance of the Company based upon a goal of $1.2
million in booked sales orders for fiscal year 1998.
Michael Smith, Vice President of Sales and Director. Pursuant to a verbal
employment agreement with Mr. Smith, in consideration for his services to the
Company, Mr. Smith receives an annual base sale of $80,000. As additional
compensation, Mr. Smith received options to purchase up to (i) 10,000 shares of
Common Stock at $6.00 per share exercisable through March 1, 2003, and (ii)
40,000 shares of Common Stock at $8.00 per share, which will vest on April 30,
1998 and be exercisable through April 30, 2003, based on the pro-rata
performance of the Company based upon a goal of $1.2 million in sales orders for
fiscal year 1998.
Jeffrey W. Starke, Vice President and Director. Pursuant to a verbal employment
agreement with Mr. Starke, in consideration for his services to the Company as
of April 1, 1998 Mr. Starke receives an annual base salary of $85,000 and
received performance options to purchase up to (i) 100,000 shares of Common
Stock at $8.00 per share, which will vest on April 30, 1998 and be exercisable
through April 30, 2003, based on the pro-rata performance of the Company against
the goal of $1.2 million in sales orders for fiscal year 1998.
Gary W. Irving, acting Chief Operating Officer. In his capacity as acting Chief
Operating Officer, the Company has agreed to pay Mr. Irving a monthly consulting
fee of $18,000 a $7,500 performance bonus based on completion of defined
objectives, plus reimbursement of pre-approved expenses until September 1998.
The Company expects that during October 1998, Mr. Irving will become Chief
Operating Officer of the Company and a Director and earn a base salary of
$175,000, although the terms of Mr. Irving's employment with the Company have
not been fully negotiated as of the date hereof. In addition to the foregoing,
the Company granted Mr. Irving options to purchase 100,000 shares of Common
Stock of the Company at $5.00 which vested on January 1, 1998 and are
exercisable through January 1, 2003; and performance options to purchase 100,000
shares of Common Stock
13
<PAGE>
of the Company at $8.00 per share which will vest on April 30, 1998 and are
exercisable through April 30, 2003, based on the pro-rata performance of the
Company based upon a goal of $1.2 million in sales orders for fiscal year 1998.
The Company has also agreed to grant Mr. Irving (i) options to purchase 100,000
shares of the Common Stock of the Company at $6.00 per share which will vest at
such time as the Company receives minimum proceeds of $480,000 from a private
offering of preferred stock and are exercisable for a period of five years
thereafter.
1997 Amended Stock Option Plan
Incentive and Nonqualified Stock Option Plan
- --------------------------------------------
On June 15, 1997, the Board of Directors and a majority of the
Company's shareholders ("Majority Shareholders") adopted the Company's 1997
Stock Option Plan (the "Plan"). On February 21, 1998, the Plan was amended by
Consent of the Board of Directors and Majority Shareholders to increase the
number of Plan Options, as hereinafter defined, from 500,000 to 3,000,000.
The Plan works to increase the employees', consultants' and employee
directors' proprietary interest in the Company and to align more closely their
interests with the interests of the Company's shareholders. The Plan will also
aid the Company in attracting and retaining the services of experienced and
highly qualified professionals. Under the Plan, the Company intends to reserve
an aggregate of 3,000,000 shares of Common Stock for issuance pursuant to
options granted under the Plan ("Plan Options"). The Board of Directors or a
Committee of the Board of Directors (the "Committee") of the Company will
administer the Plan which includes, without limitation, the selection of the
persons who will be granted Plan Options under the Plan, the type of Plan
Options to be granted, the number of shares subject to each Plan Option and the
Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
by the eligible person and receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
the Directors or the Committee, provided that no Plan Option may be exercisable
more than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of the Company's
Common Stock, no more than five years after the date of the grant.
14
<PAGE>
The exercise price of Non-Qualified Options shall be determined by the Board of
Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and its
subsidiaries (if applicable in the future) will be eligible to receive
Non-Qualified Options under the Plan. Only officers, directors and employees of
the Company who are employed by the Company or by any subsidiary thereof are
eligible to receive Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will
or by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason (other than his death or disability or termination for
cause), or if an optionee is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a Director is terminated for
any reason (other than death or disability), the Plan Option granted to him
shall lapse to the extent unexercised on the earlier of the expiration date or
30 days following the date of termination. If the optionee dies during the term
of his employment, the Plan Option granted to him shall lapse to the extent
unexercised on the earlier of the expiration date of the Plan Option or the date
one year following the date of the optionee's death. If the optionee is
permanently and totally disabled within the meaning of Section 22(c)(3) of the
Internal Revenue Code of 1986, the Plan Option granted to him lapses to the
extent unexercised on the earlier of the expiration date of the option or one
year following the date of such disability.
The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefor (except in either case in the event of adjustments due to changes
in the Company's capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan shall
theretofore have been suspended or terminated by the Board of Directors, the
Plan shall terminate on approximately 10 years from the date of the Plan's
adoption. Any such termination of the Plan shall not affect the validity of any
Plan Options previously granted thereunder.
As of March 27, 1998, 2,195,000 Plan Options have been granted pursuant
to the Plan, although not all the Plan Options have vested as of the date
hereof.
ITEM 5. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information regarding the
Company's Common Stock beneficially owned on March 11, 1998, for (i) each
shareholder known by the Company to be the beneficial owner of five (5%) percent
or more of the Company's outstanding Common
15
<PAGE>
Stock, (ii) each of the Company's executive officers and directors, and (iii)
all executive officers and directors as a group. In general, a person is deemed
to be a "beneficial owner" of a security if that person has or shares the power
to vote or direct the voting of such security, or the power to dispose of or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any securities to which the person has the right to acquire
beneficial ownership within sixty (60) days. At March 11, 1998, there were
3,789,285 Shares ("Shares") of Company common stock, par value $.001 (the
"Common Stock") outstanding.
<TABLE>
<CAPTION>
No. of Shares Percent of
Name and Address or of Common Stock Beneficial
Identity of Group(1) Beneficially Owned(2) Ownership
- -------------------- --------------------- ----------
<S> <C> <C> <C>
Richard Hagen, Chairman, President & CEO(3) 250,000 6.1%
Jim Cheal, Vice President, Director(4) 100,000 2.6%
Robert Guess, Vice President, Director(5) 100,000 2.6%
Doug Paik, Vice President, Secretary, Director(6) 101,000 2.6%
Michael Smith, Vice President(7) 50,000 1.3%
Jeffrey W. Starke, Vice President, Director(8) 100,000 2.6%
Denise O'Brien, Director(9) 1,207,142 31.9%
Gary Irving(10) 200,000 5.2%
All Executive Officers and Directors
as a group (7 persons) 2,008,142 52.9%
Doreen Cheal(11) 1,207,142 31.9%
</TABLE>
- --------------
(1) Unless otherwise indicated, the address of each of the persons set
forth below is 711-731 Washburn Road, Melbourne, FL 32934.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date of this Prospectus
upon the exercise of options. Each person's percentage of ownership is
determined by assuming that any options held by such person have been
exercised.
(3) Includes (i) 150,000 shares underlying immediately exercisable options;
(ii) 100,000 exercisable beginning on April 30, 1998 and through April
30, 2003.
(4) Includes 100,000 shares underlying options exercisable beginning on
April 30, 1998 and through April 30, 2003.
(5) Includes 50,000 shares underlying options exercisable beginning on
April 30, 1998 and through April 30, 2003.
(6) Includes 50,000 shares underlying options exercisable beginning on
April 30, 1998 and
16
<PAGE>
through April 30, 2003.
(7) Includes (i) 10,000 shares underlying options exercisable immediately
and through March 1, 2003; and (ii) 40,000 shares underlying options
exercisable beginning on April 30, 1998 and through April 30, 2003.
(8) Includes 100,000 shares underlying options exercisable beginning on
April 30, 1998 and through April 30, 2003.
(9) Jeff Starke is the brother of Denise O'Brien.
(10) Includes (i) 100,000 shares underlying immediately exercisable options
and (ii) 100,000 shares underlying options exercisable beginning on
April 30, 1998 and through April 30, 2003.
(11) Doreen Cheal is the wife of Jim Cheal.
ITEM 6. INTEREST OF MANAGEMENT AND OTHER CERTAIN TRANSACTIONS.
-----------------------------------------------------
On May 9, 1997, the Company issued an aggregate of 2,414,285 shares of
Common Stock to Doreen Cheal (1,207,142 shares) and Denise O'Brien (1,207,142
shares), and to one additional non-affiliated investor (one share) in exchange
for certain assets valued at approximately $116,608. In connection with this
transaction, Mr. Jim Cheal and Mr. Jeff Starke, the Company's Founders and Vice
President, entered into five (5) year employment agreements with the Company,
with base salaries of $50,000 each (the "Initial Agreements"). On February 21,
1998, the Initial Agreements were cancelled with the consent of Messrs. Cheal
and Starke, and in lieu thereof, Messrs Cheal and Starke entered verbal
executive employment agreements with the Company. See "Executive Compensation".
Mr. Cheal is the husband of Doreen Cheal, a Director and principal shareholder
of the Company. Denise O'Brien, also a Director and principal shareholder of the
Company, is the sister of Mr. Jeff Starke. See "Management".
ITEM 7. DESCRIPTION OF SECURITIES
-------------------------
The Company is authorized to issue 50,000,000 shares of Common Stock,
par value $.001 per Share, and 2,500,000 shares of Preferred Stock, $.001 per
Share, of which 2,500,000 shares have been designated as Series A 7% Convertible
Preferred Stock. As of the date hereof, there were 3,789,285 shares of Common
Stock issued and outstanding and no shares of Series A 7% Convertible Preferred
Stock outstanding.
Common Stock
- ------------
The Company is authorized to issue up to 50,000,000 shares ("Shares")
of Common Stock, $.001 par value, ("Common Stock") per share, of which 3,789,285
Shares are issued and
17
<PAGE>
outstanding as of the date hereof. Subject to the dividend rights of the holders
of any outstanding shares of the Series A Preferred Stock, holders of shares of
Common Stock are entitled to share, on a ratable basis, such dividends as may be
declared by the Board of Directors out of funds legally available therefor. Upon
liquidation, dissolution or winding up of the Company, after payment to
creditors and holders of any outstanding shares of Preferred Stock, the assets
of the Company will be divided pro rata on a per Share basis among the holders
of the Common Stock.
Each share of Common Stock entitles the holders thereof, to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of shares voting for the election of Directors can
elect all of the Directors if they choose to do so, and in such event, the
holders of the remaining shares will not be able to elect any Directors. The
ByLaws of the Company require that only a majority of the issued and outstanding
shares of Common Stock of the Company need be represented to constitute a quorum
and to transact business at a shareholders' meeting. The Common Stock has no
preemptive, subscription or conversion rights and is not redeemable by the
Company.
Preferred Stock
- ---------------
The Company is authorized to issue 2,500,000 shares of Preferred
Stock, par value $.001 per share all of which have been designated Series A 7%
Convertible Preferred Stock (the "Series A Preferred Stock"). The Series A
Preferred Stock has a stated value of $6.00 (the "Stated Value") per share. The
holders of Series A Preferred Stock are entitled to receive a dividend of seven
percent (7%) of the Stated Value, subject to adjustment pending the completion
of the Series A Offering, as hereinafter defined, and payable semi-annually, in
cash, commencing September 1, 1998. The Series Preferred Stock carries no voting
rights. Upon any liquidation, dissolution or winding up of the Company, the
holders of Series A Preferred Stock are entitled to receive $6.00 per share,
plus an equal amount to accrued and unpaid dividends thereon to the date of such
payment prior to any payments being made by the Company to any holders of Common
Stock or other subordinate securities.
The Series A Preferred Stock is convertible into shares of Common Stock
at a 1:1 ratio and at $6.00 per share at the option of the holders thereof at
any time commencing twelve (12) months after the final closing date of the
Series A Offering, as hereinafter defined. The Series A Preferred Stock also
provides for anti-dilution in the event of stock splits, stock dividends and
reclassifications.
Options
- -------
Currently, there are options to purchase up to 250,000 shares of Common
Stock of the Company at $4.00 per Share exercisable between September 9, 1998
and May 9, 2002. There are also options to purchase 300,000 shares of Common
Stock at an exercise price of $.10 per share which will vest at such date as the
Company raises no less than an aggregate of $4,000,000 in any offerings of its
securities and exercisable for a period of five years thereafter.
In addition, there are (i) options to purchase 265,000 shares of
Common Stock between $5.00 and $6.00 per share outstanding which are exercisable
immediately and through February 21, 2003; (ii) options to purchase 550,000
shares of Common Stock at prices between $7.00 and $8.00 per share will vest on
April 30, 1998 and be exercisable through April 30, 2003; (iii) options to
purchase 300,000 shares of Common Stock at $6.00 per share which will vest upon
the Company receiving a minimum of $4,000,000 in the Series A Offering, as
hereinafter defined, and be exercisable for a period of five years thereafter;
(iv) options to purchase 130,000 shares of Common Stock at $5.00 per share
exercisable through February 1, 2003; and (v) options to purchase 400,000 shares
at $7.00 per share which shall vest upon the completion of a $10,000,000 public
or private offering of debt of equity securities of the Company and be
18
<PAGE>
exercisable for a period of five years thereafter. See "Certain Relationships
and Related transactions."
Furthermore, warrants and options to purchase shares of Common Stock
may be expected to be granted to key employees, members of management,
directors, board of advisors, and consultants to the Company in the future.
Shares Eligible For Future Sales
- --------------------------------
As of March 11, 1998, the Company has outstanding an aggregate of
3,789,285 shares of Common Stock. Of the total outstanding shares of Common
Stock, 745,725 shares of Common Stock are freely tradable without restriction or
further registration under the Act, 125,000 shares of Common Stock will be
eligible for resale after April 30, 1998 under Rule 144, and the remaining
2,918,560 shares of Common Stock will be eligible for resale on various dates
thereafter.
Under Rule 144, a person (or persons whose shares are aggregated) who
has beneficially owned restricted securities for at least one year, including
the holding period of any prior owner except an affiliate, would be generally
entitled to sell within any three month period a number of shares that does not
exceed the greater of (i) 1% of the number of then outstanding shares of the
Common Stock or (ii) the average weekly trading volume of the Common Stock in
the public market during the four calendar weeks preceding such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the three months
preceding a sale, and who has beneficially owned shares for at least two years
(including any period of ownership of preceding nonaffiliated holders), would be
entitled to sell such shares under Rule 144(k) without regard to the volume
limitations, manner-of-sale provisions, public information requirements or
notice requirements.
Certain Florida Legislation
- ---------------------------
Florida has enacted legislation that may deter or frustrate takeovers
of Florida corporations. The Florida Control Share Act generally provides that
shares acquired in excess of certain specified thresholds will not possess any
voting rights unless such voting rights are approved by a majority of a
corporation's disinterested shareholders. The Florida Affiliated Transactions
Act generally requires super majority approval by disinterested shareholders of
certain specified transactions between a public corporation and holders of more
than 10% of the outstanding voting shares of the corporation (or their
affiliates). Florida law and the Company's Articles and Bylaws also authorize
the Company to indemnify the Company's directors, officers, employees and
agents. In addition, the Company's Articles and Florida law presently limit the
personal liability of corporate directors for monetary damages, except where the
directors (i) breach their fiduciary duties and (ii) such breach constitutes or
includes certain violations of criminal law, a transaction from which the
directors derived an improper personal benefit, certain
19
<PAGE>
unlawful distributions or certain other reckless, wanton or willful acts or
misconduct.
Anti-takeover Effects of Certain Provisions of the Company's Articles of
- ------------------------------------------------------------------------
Incorporation and Bylaws
- ------------------------
Certain provisions of the articles and bylaws of the Company summarized
in the following paragraphs, and above under the Section entitled "Preferred
Stock", may be deemed to have an anti-takeover effect and may delay, defer or
prevent a tender offer or takeover attempt, including attempts that might result
in a premium being paid over the market price for the shares held by
shareholders. The following provisions may not be amended in the Company's
Articles or Bylaws without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Common Stock.
Special Meeting of Shareholders. The Articles and Bylaws
provide that special meetings of shareholders of the Company may be called only
by a majority of the Board of Directors, the Company's Chief Executive Officer
or holders of not less than twenty (20%) percent of the Company's outstanding
voting stock.
Advance Notice Requirements for Shareholder Proposals and
Director Nominations. The Bylaws provide that shareholders seeking to bring
business before an annual meeting of shareholders, or to nominate candidates for
election as directors at an annual or special meeting of shareholders, must
provide timely notice thereof in writing. To be timely, a shareholder's notice
must be delivered to or mailed and received at the principal executive offices
of the Company not less than 60 days nor more than 90 days prior to the meeting;
provided, however, that in the event that less than 70 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder, to be timely, must be received no later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made, whichever is
first. The Bylaws also specify certain requirements as to the content and form
of a shareholder's notice. These provisions may preclude shareholders from
bringing matters before the shareholders at an annual or special meeting or from
making nominations for directors at an annual or special meeting.
Despite the belief of the Company as to the benefits to shareholders of
these provisions of the Company's Articles of Incorporation, these provisions
may also have the effect of discouraging a future takeover attempt which would
not be approved by the Company's Board, but pursuant to which the shareholders
may receive a substantial premium for their shares over then current market
prices. As a result, shareholders who might desire to participate in such a
transaction may not have any opportunity to do so. Such provisions will also
render the removal of the Company's Board of Directors and management more
difficult and may tend to stabilize the Company's stock price, thus limiting
gains which might otherwise be reflected in price increases due to a potential
merger or acquisition. The Board of Directors, however, has
20
<PAGE>
concluded that the potential benefits of these provisions outweigh the possible
disadvantages. Pursuant to applicable regulations, at any annual or special
meeting of its shareholders, the Company may adopt additional Articles of
Incorporation provisions regarding the acquisition of its equity securities that
would be permitted to a Florida corporation.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
-------------------------------------------------------------------
OTHER STOCKHOLDER MATTERS
-------------------------
As of March 11, 1998, there were approximately 142 shareholders of
record of the Company's Common Stock. The Company's Common Stock is currently
listed for trading on the over-the-counter bulletin board under the symbol
"AMQC". The following table sets forth, for the period since August 12, 1997,
the high and low closing sales prices for the Common Stock as reported by the
OTC Bulletin Board.
Common Stock
------------
High Low
1997 ---- ---
August 12 - September 30, 1997 10.00 5.50
October 1, 1997 - December 31, 1997 10.625 6.00
January 1, 1998 - April 20, 1998 8.00 3.375
The transfer agent for the Company's Common Stock is Florida Atlantic
Stock Transfer, Inc., 5701 N. Pine Island Road, Tamarac, Florida 33321.
The Company has never paid cash dividends on its Common Stock. The
Company presently intends to retain future earnings, if any, to finance the
expansion of its business and does not anticipate that any cash dividends will
be paid in the foreseeable future. The future dividend policy will depend on the
Company's earnings, capital requirements, expansion plans, financial condition
and other relevant factors.
ITEM 2. LEGAL PROCEEDINGS.
-----------------
There are no material legal proceedings filed, or to the Company's
knowledge, threatened against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
---------------------------------------------
Not Applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
---------------------------------------
On April 16, 1997, the Company issued an aggregate of $250,000 in
promissory notes to
21
<PAGE>
seven investors (the "April 1997 Notes") three of whom were accredited and four
were non-accredited. The April 1997 Notes yielded interest at 8% annually and
matured at the earlier of April 8, 1998 or upon receipt by the Company of
$1,000,000 or more in any public or private financing. The interest on the April
1997 Notes was payable by the Company, at its option, either (i) in cash; or
(ii) in Common Stock of the Company based on the lower of (A) $2.00 per share;
or (B) the average closing bid price of the Common Stock of the Company for the
five trading days preceding one date prior to the date of interest on the Note
the "Interest Provision"). Pursuant to the Interest Provision, the Company
issued 2,819 shares of Common Stock to the April 1997 Note holders in December
1997 as interest on the April 1997 Notes. As of the date hereof, all the April
1997 Notes have been repaid and cancelled by the Company. Each investor was
provided with or had access to financial and other information concerning the
Company and had the opportunity to ask questions concerning the Company and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
In May 1997, the Company acquired assets totalling $116,608 in exchange
for an aggregate of 2,414,285 shares of Common Stock of the Company, of which
1,207,142 shares were issued to Doreen Cheal, a principal shareholder of the
Company, and 1,207,142 shares were issued to Denise O'Brien, a Director and
principal shareholders of the Company. One share was issued to a third
non-affiliated third party. Each investor was nonaccredited, but was provided
with or had access to financial and other information concerning the Company
and had the opportunity to ask questions concerning the Company and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 4(2) of the Act.
In June 1997, the Company commenced an offering of Common Stock at
$4.00 per share pursuant to Rule 504 of Regulation D under the Act. An aggregate
of 249,925 shares of Common Stock for an aggregate of $999,700 were sold by
management. Of these shares, 1,000 shares were purchased by Doug A. Paik, a Vice
President, Secretary and a Director of the Company. Each of the investors were
provided with and had access to financial and other information concerning the
Company and had the opportunity to ask questions concerning the Company and its
operations. Accordingly, the issuance of these securities was exempt from the
registration requirements of the Act pursuant to Section 3(b) of the Act.
Between October 1997 and March 30, 1998, the Company undertook a
private offering of an aggregate of $1,551,198.45 of promissory notes to 24
investors of whom at least 22 of such investors were accredited. The notes have
a twelve month duration and bear interest of 7% per annum. The investors have
the right 30 days prior to maturity to convert their note into Common Shares of
the Company at a rate of between $2.00 and $3.00 per share based on the point in
time during the offering that each investor invested. Each investor was provided
with or had access to financial and other information concerning the Company and
had the opportunity to ask questions concerning the Company and its operations.
The issuance of these securities was exempt from the registration requirements
of the Act pursuant to Section 4(2) of
22
<PAGE>
the Act.
In October 1997, the Company issued an aggregate of 100,000 shares of
Common Stock to two employees of the Company as a bonus from the Company for
past services rendered. In December 1997, the Company issued an aggregate of
11,420 shares of Common Stock to 14 employees of the Company as a bonus from the
Company for past services rendered. Each of the employees was provided with or
had access to financial and other information concerning the Company and had
the opportunity to ask questions concerning the Company and its operations.
Accordingly, the issuance of such shares was exempt from the registration
requirements of the Act pursuant to Section 4(2) of the Act.
On February 9, 1998, the Company commenced a private offering of units
("Units") with each Unit consisting of 4,000 shares of the Company's Series A 7%
Convertible Preferred Stock pursuant to Rule 506 of Regulation D (the "Series A
Offering") whereby the Company offered a minimum of 20 Units on a best efforts,
all or none basis and an additional 180 Units on a best efforts basis, for a
maximum of 200 Units. As of the date hereof, no Units have been sold in the
Series A Offering. The offering price of each Unit was $4,000 for an aggregate
of $4,800,000 if the maximum offering is sold. Each share of Series A Preferred
Stock is convertible into one share (collectively the "Shares") of the Company's
common stock, $.001 par value per share, at a conversion price of $6.00 per
Share at any time commencing twelve (12) months after the final closing of the
offering made hereby (the "Final Closing Date"). The Company has agreed to grant
the investors in the Series A Offering unlimited "piggyback" registration rights
from the Final Closing Date which will afford them the opportunity to include
the Shares in certain registration statements ("Registration Statements") filed
with the Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933 (the "Act") by the Company. In addition, after the Final Closing Date
the holders of a majority of the Shares may demand that the Company file a
Registration Statement covering the Shares if not theretofore included in any
such prior Registration Statement.
In connection with the Series A Offering, the Company has engaged the
services of Barron Chase Securities, Inc. as placement agent (the "Placement
Agent"). As compensation for its services the Placement Agent is entitled to
receive a commission of 10% of the gross proceeds from the sale of the Units, as
well as reimbursement for its expenses relating to the offering up to 3% of the
total proceeds of this offering. The Placement Agent is also be entitled to
receive warrants to purchase 10% of the number of shares of Series A Preferred
Stock sold in the offering, exercisable for a period of five years at a price of
$ 6.00 per share of Series A Preferred Stock (the "Placement Agent Warrants").
The Placement Agent Warrants contain anti-dilution provisions and registration
rights, including demand and "piggyback" registration rights.
On April 6, 1998, the Company revised the terms of the Series A
Offering and changed the conversion price for the Series A Preferred Stock to
80% of the closing bid price of the Common Stock on the OTC Bulletin Board for
the ten (10) trading days prior to the completion of the Series A Offering but
not to exceed $6.00 per share or be less than $3.00 per share.
23
<PAGE>
Between April 1, 1998 and April 2, 1998, the Company completed an
offering of an aggregate of $700,000 of 10% Subordinated Promissory Notes (the
"10% Notes") and an aggregate of 140,000 shares of Common Stock to eight
accredited investors. The 10% Notes mature at the earlier of September 30, 1998
or at such time as the Company receives gross proceeds exceeding $2,000,000 from
a public or private offering of its equity securities. Each of the investors was
provided with, or had access to financial and other information concerning
the Company and had the opportunity to ask questions concerning the Company and
its operations. Accordingly, the issuance of these securities was exempt from
the registration requirements of the Act pursuant to Section 4(2) of the Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The Florida Business Corporation Act (the "Corporation Act") permits
the indemnification of directors, employees, officers and agents of Florida
corporations. The Company's Articles of Incorporation (the "Articles") and
Bylaws provide that the Company shall indemnify its directors and officers to
the fullest extent permitted by the Corporation Act. Insofar as indemnification
for liabilities arising under the Act may be permitted to directors, officers or
persons controlling the Company pursuant to the foregoing provisions, the
Company has been informed that, in the opinion of the Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as express in the act and is therefore unenforceable.
The Articles of Incorporation and Bylaws of the Company require the
Company to indemnify its Directors and officers to the fullest extent permitted
by the Business Corporation Act of the State of Florida.
The above indemnification provisions notwithstanding, the Company is
aware that insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as express in the act and is
therefore unenforceable.
PART F/S
The financial statements and supplementary data are included herein.
FINANCIAL STATEMENTS AND EXHIBITS
- ---------------------------------
The following audited Financial Statements for the Company, include the
audited balance
24
<PAGE>
sheet at April 30, 1997 and the related audited statements of operations,
changes in capital deficiency and cash flows for each of the years in the two
year period ended April 30, 1997 and 1996, and the interim financial statement
as of February 28, 1997 (unaudited).
25
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
APRIL 30, 1997
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
American Quantum Cycles, Inc.
We have audited the accompanying balance sheet of American Quantum
Cycles, Inc. as of April 30, 1997, and the related statements of operations,
stockholders' equity, and cash flows for the four months then ended and the
years ended December 31, 1996 and 1995, and for the period from March 20, 1986
(inception) to April 30, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of American Quantum
Cycles, Inc. as of April 30, 1997 and the results of its operations and its cash
flows for the four months then ended and the years ended December 31, 1996 and
1995, and for the period from March 20, 1986 (inception) to April 30, 1997 in
conformity with generally accepted accounting principles.
/s/ Pricher and Company
Orlando, Florida
October 31, 1997
27
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Balance Sheet
April 30, 1997
ASSETS
Cash $ 244,985
Prepaid expenses 4,165
Loan costs, net (Note 2) 28,230
----------
Total assets $ 277,380
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (note 3) $ 250,000
Accrued interest 767
----------
Total current liabilities 250,767
Stockholders' equity:
Common stock, $.001 par value;
50,000,000 shares authorized;
900,000 shares issued and outstanding 900
Additional paid-in capital 28,347
Deficit accumulated during the development stage (2,634)
-----------
Total stockholders' equity 26,613
Total liabilities and stockholders' equity $ 277,380
==========
See independent auditors' report.
28
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Statement of Operations
Four Months Ended April 30, 1997 and the Years Ended December 31, 1996 and 1995
and the Period from March 20, 1986 (inception) to April 30, 1997
<TABLE>
<CAPTION>
March 20, 1986
(inception)
1997 1996 1995 to April 30, 1997
---------- ------------- --------- ------------------
<S> <C> <C> <C> <C>
Revenues $ $ $ $
--------- ------------- -------- ----------
Costs and expenses:
Consulting 775 775
Interest 767 767
Amortization 1,092 1,092
---------- ------------ -------- ---------
Total costs and expenses 2,634 2,634
--------- ------------ -------- ---------
Net loss $ (2,634) $ 0 $ 0 $ (2,634)
========== ============ ======== =========
Loss per common share:
Weighted average shares outstanding 591,716 500,000 500,000 591,716
========== ============ ======== =========
Net loss $ (0.004) $ 0.000 $ 0.000 $ (0.004)
========== ============ ======== =========
</TABLE>
See independent auditors' report.
29
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Statement of Stockholders' Equity
March 20, 1986 (Inception) to April 30, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
Additional During the
Date of Number Par Paid-in Development
Transaction of Shares Value Capital Stage
----------- --------- ----- ---------- -----------
<S> <C> <C> <C> <C> <C>
Stock issued for prepaid
expenses ($1.00 per
share) 03/20/86 500 $ 500 $ $
Stock split-1,000:1 03/25/97 499,500
Stock issued for consulting
services ($0.001 per
share) 03/25/97 275,000 275
Stock issued to bridge loan
participants ($0.23 per
share) 04/16/97 125,000 125 28,347
Net loss for period from
January 1, 1997 through
April 30, 1997 (2,634)
------- ----- -------- ---------
Balance, April 30, 1997 900,000 $ 900 $ 28,347 $ (2,634)
======= ===== ======== =========
</TABLE>
See independent auditors' report.
30
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Statement of Cash Flows
Four Months Ended April 30, 1997
Cash flows from operating activities:
Cash paid to suppliers $ (5,015)
Cash flows from investing activities:
Cash flows from financing activities:
Loan proceeds 250,000
---------
Net increase in cash 244,985
Cash, beginning of period
---------
Cash, end of period $ 244,985
=========
Note: There were no cash transactions prior to January 1, 1997.
See independent auditors' report.
31
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
1 ACCOUNTING POLICIES
Nature of business and organization - Norbern, Inc., a Florida
corporation, was formed on March 20, 1986. The Company was inactive until March
1997 when it began developing and implementing its business and financing plans.
The Company intends to manufacture and sell 100% American made motorcycles
through licensed dealers in both the domestic and international markets.
On May 8, 1997 the Company changed its name to American Quantum Cycles,
Inc.
Cash and cash equivalents - For purposes of cash flows, the Company
consideral all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
Income taxes - Deferred taxes are recognized for temporary differences
between the basis of assets and liabilities for financial statements and income
tax purposes. The differences relate primarily to depreciable assets (using
accelerated depreciation methods for income tax purposes) and to the allowance
for doubtful accounts (deductible for financial statement purposes but not for
income tax purposes).
Concentration of credit risk - The Company occasionally maintains
deposits in excess of federally insured limits. Statement of Financial
Accounting Standards No. 105 identifies these items as a concentration of credit
risk requiring disclosure, regardless of the degree of risk. The risk is managed
by maintaining all deposits in high quality financial institutions.
Use of estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those estimates.
2 LOAN COSTS
In April, 1997, the Company issued 125,000 shares of common stock to
individuals providing the $250,000 bridge loan (Note 3) financing. The shares
were issued in order to obtain a favorable interest rate and repayment terms.
Loan costs were imputed based on the difference between the stated rate of
interest (8%) and the highest rate allowable under state law (18%). The
resulting amount, $28,472, was recorded as loan costs and common stock issued.
In addition, $850 of legal fees is also included in loan costs which total
$29,322 as of April 30, 1997. Loan costs are being amortized to expense over the
term of the loan which is approximately one year. Amortization expense for the
period ended April 30, 1997 was $1,092.
32
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
3 NOTES PAYABLE
Notes payable consist of seven (7) unsecured promissory notes dated
April 16, 1997 with principal aggregating $250,000. Interest at 8% is payable at
maturity. The notes mature upon the earlier to occur of (i) April 1, 1998 or
(ii) receipt of gross proceeds by the Company of $1,000,000 or more in any
public or private financing undertaken by the Company. Interest may be paid, at
the option of the Company, either in cash or common stock of the Company based
on the lower of (i) $2.00 per share or (ii) the average closing price of the
common stock of the Company for the five trading days preceding one day prior to
the date of interest on the notes.
4 CASH FLOWS
Following is a summary of noncash financing activities:
Stock issued for services rendered $ 775
========
Stock issued to bridge loan participants $ 28,472
========
Disclosures related to the Company's operating activities are as
follows:
Cash paid for interest and income taxes $
========
5 INCOME TAXES
At April 30, 1997, the Company has net operating loss carryforwards
totaling approximately $2,600 that may be offset against future taxable income
through 2012. No tax benefit has been reported in the 1997 financial statements,
however, because the Company believes there is at least a 50% chance that the
carryforward will expire unused. Accordingly, a $395 tax benefit of the loss
carryforward has been offset by a valuation allowance of the same amount. The
expected tax benefit that would result from applying federal statutory tax rates
to the pretax loss of $2,634 differs from amounts reported in the financial
statements because of the increase in the valuation allowance.
6 SUBSEQUENT EVENTS
Subsequent to April 30, 1997, the Company has been engaged in various
activities necessary to begin operations including entering into dealership
agreements, a technology license agreement, employment agreements with key
executives, leasing facilities, purchasing supplies and equipment, and hiring
employees. Also, the following transactions and events have occurred:
(Continued)
33
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Notes to Financial Statements
6 SUBSEQUENT EVENTS (Continued)
On May 9, 1997 (and as amended June 3, 1997) the Company entered into a
consulting agreement with Greenstone Financial Corp. ("GFC") to assist the
Company with corporate development and strategic business planning. Under terms
of the agreement, as amended, GFC shall receive reimbursement for its out of
pocket expenses. In addition, the Company granted GFC an option to purchase up
to 250,000 shares of Company common stock based upon the successful completion
of a private placement of Company common stock (see June 9, 1997 below), with
each option exercisable at $4.00 per share. Also under the terms of the
agreement, as amended, the Company granted GFC a five year option to purchase
300,000 shares of Company common stock, exercisable when and if there is a
successful completion of a secondary offering of the Company's common stock, at
an exercise price of $0.10 per share.
On May 21, 1997 the Company issued 2,414,285 shares of common stock for
management services, equipment and other assets.
On June 9, 1997 the Company began offering common stock under a private
placement (such shares being exempt from registration under the Securities Act
of 1933, as amended). If this private placement offering is successfully
completed, the net proceeds would approximate $985,000. The Company expects to
use the proceeds (i) to repay bridge loan financing of $250,000, (ii) for
expenses associated with the preparation of a secondary offering of
approximately $125,000 and (iii) for working capital.
7 LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss by the weighted
average number of shares of common stock outstanding during the period. All
share and per share data, except shares authorized, have been retroactively
adjusted to reflect a 1,000 for 1 stock split effective March 25, 1997.
34
<PAGE>
<TABLE>
<CAPTION>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Interim Balance Sheet
February 28, 1998
(unaudited)
-----------------
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 5,845
Accounts receivable - trade 13,338
Inventory - raw materials (at FIFO) 572,475
Prepaid expenses 33,696
-----------
TOTAL CURRENT ASSETS 625,354
PROPERTY, PLANT AND EQUIPMENT (at cost) 397,313
Less accumulated depreciation - 26,055
------------
371,258
INTANGIBLE ASSETS (patents/licenses/intellectual properties) 393,360
Less accumulated amortization - 29,992
------------
DEPOSITS AND OTHER ASSETS 29,150
------------
TOTAL ASSETS $ 1,389,130
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 212,568
Accrued interest 30,505
Current portion of notes payable 19,283
Other current liabilities 7,988
-------------
TOTAL CURRENT LIABILITIES 270,344
CONVERTIBLE DEBENTURES PAYABLE (Note 1) 1,254,000
NOTES PAYABLE, less current portion 75,168
DEFERRED INCOME 12,538
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.001 par value. Authorized 50,000,000
Shares; issued and outstanding 3,669,400 shares at
February 28,1998 and 900,000 shares at April 30, 1997. 3,669
Capital in excess of par value 1,163,486
Retained earnings (deficit) - 1,390,075
------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) - 222,920
------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,389,130
------------
</TABLE>
NOTE 1: Between October 1, 1997 and February 28, 1998 the Company
issued $1,254,000 in convertible debentures at 8% interest. These
debentures are convertible one year from issue into common stock
of the Company, with $500,000 at $2.00 per share and $754,000 at
$3.00 per share.
35
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Interim Operating Statement
Ten Months Ended
February 28, 1998
(unaudited)
-----------------
Net Sales of tangible goods $ 165,617
Cost of tangible goods sold 151,936
Depreciation and amortization 37,850
Consulting fees 133,725
Selling, general and administrative expenses 1,175,328
-----------
1,498,839
- 1,333,222
Dividend income 1,332
Miscellaneous other income 322
Interest expense 49,074
Loss on disposition of an asset 7,566
-------------
Net Loss $- 1,387,441
-------------
Loss Per Common Share $ - 0.378
-------------
36
<PAGE>
AMERICAN QUANTUM CYCLES, INC.
(A Development Stage Company)
Interim Statement of Cash Flows
Ten Months Ended
February 28, 1998
(unaudited)
-----------------
Net cash flows from operating activities $ - 1,722,594
Cash flows from financing activities:
Convertible debenture proceeds 1,254,000
Retirement of prior debt - 250,000
Loan proceeds 96,872
Payment on loan principle - 2,421
Net capital/stock changes 1,027,006
-------------
Net cash flows from financing activities 2,125,457
Cash flows from investing activities:
Additions to property, plant and equipment - 277,964
Additions to intangible assets - 364,039
---------------
Net cash flows from investing activities - 642,003
---------------
(Decrease) or Increase in cash - 239,140
Cash and cash equivalents at beginning of period 244,985
---------------
Cash and cash equivalents at end of period $ 5,845
---------------
37
<PAGE>
PART III
<TABLE>
<CAPTION>
ITEM 1. INDEX TO EXHIBITS
Exhibits Description of Document
- -------- -----------------------
<S> <C>
2.1 Amended and Restated Articles of Incorporation of American Quantum Cycles,
Inc., filed November 21, 1997.
2.2 Amended Articles of Incorporation of American Quantum Cycles, Inc., filed
April 6, 1998, creating "Series A 7% Convertible Preferred Stock."
2.3 Amended and Restated Bylaws of American Quantum Cycles, Inc.
3.1 American Quantum Cycles, Inc. Amended 1997 Stock Option Plan
6.1 Consulting Agreement between American Quantum Cycles, Inc. and
Greenstone Financial Corporation dated May 9, 1997.
6.2 License Agreement between Feuling Advanced Technologies, Inc. and American
Quantum Cycles, Inc. dated as of August 19, 1997
6.3 Agreement between the Company and Ferrex International, Inc.
6.4 Dealer Agreement between the Company and Paul Jackson
6.5 Lease Agreement between the Company and Bruce and Karen Weiss effective
May 1, 1997
6.6 Amendment to Lease Agreement between the Company and Bruce and
Karen Weiss dated January 29, 1998.
27 Financial Data Schedule
</TABLE>
- ----------------
38
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
AMERICAN QUANTUM CYCLES, INC.
By: /s/ Richard K. Hagen
----------------------------------------
Richard K. Hagen, Chief Executive Officer
Date:
39
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
AMERICAN QUANTUM CYCLES, INC.
Pursuant to Section 607.1007 of the Business Corporation Act of the
State of Florida, the undersigned President of American Quantum Cycles, Inc., a
corporation organized and existing under and by virtue of the Business
Corporation Act of the State of Florida (hereinafter the "Corporation"), and
desiring to amend and restate its Articles of Incorporation, does hereby
certify:
FIRST: The name of the Corporation is AMERICAN QUANTUM CYCLES, INC.,
which was originally incorporated under the name NORBERN, INC. The original
Articles of Incorporation of the Corporation were filed in the Office of the
Secretary of State of Florida on March 20, 1986 (Document No. J05073).
SECOND: This Amended and Restated Articles of Incorporation, which
supersede the original Articles of Incorporation of the Corporation, was adopted
by all of the Directors of the Corporation pursuant to Unanimous Written Consent
of the Board of Directors on October 20, 1997, and by the holders of a majority
of the shares of the outstanding Common Stock of the Corporation acting by
written consent on October 20, 1997, such actions undertaken in accordance with
Section 607.0704 and Section 607.0821 of the Florida Business Corporation Act.
Therefore, the number of votes cast for the Amended and Restated Articles of
Incorporation of the Corporation was sufficient for approval.
THIRD: The text of the Articles of Incorporation of the Corporation, as
Amended and Restated, shall be as follows:
The undersigned, a natural person competent to contract, does hereby
make, subscribe and file these Articles of Incorporation for the purpose of
organizing a corporation under the laws of the State of Florida.
ARTICLE I
CORPORATE NAME
The name of this Corporation is American Quantum Cycles, Inc.
ARTICLE II
PRINCIPAL OFFICE AND MAILING ADDRESS
The principal office and mailing address of the Corporation is as
follows:
<PAGE>
711-731 WASHBURN ROAD
MELBOURNE, FL 32934
ARTICLE III
NATURE OF THE CORPORATION BUSINESS AND POWERS
The general nature of the business to be transacted by this Corporation
shall be to engage in any and all lawful business permitted under the laws of
the United States and the State of Florida.
ARTICLE IV
CAPITAL STOCK
The maximum number of shares of stock that this Corporation is
authorized to issue and have outstanding at any one time shall be Fifty Million
(50,000,000) shares of Common Stock having a par value of $.001 per share and
Two Million Five Hundred Thousand (2,500,000) shares of Preferred Stock having a
par value of $.001 per share. The designations, preferences, limitations and
relative rights of the shares of each class of Common Stock and of Preferred
Stock shall be as determined by the Board of Directors of the Corporation.
ARTICLE V
TERM OF EXISTENCE
This Corporation shall have perpetual existence.
ARTICLE VI
REGISTERED AGENT AND
INITIAL REGISTERED OFFICE IN FLORIDA
The Registered Agent and the street address of the Registered Office of
this Corporation in the State of Florida is:
ROBERT L. GUESS
711-731 WASHBURN ROAD
MELBOURNE, FL 32934
2
<PAGE>
ARTICLE VIII
BOARD OF DIRECTORS
The number of Directors may be increased from time to time by Bylaws
adopted by the Directors or the stockholders, but shall never be less than one
Director. A Director of the Corporation may only be removed for cause.
ARTICLE IX
INDEMNIFICATION
This Corporation may indemnify any director, officer, employee or agent
of the Corporation to the fullest extent permitted by Florida law.
ARTICLE X
AFFILIATED TRANSACTIONS
This Corporation expressly elects not be governed by Section 607.0901
of the Florida Business Corporation Act, as amended from time to time, relating
to affiliated transactions.
ARTICLE XI
CONTROL SHARE ACQUISITIONS
This Corporation expressly elects not to be governed by Section
607.0902 of the Florida Business Corporation Act, as amended from time to time,
relating to control share acquisitions.
IN WITNESS WHEREOF, the undersigned Incorporator has executed the
foregoing Articles of Incorporation on the 20TH day of OCTOBER, 1997
-----------------------------
ROBERT L. GUESS, PRESIDENT
3
<PAGE>
STATE OF FLORIDA )
)SS:
COUNTY OF BREVARD )
The foregoing instrument was acknowledged before me this 21st day of
OCTOBER, 1997 by ROBERT L. GUESS, who is personally known to me and who did/did
not take an oath.
Notary Public:
sign
-------------------------
print
------------------------
State of Florida at Large (Seal)
My Commission Expires:
4
<PAGE>
CERTIFICATE DESIGNATING REGISTERED AGENT
AND OFFICE FOR SERVICE OF PROCESS
AMERICAN QUANTUM CYCLES, INC., a corporation existing under the laws of the
State of Florida with its principal office and mailing address at 711-731
WASHBURN ROAD, MELBOURNE, FLORIDA 32934 and has named ROBERT L. GUESS, whose
address is 711-731 WASHBURN ROAD, MELBOURNE, FLORIDA 32934 as its agent to
accept service of Process within the State of Florida.
ACCEPTANCE:
Having been named to accept service of process for the above named
Corporation, at the place designated in this Certificate, I hereby accept the
appointment as Registered Agent, and agree to comply with all applicable
provisions of law. In addition, I hereby am familiar with and accept the duties
and responsibilities as Registered Agent for said Corporation.
-------------------------------------
ROBERT L. GUESS
STATE OF FLORIDA )
)SS:
COUNTY OF BREVARD )
The foregoing instrument was acknowledged before me this 21st day of
OCTOBER, 1997 by ROBERT L. GUESS, who is personally known to me and who did/did
not take an oath.
Notary Public:
sign
-------------------------
print
------------------------
State of Florida at Large (Seal)
My Commission Expires:
5
AMENDED
ARTICLES OF INCORPORATION
OF
AMERICAN QUANTUM CYCLES, INC.
Pursuant to Section 607.1006 of the Business Corporation Act of the
State of Florida, the undersigned President of American Quantum Cycles, Inc., a
corporation organized and existing under and by virtue of the Business
Corporation Act of the State of Florida (hereinafter the "Corporation"), and
desiring to amend and restate its Articles of Incorporation, does hereby
certify:
That pursuant to the authority conferred upon the Board of Directors by
the Articles of Incorporation of the Corporation, the Board of Directors on
February 6, 1998, adopted the following resolutions creating a class of
2,500,000 Preferred Shares, $.001 par value per share, stated value $6.00 per
share, designated as the Series A 7% Convertible Preferred Stock. In furtherance
thereof, Article IV of the Corporation's Articles of Incorporation shall be
deleted in its entirety and substituted by the following:
ARTICLE IV
CAPITAL STOCK
The maximum number of shares of stock that this Corporation is
authorized to issue and have outstanding at any one time shall be Fifty Million
(50,000,000) shares of Common Stock having a par value of $.001 per share and
Two Million Five Hundred Thousand (2,500,000) shares of Preferred Stock having a
par value of $.001 per share. The designations, preferences, limitations and
relative rights of the shares of each class of Common Stock and of Preferred
Stock shall be as determined by the Board of Directors of the Corporation. The
Board of Directors of the Corporation desires, pursuant to its authority as
aforesaid, to determine and fix the rights, preferences, privileges and
restrictions relating to a class of said Preferred Stock as follows:
1. Designation and Amount. The shares of such series shall be
designated as the Series A 7% Convertible Preferred Stock (the "Series A
Preferred Stock") and shall have a stated value of $6.00 (the "Stated Value")
per share, and the number of shares constituting such series shall be 2,500,000.
2. Dividends and Distributions. The holders of Series A Preferred Stock
shall be entitled to receive a dividend of seven percent (7%) of the Stated
Value to accrue commencing February 2, 1998, subject to adjustment pending the
completion of the Private Offering, as
ROBERT J. BURNETT, ESQ., FL BAR#0117978
Atlas, Pearlman, Trop & Borkson, P.A.
200 E. Las Olas Blvd., #1900
Ft. Lauderdale, FL 33301
(954) 763-1200
1
<PAGE>
hereinafter defined, and payable semi-annually, in cash, commencing September 1,
1998 subject to adjustment. Upon conversion, any accrued but unpaid dividends
will be added to the stated value of the Series A Preferred Stock.
3. Voting Rights. Except as otherwise provided by law, the holders of
Series A Preferred Stock shall have no voting rights and their consent shall not
be required (except to the extent required by law) for taking any corporate
action.
4. Reacquired Shares. Any Series A Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall constitute
authorized but unissued preferred shares and may be reissued as part of a new
series of preferred shares by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein, in the Articles of Incorporation, or in any other Certificate of
Designation creating a series of preferred shares or as otherwise required by
law.
5. Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made to
the holders of any other securities of the Corporation junior to the Series A
Preferred Stock unless, prior thereto, the holders of Series A Preferred Stock
shall have received $6.00 per share, plus an amount equal to accrued and unpaid
dividends thereon to the date of such payment.
6. Consolidation, Merger, Exchange, etc. In case the Corporation shall
enter into any consolidation, merger, combination, statutory share exchange or
other transaction in which the Common Shares are exchanged for or changed into
other stock or securities, money and/or any other property, then in any such
case the Series A Preferred Stock shall at the same time be similarly exchanged
or changed into preferred shares of the surviving entity providing the holders
of such preferred shares with (to the extent possible) the same relative rights
and preferences as the Series A Preferred Stock.
7. Conversion.
(a) The Series A Preferred Stock will be convertible into
shares of Common Stock, $.001 par value, of the Corporation (the "Common
Shares") at the option of the holder or holders thereof (the "Holders") at any
time commencing twelve (12) months after the final closing date of the private
offering of the Corporation pursuant to the Confidential Offering Memorandum
dated February 9, 1998 (the "Private Offering"). Shares of Series A Preferred
Stock may be converted into shares of Common Stock of the Corporation at a ratio
of 1:1 or for $6.00 per share (the "Conversion Price"). All notices of
conversion and other notices given by the Holder or the Corporation pursuant to
this Certificate may be given by telephone line facsimile transmission and must
be received by 5:00 p.m. (based on the recipient's local time) on the applicable
business day
2
<PAGE>
when such notice is due. Such notices shall only be effective upon receipt
thereof by the Corporation.
(b) In connection with any conversion of the Series A
Preferred Stock by a Holder the Corporation shall issue and deliver to the
Holder a legended certificate or certificates for the number of Common Shares to
which the Holder shall be entitled within 15 business days (the "Deadline")
after receipt by the Corporation of the duly executed notice of conversion and
the original Series A Preferred Stock being converted, with an executed stock
power.
(c) If, prior to the date on which all shares of Series A
Preferred Stock are converted, the Corporation shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding Common Stock, (iii) combine its outstanding Common
Stock into a smaller number of shares of Common Shares or (iv) issue by a
reclassification of its Common Stock other securities of the Corporation, the
Conversion Price in effect on the opening of business on the record date for
determining shareholders entitled to participate in such transaction shall
thereupon be adjusted, or, if necessary, the right to convert shall be amended,
such that the number of shares of Common Stock receivable upon conversion of the
shares of Series A Preferred Stock immediately prior thereto shall be adjusted
so that the Series A Holder shall be entitled to receive, upon the conversion of
such shares of Series A Preferred Stock, the kind and number of shares of Common
Stock or other securities of the Corporation which it would have owned or would
have been entitled to receive after the happening of any of the events described
above had the Series A Preferred Stock been converted immediately prior to the
happening of such event or any record date with respect thereto. Any adjustment
made pursuant to this subparagraph 7(c) shall become effective immediately after
the effective date of such event and such adjustment shall be retroactive to the
record date, if any, for such event.
8. Vote to Change the Terms of Series A Preferred Stock. The Approval
of the Board of Directors and the affirmative vote at a meeting duly called by
the Board of Directors for such purpose (or the written consent without a
meeting) of the holders of not less than two-thirds (2/3) of the then
outstanding Series A Preferred Stock shall be required to amend, alter, change
or repeal any of the powers, designations, preferences and rights of the Series
A Preferred Stock.
IN WITNESS WHEREOF, I have executed this Amended Articles of
Incorporation this 6th day of February, 1998.
------------------------------------------
Richard K. Hagen, Chief Executive Officer
3
AMENDED AND RESTATED BYLAWS
OF
AMERICAN QUANTUM CYCLES, INC.
a Florida corporation
<PAGE>
<TABLE>
<CAPTION>
INDEX
-----
PAGE
----
ARTICLE I
---------
Offices
-------
<S> <C> <C>
Section 1.01 Principal Office........................................................ 1
----------------
Section 1.02 Registered Office....................................................... 1
-----------------
Section 1.03 Other Offices........................................................... 1
-------------
ARTICLE II
----------
Meetings of Shareholders
------------------------
Section 2.01 Annual Meeting.......................................................... 1
--------------
Section 2.02 Special Meetings........................................................ 2
----------------
Section 2.03 Shareholders' List for Meeting.......................................... 2
------------------------------
Section 2.04 Record Date............................................................. 3
-----------
Section 2.05 Notice of Meetings and Adjournment...................................... 3
----------------------------------
Section 2.06 Waiver of Notice........................................................ 4
----------------
ARTICLE III
-----------
Shareholder Voting
------------------
Section 3.01 Voting Group Defined.................................................... 5
--------------------
Section 3.02 Quorum and Voting Requirements for
----------------------------------
Voting Groups..................................................... 5
-------------
Section 3.03 Action by Single and Multiple Voting
------------------------------------
Groups............................................................ 5
------
Section 3.04 Shareholder Quorum and Voting; Greater
--------------------------------------
or Lesser Voting Requirements..................................... 6
-----------------------------
<PAGE>
Section 3.05 Voting for Directors; Cumulative Voting................................. 6
---------------------------------------
Section 3.06 Voting Entitlement of Shares............................................ 7
----------------------------
Section 3.07 Proxies................................................................. 8
-------
Section 3.08 Shares Held by Nominees................................................. 9
-----------------------
Section 3.09 Corporation's Acceptance of Votes....................................... 10
---------------------------------
Section 3.10 Action by Shareholders Without Meeting.................................. 11
--------------------------------------
ARTICLE IV
Board of Directors and Officers
Section 4.01 Qualifications of Directors............................................. 11
---------------------------
Section 4.02 Number of Directors..................................................... 11
-------------------
Section 4.03 Terms of Directors Generally............................................ 12
----------------------------
Section 4.04 Staggered Terms for Directors........................................... 12
-----------------------------
Section 4.05 Vacancy on Board........................................................ 12
----------------
Section 4.06 Compensation of Directors............................................... 12
-------------------------
Section 4.07 Meetings................................................................ 13
--------
Section 4.08 Action by Directors Without a Meeting................................... 13
-------------------------------------
Section 4.09 Notice of Meetings...................................................... 13
------------------
Section 4.10 Waiver of Notice........................................................ 13
----------------
Section 4.11 Quorum and Voting....................................................... 14
-----------------
Section 4.12 Committees.............................................................. 14
----------
Section 4.13 Loans to Officers, Directors and
--------------------------------
Employees; Guaranty of Obligations............................... 15
----------------------------------
Section 4.14 Required Officers....................................................... 15
-----------------
ii
<PAGE>
Section 4.15 Duties of Officers...................................................... 16
------------------
Section 4.16 Resignation and Removal of Officers..................................... 16
-----------------------------------
Section 4.17 Contract Rights of Officers............................................. 16
---------------------------
Section 4.18 General Standards for Directors......................................... 16
-------------------------------
Section 4.19 Director Conflicts of Interest.......................................... 17
------------------------------
Section 4.20 Resignation of Directors................................................ 18
------------------------
ARTICLE V
---------
Indemnification of Directors, Officers,
Employees and Agents
--------------------
Section 5.01 Directors, Officers, Employees
------------------------------
and Agents........................................................ 18
----------
ARTICLE VI
Office and Agent
----------------
Section 6.01 Registered Office and Registered Agent.................................. 22
--------------------------------------
Section 6.02 Change of Registered Office or Registered
-----------------------------------------
Agent; Resignation of Registered Agent........................... 23
--------------------------------------
ARTICLE VII
-----------
Shares, Option, Dividends and Distributions
-------------------------------------------
Section 7.01 Authorized Shares....................................................... 24
-----------------
Section 7.02 Terms of Class or Series Determined
-----------------------------------
by Board of Directors............................................. 24
---------------------
Section 7.03 Issued and Outstanding Shares........................................... 25
-----------------------------
Section 7.04 Issuance of Shares...................................................... 25
------------------
Section 7.05 Form and Content of Certificates........................................ 26
--------------------------------
iii
<PAGE>
Section 7.06 Shares Without Certificates............................................. 27
---------------------------
Section 7.07 Restriction on Transfer of Shares
---------------------------------
and Other Securities.............................................. 27
--------------------
Section 7.08 Shareholder's Pre-emptive Rights........................................ 27
--------------------------------
Section 7.09 Corporation's Acquisition of its
--------------------------------
Own Shares........................................................ 28
----------
Section 7.10 Share Options........................................................... 28
-------------
Section 7.11 Terms and Conditions of Stock Rights
------------------------------------
and Options....................................................... 28
-----------
Section 7.12 Share Dividends......................................................... 29
---------------
Section 7.13 Distributions to Shareholders........................................... 29
-----------------------------
ARTICLE VIII
------------
Amendment of Articles and Bylaws
--------------------------------
Section 8.01 Authority to Amend the Articles of
----------------------------------
Incorporation..................................................... 31
-------------
Section 8.02 Amendment by Board of Directors......................................... 31
-------------------------------
Section 8.03 Amendment of Bylaws by Board of
-------------------------------
Directors......................................................... 32
---------
Section 8.04 Bylaw Increasing Quorum or Voting
---------------------------------
Requirements for Directors........................................ 32
--------------------------
ARTICLE IX
----------
Records and Report
------------------
Section 9.01 Corporate Records....................................................... 33
-----------------
Section 9.02 Financial Statements for Shareholders................................... 34
-------------------------------------
Section 9.03 Other Reports to Shareholders........................................... 34
-----------------------------
iv
<PAGE>
Section 9.04 Annual Report for Department of State................................... 35
-------------------------------------
ARTICLE X
---------
Miscellaneous
-------------
Section 10.01 Definition of the "Act"................................................. 35
-----------------------
Section 10.02 Application of Florida Law.............................................. 36
--------------------------
Section 10.03 Fiscal Year............................................................. 36
-----------
Section 10.04 Conflicts with Articles of
--------------------------
Incorporation.................................................... 36
-------------
</TABLE>
v
<PAGE>
ARTICLE I
---------
Offices
-------
Section 1.01. Principal Office.
-----------------
The principal office of the corporation in the State of Florida shall
be established at such places as the board of directors from time to time
determine.
Section 1.02. Registered Office.
-----------------
The registered office of the corporation in the State of Florida shall
be at the office of its registered agent as stated in the articles of
incorporation or as the board of directors shall from time to time determine.
Section 1.03. Other Offices.
-------------
The corporation may have additional offices at such other places,
either within or without the State of Florida, as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II
----------
Meetings of Shareholders
------------------------
Section 2.01. Annual Meeting.
--------------
(1) The corporation shall hold a meeting of shareholders annually, for
the election of directors and for the transaction of any proper business, at a
time stated in or fixed in accordance with a resolution of the board of
directors.
(2) Annual shareholders' meeting may be held in or out of the State of
Florida at a place stated in or fixed in accordance with a resolution by the
board of directors or, when not inconsistent with the board of directors'
resolution stated in the notice of the annual meeting. If no place is stated in
or fixed in accordance with these bylaws, or stated in the notice of the annual
meeting, annual meetings shall be held at the corporation's principal office.
(3) The failure to hold the annual meeting at the time stated in or
fixed in accordance with these bylaws or pursuant to the Act does not affect the
validity of any corporate action and shall not work a forfeiture of or
dissolution of the corporation.
<PAGE>
Section 2.02. Special Meeting.
---------------
(1) The corporation shall hold a special meeting of shareholders:
(a) On call of its board of directors or the person or persons
authorized to do so by the board of directors; or
(b) If the holders of not less than 10% of all votes entitled
to be cast on any issue proposed to be considered at the proposed special
meeting sign, date and deliver to the corporation's secretary one or more
written demands for the meeting describing the purpose or purposes for which it
is to be held.
(2) Special shareholders' meetings may be held in or out of the State
of Florida at a place stated in or fixed in accordance with a resolution of the
board of directors, or, when not inconsistent with the board of directors'
resolution, in the notice of the special meeting. If no place is stated in or
fixed in accordance with these bylaws or in the notice of the special meeting,
special meetings shall be held at the corporation's principal office.
(3) Only business within the purpose or purposes described in the
special meeting notice may be conducted at a special shareholders' meeting.
Section 2.03. Shareholders' List for Meeting.
------------------------------
(1) After fixing a record date for a meeting, a corporation shall
prepare a list of the names of all its shareholders who are entitled to notice
of a shareholders' meeting, in accordance with the Florida Business Corporation
Act (the "Act"), or arranged by voting group, with the address of, and the
number and class and series, if any, of shares held by, each.
(2) The shareholders' list must be available for inspection by any
shareholder for a period of ten days prior to the meeting or such shorter time
as exists between the record date and the meeting and continuing through the
meeting at the corporation's principal office, at a place identified in the
meeting notice in the city where the meeting will be held, or at the office of
the corporation's transfer agent or registrar. A shareholder or his agent or
attorney is entitled on written demand to inspect the list (subject to the
requirements of Section 607.1602(3) of the Act), during regular business hours
and at his expense, during the period it is available for inspection.
(3) The corporation shall make the shareholders' list available at the
meeting, and any shareholder or his agent or attorney is entitled to inspect the
list at any time during the meeting or any adjournment.
2
<PAGE>
Section 2.04. Record Date.
-----------
(1) The board of directors may set a record date for purposes of
determining the shareholders entitled to notice of and to vote at a
shareholders' meeting; however, in no event may a record date fixed by the board
of directors be a date preceding the date upon which the resolution fixing the
record date is adopted.
(2) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to demand a special meeting is the date
the first shareholder delivers his demand to the corporation. In the event that
the board of directors sets the record date for a special meeting of
shareholders, it shall not be a date preceding the date upon which the
corporation receives the first demand from a shareholder requesting a special
meeting.
(3) If no prior action is required by the board of directors pursuant
to the Act, and, unless otherwise fixed by the board of directors, the record
date for determining shareholders entitled to take action without a meeting is
the date the first signed written consent is delivered to the corporation under
Section 607.0704 of the Act. If prior action is required by the board of
directors pursuant to the Act, the record date for determining shareholders
entitled to take action without a meeting is at the close of business on the day
on which the board of directors adopts the resolution taking such prior action.
(4) Unless otherwise fixed by the board of directors, the record date
for determining shareholders entitled to notice of and to vote at an annual or
special shareholders' meeting is the close of business on the day before the
first notice is delivered to shareholders.
(5) A record date may not be more than 70 days before the meeting or
action requiring a determination of shareholders.
(6) A determination of shareholders entitled to notice of or to vote at
a shareholders' meeting is effective for any adjournment of the meeting unless
the board of directors fixes a new record date, which it must do if the meeting
is adjourned to a date more than one 120 days after the date fixed for the
original meeting.
Section 2.05. Notice of Meetings and Adjournment.
----------------------------------
(1) The corporation shall notify shareholders of the date, time and
place of each annual and special shareholders' meeting no fewer than 10 or more
than 60 days before the meeting date. Unless the Act requires otherwise, the
corporation is required to give notice only to shareholders entitled to vote at
the meeting. Notice shall be given in the manner provided in Section 607.0141 of
the Act, by or at the direction of the president, the secretary, of the officer
or persons calling the meeting. If the notice is mailed at least 30 days before
the date of the meeting, it may be done by a class of
3
<PAGE>
United States mail other than first class. Notwithstanding Section 607.0141, if
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail addressed to the shareholder at his address as it appears on the
stock transfer books of the corporation, with postage thereon prepaid.
(2) Unless the Act or the articles of incorporation requires otherwise,
notice of an annual meeting need not include a description of the purpose or
purposes for which the meeting is called.
(3) Notice of a special meeting must include a description of the
purpose or purposes for which the meeting is called.
(4) If an annual or special shareholders meeting is adjourned to a
different date, time, or place, notice need not be given of the new date, time,
or place if the new date, time or place is announced at the meeting before
adjournment is taken, and any business may be transacted at the adjourned
meeting that might have been transacted on the original date of the meeting. If
a new record date is or must be fixed under Section 607.0707 of the Act,
however, notice of the adjourned meeting must be given under this section to
persons who are shareholders as of the new record date who are entitled to
notice of the meeting.
(5) Notwithstanding the foregoing, no notice of a shareholders' meeting
need be given if: (a) an annual report and proxy statements for two consecutive
annual meetings of shareholders, or (b) all, and at least two checks in payment
of dividends or interest on securities during a 12-month period, have been sent
by first-class United States mail, addressed to the shareholder at his address
as it appears on the share transfer books of the corporation, and returned
undeliverable. The obligation of the corporation to give notice of a
shareholders' meeting to any such shareholder shall be reinstated once the
corporation has received a new address for such shareholder for entry on its
share transfer books.
Section 2.06. Waiver of Notice.
----------------
(1) A shareholder may waive any notice required by the Act, the
articles of incorporation, or bylaws before or after the date and time stated in
the notice. The waiver must be in writing, be signed by the shareholder entitled
to the notice, and be delivered to the corporation for inclusion in the minutes
or filing with the corporate records. Neither the business to be transacted at
nor the purpose of any regular or special meeting of the shareholders need be
specified in any written waiver of notice.
(2) A shareholder's attendance at a meeting: (a) Waives objection to
lack of notice or defective notice of the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting business
at the meeting; or (b) waives objection to consideration of a particular matter
at the meeting that is not within
4
<PAGE>
the purpose or purposes described in the meeting notice, unless the shareholder
objects to considering the matter when it is presented.
ARTICLE III
Shareholder Voting
------------------
Section 3.01. Voting Group Defined.
--------------------
A "voting group" means all shares of one or more classes or series that
under the articles of incorporation or the Act are entitled to vote and be
counted together collectively on a matter at a meeting of shareholders. All
shares entitled by the articles of incorporation or the Act to vote generally on
the matter are for that purpose a single voting group.
Section 3.02. Quorum and Voting Requirements for Voting Groups.
------------------------------------------------
(1) Shares entitled to vote as a separate voting group may take action
on a matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the articles of incorporation or the Act provides otherwise,
a majority of the votes entitled to be cast on the matter by the voting group
constitutes a quorum of that voting group for action on that matter.
(2) Once a share is represented for any purpose at a meeting, it is
deemed present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for that
adjourned meeting.
(3) If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation or the Act requires a greater number of affirmative
votes.
Section 3.03. Action by Single and Multiple Voting Groups.
-------------------------------------------
(1) If the articles of incorporation or the Act provides for voting by
a single voting group on a matter, action on that matter is taken when voted
upon by that voting group as provided in Section 3.02 of these bylaws.
(2) If the articles of incorporation or the Act provides for voting by
two or more voting groups on a matter, action on that matter is taken only when
voted upon by each of those voting groups counted separately as provided in
Section 3.02 of these bylaws. Action may be taken by one voting group on a
matter even though no action is taken by another voting group entitled to vote
on the matter.
5
<PAGE>
Section 3.04. Shareholder Quorum and Voting; Greater or Lesser Voting
-------------------------------------------------------
Requirements.
------------
(1) A majority of the shares entitled to vote, represented in person or
by proxy, shall constitute a quorum at a meeting of shareholders. When a
specified item of business is required to be voted on by a class or series of
stock, a majority of the shares of such class or series shall constitute a
quorum for the transaction of such item of business by that class or series.
(2) An amendment to the articles of incorporation that adds, changes or
deletes a greater or lesser quorum or voting requirement must meet the same
quorum requirement and be adopted by the same vote and voting groups required to
take action under the quorum and voting requirements then in effect or proposed
to be adopted, whichever is greater.
(3) If a quorum exists, action on a matter, other than the election of
directors, is approved if the votes cast by the holders of the shares
represented at the meeting and entitled to vote on the subject matter favoring
the action exceed the votes cast opposing the action, unless a greater number of
affirmative votes or voting by classes is required by the Act or the articles of
incorporation.
(4) After a quorum has been established at a shareholders' meeting, the
subsequent withdrawal of shareholders, so as to reduce the number of shares
entitled to vote at the meeting below the number required for a quorum, shall
not affect the validity of any action taken at the meeting or any adjournment
thereof.
(5) The articles of incorporation may provide for a greater voting
requirement or a greater or lesser quorum requirement for shareholders (or
voting groups of shareholders) than is provided by the Act, but in no event
shall a quorum consist of less than one-third of the shares entitled to vote.
Section 3.05. Voting for Directors; Cumulative Voting.
---------------------------------------
(1) Directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present.
(2) Each shareholder who is entitled to vote at an election of
directors has the right to vote the number of shares owned by him for as many
persons as there are directors to be elected and for whose election he has a
right to vote. Shareholders do not have a right to cumulate their votes for
directors unless the articles of incorporation so provide.
6
<PAGE>
Section 3.06. Voting Entitlement of Shares.
----------------------------
(1) Unless the articles of incorporation or the Act provides otherwise,
each outstanding share, regardless of class, is entitled to one vote on each
matter submitted to a vote at a meeting of shareholders. Only shares are
entitled to vote.
(2) The shares of the corporation are not entitled to vote if they are
owned, directly or indirectly, by a second corporation, domestic or foreign, and
the first corporation owns, directly or indirectly, a majority of shares
entitled to vote for directors of the second corporation.
(3) This section does not limit the power of the corporation to vote
any shares, including its own shares, held by it in a fiduciary capacity.
(4) Redeemable shares are not entitled to vote on any matter, and shall
not be deemed to be outstanding, after notice of redemption is mailed to the
holders thereof and a sum sufficient to redeem such shares has been deposited
with a bank, trust company, or other financial institution upon an irrevocable
obligation to pay the holders the redemption price upon surrender of the shares.
(5) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent, or proxy as the bylaws of the
corporate shareholder may prescribe or, in the absence of any applicable
provision, by such person as the board of directors of the corporate shareholder
may designate. In the absence of any such designation or in case of conflicting
designation by the corporate shareholder, the chairman of the board, the
president, any vice president, the secretary, and the treasurer of the corporate
shareholder, in that order, shall be presumed to be fully authorized to vote
such shares.
(6) Shares held by an administrator, executor, guardian, personal
representative, or conservator may be voted by him, either in person or by
proxy, without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but no
trustee shall be entitled to vote shares held by him without a transfer of such
shares into his name or the name of his nominee.
(7) Shares held by or under the control of a receiver, a trustee in
bankruptcy proceedings, or an assignee for the benefit of creditors may be voted
by him without the transfer thereof into his name.
(8) If a share or shares stand of record in the names of two or more
persons, whether fiduciaries, members of a partnership, joint tenants, tenants
in common, tenants by the entirety, or otherwise, or if two or more persons have
the same fiduciary relationship respecting the same shares, unless the secretary
of the corporation is given
7
<PAGE>
notice to the contrary and is furnished with a copy of the instrument or order
appointing them or creating the relationship wherein it is so provided, then
acts with respect to voting have the following effect:
(a) If only one votes, in person or in proxy, his act binds
all;
(b) If more than one vote, in person or by proxy, the act of
the majority so voting binds all;
(c) If more than one vote, in person or by proxy, but the vote
is evenly split on any particular matter, each faction is entitled to vote the
share or shares in question proportionally;
(d) If the instrument or order so filed shows that any such
tenancy is held in unequal interest, a majority or a vote evenly split for
purposes of this subsection shall be a majority or a vote evenly split in
interest;
(e) The principles of this subsection shall apply, insofar as
possible, to execution of proxies, waivers, consents, or objections and for the
purpose of ascertaining the presence of a quorum;
(f) Subject to Section 3.08 of these bylaws, nothing herein
contained shall prevent trustees or other fiduciaries holding shares registered
in the name of a nominee from causing such shares to be voted by such nominee as
the trustee or other fiduciary may direct. Such nominee may vote shares as
directed by a trustee or their fiduciary without the necessity of transferring
the shares to the name of the trustee or other fiduciary.
Section 3.07. Proxies.
(1) A shareholder, other person entitled to vote on behalf of a
shareholder pursuant to Section 3.06 of these bylaws, or attorney in fact may
vote the shareholder's shares in person or by proxy.
(2) A shareholder may appoint a proxy to vote or otherwise act for him
by signing an appointment form, either personally or by his attorney in fact. An
executed telegram or cablegram appearing to have been transmitted by such
person, or a photographic, photostatic, or equivalent reproduction of an
appointment form, is a sufficient appointment form.
(3) An appointment of a proxy is effective when received by the
secretary or other officer or agent authorized to tabulate votes. An appointment
is valid for up to 11 months unless a longer period is expressly provided in the
appointment form.
8
<PAGE>
(4) The death or incapacity of the shareholder appointing a proxy does
not affect the right of the corporation to accept the proxy's authority unless
notice of the death or incapacity is received by the secretary or other officer
or agent authorized to tabulate votes before the proxy exercises his authority
under the appointment.
(5) An appointment of a proxy is revocable by the shareholder unless
the appointment form conspicuously states that it is irrevocable and the
appointment is coupled with an interest. Appointments coupled with an interest
include the appointment of: (a) a pledgee; (b) a person who purchased or agreed
to purchase the shares; (c) a creditor of the corporation who extended credit to
the corporation under terms requiring the appointment; (d) an employee of the
corporation whose employment contract requires the appointment; or (e) a party
to a voting agreement created in accordance with the Act.
(6) An appointment made irrevocable under this section becomes
revocable when the interest with which it is coupled is extinguished and, in a
case provided for in Subsection 5(c) or 5(d), the proxy becomes revocable three
years after the date of the proxy or at the end of the period, if any, specified
herein, whichever is less, unless the period of irrevocability is renewed from
time to time by the execution of a new irrevocable proxy as provided in this
section. This does not affect the duration of a proxy under subsection (3).
(7) A transferee for value of shares subject to an irrevocable
appointment may revoke the appointment if he did not know of its existence when
he acquired the shares and the existence of the irrevocable appointment was not
noted conspicuously on the certificate representing the shares or on the
information statement for shares without certificates.
(8) Subject to Section 3.09 of these bylaws and to any express
limitation on the proxy's authority appearing on the face of the appointment
form, a corporation is entitled to accept the proxy's vote or other action as
that of the shareholder making the appointment.
(9) If an appointment form expressly provides, any proxy holder may
appoint, in writing, a substitute to act in his place.
Section 3.08. Shares Held by Nominees.
-----------------------
(1) The corporation may establish a procedure by which the beneficial
owner of shares that are registered in the name of a nominee is recognized by
the corporation as the shareholder. The extent of this recognition may be
determined in the procedure.
(2) The procedure may set forth (a) the types of nominees to which it
applies; (b) the rights or privileges that the corporation recognizes in a
beneficial owner; (c) the
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manner in which the procedure is selected by the nominee; (d) the information
that must be provided when the procedure is selected; (e) the period for which
selection of the procedure is effective; and (f) other aspects of the rights and
duties created.
Section 3.09. Corporation's Acceptance of Votes.
---------------------------------
(1) If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation if acting in good
faith is entitled to accept the vote, consent waiver, or proxy appointment and
give it effect as the act of the shareholder.
(2) If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the corporation if acting in
good faith is nevertheless entitled to accept the vote, consent, waiver, or
proxy appointment and give it effect as the act of the shareholder if: (a) the
shareholder is an entity and the name signed purports to be that of an officer
or agent of the entity; (b) the name signed purports to be that of an
administrator, executor, guardian, personal representative, or conservator
representing the shareholder and, if the corporation requests, evidence of
fiduciary status acceptable to the corporation has been presented with respect
to the vote, consent, waiver, or proxy appointment; (c) the name signed purports
to be that of a receiver, trustee in bankruptcy, or assignee for the benefit of
creditors of the shareholder and, if the corporation requests, evidence of this
status acceptable to the corporation has been presented with respect to the
vote, consent, waiver, or proxy appointment; (d) the name signed purports to be
that of a pledgee, beneficial owner, or attorney in fact of the shareholder and,
if the corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented with
respect to the vote, consent, waiver, or proxy appointment; or (e) two or more
persons are the shareholder as covenants or fiduciaries and the name signed
purports to be the name of at least one of the co-owners and the person signing
appears to be acting on behalf of all the co-owners.
(3) The corporation is entitled to reject a vote, consent, waiver, or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
(4) The corporation and its officer or agent who accepts or rejects a
vote, consent, waiver, or proxy appointment in good faith and in accordance with
the standards of this section are not liable in damages to the shareholder for
the consequences of the acceptance or rejection.
(5) Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a court
of competent jurisdiction determines otherwise.
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Section 3.10. Action by Shareholders Without Meeting.
--------------------------------------
(1) Any action required or permitted by the Act to be taken at any
annual or special meeting of shareholders of the corporation may be taken
without a meeting, without prior notice and without a vote, if the action is
taken by the holders of outstanding stock of each voting group entitled to vote
thereon having not less than the minimum number of votes with respect to each
voting group that would be necessary to authorize or take such action at a
meeting at which all voting groups and shares entitled to vote thereon were
present and voted. In order to be effective, the action must by evidenced by one
or more written consents describing the action taken, dated and signed by
approving shareholders having the requisite number of votes of each voting group
entitled to vote thereon, and delivered to the corporation by delivery to its
principal office in this state, its principal place of business, the corporate
secretary, or another office or agent of the corporation having custody of the
book in which proceedings of meetings of shareholders are recorded. No written
consent shall be effective to take the corporate action referred to therein
unless, within sixty (60) days of the date of the earliest dated consent is
delivered in the manner required by this section, written consent signed by the
number of holders required to take action is delivered to the corporation by
delivery as set forth in this section.
(2) Within 10 days after obtaining such authorization by written
consent, notice in accordance with Section 607.0704(3) of the Act must be given
to those shareholders who have not consented in writing.
ARTICLE IV
Board of Directors and Officers
-------------------------------
Section 4.01. Qualifications of Directors.
---------------------------
Directors must be natural persons who are 18 years of age or older but
need not be residents of the State of Florida or shareholders of the
corporation.
Section 4.02. Number of Directors.
-------------------
(1) The board of directors shall consist of not less than one (1) nor
more than nine (9) individuals.
(2) The number of directors may be increased or decreased from time to
time by amendment to these bylaws.
(3) Directors are elected at the first annual shareholders' meeting and
at each annual meeting thereafter unless their terms are staggered under Section
4.04 of these bylaws.
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Section 4.03. Terms of Directors Generally.
----------------------------
(1) The terms of the initial directors of the corporation expire at the
first shareholders' meeting at which directors are elected.
(2) The terms of all other directors expire at the next annual
shareholders' meeting following their election unless their terms are staggered
under Section 4.04 of these bylaws.
(3) A decrease in the number of directors does not shorten an incumbent
director's term.
(4) The term of a director elected to fill a vacancy expires at the
next shareholders' meeting at which directors are elected.
(5) Despite the expiration of a director's term, he continues to serve
until his successor is elected and qualifies or until there is a decrease in the
number of directors.
Section 4.04. Staggered Terms for Directors.
-----------------------------
The directors of any corporation organized under the Act may, by the
articles of incorporation, or by amendment to these bylaws adopted by a vote of
the shareholders, be divided into one, two or three classes with the number of
directors in each class being as nearly equal as possible; the term of office of
those of the first class to expire at the annual meeting next ensuing; of the
second class one year thereafter; at the third class two years thereafter; and
at each annual election held after such classification and election, directors
shall be chosen for a full term, as the case may be, to succeed those whose
terms expire. If the directors have staggered terms, then any increase or
decrease in the number of directors shall be so apportioned among the classes as
to make all classes as nearly equal in number as possible.
Section 4.05. Vacancy on Board.
----------------
(1) Whenever a vacancy occurs on a board of directors, including a
vacancy resulting from an increase in the number of directors, it may be filled
by the affirmative vote of a majority of the remaining directors.
(2) A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
Section 4.06. Compensation of Directors.
-------------------------
The board of directors may fix the compensation of directors.
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Section 4.07. Meetings.
--------
(1) The board of directors may hold regular or special meetings in or
out of the State of Florida.
(2) A majority of the directors present, whether or not a quorum
exists, may adjourn any meeting of the board of directors to another time and
place. Notice of any such adjourned meeting shall be given to the directors who
were not present at the time of the adjournment and, unless the time and place
of the adjourned meeting are announced at the time of the adjournment, to the
other directors.
(3) Meetings of the board of directors may be called by the chairman of
the board or by the president.
(4) The board of directors may permit any or all directors to
participate in a regular or special meeting by, or conduct the meeting through
the use of, any means of communication by which all directors participating may
simultaneously hear each other during the meeting. A director participating in a
meeting by this means is deemed to be present in person at the meeting.
Section 4.08. Action by Directors Without a Meeting.
-------------------------------------
(1) Action required or permitted by the Act to be taken at a board of
directors' meeting or committee meeting may be taken without a meeting if the
action is taken by all members of the board or of the committee. The action must
be evidenced by one or more written consents describing the action taken and
signed by each director or committee member.
(2) Action taken under this section is effective when the last director
signs the consent, unless the consent specifies a different effective date.
(3) A consent signed under this section has the effect of a meeting
vote and may be described as such in any document.
Section 4.09. Notice of Meetings.
------------------
Regular and special meetings of the board of directors may not be held
without notice of the date, time, place, or purpose of the meeting.
Section 4.10. Waiver of Notice.
----------------
Notice of a meeting of the board of directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance of a director at a meeting shall constitute a waiver of notice of
such meeting and a waiver of any and
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all objections to the place of the meeting, the time of the meeting, or the
manner in which it has been called or convened, except when a director states,
at the beginning of the meeting or promptly upon arrival at the meeting, any
objection to the transaction of business because the meeting is not lawfully
called or convened.
Section 4.11. Quorum and Voting.
-----------------
(1) A quorum of the board of directors for a meeting of the board
consists of a majority of the number of directors prescribed by the articles of
incorporation or these bylaws.
(2) If a quorum is present when a vote is taken, the affirmative vote
of a majority of directors present is the act of the board of directors.
(3) A director of the corporation who is present at a meeting of the
board of directors or a committee of the board of directors when corporate
action is taken is deemed to have assented to the action taken unless:
(a) He objects at the beginning of the meeting (or promptly
upon his arrival) to holding it or transacting specified business at the
meeting; or
(b) He votes against or abstains from the action taken.
Section 4.12. Committees.
----------
(1) The board of directors, by resolution adopted by a majority of the
full board of directors, may designate from among its members an executive
committee and one or more other committees each of which, to the extent provided
in such resolution, shall have and may exercise all the authority of the board
of directors, except that no such committee shall have the authority to:
(a) Approve or recommend to shareholders actions or proposals
required by the Act to be approved by shareholders.
(b) Fill vacancies on the board of directors or any committee
thereof.
(c) Adopt, amend, or repeal these bylaws.
(d) Authorize or approve the reacquisition of shares unless
pursuant to a general formula or method specified by the board of directors.
(e) Authorize or approve the issuance or sale or contract for
the sale of shares, or determine the designation and relative rights,
preferences, and limitations of a voting group except that the board of
directors may authorize a committee (or a senior
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executive officer of the corporation) to do so within limits specifically
prescribed by the board of directors.
(2) The sections of these bylaws which govern meetings, notice and
waiver of notice, and quorum and voting requirements of the board of directors
apply to committees and their members as well.
(3) Each committee must have two or more members who serve at the
pleasure of the board of directors. The board, by resolution adopted in
accordance herewith, may designate one or more directors as alternate members of
any such committee who may act in the place and stead of any absent member or
members at any meeting of such committee.
(4) Neither the designation of any such committee, the delegation
thereto of authority, nor action by such committee pursuant to such authority
shall alone constitute compliance by any member of the board of directors not a
member of the committee in question with his responsibility to act in good
faith, in a manner he reasonably believes to be in the best interests of the
corporation, and with such care as an ordinarily prudent person in a like
position would use under similar circumstances.
Section 4.13. Loans to Officers, Directors, and Employees; Guaranty of
--------------------------------------------------------
Obligations.
-----------
The corporation may lend money to, guaranty any obligation of, or
otherwise assist any officer, director, or employee of the corporation or of a
subsidiary, whenever, in the judgment of the board of directors, such loan,
guaranty, or assistance may reasonably be expected to benefit the corporation.
The loan, guaranty, or other assistance may be with or without interest and may
be unsecured or secured in such manner as the board of directors shall approve,
including, without limitation, a pledge of shares of stock of the corporation.
Nothing in this section shall be deemed to deny, limit, or restrict the powers
of guaranty or warranty of any corporation at common law or under any statute.
Loans, guaranties, or other types of assistance are subject to section 4.19.
Section 4.14. Required Officers.
-----------------
(1) The corporation shall have such officers as the board of directors
may appoint from time to time.
(2) A duly appointed officer may appoint one or more assistant
officers.
(3) The board of directors shall delegate to one of the officers
responsibility for preparing minutes of the directors' and shareholders'
meetings and for authenticating records of the corporation.
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(4) The same individual may simultaneously hold more than one office in
the corporation.
Section 4.15. Duties of Officers.
------------------
Each officer has the authority and shall perform the duties set forth
in a resolution or resolutions of the board of directors or by direction of any
officer authorized by the board of directors to prescribe the duties of other
officers.
Section 4.16. Resignation and Removal of Officers.
-----------------------------------
(1) An officer may resign at any time by delivering notice to the
corporation. A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date and the corporation accepts the future effective date, the board of
directors may fill the pending vacancy before the effective date if the board of
directors provides that the successor does not take office until the effective
date.
(2) The board of directors may remove any officer at any time with or
without cause. Any assistant officer, if appointed by another officer, may
likewise be removed by the board of directors or by the officer which appointed
him in accordance with these bylaws.
Section 4.17. Contract Rights of Officers.
---------------------------
The appointment of an officer does not itself create contract rights.
Section 4.18. General Standards for Directors.
-------------------------------
(1) A director shall discharge his duties as a director, including his
duties as a member of a committee:
(a) In good faith;
(b) With the care an ordinarily prudent person in a like
position would exercise under similar circumstances; and
(c) In a manner he reasonably believes to be in the best
interests of the corporation.
(2) In discharging his duties, a director is entitled to rely on
information, opinions, reports or statements, including financial statements and
other financial data, if prepared or presented by:
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(a) One or more officers or employees of the corporation whom
the director reasonably believes to be reliable and competent in the matters
presented;
(b) Legal counsel, public accountants, or other persons as to
matters the director reasonably believes are within the persons' professional or
expert competence; or
(c) A committee of the board of directors of which he is not a
member if the director reasonably believes the committee merits confidence.
(3) In discharging his duties, a director may consider such factors as
the director deems relevant, including the long-term prospects and interests of
the corporation and its shareholders, and the social, economic, legal, or other
effects of any action on the employees, suppliers, customers of the corporation
or its subsidiaries, the communities and society in which the corporation or its
subsidiaries operate, and the economy of the state and the nation.
(4) A director is not acting in good faith if he has knowledge
concerning the matter in question that makes reliance otherwise permitted by
subsection (2) unwarranted.
(5) A director is not liable for any action taken as a director, or any
failure to take any action, if he performed the duties of his office in
compliance with this section.
Section 4.19. Director Conflicts of Interest.
------------------------------
No contract or other transaction between a corporation and one or more
interested directors shall be either void or voidable because of such
relationship or interest, because such director or directors are present at the
meeting of the board of directors or a committee thereof which authorizes,
approves or ratifies such contract or transaction, or because his or their votes
are counted for such purpose, if:
(1) The fact of such relationship or interest is disclosed or known to
the board of directors or committee which authorizes, approves or ratifies the
contract or transactions by a vote or consent sufficient for the purpose without
counting the votes or consents of such interested directors;
(2) The fact of such relationship or interest is disclosed or known to
the shareholders entitled to vote and they authorize, approve or ratify such
contract or transaction by vote or written consent; or
(3) The contract or transaction is fair and reasonable as to the
corporation at the time it is authorized by the board, a committee or the
shareholders.
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Common or interested directors may be counted in determining the
presence of a quorum at the meeting of the board of directors or a committee
thereof which authorizes, approves or ratifies such contract or transaction.
For the purpose of paragraph (2) above, a conflict of interest
transaction is authorized, approved or ratified if it receives the vote of a
majority of the shares entitled to be counted under this subsection. Shares
owned by or voted under the control of a director who has a relationship or
interest in the conflict of interest transaction may not be counted in a vote of
shareholders to determine whether to authorize, approve or ratify a conflict of
interest transaction under paragraph (2). The vote of those shares, however, is
counted in determining whether the transaction is approved under other sections
of the Act. A majority of the shares, whether or not present, that are entitled
to be counted in a vote on the transaction under this subsection constitutes a
quorum for the purpose of taking action under this section.
Section 4.20. Resignation of Directors.
------------------------
A director may resign at any time by delivering written notice to the
board of directors or its chairman or to the corporation.
A resignation is effective when the notice is delivered unless the
notice specifies a later effective date. If a resignation is made effective at a
later date, the board of directors may fill the pending vacancy before the
effective date if the board of directors provides that the successor does not
take office until the effective date.
ARTICLE V
Indemnification of Directors, Officers,
Employees and Agents
--------------------
Section 5.01. Directors, Officers, Employees and Agents.
-----------------------------------------
(1) The corporation shall have power to indemnify any person who was or
is a party to any proceeding (other than an action by, or in the right of, the
corporation), by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against liability
incurred in connection with such proceeding, including any appeal thereof, if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any proceeding by judgment, order, settlement,
or conviction or upon a plea of nolo contendere or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he
18
<PAGE>
reasonably believed to be in, or not opposed to, the best interests of the
corporation or, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) The corporation shall have power to indemnify any person, who was
or is a party to any proceeding by or in the right of the corporation to procure
a judgment in its favor by reason of the fact that he is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses and amounts paid in settlement not exceeding, in the judgment of the
board of directors, the estimated expense of litigating the proceeding to
conclusion, actually and reasonably incurred in connection with the defense or
settlement of such proceeding, including any appeal thereof. Such
indemnification shall be authorized if such person acted in good faith and in a
manner he reasonably believed to be in, or not opposed to, the best interests of
the corporation, except that no indemnification shall be made under this
subsection in respect of any claim, issue, or matter as to which such person
shall have been adjudged to be liable unless, and only to the extent that, the
court in which such proceeding was brought, or any other court of competent
jurisdiction, shall determine upon application that, despite the adjudication of
liability but in view of all circumstances of the case, such person is fairly
and reasonably entitled to indemnity for such expenses which such court shall
deem proper.
(3) To the extent that a director, officer, employee, or agent of the
corporation has been successful on the merits or otherwise in defense of any
proceeding referred to in subsections (1) or (2), or in defense of any claim,
issue, or matter therein, he shall be indemnified against expenses actually and
reasonably incurred by him in connection therewith.
(4) Any indemnification under subsections (1) or (2), unless pursuant
to a determination by a court, shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in subsections (1) or (2).
Such determination shall be made:
(a) By the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) If such a quorum is not obtainable or, even if obtainable,
by majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two or
more directors not at the time parties to the proceeding;
(c) By independent legal counsel:
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(1) Selected by the board of directors prescribed in
paragraph (a) or the committee prescribed in paragraph (b); or
(2) If a quorum of the directors cannot be obtained
for paragraph (a) and the committee cannot be designed under paragraph (b),
selected by majority vote of the full board of directors (in which directors who
are parties may participate); or
(d) By the shareholders by a majority vote of a quorum
consisting of shareholders who were not parties to such proceeding or, if no
such quorum is obtainable, by a majority vote of shareholders who were not
parties to such proceeding.
(5) Evaluation of the reasonableness of expenses and authorization of
indemnification shall be made in the same manner as the determination that
indemnification is permissible. However, if the determination of permissibility
is made by independent legal counsel, persons specified by paragraph (4)(c)
shall evaluate the reasonableness of expenses and may authorize indemnification.
(6) Expenses incurred by an officer or director in defending a civil or
criminal proceeding may be paid by the corporation in advance of the final
disposition of such proceeding upon receipt of an undertaking by or on behalf of
such director or officer to repay such amount if he is ultimately found not to
be entitled to indemnification by the corporation pursuant to this section.
Expenses incurred by other employees and agents may be paid in advance upon such
terms or conditions that the board of directors deems appropriate.
(7) The indemnification and advancement of expenses provided pursuant
to this section are not exclusive, and the corporation may make any other or
further indemnification or advancement of expenses of any of its directors,
officers, employees, or agents, under any bylaw, agreement, vote of shareholders
or disinterested directors, or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office.
However, indemnification or advancement of expenses shall not be made to or on
behalf of any director, officer, employee, or agent if a judgment or other final
adjudication establishes that his actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
(a) A violation of the criminal law, unless the director,
officer, employee, or agent had reasonable cause to believe his conduct was
lawful or had no reasonable cause to believe his conduct was unlawful;
(b) A transaction from which the director, officer, employee,
or agent derived an improper personal benefit;
(c) In the case of a director, a circumstance under which the
liability provisions of Section 607.0834 under the Act are applicable; or
20
<PAGE>
(d) Willful misconduct or a conscious disregard for the best
interests of the corporation in a proceeding by or in the right of the
corporation to procure a judgment in its favor or in a proceeding by or in the
right of a shareholder.
(8) Indemnification and advancement of expenses as provided in this
section shall continue as, unless otherwise provided when authorized or
ratified, to a person who has ceased to be a director, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person, unless otherwise provided when authorized or ratified.
(9) Notwithstanding the failure of the corporation to provide
indemnification, and despite any contrary determination of the board or of the
shareholders in the specific case, a director, officer, employee, or agent of
the corporation who is or was a party to a proceeding may apply for
indemnification or advancement of expenses, or both, to the court conducting the
proceeding, to the circuit court, or to another court of competent jurisdiction.
On receipt of an application, the court, after giving any notice that it
considers necessary, may order indemnification and advancement of expenses,
including expenses incurred in seeking court-ordered indemnification or
advancement of expenses, if it determines that:
(a) The director, officer, employee, or agent if entitled to
mandatory indemnification under subsection (3), in which case the court shall
also order the corporation to pay the director reasonable expenses incurred in
obtaining court-ordered indemnification or advancement of expenses;
(b) The director, officer, employee, or agent is entitled to
indemnification or advancement of expenses, or both, by virtue of the exercise
by the corporation of its power pursuant to subsection (7); or
(c) The director, officer, employee, or agent is fairly and
reasonably entitled to indemnification or advancement of expenses, or both, in
view of all the relevant circumstances, regardless of whether such person met
the standard of conduct set forth in subsection (1), subsection (2) or
subsection (7).
(10) For purposes of this section, the term "corporation" includes, in
addition to the resulting corporation, any constituent corporation (including
any constituent of a constituent) absorbed in a consolidation or merger, so that
any person who is or was a director, officer, employee, or agent of a
constituent corporation, or is or was serving at the request of a constituent
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust or other enterprise, is in the same position
under this section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
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(11) For purposes of this section:
(a) The term "other enterprises" includes employee benefit
plans;
(b) The term "expenses" includes counsel fees, including those
for appeal;
(c) The term "liability" includes obligations to pay a
judgment, settlement, penalty, fine (including an excise tax assessed with
respect to any employee benefit plan), and expenses actually and reasonably
incurred with respect to a proceeding;
(d) The term "proceeding" includes any threatened, pending, or
completed action, suit or other type of proceeding, whether civil, criminal,
administrative, or investigative and whether formal or informal;
(e) The term "agent" includes a volunteer;
(f) The term "serving at the request of the corporation"
includes any service as a director, officer, employee, or agent of the
corporation that imposes duties on such persons, including duties relating to an
employee benefit plan and its participants or beneficiaries; and
(g) The term "not opposed to the best interest of the
corporation" describes the actions of a person who acts in good faith and in a
manner he reasonably believes to be in the best interests of the participants
and beneficiaries of an employee benefit plan.
(12) The corporation shall have power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this section.
ARTICLE VI
Office and Agent
----------------
Section 6.01. Registered Office and Registered Agent.
--------------------------------------
(1) The corporation shall have and continuously maintain in the State
of Florida:
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(a) A registered office which may be the same as its place
of business; and
(b) A registered agent, who, may be either:
(1) An individual who resides in the State of Florida
whose business office is identical with such registered office; or
(2) Another corporation or not-for-profit corporation
as defined in Chapter 617 of the Act, authorized to transact business or conduct
its affairs in the State of Florida, having a business office identical with the
registered office; or
(3) A foreign corporation or not-for-profit foreign
corporation authorized pursuant to chapter 607 or chapter 617 of the Act to
transact business or conduct its affairs in the State of Florida, having a
business office identical with the registered office.
Section 6.02. Change of Registered Office or Registered Agent; Resignation
------------------------------------------------------------
of Registered Agent.
-------------------
(1) The corporation may change its registered office or its registered
agent upon filing with the Department of State of the State of Florida a
statement of change setting forth:
(a) The name of the corporation;
(b) The street address of its current registered office;
(c) If the current registered office is to be changed, the
street address of the new registered office;
(d) The name of its current registered agent;
(e) If its current registered agent is to be changed, the name
of the new registered agent and the new agent's written consent (either on the
statement or attached to it) to the appointment;
(f) That the street address of its registered office and the
street address of the business office of its registered agent, as changed, will
be identical;
(g) That such change was authorized by resolution duly adopted
by its board of directors or by an officer of the corporation so authorized by
the board of directors.
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ARTICLE VII
Shares, Options, Dividends and Distributions
--------------------------------------------
Section 7.01. Authorized Shares.
------------------
(1) The articles of incorporation prescribe the classes of shares and
the number of shares of each class that the corporation is authorized to issue,
as well as a distinguishing designation for each class, and prior to the
issuance of shares of a class the preferences, limitations, and relative rights
of that class must be described in the articles of incorporation.
(2) The articles of incorporation must authorize:
(a) One or more classes of shares that together have unlimited
voting rights, and
(b) One or more classes of shares (which may be the same class
or classes as those with voting rights) that together are entitled to receive
the net assets of the corporation upon dissolution.
(3) The articles of incorporation may authorize one or more classes of
shares that have special, conditional, or limited voting rights, or no rights,
or no right to vote, except to the extent prohibited by the Act;
(a) Are redeemable or convertible as specified in the articles
of incorporation;
(b) Entitle the holders to distributions calculated in any
manner, including dividends that may be cumulative, non-cumulative, or partially
cumulative;
(c) Have preference over any other class of shares with
respect to distributions, including dividends and distributions upon the
dissolution of the corporation.
(4) Shares which are entitled to preference in the distribution of
dividends or assets shall not be designated as common shares. Shares which are
not entitled to preference in the distribution of dividends or assets shall be
common shares and shall not be designated as preferred shares.
Section 7.02. Terms of Class or Series Determined by Board of Directors.
---------------------------------------------------------
(1) If the articles of incorporation so provide, the board of directors
may determine, in whole or part, the preferences, limitations, and relative
rights (within the limits set forth in Section 7.01) of:
24
<PAGE>
(a) Any class of shares before the issuance of any shares of
that class, or
(b) One or more series within a class before the issuance of
any shares of that series.
(2) Each series of a class must be given a distinguishing designation.
(3) All shares of a series must have preferences, limitations, and
relative rights identical with those of other shares of the same series and,
except to the extent otherwise provided in the description of the series, of
those of other series of the same class.
(4) Before issuing any shares of a class or series created under this
section, the corporation must deliver to the Department of State of the State of
Florida for filing articles of amendment, which are effective without
shareholder action, in accordance with Section 607.0602 of the Act.
Section 7.03. Issued and Outstanding Shares.
-----------------------------
(1) A corporation may issue the number of shares of each class or
series authorized by the articles of incorporation. Shares that are issued are
outstanding shares until they are reacquired, redeemed, converted, or canceled.
(2) The reacquisition, redemption, or conversion of outstanding shares
is subject to the limitations of subsection (3) and to Section 607.06401 of the
Act.
(3) At all times that shares of the corporation are outstanding, one or
more shares that together have unlimited voting rights and one or more shares
that together are entitled to receive the net assets of the corporation upon
dissolution must be outstanding.
Section 7.04. Issuance of Shares.
------------------
(1) The board of directors may authorize shares to be issued for
consideration consisting of any tangible or intangible property or benefit to
the corporation, including cash, promissory notes, services performed, promises
to perform services evidenced by a written contract, or other securities of the
corporation.
(2) Before the corporation issues shares, the board of directors must
determine that the consideration received or to be received for shares to be
issued is adequate. That determination by the board of directors is conclusive
insofar as the adequacy of consideration for the issuance of shares relates to
whether the shares are validly issued, fully paid, and non-assessable. When it
cannot be determined that outstanding shares
25
<PAGE>
are fully paid and non-assessable, there shall be a conclusive presumption that
such shares are fully paid and non-assessable if the board of directors makes a
good faith determination that there is no substantial evidence that the full
consideration for such shares has not been paid.
(3) When the corporation receives the consideration for which the board
of directors authorized the issuance of shares, the shares issued therefor are
fully paid and non-assessable. Consideration in the form of a promise to pay
money or a promise to perform services is received by the corporation at the
time of the making of the promise, unless the agreement specifically provides
otherwise.
(4) The corporation may place in escrow shares issued for a contract
for future services or benefits or a promissory note, or make other arrangements
to restrict the transfer of the shares, and may credit distributions in respect
of the shares against their purchase price, until the services are performed,
the note is paid, or the benefits received. If the services are not performed,
the shares escrowed or restricted and the distributions credited may be canceled
in whole or part.
Section 7.05. Form and Content of Certificates.
---------------------------------
(1) Shares may but need not be represented by certificates. Unless the
Act or another statute expressly provides otherwise, the rights and obligations
of shareholders are identical whether or not their shares are represented by
certificates.
(2) At a minimum, each share certificate must state on its face:
(a) The name of the issuing corporation and that the
corporation is organized under the laws of the State of Florida;
(b) The name of the person to whom issued; and
(c) The number and class of shares and the designation of the
series, if any, the certificate represents.
(3) If the shares being issued are of different classes of shares or
different series within a class, the designations, relative rights, preferences,
and limitations applicable to each class and the variations in rights,
preferences, and limitations determined for each series (and the authority of
the board of directors to determine variations for future series) must be
summarized on the front or back of each certificate. Alternatively, each
certificate may state conspicuously on its front or back that the corporation
will furnish the shareholder a full statement of this information on request and
without charge.
(4) Each share certificate:
26
<PAGE>
(a) Must be signed (either manually or in facsimile) by an
officer or officers designated by the board of directors, and
(b) May bear the corporate seal or its facsimile.
(5) If the person who signed (either manually or in facsimile) a share
certificate no longer holds office when the certificate is issued, the
certificate is nevertheless valid.
(6) Nothing in this section may be construed to invalidate any share
certificate validly issued and outstanding under the Act on July 1, 1990.
Section 7.06. Shares Without Certificates.
---------------------------
(1) The board of directors of the corporation may authorize the issue
of some or all of the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
(2) Within a reasonable time after the issue or transfer of shares
without certificates, the corporation shall send the shareholder a written
statement of the information required on certificates by the Act.
Section 7.07. Restriction on Transfer of Shares and Other Securities.
------------------------------------------------------
(1) The articles of incorporation, these bylaws, an agreement among
shareholders, or an agreement between shareholders and the corporation may
impose restrictions on the transfer or registration of transfer of shares of the
corporation. A restriction does not affect shares issued before the restriction
was adopted unless the holders of such shares are parties to the restriction
agreement or voted in favor of the restriction.
(2) A restriction on the transfer or registration of transfer of shares
is valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section, and effected in compliance with the
provisions of the Act, including having a proper purpose as referred to in the
Act.
Section 7.08. Shareholder's Pre-emptive Rights.
---------------------------------
The shareholders of the corporation do not have a pre-emptive right to
acquire the corporation's unissued shares.
27
<PAGE>
Section 7.09. Corporation's Acquisition of its Own Shares.
-------------------------------------------
(1) The corporation may acquire its own shares, and, unless otherwise
provided in the articles of incorporation or except as provided in subsection
(4), shares so acquired constitute authorized but unissued shares of the same
class but undesignated as to series.
(2) If the articles of incorporation prohibit the reissue of acquired
shares, the number of authorized shares is reduced by the number of shares
acquired, effective upon amendment of the articles of incorporation.
(3) Articles of amendment may be adopted by the board of directors
without shareholder action, shall be delivered to the Department of State of the
State of Florida for filing, and shall set forth the information required by
Section 607.0631 of the Act.
(4) Shares of the corporation in existence on June 30, 1990, which are
treasury shares under Section 607.004(18), Florida Statutes (1987), shall be
issued, but not outstanding, until canceled or disposed of by the corporation.
Section 7.10. Share Options.
-------------
(1) Unless the articles of incorporation provide otherwise, the
corporation may issue rights, options, or warrants for the purchase of shares of
the corporation. The board of directors shall determine the terms upon which the
rights, options, or warrants are issued, their form and content, and the
consideration for which the shares are to be issued.
(2) The terms and conditions of stock rights and options which are
created and issued by the corporation, or its successor, and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized by unissued shares, treasury shares, or shares to be
purchased or acquired by the corporation, may include, without limitation,
restrictions, or conditions that preclude or limit the exercise, transfer,
receipt, or holding of such rights or options by any person or persons,
including any person or persons owning or offering to acquire a specified number
or percentage of the outstanding common shares or other securities of the
corporation, or any transferee or transferees of any such person or persons, or
that invalidate or void such rights or options held by any such person or
persons or any such transferee or transferees.
Section 7.11. Terms and Conditions of Stock Rights and Options.
------------------------------------------------
The terms and conditions of the stock rights and options which are
created and issued by the corporation [or its successor], and which entitle the
holders thereof to purchase from the corporation shares of any class or classes,
whether authorized but
28
<PAGE>
unissued shares, treasury shares, or shares to be purchased or acquired by the
corporation, may include, without limitation, restrictions or conditions that
preclude or limit the exercise, transfer, receipt or holding of such rights or
options by any person or persons, including any person or persons owning or
offering to acquire a specified number or percentage of the outstanding common
shares or other securities of the corporation, or any transferee or transferees
of any such person or persons, or that invalidate or void such rights or options
held by any such person or persons or any such transferee or transferees.
Section 7.12. Share Dividends.
---------------
(1) Shares may be issued pro rata and without consideration to the
corporation's shareholders or to the shareholders of one or more classes or
series. An issuance of shares under this subsection is a share dividend.
(2) Shares of one class or series may not be issued as a share dividend
in respect of shares of another class or series unless:
(a) The articles of incorporation so authorize,
(b) A majority of the votes entitled to be cast by the class
or series to be issued approves the issue, or
(c) There are no outstanding shares of the class or series to
be issued.
(3) If the board of directors does not fix the record date for
determining shareholders entitled to a share dividend, it is the date of the
board of directors authorizes the share dividend.
Section 7.13. Distributions to Shareholders.
-----------------------------
(1) The board of directors may authorize and the corporation may make
distributions to its shareholders subject to restriction by the articles of
incorporation and the limitations in subsection (3).
(2) If the board of directors does not fix the record date for
determining shareholders entitled to a distribution (other than one involving a
purchase, redemption, or other acquisition of the corporation's shares), it is
the date the board of directors authorizes the distribution.
(3) No distribution may be made if, after giving it effect:
(a) The corporation would not be able to pay its debts as they
become due in the usual course of business; or
29
<PAGE>
(b) The corporation's total assets would be less than the sum
of its total liabilities plus (unless the articles of incorporation permit
otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of shareholders whose preferential rights are superior to those
receiving the distribution.
(4) The board of directors may base a determination that a distribution
is not prohibited under subsection (3) either on financial statements prepared
on the basis of accounting practices and principles that are reasonable in the
circumstances or on a fair valuation or other method that is reasonable in the
circumstances. In the case of any distribution based upon such a valuation, each
such distribution shall be identified as a distribution based upon a current
valuation of assets, and the amount per share paid on the basis of such
valuation shall be disclosed to the shareholders concurrent with their receipt
of the distribution.
(5) Except as provided in subsection (7), the effect of a distribution
under subsection (3) is measured;
(a) In the case of distribution by purchase, redemption, or
other acquisition of the corporation's shares, as of the earlier of:
(1) The date money or other property is transferred
or debt incurred by the corporation, or
(2) The date the shareholder ceases to be a
shareholder with respect to the acquired shares;
(b) In the case of any other distribution of indebtedness, as
of the date the indebtedness is distributed;
(c) In all other cases, as of:
(1) The date the distribution is authorized if the
payment occurs within one hundred twenty (120) days after the date of
authorization, or
(ii) The date the payment is made if it occurs more
than one hundred twenty (120) days after the date of authorization.
(6) A corporation's indebtedness to a shareholder incurred by reason of
a distribution made in accordance with this section is at parity with the
corporation's indebtedness to its general, unsecured creditors except to the
extent subordinated by agreement.
30
<PAGE>
(7) Indebtedness of the corporation, including indebtedness issued as a
distribution, is not considered a liability for purposes of determinations under
subsection (3) if its terms provide that payment of principal and interest are
made only if and to the extent that payment of a distribution to shareholders
could then be made under this section. If the indebtedness is issued as a
distribution, each payment of principal or interest is treated as a
distribution, the effect of which is measured on the date the payment is
actually made.
ARTICLE VIII
Amendment of Articles and Bylaws
Section 8.01. Authority to Amend the Articles of Incorporation.
------------------------------------------------
(1) The corporation may amend its articles of incorporation at any time
to add or change a provision that is required or permitted in the articles of
incorporation or to delete a provision not required in the articles of
incorporation. Whether a provision is required or permitted in the articles of
incorporation is determined as of the effective date of the amendment.
(2) A shareholder of the corporation does not have a vested property
right resulting from any provision in the articles of incorporation, including
provisions relating to management, control, capital structure, dividend
entitlement, or purpose or duration of the corporation.
Section 8.02. Amendment by Board of Directors.
-------------------------------
The corporation's board of directors may adopt one or more amendments
to the corporation's articles of incorporation without shareholder action:
(1) To extend the duration of the corporation if it was incorporated at
a time when limited duration was required by law;
(2) To delete the names and addresses of the initial directors;
(3) To delete the name and address of the initial registered agent or
registered office, if a statement of change is on file with the Department of
State of the State of Florida;
(4) To delete any other information contained in the articles of
incorporation that is solely of historical interest;
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<PAGE>
(5) To change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the corporation has
only shares of that class outstanding;
(6) To delete the authorization for a class or series of shares
authorized pursuant to Section 607.0602 of the Act, if no shares of such class
or series have been issued;
(7) To change the corporate name by substituting the word
"corporation," "incorporated," or "company," or the abbreviation "corp.," Inc.,"
or Co.," for a similar word or abbreviation in the name, or by adding, deleting,
or changing a geographical attribution for the name; or
(8) To make any other change expressly permitted by the Act to be made
without shareholder action.
Section 8.03. Amendment of Bylaws by Board of Directors.
-----------------------------------------
The corporation's board of directors may amend or repeal the
corporation's bylaws unless the Act reserves the power to amend a particular
bylaw provision exclusively to the shareholders.
Section 8.04. Bylaw Increasing Quorum or Voting Requirements for Directors.
------------------------------------------------------------
(1) A bylaw that fixes a greater quorum or voting requirement for the
board of directors may be amended or repealed:
(a) If originally adopted by the shareholders, only by the
shareholders;
(b) If originally adopted by the board of directors, either by
the shareholders or by the board of directors.
(2) A bylaw adopted or amended by the shareholders that fixes a greater
quorum or voting requirement for the board of directors may provide that it may
be amended or repealed only by a specified vote of either the shareholders or
the board of directors.
(3) Action by the board of directors under paragraph (1)(b) to adopt or
amend a bylaw that changes the quorum or voting requirement for the board of
directors must meet the same quorum requirement and be adopted by the same vote
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
32
<PAGE>
ARTICLE IX
Records and Reports
-------------------
Section 9.01. Corporate Records.
-----------------
(1) The corporation shall keep as permanent records minutes of all
meetings of its shareholders and board of directors, a record of all actions
taken by the shareholders or board of directors without a meeting, and a record
of all actions taken by a committee of the board of directors in place of the
board of directors on behalf of the corporation.
(2) The corporation shall maintain accurate accounting records.
(3) The corporation or its agent shall maintain a record of its
shareholders in a form that permits preparation of a list of the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and series of shares held by each.
(4) The corporation shall maintain its records in written form or in
another form capable of conversion into written form within a reasonable time.
(5) The corporation shall keep a copy of the following records:
(a) Its articles or restated articles of incorporation and all
amendments to them currently in effect;
(b) Its bylaws or restated bylaws and all amendments to them
currently in effect;
(c) Resolutions adopted by the board of directors creating one
or more classes or series of shares and finding their relative rights,
preferences, and limitations, if shares issued pursuant to those resolutions are
outstanding;
(d) The minutes of all shareholders' meetings and records of
all action taken by shareholders without a meeting for the past three years;
(e) Written communications to all shareholders generally or
all shareholders of a class or series within the past three years, including the
financial statements furnished for the past three years;
(f) A list of the names and business street addresses of its
current directors and officers; and
33
<PAGE>
(g) Its most recent annual report delivered to the Department
of State of the State of Florida.
Section 9.02. Financial Statements for Shareholders.
-------------------------------------
(1) Unless modified by resolution of the shareholders within 120 days
of the close of each fiscal year, the corporation shall furnish its shareholders
annual financial statements which may be consolidated or combined statements of
the corporation and one or more of its subsidiaries, as appropriate, that
include a balance sheet as of the end of the fiscal year, an income statement
for that year, and a statement of cash flows for that year. If financial
statements are prepared for the corporation on the basis of generally-accepted
accounting principles, the annual financial statements must also be prepared on
that basis.
(2) If the annual financial statements are reported upon by a public
accountant, his report must accompany them. If not, the statements must be
accompanied by a statement of the president or the person responsible for the
corporation's accounting records:
(a) Stating his reasonable belief whether the statements were
prepared on the basis of generally-accepted accounting principles and, if not,
describing the basis of preparation; and
(b) Describing any respects in which the statements were not
prepared on a basis of accounting consistent with the statements prepared for
the preceding year.
(3) The corporation shall mail the annual financial statements to each
shareholder within 120 days after the close of each fiscal year or within such
additional time thereafter as is reasonably necessary to enable the corporation
to prepare its financial statements, if for reasons beyond the corporation's
control, it is unable to prepare its financial statements within the prescribed
period. Thereafter, on written request from a shareholder who was not mailed the
statements, the corporation shall mail him the latest annual financial
statements.
Section 9.03. Other Reports to Shareholders.
-----------------------------
(1) If the corporation indemnifies or advances expenses to any
director, officer, employee or agent otherwise than by court order or action by
the shareholders or by an insurance carrier pursuant to insurance maintained by
the corporation, the corporation shall report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting, or prior to such meeting if the indemnification or advance occurs after
the giving of such notice but prior to the time such meeting is held, which
report shall include a statement specifying the persons paid,
34
<PAGE>
the amounts paid, and the nature and status at the time of such payment of the
litigation or threatened litigation.
(2) If the corporation issues or authorizes the issuance of shares for
promises to render services in the future, the corporation shall report in
writing to the shareholders the number of shares authorized or issued, and the
consideration received by the corporation, with or before the notice of the next
shareholders' meeting.
Section 9.04. Annual Report for Department of State.
-------------------------------------
(1) The corporation shall deliver to the Department of State of the
State of Florida for filing a sworn annual report on such forms as the
Department of State of the State of Florida prescribes that sets forth the
information prescribed by Section 607.1622 of the Act.
(2) Proof to the satisfaction of the Department of State of the State
of Florida on or before July 1 of each calendar year that such report was
deposited in the United States mail in a sealed envelope, properly addressed
with postage prepaid, shall be deemed in compliance with this requirement.
(3) Each report shall be executed by the corporation by an officer or
director or, if the corporation is in the hands of a receiver or trustee, shall
be executed on behalf of the corporation by such receiver or trustee, and the
signing thereof shall have the same legal effect as if made under oath, without
the necessity of appending such oath thereto.
(4) Information in the annual report must be current as of the date the
annual report is executed on behalf of the corporation.
(5) Any corporation failing to file an annual report which complies
with the requirements of this section shall not be permitted to maintain or
defend any action in any court of this state until such report is filed and all
fees and taxes due under the Act are paid and shall be subject to dissolution or
cancellation of its certificate of authority to do business as provided in the
Act.
ARTICLE X
Miscellaneous
-------------
Section 10.01. Definition of the "Act".
------------------------
All references contained herein to the "Act" or to sections of the
"Act" shall be deemed to be in reference to the Florida Business Corporation
Act.
35
<PAGE>
Section 10.02. Application of Florida Law.
---------------------------
Whenever any provision of these bylaws is inconsistent with any
provision of the Florida Business Corporation Act, Statutes 607, as they may be
amended from time to time, then in such instance Florida law shall prevail.
Section 10.03. Fiscal Year.
-----------
The fiscal year of the corporation shall be determined by resolution of
the board of directors.
Section 10.04. Conflicts with Articles of Incorporation.
----------------------------------------
In the event that any provision contained in these bylaws conflicts
with any provision of the corporation's articles of incorporation, as amended
from time to time, the provisions of the articles of incorporation shall prevail
and be given full force and effect, to the full extent permissible under the
Act.
36
AMERICAN QUANTUM CYCLES, INC.
AMENDED
1997 STOCK OPTION PLAN
1. Grant of Options; Generally. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is the
AMERICAN QUANTUM CYCLES, INC. 1997 STOCK OPTION PLAN (the "Plan"), the Board of
Directors (the "Board") or, the Compensation Committee (the "Stock Option
Committee") of American Quantum Cycles, Inc. (the "Corporation") is hereby
authorized to issue from time to time on the Corporation's behalf to any one or
more Eligible Persons, as hereinafter defined, options to acquire shares of the
Corporation's no par value common stock (the "Stock").
2. Type of Options. The Board or the Stock Option Committee is
authorized to issue Incentive Stock Options ("ISOs") which meet the requirements
of Section ss.422 of the Internal Revenue Code of 1986, as amended (the "Code"),
which options are hereinafter referred to collectively as ISOs, or singularly as
an ISO. The Board or the Stock Option Committee is also, in its discretion,
authorized to issue options which are not ISOs, which options are hereinafter
referred to collectively as Non Statutory Options ("NSOs"), or singularly as an
NSO. The Board or the Stock Option Committee is also authorized to issue "Reload
Options" in accordance with Paragraph 8 herein, which options are hereinafter
referred to collectively as Reload Options, or singularly as a Reload Option.
Except where the context indicates to the contrary, the term "Option" or
"Options" means ISOs, NSOs and Reload Options.
3. Amount of Stock. The aggregate number of shares of Stock which may
be purchased pursuant to the exercise of Options shall be 3,000,000 shares. Of
this amount, the Board or the Stock Option Committee shall have the power and
authority to designate whether any Options so issued shall be ISOs or NSOs,
subject to the restrictions on ISOs contained elsewhere herein. If an Option
ceases to be exercisable, in whole or in part, the shares of Stock underlying
such Option shall continue to be available under this Plan. Further, if shares
of Stock are delivered to the Corporation as payment for shares of Stock
purchased by the exercise of an Option granted under this Plan, such shares of
Stock shall also be available under this Plan. If there is any change in the
number of shares of Stock due to of the declaration of stock dividends,
recapitalization resulting in stock split-ups, or combinations or exchanges of
shares of Stock, or otherwise, the number of shares of Stock available for
purchase upon the exercise of Options, the shares of Stock subject to any Option
and the exercise price of any outstanding Option shall be appropriately adjusted
by the Board or the Stock Option Committee. The Board or the Stock Option
Committee shall give notice of any adjustments to each Eligible Person granted
an Option under this Plan, and such adjustments shall be effective and binding
on all Eligible Persons. If because of one or more recapitalizations,
reorganizations or other corporate events, the holders of outstanding Stock
receive something other than shares of Stock then, upon exercise of an Option,
the Eligible Person will receive what the holder would have owned if the holder
had exercised the Option immediately before the first such corporate event and
not disposed of anything the holder received as a result of the corporate event.
<PAGE>
4. Eligible Persons.
(a) With respect to ISOs, an Eligible Person means any individual who
has been employed by the Corporation or by any subsidiary of the Corporation,
for a continuous period of at least sixty (60) days.
(b) With respect to NSOs, an Eligible Person means (i) any individual
who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days, (ii) any
director of the Corporation or any subsidiary of the Corporation or (iii) any
consultant of the Corporation or any subsidiary of the Corporation.
5. Grant of Options. The Board or the Stock Option Committee has the
right to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures prescribed for
it elsewhere in this Plan. A grant of Options shall be set forth in a writing
signed on behalf of the Corporation or by a majority of the members of the Stock
Option Committee. The writing shall identify whether the Option being granted is
an ISO or an NSO and shall set forth the terms which govern the Option. The
terms shall be determined by the Board or the Stock Option Committee, and may
include, among other terms, the number of shares of Stock that may be acquired
pursuant to the exercise of the Options, when the Options may be exercised, the
period for which the Option is granted and including the expiration date, the
effect on the Options if the Eligible Person terminates employment and whether
the Eligible Person may deliver shares of Stock to pay for the shares of Stock
to be purchased by the exercise of the Option. However, no term shall be set
forth in the writing which is inconsistent with any of the terms of this Plan.
The terms of an Option granted to an Eligible Person may differ from the terms
of an Option granted to another Eligible Person, and may differ from the terms
of an earlier Option granted to the same Eligible Person.
6. Option Price. The option price per share shall be determined by the
Board or the Stock Option Committee at the time any Option is granted, and shall
be not less than (i) in the case of an ISO, the fair market value, (ii) in the
case of an ISO granted to a ten percent or greater stockholder, 110 percent of
the fair market value, or (iii) in the case of an NSO, not less than 55% of the
fair market value (but in no event less than the par value) of one share of
Stock on the date the Option is granted, as determined by the Board or the Stock
Option Committee.
Fair market value as used herein shall be:
7. (a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the mean between the high and low sales prices of Stock
on such exchange or over-the-counter market on which such shares shall be traded
on that date, or if such exchange or over-the-counter market is closed or if no
shares shall have traded on such date, on the last preceding date on which such
shares shall have traded.
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by a recognized appraiser as
selected by the Board or the Stock Option Committee.
2
<PAGE>
8. Purchase of Shares. An Option shall be exercised by the tender to
the Corporation of the full purchase price of the Stock with respect to which
the Option is exercised and written notice of the exercise. The purchase price
of the Stock shall be in United States dollars, payable in cash, check,
Promissory Note secured by the Shares issued through exercise of the related
Options, or in property or Corporation stock, if so permitted by the Board or
the Stock Option Committee in accordance with the discretion granted in
Paragraph 5 hereof, having a value equal to such purchase price. The Corporation
shall not be required to issue or deliver any certificates for shares of Stock
purchased upon the exercise of an Option prior to (i) if requested by the
Corporation, the filing with the Corporation by the Eligible Person of a
representation in writing that it is the Eligible Person's then present
intention to acquire the Stock being purchased for investment and not for
resale, and/or (ii) the completion of any registration or other qualification of
such shares under any government regulatory body, which the Corporation shall
determine to be necessary or advisable.
9. Grant of Reload Options. In granting an Option under this Plan, the
Board or the Stock Option Committee may include a Reload Option provision
therein, subject to the provisions set forth in Paragraphs 20 and 21 herein. A
Reload Option provision provides that if the Eligible Person pays the exercise
price of shares of Stock to be purchased by the exercise of an ISO, NSO or
another Reload Option (the "Original Option") by delivering to the Corporation
shares of Stock already owned by the Eligible Person (the "Tendered Shares"),
the Eligible Person shall receive a Reload Option which shall be a new Option to
purchase shares of Stock equal in number to the tendered shares. The terms of
any Reload Option shall be determined by the Board or the Stock Option Committee
consistent with the provisions of this Plan.
10. Stock Option Committee. The Stock Option Committee may be appointed
from time to time by the Corporation's Board of Directors. The Board may from
time to time remove members from or add members to the Stock Option Committee.
The Stock Option Committee shall be constituted so as to permit the Plan to
comply in all respects with the provisions set forth in Paragraph 20 herein. The
members of the Stock Option Committee may elect one of its members as its
chairman. The Stock Option Committee shall hold its meetings at such times and
places as its chairman shall determine. A majority of the Stock Option
Committee's members present in person shall constitute a quorum for the
transaction of business. All determinations of the Stock Option Committee will
be made by the majority vote of the members constituting the quorum. The members
may participate in a meeting of the Stock Option Committee by conference
telephone or similar communications equipment by means of which all members
participating in the meeting can hear each other. Participation in a meeting in
that manner will constitute presence in person at the meeting. Any decision or
determination reduced to writing and signed by all members of the Stock Option
Committee will be effective as if it had been made by a majority vote of all
members of the Stock Option Committee at a meeting which is duly called and
held.
11. Administration of Plan. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Option Committee is
3
<PAGE>
granted the full right and authority to interpret and construe the provisions of
this Plan, promulgate, amend and rescind rules and procedures relating to the
implementation of the Plan and to make all other determinations necessary or
advisable for the administration of the Plan, consistent, however, with the
intent of the Corporation that Options granted or awarded pursuant to the Plan
comply with the provisions of Paragraph 20 and 21 herein. All determinations
made by the Board or the Stock Option Committee shall be final, binding and
conclusive on all persons including the Eligible Person, the Corporation and its
stockholders, employees, officers and directors and consultants. No member of
the Board or the Stock Option Committee will be liable for any act or omission
in connection with the administration of this Plan unless it is attributable to
that member's willful misconduct.
12. Provisions Applicable to ISOs. The following provisions shall apply
to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from
________________, 1997, the date that this Plan was originally adopted by the
Corporation's Board of Directors.
(b) An ISO may not be exercised after the expiration of ten (10) years
from the date the ISO is granted.
(c) The option price may not be less than the fair market value of the
Stock at the time the ISO is granted.
(d) An ISO is not transferrable by the Eligible Person to whom it is
granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time of the
grant stock possessing more than ten (10%) percent of the total combined voting
power of all classes of stock of the employer corporation or of its parent or
subsidiary corporation (as those terms are defined in the Code), then the option
price shall be at least 110% of the fair market value of the Stock, and the ISO
shall not be exercisable after the expiration of five (5) years from the date
the ISO is granted.
(f) The aggregate fair market value (determined at the time the ISO is
granted) of the Stock with respect to which the ISO is first exercisable by the
Eligible Person during any calendar year (under this Plan and any other
incentive stock option plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock which are issued upon exercise of an
ISO are sold within one year following the exercise of such ISO so that the sale
constitutes a disqualifying disposition for ISO treatment under the Code, no
provision of this Plan shall be construed as prohibiting such a sale.
4
<PAGE>
(h) This Plan was adopted by the Corporation on June 15, 1997, by
virtue of its approval by the Corporation's Board of Directors and a majority of
the vote of the shareholders of the Company holding 50% or more of the
outstanding capital stock of the Company.
13. Determination of Fair Market Value. In granting ISOs under this
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
14. Restrictions on Issuance of Stock. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted in
accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such exercise
it is his or her then present intention to acquire the shares of Stock for
investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal representative of an
Eligible Person, "distribution" shall be defined to exclude distribution by will
or under the laws of descent and distribution. Prior to issuing any shares of
Stock pursuant to the exercise of an Option, the Corporation shall take such
steps as it deems necessary to satisfy any withholding tax obligations imposed
upon it by any level of government.
15. Exercise in the Event of Death of Termination or Employment.
(a) If an optionee shall die (i) while an employee of the Corporation
or a Subsidiary or (ii) within three months after termination of his employment
with the Corporation or a Subsidiary because of his disability, or retirement or
otherwise, his Options may be exercised, to the extent that the optionee shall
have been entitled to do so on the date of his death or such termination of
employment, by the person or persons to whom the optionee's right under the
Option pass by will or applicable law, or if no such person has such right, by
his executors or administrators, at any time, or from time to time. In the event
of termination of employment because of his death while an employee or because
of disability, his Options may be exercised not later than the expiration date
specified in Paragraph 5 or one year after the optionee's death, whichever date
is earlier, or in the event of termination of employment because of retirement
or otherwise, not later than the expiration date specified in Paragraph 5 hereof
or one year after the optionee's death, whichever date is earlier.
(b) If an optionee's employment by the Corporation or a Subsidiary
shall terminate because of his disability and such optionee has not died within
the following three months, he may exercise his Options, to the extent that he
shall have been entitled to do so at the date of the termination of his
employment, at any time, or from time to time, but not later than the expiration
date specified in Paragraph 5 hereof or one year after termination of
employment, whichever date is earlier.
5
<PAGE>
(c) If an optionee's employment shall terminate by reason of his
retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans if any, or with the consent of the Board or the Stock Option
Committee or involuntarily other than by termination for cause, and such
optionee has not died within the following three months, he may exercise his
Option to the extent he shall have been entitled to do so at the date of the
termination of his employment, at any time and from to time, but not later than
the expiration date specified in Paragraph 5 hereof or thirty (30) days after
termination of employment, whichever date is earlier. For purposes of this
Paragraph 14, termination for cause shall mean; (i) termination of employment
for cause as defined in the optionee's Employment Agreement or (ii) in the
absence of an Employment Agreement for the optionee, termination of employment
by reason of the optionee's commission of a felony, fraud or willful misconduct
which has resulted, or is likely to result, in substantial and material damage
to the Corporation or a Subsidiary, all as the Board or the Stock Option
Committee in its sole discretion may determine.
(d) If an optionee's employment shall terminate for any reason other
than death, disability, retirement or otherwise, all right to exercise his
Option shall terminate at the date of such termination of employment absent
specific provisions in the optionee's Option Agreement.
16. Corporate Events. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock the Board of Directors may declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and each
such Eligible Person shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Option as to all or any part of the
shares of Stock covered thereby, including shares of Stock as to which such
Option would not otherwise be exercisable. Nothing set forth herein shall extend
the term set for purchasing the shares of Stock set forth in the Option.
17. No Guarantee of Employment. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to continue in
the employ of the Eligible Person's employer, or will interfere with or restrict
in any way the right of the Eligible Person's employer to discharge such
Eligible Person at any time for any reason whatsoever, with or without cause.
18. Nontransferability. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by him.
19. No Rights as Stockholder. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
6
<PAGE>
20. Amendment and Discontinuance of Plan. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this Plan
which has the effect of (a) increasing the aggregate number of shares of Stock
subject to this Plan (except for adjustments pursuant to Paragraph 3 herein), or
(b) changing the definition of Eligible Person under this Plan, may be effective
unless and until approval of the stockholders of the Corporation is obtained in
the same manner as approval of this Plan is required. The Corporation's Board of
Directors is authorized to seek the approval of the Corporation's stockholders
for any other changes it proposes to make to this Plan which require such
approval, however, the Board of Directors may modify the Plan, as necessary, to
effectuate the intent of the Plan as a result of any changes in the tax,
accounting or securities laws treatment of Eligible Persons and the Plan,
subject to the provisions set forth in this Paragraph 19, and Paragraphs 20 and
21.
21. Compliance with Rule 16b-3. This Plan is intended to comply in all
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3
shall be deemed null and void to the extent appropriate by either the Stock
Option Committee or the Corporation's Board of Directors.
22. Compliance with Code. The aspects of this Plan on ISOs is intended
to comply in every respect with Section 422 of the Code and the regulations
promulgated thereunder. In the event any future statute or regulation shall
modify the existing statute, the aspects of this Plan on ISOs shall be deemed to
incorporate by reference such modification. Any stock option agreement relating
to any Option granted pursuant to this Plan outstanding and unexercised at the
time any modifying statute or regulation becomes effective shall also be deemed
to incorporate by reference such modification and no notice of such modification
need be given to optionee.
If any provision of the aspects of this Plan on ISOs is determined to
disqualify the shares purchasable pursuant to the Options granted under this
Plan from the special tax treatment provided by Code Section 422, such provision
shall be deemed null and void and to incorporate by reference the modification
required to qualify the shares for said tax treatment.
23. Compliance With Other Laws and Regulations. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such options, shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required. The Corporation shall not be required
to issue or deliver any certificates for shares of Stock prior to (a) the
listing of such shares on any stock exchange or over-the-counter market on which
the Stock may then be listed and (b) the completion of any registration or
qualification of such shares under any federal or state law, or any ruling or
regulation of any government body which the Corporation shall, in its sole
discretion, determine to be necessary or advisable. Moreover, no Option may
7
<PAGE>
be exercised if its exercise or the receipt of Stock pursuant thereto would be
contrary to applicable laws.
24. Disposition of Shares. In the event any share of Stock acquired by
an exercise of an Option granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution within two years of the date
such Option was granted or within one year after the transfer of such Stock
pursuant to such exercise, the optionee shall give prompt written notice thereof
to the Corporation or the Stock Option Committee.
25. Name. The Plan shall be known as the "American Quantum Cycles, Inc.
1997 Stock Option Plan."
26. Notices. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation shall be sent to it at its office, 4691 North University Drive,
Suite 365, Coral Springs, Florida 33071, and when addressed to the Committee
shall be sent to it at 4691 North University Drive, Suite 365, Coral Springs,
Florida 33071, subject to the right of either party to designate at any time
hereafter in writing some other address, facsimile number or person to whose
attention such notice shall be sent.
27. Headings. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
28. Effective Date. This Plan, the American Quantum Cycles, Inc. 1997
Stock Option Plan, was adopted by the Board of Directors of the Corporation on
__________________, 1997. The effective date of the Plan shall be the same date.
Dated as of _________________, 1997.
AMERICAN QUANTUM CYCLES, INC.
By:___________________________
Name: ________________________
Its: President
8
<PAGE>
[NSO GRANT FORM]
AMERICAN QUANTUM CYCLES, INC.
4691 North University Drive, Suite 365
Coral Springs, Florida 33071
Date: ________________
_______________________
_______________________
_______________________
Dear ______________:
The Board of Directors of American Quantum Cycles, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the Amended 1997 Stock Option Plan (the "Plan"). This letter will describe the
Option granted to you. Attached to this letter is a copy of the Plan. The terms
of the Plan also set forth provisions governing the Option granted to you.
Therefore, in addition to reading this letter you should also read the Plan.
Your signature on this letter is an acknowledgement to us that you have read and
under-stand the Plan and that you agree to abide by its terms. All terms not
defined in this letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written notice
to the Chairman of the Board of Directors at the Corporation's principal place
of business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
<PAGE>
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199___, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your employment
terminates with the Corporation and any of its subsidiaries included in the
Plan, if such employment termination occurs by reason of your death or by reason
of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have not
been registered under the Securities Act of 1933, as amended (the "Act"). The
Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:________________________
Name: _____________________
Its: President
AGREED AND ACCEPTED:
- -------------------
2
<PAGE>
Date: ________________
AMERICAN QUANTUM CYCLES, INC.
4691 North University Drive, Suite 365
Coral Springs, Florida 33071
_________________________
_________________________
_________________________
Dear _______________:
The Board of Directors of American Quantum Cycles, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the Amended 1997 Stock Option Plan (the "Plan"). This letter will describe the
Option granted to you. Attached to this letter is a copy of the Plan. The terms
of the Plan also set forth provisions governing the Option granted to you.
Therefore, in addition to reading this letter you should also read the Plan.
Your signature on this letter is an acknowledgement to us that you have read and
under-stand the Plan and that you agree to abide by its terms. All terms not
defined in this letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an ISO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
<PAGE>
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written notice
to the Chairman of the Board of Directors at the Corporation's principal place
of business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option shall
terminate upon the first to occur of the following dates:
(a) _____________, 199___, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your employment
terminates with the Corporation and any of its subsidiaries included in the
Plan, if such employment termination occurs by reason of your death or by reason
of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have not
been registered under the Securities Act of 1933, as amended (the "Act"). The
Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
2
<PAGE>
7. Binding Effect. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:_________________________
Name:_______________________
Its: President
AGREED AND ACCEPTED:
- -------------------
3
<PAGE>
[NSO GRANT FORM
WITH RELOAD OPTIONS]
AMERICAN QUANTUM CYCLES, INC.
4691 North University Drive, Suite 365
Coral Springs, Florida 33071
Date _________________
_____________________
_____________________
_____________________
Dear __________:
The Board of Directors of American Quantum Cycles, Inc. (the
"Corporation") is pleased to award you an Option pursuant to the provisions of
the Amended 1997 Stock Option Plan (the "Plan"). This letter will describe the
Option granted to you. Attached to this letter is a copy of the Plan. The terms
of the Plan also set forth provisions governing the Option granted to you.
Therefore, in addition to reading this letter you should also read the Plan.
Your signature on this letter is an acknowledgement to us that you have read and
understand the Plan and that you agree to abide by its terms. All terms not
defined in this letter shall have the same meaning as in the Plan.
1. Type of Option. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. Rights and Privileges.
(a) Subject to the conditions hereinafter set forth, we grant you
the right to purchase __________ shares of Stock at $__________ per share, the
current fair market value of a share of Stock. The right to purchase the shares
of Stock accrues in __________ installments over the time periods described
below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you acquire
shares of Stock pursuant to the exercise of the Underlying Option and pay for
such shares of Stock with shares of Common Stock
<PAGE>
already owned by you (the "Tendered Shares"). The Reload Option grants you the
right to purchase shares of Stock equal in number to the number of Tendered
Shares. The date on which the Tendered Shares are tendered to the Corporation in
full or partial payment of the purchase price for the shares of Stock acquired
pursuant to the exercise of the Underlying Option is the Reload Grant Date. The
exercise price of the Reload Option is the fair market value of the Tendered
Shares on the Reload Grant Date. The fair market value of the Tendered Shares
shall be the low bid price per share of the Corporation's Common Stock on the
Reload Grant Date. The Reload Option shall vest equally over a period of
__________ (___) years, commencing on the first anniversary of the Reload Grant
Date, and on each anniversary of the Reload Grant Date thereafter; however, no
Reload Option shall vest in any calendar year if it would allow you to purchase
for the first time in that calendar year shares of Stock with a fair market
value in excess of $100,000, taking into account ISOs previously granted to you.
The Reload Option shall expire on the earlier of (i) __________ (___) years from
the Reload Grant Date, or (ii) in accordance with Paragraph 5(b), or (iii) in
accordance with Paragraph 5(c) as set forth herein. If vesting of the Reload
Option is deferred, then the Reload Option shall vest in the next calendar year,
subject, however, to the deferral of vesting previously provided. Except as
provided herein the Reload Option is subject to all of the other terms and
provisions of this Agreement governing Options.
3. Time of Exercise. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. Method of Exercise. The Options shall be exercised by written
notice to the Chairman of the Board of Directors at the Corporation's principal
place of business. The notice shall set forth the number of shares of Stock to
be acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. Termination of Option. To the extent not exercised, the Option
shall terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of grant
pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
2
<PAGE>
(c) The expiration of 12 months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan, if such employment termination occurs by reason of your death or by
reason of your permanent disability (as defined above).
6. Securities Laws.
The Option and the shares of Stock underlying the Option have not
been registered under the Securities Act of 1933, as amended (the "Act"). The
Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. Binding Effect. The rights and obligations described in this
letter shall inure to the benefit of and be binding upon both of us, and our
respective heirs, personal representatives, successors and assigns.
8. Date of Grant. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:__________________________
Name: _______________________
Its: President
AGREED AND ACCEPTED:
- -------------------
3
May 9, 1997
Dr. Norman Moskowitz
American Quantum Cycles, Inc.
711-731 Washburn Road
Melbourne, FL 32934
Gentlemen:
This letter shall constitute the terms of the Consulting Agreement
among Greenstone Financial Corp., ("GFC"), a Florida corporation, and American
Quantum Cycles, Inc. ("AQC"), a Florida corporation. For ten dollars and other
good and valuable consideration it is agreed as follows:
1. Employment. GFC is retained by AQC to provide AQC with corporate
development consulting.
2. Services to be Performed by GFC. GFC shall act as a consultant to
AQC to provide the following:
Assist AQC in preparation of a Bridge Loan Document to
enable AQC to raise a maximum of $250,000. Receipt of
such funds by AQC has occurred.
Assist AQC in preparation of a Private Placement document,
under Regulation D, Rule 504, to enable AQC to raise
an additional $1,000,000. Prior to the Private
Placement all of the stock in AQC will be owned as
follows: 36% by Doreen A. Cheal, 36% by Denise B.
O'Brien and 28% by the public.
Assist AQC in negotiating with Investment Bankers to raise
an additional $4,000,000, which is anticipated not to
reduce the individual holdings of Cheal and O'Brien
below 26% each.
Preparation of a due-diligence package. Dissemination of AQC
information to investors. Preparation and dissemination of AQC
press releases. Presenting AQC to brokers, fund managers and
analysts.
Compensation. In consideration for the performance of the services by
GFC under this Agreement, GFC shall receive the following compensation:
A five year option to purchase 300,000 shares of AQC
common stock from treasury (the "Common Stock"),
exercisable upon completion of the secondary
offering, and receipt of the funds by AQC,at an
exercise price of $.10 per share.
AQC shall reimburse GFC, within 15 days of submission of
an invoice, for all out of pocket expenses
pre-approved in writing.
Registration Rights.
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AQC agrees that it will, subject to the requirement that
the prior consent of the Secondary Underwriter be
obtained, as soon as reasonably practicable and at
the sole expense of AQC, register the shares of
Common Stock issuable upon the GFC Option under the
Securities Act of 1933 (the "Act") for resale by GFC.
Such securities shall be registered on a Form S-8
Registration Statement or, if such form is not
available, then upon another form which AQC is
eligible to use. AQC shall supply prospectuses
meeting the requirements of the Act and such other
documents as GFC may reasonably request for at least
one year following the effectiveness of such
registration in order to facilitate the public sale
or disposition of such securities, to register and
qualify any of such securities for sale in such
states as GFC designates and do any and all other
acts and things which may be necessary or desirable
to enable GFC to consummate the public sale or other
disposition of such securities.
GFC has knowledge and experience in financial and
business matters that each is capable of evaluating
the merits and risks of an investment in AQC. GFC is
familiar with the nature and risks inherent in
investments in unregistered securities and in the
business in which AQC engages and have determined
that an investment in AQC is consistent with its
investment objectives and income prospects. GFC
represents and warrants that it is an "accredited
investor" as defined in Rule 501(a) of Regulation D
promulgated under the Act. GFC is acquiring the
shares of Common Stock underlying the Option to be
issued, for its own account for investment purposes
only and not with a view toward resale or
distribution of such shares either in whole or in
part.
5. Term. This Agreement shall be effective for a period of twelve
months, commencing upon the date of execution of this Agreement, provided that
GFC continues to perform the services listed in Section 2.
6. Joint Relationship. Nothing contained in this Agreement shall be
construed to imply a joint venture or partnership or principle/agent
relationship between the parties hereto, and no party by this Agreement shall
have any right, power or authority to act or create any obligation, expressed or
implied, on behalf of the other party other than as set forth herein.
7. Confidential Information. The parties hereto recognize that a major
need of AQC is to preserve its trade secrets and confidential information. By
reason of this Agreement, GFC will have access to, and will obtain specialized
knowledge, trade secrets and confidential information about AQC's plans and
operations. Therefore, GFC hereby agrees that during and after the Term GFC will
not use) other than in performing services hereunder), disclose to others, or
publish any confidential business information about the affairs of AQC,
including but not limited to confidential information concerning AQC's products,
methods, analytical techniques, technical information, customer information,
employee information, and other confidential information acquired by it in the
course of its past or future services for AQC. GFC agrees to take reasonable and
appropriate steps to prevent the improper or inadvertent disclosure of any such
confidential information. GFC further acknowledges that it may from time to time
in the performance of services under this Agreement come into possession of
information that could be deemed to be material non-public information and that
the possession of such information may limit GFC's ability to sell shares
underlying its Option.
8. Entire Agreement. This Agreement represents the entire Agreement
between the parties and is not subject to alteration, modification or change
except in writing signed by each of the parties. In addition, this Agreement
when executed shall supersede any and all previous Agreements, whether written
or oral. A waiver of any term or condition of this Agreement shall not be
construed as a general waiver. The obligations of the parties under this
Agreement shall not be assignable or transferable.
9. Notices. Any notices with respect to this Agreement shall be sent
via registered mail, return receipt requested, to each of the parties at the
address designated at the top of page one.
10. Choice of Law. This Agreement shall be governed by and construed
under the laws of the State of Florida.
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11. Disputes. The prevailing party in any dispute pursuant to this
Agreement shall be entitled to reasonable attorneys' fees and costs.
If the foregoing meets with your approval, please indicate by
counter-signing below.
Sincerely,
Greenstone Financial Corp.
By: _________________________
Richard R. Dwyer, Jr.
Managing Director
AGREED TO AND ACCEPTED:
American Quantum Cycles, Inc.
_____________________________ _______________
Dr. Norman Moskowitz Date
President
LICENSE OF TECHNOLOGY AND TRADE SECRETS
Parties
THIS LICENSE AGREEMENT is made by and between FEULING ADVANCES
TECHNOLOGIES, INC., a Nevada corporation, its successors and/or assigns (the
"Licensor") and AMERICAN QUANTUM CYCLES, INC., a corporation organized and
existing under the laws of Florida, with its principal place of business at 731
Washburn Road, Melbourne, Florida 32934 (the "Licensee").
Recitals
The Licensor is the owner of the entire right in and to patents,
trademarks, and certain trade secret information concerning proprietary secret
processes, techniques, tooling, customers, designs and proprietary know-how for
the design and manufacture of 4-valve cylinder heads for Harley Davidson
Evolution Big Two motorcycle engines. Licensee desires to obtain a scope of use
license, and the Licensor is willing to grant, subject to the terms and
conditions set forth in this Agreement, a license from the Licensor for the
scope of use and in the territory herein designated, to use the Technology
solely in the manufacture and sale of after market 4-valve cylinder head kits
for engines of the Harley Davidson Evolution ("Big Twin") engine applications
and modifications thereof.
Terms of Agreement
Article I: Certain Definitions
Section 1.1 Use Throughout. Terms defined in this Article I and
parenthetically elsewhere shall have the same meaning throughout this Agreement.
Defined terms may be used in the singular and the plural.
Section 1.2 "Technology" means:
1.2.1 The Licensor's secret processes, techniques, tooling
designs, product designs and proprietary know-how and custom made proprietary
machinery and tooling, plans, technology protected by U.S. Patents.
U.S. Patent Number 4,206,600 Anti Reversionary Exhaust
U.S. Patent Number 4,838,219 for an Intake Port
U.S. Patent Number 4,976,231 for an Intake Port
U.S. Patent Number 5,042,435 for a Plenum Chamber;
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AND, certain trade secret information concerning proprietary secret
processes, techniques, tooling, equipment, designs, customer lists, and
proprietary know-how for the design and manufacture of the following products:
1. Rocker Arm Design
2. O Ringed Stuc Manifold
3. Combustion Chamber Design
4. Other "Know How" relevant to the production and manufacture
of products under this license for 4-valve cylinder heads
for aftermarket sale and installation upon Harley Davidson
Evolution engines and U.S. manufactured variants thereof;
AND,
Strictly subject to the requirements of Article 10 hereof, the use of
the following Trademarks of Licensor solely upon the products to be manufactured
pursuant to this agreement:
1. "AR"
2. "4-VALVE"
3. "CVX"
4. "RAM CHAMBER"
5. "RACE FEET"
Section 1.3 "Developments" means any and all improvements and
developments, whether or not patents, irrespective of the maker thereof,
relating to or derived from the Technology or its use, including without
limitation any process, method, technique or know-how.
Section 1.4 "Patents" means any patents which may issue in the
Territory on the Technology described in Sections 1.2.1 and all renewals of such
patents and related developments thereof.
Section 1.5 "Territory" means the Unites States of America and all
countries where the patents are recognized and enforceable.
Article II: Grant of License; Disclosure of Developments
Section 2.1 Grant. Subject to this Agreement's terms and conditions,
the Licensor hereby grants to the extent that it lawfully may, to the Licensee,
the right to use the Technology and the Developments defined under Sections 1.2,
1.3 and 1.4, solely for Aftermarket Sale as defined in Section 1.6, and in the
Territory as defined in Section 1.5, for the License Term set forth in Section
9.1.
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Section 2.2 Section 2.1.1 Marking. Licensee agrees all products sold
pursuant to this license shall be clearly marked with the subject matter patent
number(s) and/or designation of registered trademark(s).
Section 2.3 Sublicenses.
2.3.1 The license granted to the Licensee under Section 2.1
does not include the right to sublicense the Technology and the Developments to
others in the Territory subject to the provisions of this Section 2.3 without
the express written permission of Licensor for such sublicense which may be
granted or denied at the sole discretion of Licensor.
Section 2.4 Reservation of Rights. Subject to the Licensee's right to
use the same pursuant to the terms of this Agreement, the Licensor reserves all
proprietary rights in and to all discoveries, inventions, patent rights, trade
secrets, know-how or other proprietary data embodied in the Technology or the
Developments. The Licensee agrees to receive and use the Technology and the
Developments transferred to Licensee under this Agreement for the term of the
license granted under Section 2.1 and subject to such reservation, and agrees to
cease all use of Technology or Developments upon termination of such license.
Licensee acknowledges that the Technology licensed herein is of a sensitive
nature and is the trade secret and proprietary intellectual property of Licensor
and hereby accepts Licensor's confidential disclosure to License of the
Technology pursuant to the terms of this contract.
Section 2.5 CARB or Federal Requirements. Licensee acknowledges that
The California Air Resources Board and/or other state or federal agencies may
require the Licensee and or resellers of Licensee's products, to apply for and
receive exemption status (50 state legal) allowing the products produced under
license herein to be sold for aftermarket installation. Such requirements may
change due to changes in the law from time to time. Licensor acknowledges that
any and all such responsibility for any such approval is Licensee's and at the
sole expense of Licensee.
Article III: Commencement of Disclosure
Section 3.1 Deliveries. Subject to the terms and conditions of this
Agreement, the Licensor shall, within 30 days after the signing of this
Agreement, commence any additional disclosure of the Technology and Developments
to the Licensee, by delivering to the Licensee copies of the Technology
Documents and the drawings and other technical documentation in the Licensor's
possession and all materials finished and unfinished, supplies, tooling,
fixtures, customer lists and suppliers list relating to sale and manufacture of
the products licensed herein. Licensor shall also provide written documents to
Licensee and appropriate third parties verifying that the materials, supplies,
tooling, and fixtures, not currently in physical possession of Licensor have
been transferred pursuant to the terms of this Agreement.
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Article IV: Independent Parties
Section 4.1 Status of Parties. Nothing in this Agreement shall be
construed to constitute the Licensee as the partner, employee or agent of the
Licensor, nor shall either party have any authority to bind the other in any
respect, it being intended that each shall remain an independent contractor
responsible only for its own actions.
Article V: Royalty
Section 5.1 Cash Payment and Royalty Payments. In consideration of the
Licensor disclosure of the Technology, and, in consideration for the scope of
use license granted by the Licensor for continued use of the Technology, and,
the performance of the Licensor's other obligations under this Agreement, the
Licensee shall pay to the Licensor the license and other fees described in
Section 5.1.2.
5.1.1 The Licensee shall pay to the Licensor the total
aggregate amount of $250,000 which includes Royalty fees of $235,000 and $15,000
for purchase of equipment and inventory on the following schedule:
Payment 1 July 15, 1997 $ 50,000
Payment 2 August 30, 1997 $ 25,000
Payment 3 September 30, 1997 $ 25,000
Payment 4 October 30, 1997 $ 25,000
Payment 5 November 30, 1997 $ 125,000
Section 5.2 Payment. All payments tendered to the Licensor by the
Licensee under this Agreement shall be made in United States dollars. Payments
shall be made at the Licensor's address for receipt of notices under Section
10.2, or at such other address or deposited in such bank account as the Licensor
may from time to time designate by notice to the Licensee.
Section 5.3 Additional Consideration. Licensee agrees to sell Licensor,
products produced pursuant to this license, at the lowest price which Licensee
sells such products to its best distributors.
Article VI: Confidentiality
Section 6.1 Nondisclosure of Confidential Information. The Licensee
shall at all times during and after the term of this Agreement hold in the
strictest confidence, and shall not directly or indirectly disclose to others,
or use for any purpose other than as contemplated in this Agreement, any of the
Technology or the Developments disclosed to the Licensee by the Licensor or as
to the Developments of the Licensee. Notwithstanding the foregoing, the Licensee
shall have the right to make disclosures of the Technology and such Developments
on a strict "need-to-know" basis to the
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Licensee's employees, and the Licensee's prospective suppliers and contractors
to whom such disclosure is necessary for the performance of this Agreement;
provided that the Licensee shall first obtain from each employee, supplier or
contractor and their respective employees confidentiality agreements with
respect to the Technology and such Developments in the form substantially
similar to the requirements of this Agreement, and the Licensee shall promptly
deliver copies of all such confidentiality agreements to the Licensor.
Section 6.2 Exceptions. The Licensee shall not be held to a duty of
confidentiality for any of the Technology or any of the Developments which:
6.2.1 After its disclosure to the Licensee is received by the
Licensee in an integrated form from an independent third party whose disclosure
of such Technology or Developments shall not constitute a direct or indirect
breach by that third party of any duty of confidentiality owed to the Licensee.
Section 6.3 Documents. The Licensor may designate as confidential, by
legending prominently as such, any drawings, charts, blueprints, specifications,
magnetic cards, films or other documentary or physical manifestation or
disclosure of any of the Technology or the Developments (collectively, the
"Documents"). The Licensee shall legend prominently any Documents it may prepare
which embody any Technology or Developments, to identify them as confidential
trade secret proprietary information.
Section 6.4 The Licensor Confidentiality Obligations. The Licensor
shall comply with the provisions of confidentiality in Section 6 of this
Agreement in connection with any disclosures of confidential information made to
the Licensor by the Licensee under this Agreement.
Section 6.5 Unique Character of Confidential Information. The Licensee
acknowledges that the Technology and the Developments to be disclosed by the
Licensor are of a special and unique character which gives them a peculiar value
and that consequently any wrongful use or disclosure of the Technology or
Developments will cause injury not readily measurable in monetary damages, and
therefore irreparable. Accordingly, whether in court action or arbitration, the
Licensor shall be entitled to the remedies of injunction, specific performance
and other equitable relief to redress any such breach, and no proof of special
damages shall be necessary for the enforcement of or for any action upon such
obligations. Without limiting the generality of the foregoing, the Licensor
shall have the right upon notice to the Licensee hereunder, and to require the
surrender or return to the Licensor of all Technology and Developments disclosed
by the Licensor, and the Documents.
Section 6.6 NonCompetition by Licensor. Licensor herein agrees that it
will not compete with Licensee in the manufacture and sale of 4-valve cylinder
head kits, in the Aftermarket and Territory as defined herein, and for the term,
granted herein to Licensee.
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Section 6.7 Survival. The obligations of the Licensee and the Licensor
under this Article VI shall, except as otherwise expressly provided, survive
termination of this Agreement.
Article VII: The Licensee's Conduct of Business
Section 7.3 Compliance with Laws. The Licensee represents and warrants
to the Licensor that in the Licensee's performance of its obligations under this
Agreement, the Licensee shall indemnify the Licensor against any loss which the
Licensor may incur as a result of any claim or demand which may be made against
the Licensor based upon the Licensee's failure to so comply.
Section 7.4 Insurance. The Licensee shall promptly (and prior to any
sale of products using the Technology and/or taking possession of the machine)
cause its product liability, advertising claims and general liability insurance
to be modified to name the Licensor as an additional insured and shall maintain
the insurance in an amount not less than one miller dollars (U.S. $ 1,000,000),
in the aggregate, during the term of the license granted under Section 2.1 The
Licensee shall promptly provide the Licensor with a certificate of insurance
from Licensee's insurance company evidencing such coverage and the naming of
Licensor as also insured.
Article III
Section 8.1 Notice of Infringement.
8.1.1. The Licensee shall promptly notify the Licensor of any
instance which comes to the Licensee's attention involving a possible
misappropriation of any trade secret, or infringement of any Patent or other
proprietary right of the Licensor, relating to the Licensed Technology or the
Developments.
8.1.2. Licensee and Licensor shall be able to bring suit
against third parties for infringement or misappropriation of the rights granted
Licensee herein. Licensee and Licensor shall cooperate and promptly lend
reasonable assistance to each other in the prosecution of any such suit.
8.1.3. Nothing contained in this Agreements shall be construed
as an obligation of the Licensor or the Licensee, except as stated in 8.1.2. to
bring or to prosecute any suit or other proceeding against any third party for
misappropriation of trade secrets, or infringement of any patent or other
intellectual property rights.
8.2 Notice of Claims.
8.2.1. The Licensee shall give prompt notice to the Licensor of
any claim, action or proceeding pending or threatened against the Licensee,
alleging
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misappropriation of trade secrets or infringement of any patent or other
proprietary rights asserted by a third party, based on the use by the Licensee
or its sublicensees' use of the Technology or any Developments. If the
Licensee's or any of its sublicensees' use of the Technology and Developments is
in accordance with the provisions of this Agreement, and if the Licensor shall
so request, the Licensee shall make, and shall cause its sublicensees to make,
any practical modification of it's or their practice under the license or
sublicense granted, amendment of this Agreement or other means (without the
obligation of the Licensor or the Licensee to incur any material expense in
respect thereof) in order to avoid suit or reduce the potential adverse effect
of any such claim or action.
8.2.2. Licensor knows of no prior patents or prior art which
would render the rights granted herein an infringement upon same. Nothing
contained in this Agreement shall be construed as a warranty by the Licensor
that the Technology or the Developments do not infringe the patent or other
intellectual property rights of third parties, and the Licensor disclaims any
such warranty.
8.3 Licensee is responsible for all costs related to or
occurring from any returns of products produced by Licensee using the technology
licensed herein whether returned for defective workmanship or part failures or
defects covered by warrant or otherwise.
Article IX: Term; Termination
Section 9.1 License Term. The initial term of the License granted under
Section 2.1 (the "License Term") shall commence on the date of this Agreement,
and subsequent to the payment by Licensee of Payment 5, on or before November
30, 1997, this license shall continue in perpetuity and shall be considered a
paid-up license pursuant to and subject to the terms and conditions hereof for
that term.
Section 9.3 Termination. The License granted to the Licensee under
Section 2.1 may be terminated upon notice as follows:.
9.3.1 by the Licensor if Licensee has materially breached or
failed to punctually perform any of its duties or obligations under the
Agreement and to timely make each and every payment designated in Section 5.1.2
on the designated dates.
9.3.2 by the Licensor, if, prior to payment under 6 as
scheduled in 5.1.2 above, the Licensee is insolvent or becomes the subject of an
involuntary petition in bankruptcy for its reorganization or liquidation, or
makes any assignment for the benefit of its creditors, or if a trustee or
receiver of its property is appointed, or if the Licensee takes or is subjected
to any other similar action based upon its inability to meet its financial
obligations; or
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9.3.3 by the Licensor, if the Licensee assigns this
Agreement or any of its rights under this Agreement without obtaining the
Licensor's prior written consent.
Section 9.4 Effects of Expiration or Termination. Subsequent to the
term of the License granted to the Licensee under Section 2.1 or if the License
is terminated, all rights of the Licensee under the License shall cease and the
Licensee shall cease to use any part of the Technology or the Developments and
shall immediately return and surrender to the Licensor all of the Technology,
any tooling specific to the production or products produced using the
Technology, the developments disclosed by the Licensor, the tooling tendered
Licensee at the conception of this agreement, any and all Documents and all
other tangible disclosure of the Technology or Developments.
Section 9.5 Obligations Surrounding Termination. Notwithstanding any
termination of the License granted to Licensee under Section 2.1, and any
exercise by either party of any rights or remedies hereunder, the following
rights and obligations shall survive any such termination or exercise of rights
to the degree necessary to permit their complete fulfillment or discharge.
9.5.1 Article VI and any subsequent undertaking or agreement
that may be in effect at the time of termination with respect to the maintenance
of the confidentiality or secrecy of the Technology and or the Developments and
covenant not to compete.
ARTICLE X: Trademarks
The License acknowledges the validity of all trademark registrations
and applications in the USA and/or foreign countries owned by the Licensor and
herein licensed for use to Licensee for the term of, and pursuant to the terms
of this Agreement. The Licensee further acknowledges that the Licensor is the
sole owner of the entire right, title, and interest in and to the trademarks
covered by these registrations and/or applications hereinafter called "Mark or
Marks, "and any and all goodwill in said Marks now or in the future. The
Licensee shall not do any thing or commit any act which might prejudice or
adversely affect the validity of the marks and any such act shall be considered
a material breach of this agreement. Licensee shall cease to use the marks, or
any similar marks, in any manner on the expiration or other termination of this
Agreement. The Licensee further agrees that it will do nothing inconsistent with
such Licenseeship and that all use of the marks by Licensee shall inure solely
to the benefit of, and be on behalf of Licensor. Licensee agrees to be bound by
the requirements of this Section 10 for the duration of the term of the license
granted herein.
10.1(a) Quality Standards
Licensee agrees that the nature and quality of all services rendered by
Licensee in connection with the Mark; all goods sold by Licensee under the Mark;
and all related
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advertising, promotional and other related uses of the Mark by Licensee shall
conform to standards set by, and be under the control of, Licensor.
10.1(b) Quality Maintenance
Licensee agrees to cooperate with Licensor in facilitation Licensor's
control of such nature and quality, to permit reasonable inspection of
Licensee's operation, and to supply Licensor with specimens of all uses of the
Mark upon request.
10.1(c) Form of Use
Licensee agrees to use the Mark only in the form and manner and with
appropriate legends as prescribed from time to time by Licensor, and not to use
any other trademark or service mark in combination with the Mark without first
obtaining the prior written approval o f Licensor.
Article XI: General
Section 11.1 Notices. All notices required or permitted under this
Agreement shall be in writing and shall be effective upon personal delivery to
or being sent by registered or certified mail, return receipt requested, postage
fully prepaid and addressed to the respective parties at their addresses set
forth below or to any other address designated by the parties at a later date.
Licensor: Feuling Advanced Technologies, Inc.
c/o Gilliam, Duncan & Harms
Registered Patent Attorneys
4565 Ruffner Street, Suite 200
San Diego, California 92111
Licensee: American Quantum Cycles, Inc.
American Quantum Cycles, Inc.
731 Washburn Rd.
Melbourne, Florida, 32932
Section 11.2 Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the Licensor and the Licensee and of their
respective successors and permitted assigns.
Section 11.3 Waiver.
[a] Requirement of Writing - No waiver of, acquiescence to, or consent
to any breach of or default of any term or condition contained in this Agreement
by Licensor
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shall be of any force or effect unless same is in writing, specifically
identified, and signed by Licensor.
[b] No implied Waiver - No waiver of, acquiescence to, or consent to
any breach of or default of any term or condition contained in this Agreement by
Licensor pursuant to subparagraph [a], above, shall be deemed, express or
implied, generally or specifically, to be a waiver, consent, or acquiescence to
any other breach or default.
[c] No delay or omission in the exercise of any right or remedy by
Licensor shall impair such right or remedy or be construed as a waiver. A
consent by Licensor to or approval of any act shall not be deemed to waive or
render unnecessary consent to or approval of any other or subsequent act.
Section 11.4 Severability. If for any reason in any jurisdiction in
which any provision of this Agreement is sought to be enforced, any one or more
of the provisions of this Agreement shall be held to be invalid, illegal or
unenforceable in any respect, such holding shall not affect any other provision
of this Agreement and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
Section 11.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of California with all
applicable to contracts made and to be performed wholly in that State. The
federal law and public policy of the United States of America shall not govern
this Agreement or a fact of its interpretation, save as to the operation of
Licenses under U.S. Patents. Venue for the interpretation and or enforcement of
any provision of this agreement is mutually agreed by the parties hereto to be
the proper court of jurisdiction located in San Diego County, California.
Section 11.6 Legal Fees and Costs. The prevailing party to any action
to interpret and/or enforce any provision of this Agreement shall be entitled to
recover from the unsuccessful party(ies) to this Agreement, all costs, expenses
and actual attorneys' fees relating to the enforcement of, interpretation of, or
any litigation, arbitration, mediation or private settlement, relating to this
Agreement, in addition to any other relief that may be afforded.
Section 11.7 Counterparts. This Agreement may be executged in several
counterparts, each of which shall constitute an original, but all of which
together shall constitute one and the same instrument. The headings contained in
this Agreement have been inserted for convenience of reference only and shall
not modify, define, expand or limit any of the provisions of this Agreement.
Section 11.8 Drafting Ambiguities. Each party to this Agreement and its
counsel have reviewed and revised this Agreement or has had the opportunity to
do so. The rule
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of construction that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or of any
amendments or exhibits to this Agreement.
Section 11.9 Entire Agreement. This Agreement, which includes its
Addendums, and Exhibits, constitutes the entire agreement of the parties
relating to its subject matter, supersedes all prior oral or written
understandings or agreements regarding that subject matter and may not be
amended, modified or cancelled except by a written instrument executed by both
the Licensor and the Licensee.
IN WITNESS WHEREOF, Licensor and Licensee have executed this Agreement
in duplicate on the date shown below and affixed the corporate seal of the
parties hereto. The signatories of the respective parties hereto, by affixing
their signatures to this agreement, each individually warrant their ability to
bind the party on whose behalf they are executing this Agreement.
LICENSOR:
FEULING ADVANCED TECHNOLOGIES, INC.
Date: ______________________ By:_______________________________
James J. Feuling, President
LICENSEE:
AMERICAN QUANTUM CYCLES, INC.
Date: ______________________ By:_______________________________
Robert L. Guess, President
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FERREX
INTERNATIONAL, INC.
20 November 1997
Mr. Richard K. Hagen
American Quantum Cycles
731 Washburn Road
Melbourne, Florida 32934
Re: Export Distribution
Dear Rich:
Jim and I are both pleased that you and Robert visited with us last week. I
think we had an excellent session. This letter summarizes our discussions and
when counter-signed by you will become the contract between our companies which
defines our role as your Export Manager.
1. Effective on the date you countersign below, Ferrex International, Inc.
(hereinafter referred to as "FERREX") will handle all aspects of your export
distribution in the territory and manner described below.
2. FERREX will promote your products in the following countries
Saudi Arabia
Ecuador
South Africa
Singapore
Japan
Ireland
Germany
on an exclusive basis for anon-cancelable period of one year.
3. If during this initial period FERREX establishes a dealer in any country
then, Europe excepted, AMERICAN QUANTUM CYCLE (hereinafter referred to as "AQC")
will extend FERREX's exclusive territory to the country and the region of the
new dealer. For example, if
<PAGE>
a dealer is established in Ecuador or Mexico or any other country in Latin
America, FERREX shall be granted the exclusive for all of Latin America,1 if
Saudi Arabia or Kuwait or any other country in the Middle East, then FERREX
shall be granted the exclusive for all of the Middle East, and so on. To be
granted the exclusive for Europe, FERREx must establish either a dealer in
Germany or one dealer in each of any two other countries in Europe. Whenever
FERREX's exclusive territory is extended by this mechanism, the term of this
agreement shall automatically be extended for an additional three year period
for the country and region of the new dealer(s). When FERREX has been granted
exclusive rights to all five regions of the world (Europe, Pacific Rim, Middle
East, Latin America and Africa) by this mechanism, AQC shall then grant to
FERREX as its exclusive territory all of the world except for the United States
and Canada for a period of three years.
4. FERREX will handle the Export Distribution of all AQC products, including
parts, components, completed cycles and/or kits.
5. Notwithstanding the exclusive countries granted to FERREX per paragraph two
(2) above, FERREX shall have the right to promote and sell AQC products in any
other country (excluding the United States and Canada). Any and all inquiries
received by AQC shall be referred to FERREX for handling. All leads/inquiries
shall be reviewed on a quarterly basis; if no sale has been made to the inquirer
but FERREX demonstrates that it has worked on the inquiry and it is still
active, AQC will continue to work with FERREX on said lead on an exclusive basis
for additional three month periods.
6. At its own expense, FERREX shall use its best efforts to develop the market
for the territory described above. FERREX reserves the right to establish price
policy and choose the methods and programs necessary to develop satisfactory
sales in the territory.
7. FERREX agrees not to handle any competitive products during the life of this
agreement.
8. FERREX shall purchase all products from AQC at net prices and terms to be
determined by AQC, and FERREX shall take delivery of all products FOB Factory,
MElbourne, Florida. FERREX shall then resell siad products to customers overseas
at prices and terms established solely by FERREX.
9. AQC shall maintain insurance and have coverage for Product, Bodily Injury and
Property Damage Liability. Such insurance shall include FERREX as a named
insured. Said insurance shall have at least the following limits:
Product................... $1,000,000 per occurrence
Bodily Injury............. $1,000,000 per occurrence
Property.................. $1,000,000 per occurrence
- --------
1 All of the Western Hemisphere except Canada and The United States.
<PAGE>
AQC shall furnish a certificate from its insurance carrier showing that it has
complied with the foregoing, and providing that said policies will not be
changed or canceled during their term without at least ten (10) days notice
being given by registered mail to FERREX.
10. FERREX shall receive form AQC literature and sales aids, ordinarily offered
by AQC for the promotion of its products, in reasonable quantities and free of
charge.
11. Any disputes arising from, through or in any way related to this agreement,
shall be submitted to arbitration by the American Arbitration Association, 140
West 51st STreet New York, NY, and such arbitration shall be the exclusive forum
for the resolution of any dispute or disagreement.
I trust that this letter concisely summarizes our discussion. Please review
same, and if in agreement countersign below and return a copy to us and retain a
copy for your files.
Very truly yours, FERREX
INTERNATIONAL, INC.
William J. Ferretti
President
So Agreed:
- ---------------------------
Name: R K Hagen
Title: C.E.O.
Date: November 21, 1997
CC: Tom Shoulla
TABLE OF CONTENTS
-----------------
Page
1. Term............................................................. 1
2. Covered Products................................................. 1
3. Pricing.......................................................... 2
4. Payment.......................................................... 2
5. Terms and Conditions of Sale..................................... 2
6. Responsibilities of Dealer....................................... 4
7. Service Responsibilities......................................... 4
8. Warranty......................................................... 5
9. Dealer Preparation. ............................................. 5
10. Spare Parts. .................................................... 6
11. Acknowledgment of Trademarks, Trade Names, Patents and
Copyrights....................................................... 6
12. Standards for Executive Management............................... 7
13. Transfer or Assignment of Agreement.............................. 7
14. Termination by Dealer............................................ 8
15. Termination By QUANTUM CYCLES.................................... 9
16. Supervening Law.................................................. 9
17. Limitation on Damages. .......................................... 10
18. Indemnification by QUANTUM CYCLES................................ 10
19. Indemnification by Dealer. ...................................... 10
20. General.......................................................... 10
EXHIBIT "A" AMERICAN QUANTUM CYCLES
LIMITED WARRANTY............................... 13
EXHIBIT "B" DEALER PREPARATION INSTRUCTIONS......................... 14
<PAGE>
Dealer Agreement
----------------
THIS AGREEMENT by and between AMERICAN QUANTUM CYCLES, INC., a Florida
corporation, (hereinafter referred to as "QUANTUM CYCLES"), having its principal
place of business at 731 Washburn Road, Melbourne Florida 32934, and Paul
Jackson, a Dealer (hereinafter referred to as "Dealer"), having its principal
place of business at ___________________________________________________________
_______________________________________________________________________________,
collectively referred to as the "parties". It is mutually agreed that:
1. Term.
(a) This Agreement shall have a continuing term unless QUANTUM CYCLES
has notified the Dealer and the Department of Highway Safety and Motor Vehicles
of the state in which the Dealer is conducting its business, of its intention to
discontinue, cancel or fail to renew this Agreement or of its intention to
modify this Agreement or replace this Agreement with the succeeding agreement,
which modification or replacement will adversely alter the rights or obligations
of Dealer under this Agreement or will substantially impair the sales, service
obligations or investment of Dealer, at least ninety (90) days before the
effective date thereof or such period of time required by the State General
statutes, or any successor statute whichever is greater. During the term hereof,
Quantum Cycles agrees to maintain its licensure within the state of Florida and
will refrain from any action that will interfere with Dealer's ability to
maintain its licenses and permits.
2. Covered Products.
Products covered by this Agreement are the motorcycles manufactured by QUANTUM
CYCLES, including any and all models of motorcycles introduced for sale by
QUANTUM CYCLES during the term of this Agreement and all components and spare
parts of such motorcycles ("Products"). Dealer shall have the right to purchase
Products hereunder from QUANTUM CYCLES for resale to customers. Quantum Cycles
agrees that Dealer shall be its distributor of Quantum Cycles in Tampa Florida
and within a 75-mile radius of the Tampa Florida dealership location and that it
will provide a sufficient number of motorcycles and parts to enable Dealer to
comply with any and all applicable motor vehicle statutes and regulations for
dealer of new motor vehicles. Quantum Cycles agrees that no distributor will be
established in Orlando Florida within the period of one (1) year from the date
of execution of this Agreement and that after the period of one year, Dealer
will have the first right to refusal of distributorship in Orlando Florida.
<PAGE>
3. Pricing.
QUANTUM CYCLES shall have the unilateral right to determine the prices of
Products sold to Dealer hereunder, provided that QUANTUM CYCLES shall provide
Dealer with thirty (30) days' advance written notice of any revision in the
prices of QUANTUM CYCLES Products. All QUANTUM CYCLES Products ordered during or
prior to the thirty (30) day notification period, for delivery within sixty (60)
days of the notice date, shall be invoiced at the non-revised price. All QUANTUM
CYCLES Products scheduled for delivery more than sixty (60) days after the
notice date shall be invoiced at the revised price. Notwithstanding the notice
provisions of subparagraph 20(i) herein, written notice of price revisions shall
be deemed delivered two business days after deposit thereof by QUANTUM CYCLES in
the United States mails, first class postage prepaid. However, notwithstanding
anything to the contrary, Quantum Cycles agree that it will not sell or offer to
sell its motorcycles to any dealer or other individual or entity at a price
lower than it would sell to dealer.
4. Payment.
(a) Dealer shall pay for the products in the following manner, one
third (1/3) of Quantum Cycles invoice price upon Dealer placing the order; one
third (1/3) upon receipt of shipping of the finished product; and one third
(1/3) within 7 days of delivery and acceptance at Dealer's facility. This
arrangement may be renegotiated upon written notice by either party after the
first 6 months that this agreement has been in effect. Payment shall be made in
immediately available funds drawn upon a federally chartered United States bank.
(b) Dealer shall pay all applicable taxes, freight, duties and
insurance charges at the time Dealer accepts product after final inspection at
Dealer's facility.
(c) All payments shall be made in United States dollars, unless
otherwise specified in writing by QUANTUM CYCLES.
5. Terms and Conditions of Sale.
(a) Dealer purchase orders for Products shall be in writing. Any terms
or conditions of such purchase orders which conflict with this Agreement in any
respect shall be void, but the remainder of said purchase orders shall be
effective. Purchase orders for Products shall be non-cancelable after ten (10)
days from issuance by Dealer.
(b) Any applicable excise, sales, use or similar taxes, whether
federal, state or local, and any transportation charges, except as otherwise
stated herein, shall be paid by Dealer in addition to the prices herein. In lieu
of the payment of any such tax, Dealer may provide QUANTUM CYCLES with a tax
exemption certificate acceptable to the appropriate taxing authorities.
2
<PAGE>
(c) All shipments are F.O.B. QUANTUM CYCLES' factory. Title shall
remain with QUANTUM CYCLES until Dealer has accepted Products pursuant to
subparagraph (d) below. Risk of loss or damage to Products shall remain with
Quantum Cycles until accepted by Dealer as set forth below. Dealer shall have
the responsibility to obtain and/ or pay for insurance upon acceptance by Dealer
as set forth below.
(d) Final inspection and acceptance shall be made by Dealer at Dealer's
facility. Unless Dealer notifies QUANTUM CYCLES to the contrary with in five(5)
calendar days from the date of receipt, Dealer shall be conclusively presumed to
have accepted the Products at the expiration of such five (5) day period.
(e) QUANTUM CYCLES shall deliver Products to Dealer in accordance with
QUANTUM CYCLES' delivery schedules which QUANTUM CYCLES shall publish from time
to time. In the event orders received by QUANTUM CYCLES at any time for any
Product exceed QUANTUM CYCLES' existing stock and manufacturing capacity to meet
its published delivery schedules, QUANTUM CYCLES may allocate available
quantities of such Product among such orders on a pro rata basis. In such event,
Dealer agrees to accept its pro rata share of such Products when available and
shall have the right to cancel, in writing, quantities of its order in excess of
such allocation within ten (10) days of receipt of notification from QUANTUM
CYCLES of such allocation.
(f) QUANTUM CYCLES shall not be liable for delays in delivery or
failure to manufacture due to causes beyond its reasonable control, such as acts
of God, acts or omissions of Dealer, acts or omissions of civil or military
authority, priorities, fire, strikes, floods, epidemics, quarantine,
restrictions, riots, war, delays in transportation and inability due to causes
beyond its reasonable control to obtain necessary labor, materials or
manufacturing facilities. In the event of any such delay, the date of delivery
shall be extended for a period equal to the time lost by reason of the delay.
(g) QUANTUM CYCLES shall authorize the repair or return of any
defective Products which Dealer does not accept pursuant to the terms of this
paragraph 5. In the event QUANTUM CYCLES authorizes the return of a defective
Product, Dealer shall obtain the return authorization number from QUANTUM CYCLES
prior to returning any Products. All transportation for the return of defective
Products shall be borne by QUANTUM CYCLES. In the event any such returned
Product is subsequently found to be not defective, all related labor, material
and transportation costs and other expenses incurred by QUANTUM CYCLES shall be
reimbursed by Dealer. In the event QUANTUM CYCLES elects to repair any defective
Products, Dealer shall obtain a repair authorization number from QUANTUM CYCLES
prior to the commencement of the repair of any defective Products. QUANTUM
CYCLES shall compensate Dealer for effectuating the repair of defective Products
at the same rate and under the same conditions as QUANTUM CYCLES compensates
Dealer for the performance of warranty repairs in accordance with paragraph 8.
3
<PAGE>
6. Responsibilities of Dealer.
(a) Dealer shall actively promote and sell the Products. Such promotion
and sales activities shall include, without limitation:
(i) maintaining a fully trained and adequate sales force
capable of point of sale customer contact;
(ii) providing and maintaining physical facilities
commensurate with the sales possibilities and service needs in
the Dealer's trade area, including a building of acceptable
appearance and sufficient size to display inventory and to
provide for Products servicing and warranty repair,
(iii) providing and maintaining signs recommended and approved
by QUANTUM CYCLES; and approved by the appropriate regulatory
bodies in the Dealer's trade area.
(iv) maintaining an inventory of motorcycles and spare parts
in keeping with the sales possibilities in the trade area;
(v) using promotional and advertising materials made available
by QUANTUM CYCLES;
(vi) providing adequate representation of the products in the
community or territory served by Dealer;
(vii) achieving a reasonable share of the market for the
products covered by this agreement in the trade area served by
Dealer's location; and
(viii) actively promoting and advertising the products.
(b) Dealer shall make no representations, guarantees or warranties
regarding the performance of functional characteristics of the products beyond
those stated in printed literature and brochures of QUANTUM CYCLES, nor make any
delivery promises inconsistent with the delivery schedules of QUANTUM CYCLES in
effect from time to time.
(c) Dealer shall perform service responsibilities, warranty repair
responsibilities, and dealer preparation responsibilities set forth in this
Agreement.
7. Service Responsibilities.
(a) Dealer shall provide repair and maintenance service to its
customers. All service undertaken by Dealer shall be performed by qualified
service representatives who receive adequate formal training in the service and
maintenance of the products. QUANTUM CYCLES
4
<PAGE>
shall make available to Dealer its current service and maintenance materials.
Upon termination or expiration of this Agreement, for any reason, Dealer agrees
to deliver to QUANTUM CYCLES, without demand, all records relating to the
customer service and maintenance.
(b) QUANTUM CYCLES shall furnish to Dealer a reasonable quantity of
documents necessary to enable Dealer to service the products and respond
immediately to reasonable customer requests concerning repairs.
8. Warranty.
(a) QUANTUM CYCLES new product warranty is attached hereto (Exhibit
"A"). QUANTUM CYCLES may, from time to time, revise its warranty statement for
the products covered hereunder. Dealer shall perform warranty repairs of all
QUANTUM CYCLES Products presented to dealer for warranty repair, whether or not
Products were sold to the customer by Dealer. Prior to undertaking any warranty
repair, Dealer shall verify the product is eligible for warranty repair and
shall note on any warranty work order the date of purchase of the Product and
the Product's mileage, if applicable.
Dealer shall be entitled to no compensation from QUANTUM CYCLES for any repair
undertaken on a Product which does not fall within the parameters of the QUANTUM
CYCLES Product warranty. Dealer shall obtain from QUANTUM CYCLES a warranty
repair authorization number prior to undertaking any warranty repair which
exceeds Two hundred Dollars ($200.00).
(b) Dealer shall be reimbursed for any parts consumed in a warranty
repair at the price invoiced to Dealer by QUANTUM CYCLES for spare parts and
components, plus a handling fee of six percent (6%). QUANTUM CYCLES shall pay
Dealer reasonable compensation for labor expended in effectuating warranty
repairs . It is agreed that, at the time of signing this agreement, that rate is
set at $15.00 per hour. This rate may be renegotiated from time to time between
the parties. However, at no time during this agreement shall the rate fall below
the set rate without the express written consent of the Dealer. Compensation for
warranty repairs shall be paid by QUANTUM CYCLES to Dealer within thirty (30)
days of receipt of invoice therefor from Dealer.
9. Dealer Preparation.
For each model of motorcycle Product and for each model year, QUANTUM CYCLES
shall furnish Dealer with delivery and preparation instructions. Delivery and
preparation instructions for the current model year is attached hereto as
(Exhibit "B"). QUANTUM CYCLES shall furnish Dealer with delivery and preparation
instructions within the reasonable time prior to commencement of the release of
a new motorcycle Product and for each model year of motorcycle Products. Quantum
Cycles shall pay Dealer reasonable compensation for delivery and preparation. It
is agreed that, at the time of signing this agreement , that rate is set at
$250.00 dollars this rate may be renegotiated from time to time between the
parties. However,
5
<PAGE>
at no time during this agreement shall the rate fall below the set rate without
the express written consent of the dealer. Compensation for delivery and
preparation obligations shall be paid within thirty (30) days of a receipt of an
invoice therefor from Dealer.
10. Spare Parts.
QUANTUM CYCLES agrees to maintain and provide spare parts for a minimum of the
current model year and the five (5) preceding model years. QUANTUM CYCLES, in
the alternative, may provide spare parts through third party vendors for the
period above described. In the event QUANTUM CYCLES is unable to distribute any
spare parts for any reason, including, but not limited to, bankruptcy,
insolvency or dissolution, QUANTUM CYCLES shall assign to Dealer any agreements
for the purchase of spare parts to the extent that such agreements permit
assignment. Spare parts shall be delivered within sixty (60) days from the
receipt of an order from Dealer; however, the failure to deliver any spare parts
within said sixty (60) day period shall not constitute the default or a breach
of this paragraph if the failure is due to an act of God, or stoppage, or delay
due to a strike or labor difficulty, a freight embargo, products shortage or
other cause over which QUANTUM CYCLES has no control.
11. Acknowledgment of Trademarks, Trade Names, Patents and Copyrights.
(a) Dealer hereby recognizes QUANTUM CYCLES' sole and exclusive right
of ownership in its trademarks, trade names, patents and copyrights. Dealer
further warrants that there will be no abridgment of QUANTUM CYCLES' right to
unlimited use of same.
(b) During the term of this Agreement, Dealer is authorized by QUANTUM
CYCLES to use the QUANTUM CYCLES name, trademarks and logos in connection with
Dealer's sale, licensing, advertisement, servicing and promotion of the Products
in the manner hereinafter prescribed. Dealer's use of such trademarks, logos and
trade names will give Dealer no interest in such trademarks, logos or trade
names, except as specifically provided herein. Complimentary and compatible
products may be promoted as for use on or in connection with QUANTUM CYCLES
Products as long as the origin of such other products is clearly identified.
(c) Dealer is permitted to use the QUANTUM CYCLES name, logos or
trademarks on letterheads, business cards and promotional literature, provided
that Dealer obtains advance written consent of QUANTUM CYCLES. Any Dealer
business cards, letterhead or promotional material displaying the QUANTUM CYCLES
name or logo or trademark must also identify Dealer as an authorized independent
dealer of QUANTUM CYCLES. Dealer will not use the words "agent", "agency",
"partner", "franchisee" or other such words with its display of the QUANTUM
CYCLES name, logo or trademark.
(d) Dealer will not delete, alter, deface or conceal any trademark,
trade name, copyright, proprietary legend, serial number or any designation of
origin appearing on any of the Products or their containers or writings related
thereto. Dealer further agrees not to affix any QUANTUM CYCLES trademark, logo
or trade name to any item other than the Products of
6
<PAGE>
QUANTUM CYCLES. Dealer agrees that it will immediately cease to use all QUANTUM
CYCLES trademarks, trade names and logos upon expiration or termination of this
Agreement.
12. Standards for Executive Management.
(a) For purposes of this paragraph 12, a person shall be deemed to have
executive management control of the Dealer if such person:
(i) has authority over the day to day management of the
Dealer,
(ii) has the authority to hire and fire personnel,
(iii) can commit to the expenditure of funds on behalf of
Dealer, and
(iv) is appointed by the board of directors.
(b) Each person who is in executive management control of the Dealer
shall:
(i) be of good moral character,
(ii) not have committed a felony,
(iii) during the term of this Agreement, shall not have
committed any act which would constitute grounds for the
denial, suspension or revocation of a Dealer's license under
the statutes of the state in which the Dealer is conducting
its business., or any successor statute, and
(iv) meet such other standards as QUANTUM CYCLES may, from
time to time, promulgate.
(c) In the event Dealer desires to change its executive management
control, Dealer shall notify QUANTUM CYCLES by written notice setting forth the
name, address and business experience of the proposed change of executive
management. Dealer's request for a change of executive management shall be
approved unless QUANTUM CYCLES, within sixty (60) days following the receipt of
such notice, files with the Florida Department of Highway Safety and Motor
Vehicles a verified complaint for a determination that the proposed change in
executive management will result in executive management control by persons who
do not meet QUANTUM CYCLES standards.
13. Transfer or Assignment of Agreement.
(a) Dealer shall not transfer or assign this Agreement unless Dealer
first notifies QUANTUM CYCLES of Dealer's desire to transfer or assign this
Agreement, by written notice setting forth the prospective transferee's name,
address, financial qualifications and business
7
<PAGE>
experience during the previous five (5) years. No transfer or assignment shall
be valid unless the transferee agrees in writing to comply with all requirements
of this Agreement. Within sixty (60) days after receipt of such notice from
Dealer, QUANTUM CYCLES shall inform Dealer either of the approval of the
transfer or assignment or of the unacceptability of the proposed transferee,
setting forth the material reasons for the rejection. The approval of the
proposed transferee shall not be unreasonably withheld by QUANTUM CYCLES. Any
proposed transferee shall:
(i) be of good moral character,
(ii) have five (5) years experience in the sales or service of
motorcycles, and
(iii) have a minimum net worth of Three Hundred Thousand
Dollars ($300,000.00).
In the event the proposed transferee is unacceptable to QUANTUM CYCLES, QUANTUM
CYCLES shall, within sixty (60) days following the receipt of notice of the
proposed transfer or assignment by Dealer, file with the Department of Highway
Safety and Motor Vehicles of the State in which the Dealer is conducting its
business a verified complaint for a determination that the proposed transferee
is not a person qualified to be a transferee under this Agreement.
(b) For purposes of this paragraph 13, a transfer or assignment shall
include the transfer or assignment of stock, partnership interest or other
inducement of equity ownership to a person, or more than one person acting as a
group, who acquires control of the Dealer. "Control" shall mean the ownership of
a majority of the capital stock of Dealer (if a corporation), by vote or value,
the majority of the capital or profits interest of Dealer (in the case of a
partnership), or a majority of the capital or profits interest of Dealer (in the
case of any other entity).
(c) During the tendency of any hearing to determine the qualifications
of a transferee, this Agreement shall continue in full force and effect.
14. Termination by Dealer. Dealer may terminate this Agreement upon any one (1)
of the following events:
(a) without cause, upon one hundred eighty (180) days' advance written
notice thereof from Dealer to QUANTUM CYCLES, or
(b) in the event QUANTUM CYCLES commits a material and substantial
breach of its obligations under this Agreement and such breach shall continue
for a period of ninety (90) days after written notice of said breach shall be
provided by Dealer to QUANTUM CYCLES and QUANTUM CYCLES shall not have cured
said breach within ninety (90) days or, if such breach is incapable of being
cured within said ninety (90) days, has not initiated measures to cure said
breach within a reasonable period of time.
8
<PAGE>
15. Termination By QUANTUM CYCLES.
QUANTUM CYCLES may terminate this Agreement upon the occurrence of any of the
following events:
(a) upon ninety (90) days' written notice prior to the effective
date of such termination,
(i) in the event Dealer has committed a material and
substantial breach of a covenant or representation contained
in this Agreement,
(ii) Dealer, Dealer's executive management, any Dealer sales
manager, service manager or person representing Dealer in any
media advertisement commits an act which is unbecoming of a
reputable business person or commits an act which would
constitute grounds for denial, suspension or revocation of a
dealer license under the statutes of the State in which Dealer
is conducting its business., or any successor statute,
(iii) Dealer loses its State motor vehicle Dealer's license.
(iv) in the event Dealer files a voluntary petition in
bankruptcy, fails to have an involuntary petition in
bankruptcy dismissed within thirty (30) days, makes an
assignment for the benefit of creditors or files a petition
for reorganization in which a material change is sought in
Dealer's obligations,
(v) Dealer's failure to pay amounts due for Products purchased
under this Agreement.
(b) upon fifteen (15) days' prior written notice by QUANTUM CYCLES in
the event Dealer fails to be engaged in business with the public for ten (10)
consecutive business days. For purposes of this subsection (b), a Dealer shall
be considered to be engaged in business with the public if Dealer's sales and
service facility is open and performing eight (8) hours per day, five (5) days
per week, excluding holidays. However, Dealer shall not be subject to
termination pursuant to this subparagraph (b) if such failure to engage in
business is due to an act of God, a work stoppage or a delay due to a strike or
labor difficulty, a freight embargo or other cause over which Dealer has no
control.
16. Supervening Law.
Any term or condition in this Agreement which is inconsistent with the laws or
the rules of the State in which the Dealer is conducting its business shall be
of no force and effect.
9
<PAGE>
17. Limitation on Damages.
IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER PARTY FOR COLLATERAL,
CONSEQUENTIAL, INDIRECT, INCIDENTAL, PUNITIVE OR EXEMPLARY DAMAGES ARISING OUT
OF OR CONNECTED IN ANY WAY WITH THIS AGREEMENT.
18. Indemnification by QUANTUM CYCLES.
QUANTUM CYCLES shall indemnify, save and hold harmless Dealer against any
complaint, demand, claim, suit or judgment, including court costs and reasonable
attorney's fees, arising out of any defect or alleged defect in the Products,
whether sounding in strict liability in tort, negligence, misrepresentation,
express or implied warranty or rescission of the sale. The indemnification
provided by this paragraph shall not apply to the extent that Dealer's active
negligence contributed to damages sustained by a third party.
19. Indemnification by Dealer.
Dealer shall indemnify, save and hold QUANTUM CYCLES harmless for any loss,
cost, damage, expense, claim or demand (including court costs and a reasonable
attorney's fee) arising out of any failure of Dealer to perform its obligations
under this Agreement.
20. General.
(a) Dealer and QUANTUM CYCLES represent and warrant to each other that
each has the right and power to enter into this Agreement, and that there are no
outstanding assignments, grants, licenses, encumbrances, obligations or
agreement, written and/or implied, which are inconsistent with this Agreement.
(b) This Agreement and all acts and transactions pursuant hereto and
the rights and obligations of the parties hereto shall be governed, construed
and interpreted in accordance with the laws of the State in which Dealer is
conducting its business without resort to its rules on conflicts of laws. Venue
for any proceeding arising under this Agreement shall be in Brevard County,
Florida.
(c) This Agreement, including the attached Exhibits, constitutes the
entire Agreement between QUANTUM CYCLES and Dealer concerning the subject matter
hereof, supersedes all prior and contemporaneous communications or agreements,
written or oral, and is intended by the parties to be a complete and exclusive
statement of the agreement of the parties. Except for issuance of revised
pricing schedules, delivery schedules, warranty obligations and delivery and
preparation instructions, in accordance with paragraphs 3, 5, 8, and 9 hereof,
this Agreement may only be modified by a written statement by authorized
representatives of both parties.
10
<PAGE>
(d) The failure of either party to enforce at any time any of the
provisions hereof shall not be construed to be a waiver of such provisions or of
the right of such party thereof to enforce any such provisions.
(e) In any case, if any one or more of the provisions contained in this
Agreement shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provision hereof, and this Agreement shall be
construed as if such invalid, illegal, or unenforceable provision had never been
contained herein.
(f) All of the terms, covenants, warranties and representations
contained herein shall be binding upon both parties, their heirs, successors and
assigns.
(g) Should legal action become necessary to enforce any of the terms
and conditions set forth herein, the prevailing party shall be entitled to
recover from the other party all expenses incurred in connection with such
action, including reasonable attorneys' fees.
(h) The provisions of this Agreement take precedence over and supersede
the terms of any purchase order issued to QUANTUM CYCLES by Dealer, which terms
are inconsistent with the provisions of this Agreement.
(i) Any notice, communication, request, reply, or advice (hereinafter
severally and collectively called "notice") provided or permitted pursuant to
this Agreement to be given, made or accepted by either party to the other must
be in writing and may be given or served by depositing the same in the national
mails of the party giving the notice, addressed to the party to be notified,
postage pre-paid, and registered or certified with return receipt requested, or
by delivering the same in person to such party. Notice deposited in the mail in
the manner herein above described shall be effective only if and when received
by the parties to be notified. For purposes of notice, the addresses of the
parties, shall until changed, as hereinafter provided, be as follows:
(i) If to QUANTUM CYCLES: American Quantum Cycles, Inc.
c/o Robert L. Guess, President
731 Washburn Road
Melbourne, Fl. 32934
with a copy to:
or such other address as QUANTUM CYCLES or its counsel may
have advised the Dealer in writing; and
(ii) If to Dealer:
with a copy to:
or such other address as Dealer or its counsel may have
advised QUANTUM CYCLES in writing.
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(j) Nothing contained herein shall be construed as giving rise to any
partnership or joint venture by the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in duplicate by their duly authorized representatives as of the day and year
below written.
American Quantum Cycles, Inc.
By: By:
Title: Title:
Date: Date:
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EXHIBIT "A"
AMERICAN QUANTUM CYCLES LIMITED WARRANTY
The limited warranties stated herein are the only express warranties made by
American Quantum Cycles, Inc. ("QUANTUM CYCLES"). To the extent permitted by
applicable law, the limited warranties stated herein are in lieu of all other
expressed or implied warranties, including the IMPLIED WARRANTY OF
MERCHANTABILITY AND THE IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE.
The QUANTUM CYCLES warranty covers every QUANTUM CYCLES supplied part
("products"), except tires, headlamp, lightbulbs and batteries.
This warranty begins on the earlier of the date Customer takes delivery of the
QUANTUM CYCLES product or the date the product was first put into service (for
example, as a Dealer demo).
This warranty covers the cost of all parts and labor needed to repair any
QUANTUM CYCLES product (except as noted below) which is defective in material or
workmanship. QUANTUM CYCLES will repair or replace, at its option, any part
found defective at its sole cost.
The QUANTUM CYCLES warranty runs for a period of one (1) year from the warranty
start date or five thousand (5,000) miles from the warranty start date under
normal driving conditions. This warranty does not apply if (i) the QUANTUM
CYCLES products were altered from their original design and construction, (ii)
non-QUANTUM CYCLES parts, components or equipment were installed on QUANTUM
CYCLES products or (iii) the use of non-QUANTUM CYCLES materials or additives
are used in conjunction with QUANTUM CYCLES products. The QUANTUM CYCLES
warranty does not cover any product which is not an QUANTUM CYCLES supplied
product. All repairs or replacements must be performed by an authorized QUANTUM
CYCLES service center or a qualified motorcycle repair center that has been
approved by QUANTUM CYCLES prior to the performance of warranty work. All
warranty work must be approved by QUANTUM CYCLES before any repairs or
replacement occur. Failure to receive prior written approval with an accurate
evaluation of the work to be performed could result in a disqualification of the
warranty repair request. The QUANTUM CYCLES limited warranties do not cover the
cost of repairing damage or conditions caused by fire or accident; by abuse or
negligence; by misuse; by tampering with odometer, emissions systems or other
parts that could affect the systems; by improper adjustment or alteration; or by
any changes made to the QUANTUM CYCLES product that do not comply with QUANTUM
cycle's specifications. IN NO EVENT SHALL QUANTUM CYCLES BE LIABLE FOR
INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE OR EXEMPLATORY DAMAGES CONNECTED
WITH THE FAILURE OF ANY QUANTUM CYCLES PRODUCT COVERED UNDER WARRANTY.
<PAGE>
EXHIBIT "B"
DEALER PREPARATION INSTRUCTIONS
1. Dealer shall inspect each vehicle within five (5) days of receipt of vehicle.
2. Dealer shall wash and polish each vehicle before displaying or transferring
ownership.
3. Dealer shall start and test ride each vehicle not more than five (5)
miles. The vehicle shall not be driven at or near performance limits
since the vehicle has a "break-in" period of five hundred (500) miles.
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT, made and entered into this ___ day of
______________, 1997, by and between Bruce L. & Karen A. Weiss, whose address is
5275 Sorrell Drive, Melbourne, FL 32934 hereinafter referred to as LESSOR, and
American Quantum whose address is P. O. Box 392541, Satellite Beach, FL 32937
hereinafter referred to as LESSEE.
W I T N E S S E T H:
--------------------
THAT FOR and in consideration of the covenants and agreements herein
contained and in consideration of the rents herein reserved to be paid by LESSEE
to LESSOR, the parties do hereby mutually covenant and agree as follows:
1. PREMISES: LESSOR does hereby lease and demise unto LESSEE the
Premises known as 711-731 Washburn Road, Melbourne, Florida, which includes a
warehouse square footage of 9150+ office/restroom square footage of 4,400. Total
Sq Ft 13,550.
2. TERM AND OCCUPANCY: Said premises shall hereinafter sometimes be
referred to as the "leased premises" or "premises". LESSOR does hereby lease and
demise unto LESSEE said Premises to have and to hold the same for a period of
Two (2) year(s). Said term shall commence on May 1, 1997, and terminate at
midnight on April 30,1999. Occupancy may commence May 1, 1997.
The effective date of this lease for the payment and accrual of rents
is May 1, 1997.
<PAGE>
3. RENTAL: LESSEE hereby covenants and agrees to pay LESSOR as rental
for the demised Premises the following amounts plus Florida sales tax:
MONTHLY ANNUAL
TERM RENT + SALES TAX = TOTAL RENT + SALES TAX = TOTAL
- ---- ---- ------------------- ---- -------------------
2 yrs $4,000 + $240 = $4,240 $48,000 + $2,880 = $50,800
4. OPTION TO RENEW: LESSOR grants to LESSEE, subject to the conditions
set forth below, the right and option to renew this lease for two (2) periods of
three (3) year(s) each. Each year after the first two years there will be an
annual rate adjustment of 5%.
(sales tax subject to change)
If LESSEE exercises any such option, LESSOR shall maintain and retain
LESSEE's Security Deposit and other Funds to secure LESSOR's performance under
the lease. LESSEES shall accrue a 5% annual interest on the Security Deposit
($2,000), (equivalent to $100), with such interest being credited to the
LESSEE's twelfth (12th) months payment.
Except as provided above, and otherwise subject to and on all of the
terms and conditions herein contained, all other terms and conditions of this
lease are to be and remain in full force and effect. This option must be
exercised by the giving to LESSOR, on or before ninety (90) days of the
expiration date of this lease, or any option period, written notice of the
exercise thereof by LESSEE; but LESSEE shall in no event be entitled to renew
the term hereof, even though such notice be timely given, unless LESSEE shall
have timely performed all of its obligations hereunder, and shall not be in
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default in the performance of any terms of this lease, on the date of the
expiration of the initial term hereof. LESSOR shall, within ten (10) days of
receipt of LESSEE's notice of election of such option, acknowledge in writing
that said lease is extended for said option period.
5. INTEREST ON RENT ARREARAGE: Any installment of rent accruing under
the provisions of this lease that is not paid when due is subject to a late
charge of $200 per month plus Florida State sales tax. Should the rent be in
excess of $5,000.00, the late charge will be calculated at five (5) percent of
the monthly rent plus Florida State sales tax. All rent is due on the first day
of each month. It is late after the tenth day of each month. Late charges will
accrue if payment is not paid in full.
6. DATE AND PLACE OF PAYMENT: LESSEE shall pay LESSOR the monthly
rental herein required to be paid in advance on the first day of each and every
month without demand and at any place that shall be designated in writing by
LESSOR. Until written notice is furnished to the contrary to LESSEE at the
LESSEE's address listed on page on the rental check shall be made to and mailed
to the LESSOR's agent at the address specified below:
T.S.S.: 730 Washburn Road, Melbourne, FL 32934
7. USE: LESSEE shall use the demised Premises only for the purpose of
Manufacturing (Motorcycles and other Industrial Products). Any other substantial
variation in the use of the Premises shall be only with the prior written
consent of LESSOR, which request of LESSEE shall be promptly responded to by
LESSOR within
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ten (10) days of receipt of said request and which shall not be unreasonably
withheld by LESSOR.
8. UTILITIES: LESSEE shall pay all charges against the demised Premises
for electricity, telephone, water, trash pick-up, area lights and all other
utilities, together with deposits therefore as may be required. And such
deposits shall remain the property of LESSEE and LESSOR shall not make any claim
thereon for any reason.
9. TAXES: LESSOR shall be responsible for the payment of all real
property taxes, city and county, assessed against the demised Premises and shall
pay the same before such taxes become delinquent. LESSEE shall be responsible
for the payment of all tangible personal property taxes on personal property
owned by LESSEE and located on the leased Premises, and improvements placed
thereon by the LESSEE.
10. SIGNS: LESSEE is hereby granted permission to erect or place any
awning, marquee of pylon sign of a type acceptable to LESSOR on the exterior of
the demised Premises. All signs shall comply with governmental sign ordinances.
No sign may be erected which, in LESSOR's opinion, is offensive, not in
conformity with signs of other tenants or otherwise objectionable. Upon the
expiration of the lease term, LESSEE shall remove such signs and shall repair
any damage and close any holes caused by removal. LESSEE is responsible for all
expenses regarding signs including any electrical costs with respect to lighted
signs. Any such signs and related property not removed from the Premises upon
the expiration of the term after thirty (30) days of LESSEE's vacation of the
Premises upon expiration of the lease shall become the property of LESSOR.
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11. ASSIGNMENT OR SUBLETTING: LESSEE shall not have the right to assign
this lease or any interest herein or to sublet the demised Premises or any part
thereof without the written consent of LESSOR, such consent not to be
unreasonably withheld. In the event LESSOR permits any assignment of this lease,
it is specifically understood that LESSEE shall continue to remain liable for
the full performance of this lease agreement and sub-lessee shall, by accepting
the assignment, assume and also have liability for the full performance of this
lease agreement, unless LESSOR finds LESSEE's assignee financially acceptable
and creditworthy.
12. ALTERATIONS: LESSEE may make minor alterations and changes in the
demised Premises provided that such alterations are not substantial in nature,
which includes painting the building in neutral colors, interior and exterior,
by LESSOR and shall not be unreasonably withheld. Any substantial alterations or
changes shall be accomplished only with the written consent of LESSOR, which
said request shall be responded to within ten (10) days of receipt. All material
added to the Premises as a result of the changes required by LESSEE shall become
a part of the Premises and shall immediately upon installation vest in LESSOR;
however, LESSOR may require LESSEE to remove any or all of said alterations upon
leasehold termination at LESSEE's expense and return the leased Premises to its
substantial condition prior to alteration, if LESSOR has notified LESSEE of this
condition prior to LESSEE's authorization to alter the Premises. Any carpeting
placed on the floor of the Premises shall become the property of LESSOR,
provided, however, any damage done to the floor of the Premises in the
installation or removal of the carpet shall be repaired at the expense of
LESSEE.
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13. COMPLIANCE WITH LAW: LESSEE shall promptly and fully comply with
and execute all laws, ordinances and regulations of any and all duly constituted
authorities having jurisdiction over the demised Premises and the operation of
LESSEE's business thereon including fire codes and provide necessary fire
extinguishers required for the operation of LESSEE's business.
14. INSPECTION: LESSOR, its agent and servants, may enter upon said
Premises at all reasonable times during normal business hours to inspect or
examine the same, provided such inspection does not unreasonably interfere with
business of LESSEE.
15. SURRENDER OF PREMISES: LESSEE shall at the termination of the lease
term, of any renewal or extension thereof, quietly and peacefully surrender said
Premises in as good condition and substantially in the same condition as such
Premises existed at the commencement of the lease term, subject to the other
terms of this lease concerning alterations, ordinary wear and tear or damage or
loss by fire or the elements excepted. LESSEE shall have full authority to
remove from the demised Premises all of its merchandise and trade fixtures,
notwithstanding the fact that the same may have heretofore been bolted or
otherwise affixed to such Premises, all conditioned upon the LESSEE not being in
default hereunder any the repair be LESSEE of any damage resulting from such
removal.
16. TRASH: LESSEE shall be responsible for the removal and proper
disposal of all trash from the leased Premises. If LESSEE fails to properly
remove and dispose of its trash and keep the Premises in a clean, sightly and
healthful condition, as provided
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in this lease. LESSOR, or his agents, servants, or employees, may enter the
Premises after LESSEE fails to comply and cure said trash clean up after ten
(10) days written notice to LESSEE's. Without such entrance causing or
constituting a termination of this lease or an interference with LESSEE's
possession of the Premises, and LESSOR may remove all trash and place the
Premises in a clean, sightly and healthful condition; and LESSEE shall pay
LESSOR, in addition to the rent hereby reserved, a minimum charge of FIFTY
DOLLARS ($50.00) per occasion of LESSOR's actual expenses if more than FIFTY
DOLLARS ($50.00).
17. HEATING AND AIR-CONDITIONING: LESSEE shall maintain and make all
necessary and proper minor and maintenance repairs to the heating and air
conditioning equipment. However, such heating and air conditioning equipment
shall be in good workable condition on the commencement date of the lease term.
Material repairs such as replacing units, compressors, hot water heaters and the
like shall be LESSOR's responsibility.
18. NO VIOLATION OF ROOF: LESSEE acknowledges that the roof is
currently intact and free from leaks. LESSEE shall not violate the roof by
piercing, cutting or altering the roof or placing equipment, machinery,
structures, or any other thing upon the roof without the express written consent
of LESSOR. Notwithstanding the written consent of LESSOR as described in this
paragraph, and notwithstanding the LESSOR's obligations for repair of the roof
set forth in paragraph 35 of this Lease, LESSEE shall immediately be responsible
for repairing (to LESSOR's reasonable satisfaction) any leak that results from
any piercing, cutting or altering of the roof or the
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<PAGE>
placement of equipment, machinery, structures or any other thing upon the roof
by LESSEE, attributable to LESSEE's fault, during the lease.
19. INDEMNITY AND INSURANCE: LESSEE shall indemnify, save and hold
harmless the LESSOR from and against any and all claims, suits, actions,
damages, and causes of action accruing during the term of this lease for any
personal injury, loss of life or damage to property sustained in or about the
demises premises and from and against any and all orders, judgments and decrees
which may be entered thereon and from and against all costs and liabilities
incurred in connection with the defense of any such claim, and LESSEE will, at
its own expense, procure and at all times during the term of this lease continue
in force and effect public liability insurance on said Premises with the LESSOR
and LESSEE being named in such policy or policies of insurance as insureds,
protecting the LESSOR and LESSEE jointly and severally against any and all
claims for injuries, including death, to persons and/or damaged property
occurring in, upon or about the demised Premises; such liability insurance to be
in an amount determined by the LESSEE but not less than FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) for bodily injury per occurrence and FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00) for property damage per occurrence. LESSEE agrees that if
it does not keep such insurance in full force and effect, and then send a
certificate of insurance and pay the premium thereon, provided LESSOR gives
LESSEE written notice of LESSEE's failure to provide said insurance and LESSEE
does not cure such failure within ten (10) days of receipt of said notice and
the payment thereof shall be deemed to be additional rental and payable as such
on the date when the next monthly
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<PAGE>
installment of rental shall become due, provided written notice of the amount
thereof has been given to LESSEE at least ten (10) days prior to such rental
payment date. Failure of LESSEE to accomplish above, without cure after notice,
shall constitute LESSEE's default of this agreement.
Fire and extended coverage insurance on the LESSEE's contents of the
leased Premises shall be the LESSEE's responsibility. Tenant's insurer must
maintain a satisfactory financial rating.
20. NO USE THAT INCREASES INSURANCE RISK: In no event shall LESSEE use
the Premises in any manner that will increase risks covered by insurance on the
Premises or cause lack of coverage or cancellation, of any insurance policy
covering the Premises or any portion of the Premises, regardless of whether
LESSEE's use of the Premises complies with paragraph 7 of this lease. LESSEE
shall not keep on the Premises, or permit to be kept, used or sold thereon,
anything prohibited by the policy of fire insurance covering the Premises. If
the use of the Premises by LESSEE causes an increase in the insurance premium
rate on the Premises, LESSEE shall, at his own expense, pay the additional
insurance premium that is charged due to the increased hazard. If any increased
hazard insurance premium is not paid by LESSEE when due, LESSOR may at LESSOR's
option pay the premium and such premium shall be repaid to LESSOR as an
additional rent installment for the month following the date on which such
hazard premiums are paid, provided LESSOR has given LESSEE written notice of
such additional requirement and LESSEE fails after ten (10) days of receipt of
said notice to pay or secure such additional insurance.
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21. DAMAGE TO PREMISES: If the demised Premises shall be partially
destroyed or damaged by fire or the elements but not to the extent that said
Premises are rendered untenantable or in such condition that LESSEE is prevented
from conducting its usual daily business, the damage shall be repaired within
thirty (30) days by and at the expense of LESSOR, and the rental on said
Premises shall not be reduced. If the demised Premises shall be partially
destroyed or damaged, then LESSOR shall promptly repair or reconstruct said
Premises at its own expense and the monthly rental shall be reduced in
proportion to the portion of the demised Premises which is useable by LESSEE and
such damage shall be promptly repaired at LESSOR's expense. If said Premises is
destroyed to the extent of more than fifty percent (50%), LESSOR shall have the
period of thirty (30) days from such destruction to elect whether to repair the
Premises and if they elect to do so, such repair work shall be completed with
all reasonable haste, but in no event longer than sixty (60) days, and the
monthly rental shall abate until the Premises are again tenantable. If LESSOR
does not elect to repair the Premises, if more than fifty percent (50%) thereof
is destroyed by fire or other causes, then this Lease Agreement shall terminate
and the advance rental paid by LESSEE shall be refunded to it, within ten (10)
days of LESSEE's vacating the leased Premises.
22. DEFAULT: If LESSEE shall make any default in the payment of rent or
any other sums due LESSOR under the terms of this Agreement and the same shall
remain unpaid for three (3) days after such rent or such other amount shall
become due, or if the LESSEE shall default in the performance of any one of the
terms, conditions or
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covenants of this lease, and if said default is not cured within ten (10) days
from the date of written notice of such default to LESSEE, or if the demised
Premises become and remain deserted for a period of ten (10) days, the LESSOR
may, without written notice or demand to LESSEE, re-enter the demised Premises
according to law and remove all persons according to law, and the LESSOR may, at
it option, relet the demised Premises or any part thereof for the balance of the
lease term as agent for the LESSEE and receive rents thereof and apply the same
first to the payment of the expenses of reasonable redecorating and making
necessary repairs to the Premises, attorneys fees, brokers commissions,
advertising and all other reasonable expenses of the LESSOR in re-entering the
Premises and reletting the same; and second, to the payment of rent due
hereunder. LESSEE shall be responsible for all costs, including attorney's fees,
incurred by LESSOR in enforcing any of the terms and provisions of this Lease
Agreement.
In addition and in connection with the reletting of the demised
Premises for the account of LESSEE as hereinabove provided, LESSOR shall have
the right to declare all monthly installments of rental for the balance of the
lease term to be immediately due and payable and to proceed to obtain a judgment
therefor against LESSEE. Thereafter, all sums collected from the reletting of
the Premises, less costs in connection therewith, shall be applied on said
judgment or if the judgment has been paid, turned over to LESSEE.
Further, in the event of default on the part of LESSEE, the LESSOR
shall have the right to pursue any legal remedy available to it, and LESSOR
shall have the right to
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bring distress proceedings without in any way affecting its right to accelerate
the balance of rental due and to bring an action therefor.
23. ABANDONMENT OR DEBTOR PROCEEDINGS: It shall be considered a default
on the part of LESSEE, and LESSOR shall be entitled to avail itself of any of
the remedies set forth in paragraph 22 above without any notice to LESSEE, in
the event the demised Premises become and remain deserted and abandoned for a
period of ten (10) days, or if any general assignment for the benefit of
creditors is made by LESSEE or upon the adjudication that LESSEE is bankrupt or
insolvent or the filing by LESSEE of any debtor relief proceedings, whether the
same be in Federal or State court.
24. SIDEWALK AND COMMON AREAS: LESSEE agrees not to obstruct the
sidewalk or common parking area in front of the demised Premises or the area in
the rear of the demised Premises. LESSEE further agrees that it shall maintain
the good appearance of the sidewalk immediately in front of the demised Premises
and the area immediately to the rear of the demised Premises.
25. MECHANICS' LIEN: Said Premises shall not be subject to any lien
under the Mechanic's Lien Law of the State of Florida as a result of any
improvements made by LESSEE. LESSEE shall not permit the Premises to be subject
to any lien for labor, services or material furnished at the request of LESSEE
or its agent and it shall insure that all amounts owed for labor, services or
materials shall be paid for by it promptly.
26. WAIVER: The failure of LESSOR in one or more instances to insist
upon strict performance or observance of one or more of the terms or covenants
hereof or to exercise any remedy herein conferred upon LESSOR shall not operate
or be construed
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as a relinquishment or a waiver for the future of any such covenant or condition
or the right to enforce the same or to exercise such remedy, but the same shall
continue in full force and effect.
27. NOTICE: It is agreed that whenever notice is required to be given
hereunder that written notice mailed by certified mail return receipt requested
or delivered to LESSOR at 730 Washburn Road, Melbourne, FL 32934, or such other
address as LESSOR shall furnish in writing, shall constitute sufficient notice
to LESSOR, and written notice mailed or delivered to LESSEE at: 711-731 Washburn
Road, Melbourne, Florida 32934 or such other place as may be designated by
LESSEE in writing shall constitute sufficient notice to the LESSEE.
28. BINDING ON SUCCESSORS, HEIRS AND ASSIGNS: This Lease Agreement
shall be binding and obligatory upon the heirs, assigns and successors of the
respective parties.
29. SUBORDINATION OF LEASE: This lease shall be subject and subordinate
to all underlying leases and to mortgages and trust deeds that may now or
hereafter affect such leases or the real property of which the Premises form a
part, and also to all renewals, modifications, consolidations, and replacements
of such underlying leases, mortgages, and trust deeds. Although no instrument or
act on the part of LESSEE shall be necessary to effectuate such subordination,
LESSEE will, nevertheless, execute and deliver such further instruments
confirming such subordination of this lease as may be desired by the holders of
such mortgages and trust deeds or by any of the LESSORS
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under such underlying leases. LESSEE hereby appoints LESSOR attorney in fact,
irrevocably, to execute and delivered any such instrument for LESSEE.
If any underlying lease to which this lease is subject terminates,
LESSEE shall, on timely request, attorn to the owner of the reversion. In the
event of a foreclosure sale or other transfer of the Premises after default
under any mortgage or similar instrument covering the Premises, LESSEE will,
upon request, attorn to any transferee.
30. RADON GAS: Section 404.056(a) Florida Statutes, requires that the
following notification be given on real estate document:
RADON GAS: Radon is a naturally occurring radioactive gas that, when it
is accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of
Radon that exceed federal and state guidelines have been found in
buildings in Florida. Additional information regarding Radon and Radon
testing may be obtained from your county public health unit.
31. NO BROKER: LESSEE represents to LESSOR that the Premises, or any
portion of the buildings of which the premises are a part, were not presented to
it or to any person representing it by any broker or other person, and that no
broker or other person was involved in the leasing of the premises, and warrants
that no claim for commission for said leasing shall be presented to LESSOR
attributable to LESSEE. LESSOR has engaged National Realty as its Leasing Agent,
and will pay appropriate fees to that Agency.
32. HAZARDOUS WASTE: LESSEE agrees that leased Premises will fully
comply with all applicable federal, state, and local environmental laws,
regulations, and rulings on LESSEE's occupation of leased Premises and through
the term of this lease and that there will not be any hazardous or toxic
substances prohibited by environmental
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protection and enforcement agencies on or at the leased Premises, during
LESSEE's possession and occupation of the leased Premises.
LESSEE will defend, indemnify, and hold LESSOR harmless from and
against any and all actions, losses, liabilities, damages, claims, obligations,
debts, costs, and expenses (including attorney's fees), known or unknown,
contingent or absolute, arising out of or resulting from any (i) petroleum based
products, (ii) oil, (iii) waste, (iv) chemical substance or mixture, (v) toxic,
hazardous or regulated substance, mixture or waste, and/or (vi) radioactive
substance stored, released and/or disposed of on or at the leased Premises from
the commencement of the term of this lease by LESSEE through and including the
date LESSOR retakes possession of the leased Premises. This will only be for any
such claim or liability attributable to LESSEE. LESSEE specifically excludes
pre-existing violations for which LESSOR will indemnify and hold LESSEE harmless
should any claim be brought against it.
LESSEE's obligations to take any action and indemnify LESSOR pursuant
to paragraph 16 and 17 will survive the termination of this lease and continue
until LESSEE's obligations have been fulfilled.
33. MAINTENANCE: LESSEE shall maintain the interior and exterior of the
leased Premises including landscaping and lawn maintenance in a reasonable
manner, ordinary wear and tear expected, and shall make at the LESSEE's own cost
and expense during the term of this lease, or any renewal hereof, all necessary
and proper repairs, required for normal maintenance for electrical wiring and
installation, interior plumbing and the heating and air conditioning equipment
except as agreed in paragraph
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17. LESSOR shall be responsible for all maintenance and repairs to the roof and
exterior portions of the Premises due to fair wear and tear only, excluding all
glass windows, doors, overhead doors, door closers, door locks and keys shall be
the responsibility of the LESSEE regardless of reason for replacement thereof,
unless it is caused by or through the fault of LESSOR, its agents, servants or
employees. In the event that LESSEE fails or refuses to maintain or repair the
interior of the Premises, the electrical wiring or installation, interior
plumbing, heating and air conditioning equipment (in accordance with paragraph
17 hereof) or the glass, doors, overhead doors, door locks, keys and door
closers as hereinabove provided, LESSOR may then, at its option, after ten (10)
days written notice to LESSEE, and LESSEE's failure to cure in this time, make
such repairs and the same shall be said for by the LESSEE at the time the next
monthly installment of rent is due and payable, provided written notice of the
amount thereof has been given to LESSEE at least ten (10) days prior to such
rent payment date. The LESSOR acknowledges that all equipment installed within
or appurtenant to the demised Premises is in good working order as of the date
of possession by the LESSEE.
The LESSEE shall not cause any repairs to be done to the demised
Premises, which shall become the obligation of the LESSOR, unless the LESSOR has
issued a purchase order, or has agreed in writing to be responsible for such
repairs prior to the time that such repairs or improvements are commenced.
34. ENTIRE AGREEMENT: This lease agreement expresses the entire
agreement between the parties and all negotiations and agreements preceding the
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execution hereof are merged into, included modified or amended only by a writing
executed by the LESSOR and LESSEE. It may not be amended or modified by oral
agreements or understandings between the parties unless the same shall be
reduced to writing duly authorized and executed by both LESSOR and LESSEE.
35. SPECIAL CLAUSES:
A. LESSEE agrees, upon execution of this lease, to provide
National Realty a check in the amount of $4,240 to cover the 1st month's rent
plus the 6% sales tax. The last month's rent of $4,240 plus a security deposit
of $2,000 shall be paid on or before May 1, 1997.
B. Beginning the full execution of this lease, LESSOR shall
grant LESSEE access to the property for the purpose of conducting appropriate
planning, inspections and movement of small items of furniture.
C. This lease shall be subject to the following
conditions:
(1) LESSEE receiving Fire Department approval of
building for intended purposes, by April 30, 1997;
(2) City and County approval of LESSEE's occupational
license by April 15, 1997;
(3) LESSOR's review and approval, by April 30, 1997,
of LESSEE's credit and financial worthiness. LESSEE shall for that purpose,
provide LESSOR, by April 15, 1997 evidence of LESSEE's financial
creditworthiness, suitable to LESSOR.
17
<PAGE>
D. LESSEE understands that there is presently installed in
these buildings an ADT Security System. LESSEE hereby agrees to assume cost of
systems monthly rent beginning on May 1, 1997.
E. LESSEE further agrees to allow LESSOR a one-time unimpeded
truck access to inside warehouse area by overhead door of 731 Washburn for
LESSOR's removal of vehicles and other items now stored in 2nd Floor of that
area of building. This to occur not later than September 30, 1997.
F. LESSOR shall allow LESSEE, at LESSEE's expense, to extend
and electrical three-phase line from 711 to 731 Washburn Building.
G. Ref. Par 19. LESSEE shall provide LESSOR prior to occupancy
and annually thereafter, an authenticated copy of cited Public Liability
Insurance Policy.
H. Mezzanine show room of 2,500 sq ft will be available for
rent on or about September 1st for an additional $300 per month. LESSOR agrees
that LESSEE can construct a second level walkway between current office and
mezzanine.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals.
Signed, sealed and delivered
in the presence of:
- ----------------------------- ------------------------------
- ----------------------------- ------------------------------
AS TO LESSOR LESSOR
18
<PAGE>
Signed, sealed and delivered
in the presence of:
- ----------------------------- ------------------------------
LESSEE/TENANT
- ----------------------------- ------------------------------
AS TO LESSEE By: Robert Guess
President
------------------------------
Jeffrey W. Starke
Chief Executive Officer
19
LEASE AMENDMENT
This Lease Amendment, made and entered into this 29th day of January,
1998, by and between BRUCE L. WEISS and KAREN A. WEISS, whose address is 5275
Sorrel Drive, Melbourne, Florida 32934, hereafter referred to as the ("LESSOR,")
and AMERICAN QUANTUM CYCLES, INC., whose address is 731 Washburn Road,
Melbourne, Florida 32934, hereafter referred to as the ("LESSEE").
W I T N E S S E T H
That for and in consideration of the covenants and agreements herein
contained and in consideration of the rents herein reserved to be paid by the
Lessee to the Lessor, the parties do hereby mutually covenant and agree as
follows:
1. This Lease Amendment is an amendment to the lease signed by the
Lessee and the Lessor on May 1, 1997.
2. Premises. Lessor does hereby lease and demise unto Lessee the
premises known as 711-731 Washburn Road, Melbourne, Florida, which include
warehouses with square footage of approximately 22,000 square feet and
offices/restrooms/showroom square footage of approximately 6,500 square feet.
3. Term and Occupancy. Said premises shall hereafter sometimes be
referred to as the "Leased premises" or "Premises". Lessor does hereby lease and
demise unto Lessee said premises to have and to hold the same for a period of
four (4) years. Said term shall commence on March 1, 1998, and terminate at
midnight on February 28, 2002: The Lessee has the option of terminating the
lease after the first full two (2) years of occupancy provided the Lessee gives
the Lessor written notice six (6) months prior to the termination of said lease
and vacancy of said premises. The occupancy may commence with partial occupancy
of space not occupied by the Lessee on or before January 1, 1998 the said
additional space will be available as follows: The 2,500 square feet on the
second level of the warehouse (known as the show room) is available as of
January 1, 1998 at the monthly rate of $300.00. The portion of the warehouse
(known as the middle warehouse) consisting of 6,250 square feet will be
available no later than February 1, 1998 at the rate of 1,825.00 per month. The
remaining warehouse (known as the rear warehouse) is available no later than
March 1, 1998. The effective date of this lease amendment for payment and
accrual of rent is March 1, 1998.
4. Rental. Lessee hereby covenants and agrees to pay Lessor as rental
for the demised premises the following amounts plus Florida sales tax, per
month: an amount equal to the monthly mortgage payment due to the Huntington
Bank for 731 Washburn Road, Plus tax. This payment is based on a variable rate
mortgage. The
<PAGE>
January 1998 amount was $ 4,286.81. The interest on the loan decreases resulting
in payments reducing to approximately $3,400.00 per month in four (4) years. See
Attached Exhibit " A" I of 2 .
An amount equal to the monthly mortgage payment due to the mortgage
holder for 711 Washburn Road, Plus tax. This payment is currently fixed at
$1,526.35 per month. This amount will change to a variable rate interest
mortgage in 1999, resulting in slightly varying monthly amounts. See attached
Exhibit "A" 2 of 2.
5. Lessee covenants and agrees to purchase property insurance for said
premises naming the Lessor the payee and additionally insured for any claims for
damages. Said insurance policy shall be reviewed and accepted by the Lessor
before March 1, 1998 and remain in effect during the term of this Agreement. The
value for the building located at 731 Washburn Road is $750,000 and for 711
Washburn Road $210,000.
6. Lessee covenants and agrees to pay the real estate taxes on said
premises on an annual basis on or before December 31st of each year starting
with March 12, 1998. The 1997 taxes were $7,096.00 for 731 Washburn Road and
$2,670.00 for 711 Washburn Road. See attached Exhibit "B" and "C."
7. Lessee covenants and agrees to pay Lessor an additional security
deposit over and above the security deposit paid at the time of the original
lease dated May 1, 1997, of $5,000 on March 1, 1998.
8. Lessee covenants and agrees to pay to Lessor an additional last
month rent deposit over and above the last months rent deposit paid at time of
the original lease dated May 1, 1997 of $2,000 dollars on March 1, 1998.
9. Lessee covenants and agrees to assume responsibility for any cost
associated with the general maintenance and repairs to the said premises
exterior and interior, and mechanical, all such repairs and General maintenance
shall be done in a timely manner and return the premises to an equal or better
condition than at the time of the commencement of this Agreement.
2
<PAGE>
10. Lessee and Lessor will conduct an inspection of said premises no
later than February 27, 1998. The Lessor will provide documents listing items to
be inspected.
LESSOR: LESSEE:
AMERICAN QUANTUM CYCLES, INC.
____________________________ By: ________________________________
Bruce L. Weiss Robert L. Guess
____________________________
Karen A. Weiss
3
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<PERIOD-START> MAY-01-1997 JAN-01-1997
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