SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB/A2
GENERAL FORM FOR REGISTRATION OF SECURITIES
Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
TITAN MOTORCYCLE CO.
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OF AMERICA
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(Exact name of registrant as specified in its charter)
Nevada 86-0776876
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2222 West Peoria Avenue
Phoenix, Arizona 85029
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 861-6977
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Securities to be registered pursuant to Section 12(b) of the Act: NONE
Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK
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See Exhibit Index at Page 68
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
PART I
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters discussed in this Registration Statement on Form 10SB are
"forward- looking statements." These forward-looking statements can generally be
identified as such because the context of the statement will include words such
as the Company "believes," "anticipates," "expects," "estimates" or words of
similar meaning. Similarly, statements that describe the Company's future plans,
objectives or goals are also forward-looking statements. Such forward-looking
statements are subject to certain risks and uncertainties which are described in
close proximity to such statements and which could cause actual results to
differ materially from those anticipated as of the date of this report.
Shareholders, potential investors and other readers are urged to consider these
factors in evaluating the forward-looking statements and are cautioned not to
place undue reliance on such forward-looking statements. The forward-looking
statements included herein are only made as of the date of this report and the
Company undertakes no obligation to publicly update such forward-looking
statements to reflect subsequent events or circumstances.
PART I, ITEM 1. DESCRIPTION OF BUSINESS
The genesis of Titan Motorcycle Co. of America ("Titan") was a small
retail aftermarket motorcycle shop known as Paragon Custom Cycles in Phoenix,
Arizona, which was owned and operated by the Company founder, Patrick Keery.
Paragon specialized in aftermarket Harley DavidsonTM customizations, repairs and
upgrades, as well as the sale of a wide range of optional equipment and parts
for the Harley Davidson line.
Through the design talents of its founder, Paragon became known for its
unique award winning Harley Davidson customizations. It was not unusual for such
customizations to increase a stock vehicle's cost by 50% to 100% of the original
purchase price. In the customizing process, a good deal of factory installed
hardware was removed and discarded and major design restrictions improved.
Paragon evolved to designing and building custom large V-twin cylinder
motorcycles from the ground up using various OEM parts. Although various
configurations are used both domestically and internationally to power
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motorcycles; including one, two and four cylinder engines, the engine of choice
in the United States for the larger displacement cruiser and touring bike
classes of motorcycles is the V-twin engine. This engine design features two
cylinders configured in a 45(degree) "V" shaped orientation.
By 1994, the aftermarket Harley Davidson parts market had gestated to
the point where all major and minor components, including engine and drive
trains, needed to design and build a unique custom motorcycle from inception
were readily available. While quality and continuity of supply were major
challenges, a well connected shop owner could secure the necessary parts and
labor to build the customer's dream creation.
Paragon, under the design and engineering skills of its president,
Patrick Keery, became the shop of choice for more and more customers who sought
him out to have their concept bikes built.
Initially, the process was somewhat long and tedious. It was not
unusual for the total elapsed time from the design concept to delivery of the
finished product to be as long as six months. The selling price for such
vehicles could easily reach the $40,000 to $50,000 range.
In late 1994, Patrick approached his principal financial backer (and
father) with the idea of creating an integrated manufacturing company to
dramatically reduce the cost of production while enhancing delivery for new and
unique custom designed and manufactured V-twin cruiser motorcycle products. This
approach did not require the essential rebuilding of other large V-twin
production configurations. The idea was to implement this design and production
concept in a disciplined "cell" manufacturing process and environment where a
small team or single individual artisan would essentially build the custom
motorcycle using readily available and scientifically arranged component parts.
The disciplined cell manufacturing process is a production methodology whereby a
complete motorcycle is built from all components by a single builder/technician,
as opposed to an assembly line methodology where a team of individuals assemble
a finished motorcycle by repetitive, individual processes such as when one
worker puts on the wheels, another worker installs a motor, etc.
The principal suppliers of the Company, and the parts purchased from
these suppliers are identified in the table on the following page.
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VENDOR CITY AND STATE PARTS PURCHASED
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S&S CYCLE VIOLA, WI MOTORS/MOTOR PARTS
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DAYTEC HESPERIA, CA FRAMES/SHEET METAL
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CUSTOM CHROME MORGAN HILL, CA MISC. PARTS
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PERFORMANCE MACHINE LA PALMA, CA WHEELS/ROTORS
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BANDIT MACHINE WORKS LANCASTER, PA CLUTCHES
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DEANO'S TEMPE, AZ PAINT
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URSCHEL MANUFACTURING SCOTTSDALE, AZ FORWARD CONTROL/PEGS
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WORKS PERFORMANCE CANOGA PARK, CA SHOCKS
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EXTREME MACHINE PHOENIX, AZ MACHINED PARTS
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JIMS USA CAMARILLO, CA TRANSMISSIONS/MOTOR PARTS
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There are alternative sources for all items listed in the table. In
some cases there might be temporary delays in the manufacturing process while
alternate suppliers gear up to meet production level requirements. Because of
the current parts inventories of the Company, these delays are not considered to
be material.
The present Company was incorporated in 1994 employing the foregoing
production techniques. Shortly after the incorporation, it became apparent that
the Company needed additional capital to grow and that it would be advantageous
to seek out and complete a merger with a publicly held company which, as a
result, would provide both a public market and a new source of capital. Readily
available was Mojave Financial Services, Inc. At the time, Mojave was
essentially inactive. A merger was completed in June of 1996, with Mojave
Financial Services, Inc. contributing its capital; and, as the surviving entity,
assuming the name Titan Motorcycle Co. of America, a Nevada corporation. Titan
Motorcycle Co. of America, the pre-merger entity, was incorporated as an Arizona
successor corporation to Paragon on December 12, 1994 and ceased existence
pursuant to the foregoing merger and name change. The integrated Company has
existed and continues since the date of merger on June 11, 1996.
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Research and development activities of the Company are ongoing. In
calendar years 1996 and 1997, the Company has expended approximately $76,000 and
$218,000 respectively in research and development. In the first seven months of
1998, the Company has expended $113,000 in research and development.
The Company provides a six month warranty for all parts and labor with
regard to its motorcycle products. In calendar year 1997, the Company recorded a
reserve for warranty expense of $155,000. The Company has also obtained an
extended warranty for the period of six months to two and half years (for a
total warranty of 3 years). The Company pays $230 for each bike for this
extended warranty protection.
All present financial statements and other disclosures concerning the
Company are based upon the merger accounting. The merger was accounted for as a
recapitalization of Titan because the shareholders of Titan controlled the
Company after the acquisition. There was no adjustment to the carrying value of
the assets or liabilities of Titan in the exchange. The Company is the acquiring
entity for legal purposes and Titan is the surviving entity for accounting
purposes. In the merger, Titan assumed $8,000 of debt of Mojave.
Since the merger, Titan has traded as a public entity on a limited
market basis. Brokers quoting the stock on the NASD Electronic Bulletin Board
are Paragon Capital Corporation of Boca Rotan, Florida (1-800-521-8877); Harold,
Thompson, Magid and Company of Jersey City, New Jersey (212-233-2200); Sharpe
Capital Corporation of New York, NY (212-791-8700); and Alpine Securities of
Salt Lake City, Utah (1-800-
274-5588).
In March of 1997, the Company authorized a two-for-one (2:1) forward
stock split. In April 1997, November 1997 to January 1998 and February 1998, the
Company privately placed 1,000,000, 500,000 and 166,667 shares, respectively, of
its Common Stock. In January 1998, the Company agreed to issue an additional
60,000 to an industry publications company as part of an agreement whereby the
Company would receive publishing and advertising services. As part of the
consideration for this transaction for publishing and advertising services, the
Company provided the publishing company with $125,000 of Titan motorcycles in
calendar year 1997 and will provide the publishing company with an additional
$125,000 of Titan motorcycles in December 1998.
The stock transactions referred to in the preceding paragraph raised
the total number of issued and outstanding shares of the Company to 16,437,333
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as of the current date. Of this amount, the three principal officers
collectively hold approximately 61.4% of the issued and outstanding common
stock, prior to exercise of existing options. Such individuals would
collectively hold 61.9% of the outstanding shares, after the exercise of their
current options.
DESCRIPTION OF THE COMPANY
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The Company has recently moved to its present manufacturing and
distribution facilities at 2222 West Peoria Avenue, Phoenix, Arizona 85029. It
presently occupies a leased structure having approximately 64,000 square feet of
combined administrative, manufacturing, assembly and distribution space. The
Company has a current five year lease on this premises at the rate of $29,295.00
per month.
It is reasonably anticipated that the present physical facilities
should be adequate for the Company's anticipated manufacturing and distribution
needs into 1999.
The Company believes it has developed a unique design and manufacturing
process for the large customized displacement motorcycle industry. The Company
offers eight (8) custom model configurations, all of which lead the competition
in power to weight ratios, ride and handling refinements and the capacity for
future custom configuration. In addition, the Company brings a unique service to
its customers by allowing the customers to specifically "predesign" the end
product down to the customization of colors and finish. The completed product,
in its custom design configuration and based upon one of the basic models, can
be delivered within eight to ten weeks of an order. Customers not desiring
individual customization can choose one of the basic custom models in standard
finish and configuration and be assured of prompt delivery, usually from dealer
stock.
Titan believes itself to be the market leader in customized V-twin
motorcycles as evidenced by its rapidly expanding distribution network. Company
owned outlets, new designs and the introduction of two new models in 1998 should
insure continuing leadership in this market niche.
This custom manufacturing and service concept is made possible by the
application of a small production team or single skilled artisan who is
responsible for assembling each unit from component parts. This technician
further continues to service his vehicle through road testing and during the
warranty period to ensure complete customer satisfaction.
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The Company believes it is unique in providing this degree of
customization resulting in essentially a "hand built" new vehicle at a cost and
design advantage to purchasing a typical stock model V-twin, such as Harley
DavidsonTM, YamahaTM, or HondaTM, and paying for customization through an
individual shop. Additionally, the customer is assured of state of the art
design, assembly and testing technology. For comparison purposes, the price of
the basic Titan models range from the top of the line "Gecko", currently selling
for $28,495, to the basic model "Coyote" at $23,995. This compares to a
non-customized similar displacement stock Harley Davidson at approximately
$15,000 to $20,000. Currently the products of the Company are being distributed
through 53 domestic dealers, and 17 foreign dealers with current expansion plans
underway.
FINANCIAL INFORMATION
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The financial information concerning the Registrant's prior years of
operation and the first six months of calendar year 1998 is found in Part I,
Item 2: Financial
Information.
EMPLOYEES
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As of March 31, 1998, the Company had 142 full-time employees, of whom
123 work in engineering and manufacturing; seven work full-time in marketing;
and 12 work in staff and administration. The Company is not subject to any
collective bargaining agreement. The Company anticipates adding supervisory,
engineering, manufacturing, marketing and administrative staff as the Company
expands its production in 1998.
FOREIGN OPERATIONS
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The foreign operations of the Company consist solely of sales of its
products through non-U.S. distributors of the motorcycles of the Company. In its
first year of foreign operations, the revenues from its foreign operations were
$2,032,413.00. Foreign sales in 1997 were $1,681,613.00. The number of foreign
distributors is expanding and the Company anticipates that, with continued
expansion in the number of distributors, it will more than double its foreign
sales in 1998.
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SUBSIDIARIES OF THE COMPANY
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The Company has only one subsidiary. Titan Motorcycle GmbH, Alte
Hersfelder Str. 30, 36289 Friedewald, Germany is wholly owned by the Company.
Titan Motorcycle GmbH was established in April 1998 to set up a marketing
organization for the Company in Europe. Its function is to coordinate with and
offer support to dealers and other marketing partners in Europe, to organize and
participate in trade shows and develop product advertising and promotional
activities for Titan and its authorized dealers, and to establish a central
office in Europe to handle the Company's business affairs.
PART I, ITEM 2. FINANCIAL INFORMATION.
The selected financial data set forth below should be read in
connection with, and is limited by, the more complete information in the
attached Consolidated Financial Statements and the notes thereto.
12/31/97 12/31/96 12/31/95 12/31/94
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Revenue 13,064,145 4,983,876 625,284 0
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Net Loss (1,673,743) (95,496) (257,513) (213)
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Loss Per (0.11) (0.01) (0.02) (0.00)
Share 1
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Total Assets 8,769,057 3,318,289 187,244 0
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Long-Term 1,928,664 502,521 252,113 0
Obligations
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The audited financial statements for the last calendar year are
enclosed with this Registration Statement and contain the Company's financial
statements for the calendar
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1 These figures have been restated to reflect the two-for-one forward
split of the stock of the Company which took effect in March 1997.
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year ending December 31, 1997. Reference is made to the Consolidated Financial
Statements filed with this Registration Statement for greater detail regarding
the financial position of the Company. The unaudited half year financial
statements of the Company are also included in this Registration Statement.
Effective January 1, 1998, the Company adopted a fiscal accounting
period as opposed to the calendar accounting period of prior years. The effect
of this change is that all quarters are now comprised of thirteen weeks, ending
Saturday at midnight instead of the last calendar day of the month. The first
two fiscal months of a quarter have four weeks each and the last fiscal month
has five weeks. Although this conversion results in a difference of only a few
days in the accounting period for 1998, the use of fiscal month accounting is a
common practice for manufacturing companies and simplifies internal inventory
and accounting functions.
Six Month Period Ended July 4, 1998, Compared with Six Month Period Ended June
30, 1997
OVERALL
Net Sales for the period in 1998 of $12.9 million were $7.2 million, or 128%,
higher than net sales for the same period in 1997. The Company realized a net
profit of $319,569, or $0.02 per share, in 1998 compared with a loss of
$554,018, or $0.04 per share, for the same period in 1997. The Company has paid
no dividends to date and currently has no plans to do so.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
1998 1997 INCREASE % CHANGE
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Motorcycle Units 489 210 279 132.9%
Net Sales (in 000's):
Motorcycles $12,632 $ 5,632 $ 7,000 124.3%
Motorcycle Parts and Accessories $ 252 $ 23 $ 229 895.7%
Total Motorcycles and Parts $12,884 $ 5,655 $ 7,229 127.8%
The Company's business continues to consist predominantly of motorcycles at this
point. A small portion of the business is in parts and accessories. The Company
introduced its initial product offering in the Clothing and Accessories line in
late 1997.
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While these segments have not been material to date, the Company anticipates
these segments could grow to 10-20% of total sales at some point in the future.
These segments represented about 20% of Harley-Davidson's total sales in 1997.
While Titan does not expect to duplicate this volume, the mix of parts and
accessories for Titan could approach this level.
The continued growth in motorcycle shipments is due to several reasons. The
continuing growth in reputation of the Company's motorcycles, and the resulting
demand this has created, remains the primary growth driver. This, combined with
the continuing growth in the dealership network and the Company's investment in
new equipment and staff to meet the growing demand, has led to dramatic growth
in shipments.
Company management continues to be gratified by the success that has been
realized to date and the overwhelming acceptance of its products in the
marketplace since its inception. During the last 3 1/2 years the Company has
seen growth in revenues from $625,000 in 1995 to over $13,000,000 in 1997 and
now the first half of 1998 continues to experience the same dramatic growth,
with sales of over $12,880,000 compared with $5,650,000 for the same period in
1997 (up 128%). During this same period, the dealer network has grown from 1
location in Phoenix to over 75 dealerships worldwide with over 20 applications
from potential new dealers currently being evaluated by the Company. The Company
is pleased with the strength of the network that includes Easyrider franchises,
Harley Davidson dealers, independent dealers and Titan dealerships. The Company
believes this expanding network is one key element in the continued growth of
the business.
From the outset, Titan has been dedicated to building the finest production
performance motorcycle available while providing the customer the ability to
customize their motorcycle to a degree previously available only from low
volume, custom builders. It is this focus on quality and providing the very best
production motorcycle available that provides the strong reputation the Company
has been able to develop so far and the foundation for continuing growth in the
future.
The Company was very pleased to be able to report its first profit at the end of
the first quarter of 1998 and show continued improvement with its second quarter
results. This profitability is due in large part to cost reduction efforts
driven by engineering changes and cooperative efforts with key suppliers, as
well as to focused efforts on managing SG&A expenses. As these efforts continue
and as volume continues to grow, the Company anticipates continued higher levels
of profit in the future.
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The Company began 1997 at a production rate of 5 - 7 units per week and
increased that through the year to reach 18 units per week by year-end. This
rate has continued to increase with production exceeding 25 units per week in
June 1998. In 1998, the Company is continuing to invest in its engineering
capability and infrastructure to allow it to grow production to a level of up to
3000 units per year in its present facility. For 1998, the Company's production
target is to exceed 1200 units. The Company plans to continue to develop its
existing facilities and human resources, as well as add others as demand
warrants, to meet the growing market acceptance of its products. The Company's
ability to reach these production levels will depend on several factors. First
and foremost will be its ability to continue to create high levels of demand in
both the domestic and international markets. Once this is accomplished, the
Company must be able to continue to increase efficiencies in its current
facilities through engineering advances, adding facilities for both motorcycle
and parts production, working with its developing supplier base, and continuing
to attract production, engineering and support talent to the Company. There are
no assurances that the Company will be able to accomplish all these things
simultaneously or in the time frame to match sales demand. The Company could
also experience delays in its growth or production as the result of supplier
issues, labor shortages, or unforseen competitive action, as well as from
natural causes. These risks, if not offset, could negatively impact the
Company's performance and its resulting cash flow.
GROSS PROFIT
1998 1997 INCREASE % CHANGE
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Gross profit (In 000's) $3,448 $1,022 $2,426 137%
In the first 6 months of 1998, gross profit increased $2,425,705, or 137.3%, as
compared to the same period in 1997 due to the increased volume and margins. The
gross profit margin was 26.8% as compared with 18.1% in 1997. The 1998 margin
has been positively impacted by an average price per unit increase of 4.2% as
the mix of bikes changed to reflect higher levels of customization on ordered
units and more orders for high-end models. The Company has started to realize a
substantial increase in its Gross Profit in 1998 as a result of significant
engineering and cost reduction efforts that have been put in place during the
past 9 months as well as the increase in customization of its products. The
Company has targeted a Gross Profit Margin of over 30% for its total business
within the next 3-5 years.
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The Company believes this Gross Margin level is possible due to several factors:
o In the first 6 months of 1998, the gross margin has increased
to 26.7% from 18.8% in 1997,
o There have been additional cost reductions for
component parts identified and in process that
have not yet been reflected in financial
statements,
o Additional cost reductions of more than 5% of
sales have been identified and engineering work
begun with anticipated impact in 1999, and
o Management believes that competitors have been
able to achieve these margins on products with
lower average selling prices.
OPERATING EXPENSES
1998 1997 INCREASE % CHANGE
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Operating Expenses (In 000's) $3,016 $1,587 $1,429 90.1%
Total operating expense for 1998 increased $1,429,062, or 90.1%, over the same
period of 1997. This increase was due to a number of causes, including, but not
limited to: an increase in advertising, trade shows and promotional activities
to build the Company's brand name and recognition and drive higher sales levels;
an increase in lease expense associated with moving into the new facility; an
increase in research & development activity; and an increase in salaries and
wages attributed to building both the management and support staff necessary to
support a rapidly growing and significantly larger company. While the increases
were substantial, both as a percentage of the prior year and in actual dollars,
it was in keeping with the Company's plan to continue to invest in
infrastructure and growth while becoming profitable in 1998 and the coming
years.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both 1998 and 1997 as it recorded
losses during 1997 and prior years and is benefitting from tax loss carry
forwards during 1998. The Company currently has a tax loss carry forward of
approximately $1.7 million.
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Calendar Year Ended December 31, 1997, Compared with Calendar Year Ended
December 31, 1996
OVERALL
Net Sales for 1997 of $13.1 million were $8.1 million, or 162%, higher than net
sales for 1996. The Company incurred a net loss of $1.67 million, or $0.11 per
share, in 1997 compared with a loss of $95,496, or $0.01 per share, for 1996.
The Company has paid no dividends to date and currently has no plans to do so.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
1997 1996 INCREASE % CHANGE
---- ---- -------- --------
Motorcycle Units 500 181 319 176.2%
Net Sales (in 000's):
Motorcycles $12,870 $ 4,939 $ 7,931 160.6%
Motorcycle Parts and Accessories $ 194 $ 45 $ 149 331.1%
Total Motorcycles and Parts $13,064 $ 4,984 $ 8,080 162.1%
As can be seen from the above chart, the Company's business consists almost
totally of motorcycles at this point. A small amount of business has been done
in parts and accessories to date and the Company introduced its initial product
line in Clothing and Accessories in late 1997. While these segments have not
been material to date, the Company anticipates these segments could grow to 10 -
20% of total sales at some point in the future.
The increase in motorcycle shipments is due to several reasons. Chief among them
is the continuing growth in reputation of the Company's motorcycles and the
resulting demand this has created. This, combined with the growth in the
dealership network and the Company's investment in new facilities and staff to
meet the growing demand, has led to dramatic growth in shipments. Company
management has been gratified by the success that has been realized to date and
the overwhelming acceptance of its products in the marketplace since its
inception. Over the last 3 years, the Company has seen growth in revenues from
$625,000 in 1995 to over $13,000,000 in 1997. The first quarter of 1998
continued to experience the same dramatic growth, with sales of over $5,300,000
compared with $1,900,000 for the same period in 1997 (up 179%). During this same
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period, the dealer network of the Company has grown from one location in Phoenix
to over 60 dealerships worldwide with over 20 applications from potential new
dealers currently being evaluated by the Company. Management of the Company is
also pleased with the strength of the network that includes Easyrider
franchises, Harley Davidson dealers, independent dealers and Titan dealerships.
The Company believes this expanding network is one key element in the continued
growth of the business.
From the outset, Titan has been dedicated to building the finest production
performance motorcycle available while providing the customer the ability to
customize their motorcycle to a degree previously available only from low volume
custom builders. The Company is proud to be recognized by various industry
periodicals as the leader in its chosen market.2 It is this focus on quality and
providing the very best production motorcycle available that provides the strong
reputation the Company has been able to develop so far, and the foundation for
growth for the future.
Over the past year, the Company has invested in building an infrastructure that
will not only enable it to continue to support this growth, but also to develop
new models and features for its customer base. Part of this investment is in the
Company's engineering capability, which is focused on developing new products
and components as well as continuing to improve on the current products and
production processes. Other investments have been made in building the
management team of the Company, developing marketing capabilities, and upgrading
computer systems to support the continued growth of the business.
Finally, the Company was very pleased to be able to report its first profit at
the end of the first quarter of 1998. While small, it occurred one quarter
earlier than the Company anticipated and despite poor weather due to El Nino in
many areas of the country where sales typically occur during the winter months.
This profitability is due in large part to cost reduction efforts driven by
engineering changes and cooperative efforts with key suppliers, as well as to
focused efforts on managing SG&A expenses. As these efforts
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2 Representative articles are as follows: Cycle World, March 1998; Hot
Bikes Magazine, April 1997; Hot Bikes, September 1996; and Hot Rod Bikes, May
1996.
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continue and as volume continues to grow, the Company anticipates significantly
higher levels of profit in the future.
The Company began 1997 at a production rate of 5 - 7 units per week and
increased that through the year to reach 18 units per week by year-end. This was
facilitated by a move to a new location in March, 1997 that increased available
space from 8,000 to 64,000 square feet and the employment of additional
craftsmen to support the higher build level. In 1998, the Company is continuing
to invest in its engineering capability and infrastructure to allow it to grow
production to a level of up to 3000 units per year in the existing facility. For
1998, the Company's production target is to exceed 1200 units. The Company plans
to continue to develop its existing facilities and human resources, as well as
add others as demand warrants, to meet the growing demand for its products. The
Company plans on continued high levels of growth for at least the next five
years.
While projecting sales for the future is an inexact process at best, the Company
believes that growth will continue for some of the following reasons:
o Management believes that the overall growth of
the industry is strong and has been out-pacing
the basic economy for several years;
o As the baby boomer generation continues to age,
their disposable income continues to increase,
and this demographic group represents the largest
segment of the Company's market;
o Since inception, the Company has been capacity
constrained and demand for its product has
exceeded its ability to produce;
o The Company's dealership network is still young
and continues to expand, opening new geographic
markets to the Company. The dealerships also are
early in the life cycle of this product, and same
store sales are expected to increase as the
product's reputation grows in the market place;
o The international market is still largely
untapped. Management of the Company believes that
the international market represents approximately
30% of Harley-Davidson's sales; and
o The Company has new products in the planning
stage that should add to its product line and
expand its revenue base.
The Company's ability to reach these production levels will depend on several
factors. First and foremost will be its ability to continue to create high
levels of demand in both the domestic and international markets. Once this is
accomplished, the Company must be able to continue to increase efficiencies in
its current facilities through engineering advances, adding facilities for both
motorcycle and parts production, working with its developing supplier base, and
continuing to attract production, engineering and support talent to the Company.
There are no assurances the Company will be able to do all these things
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simultaneously or in a timely way to match sales demand. The Company could also
experience delays in its growth or production as the result of supplier issues,
labor shortages, or unforeseen competitive actions, as well as from natural
causes. These risks, if not offset, could negatively impact on the Company's
performance and it's resulting cash flow.
In 1997, the worldwide market for heavyweight motorcycles (651+cc) exceeded
500,000 units, with approximately 40% of that market in North America. This
market grew at 15.7% worldwide and 14.8% domestically.3 With a market size of
over one-half a million units and presently growing at a rate of about 75,000
units per year, the Company currently has a minor position in both the domestic
and world-wide markets. This should provide substantial room for growth for the
Company without having to compete on price in the marketplace. In fact, the
price of its products, combined with the quality and reputation it has achieved,
has allowed the Company to effectively create its own market segment. While data
is not currently available to the Company by price segment, it believes that it
has a significant market share for motorcycles in the over $25,000 price segment
domestically and has positioned itself well for growth in these segments in both
the European and Asian markets.
GROSS PROFIT
1997 1996 INCREASE % CHANGE
---- ---- -------- --------
Gross Profit (In 000's) $2,457 $1,300 $1,157 88.9%
In 1997, gross profit increased $1,156,395, or 88.9%, as compared to 1996 due to
the increased volume. The gross profit margin was 18.8% as compared with 26.1%
in 1996. The 1997 margin was negatively affected by an average price per unit
decrease of 5% as the mix of bikes changed to more standard models and fewer
bikes (as a portion of total units sold) containing high-end options. The
Company has seen this trend start to reverse itself in 1998, with dealers and
customers requesting higher levels of customization on ordered units and more
high-end models. The Company also saw its cost of goods sold increase slightly
as a result of the change in facilities and costs associated with ramping-up
both the new facility and new employees as the production rates grew. These
"ramping up" activities consist principally of amassing the various elements
necessary to rapidly increase unit production output, including:
o adding additional expanded floor space for manufacturing, storage and
personnel offices,
o adding additional staff, both hourly and salaried, throughout the
organization,
- --------
3 Data from the Motorcycle Industry Council.
16
<PAGE>
o adding inventories of raw materials and work in process to support higher
volume production, and
o adding additional production equipment to facilitate higher unit volume
output.
The Company anticipates a substantial increase in its Gross Profit in 1998 as a
result of significant engineering and cost reduction efforts, as well as the
increase in customization of its products. The Company has targeted a Gross
Margin of 30% for its total business within the next three to five years. As
mentioned at page 11, in the discussion of the results of operations for the
first six months of 1998, the Company achieved a gross profit margin of 26.8%.
The management of the Company has a reasonable expectation of achieving its goal
of 30% gross margin by continuing to pursue the measures discussed at pages 12,
and by benefitting from volume purchases of components, by vertical integration
by manufacturing more parts in-house, and by redesigning components of its
motorcycles.
OPERATING EXPENSES
1997 1996 INCREASE % CHANGE
---- ---- -------- --------
Operating Expenses (In 000's) $4,077 $1,385 $2,692 194.4%
Total operating expense for 1997 increased $2,692,808, or 194.4%, over 1996.
This increase was due to a number of causes, including, but not limited to the
following principal factors listed in descending order of importance:
o an increase in salaries and wages attributed to building both the
management and support staff necessary to support a rapidly growing and
significantly larger Company (28% of the increase);
o a substantial increase in advertising, trade show and promotional
activities to build the Company's brand name and recognition and drive
higher sales levels (15% of the increase);
o supplies, both production and office (12% of the increase);
o freight and postage (10% of the increase);
o insurance, including general business, workers' compensation, and liability
insurance (9% of the increase);
o an increase in lease expense associated with moving into the new facility
(7% of the increase); and
o an increase in research & development activity (4% of the increase).
Each of these factors are the result of direct management action and are part of
a continuing trend to expand production, marketing, facilities and product
improvements. While the increases were substantial, both as a percentage of the
prior year and in actual dollars, it was in keeping with the Company's plan to
invest heavily in infrastructure in 1997, to set the stage for profitable growth
in 1998 and the coming years.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both 1997 and 1996 as it recorded
losses for both years. The Company currently has a tax loss carry forward of
approximately $2.0 million.
17
<PAGE>
Calendar Year Ended December 31, 1996, Compared with Calendar Year Ended
December 31, 1995
OVERALL
Net Sales for 1996 of $5.0 million were $4.4 million, or 697%, higher than net
sales for 1995. The Company incurred a net loss of $95,496, or $0.01 per share,
in 1996 compared with a loss of $257,513, or $0.02 per share, for 1995. The
Company paid no dividends in calendar year 1995 or 1996.
RESULTS OF OPERATIONS
MOTORCYCLE UNIT SHIPMENTS AND NET SALES
<TABLE>
<CAPTION>
1996 1995 INCREASE % CHANGE
---- ---- -------- -------
<S> <C> <C> <C> <C>
Motorcycle Units 181 24 157 654.2%
Net Sales (in 000's):
Motorcycles $4,939 $ 625 $4,314 690.2%
Motorcycle Parts and Accessories $ 45 0 $ 45 NA
Total Motorcycles and Parts $4,984 $ 625 $4,319 697%
</TABLE>
The Company's business consisted almost totally of motorcycles at this point in
time. A small amount of business had been done in parts and accessories in 1996.
The increase in motorcycle shipments was due to several reasons. Chief among
them is the growth in the quality reputation of the Company's motorcycles and
the resulting demand this has created. This combined with the growth in the
dealership network, the Company's commitment to marketing efforts, and a full
year of production allowed the Company to increase its revenue by almost an
order of magnitude over 1995.
The Company began 1996 at a production rate of 2 units per week and increased
that to reach 5 - 7 units per week by year-end. In 1997, the Company invested in
its engineering capability and infrastructure to allow it to grow production to
a level of up to 500 units per year.
The Company's ability to reach these production levels has depended upon several
factors. Its ability to create higher levels of demand in both the domestic and
international markets was the primary catalyst for this growth.
18
<PAGE>
GROSS PROFIT
1996 1995 INCREASE % CHANGE
---- ---- -------- --------
Gross Profit (In 000's) $1,300 $ 17 $1,283 7547%
In 1996, gross profit increased $1,282,722 as compared to 1995 due to the
increased volume. The gross profit margin was 26.1% as compared with 2.8% in
1995. The 1996 margin was positively affected by a full year of production, and
the ability to work with vendors to obtain price breaks as volumes increased.
OPERATING EXPENSES
1996 1995 INCREASE % CHANGE
---- ---- -------- --------
Operating Expenses (In 000's) $1,385 $ 266 $1,119 420.7%
Total operating expense for 1996 increased $1,118,182, or 420.7%, over 1995.
This increase was due to growth in all expense areas except R&D as the Company
took advantage of its initial development activity, and made a substantial
investment in developing its market as well as the infrastructure of the
Company.
CONSOLIDATED INCOME TAXES
The Company's effective tax rate was 0.0% in both 1996 and 1995 as it recorded
losses for both years. The Company had a tax loss carry forward of approximately
$350,000 at year-end 1996.
WORKING CAPITAL MANAGEMENT
- --------------------------
The Company supplies motorcycles to its dealers in one of two ways. First, the
dealer can specify the motorcycle completely with customized paint and selected
options with a lead time of 6-8 weeks, sometimes slightly longer during peak
season. Alternatively, the dealer can select a completed bike from the Company's
available Finished Goods inventory list for immediate shipment or one from the
current production schedule that will be available inside the normal lead time
window. The Company builds some inventory (up to one month's production) of
finished motorcycles during the winter months that is consumed during the spring
peak season. During the rest of the year the Company normally maintains a low
level of finished goods inventory.
Motorcycles are typically either floored with major financial institutions by
the dealer or are paid for in full prior to shipment by the Company. The Company
receives payment for floored bikes within 2 weeks of shipment. During winter
months the Company may provide free flooring for dealers for up to 90 days
depending on model and stock situation to help smooth shipments and keep higher
levels of product available for customers.
19
<PAGE>
Parts used to build the bikes are usually available with short lead times, but
some parts do require up to ten weeks. Due to high quality standards and
reliability of delivery, the Company sets slightly high stocking levels to
assure the availability of parts to production. The Company has an ongoing
program to continue to upgrade its supplier base and to bring additional parts
in house for production, reducing required inventory levels as well as part
costs.
The Company has built a strong network of dealers both domestically and
internationally. Collectively, there are almost 70 dealers currently in place
with more being added every month. There are 4 types of dealers in the Company's
network; independent dealers, Easyrider stores and franchises, existing Harley
Davidson dealers, and Titan dealerships. In 1997, no dealer represented more
than 10% of the Company's revenue and only 2 were over 5%. To date in 1998, 3
dealers with common ownership (Titan of Los Angeles, Titan of Las Vegas, and
Paragon Custom dba Titan of Phoenix) represent 25% of the Company's sales.
Majority ownership of these dealerships are held by principals in the Company.
No other dealer represents more than 5% of sales.
As of May 15, backlog orders stood at approximately $3.8 million, compared with
approximately $2.4 million at the same time in 1997. The Company is presently
completing more than 25 motorcycles each week. At this production volume the
entire backlog can be shipped within 3 months.
DESCRIPTION OF MARKETS
- ----------------------
Surprisingly to some, the typical buyer of the Company's products is a male
businessman or professional between 35 - 55 years of age, who has previously
owned a production line motorcycle. The average age of a motorcycle owner is
increasing, with the customer's median annual earnings exceeding $50,000.00. It
is anticipated that the population of foreign motorcycle enthusiasts may
actually increase at a greater rate near the end of the century than the
domestic market.
It is generally accepted that demand for the customized V-twin motorcycle will
significantly outstrip production through the end of the millennium. At present,
the Company occupies a unique niche and is without any significant competitor in
its capacity to produce, from the ground up, a customized high-end V-twin
motorcycle on a production basis, while preserving the capacity to complete
special orders. The Company does not anticipate significant competition in this
sector for the next twelve to twenty-four months.
20
<PAGE>
Several companies compete in the market in the below $20,000 price range, headed
by Harley-Davidson who is clearly the dominant manufacturer. There is currently
no indication that they intend to move into Titan's market niche, but the
possibility of that happening at some time in the future cannot be discounted.
There are other builders that are currently smaller than the Company in the
below $20,000 price range that are starting to produce some motorcycles at
higher prices. None of these builders has any significant position in the
Titan's niche at this time.
Over the next three years, the Company projects it can increase its market share
of V-twin motorcycles, including both production line products and custom
models, from its projected 0.5% market share in 1997 to 2% by the year 2000. The
Company estimates that it has a greater than 50% market share for V-twin
motorcycles over $25,000 and anticipates that this market sector will also
continue to increase.
ENVIRONMENTAL CONTROLS
- ----------------------
The Company's products meet all federal and state emission requirements and have
been approved by the EPA and DOT.
The Company's manufacturing facilities also meet all federal, state and local
environmental requirements. The primary area of potential discharge is the
Company's paint facility, which meets all required standards. Expansion of this
area would require additional capital requirements, but it is not anticipated
that this would have any significant material effect on earnings or capital
expenditures at this time.
OTHER MATTERS
IMPACT OF YEAR 2000
- -------------------
21
<PAGE>
The "Year 2000 Problem" exists because many existing computer programs use
only the last two digits to refer to a year. Therefore, these programs do not
properly recognize a year that begins with "20" instead of "19". If not
corrected, many computer applications could fail or create erroneous results.
The Company has completed an analysis of its internal systems and the
potential for issues associated with the year 2000 problem. All Company
information systems already are or will be compliant before the end of 1998. The
Company began in 1997 to bring on-line new systems to support both operations
and financial reporting requirements as part as of building the infrastructure
to support the Company's growth. As part of the conversion, the Company received
assurances from its software suppliers that all systems are year 2000 compliant.
To this point in time, the Company has installed modules that address inventory
management, purchasing components, shop floor control and production scheduling,
and receiving. The remaining modules that include order entry, shipping and
invoicing, and accounting are in the conversion process now and are expected to
be operational before year end 1998.
Relative to Non-IT systems, the Company is currently investigating this
area for potential problems. As the Company does not have a high degree of
sophisticated equipment in its production process, the Company does not
anticipate any major issues or cost to remediate. Again, this analysis should be
complete before year-end 1998, along with a complete plan to address any
identified issues.
With regard to third party year 2000 issues, the Company has begun
discussions with its supplier base (and is currently surveying them), to
ascertain the potential for a negative impact on the Company's operations and
what steps are being taken to ensure continuity of supply of parts and service.
While the Company believes its plans are adequate to deal with the year 2000
issues internally, and will be compliant on a timely basis, there is no
guarantee that all suppliers and other parties that are essential to the
Company's operations will do so.
22
<PAGE>
The failure of any supplier to adequately address this issue in a timely manner
will result in the Company looking to other suppliers to fill the need. While
the Company is single sourced for many of its components, there are alternative
suppliers for all required parts. The potential exists for a material negative
effect on Company operations if a key supplier does not adequately address the
issue in a timely manner. The Company will be working with all key suppliers
throughout this time period to ensure continuity of supply.
The Company has also evaluated the risks associated with this problem and
its customers through discussions with key dealers. As the ordering process from
dealers is a manual one, and stocks of motorcycles on dealer's floors is a
relatively low number (typically between 5 and 25 units), the Company and the
dealers involved in these discussions believe that the year 2000 problem will
have no material impact to either the dealers or the Company.
The Company's cost to become year 2000 compliant is minimal and not
material to this point, nor expected to be in the future. As the Company had
already planned its systems conversions to facilitate its growth, there were no
incremental costs associated with insuring those systems were year 2000
compliant. As a result, costs of the effort are mainly focused on following up
with suppliers to determine their level of compliance. These costs are imbedded
in other activities and are not expected to be material (less than
$50,000.00/year in both 1998 and 1999).
The most reasonable likely worst case Year 2000 scenario would be for a key
supplier to not become compliant. If no steps were taken to address this issue,
it could result in the Company's operations being shut down until the problem
was resolved. As discussed above, the Company is in the process of analyzing the
readiness of all its suppliers to assure continuity of supply, so the
probability of such a scenario is not yet known.
As the specifics of potential problems are not yet known, a detailed
contingency plan has not yet been developed. Once more information is known from
the survey of vendors, a specific contingency plan for likely scenarios will be
developed. The Company would anticipate this being completed by the end of the
first quarter of 1999.
After identifying the likelihood of such an event, the Company would take
some or all of the following steps:
o Work with the vendor to put in place a manual back-up system to
assure continued supply until the vendor becomes compliant,
o Bring on line an alternate vendor with the capacity to meet 100%
of the Company's supply requirements, or
o Put in place additional raw material inventory at either
the vendor's location or in the Company's warehouse until
continuity of supply is assured.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company used $5.56 million of cash in operating activities in 1997 compared
with $1.87 million in 1996. Net losses adjusted for depreciation and
amortization consumed $1.58 million. Inventories increased $5.0 million in 1997
over the $1.5 million increase in 1996, as the Company continued to ramp
production as well as stockpile some finished goods in anticipation of a strong
spring season. Accounts receivable increased by only $240,000 as the Company
entered into a manufacturer's flooring agreement with Transamerica, whereby most
dealers finance their motorcycle inventory directly with Transamerica and the
Company receives funds in a more timely manner. This effectively reduces the
Company's outstanding receivables substantially, and resulted in only a 32%
increase in receivable dollars on a sales increase of 162%. The contractual
agreement with Transamerica is at no cost to the Company, but provides for a
repurchase obligation on the part of the Company should a Titan dealership fail
to meet its financial obligation and Transamerica seizes motorcycles in new
condition upon a dealer's default. When Titan invoices a dealer using the
Transamerica program, a copy of the invoice is sent to Transamerica by Titan,
and Transamerica pays the Company in full within 7 to 10 calendar days.
Approximately 60-65% of all sales are currently paid for through this
arrangement with Transamerica. The remainder are cash sales.
Capital expenditures totaled $621,000 in 1997 compared with $51,000 in 1996.
These expenditures were predominantly associated with bringing on line the new
manufacturing facility and the purchase of a large truck for transporting and
displaying product at various trade and dealer shows.
Cash was provided through the issuance and sale of stock for $4 million in 1997
as compared with $2.5 million in 1996. Additionally, the Company had net
borrowings of $1.4 million in 1997 as compared with $256, 000 in 1996. A more
detailed description of cash flows can be found in the attached financial
statements.
INFLATION
- ---------
Inflation rates have been trending upward recently after several years
of low to moderate increases. Inflation will result in the escalation of costs
as well as increasing operating expenses for the Company. The Company
anticipates the ability to offset most of these increases through its cost
reduction program, provided that inflation rates do not accelerate dramatically.
FOREIGN RISK FACTORS
- --------------------
The primary risk to foreign sales is the state of the economy in the
Company's overseas markets. This evidences itself both in the willingness of the
24
<PAGE>
marketplace to purchase the product and in the exchange rates for transactions
which ultimately impacts the final price of the product of the Company in the
dealer's country. Other risks include the relative strength of individual
dealerships in their respective countries, marketing expertise of the dealer
network, transportation delays associated with shipping products from Phoenix,
and individual country regulatory requirements. The Company believes it has
taken the necessary steps and signed up strong dealers in the countries where it
is currently represented to mitigate the above risks, except for those related
to country economics.
PART I, ITEM 3. DESCRIPTION OF PROPERTY.
In March 1997, the Company moved to its present manufacturing and
distribution facilities to 2222 West Peoria Avenue, Phoenix, Arizona 85029. On
August 7, 1997, the Company entered into a second lease with the same landlord
for an adjacent parcel of property. Under the combined leases, the Company
presently occupies a leased structure having approximately 64,000 square feet of
combined administrative, manufacturing, assembly and distribution space.
Approximately 10,000 square feet are devoted to offices with the remaining area
dedicated to production and warehouse. The Company has just entered the second
year of a current five year lease on this premises at an aggregate rate for the
two leases of $29,295.00 per month. The form of the leases and the addenda to
the leases are included as Exhibits 6.1 and 6.2 of this Registration Statement.
The Company has maintained its former leased facility at 2002 East Indian School
Road, Phoenix, Arizona for certain limited purposes for the full lease term
ending July 1, 1998. The Companyhas extended the use of such facilities on a
month to month basis at the end of the term at the current monthly cost of
$3,978.
It is reasonably anticipated that the present physical facilities
should be adequate for the Company's anticipated manufacturing and distribution
needs into 1999.
PART I, ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.
As of the June 1, 1998, the Company had 16,437,333 shares of common
stock outstanding. The chart below sets forth the ownership, or claimed
ownership, of certain individuals and entities. This chart discloses those
persons known by the Board of Directors to have, or to claim to have, beneficial
ownership of more than 5% of the outstanding shares of the common stock of the
Company as of June 1, 1998; of all directors and executive officers of the
Company; and of the directors and officers of the Company as a group.
25
<PAGE>
Name and Address Number of Shares Percent of Class
of Beneficial Owner Beneficially Owned
- --------------------------------------------------------------------------------
Francis S. Keery
8973 N. 45th Street 3,599,772 4 21.7%
Phoenix, Az 85028
- --------------------------------------------------------------------------------
Patrick Keery
8973 N. 45th Street 3,098,549 5 18.7%
Phoenix, Az 85028
- --------------------------------------------------------------------------------
Barbara S. Keery
12460 N. 116th Street 3,478,334 21.2%
Scottsdale, Az 85259
- --------------------------------------------------------------------------------
Harry H. Birkenruth
81 Ball Hill Road 0 0.0%
Storrs, CT 06268
- --------------------------------------------------------------------------------
H.B. Tony Turner
6116 East Yucca Road 0 0.0%
Paradise Valley, AZ 85253
- --------------------------------------------------------------------------------
Robert V. Peltier
7253 S. Terrace Lane 0 0.0%
Tempe, Az 85283
- --------------------------------------------------------------------------------
Robert P. Lobban
1326 E. Treasure Cove Dr. 7,000 less than 0.1%
Gilbert, Az 85234
- --------------------------------------------------------------------------------
Mark G. Green
15850 N. Thompson Peak Pkwy. #2032 0 0.0%
Scottsdale, Az 85260
- --------------------------------------------------------------------------------
Officers and Directors 10,183,655 3,4 61.0%
as a group (8 members)
- --------------------------------------------------------------------------------
- --------
4 Includes 150,000 shares underlying unexercised employee options.
5 Includes 100,000 shares underlying unexercised employee options.
26
<PAGE>
PART I, ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
The directors and executive officers of the Company are as follows:
Name Age Positions Held Period of Service
- --------------------------------------------------------------------------------
Francis S. Keery 54 Chairman of the Board Since August 1994
and CEO
- --------------------------------------------------------------------------------
Patrick Keery 28 President and Director Since 1993
- --------------------------------------------------------------------------------
Barbara S. Keery 55 Vice President, Secretary Since 1996
and Director
- --------------------------------------------------------------------------------
Harry H. Birkenruth 66 Director Since August 1998
- --------------------------------------------------------------------------------
H.B. Tony Turner 67 Director Since August 1998
- --------------------------------------------------------------------------------
Robert V. Peltier 45 Operations Manager Since 1996
- --------------------------------------------------------------------------------
Robert P. Lobban 43 Chief Financial Officer Since 1997
- --------------------------------------------------------------------------------
Mark G. Green 38 National Sales Manager Since 1996
- --------------------------------------------------------------------------------
The Board of Directors of the Company held five meetings in calendar
year 1997 and eight meetings to date in calendar year 1998. All directors were
present at these meetings.
Each of the members of the Board of Directors of the Company serve for
a one year term, or until their successors are elected. Mr. Birkenruth and Mr.
Turner have accepted appointments to serve as the only members of the audit and
compensation committees of Titan's Board of Directors.
None of the directors, officers or 5% owners of the stock of the
Company is involved in any significant legal proceedings adverse to the Company.
One of Titan's greatest assets is its uniquely specialized management
team. Information regarding the key members of this team are provided below.
27
<PAGE>
Frank (Francis S.) Keery - Chairman and CEO
-------------------------------------------
Frank Keery, age 54, currently resides with his wife, Barbara Keery, in
Phoenix, Arizona.
Mr. Frank Keery received a B.S. degree in Engineering from the
University of Detroit in 1966 and an MBA degree from Western New England
University in 1969.
Subsequent to completion of his formal education, Mr. Frank Keery has
held various administrative and finance related positions. For 17 years Mr.
Keery worked with Rogers Corporation, an AMEX listed corporation, involved in
international automotive and electrical sales and marketing. In this capacity he
served variously as an executive in charge of new division startups,
manufacturing management, operation "turnarounds", and international sales from
approximately 1969 to 1986. Most of these assignments carried full profit and
loss responsibilities of independent units.
From 1986 to 1994, Mr. Frank Keery was primarily employed in multiple
positions as an outside and in-house business consultant. In 1989 to 1991 he was
the CEO for Swanson Manufacturing, Inc.
For the three-year period ending in August 1994, Frank Keery was CEO of
the Company Store, a privately held mail order company with annual sales of
approximately Eighty Million Dollars ($80,000,000.00).
From August 1994 to the present, Mr. Keery has been chairman of Paragon
Custom Cycles, which later became Titan Motorcycle of America. In this capacity
he has used his management and marketing experience as the chairman of the board
and CEO.
Patrick Keery - President/Director
----------------------------------
Patrick Keery, age 29, resides in Scottsdale, Arizona.
Mr. Keery has been President of Titan since inception, and owned and
operated its predecessor entity, Paragon Custom Cycles. Mr. Patrick Keery brings
unique skills in the assembly, design and engineering of custom built
motorcycles.
Mr. Patrick Keery is a 1992 graduate of Arizona State University where
he obtained a B.S. degree in finance.
28
<PAGE>
Since 1993, Mr. Keery operated and was the owner and manager of Paragon
Custom Cycles doing custom design, assembly and rebuilding of essentially large
displacement motorcycles until he became the President of the reorganized
Company in December of 1995.
During the period of 1992 to 1993, Mr. Patrick Keery worked as a
financial analyst for the George S. May International Co., a consulting firm
specializing in providing services to small to medium capital companies.
Mr. Keery is heavily involved in developing the Company's dealer
network and overseeing the sales and marketing efforts. He continues to play a
lead role in motorcycle styling and product development.
Barbara Keery - Vice President/Secretary/Director
-------------------------------------------------
Barbara Keery, age 55, currently resides with her husband, Frank Keery,
in Phoenix, Arizona.
Barbara S. Keery received her Masters Degree in Business Education from
the University of Connecticut in 1970 and her Bachelors Degree in Business
Education from the State University of New York at Albany. From 1964 through
1969 she taught high school administration business courses in South Windsor,
Connecticut and Oak Park, Michigan. As a licensed real estate agent, she served
on the chairman's board of Russ Lyon Realty and was a member of the Scottsdale
Million Dollar Club in 1987 and 1988.
From its inception in 1996, Mrs. Keery has served as the corporate
secretary and Vice-President for the Company. In 1997, a new division was
created for the clothing and accessory line which is primarily administered by
Mrs. Keery.
Harry H. Birkenruth - Director
------------------------------
Harry H. Birkenruth, age 66, resides with his wife in Storrs,
Connecticut.
Mr. Birkenruth graduated with high honors from the City College of New
York in 1953. In 1957 he graduated with distinction from the Harvard Graduate
School of Business Administration. In 1960 Mr. Birkenruth joined Rogers
Corporation and became its Chief Financial Officer in 1967 and served as its
Senior Vice President Polymer Products in 1986. Rogers Corporation is engaged in
the sale of materials and
29
<PAGE>
components to the electronics and automotive industries with its principal place
of business in Rogers, Connecticut.
Beginning in 1990, Mr. Birkenruth served as Executive Vice President of
Rogers Corporation and in April 1992 became its President and Chief Executive
Officer until March 31, 1997, when he became Chairman of the Board of Directors
of the company. On June 30, 1998, Mr. Birkenruth retired as Chairman of Rogers
Corporation and continues to serve as a director and consultant to the company.
For the past two years, Mr. Birkenruth has also served as the Vice
Chairman of the Board of Directors of Instrument Manufacturing Company, a
company specializing in electrical cable diagnostic instruments.
Mr. Birkenruth has previously served as a member of the Executive
Committee and Board of Directors of the Connecticut Business and Industry
Association; a member of the Board of Overseers of the University of
Connecticut's School of Business; as a Trustee of the Connecticut Policy and
Economic Counsel; and has served several terms as a member of the Board of
Trustees and as an incorporator of the Windham Community Memorial Hospital.
H. B. Tony Turner
-----------------
Tony Turner, age 67, resides in Paradise Valley, Arizona.
Mr. Turner graduated in 1958 with a Bachelors degree from Duke
University. In 1962 he graduated from the Harvard Graduate School of Business
Administration.
Subsequent to his graduation from graduate school, Mr. Turner has
engaged in a broad variety of work experiences including as Chairman to
President and CEO of Ardshield, Inc., a leverage by-out and investment banking
firm (1980-1992); Executive Vice President and Director of Investment Banking
for Shearson Haden Stone (1978- 1980); Vice President in the leverage by-out
department of Oppenheimer & Co. (1976- 1978); Vice President Finance and Chief
Administrative Officer of N-REN Corp., a privately held fertilizer company;
Assistant Secretary for Administration of the U.S. Department of Commerce
(1973-1975); First Vice President and Director of Mitchum, Jones & Templeton, a
regional investment banking company (1967-1973); Treasurer and Director of
Corporate Planning of Star-Kist Foods, Inc., a subsidiary of H.J. Heinz
(1964-1967); and Controller of a financial corporation of Arizona where he
served as the Chief Accounting Officer of a financial holding company.
30
<PAGE>
Robert V. Peltier - Operations Manager
--------------------------------------
Robert V. Peltier, age 45, resides with his wife and family in Tempe,
Arizona.
Dr. Peltier obtained his Ph.D. in Engineering from Kennedy-Western
University in 1994, his masters degree in Engineering from San Diego State
University in 1981, and his B.S. in Engineering from the same institution in
1974. Dr. Peltier has also completed advanced course work in contract law and
business finance and management.
From 1983 - 1987 Dr. Peltier served as an adjunct professor at the
National University in San Diego, California. During the period of 1984 to 1987
he was also a project manager for Energy Factors, Inc. and was involved in the
design and engineering of cogeneration facilities and power plants.
Dr. Peltier was a professor at Arizona State University from 1987 to
1994. From 1995 to 1997 Dr. Peltier has been an adjunct professor in Mechanical
Engineering at the University of Houston. He has also served from 1994 to 1997
as a Managing Engineer with Stewart & Stevenson Services, Inc. of Houston, Texas
where he managed the production engineering group. Stewart & Stevenson is
involved in the design and manufacture of gas turbines.
Dr. Peltier, an avid motorcyclist, has been associated with the Company
as the chief engineer since early 1997, and his contributions to design, safety
and performance aspects of the motorcycles are deemed to be of critical
importance. In mid-1997 he also assumed responsibility for general operations.
Robert P. Lobban - Chief Financial Officer
------------------------------------------
Mr. Robert P. Lobban, age 43, currently resides in Gilbert, Arizona
with his wife Susan.
Mr. Lobban holds a Masters of Business Administration Degree (M.B.A.)
from Harvard Graduate School of Business which he obtained in 1981. Mr. Lobban
earlier obtained a B.S. degree in Industrial Engineering from Northeastern
University in 1977. He graduated first in his class and was a Magna Cum Laude
graduate.
During the period of his formal education, Mr. Lobban obtained
considerable practical experience in working in full-time positions as an
engineer, analyst and supervisor with such companies as Digital Equipment
Corporation, Texas Instruments, New England Medical Center Hospitals and the
Phillips Manufacturing Company.
31
<PAGE>
From 1981 through 1982, he worked as a Controller with the Fiberloys Division of
the Rogers Corporation. From 1982 to 1984 he was the Controller for the Flexible
Interconnections Division of Rogers Corporation in Chandler, Arizona and was
promoted to Administrative Manager with that from 1984 through 1987. From 1987
through 1988 he worked for Pacific Biosystems, Inc., a start-up company involved
in the medical equipment industry as its Vice President and Chief Financial
Officer.
In 1988, he joined Gemini Consulting as a Consultant and was promoted
through several positions to the level of Principal. In these positions, Mr.
Lobban was responsible for leading large teams in multi-million dollar projects
to improve the financial performance of over 30 companies, most in the Fortune
500. Gemini Consulting of Morristown, New Jersey is an international business
consulting firm. In 1995, he joined the George Group of Dallas, Texas as a
Director and then Vice- President, where he was responsible for managing
multiple client engagements in turnaround/major improvement situations.
During 1997 he became associated full-time with the Company and
provides valuable service as its Chief Financial Officer supervising general
accounting, finance, investor relations, information systems, and human
resources as well as its procurement and materials management functions. He is
also charged with leading the Company's cost reduction efforts.
Mark G. Green - National Sales Manager
--------------------------------------
Mark G. Green, age 38, resides in Scottsdale, Arizona.
Mr. Green obtained an associate degree from Saddleback College in
Mission Viejo, California in 1979. He has also completed most of the course work
required for a B.S. degree in Sports Medicine from California State University
at Fullerton.
Mr. Green came to Titan in 1996 with over 15 years of motorcycle retail
experience. His experience includes sales of Japanese products, as well as on
the Harley Davidson line. From 1981 to 1983 he worked for Pacific Coast
Honda/Suzuki. From 1983 to 1994, he was finance manager for Champion Motorcycles
of Costa Mesa, California.
During 1994 to 1996 he was the National Sales Manager of Biker's Dream
headquartered in Santa Ana, California. During this tenure the number of units
sold increased from 60 to 275 per year. In his capacity as National Sales
Manager for Biker's Dream, he opened ten new super stores across the country.
Mr. Green was
32
<PAGE>
also responsible for developing a detailed sales manual including all aspects of
sales, insurance and registration of motorcycles.
Mr. Green has formulated similar sales and closing procedures for
Titan. He is responsible for dealer training and all marketing activities
including trade shows, print and radio advertising, and cooperative marketing
programs with other corporations such as Playboy, the World Wrestling
Federation, R.J. Reynolds, and the Arizona Cardinals.
PART I, ITEM 6. EXECUTIVE COMPENSATION.
The table set forth below contains information about the remuneration
received and accrued during the last three fiscal years from the Company and its
subsidiaries by the CEO of the Company. None of the employees of the Company
have received salary and bonuses of $100,000 or more in any calendar year.
Name and Year Salary ($) Bonus ($) Other Securities
Principal Annual Underlying
Position Compensation Options or
($) SARs (#)
- -------------------------------------------------------------------------------
Frank Keery 1997 61,153.70 1,154 6,9426 0
Chairman/CEO 1996 59,999.96 0 150,000
1995 0 0 0
In December 1996, the Board of Directors of the Company
adopted the Titan Motorcycle Co. of America Stock Option and Incentive Plan (the
"Plan"). Under the Plan, Incentive Stock Options ("ISOs"), Non-qualified Stock
Options, Stock Appreciation Rights ("SARs"), Restricted Stock, Dividend
Equivalents and Performance Shares may be awarded to key employees of Titan
Motorcycle Co. of America and its subsidiaries.
A committee consisting of at least two Board members is
authorized to administer the Plan and is authorized to select from among
eligible employees those persons who will receive awards, to select the
appropriate form of awards and to determine the terms and conditions of such
awards. After taking into consideration the
- --------
6 Of the amount reflected, $5,824 represents an automotive allowance for
Frank Keery.
33
<PAGE>
March 1997 two-for-one forward split of the stock of the Company, the aggregate
number of shares of stock subject to awards under the Plan may not exceed
2,000,000.
The committee may make awards of ISOs, Non-qualified Stock
Options, SARs, Restricted Stock, Dividend Equivalents and Performance Shares, or
any combination of the foregoing, to officers and other key employees of the
Company and its subsidiaries. For purposes of the Plan, the "key employees" are
those employees who, in the opinion of the Committee, are mainly responsible for
the continued growth, development and financial success of the Company. The
committee is not required to make awards to every individual who is an officer
or key employee, but it may not make any award to any individual who is not an
officer or key employee.
An ISO is a stock option that satisfies certain technical
requirements specified in Section 422 of the Internal Revenue Code (the "Code").
Under the Code, ISOs may only be granted to employees. In order for an option to
qualify as an ISO, the price specified in the option must equal the fair market
value of the stock at the date of the grant, and the option must lapse no later
than 10 years from the date of the grant. As a general rule, the stock subject
to ISOs which are first exercisable by an employee in any calendar year may not
have a value of more than $100,000 as of the date of grant. Certain other
requirements must also be met.
A Non-qualified Stock Option is any stock option other than an
ISO. These options are referred to as "non-qualified" because they do not meet
the requirements of, and are not eligible for the favorable tax treatment
provided by Section 422 of the Code. Subject to applicable federal and state
securities laws, non-qualified options can be subject to such terms and
conditions as the committee determines in its discretion. Thus, for example, a
Non-qualified Stock Option could be granted which has an exercise price which is
less than the stock's fair market value on the date of grant.
A Stock Appreciation Right ("SAR") is the right granted to an
employee to receive the appreciation in the value of a share of Company stock
over a certain period of time. Under the Plan, the Company may pay that amount
in cash or in Company stock or in a combination of both. SARs are often issued
in conjunction with a grant of stock options to give the employee the cash
necessary to exercise the option and/or pay the tax attributable to the exercise
of the option (in the case of a Non-qualified Stock Option). Although SARs can
be exercised independently of an option, in such cases, the underlying option
lapses to the extent the SARs are exercised.
34
<PAGE>
The Plan also authorizes the committee to award Restricted
Stock to employees. Under the Restricted Stock feature of the Plan, the employee
is granted a specified number of shares of the Company's stock. However, his
ownership with respect to such stock is subject to certain restrictions, and if
the employee violates any of the restrictions during the period specified by the
Committee, he forfeits his stock. The committee may, in its discretion, impose
any restrictions on an employee's Restricted Stock Award. It may not, however,
require the employee to make any payment for the Restricted Stock.
The Plan authorizes the committee to grant dividend
equivalents in connection with options. Dividend equivalents are rights to
receive additional shares of Company stock at the time of exercise of the option
to which such dividend equivalents apply. Dividend equivalents are always issued
in connection with an option, however, they can be issued at the time the option
is granted or after the option is granted.
Under the Plan, the committee may grant performance share
units to an employee which are to be credited to a performance share account
maintained for the employee. Each performance share unit is deemed to be the
equivalent of one share of Company stock. An award of performance shares does
not entitle an employee to any ownership, dividend, voting, or other rights of a
shareholder until distribution is made in the form of shares of stock. No
employee may receive as performance shares units more than 30 percent of the
aggregate number of shares that can be awarded under the Plan.
As of June 1, 1998, the Company has granted ISOs and
Non-qualified Stock Options for an aggregate of 865,000 shares of stock. No
grants have been made of any of the other categories of awards available under
the Plan.
Stock options awarded in fiscal year 1997 under the Plan of
the Company are as follows:
Name Number of Date % of Total Exercise Expiration
Securities Awarded Options/SARs or Base Date
Underlying Granted to Price
Options/SARs Employees in ($/Sh)
Granted (#) Fiscal Year
- --------------------------------------------------------------------------------
Gary Smith 60,000 1/8/97 100% $3.00 1/8/07
35
<PAGE>
PART I, ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Prior to the formation of Titan Motorcycle Co. of America,
Patrick Keery and Frank Keery had been conducting the business of after-market
customizations of Harley Davidson motorcycles in the Phoenix area under the name
of Paragon Custom Cycles. The Phoenix dealership for the Company has retained
this name for reasons of established name recognition in the Maricopa County
market. This distributorship is owned by the President and the CEO of the
Company, and sells the products of the Company under the standard dealership
contract of the Company without any special concessions or contract provisions.
In early 1998, the CEO and the President of the Company joined
with a third-party investor to purchase the Los Angeles, California and Las
Vegas, Nevada distributorships of the Company. Bryant Cragun, the third-party
investor, is the principal of an investment banking firm that has assisted the
Company in capital raising functions. These three individuals have formed a
limited liability company known as BPF, LLC. The Los Angeles and Las Vegas
distributorships had been in need of significant capital infusions, at a time
when the Company was unable to invest in any of its distributorships. To date,
BPF, LLC has provided $207,000 to the Las Vegas distributorship and $255,000 to
the Los Angeles distributorships. These two distributorships are continuing to
sell the products of the Company under the standard dealership contract of the
Company without any special concessions or contract provisions.
PART I, ITEM 8. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE
REGISTERED.
The Company has authorized Ninety Million common shares
(90,000,000) having a par value of %0.001 per share. The Company presently has
only one class of common shares.
The Company has also authorized Ten Million (10,000,000)
shares of preferred stock having a par value of $0.001 per share. The Articles
of Incorporation of Titan do not specify rights of the preferred stock, but
authorize the Board of Directors of the Company to establish such rights at the
time that preferred stock is issued. As of the date of this Registration
Statement, no preferred shares are issued or outstanding and no specific rights
have been established for such stock.
At June 1, 1998, there were 16,437,333 shares of Common Stock
issued and outstanding, and held by more than 500 shareholders. Holders of
36
<PAGE>
Common Stock are entitled to one vote per share for the election of directors
and on all matters submitted to a vote of shareholders. There are no cumulative
voting rights for the election of directors. Holders of Common Stock are
entitled to receive dividends as and when declared by the Board of Directors out
of funds legally available therefore. Holders of Common Stock are not entitled
to preemptive rights. The Common Stock to be registered is not convertible to
any other debt or security installment. In the event of the liquidation,
dissolution or winding up of the Company, the holder of each share of Common
Stock is entitled to share equally in any balance of the Company's assets
available for distribution to shareholders. Outstanding shares of Common Stock
are not subject to any further call or assessment.
PART II
PART II, ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The stock of the Company is traded on the NASD Electronic
Bulletin Board. As of June 1, 1998, there were more than 534 shareholders of
record of the stock of the Company. As of the same date, Sixteen Million Four
Hundred Thirty- Seven Thousand Three Hundred Thirty Three (16,437,333) shares of
stock were outstanding. Actual trading volume of the stock of the Company in
calendar year 1997 has been moderate. A significant portion of the stock of the
Company is held by nonU.S. investors.
Provided in the following table is the price range of the
Company's stock for the eight most recent quarters (adjusted to reflect the
March 1997 two-for-one forward split of the stock of the Company), and as of
August 27, 1998. The referenced quotations do not reflect inter-dealer prices,
dealer retail markup, markdown, or commissions, and may not necessarily
represent actual transactions.
37
<PAGE>
PRICE RANGE OF COMMON STOCK
Bid Quotations
- --------------------------------------------------------------------------------
Quarter & Year High Bid Low Bid
- --------------------------------------------------------------------------------
2nd 1996 Not Traded Not Traded
- --------------------------------------------------------------------------------
3rd 1996 3.81 3.00
- --------------------------------------------------------------------------------
4th 1996 3.63 3.25
- --------------------------------------------------------------------------------
1st 1997 7.50 3.31
- --------------------------------------------------------------------------------
2nd 1997 6.25 4.50
- --------------------------------------------------------------------------------
3rd 1997 6.13 5.50
- --------------------------------------------------------------------------------
4th 1997 6.13 4.5
- --------------------------------------------------------------------------------
1st 1998 4.75 3.00
- --------------------------------------------------------------------------------
2nd 1998 6.75 3.37
- --------------------------------------------------------------------------------
August 27, 1998 bid $ 4.62 ask $ 4.94
The Company has paid no dividends on common stock during its
two most recent calendar years, and has no present intention to pay dividends in
calendar year 1998.
PART II, ITEM 2. LEGAL PROCEEDINGS.
The Company presently is involved as a defendant in a civil action
filed against it in the Superior Court (court of general jurisdiction) in and
for Maricopa County, Arizona, Civil No. CV98-03681, arising out of a dispute
over payment for and the adequacy of services performed by the plaintiff in
completing a paint room for the Company. The amount alleged owing is the
principal sum of $52,898.59. The Company disputes the claims and has filed a
counterclaim. In all events, it is not believed the outcome of this litigation
will have any material affect on the Company's business. The Company is not
aware of any other claims or litigation.
PART II, ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
The Company has no disagreement with its accountants on the
accounting and financial disclosures contained in this Registration Statement or
as an exhibit hereto.
38
<PAGE>
PART II, ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Set forth below is a table summarizing all transactions of the
sale of securities of the Company for the past three years, which securities
were not registered under the Securities Act. The table does not include the
employee options granted pursuant to the 1996 Incentive Stock Option Plan of the
Company discussed in Item 6 of Part I of this Registration Statement.
<TABLE>
<CAPTION>
Date No. of Name or Class of Consideration
Shares Purchaser(s)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1 June 1996 5,500,000 Shareholders of Paragon Merger of Paragon Custom
Custom Cycles Cycles into Mojave Financial
Services, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
2 September 1996 1,500,000 Non-U.S. investors $1,500,000
- -----------------------------------------------------------------------------------------------------------------------------------
3 October 1996 333,333 Non-U.S. investors $1,000,000
- -----------------------------------------------------------------------------------------------------------------------------------
4 March 1997 7,355,000 All of the then existing Issued pursuant to the 2 for 1
shareholders of the forward split of the stock of the
Company Company
- -----------------------------------------------------------------------------------------------------------------------------------
5 April 1997 1,000,000 Non-U.S. investors $2,500,000
- -----------------------------------------------------------------------------------------------------------------------------------
6 November 1997 500,000 Non-U.S. investors $1,500,000
to January 1998
- -----------------------------------------------------------------------------------------------------------------------------------
7 January 1998 60,000 Publication trade supplier $250,000 of printing and
advertising services
- -----------------------------------------------------------------------------------------------------------------------------------
8 February 1998 166,667 Non-U.S. investors $500,000
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Transactions 1, 4 and 7 are deemed exempt from registration
pursuant to the provisions of Regulation D adopted by the Securities and
Exchange Commission. Transaction 7 is a transaction under Rule 505 of Regulation
D and is documented by a signed investment intent letter of the purchaser. Such
purchaser is an accredited investor. The certificates representing each of the
issued shares bear an appropriate restrictive legend, and the transfer agent of
the Company has been given stop transfer instructions with regard to shares
issued under any Regulation D exemption. Each of the purchasers in the
Regulation D transactions had a pre-existing relationship with the Company. The
recipients of the stock in transaction 1 were the shareholders of Paragon Custom
Cycles, and possessed more information regarding the business to be pursued by
the surviving corporation in the merger transaction than any other person.
Transaction
39
<PAGE>
1 resulted in the issuance of shares of common stock under Rule 505 of
Regulation D to Frank, Patrick and Barbara Keery, each of whom qualified as an
accredited investor. Such individuals have served as officers and directors of
the Company since the time of the merger with Mojave, and were the sole
shareholders of Paragon Custom Cycles prior to the merger. Transaction 4 was
merely a private placement to the existing shareholders of the Company pursuant
to a two-for-one forward split of the stock of the Company. In addition to
possible exemption from registration under Regulation D as to some or all
shareholders, the issuance of the shares pursuant to the split of the stock of
the Company is exempt from registration under Release No. 33-929, July 29, 1936,
17 CFR 231.929.
The remaining transactions are deemed exempt from registration
pursuant to the provisions of Regulation S adopted by the Securities and
Exchange Commission. Each of these transactions is documented by signed
subscription agreements. The Company reasonably believes, and each of the
purchasers specifically warranted and represented to the Company, that (a) the
purchaser was not a U.S. person as that term is defined under Regulation S; (b)
at the time the buy order for the securities was originated, the purchaser was
outside the United States and was outside of the United States as of the date of
the execution and delivery of the purchaser's subscription agreement; (c) the
purchaser was purchasing the securities for its own account and not on behalf of
any U.S. person; (d) the sale had not been pre-arranged with a purchaser in the
United States; (e) all offers and resales of the securities would only be made
in compliance with the provisions of Regulation S; and (f) the sales transaction
was made in compliance with all of the laws of the country of domicile of the
purchaser, and of any political subdivision thereof, and the customary practices
and documentation of such jurisdictions. The certificates representing the
shares issued in such transactions bear an appropriate restrictive legend, and
the transfer agent of the Company has been given stop transfer instructions with
regard to shares issued under any Regulation S exemption.
The Company has monitored the flow of Regulation S shares
issued by the Company and is not aware of any shares which have been sold back
into the United States, or to U. S. persons (as defined in Rule 902(o) of
Regulation S), within one year of the later of (a) the date of sale by the
Company of the Regulation S shares, or (b) the date of the resale by a foreign
underwriter of the last of any shares of a tranch of securities which were not
held by the underwriter as its private investment. All individuals or entities
who did not purchase their shares directly from the Company and who request the
removal of the restrictive legend from shares issued under Regulation S are
required to sign a representation letter certifying the accuracy of the
statements set forth in subparagraphs (a) and (b) of this paragraph.
40
<PAGE>
No commission or finders fees were paid on any of the
referenced transactions.
PART II, ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has included in its Restated Articles of Incorporation
provisions to indemnify its directors and officers from personal liability to
the Company or any of its shareholders for damages for the breach of a fiduciary
duty. The Restated Articles also provide for rights of indemnification as
allowed under the laws of the state of Nevada. Additionally, the Bylaws of the
corporation may be amended to allow for additional rights of indemnification by
the corporation. The directors and officers enjoy rights of indemnification for
defending criminal or civil actions, suits, or proceedings involving alleged
acts or omissions by the director or officer while acting in said party's
capacity on behalf of the corporation. The corporation does not indemnify a
director or officer for any acts or omissions involving intentional misconduct,
fraud, or a knowing violation of law or the payment of distributions in
violation of Nevada Revised Statutes Section 78.300.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Company pursuant to such indemnification provisions, the Company has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
41
<PAGE>
PART F/S
TITAN MOTORCYCLE CO. OF AMERICA
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
December 31, 1997 and 1996
42
<PAGE>
C O N T E N T S
Independent Auditors' Report .................................................44
Consolidated Balance Sheet ...................................................45
Consolidated Statements of Operations.........................................47
Consolidated Statements of Stockholders' Equity .............................49
Consolidated Statements of Cash Flows ........................................50
Notes to the Consolidated Financial Statements ...............................51
43
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Titan Motorcycle Co. of America
Phoenix, Arizona
We have audited the accompanying consolidated balance sheet of Titan Motorcycle
Co. of America as of December 31, 1997 and the related consolidated statements
of operations, stockholders' equity, and cash flows for the years ended December
31, 1997 and 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Titan
Motorcycle Co. of America as of December 31, 1997 and the consolidated results
of its operations and its cash flows for the years ended December 31, 1997 and
1996 in conformity with generally accepted accounting principles.
Jones, Jensen & Company
Salt Lake City, Utah
March 12, 1998
44
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Balance Sheet
ASSETS
------
December 31,
1997
----
CURRENT ASSETS
Cash $ 85,468
Accounts receivable, net (Note 2) 974,461
Inventory (Note 3) 6,635,917
Prepaid expenses 381,160
---------
Total Current Assets 8,077,006
---------
EQUIPMENT (NOTE 4)
Autos and trucks 228,017
Machinery and equipment 199,226
Office equipment 211,495
Displays 41,534
Leasehold improvements 24,177
Less: accumulated depreciation (121,749)
---------
Total Equipment 582,700
---------
OTHER ASSETS
Deposits 55,063
Trademarks 54,288
---------
Total Other Assets 109,351
---------
TOTAL ASSETS $ 8,769,057
= =========
The accompanying notes are an integral part of these consolidated
financial statements.
45
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
December 31,
1997
----
CURRENT LIABILITIES
<S> <C>
Accounts payable $ 2,052,731
Accrued expenses 216,657
Income tax payable 50
Deposits payable 100,940
-----------
Total Current Liabilities 2,370,378
-----------
LONG-TERM LIABILITIES
Notes payable - related parties (Note 5) 1,928,664
-----------
Total Long-Term Liabilities 1,928,664
-----------
TOTAL LIABILITIES 4,299,042
-----------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Common stock, par value $.001; 100,000,000 shares authorized;
16,210,666 shares issued and outstanding 16,211
Additional paid-in capital 6,480,769
Accumulated deficit (2,026,965)
-----------
TOTAL STOCKHOLDERS' EQUITY 4,470,015
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,769,057
===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
46
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1997 1996
---- ----
<S> <C> <C>
SALES, NET $ 13,064,145 $ 4,983,876
COST OF GOODS SOLD 10,607,602 3,683,728
---------- ---------
Gross Profit 2,456,543 1,300,148
--------- ---------
OPERATING EXPENSES
Advertising 114,874 97,537
Auto and truck expense 92,480 14,609
Bank charges 1,543 833
Contributions 17,237 1,700
Depreciation expense 89,994 29,178
Freight and postage 466,057 184,762
Insurance 356,212 125,814
Legal and accounting 87,867 38,852
Office supplies and expense 393,313 79,332
Printing 30,244 9,005
Research and development 186,206 76,196
Rent 230,824 43,702
Repairs and maintenance 45,700 14,069
Salaries and wages 1,271,310 506,663
Taxes and licenses 17,305 3,223
Telephone and utilities 177,627 45,474
Trade show and promotion 498,670 113,706
------- -------
Total Operating Expenses 4,077,463 1,384,655
--------- ---------
(Loss) from Operations (1,620,920) (84,507)
---------- -------
OTHER INCOME (EXPENSE)
Gain (loss) on currency translation 9,331 -
Other income 70,394 -
Interest income - 16,043
Interest expense (126,163) (15,726)
Bad debt expense (6,385) (11,256)
------ -------
Total Other Income (Expense) $ (52,823) $ (10,939)
- ------- - -------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
47
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations (Continued)
For the Years Ended
December 31,
------------
1997 1996
---- ----
NET (LOSS) BEFORE INCOME TAXES $ (1,673,743) $ (95,446)
=
Income taxes - 50
------ --
NET (LOSS) $ (1,673,743) $ (95,496)
= ========== = =======
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 15,508,839 12,774,860
========== ==========
NET LOSS PER SHARE $ (0.11) $ (0.01)
= ===== = =====
The accompanying notes are an integral part of these consolidated
financial statements.
48
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
<S> <C> <C> <C> <C>
Balance, December 31, 1995 11,000,000 $ 11,000 $ (6,000) $ (257,726)
Recapitalization (See Note 1) 44,000 44 (8,044) -
Issuance of common stock for cash
at $0.50 per share 3,000,000 3,000 1,497,000 -
Issuance of common stock for cash at
$1.50 per share 666,666 667 999,333 -
Net loss for the year ended
December 31, 1996 - - - (95,496)
------ ------ ------ -------
Balance, December 31, 1996 14,710,666 14,711 2,482,289 (353,222)
Issuance of common stock for cash at
$2.50 per share 1,000,000 1,000 2,498,980 -
Issuance of common stock for cash at
$3.00 per share 500,000 500 1,499,500 -
Net loss for the year ended
December 31, 1997 - - - (1,673,743)
------ ------ ------ ----------
Balance, December 31, 1997 16,210,666 $ 16,211 $ 6,480,769 $ (2,026,965)
========== = ====== = ========= = ==========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
49
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
For the Years Ended
December 31,
------------
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $(1,673,743) $ (95,496)
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Depreciation and amortization 89,994 29,178
Allowance for bad debts 6,385 --
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (240,472) (734,255)
(Increase) decrease in inventory (5,013,787) (1,479,592)
(Increase) decrease in other assets (423,374) (61,147)
Increase (decrease) in accounts payable 1,587,530 398,868
Increase (decrease) in deposits payable (54,728) 40,611
Increase (decrease) in accrued expenses 165,586 36,654
Increase (decrease) in accrued interest payable -- (5,895)
----------- -----------
Net Cash Used in Operating Activities (5,556,609) (1,871,074)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (620,844) (51,251)
----------- -----------
Net Cash Used in Investing Activities (620,844) (51,251)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of stock 4,000,000 2,500,000
New borrowings from related parties 1,426,142 256,303
----------- -----------
Net Cash Provided by Financing Activities 5,426,142 2,756,303
----------- -----------
NET INCREASE (DECREASE) IN CASH (751,311) 833,978
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 836,779 2,801
----------- -----------
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 85,468 $ 836,779
=========== ===========
CASH PAID FOR:
Interest $ -- $ 24,142
Income taxes $ -- $ 50
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
50
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The financial statements presented are those of Titan Motorcycle
Co. of America (Company). The Company was incorporated in the State
of Nevada on January 10, 1995 to carry on any lawful activity under
the laws of Nevada. On June 11, 1996, Mojave Financial Services,
Inc. changed its name to Titan Motorcycle Co. of America in
conjunction with the merger with Titan Motorcycle Co. of America.
Prior to the acquisition of Titan Motorcycle Co. of America, the
Company had been seeking to merge with an existing, operating
company.
Titan Motorcycle Co. of America (premerger) (Titan) was
incorporated in the State of Arizona on December 12, 1994. The
Company manufactures custom design motorcycles and sells them to
authorized dealers or to the general public.
On June 11, 1996, Mojave Financial Services, Inc. and Titan
Motorcycle Co. of America completed an Agreement and Plan of
Reorganization whereby the Company issued 11,000,000 shares of its
common stock in exchange for all of the outstanding common stock of
Titan. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 44,000 shares of common stock
issued and outstanding.
The acquisition was accounted for as a recapitalization of Titan
because the shareholders of Titan controlled the Company after the
acquisition. Therefore, Titan is treated as the acquiring entity.
There was no adjustment to the carrying value of the assets or
liabilities of Titan in the exchange. The Company is the acquiring
entity for legal purposes and Titan is the surviving entity for
accounting purposes. On June 11, 1996, the shareholders of the
Company authorized a reverse stock split of 1-for-10. All
references to shares of common stock have been retroactively
restated. On March 17, 1997, the shareholders of the Company
authorized a forward stock split of 2-for-1. All references to
shares of common stock have been retroactively restated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31 year
end.
b. Income Taxes
As of December 31, 1997 and December 31, 1996, the Company had a
net operating loss carryforward for federal income tax purposes of
approximately $2,027,000 and $349,000 respectively that may be used
in future years to offset taxable income. The net operating loss
carryforward will begin to expire in 2011. The tax benefit of the
cumulative carry forwards has been offset by a valuation allowance
of the same amount.
51
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less to be cash equivalents.
d. Inventory
Inventories of raw materials, finished goods and work in process
are stated at the lower of cost or market. The cost of the
inventory includes the purchase price and direct costs such as
freight-in.
e. Revenue Recognition
The Company's revenue is derived primarily from the sale of custom
built motorcycles. The revenue is recognized upon completion and
shipment to the customer. The product shipped under the flooring
arrangement meets the criteria for revenue recognition. The cost of
work in-process and finished goods includes all direct materials,
labor and those indirect costs related to the motorcycles. Selling,
general and administrative costs are expensed as incurred.
f. Principles of Consolidation
The consolidated financial statements include those of Titan
Motorcycle Co. of America (of Arizona) and Mojave Financial
Services, Inc. (of Nevada). All significant intercompany accounts
and transactions have been eliminated.
g. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
h. Allowance for Doubtful Accounts
The Company's accounts receivable are shown net of an allowance for
doubtful accounts of $17,252 and $11,256 at December 31, 1997 and
December 31, 1996, respectively.
i. Reclassification
Certain December 31, 1996 balances have been reclassified to
conform with the December 31, 1997 financial statement
presentation.
j. Advertising Expense
The Company expenses advertising costs as incurred.
52
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 3 - INVENTORY
Inventories for December 31, 1997 and December 31, 1996 consisted
of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Finished goods $ 1,678,543 $ 213,689
Work-in-process 816,127 198,498
Raw materials and supplies 4,141,247 1,209,943
---------- ----------
Total $ 6,635,917 $ 1,622,130
========== ==========
</TABLE>
NOTE 4 - EQUIPMENT
All equipment is accounted for at cost. Equipment is depreciated
over its estimated useful live using accelerated methods. For the
years ended December 31, 1997 and December 31, 1996 the Company
expensed $89,994 and $29,178 in depreciation.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
Long-term debt at December 31, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Note payable to a related party, unsecured, bearing interest at 8%
with principal payments beginning on January 1, 2000 with the
balance being paid off in 3 years
or as jointly agreed by the parties at that time. $ 1,928,664 $ 502,521
Less Current Portion - -
------ -
$ 1,928,664 $ 502,521
= ========= = =======
Future maturities of long-term debt are as follows:
2000 $ 642,888
2001 642,888
2002 642,888
2003 -
Thereafter -
---------
Total $ 1,928,664
= =========
</TABLE>
Accrued interest at December 31, 1997 and 1996 was $128,684 and
$2,521, respectively.
53
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 6 - COMMITMENTS AND CONTINGENCIES
a. Office Lease
The Company leases its office and warehouse space. Future minimum
lease payments required under the operating agreement are as
follows:
Operating
Lease
-----
1998 $ 269,332
1999 321,432
2000 338,686
2001 368,904
2002 and thereafter 830,034
-------
Total minimum lease payments $ 2,128,388
= =========
b. Product Warranty
The Company provides a limited warranty on its motorcycles. The
warranty period is thirty six (36) months. The Company bears the
costs of warranty work for the first six (6) months. The Company
has experienced only minimal costs associated with warranty work.
The remaining warranty period is covered by a warranty insurance
policy which is purchased, by the Company, from an insurance
carrier.
c. Litigation
The Company presently is involved as a defendant in a civil action
filed against it in the Superior Court (court of general
jurisdiction) in and for Maricopa County, Arizona, Civil No.
CV98-03681, arising out of a dispute over payment for and the
adequacy of services performed by the plaintiff in completing a
paint room for the Company. The amount alleged owing is the
principal sum of $52,899. The Company disputes the claims and has
filed a counterclaim. In all events, it is not believed the outcome
of this litigation will have any material affect on the Company's
business. The Company is not aware of any other claims or
litigation.
NOTE 7 - CONCENTRATIONS OF RISK
a. Cash
The Company maintains a savings account at a financial institution
located in Phoenix, Arizona. The account is insured by the Federal
Deposit Insurance Corporation up to $100,000. The Company's
balances occasionally exceed that amount.
b. Accounts Receivable
The Company provides for accounts receivable as part of operations.
Management does not believe that the Company is subject to credit
risks outside the normal course of business.
54
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
December 31, 1997 and 1996
NOTE 8 - CUSTOMERS AND EXPORT SALES
During 1997 and 1996, the Company operated one industry segment
which includes the manufacturing and marketing of custom design
motorcycles
The Company's financial instruments subject to credit risk are
primarily trade accounts receivable from its customers.
For the Years Ended
December 31,
------------
1997 1996
---- ----
Foreign sales $ 1,681,613 $ 2,032,413
Domestic sales 11,382,532 2,951,463
---------- ---------
$ 13,064,145 $ 4,983,876
= ========== = =========
NOTE 9 - INCENTIVE STOCK OPTION PLAN
In November 1996, the Company established an incentive stock option
plan for the management and key employees of the Company. The
options were awarded at the trading price of the stock and are
exercisable in a ten year period.
November 27, January 8,
Dates issued 1996 1997
------------ ------------
Number of options issued 364,000 60,000
Exercise price $ 2.50 $ 3.00
Total options outstanding at December 31, 1997 was 424,000.
NOTE 10 - SUBSEQUENT EVENTS
Prepaid Advertising
-------------------
In 1998, the Company issued 60,000 shares of its common stock and
agreed to transfer $250,000 of its motorcycles over a two year
period to a publishing company for advertising services valued at
$500,000, which will be used in 1998 and 1999.
Amendment to Articles of Incorporation
--------------------------------------
The Company amended its Articles of Incorporation to change the
number of common shares authorized from 100,000,000 to 90,000,000,
par value $0.001, and to authorize the issuance of 10,000,000
shares of $0.001 par value preferred stock.
Stock Options Issued
--------------------
On January 28, 1998, the Company issued an additional 441,000 stock
options with an exercise price of $3.00 per share, which expire on
January 28, 2008.
55
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Financial Statements
July 4, 1998 and June 30, 1997
56
<PAGE>
CONTENTS
Consolidated Balance Sheets...................................................58
Consolidated Statements of Operations.........................................60
Consolidated Statements of Stockholders' Equity...............................62
Consolidated Statements of Cash Flows.........................................63
Notes to the Consolidated Financial Statements................................64
57
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Balance Sheets
ASSETS
------
<TABLE>
<CAPTION>
July 4, December 31,
1998 1997
---- ----
(Unaudited)
CURRENT ASSETS
<S> <C> <C>
Cash $ - $ 85,468
Accounts receivable, net (Note 2) 3,312,183 974,461
Inventory (Note 3) 9,975,186 6,635,917
Prepaid expenses 816,057 381,160
------- -------
Total Current Assets 14,103,426 8,077,006
---------- ---------
EQUIPMENT (NOTE 4)
Autos and trucks 228,017 228,017
Machinery and equipment 233,666 199,226
Office equipment 254,170 211,495
Displays 41,534 41,534
Leasehold improvements 24,177 24,177
Less: accumulated depreciation (208,227) (121,749)
-------- --------
Total Equipment 573,337 582,700
------- -------
OTHER ASSETS
Deposits 55,063 55,063
Trademarks 62,371 54,288
------ ------
Total Other Assets 117,434 109,351
------- -------
TOTAL ASSETS $ 14,794,197 $ 8,769,057
= ========== = =========
</TABLE>
58
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Balance Sheets (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
July 4, December 31,
1998 1997
---- ----
(Unaudited)
CURRENT LIABILITIES
<S> <C> <C>
Cash overdraft $ 522,351 $ -
Accounts payable 2,755,990 2,052,731
Accrued expenses 382,970 216,657
Income tax payable 50 50
Deposits payable 51,235 100,940
------ -------
Total Current Liabilities 3,712,596 2,370,378
--------- ---------
LONG-TERM LIABILITIES
Note payable - bank (Note 5) 3,519,135 -
Notes payable - related parties (Note 5) 2,022,882 1,928,664
--------- ---------
Total Long-Term Liabilities 5,542,017 1,928,664
--------- ---------
TOTAL LIABILITIES 9,254,613 4,299,042
--------- ---------
COMMITMENTS AND CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY
Common stock, par value $.001; 100,000,000
shares authorized; 16,437,333 and 16,210,666
shares issued and outstanding, respectively 16,438 16,211
Additional paid-in capital 7,230,542 6,480,769
Accumulated deficit (1,707,396) (2,026,965)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 5,539,584 4,470,015
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 14,794,197 $ 8,769,057
= ========== = =========
</TABLE>
59
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Twenty Six Six Months For the
Weeks Ended Ended Three Months Ended
July 4, June 30, July 4, June 30,
1998 1997 1998 1997
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES, NET $ 12,884,047 $ 5,654,669 $ 7,521,696 $ 3,754,090
COST OF GOODS SOLD 9,435,863 4,632,190 5,474,954 3,058,659
--------- --------- --------- ---------
Gross Profit 3,448,184 1,022,479 2,046,742 695,431
--------- --------- --------- -------
OPERATING EXPENSES
Advertising 132,902 29,875 29,960 23,188
Auto and truck expense 14,448 24,035 2,060 6,079
Bank charges 14,995 1,011 10,743 971
Depreciation expense 128,162 27,264 98,183 17,584
Freight and postage 304,643 180,212 255,618 159,028
Insurance 233,332 168,131 144,193 99,983
Legal and accounting 60,787 30,029 36,223 16,282
Office supplies and expense 557,311 224,352 273,048 74,515
Printing 22,486 19,606 11,622 10,478
Research and development 54,865 54,080 25,539 44,351
Rent 187,410 83,447 101,219 71,467
Repairs and maintenance 58,988 15,351 37,391 12,144
Salaries and wages 802,453 413,623 448,865 241,569
Taxes and licenses 67,240 44,081 33,582 31,141
Telephone and utilities 99,634 56,068 53,682 38,655
Trade show and promotion 276,846 216,275 153,006 117,146
------- ------- ------- -------
Total Operating Expenses 3,016,502 1,587,440 1,714,934 964,581
--------- --------- --------- -------
Income (Loss) from Operations 431,682 (564,961) 331,808 (269,150)
------- -------- ------- --------
OTHER INCOME (EXPENSE)
Gain (loss) on currency translation 3,653 3,095 2,183 3,583
Other income 4,642 62,998 685 48,150
Interest expense (120,408) (55,150) (74,112) (35,506)
-------- ------- ------- -------
Total Other Income (Expense) $ (112,113) $ 10,943 $ (71,244) $ 16,227
- -------- - ------ - ------- - ------
</TABLE>
60
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Operations (Continued)
( Unaudited)
<TABLE>
<CAPTION>
For the For the
Twenty Six Six Months For the
Weeks Ended Ended Three Months Ended
July 4, June 30, July 4, June 30,
1998 1997 1998 1997
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) BEFORE
INCOME TAXES $ 319,569 $ (554,018) $ 260,564 $ (252,923)
INCOME TAXES - - - -
------ ------ ------ -
NET INCOME (LOSS) $ 319,569 $ (554,018) $ 260,564 $ (252,923)
= ======= = ======== = ======= = ========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 16,324,000 15,460,666 16,294,000 14,891,000
========== ========== ========== ==========
NET INCOME (LOSS) PER SHARE $ 0.02 $ (0.04) $ 0.01 $ (0.02)
= ==== = ===== = ==== = =====
</TABLE>
61
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 14,710,666 $ 14,711 $ 2,482,289 $ (353,222)
Issuance of common stock for cash at
$2.50 per share 1,000,000 1,000 2,498,980 -
Issuance of common stock for cash at
$3.00 per share 500,000 500 1,499,500 -
Net loss for the year ended
December 31, 1997 - - - (1,673,743)
------ ------ ------ ----------
Balance, December 31, 1997 16,210,666 16,211 6,480,769 (2,026,965)
Issuance of common stock for cash at $3.00
per share (unaudited) 166,667 167 499,833 -
Issuance of common stock for prepaid
advertising at $4.17 per share (unaudited) 60,000 60 249,940 -
Net income for the twenty-six weeks ended
July 4, 1998 (unaudited) - - - 319,569
------ ------ ------ -------
Balance, July 4,1998 (unaudited) 16,437,333 $ 16,438 $ 7,230,542 $ (1,707,396)
========== = ====== = ========= = ==========
</TABLE>
62
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Twenty Six Six Months For the
Weeks Ended Ended Three Months Ended
July 4, June 30, July 4, June 30,
1998 1997 1998 1997
----------- ---------- ---------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income (loss) $ 319,569 $ (554,018) $ 260,564 $ (252,923)
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 351,133 36,177 251,064 23,809
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,337,722) (2,228,324) (1,481,429) (1,706,843)
(Increase) decrease in inventory (3,339,269) (1,652,174) (1,657,643) (1,217,073)
(Increase) decrease in other assets (442,980) (163,537) (248,329) (51,722)
Increase (decrease) in accounts payable 1,225,610 889,674 59,767 999,554
Increase (decrease) in deposits payable (49,705) 76,688 (150,735) (9,724)
Increase (decrease) in accrued expenses 166,313 51,126 27,961 61,514
Increase (decrease) in accrued interest
payable 165,031 55,350 129,525 52,399
------- ------ ------- ------
Net Cash Used in Operating Activities (3,942,020) (3,489,038) (2,809,255) (2,101,009)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (77,115) (425,195) (59,880) (74,069)
------- -------- ------- -------
Net Cash Used in Investing Activities (77,115) (425,195) (59,880) (74,069)
------- -------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (650,000) - (650,000) -
Proceeds from notes payable 4,169,135 - 3,519,135 -
Issuance of stock 500,000 2,000,000 - 2,000,000
New borrowings from related parties - 1,299,980 - 299,980
------ --------- ------ -------
Net Cash Provided by Financing Activities 4,019,135 3,299,980 2,869,135 2,299,980
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH - (614,253) - 124,902
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD - 836,779 - 97,624
------ ------- ------ ------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ - $ 222,526 $ - $ 222,526
= ====== = ======= = ====== = =======
SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Common stock issued for prepaid advertising $ 250,000 $ - $ - $ -
CASH PAID FOR:
Interest $ - $ - $ - $ -
Income taxes $ - $ - $ - $ -
</TABLE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
63
<PAGE>
July 4, 1998 and June 30, 1997
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
The financial statements presented are those of Titan Motorcycle
Co. of America (Company). The Company was incorporated in the State
of Nevada on January 10, 1995 to carry on any lawful activity under
the laws of Nevada. On June 11, 1996, Mojave Financial Services,
Inc. changed its name to Titan Motorcycle Co. of America in
conjunction with the merger with Titan Motorcycle Co. of America.
Prior to the acquisition of Titan Motorcycle Co. of America, the
Company had been seeking to merge with an existing, operating
company.
Titan Motorcycle Co. of America (premerger) (Titan) was
incorporated in the State of Arizona on December 12, 1994. The
Company manufactures custom design motorcycles and sells them to
authorized dealers or to the general public.
On June 11, 1996, Mojave Financial Services, Inc. and Titan
Motorcycle Co. of America completed an Agreement and Plan of
Reorganization whereby the Company issued 11,000,000 shares of its
common stock in exchange for all of the outstanding common stock of
Titan. Immediately prior to the Agreement and Plan of
Reorganization, the Company had 44,000 shares of common stock
issued and outstanding.
The acquisition was accounted for as a recapitalization of Titan
because the shareholders of Titan controlled the Company after the
acquisition. Therefore, Titan is treated as the acquiring entity.
There was no adjustment to the carrying value of the assets or
liabilities of Titan in the exchange. The Company is the acquiring
entity for legal purposes and Titan is the surviving entity for
accounting purposes. On June 11, 1996, the shareholders of the
Company authorized a reverse stock split of 1-for-10. All
references to shares of common stock have been retroactively
restated. On February 17, 1997, the shareholders of the Company
authorized a forward stock split of 2-for-1. All references to
shares of common stock have been retroactively restated.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Accounting Method
The Company's financial statements are prepared using the accrual
method of accounting. Effective January 1, 1998, the Company has
elected a 52 week fiscal year.
Each quarter will consist of 13 weeks.
b. Income Taxes
As of July 4, 1998 and December 31, 1997, the Company had a net
operating loss carryforward for federal income tax purposes of
approximately $1,707,000 and $2,027,000 respectively that may be
used in future years to offset taxable income. The net operating
loss carryforward will begin to expire in 2011. The tax benefit of
the cumulative carryforwards has been offset by a valuation
allowance of the same amount.
64
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
July 4, 1998 and June 30, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Cash Equivalents
The Company considers all highly liquid investments with a maturity
of three months or less to be cash equivalents.
d. Inventory
Inventories of raw materials, finished goods and work in process
are stated at the lower of cost or market. The cost of the
inventory includes the purchase price and direct costs such as
freight-in.
e. Revenue Recognition
The Company's revenue is derived primarily from the sale of custom
built motorcycles. The revenue is recognized upon completion and
shipment to the customer. The product shipped under the flooring
arrangement meets the criteria for revenue recognition. The cost of
work in-process and finished goods includes all direct materials,
labor and those indirect costs related to the motorcycles. Selling,
general and administrative costs are expensed as incurred.
f. Principles of Consolidation
The consolidated financial statements include those of Titan
Motorcycle Co. of America (of Arizona) and Mojave Financial
Services, Inc. (of Nevada). All significant intercompany accounts
and transactions have been eliminated.
g. Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
h. Allowance for Doubtful Accounts
The Company's accounts receivable are shown net of an allowance for
doubtful accounts of $17,252 and $7,974 at July 4, 1998 and
December 31, 1997, respectively.
i. Reclassification
Certain July 4, 1998 balances have been reclassified to conform
with the December 31, 1997 financial statement presentation.
j. Advertising Expense
The Company expenses advertising costs as incurred.
65
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
July 4, 1998 and June 30, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
k. Unaudited Financial Statements
The accompanying unaudited financial statements include all of the
adjustments which, in the opinion of management, are necessary for
a fair presentation. Such adjustments are of a normal, recurring
nature.
NOTE 3 - INVENTORY
Inventories for July 4,1998 and December 31, 1997 consisted of the
following:
<TABLE>
<CAPTION>
July 4, December 31,
1998 1997
(Unaudited)
<S> <C> <C>
Finished goods $ 1,562,109 $ 1,678,543
Work-in-process 689,074 816,127
Raw materials and supplies 7,724,003 4,141,247
--------- ---------
Total $ 9,975,186 $ 6,635,917
= ========= = =========
</TABLE>
NOTE 4 - EQUIPMENT
All equipment is accounted for at cost. Equipment is depreciated
over its estimated useful life using accelerated methods. For the
twenty-six weeks ended July 4, 1998 and the six months ended June
30, 1997, the Company expensed $89,994 and $29,178 in depreciation,
respectively.
NOTE 5 - NOTE PAYABLE - RELATED PARTY
Long-term debt at July 4, 1998 and December 31, 1997 consists of
the following:
<TABLE>
<CAPTION>
July 4, December 31,
1998 1997
---- ----
(Unaudited)
<S> <C> <C>
Line of credit payable to bank, bearing interest at prime plus .5%,
due April 1, 2000, secured
by inventory and receivables. $ 3,519,135 $ -
Note payable to a related party, unsecured, bearing interest at 8%
with principal payments beginning on January 1, 2000 with the
balance being paid off in 3 years
or as jointly agreed by the parties at that time. 2,022,882 1,928,664
Less Current Portion - -
------ -----
$ 5,542,017 $ 1,928,664
= ========= = =========
</TABLE>
66
<PAGE>
TITAN MOTORCYCLE CO. OF AMERICA
Notes to the Consolidated Financial Statements
July 4, 1998 and June 30, 1997
NOTE 5 - NOTE PAYABLE - RELATED PARTY (Continued)
Future maturities of long-term debt are as follows:
2000 $ 4,193,429
2001 674,294
2002 674,294
2003 -
Thereafter -
---------
Total $ 5,542,017
= =========
Accrued interest at July 4, 1998 and December 31, 1997 was $222,902
and $128,684, respectively.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
a. Office Lease
The Company leases its office and warehouse space. Future minimum
lease payments required under the operating agreement are as
follows:
Operating
Lease
-----
1998 $ 269,332
1999 321,432
2000 338,686
2001 368,904
2002 and thereafter 830,034
-------
Total minimum lease payments $ 2,128,388
= =========
b. Product Warranty
The Company provides a limited warranty on its motorcycles. The
warranty period is thirty six (36) months. The Company bears the
costs of warranty work for the first six (6) months. The Company
has experienced only minimal costs associated with warranty work.
The remaining warranty period is covered by a warranty insurance
policy which is purchased, by the Company, from an insurance
carrier.
NOTE 7 - CONCENTRATIONS OF RISK
a. Cash
The Company maintains a savings account at a financial institution
located in Phoenix, Arizona. The account is insured by the Federal
Deposit Insurance Corporation up to $100,000. The Company's
balances occasionally exceed that amount.
b. Accounts Receivable
The Company provides for accounts receivable as part of operations.
Management does not believe that the Company is subject to credit
risks outside the normal course of business.
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PART III
PART III, ITEMS 1 and 2. INDEX TO, AND DESCRIPTION OF, EXHIBITS
Page
----
(a) Financial statements filed as part of the Registration
Statement.
Audited year end financial statements as of
December 31, 1997 and 1996.......................................42
Unaudited 6 month financial statements as of
June 30, 1998 and 1997...........................................56
(b) Exhibits.
2.1 Restated Articles of Incorporation
of the Company............................70
2.2 By-Laws of the Company.............................74
3 Specimen of Common Stock Certificate...............84
6.1 Form of real estate lease agreement between Holualoa
Peoria
Avenue Industrial, LLC and the Company....85
6.2 Form of addendum to real estate lease.............107
6.3 1997 Stock Option and Incentive Plan
of the Company...........................118
10.1 Consent of Bruce L. Dibb, P.C.....................135
10.2 Consent of Jones, Jensen & Company, LLC...........136
68
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
Titan Motorcycle Company of America
Date: 9/29/98 By: /s/
--------------------- ------------------------
Frank S. Keery
Chief Executive Officer
Date: 9/29/98 By: /s/
--------------------- ------------------------
Robert P. Lobban
Chief Financial Officer
form10SBaug27amend.627
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EXHIBIT 2.1
RESTATED ARTICLES OF INCORPORATION
OF
TITAN MOTORCYCLE CO. OF AMERICA
The undersigned, pursuant to and by virtue of Chapter 78 of Nevada
Revised Statutes, hereby adopt and acknowledge the following Restated Articles
of Incorporation.
ARTICLE I
---------
NAME
----
The name of the corporation is Titan Motorcycle Co. of America
ARTICLE II
----------
RESIDENT AGENT AND REGISTERED OFFICE
------------------------------------
The name of the resident agent and the street address of the registered
office in the State of Nevada where process may be served upon the corporation
is Corporation Trust Co. of Nevada, 1 East 1st Street, Washoe County; Nevada
89501. The corporation may, from time to time, in the manner provided by law,
change the resident agent and the registered office within the State of Nevada.
The corporation may also maintain an office or offices for the conduct of its
business, either within or without the State of Nevada.
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ARTICLE III
-----------
CAPITAL STOCK
-------------
Section 3.1 Authorized Shares. The aggregate number of shares which the
corporation shall have authority to issue is 100,000,000 shares, consisting of:
(v) 90,000,000 shares of a single series of common stock, having a
par value of $.001 per share, each of which is entitled to one
vote in all matters on which the stockholders of the
corporation are required or permitted to vote (the "Common
Shares"); and
(w) 10,000,000 shares of preferred stock, having a par value of
$.001 per share (the "Preferred Shares").
Section 3.2 Authority of Board of Directors with Respect to Preferred
Shares. The Board of Directors is vested with the authority to authorize by
resolution, from time to time, the issuance of the Preferred Shares in one or
more series and, subject to Sections 3.4, 3.5 and 3.6 below, to prescribe the
number of Preferred Shares within each such series and the voting powers,
designations, preferences, limitations, restrictions and relative rights of each
such series, including voting powers, preferences and relative rights that may
be superior to the Common Shares.
Section 3.3 Consideration for Shares. The shares of the corporation's
stock shall be issued for such consideration as shall be fixed, from time to
time, by the Board of Directors.
Section 3.4 Assessment of Stock. The shares of the corporation's stock,
after the amount of the subscription price has been fully paid, shall not be
assessable for any purpose, and no stock issued as fully paid shall ever be
assessable or assessed. No stockholder of the corporation is individually liable
for the debts or liabilities of the corporation. These Articles of Incorporation
shall never be amended as to this Section 3.4.
Section 3.5 No Cumulative Voting for Directors. No stockholder of the
corporation shall be entitled to cumulative voting of his shares for the
election of directors.
Section 3.6 No Preemptive Rights. No stockholder of the corporation
shall have any preemptive rights.
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ARTICLE IV
----------
DIRECTORS AND OFFICERS
----------------------
Section 4.1 Number of Directors. The members of the governing board of
the corporation are styled as directors. The number of directors may be changed
from time to time in such manner as shall be provided in the bylaws of the
corporation.
Section 4.2 Limited Liability of Directors and Officers. No director or
officer of the corporation shall be personally liable to the corporation or any
of its stockholders for damages for breach of fiduciary duty as a director or
officer; provided, however, that the foregoing provision does not eliminate or
limit the liability of a director or officer of the corporation for (a) acts or
omissions which involve intentional misconduct, fraud or a knowing violation of
law, or (b) the payment of distributions in violation of Nevada Revised Statutes
ss.78.300.
Section 4.3 Payment of Expenses. In addition to any other rights of
indemnification permitted by the law of the State of Nevada as may be provided
for by the corporation in its bylaws or by agreement, the expenses of officers
and directors incurred in defending a civil or criminal action, suit or
proceeding, involving alleged act or omissions of such officer or director in
his or her capacity as an officer or director of the corporation, must be paid
by the corporation or through insurance purchased and maintained by the
corporation or through other financial arrangements made by the corporation, as
they are incurred and in advance of the final disposition of the action, suit or
proceeding, upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court of
competent jurisdiction that he or she is not entitled to be indemnified by the
corporation.
Section 4.4 Repeal and Conflicts. Any repeal or modification of Section
4.2 or 4.3 approved by the stockholders of the corporation shall be prospective
only. In the event of any conflict between Section 4.2 or 4.3 and any other
Article of the corporation's Articles of Incorporation, the terms and provisions
of Section 4.2 or 4.3, as the case may be, shall control.
IN WITNESS WHEREOF, the President and Secretary of the corporation have
executed these Restated Articles of Incorporation of Titan Motorcycle Co.
of America this 15th day of May, 1998.
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/s/
------------------------------------
Patrick Keery, President
/s/
------------------------------------
Barbara Keery, Secretary
STATE OF ARIZONA)
ss.
COUNTY OF MARICOPA)
On the 15th day of May, personally appeared before me, a Notary Public,
Patrick Keery and Barbara Keery, personally known (or proved) to me to be the
persons whose names are subscribed to the foregoing Restated Articles of
Incorporation of Titan Motorcycle Co. of America, who acknowledged that they
executed the instrument.
(Seal)
/s/
---------------------------
NOTARY PUBLIC
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EXHIBIT 2.2
BY-LAWS OF
TITAN MOTORCYCLE CO. OF AMERICA
ARTICLE I
MEETING OF STOCKHOLDERS
SECTION 1. The annual meeting of the stockholders of the Company shall
be held at its office in Maricopa County, State of Arizona, on a date in the
month of May as designated by the Board of Directors each year, if not a legal
holiday, and if a legal holiday, then on the next succeeding day not a legal
holiday, for the purpose of electing directors of the company to serve during
the ensuing year and for the transaction of such other business as may be
brought before the meeting.
At least five days' written notice specifying the time and place, when
and where, the annual meeting shall be convened, shall be mailed in a United
States Post Office addressed to each of the stockholders of record at the time
of issuing the notice at his or her, or its address last known, as the same
appears on the books of the company.
SECTION 2. Special meetings of the stockholders may be held at the
office of the company in the State of Arizona, or elsewhere, whenever called by
the President, or by the Board of Directors, or by vote of, or by an instrument
in writing signed by the holders of 25% of the issued and outstanding capital
stock of the company. At least ten days' written notice of such meeting,
specifying the day and hour and place, when and where such meeting shall be
convened, and objects for calling the same, shall be mailed in a United States
Post Office, addressed to each of the stockholders of record at the time of
issuing the notice, at his or her or its address last known, as the same appears
on the books of the company.
SECTION 3. If all the stockholders of the company shall waive notice of
a meeting, no notice of such meeting shall be required, and whenever all of the
stockholders shall meet in person or by proxy, such meeting shall be valid for
all purposes without call or notice, and at such meeting any corporate action
may be taken. The written certificate of the officer or officers calling any
meeting setting forth the substance of the notice, and the time and place of the
mailing of the same to the several stockholders, and the respective addresses to
which the same were mailed, shall be prima facie evidence of the manner and fact
of the calling and giving such notice. If the address of any stockholder does
not appear upon the books of the company, it will be sufficient to address any
notice to such stockholder at the principal office of the corporation.
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SECTION 4. All business lawful to be transacted by the stockholders of
the company, may be transacted at any special meeting or at any adjournment
thereof. Only such business, however, shall be acted upon at special meeting of
the stockholders as shall have been referred to in the notice calling such
meetings, but at any stockholders' meeting at which all of the outstanding
capital stock of the company is represented, either in person or by proxy, any
lawful business may be transacted, and such meeting shall be valid for all
purposes.
SECTION 5. At the stockholders' meetings the holders of Twenty-five
percent (25%) in amount of the entire issued and outstanding capital stock of
the company, shall constitute a quorum for all purposes of such meetings.
If the holders of the amount of stock necessary to constitute a quorum
shall fail to attend, in person or by proxy, at the time and place fixed by
these By-Laws for any annual meeting, or fixed by a notice as above provided for
a special meeting, a majority in Interest of the stockholders present in person
or by proxy may adjourn from time to time without notice other than by
announcement at the meeting, until holders of the amount of stock requisite to
constitute a quorum shall attend. At any such adjourned meeting at which a
quorum shall be present, any business may be transacted which might have been
transacted as originally called.
SECTION 6. At each meeting of the stockholders every stockholder shall
be entitled to vote in person or by his duly authorized proxy appointed by
instrument in writing subscribed by such stockholder or by his duly authorized
attorney. Each stockholder shall have one vote for each share of stock standing
registered in his or her or its name on the books of the corporation, ten days
preceding the day of such meeting. The votes for directors, and upon demand by
any stockholder, the votes upon any question before the meeting, shall be viva
voce.
At each meeting of the stockholders, a full, true and complete list, in
alphabetical order, of all the stockholders entitled to vote at such meeting,
and indicating the number of shares held by each, certified by the Secretary of
the Company, shall be furnished, which list shall be prepared at least ten days
before such meeting, and shall be open to the inspection of the stockholders, or
their agents or proxies, at the place where such meeting is to be held, and for
ten days prior thereto. Only the persons in whose names shares of stock are
registered on the books of the company for ten days preceding the date of such
meeting, as evidenced by the list of stockholders, shall be entitled to vote at
such meeting. Proxies and powers of Attorney to vote must be filed with the
Secretary of the Company before an election or a meeting of the stockholders, or
they cannot be used at such election or meeting.
SECTION 7. At each meeting of the stockholders the polls shall be
opened and closed; the proxies and ballots issued, received, and be taken in
charge of, for the purpose of the meeting, and all questions touching the
qualifications of voters and the validity of proxies, and the acceptance or
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<PAGE>
rejection of votes, shall be decided by two inspectors. Such inspectors shall be
appointed at the meeting by the presiding officer of the meeting.
SECTION 8. At the stockholders' meetings, the regular order of business
shall be as follows:
1. Reading and approval of the Minutes of previous meeting or meetings;
2. Reports of the Board of Director, the President, Treasurer and
Secretary of the Company in the order named;
3. Reports of Committee;
4. Election of Directors;
5. Unfinished Business;
6. New Business;
7. Adjournment.
ARTICLE II
DIRECTORS AND THEIR MEETINGS
SECTION 1. The Board of Directors of the Company shall consist of five
persons who shall be chosen by the stockholders annually, at the annual meeting
of the Company, and who shall hold office for one year, and until their
successors are elected and qualify.
SECTION 2. When any vacancy occurs among the Directors by death,
resignation, disqualification or other cause, the stockholders, at any regular
or special meeting, or at any adjourned meeting thereof, or the remaining
Directors, by the affirmative vote of a majority thereof, shall elect a
successor to hold office for the unexpired portion of the term of the Director
whose place shall have become vacant and until his successor shall have been
elected and shall qualify.
SECTION 3. Meeting of the Directors may be held at the principal office
of the company in the state of Arizona, or elsewhere, at such place or places as
the Board of Directors may, from time to time, determine.
SECTION 4. Without notice or call, the Board of Directors shall hold
its first annual meeting for the year immediately after the annual meeting of
the stockholders or immediately after the election of Directors at such annual
meeting.
Regular meetings of the Board of Directors shall be held at the office
of the company in Maricopa County, State of Arizona, unless otherwise designated
by the Board of Directors. Notice of such regular meetings shall be mailed to
each Director by the Secretary at least three days previous to the day fixed for
such meetings, but no regular meeting shall be held void or invalid if such
notice is not given, provided.
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the meeting is held at the time and place fixed by these By-Laws for holding
such regular meetings.
Special meetings of the Board of Directors may be held on the call of
the President or Secretary on at least three days notice by mail or telegraph.
Any meeting of the Board, no matter where held, at which all of the
members shall be present, even though without or of which notice shall have been
waived by all absentees, provided a quorum shall be present, shall be valid for
all purposes unless otherwise indicated in the notice calling the meeting or in
the waiver of notice.
Any and all business may be transacted by any meeting of the Board of
Directors, either regular or special.
SECTION 5. A majority of the Board of Directors in office shall
constitute a quorum for the transaction of business, but if at any meeting of
the Board there be less than a quorum present, a majority of those present may
adjourn from time to time, until a quorum shall be present, and no notice of
such adjournment shall be required. The Board of Directors may prescribe rules
not in conflict with these By-Laws for the conduct of its business; provided,
however, that in the fixing of salaries of the officers of the corporation, the
unanimous action of all of the Directors shall be required.
SECTION 6. A Director need not be a stockholder of the corporation.
SECTION 7. The Directors shall be allowed and paid all necessary
expenses incurred in attending any meeting of the Board, but shall not receive
any compensation for their services as Directors until such time as the company
is able to declare and pay dividends on its capital stock.
SECTION 8. The Board of Directors shall make a report to the
stockholders at annual meetings of the stockholders of the condition of the
company, and shall, at request, furnish each of the stockholders with a true
copy thereof.
The Board of Directors in its discretion may submit any contract or act
for approval or ratification at any annual meeting of the stockholders called
for the purpose of considering any such contract or act, which, it approved, or
ratified by the vote of the holders of a majority of the capital stock of the
company represented in person or by proxy at such meeting, provided that a
lawful quorum of stockholders be there represented in person or by proxy, shall
be valid and binding upon the corporation and upon all the stockholders thereof,
as if it had been approved or ratified by every stockholder of the corporation.
SECTION 9. The Board of Directors shall have the power from time to
time to provide for the management of the offices of the company in such manner
as they see fit, and in particular from time to time to delegate any of the
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powers of the Board in the course of the current business of the company to any
standing or special committee or to any officer or agent and to appoint any
persons to be agents of the company with such powers (including the power to
subdelegate), and upon such terms as may be deemed fit.
SECTION 10. The Board of Directors is vested with the complete and
unrestrained authority in the management of all the affairs of the company, and
is authorized to exercise for such purpose as the General Agent of the Company,
its entire corporate authority.
SECTION 11. The regular order of business at meetings of the Board of
Directors shall be as follows:
1. Reading and approval of the minutes of any previous meeting or
meetings; 2. Reports of officers and committeemen; 3. Election of
officers; 4. Unfinished business; 5. New business; 6. Adjournment.
ARTICLE III
OFFICERS AND THEIR DUTIES
SECTION 1. The Board of Directors, at its first and after each meeting
after the annual meeting of stockholders, shall elect a President, a
Vice-President, a Secretary and a Treasurer, to hold office for one year next
coming, and until their successors are elected and qualify. The offices of the
Secretary and Treasurer may be held by one person.
Any vacancy in any of said offices may be filled by the Board of
Directors. The Board of Directors may from time to time, by resolution, appoint
such additional Vice Presidents and additional Assistant Secretaries, Assistant
Treasurer and Transfer Agents of the company as it may deem advisable; prescribe
their duties, and fix their compensation, and all such appointed officers shall
be subject to removal at any time by the Board of Directors. All officers,
agents, and factors of the company shall be chosen and appointed in such manner
and shall hold their office for such terms as the board of Directors may by
resolution prescribe.
SECTION 2. The President shall be the executive officer of the company
and shall have the supervision and, subject to the control of the Board of
Directors, the direction of the Company's affairs, with full power to execute
all resolutions and orders of the Board of Directors not especially entrusted to
some other officer of the company. He shall be a member of the Executive
Committee, and the Chairman thereof; he shall preside at all meetings of the
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Board of Directors, and at all meetings of the stockholders, and shall sign the
Certificates of Stock issued by the company, and shall perform such other duties
as shall be prescribed by the Board of Directors.
SECTION 3. The Vice-President shall be vested with all the powers and
perform all the duties of the President in his absence or inability to act,
including the signing of the Certificates of Stock issued by the company, and he
shall so perform such other duties as shall be prescribed by the Board of
Directors.
SECTION 4. The Treasurer shall have the custody of all the funds and
securities of the company. When necessary or proper he shall endorse on behalf
of the company for collection checks, notes, and other obligations; he shall
deposit all monies to the credit of the company in such bank or banks or other
depository as the Board of Directors may designate; he shall sign all receipts
and vouchers for payments made by the company, except as herein otherwise
provided. He shall sign with the President all bills of exchange and promissory
notes of the company; he shall also have the care and custody of the stocks,
bonds, certificates, vouchers, evidence of debts, securities, and such other
property belonging to the company as the Board of Directors shall designate; he
shall sign all papers required by law or by those Bylaws or the Board of
Directors to be signed by the Treasurer. Whenever required by the Board of
Directors, he shall render a statement of his cash account; he shall enter
regularly in the books of the company to be kept by him for the purpose, full
and accurate accounts of all monies received and paid by him on account of the
company. He shall at all reasonable times exhibit the books of account to any
Directors of the company during business hours, and he shall perform all acts
incident to the position of Treasurer subject to the control of the Board of
Directors.
The Treasurer shall, if required by the Board of Directors, give bond
to the company conditioned for the faithful performance of all his duties as
Treasurer in such sum, and with such surety as shall be approved by the Board of
Directors, with expense of such bond to be borne by the company.
SECTION 5. The Board of Directors may appoint an Assistant Treasurer
who shall have such powers and perform such duties as may be prescribed for him
by the Treasurer of the company or by the Board of Directors, and the Board of
Directors shall require the Assistant Treasurer to give a bond to the company in
such sum and with such security as it shall approve, as conditioned for the
faithful performance of his duties as Assistant Treasurer, the expense of such
bond to be borne by the company.
SECTION 6. The Secretary shall keep the Minutes of ail meetings of the
Board of Directors and the Minutes of all meetings of the stockholders and of
the Executive Committee in books provided for that purpose. He shall attend to
the giving and serving of all notices of the company; he may sign with the
President or Vice-President, in the name of the Company, all contracts
authorized by the Board of Directors or Executive Committee; he shall affix the
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corporate seal of the company thereto when so authorized by the Board of
Directors or Executive Committee; he shall have the custody of the corporate
seal of the company; he shall affix the corporate seal to al, certificates of
stock duly issued by the company; he shall have charge of Stock Certificate
Books, Transfer books and Stock Ledgers, and such other books and papers as the
Board of Directors or the Executive Committee may direct, all of which shall at
all reasonable times be open to the examination of any Director upon application
at the office of the company during business hours, and he shall, in general,
perform all duties incident to the office of Secretary.
SECTION 7. The Board of Directors may appoint an Assistant Secretary
who shall have such powers and perform such duties as may be prescribed for him
by the Secretary of the company or by the Board of Directors.
SECTION 8. Unless otherwise ordered by the Board of Directors, the
President shall have full power and authority in behalf of the company to attend
and to act and to vote at any meetings of the stockholders of any corporation in
which the company may hold stock, and at any such meetings, shall possess and
may exercise any and all rights and powers incident to the ownership of such
stock, and which as the new owner thereof, the company might have possessed and
exercised if present. The Board of Directors, by resolution, from time to time,
may confer like powers on any person or persons in place of the President to
represent the company for the purposes in this section mentioned.
ARTICLE IV
CAPITAL STOCK
SECTION 1. The capital stock of the company shall be issued in such
manner and at such times and upon such conditions as shall be prescribed by the
Board of Directors.
SECTION 2. Ownership of stock in the company shall be evidenced by
certificates of stock in such forms as shall be prescribed by the Board of
Directors, and shall be under the seal of the company and signed by the
President or the Vice-President and also by the Secretary or by an Assistant
Secretary.
All certificates shall be consecutively numbered; the name of the
person owning the shares represented thereby with the number of such shares and
the date of issue shall be entered on the company's books.
No certificates shall be valid unless it is signed by the President or
Vice-President and by the Secretary or Assistant Secretary.
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All certificates surrendered to the company shall be canceled and no
new certificate shall be issued until the former certificate for the same number
of shares shall have been surrendered or canceled.
SECTION 3. No transfer of stock shall be valid as against the company
except on surrender and cancellation of the certificate therefor, accompanied by
an assignment or transfer by the owner therefor, made either in person or under
assignment, a new certificate shall be issued therefor.
Whenever any transfer shall be expressed as made for collateral
security and not absolutely, the same shall be so expressed in the entry of said
transfer on the books of the company.
SECTION 4. The Board of Directors shall have power and authority to
make all such rules and regulations not inconsistent herewith as it may deem
expedient concerning the issue, transfer and registration of certificates for
shares of the capital stock of the company.
The Board of Directors may appoint a transfer agent and a registrar of
transfers and may require all stock certificates to bear the signature of such
transfer agent and such registrar of transfer.
SECTION 5. The Stock Transfer Books shall be closed for all meetings of
the stockholders for the period of ten days prior to such meetings and shall be
closed for the payment of dividends during such periods as from time to time may
be fixed by the Board of Directors, and during such periods no stock shall be
transferable.
SECTION 6. Any person or persons applying for a certificate of stock in
lieu of one alleged to have been lost or destroyed, shall make affidavit or
affirmation of the fact, and shall deposit with the company an affidavit.
Whereupon, at the end of six months after the deposit of said affidavit and upon
such person or persons giving Bond of Indemnity to the company with surety to be
approved by the Board of Directors in double the current value of stock against
any damage, loss or inconvenience to the company, which may or can arise in
consequence of a new or duplicate certificate being issued in lieu of the one
lost or missing, the Board of Directors may cause to be issued to such person or
persons a new certificate, or a duplicate of the certificate, so lost or
destroyed. The Board of Directors may, in its discretion refuse to issue such
new or duplicate certificate save upon the order of some court having
jurisdiction in.
such matter, anything herein to the contrary notwithstanding.
ARTICLE V
OFFICES AND BOOKS
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SECTION 1. The principal office of the corporation, in Arizona shall be
at 2222 West Peoria Avenue, Phoenix, Arizona 85029, and the company may have a
principal office in any other state or territory as the Board of Directors may
designate.
SECTION 2. The Stock and Transfer Books and a copy of the By-Laws and
Articles of Incorporation of the company shall be kept at its principal office
in the County of Maricopa, State of Arizona, for the inspection of all who are
authorized or have the right to see the same, and for the transfer of stock. All
other books of the company shall be kept at such places as may be prescribed by
the Board of Directors.
ARTICLE VI
MISCELLANEOUS
SECTION 1. The Board of Directors shall have power to reserve over and
above the capital stock paid in, such an amount in its discretion as it may deem
advisable to fix as a reserve fund, and may, from time to time, declare
dividends from the accumulated profits of the company in excess of the amounts
so reserved, and pay the same to the stockholders of the company, and may also,
if it deems the same advisable, declare stock dividends of the unissued capital
stock of the company.
SECTION 2. No agreement, contract or obligation (other than checks in
payment of indebtedness incurred by authority of the Board of Directors)
involving the payment of monies or the credit of the company for more than
$100,000 dollars, shall be made without the authority of the Board of Directors,
or of the Executive Committee acting as such.
SECTION 3. Unless otherwise ordered by the Board of Directors, all
agreements and contracts shall be signed by the President and the Secretary in
the name and on behalf of the company, and shall have the corporate seal thereto
affixed.
SECTION 4. All monies of the corporation shall be deposited when and as
received by the Treasurer in such bank or banks or other depository as may from
time to time be designated by the Board of Directors, and such deposits shall be
made in the name of the company.
SECTION 5. No note, draft, acceptance, endorsement or other evidence of
indebtedness shall be valid or against the company unless the same shall be
signed by the President or a Vice-President, and attested by the Secretary or an
Assistant Secretary, or signed by the Treasurer or an Assistant Treasurer, and
countersigned by the President, Vice-President, or Secretary, except that the
Treasurer or an Assistant Treasurer may, without countersignature, make
endorsements for deposit to the credit of the company in all its duly authorized
depositories.
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SECTION 6. No loan or advance of money shall be made by the company to
any stockholder or officer therein, unless the Board of Directors shall
otherwise authorize.
SECTION 7. No director nor executive officer of the company shall be
entitled to any salary or compensation for any services performed for the
company, unless such salary or compensation shall be fixed by resolution of the
Board of Directors, adopted by the unanimous vote of all the Directors voting in
favor thereof.
SECTION 8. The company may take, acquire, hold, mortgage, sell, or
otherwise deal in stocks or bonds or securities of any other corporation, if and
as often as the Board of Directors shall so elect.
SECTION 9. The Directors shall have power to authorize and cause to be
executed, mortgages, and liens without limit as to amount upon the property and
franchise of this corporation, and pursuant to the affirmative vote, either in
person or by proxy, of the holders of a majority of the capital stock issued and
outstanding; the Directors shall have the authority to dispose in any manner of
the whole property of this corporation.
SECTION 10. The company shall have a corporate seal, the design thereof
being as follows:
ARTICLE VII
AMENDMENT OF BY-LAWS
SECTION 1. Amendments and changes of these By-Laws may be made at any
regular or special meeting of the Board of Directors by a vote of not less than
all of the entire Board, or may be made by a vote of, or a consent in writing
signed by the holders of, 51% of the issued and outstanding capital stock.
KNOW ALL MEN BY THESE PRESENTS: That we, the undersigned, being the
directors of the above named corporation, do hereby consent to the foregoing
By-Laws and adopt the same as and for the By-Laws of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand this 2nd day of June,
1998
/s/ Barbara Keery
----------------------------
Secretary of the Corporation
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EXHIBIT 3
Specimen of Common Stock Certificate
NUMBER SHARES
------ ------
TITAN MOTORCYCLE COMPANY OF AMERICA
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
PAR VALUE $0.001 CUSIP NO. 888307 10 5
COMMON STOCK
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK
PAR VALUE OF $0.001 EACH OF
TITAN MOTORCYCLE COMPANY OF AMERICA
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar. Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
DATED
Countersigned and Registered:
I DATA INC.
PRESIDENT (Dallas, Texas) Transferable Agent
By
Successor Transfer Agent
Signature Stock Transfer Inc.
SECRETARY [Corporate Seal] Authorized Signature
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EXHIBIT 6.1
STANDARD COMMERCIAL-INDUSTRIAL TRIPLE NET LEASE
BASIC TERMS SHEET
This Basic Terms Sheet to that certain Standard
Commercial-Industrial Triple Net Lease between the parties listed below is for
the convenience of the parties in quickly referencing certain of the basic terms
of the Lease. It is not intended to serve as a complete summary of the Lease. In
the event of any inconsistency between this Basic Terms Sheet and the Lease, the
applicable Lease provision shall prevail and control.
Date of Lease (See Paragraph 1): December 16, 1996
- --------------
Name of Lessor (See Paragraph 1): Holualoa Peoria Avenue Industrial,
- -------------- LLC, an Arizona limited liability
company
Name of Lessee (See Paragraph 1): Titan Motorcycle Co. of America, a
- -------------- Nevada Corporation
Lessee's Telephone Number: (602) 956-7893
Address of Premises (See Paragraph 2): 2222 W. Peoria Avenue, Suite B,
Phoenix, Arizona
- --------------------
Approximate Gross Rentable
- --------------------------
Area of Premises (See Paragraph 12): 43,444 square feet
- ------------------
Lessee's Percentage of Insurance.
- --------------------------------
Real Property Tax
- -----------------
and CAM Amounts (See Paragraph 12): 70.65%
- ----------------
Lease Commencement Date (See Section 3.1): The business day following
- ----------------------- full execution of this
Lease
Lease Expiration Date (See Section 3.1): March 31, 2002
- ----------------------
Monthly Base Rent (See Paragraph 4): See Addendum
- ------------------
Additional Rent: 1. Rental Tax (See Section 4.1)
- ----------------
2. Insurance Amount
(See Section 8.10)
3. Real Property Tax Amount
(Section 10.l)
4. CAM Amount (See Paragraph 11)
Lessee's Security Deposit
(See Paragraph 6): $21,775
- --------------------------
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Lessee's Permitted Use
- ----------------------
(See Section 6.1): Assembly and sales of motorcycle parts and related
general office and administration (see Section
6.1(a) for a more complete description)
Address for Lessor: Holualoa Peoria Avenue Industrial, LLC
- -------------------
c/o Wessex Service Companies
2828 N. Central Avenue, Suite #1060
Phoenix, Arizona 85004
Attn: Susan Maher
LESSOR: LESSEE:
- ------- -------
HOLUALOA PEORIA AVENUE TITAN MOTORCYCLE CO. OF
INDUSTRIAL, LLC, AMERICA, INC. a Nevada corporation
an Arizona limited liability company
By: Holualoa Arizona, Inc.
an Arizona corporation
Its: General Partner
By: /s/ By: /s/
---------------------------- --------------------------
Name: Sandra Alter Name: Francis S. Keery
---------------------------- --------------------------
Its: Authorized Agent Its: C.E.O.
---------------------------- --------------------------
Date: 1/24/97 Date: 1/24/97
----------------------------- --------------------------
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STANDARD COMMERCIAL-INDUSTRIAL TRIPLE NET LEASE
1. PARTIES. This Lease, dated December 16, 1996, for reference purposes only, is
made by and between Holualoa Peoria Avenue Industrial, LLC, an Arizona limited
partnership ("Lessor"), and Titan Motorcycle Co. of America, Inc., a Nevada
corporation ("Lessee").
2. PREMISES. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all the conditions set forth herein, the
premises demised by this Lease, located at 2222 W. Peoria Avenue, Suites B, C,
D, E (the "Premises"), together with a nonexclusive right to use the parking and
common areas (collectively, the "Common Areas"), surrounding the Premises and
within the project commonly known as Peoria Avenue Industrial (the "Project").
The location of the Premises and the parameters of the Common Areas and the
Project are shown on Exhibit "A" attached hereto. All dimensions and areas
quoted herein or in any exhibit attached hereto are approximate and are based on
gross rentable area, rather than solely on areas designed for the exclusive use
and occupancy of tenants.
3. TERM.
3.1. TERM. The term of this Lease shall commence on the business day
following full execution of this Lease ("Commencement Date") and end on March
31, 2002 (expiration Date"), unless sooner terminated pursuant to any provision
hereof ("Term"). Lessor shall deliver possession of the Premises to Lessee on
the Commencement Date.
3.2. INTENTIONALLY DELETED.
4. RENT.
4.1. MONTHLY BASE RENT. Lessee shall pay to Lessor a monthly base rental
as set forth in the Addendum hereto. The monthly base rental due hereunder shall
be payable to Lessor by the first day of each month during the Term at the
address stared herein or to such other persons or at such other places as Lessor
may designate in writing and shall be paid in lawful money of the United States
of America. The Lessee further agrees to pay Lessor, in addition to the rent as
provided herein, an privilege, sales, excise, rental and other taxes (except
income taxes) imposed now or hereinafter imposed by any governmental authority
upon the rentals and all other amounts herein provided to be paid by the Lessee.
Said payment shall be in addition to and accompanying each monthly rental
payment made by Lessee to Lessor.
The base rental set forth in this Section 4.1 is a negotiated figure and shall
govern whether or not the actual gross rentable square footage of the Premises
is the same as set forth in Paragraph 12 hereof. Lessee shall have no right to
withhold, deduct or offset any amount from the base monthly rental or any other
sum due hereunder even if the actual gross rentable square footage of the
Premises is less than that set forth in Paragraph 12. Rent for any period during
the Term which is for less than one month shall be a pro rata portion of the
monthly instrument.
4.2. INTENTIONALLY DELETED.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
Twenty-One Thousand Seven Hundred Seventy-Five and no/100 Dollars ($21,775.00)
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as security for Lessee's faithful performance of Lessee's obligations hereunder.
If Lessee fails to pay rent or other charges due hereunder, or otherwise
defaults with respect to any provision of the Lease, Lessor may use, apply, or
retain all or any portion of said deposit for the payment of any rent or other
charge in default or for the payment of any other sum for which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
lose or damage which Lessor may suffer thereby. If Lessor so uses or applies all
or any portion of said deposit, Lessee shall within ten (10) days after written
demand therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated, and Lessee's failure to do so
shall be a material breach of this Lease. Lessor shall not be required to keep
said deposit separate from its general accounts. If Lessee performs all of
Lesses's obligations hereunder, said deposit, or so much thereof as has not
theretofore been applied by Lessor, shall be returned, without payment of
interest or other increment for its use, to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest hereunder) at the expiration of
the Term and after Lessee has vacated the Premises. Any mortgagee of Lessor,
purchaser of the Project, or beneficiary of a deed of trust shall be relieved
and released from any obligation to return said deposit in the event such
mortgagee, beneficiary of deed of trust or purchaser becomes the owner of the
Project by reason of foreclosure or trustee's sale (including deed in lieu
thereof) or proceeding in lieu of foreclosure or trustee's sale unless said
deposit shall have been actually delivered to such mortgagee, beneficiary of
deed of trust or purchaser. Such release, however, shall not relieve the person
or entity who owned the Project immediately prior to acquisition of title by
such mortgagee, beneficiary of deed of trust or purchaser of any obligation he
or it may have to return said deposit.
6. USE.
6.1. PERMITTED USES.
(a) The Premises are to be used only for the design, assembly,
sales, and distribution of new motorcycles, motorcycle parts and motorcycle
accessories; in addition, to operation willl include welding, assembly,
painting, machinery, testing, polishing and other allied activities, and related
general office and administration ("Permitted Use") and for no other business or
purpose whatsoever without the prior writted consent of Lessor. No act shall be
done in or about the Premises that is unlawful. Lessee shall not commit or allow
to be committed any waste upon the Premises, or any public or pricated nuisance
or other act or thing which unreasonably disturbs the quiet enjoyment of any
other lessee in the Project, taking into accout, however, Lessee's Permitted Use
of the Premises. If any of Lessee's machines or equipment unreasonably disturb
any other lessee in the Project, then Lessee shall provide adequate insulation,
or take such other action as may be necessary to eliminate the noise or
disturbance. Lessee, at its expense, shall comply with all laws relating to its
use and occupancy of the Premises and shall observe such reasonable rules and
regulations as may be adopted and made available to Lessee by Lessor from time
to time for the safety, care and cleanliness of the Premises or the Project and
for the preservation of good order therein.
(b) Lessee warrants that the operation of its business shall be
conducted in strict compliance with all applicable recorded private covenants,
conditions and restrictions and all applicable federal, state and local
environmental, safety and other pertinent laws, rules, regulations and
ordinances and that any alterations necessary to the Premises by reason of such
covenants, conditions, restrictions, laws, rules, regulations and ordinances,
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including, without limitation, The Americans With Disabilities Act, shall be at
Lessee's sole cost and expense. Lessee represents and warrants to Lessor that
there is no risk to Lessee, Lessee's visitors and others using the Premises
arising from Lessee's operations. Lessee shall indemnify, defend and hold
harmless Lessor from and against any claim, liability, expense, lawsuit, loss or
other damage, including reasonable attorneys' fees, arising from or relating to
Lessee's use of the Premises or Lessee's activities within the Project or any
violations of the Americana with Disabilities Act due to the use of the Premises
by Lessee, its employees, subtenants, agents, guests or invitees.
6.2. CONDITION OF PREMISES. Lessee hereby accepts the Premises in their
condition existing as of the date of the execution hereof or in the condition
described on the attached Exhibit "B," whichever is applicable, subject to all
applicable laws, ordinances and regulations governing and regulating the use of
the Premises, and subject to all matters disclosed thereby. Lessee acknowledges
that neither Lessor nor Lessor's agents has made any representation or warranty
as to the suitability of the Premises for the conduct of Lessee's business and
that Lessee and its agents and contractors have been provided with an
opportunity to thoroughly inspect the Premises and the Project.
6.3. HAZARDOUS MATERIALS.
(a) As used herein, the term "Hazardous Material" shall mean any
substance or material which has been determined by any state, federal or local
governmental authority to be capable of posing a risk of injury to health,
safety or property, including all of those materials and substances designated
as hazardous or toxic by the city in which the Premises are located, the U.S.
Environmental Protection Agency, the Consumer Product Safety Commission, the
U.S. Food and Drug Administration, the Arizona Department of Environmental
Quality, the Pima County Department of Environmental Quality, or any other
governmental agency now or hereafter authorized to regulate materials and
substances in the environment.
(b) Lessee agrees not to introduce any Hazardous Material in, on or
adjacent to the Premises or in, on or adjacent to the Project without (i)
obtaining Lessor's prior written approval, (ii) providing Lessor with thirty
(30) days prior written notice of the exact amount, nature, and manner of
intended use of such Hazardous Materials, and (iii) complying with all
applicable federal, state and local laws, rules, regulations, policies and
authorities relating to the storage, use, disposal and clean-up of Hazardous
Materials, including, but not limited to, the obtaining of all proper permits.
(c) Lessee shall immediately notify Lessor of any inquiry, test,
investigation, or enforcement proceeding by, against or directed at Lessee or
the Premises concerning a Hazardous Material. Lessee acknowledges that Lessor,
as the owner of the Premises, shall have the right, at its election, in its own
name to negotiate, defend, approve, and appeal, at Lessee's expense, any action
taken or order issued by any applicable governmental authority with regard to a
Hazardous Material released onto the Premises or the Project by Lessee.
(d) If Lessee's storage, use or disposal of any Hazardous Material
in, on or adjacent to the Premises or the Project results in any contamination
of the Premises, the Project, the soil, surface or groundwater thereunder or the
air above and around the Premises and the Project (i) requiring re-mediation
under federal, state or local statutes, ordinances, regulations or policies, or
(ii) at levels, in excess of de minimum levels, which are unacceptable to
Lessor, in Lessor's reasonable discretion, Lessee agrees to clean-up the
contamination immediately, at Lessee's sole cost and expense.
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Lessee further agrees to indemnify, defend ant hold Lessor harmless from and
against any claims, suits, causes of action, costs, damages, loss and fees,
including attorneys' fees and costs, arising out of or in connection with (i)
any clean-up work, inquiry or enforcement proceeding relating to Hazardous
Materials currently or hereafter used, stored or disposed of by Lessee or its
agents, employees, contractors or invitees on or about the Premises or the
Project, and (ii) the use, storage, disposal or release by Lessee or its agents,
employees, contractors or invitees of any Hazardous Materials on or about the
Premises or the Project.
(e) Notwithstanding any other right of entry granted to Lessor under
this Lease, Lessor shall have the right to enter the Premises or to have
consultants enter the Premises throughout the Term at reasonable times and upon
reasonable prior notice to Lessee for the purpose of determining: (1) whether
the Premises are in conformity with federal, state and local statutes,
regulations, ordinances and policies, including those pertaining to the
environmental condition of the Premises; (2) whether Lessee has complied with
this Paragraph 6; and (3) the corrective measures, if any, required of Lessee to
ensure the safe use, storage and disposal of Hazardous Materiala. Lessee agrees
to provide access and reasonable assistance for such inspections. Such
inspections may include, but are not limited to, entering the Premises with
machinery for the purpose of obtaining laboratory samples. Lessor shall not be
limited in the number of such inspections during the Term. If, during such
inspections, it is found that Lessee's use of Hazardous Materials constitutes a
violation of this Lease, Lessee shall reimburse Lessor for the cost of such
inspections within ten (10) days of receipt of a written statement therefor. If
such consultants determine that the Premises are contaminated with Hazardous
Material as a result of a release(s) by Lessee or are in violation of any
applicable environmental law, and such violation did not exist prior to the
Commencement Date, Lessee shall, in a timely manner, and at its expense, remove
such Hazardous Materials or otherwise comply with the recommendations of such
consultants to the reasonable satisfaciton of Lessor and any applicable
governmental agencies. If Lesse fails to do so, Lessor, at its sole discretion,
may, in addition to all other remedies available to Lessor under this Lease and
at law and in equity cause the violation and/or contamination to be remedied at
Lessee's sole cost and expense. The right granted to Lessor herein to inspect
the Premises shall not create a duty on Lessor's part to inspect the Premises,
or leability of Lessor for Lessee's use, storage or disposal of Hazardous
Materials, it being understood that Lessee shall be solely responsible for all
liability in connection therewith.
(f) Lessee shall surrender the Premises to Lessor upon the
expiration or earlier termination of this free of Hazardous Materials (other
that those, if any, existing as of the Commencement date) and in a condition
which complies with all governmental statutes, ordinances, regulations, and
policies, recommendations of consultants hired by Lessor, and such other
reasonable requiremeents as may be imposed by Lessor.
(g) Lessee's obligations under this Paragraph 6 and all
indemnification obligations of Lessee under this Lease shall survive the
expiration or earlier termination of this Lease.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1. LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraph 9 and
except for damage caused by any negligent or intentional act or omission of
Leased, Lessee's agents, employees or invitees and except for Lessor's right to
include certain costs as Total Common Area Charges pursuant to Paragraph 11,
Lessor, at Lessor's expense, shall keep in good order, condition, and repair the
foundations, exterior and load bed walls, and the exterior roof of the Premises
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(including the structural support thereof). Lessee expressly waives the benefit
of any statute now or hereafter in effect which would otherwise afford Lessee
the right to make repairs at Lessors's expense or to terminate this Lease became
of Lessors failure to keep the Premises in good order, condition, and repair.
7.2. LESSEE'S OBLIGATIONS.
(a) Lessee shall, at in expense throughout the Term, maintain,
service, replace, and keep in good repair the interior of the Premises except
those items for which Lessor is specifically made responsible under Section 7.1.
and mechanical equipment of the Premises, and an other aspects of the Premises
including such items as floors, ceilings, walls, doors, glass, plumbing, paint,
heating, ventilating and air conditioning equipment, partitions, electrical
equipment, wires, and electrical fixtures, and surrender same upon the
expiration of the Term in the same condition as received, ordinary wear and tear
excepted. Lessee shall give Lessor prompt written notice of any defects or
breakage in the structure, equipment, fixtures, or of any unsafe condition upon
or within the Premised Maintenance, repairs, and replacements to the mechanical,
plumbing, electrical, and heating, ventilating and air conditioning systems
serving the Premises shall be performed by licensed contractors, acceptable to
Lessor in its reasonable discretion.
(b) Lessee shall enter into and keep in force during the Term a
preventive maintenance contract with a licensed heating and air conditioning
contractor acceptable to Lessor providing for the regular inspection and
maintenance of the heating, ventilating and air conditioning equipment serving
the Premises.
(c) On the last day of the Term, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
broom clean, ordinary usear and tear and damage by fire or other casualty
excepted. Lessee shall repair any damage to the Premises occasioned by the
removal of its trade fixtures, furnishings and equipment pursuant to Section
7.3, which repair shall include without limitation the patching and filling of
holes and repair of structural damage.
7.3. ALTERATIONS AND ADDITIONS.
(a) Alterations, improvement, additions, utility installations or
removal of any fixtures may not be made to the Premises without the prior
written consent of Lessor, and any alterations, improvements, additions or
utility installations to the Premises, excepting movable furniture and machinery
and trade fixtures, shall, at Lessor's option, become part of the realty and
belong to Lessor upon the expiration or earlier termination of this Lease.
However, this shall not prevent Lessee from installing trade fixtures,
machinery, or other trade equipment in conformance with an applicable
ordinances, regulations and laws. Lessee shall keep the Premises, the building
in which the Premises are located, and the land on which the Premiers are
situated free from any lien. arising out of any work performed for, material
furnished to, or obligations incurred by the Lessee. It is further understood
and agreed that under no circumstance is the Lessee to be deemed the agent of
the Lessor for any alteration, repair, or construction within the Premises, the
same being done at the sole expense of the Lessee. All contractors, materialmen,
mechanics, and laborers are hereby charged with notice that they must look only
to the Lessee for the payment of any charge for work done and materials
furnished upon the Premises during the Term.
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(b) Upon the expiration or sooner termination of the Term, Lessee
shall, upon written demand by Lessor, at Lessee's sole expense, with due
diligence, remove any alteration, addition or improvement made by Lessee,
designated by Lessor to be removed (except the Leasehold Improvements described
in Exhibit "B"), and repair any damage to the Premises caused by such removal.
Lessee shad remove an of its movable property and trade fixtures which can be
removed without damage to the Premises at the expiration or earlier termination
of this Lease and shall pay Lessor for Al damages from injury to the Premises or
Project resulting from such removal.
8. INSURANCE; INDEMNITY.
8.1. LESSEE'S LIABILITY INSURANCE. Lessee shalt at Lessee's expense,
obtain and keep in force curing the Term a policy of commercial general
liability insurance written on an occurrence brain insuring Lessee against any
liability arising out of the use, occupancy, or maintenance of the Premiaea and
ad areas appurtenant thereto. Such insurance shall be primary and not
contributing with any insurance maintained by Lessor, shall have a combined
single limit of liability of $2,000,000 and shall name Lessor as an additional
insured. The limits of said insurance shall not, however, limit the liability of
Lessee hereunder. Said insurance shall have a Lessor's Protective Liability
endorsement attached thereto, and shall contain a contractual liability
endorsement covering all indemnification obligations of Lessee hereunder. If
Lessee shall fail to procure and maintain said insurance, Lessor may, but shall
not be required to, procure and maintain the same, but at the expense of Lessee.
8.2 LESSEE'S PROPERTY INSURANCE. Lessee shall, at Lessee's expense, obtain
and keep in force during the Term a policy or policies of insurance covering
loss or damage to Lessee's personal property, merchandise, stock in trade,
fixtures and equipment located on the Premises from time to time, in the amount
of the full replacement value thereof, providing protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (special form).
8.3 LESSOR'S LIABILITY INCURANCE. Lessor shall obtain and keep in force
during the Term a policy of commercial general liability insurance written on
occurrence basis insuring Lessor against any liability arising out of the
ownership, use, occupancy, or maintenance of the Project, including the Common
Areas. Such insurance shall have a combined single limit of liability of at
least $2,000,000.
8.4. LESSOR'S PROPERTY INSURANCE. Lessor shall obtain and keep in force
during the Term a policy or policies of insurance covering lose or damage to the
Project, in the amount of the fun replacement value thereof, exclusive of
footings and foundations, providing protection against all perils included
within the classification of fire, extended coverage, vandalism, malicious
mischief, special extended peril. (special form). Lessee understands and agrees
that the insurance described in this Section 8.4 will not cover Lessee's
personal property, merchandise, stock in trade, trade fixtures and equipment.
8.5. BUSINESS INTERRUPTION INSURANCE. Lessor may, at its option, obtain
and keep in force during the Term a policy of business interruption insurance in
an amount sufficient to cover any loss of income from the Project for a period
of twelve (12) months.
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8.6. INSURANCE POLICIES. Insurance required hereunder shall be in
companies rated "A-XII" or better by A. M. Beat Co., in Best's Key guide. On or
prior to the Commencement Date, Lessee shall deliver to Lessor copies of
policies of liability insurance required under Section 8.1 and policies of
casualty insurance required by Section 8.2 or certificates evidencing the
existence and amounts of such insurance, and in the case of the liability
insurance policy indicating that Lessor has been named an addition! insured
thereunder. all such policies and certificates of insurance shall state
explicitly that such insurance shall not be cancelable or subject to reduction
of coverage or other modification except upon at least thirty (30) day's advance
written notice by the insurer to Lessor. Lessee ahoy furnish Lessor with
renewals or "binders" thereof not Lena than ten (10) days prior to the
cancellation or termination of any such policy, failing which, if Lessor coca
not receive such renewals or "binders" within one ( 1) business day after
written request to Lessee, Lessor may order such insurance and charge the cost
thereof to Lessee, which amount shall be payable by Lessee upon demand. Lessee
shall not do or permit to be done anything which shall invalidate the insurance
policies referred to in Sections 8.2 and 8.3. Either party may provide any
required insurance under a so-called blanket policy or policies covering other
parties and locations and may maintain the required coverage by a so-called
umbrella policy or policies, so long as the required coverage is not thereby
diminished.
8.7. WAIVER OF SUBROGATION. Lessee and Lessor each hereby waives any and
an rights of recovery against the other, or against the officers, partners,
employees, agent, and representatives of the other, for loss of or drainage to
such waiving party or its property or the property of others under its control,
where such loss or damage is insured against and actuary covered under any
property insurance policy in force at the time of such lose or damage, but such
waiver extends only to the extent of the actual insurance coverage. Lessee and
Lessor shall, upon obtaining the policies of insurance required hereunder, give
notice to the insurance carrier or carriers that the foregoing mutual waiver of
subrogation is contained in this Lease.
8.8. INDEMNITY. Lessee shall indemnify, defend and hold harmless Lessor
and its managers, members, agents and employees from and against any and all
claims, losses, costs, liabilities and damages, including, without limitation,
attorneys' fees and costs, arising from Lessee's use of the Premises, or from
the conduct of Lessee's business or from any activity, work, or things done,
permitted, or suffered by Lessee in or about the Premises, and shall further
indemnify, defend and hold harmless Lessor from and against any and all claims
arising from any breach or default in the performance of any obligation on
Lessee's part to be performed under the terms of this Lease or arising from any
negligence of the Lessee, or any of the Lessee's agents, contractors or
employees, and from and against an costs, attorneys' fees, expenses, and
liabilities incurred in the defense of any such claim or any action or
proceeding brought thereon. Lessee, as a material part of the consideration to
Lessor, hereby assumes all risk of damage to property or injury to persona, in,
upon, or about the Premises arising from any cause and Lessee hereby waives all
claims in respect thereof against Lessor. Lessor shall indemnify, defend and
hold harmless Lessee and its officers, directors, shareholders, agents and
employees from and against any and all claims, losses, costs, liabilities and
damages, including, without limitation, attorneys' fees and costs, arising from
any accident, injury or damage occurring on the Common Areas, but only if and to
the extent such claim, loss, cost, liability or damage is covered by Lessor's
liability insurance provided for in Section 8.3 (or would have been covered by
such insurance if Lessor fails to maintain same), and shah further indemnify,
defend and hold harmless Lessee from and against any and all claims arising from
any breach or default in the performance of any obligation on Lessor's part to
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be performed under the terms of this Lease, and from and against all costs,
attorneys' fees, expenses and liabilities incurred in the defense of any such
claim or any action or proceeding brought thereon.
8.9. EXEMPTION OF LESSOR FROM LIABILITY.
(a) Lessee hereby agrees that Lessor and its agents shall not be
liable for injury to Lessee's business or any loss of income therefrom or for
damage to the goods, wares, merchandise, or other property of Lessee, Lessee's
employees, invitees, customers, or any other person in or about the Premises,
nor shall Lessor be liable for injury to the person of Lessee, Lessee's
employees, agents or contractors, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction, or other defect of pipes, sprinklers, wires, appliances,
plumbing, air conditioning or light fixtures, or from any other came whether
avid damage or injury results from conditions arising upon the Premises or upon
other portions of the building of which the Premises are a part, or from other
sources or places, and regardless of whether the came of such damage or injury
or the means of repairing the same is inaccessible to Lessee. Lessor shall not
be liable for any damages arising from any act or neglect of any other lessee,
if any, of the building in which the Premises are located.
(b) If any of Lessees personal property shall be assessed and blued
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property.
11. COMMON AREA CHARGES.
11.1. GENERALLY. In addition to the rental and other charges herein
provided to be paid by Lessee to Lessor, Lessee shall pay to Lessor, as
additional rent and as Lessee's share of the cost of maintaining, operating,
repairing and managing the Project, Lea he's proportionate share (as defined in
Paragraph 12) of the Total Common Area Charges (as hereinafter defined) for any
calendar year during the Term (the "CAM Amount"). Lessee shall pay Lessor in
advance its monthly estimated proportionate share (as described in Paragraph 12)
of the Total Common Area Charges, together with all applicable rental taxes due
thereon, within ten (10) days after receipt of an invoice from Lessor setting
forth Lessor's estimate of such amount. Within ninety (90) days following the
end of each calendar year during the Term or as soon thereafter as is reasonably
possible, Lessor shall furnish Lessee with a statement of all Total Common Area
Charges for the Project for the preview calendar year indicating the computation
of Lessee's proportionate share of the Total Common Area Charges for such
calendar year and the payments made by Lessee during such calendar year (the
"Actual Statements"). If Lessee's aggregate estimated monthly payments actuary
paid to Lessor for the calendar year are greater than Lessee's proportionate
share of the Total Common Area Charges for such calendar year, Lessor shall
promptly pay the excess to Lessee or shall apply the excess to any past due
amounts owing from Lessee to Lessor, if the payment made are less than Lessee's
proportionate share, Lessee shall pay the difference to Lessor within ten (10)
days of its receipt of such statement. Total Common Area Charges shall consist
of all costs and expenses of every type associated with the management, repair,
maintenance, and insuring of the Common Areas including, without limitation,
costs and expenses for the following: gardening and landscaping, utilities,
water and sewer charges; premiums for liability, property damage and casualty
insurance and workman's compensation insurance; an personal property taxes
levied on or attributable to personal property used in connection with the
Common Areas; straight line depreciation on personal property owned by Lessor
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which is consumed in the operation or maintenance of the Common Areas; rental or
lease payments paid by Lessor for rented or leased personal property used in the
operation or maintenance of Common Areas; fees for required licenses, and
permits; refuse disposal charges; repairing, resurfacing, repaving, maintaining,
painting, lighting, cleaning, refuse removal, security and similar items; repair
and maintenance of exterior roof and exterior painting of the Project (except
the initial painting of the exterior of the Project after the Commencement Date;
fees paid to property managers; and other similar costs and expense. relating to
the Common Areas. Said Total Common Area Charges shall further include an
charges for regular preventive maintenance service, repair and maintenance of
mechanical equipment including, without limitation, heating, ventilating and air
conditioning equipment, which serves the Common Areas, the cost of lighting,
maintenance and repair of the Project identification signs, and the cost of
repairing and maintaining the plumbing, electrical and other off-Premises
facilities serving the Premises or the Project. Notwithstanding the foregoing to
the contrary, Total Common Area Charges shall include costs of a capital nature
(including, without limitation, capital improvement, capital replacements,
capital repairs, capital equipment and capital tools) only to the extent of the
amortization on a straight-line basis of the same over the useful life (together
with interest at the rate of twelve percent ( 12%) per annum on the unamortized
balance), but only if the same are: (i) reasonably intended to produce a
reduction in operating charges or energy consumption; or (ii) required after the
date of this Lease under any governmental law or regulation that was not
applicable to the Project or any portion thereof at the Commencement Date; or
(in) for the repair or replacement of any equipment needed to operate the
Project at the same quality level as prior to the replacement.
11.2. LESSEE'S AUDIT RIGHT. If Lessee disputes the amount of Total Common
Area Charges set forth in any Actual Statement delivered by Lessor, Leases shall
have the right, to be exercised, if at al, not later than six (6) months
following receipt of such Actual Statement, to cause Lessor's books and records
with respect to the preceding calendar year to be audited by a certified public
accountant mutually acceptable to Lessor and Lessee. The amounts payable under
Section 11.1 by Lessor to Lessee or by Lessee to Lessor, as the case may be,
shall be appropriately adjusted on the basis of such audit. If such audit
discloses a liability for further refilled by Lessor to Lessee in excess of five
percent (5%) of the payment previously made by Lessee for such calendar year,
Lessor shall pay for the cost of the audit; otherwise, Lessee shall pay for the
cost of the audit. If Lessee falls to request an audit within the six (6) month
period, such Actual Statement shall be conclusively binding upon Lessor and
Lessee.
12. PROPORTIONATE SHARE. For purposes of Sections 8.10 and 10.1 and Paragraphs
11 and 13. Lessee's proportionate share to be used to calculate the Insurance
Amount, the Real Property Tax Amount, the CAM Amount and Lessee's responsibility
for any utilities supplied to the Premises which are not separately metered
shall be a fraction, the numerator of which is the total first floor gram
rentable square footage of the Premises, and the denominator of which is the
total first floor grow rentable square footage of the entire Project, from time
to time. The parties agree that as of the Commencement Date, Lessee's
proportionate share will be 70.65 percent, which figure is derived by dividing
43,444 square feet by 61,492 square feet. Lessee's proportionate share as of the
Commencement Date, as described above, is a negotiated figure and shall govern
whether or not the actual rentable square footage of the Premises and/or the
entire Project as of the Commencement Date is the same as that described above.
13. UTILIZER. Lessee shall pay for an water, gas, heat, light, power, telephone,
and other utilities end services supplied to the Premises, together with any
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taxes thereon. If any utility supplied to the Premises is not separately
metered, Lessee shall pay its proportionate share of the cost thereof as Total
Common Area Charges.
14 ASSIGNMENT AND SUBLETTING
14.1. LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law, assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessees interest in this Lease or in the Premises,
without Lessor's prior written consent. Any attempted assignment, transfer,
mortgage, encumbrance, or subletting without such consent shall be void, and
shall constitute a breach of this Lease. Lessor shall not unreasonably withhold
its consent to an assignment or sublease by Lessee.
14.2. NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting.
15. DEFAULTS; REMEDIES.
15.1. DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The abandonment of the Premises by Lessee. For purposes hereof,
Lessee shall not be deemed to have abandoned the Premises merely by vacating the
same, so long as Lessee continues to comply with an of its obligations under
this Lease, including in obligation to pay rent and other sums due hereunder.
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder within ten (10) days after
written notice from Lessor that the same is due. Notwithstanding the foregoing
to the contrary, Lessor shall not be required to give notice to Lessee that rent
or any other payment required to be made by Lessee hereunder is due more than
once in any twelve (12) month period. Thereafter, without notice, the faunae by
Lessee to make any such payment with ten ( 10) days of the date when due shall
constitute a material default and breach of this Lease by Lessee.
(c) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee, other than described in Subsection (b) above, where such failure shad
continue for a period of thirty (30) days after written notice thereof from
Lessor to Lessee; provided, however, if the nature of such failure is such that
it cannot reasonably be cured within the thirty (30) day period, then Lessee
shall have such additional time as is reasonably required to cure such failure,
but in no event more than ninety (90) days after written notice thereof from
Lessor to Lessee, provided Lessee commences to cure during the thirty (30) day
period and proceeds to cure with diligence and continuity.
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(d) (i) The making by Lessee of any general assignment or general
arrangement for the benefit of creditors; (ii) the filing by or against Lessee
of a petition to have Lessee adjudged a bankrupt or a petition for
reorganization or arrangement under any law relating to bankruptcy (unless, in
the case of a petition filed against Lessee, the same is dismissed within sixty
(60) days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's asset located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution, or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days.
(e) The chronic delinquency by Lessee in the payment of monthly
rental or any other periodic payment required to be paid by Lessee under this
Lease. "Chronic delinquency" shall mean failure by lessee to pay monthly rental
or any other periodic payment required to be paid by Lessee under this Lease,
within ten ( 10) days as described in Section 15.1(b) above, for any three (3)
months (consecutive or nonconsecutive) during any twelve ( 12) month period. In
the event of the chronic delinquency, at Lessor's option, Lessor shah have the
additional right to require that monthly rental be paid by Lessee
quarter-annually, in advance, for the remainder of the Term
(f) A guarantor, if any, of this Lease revokes or otherwise
terminates, or purports to revoke or otherwise terminate (by option of law or
otherwise), any guaranty of an or any portion of Lessee's obligations under this
Lease.
15.2. REMEDIES. In the event of any such material default or breach by
Lessee, Lessor may at any time thereafter, with or without notice or demand and
without limiting Lessor in the exercise of any other right or remedy which
Lessor may have by reason of such default or breach:
(a) Terminate this Lease by any lawful means, in which case Lessee
shall immediately surrender possession of the Premises to Lessor. In such event,
Lessor shall be entitled to recover from Lessee an damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises; expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and any
real estate commission actuary paid; the "worth at the time of award"
established by the court having jurisdiction thereof of the amount by which the
unpaid rent and other charges due for the balance of the Term after the time of
Lessee's default exceeds the amount of such rental lose for the same period that
Lessee proves by clear and convincing evidence could have been reasonably
avoided; and that portion of the leasing commission paid by Lessor applicable to
the unexpired term of this Lease. Unpaid instalments of rent or other sums shall
bear interest from the date due at the rate of 15% per annum. For purposes of
this Section 16.2(a), "worth at the time of award" of the amount referred to
above shall be computed by discounting each amount by a rate equal to the prime
rate (or in equivalent) of Bank One, Arizona at the time of the award, but in no
event more than an annual rate of ten percent (10%).
(b) Re-enter the Premises, without terminating this Lease, and
remove any property from the Premises, in which case Lessor shall be entitled to
enforce all of Lessor's rights and remedies under this Lease, including the
right to recover the rent and an other amounts due hereunder as they become due.
No re-entry or taking possession of the Premises by Lessor pursuant to this
Section 15.2 or other action on Lessor's part shall be construed as an election
to terminate the Lease unless a written notice of such intention is given to
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Lessee or unless the termination thereof is decreed by a court of competent
jurisdiction. Lessor's election not to terminate this Lease pursuant to this
Section 15.2(b) or pursuant to any other provision of this Lease shall not
preclude Lessor from subsequently electing to terminate this Lease or pursuing
any of its other remedies.
(c) Maintain Lessee's right to possession, in which case this Lease
shall continue in effect, whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent
and all other amounts due hereunder as they become due.
(d) Pursue any other or additional remedy now or hereafter available
to Lessor under the laws or judicial decisions of the State of Arizona,
including, without limitation, the imposition of a landlord's lien against any
property located within the Premises.
15.3. DEFAULT BY LESSOR. Lessor shall not be deemed in default unless
Lessor falls to perform obligations required of Lessor within a reasonable time,
but in no event later than thirty (30) days after written notice by Lessee to
Lessor and to the holder of any mortgage or teed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing specifying wherein Lessor has failed to perform such obligations;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance, then Lessor shall not be in
default if Lessor commences performance within such 30-say period and thereafter
diligently prosecutes the same to completion. If Lessor does not perform,
Lessor's mortgagee may perform in Lessor's place ant Lessee must accept such
performance. Except in the event of an actual or constructive eviction, in no
event shall Lessee have the right to terminate this Lease as a result of
Lessor's default, and Lessee's remedies shall be limited to damages and/or an
injunction. Notwithstanding the preceding sentence to the contrary, if Lessor or
its mortgagee falls to perform as required above in this Section 15.3, then
Lessee shall be permitted to males reasonable repairs to the Premises as set
forth in the default notice referred to above from Lessee. In the event Lessee
exercises its rights hereunder, Lessor will reimburse Lessee the reasonable cost
thereof within thirty (30) days following receipt of a copy of the invoice and
lien waiver from the contractor performing such repairs. In the event Lessor
falls to reimburse Lessee the cost of such repairs within thirty (30) days
following Lessor's receipt of an invoice and lien waiver, then Lessee shall be
permitted to withhold from the next instrument of monthly base rental an amount
equal to the lesser of (i) the reasonable cost for such repairs, or (ii)
twenty-five percent (25%) of the monthly base rental otherwise due ant payable
for such month. In the event the reasonable cost of such repairs is greater than
twenty-five percent (25%) of the monthly base rental payable for the month in
question, then Lessee shall be permitted to withhold from future instalments of
monthly base rental an amount equal to twenty-five percent (25%) of the monthly
base rental on a monthly basis until such time as the amount withheld equate the
cost incurred by Lessee in making such repairs.
15.4. LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder win cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposes on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any instalment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee on or before the expiration of
any applicable cure period, Lessee shall pay to Lessor a late charge equal to
five percent (5%) of such overdue amount. The parties hereby agree that such
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late charge represents a fair and reasonable estimate of the costs Lessor will
incur by reason of late payment by Lessee. Acceptance of such late charge by
Lessor shall in no event constitute a waiver of Lessee's default with respect to
such overdue amount nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder.
16. CONDEMNATION. If less than twenty percent (20%) of the "gross rentable floor
area of the Premises is taken under the power of eminent domain, or sold under
the threat of the exercise of acid power (an of which are herein called
"condemnation"), this Lease shall terminate as to the part so taken as of the
date one (1) day prior to the earlier of the date when the condemning authority
takes title or possession. If twenty percent (20%) or more of the floor area of
the Premises is taken by condemnation, either Lessor or Lessee may terminate
this Lease by providing the other with written notice thereof within ten (10)
days following the date when the condemning authority takes title or possession,
whichever first occurs. If neither Lessor or Lessee elects to terminate this
Lease in accordance with the foregoing, this Lease shall remain in full force
and effect as to the portion of the Premises remaining, except that the rent
shall be reduced in the proportion that the gross rentable floor area taken
bears to the total gross rentable floor area of the original Premises. Any award
for the taking of all or any part of the Premises under the power of eminent
domain or any payment made under threat of the exercise of such power shall be
the property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any award
for lose or damage to Lessee's trade fixtures and removable property. In the
event that this Lease is not terminated by reason of such condemnation, Lessor
shalt to the extent of severance damages actually received by Lessor in
connection with such condemnation, repair any damage to the Premises caused by
such condemnation except to the extent that Lessee has been reimbursed therefor
by the condemning authority. Lessee shall pay any amount in excess of such
severance damages required to complete such repair. Lessor shall notify Lessee
within ten (10) days after becoming aware of a potential condemnation.
17. GENERAL PROVISIONS.
17.1. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
tab to which the rent and other charges are paid in advance, if any; (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed;
and (iii) setting forth such other statement with respect to this Lease as may
be reasonably requested by Lessor. Any such statement may be conclusively relied
upon by any prospective purchaser or encumbrances of the Project.
(b) Lessee's failure to deliver such statement within such time
shall be conclusive upon Lessee (i) that this Lease is in full force and effect,
without modification except as may be represented by Lessor, (ii) that there are
no uncured defaults in Lessor's Performance. and (iii) that not more than one
month's rent has been paid in advance.
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(c) If Lessor desires to finance or refinance the Project, or any
part thereof, Lessee hereby agrees to deliver to any lender designated by Lessor
such financial statements of Lessee as may be reasonably required by such
lender. Such statements shall be received by Lessor in confidence and shall be
used only for the purpose herein set forth.
17.2. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean
only the owner or owners at the time in question of the fee title or a lessee's
interest in a ground lease of the Premises. In the event of any transfer of such
title or interest, Lessor herein named (and in case of any subsequent transfers
the then grantor shall be relieved from and after the date of such transfer of
all liability as respects Lessor's obligations thereafter to be performed,
provided that any funds in the hands of Lessor or the then grantor at the time
of such transfer, in which Lessee has an interest, shall be delivered to the
grantee. The obligations contained in this Lease to be performed by Lessor
shall, subject as aforesaid, be binding on Lessor's successors and assigns, only
during their respective periods of ownership.
17.3. SEVERABILITY. The invalidity of any provision of this Lease as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof
17.4. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein
provided, any amount due to Lessor not paid when due shall bear interest at the
rate of 15% per annum from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease.
17.5. TIME OF ESSENCE. Time is of the essence.
17.6. CAPTIONS. Section and paragraph captions are not a part hereof.
17.7. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains
an agreements of the parties with respect to any matter mentioned herein. No
prior agreement or understanding pertaining to any such matter shall be
effective. This Lease may be modified in writing only, signed by the parties in
interest at the time of the modification.
17.8. NOTICES AND PAYMENTS. all notices and demands which may be required
or permitted to be given to either party hereunder shall be in writing, and all
such notices and demands hereunder shall be sent by certified United States
mail, return receipt requested, postage prepaid, or hand delivered to the
addressee set out below or to such other person or place as each party may from
time to time designate in a notice to the other. all payments due hereunder
shall be aunt by first class United States mail, postage prepaid or hand
delivered to the address of the Lessor set out below or to such other person or
place as Lessor may from time to time designate in a notice to Lessee. Notices
and payments shall be deemed given and made upon actual receipt. Any notice,
demand or payment required or permitted to be given or made hereunder shall be
addressed to Lessor and Lessee, respectively, at the addressee set forth below:
If to Lessor: Holualoa Peoria Avenue Industrial, LLC
4515 N. 16th Street, Suite 204
Phoenix, Arizona 85016
Attn: Sandy Alter
Holualoa Peoria Avenue Industrial, LLC
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c/o Wessex Companies
2828 N. Central Avenue, Suite 1060
Phoenix, Arizona 85004
Attn: Swan Mahr
Holualoa Peoria Avenue Industrial, LLC
75-5706 Hanama Place, Suite 104
Kailua-Kona, Hawaii 96740
Attn: Lynn Taube
If to Lessee: Titan Motorcycle Co. of America
2222 W. Peoria Avenue
Phoenix, Arizona 85029
Attn: Frank Keery, CEO
17.9. MORTGAGEE PROTECTION
(a) If, in connection with obtaining financing for the Project or
any portion thereof, Lessor's lender shall request reasonable modifications to
this Lease as a condition to such financing, Lessee shall not unreasonably
withhold, delay or defer in consent to such modifications, provided such
modifications do not materially adversely affect Lessee's rights or increase
Lessee's obligations under this Lease.
(b) Lessee agrees to give to any trust deed or mortgage holder
(beholders), by prepaid certified mail, return receipt requested, at the same
time as it is given to Lessor, a copy of any notice of default given to Lessor,
provided that prior h such notice Lessee has been notified, in writing, (by way
of notice of assignment of rend and lessee, or otherwise) of the address of such
Holder. Lessee further agrees that if Lessor shall have failed to cure such
default within the time provided for in this Lease, then the Holder shall have
an additional twenty (20) days after expiration of such period, or after receipt
of such notice from Lessee (if such notice to the Holder is required by this
Section 17.9(b)), whichever shall last occur, within which to cure such default
or if such default cannot be cured within that time, then such additional time
as may be necessary if within such twenty (20) days, any Holder has commenced
and is diligently pursuing the remedies necessary to cure such default
(including but not limited to commencement of foreclosure proceedings, if
necessary, to effect such cure), in which event this Lessee shall not be
terminated.
17.10. WAIVERS. No waiver by Lessor of any provision hereof shall be
deemed a waiver of any other provision hereof or of any subsequent breach by
Lessee of the same or any other provision. Lessor's consent to or approval of an
act shall not be deemed to render unnecessary the obtaining of Lessor's consent
to or approval of any subsequent act by Lessee. The acceptance of rent hereunder
by Lessor shall not be a waiver of any preceding breach b Lessee of any
provision hereof, other than the failure of Lessee to pay the particular rent so
accepted, regardless of Lessor's knowledge of such preceding breach at the time
of acceptance of such rent.
17.11. RECORDING. Lessee shall not record this Lease without Lessor's
prior written consent, and such recordation shall, at the option of Lessor,
constitute a non-curable default of Lessee hereunder. At Lessee's request,
Lessor shall execute and allow the recordation of a short form memorandum of
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this Lease, in form reasonably acceptable to Lessor, only if prior to execution
thereof by Lessor, Lessee executes and delivers to Lessor, in recordable form, a
properly acknowledged quitclaim deed or other instrument extinguishing all of
Lessee's rights and interests in and to the Project and the Premises, and
designating Lessor as the grantee, which deed or other instrument shall be held
by Lessor and may be recorded by Lessor upon the termination or expiration of
this Lease. The memorandum may disclose Lessee's right of first offer to
purchase set forth in Paragraph 40 of the Addendum hereto and Lessee's right of
First refusal set forth in Paragraph 41 of the Addendum hereto.
17.12. HOLDING OVER. If Lessee remains in possession of the Premises or
any part thereof after the expiration of the Term hereof, without the written
consent of Lessor, such occupancy shall be a tenancy at sufferance, for which
Lessee shall pay a monthly base rental of one hundred twenty-five percent (125%)
of the monthly base rental in effect immediately prior to the expiration of the
Term plus all other charges payable hereunder, and upon all the terms hereof
applicable to such a tenancy at sufferance.
17.13. CUMULATIVE REMEDIES. No remedy or election hereunder shall be
deemed exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
17.14. COVENANTS AND CONDITIONS. Each provision of this Lease performable
by Lessee shall be deemed both a covenant and a condition.
17.15. BINDING EFFECT; CHOICE OF LAW. Subject any provisions hereof
restricting assignment or subletting and subject to the provisions of Section
17.2, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State of
Arizona.
17.16. SUBORDINATION.
(a) This Lease, at Lessor's option and upon written notice to
Lessee, shall be automatically subordinate to any ground lease, mortgage, deed
of trust, or any other hypothecation for security now or hereafter placed upon
the Project and to any and an advances made on the security thereof and to all
renewals, modifications, consolidations, replacement and extensions thereof;
provided, however, as to any ground lease, mortgage, deed of trust, or any other
hypothecation for security hereafter placed upon the Project, such subordination
shall be conditioned upon the ground lessor, mortgagee, beneficiary under deed
of trust or holder of any other hypothecation recording a non-disturbance
agreement in favor of Lessee in such party's customary form. If Lessor or any
mortgagee, trustee, or ground lessor shall elect to have this Lease prior to the
lien of a mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease shall be automatically deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease is dated prior or
subsequent to the date of said mortgage, deed of trust, or ground lease or the
date of recording thereof.
(b) Lessee agrees to execute any commercially reasonable documents
required to further evidence or effectuate such subordination or to make this
Lease prior to the lien of any mortgage, dead of trust or ground lease, as the
case may be, and failing to do so within ten (10) days after written demand,
does hereby make, constitute, and irrevocably appoint Lessor as Leesee's
attorney in fact and in Lessee's name, place and stead, to do so.
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17.17. ATTORNEYS' FEES. If either party brings an action to enforce the
terms hereof or declare rights hereunder, the prevailing party shall be entitled
to its reasonable attorneys' fees in any such action, on trial or appeal, to be
paid by as fixed by the court.
17.18. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right
to enter the Premises at reasonable times and upon reasonable prior notice to
Lessee between 8 a.m. and 5 p.m. weekdays for the purpose of inspecting the
same, showing the same to prospective purchasers, lenders, consultant and other
professionals and making such alterations, repairs, improvement, or additions to
the Premises or to the building of which they are a part as Lessor may
reasonably deem necessary or desirable. In connection with such entry and in
connection with carrying out any of its responsibilities hereunder or in
privileges as the owner of the Project, Lessor shall be entitled to erect such
scaffolding and other necessary structures or equipment as reasonably may be
required by the character of the work to be performed, provided that Lessor
shall not unreasonably interfere with the conduct of Lessee's business. Except
as specifically provided herein to the contrary, no entry by Lessor hereunder
nor any work performed by Lessor to the Premises or the Project shall entitle
Lessee to terminate this Lease or to a reduction or abatement of rent or other
amounts owed by Lessee hereunder nor to any claim for damages. Lessor may at any
time place on or about the Premises any ordinary "For Sale," and during the last
six (6) months of the Term, "For Lease" signs. Lessor and Lessor's agent shall
have the right to enter the Premises at any time in the case of an emergency.
17.19. SIGNS AND AUCTIONS. Lessee shall not place any sign upon the
Premises or conduct any auction from the Premises without Lessor's prior written
consent.
17.20. MERGER. The voluntary or other surrender of this Lease by Lessee
or a mutual cancellation thereof shall, at the option of Lessor, terminate all
or any existing subtenancies or may, at the option of Lessor, operate as an
assignment to Lessor of any or all of such subtenancies.
17.21. AUTHORITY. If Lessee is a corporation, a limited liability
company, partnership or other entity, each individual executing this Lease on
behalf of said entity represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said entity, and that this Lease is
binding upon said entity in accordance with its terms. If Lessee is a
corporation, a limited company, partnership or any other entity, Lessee shall
deliver to Lessor, upon Lessee's execution of this Lease, evidence reasonably
satisfactory to Lessor of the authority of the person(s) signing this Lease on
behalf of Lessee to do so and that Lessee has approved entering into this Lease.
Such evidence may include a certified copy of a resolution of the Board of
Directors or members or partners of said entity authorizing or ratifying the
execution of this Lease by a specific person(s) or other similar evidence. In
absence of such evidence, the individual(s) executing this Lease guarantees
payment and full performance of this Lease.
17.22. NSF CHECKS. There will be a $50.00 service charge payable to
Lessor on all NSF checks, which charge shall be in addition to, and not in
substitution for, any late charges and interest due hereunder.
18. PARKING AND COMMON AREAS. The Lessee agents, employees and invitees shall be
entitled to park in common with other lessees of Lessor providing that it agrees
not to overburden the parking facilities of the Project and agrees to cooperate
with the Lessor and other lessees in the use of the parking facilities. Lessor
specifically reserves the right, in its absolute discretion, to determine
whether parking facilities are becoming overburdened and in such event to
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allocate the parking spaces among the Lessee and other lessees, their agents,
employees, and business invitees using the parking facilities in proportion to
each such Lessee's share of the space within the Project. All loading operations
for receipt or shipment of goods, wares and merchandise by the Lessee shall be
done in the rear of the Premises or in such area therein which is specifically
designated in writing by the Lessor.
19. SAFETY. Lessee shall maintain on the Premises at all times during the Term
hereof an adequate number, size and type of fire extinguishers as are
appropriate to Lessee's business. Lessee will at all times adhere to good safety
practices or as may be required by safety inspectors. No goods, merchandise or
materials shall be kept, stored or sold by Lessee on or about the Premises which
are in any way hazardous. Lessee, at in sole expense, shall comply with any and
all requirements of any insurance organization or company necessary for the
maintenance of reasonable few and public liability insurance covering the
Premises, the Project or any portion thereof.
20. ATTORNMENT. In the event any proceedings are brought for foreclosure, or in
the event of the exercise of the power of sale under any mortgage or deed of
trust covering the Premises, the Lessee shall attorn to the purchaser upon any
such foreclosure or sale and recognize such purchaser as the Lessor under this
Lease.
21. NO ACCESS TO ROOF. Lessee shall have no right of access to the roof of the
Premises or the building in which the Premises are located and shall not
install, repair or replace any aerial, fan, air conditioner or other device on
the roof of the Premises or the building in which the Premises are located
without the prior written consent of Lessor. Any aerial, fan, air conditioner or
device installed without such written consent shall be subject to removal, at
Lessee's expense, without notice, at any time.
22. SUCCESS0RS AND ASSIGNS. Subject to any provisions hereof restricting
assignment or subletting and subject to the provisions of Section 17.2, the
covenant and conditions herein contained, inure to and bind the heirs,
successors, executors, administrators and assigns of the parties hereto.
23. FINANCIAL STATEMENTS. Within fifteen ( 15) days after Lessor's request,
Lessee shall deliver to Lessor the current financial statements of Lessee, and
financial statements of the two (2) years prior to the current financial
statement year, including a balance sheet and profit and loss statement for the
most recent prior year, all prepared in accordance with generally accepted
accounting principles consistently applied. Such financial statement, balance
sheet and profit and loss statement shall be certified as accurate by Lessee or
a properly authorized representative of Lessee if Lessee is a corporation,
partnership or other business entity. Lessor shall keep such Financial statement
of Lessee confidential and shall not copy or disclose their contents except to
Lessor's manager, members, lenders, and prospective purchasers of the Project.
24. NO ACCORD OR SATISFACTION. No payment by Lessee or receipt by Lessor of a
lesser amount than the monthly rent and other sums due hereunder shall be deemed
to be other than on account of the earliest rent or other sums due, nor shall
any endorsement or statement on any check or accompanying any check or payment
be deemed an accord and satisfaction; and Lessor may accept such check or
payment without prejudice to Lessor's right to recover the balance of such rent
or other sum or pursue any other remedy provided in this Lease.
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25. ACCEPTANCE. This Lease shall only become effective and binding upon full
execution hereof by Lessor and delivery of a fully executed copy to Lessee.
26. INABILITY TO PERFORM. This Lease and the obligations of the Lessee hereunder
shall not be affected or impaired because the Lessor is unable to fulfill any of
its obligations hereunder or is delayed in doing so, if such inability or delay
is caused by reason of strike, labor troubles, acts of God, or any other cause
beyond the reasonable control of the Lessor.
27. INTENTIONALLY DELETED.
28. AlTERATIONS AND COMMON AREAS. Lessor shall have the right to make changes in
the Common Areas or any part thereof, including, without limitation, changes in
the location of driveways, entrances, exits, vehicular parking spaces and the
direction of traffic flow, and designation of restricted areas, as Lessor deems
necessary or advisable for the proper and efficient operation and maintenance of
the Common Areas. Notwithstanding the foregoing, Lessor shall not make changes
in the Common Areas which maturity and adversely affect access to, or visibility
of, the Premises, except temporarily during periods of construction.
29. REVISIONS OF EXHIBIT "A". It is expressly agreed that the depiction of the
Premises, the Project and the Common Areas on Exhibit "A" does not constitute a
representation, covenant, or warranty of any kind by Lessor, and Lessor reserves
the right to change the adze, location, type and number of buildings within the
Project and the location, type, design and dimensions of the Common Areas.
30. OTHER TENANTS. Lessor reserves the absolute right to permit such other
tenancies and businesses in the Project as Lessor, in the exercise of in sole
business judgment, shall determine to best promote the interests of the Project.
Lessee is not relying on the understanding, nor does Lessor represent, any
specific lessee or number of lessees shall during the Term occupy any space in
the Project. Lessee hereby waives all defenses arising from, and Lessor shall
not be liable for damages arising from, any act or neglect of any other lessee
or from Lessor's acts or omissions in enforcing any provision of its lease
against another lessee, whether or not Lessor has notice of the offending
lessee's disturbing or unlawful act or the opportunity to cure the disturbance
by invoking its powers under such other lease.
31. NAME OF PROJECT. Lessor shall have the right to change the name of the
Project upon not less than thirty (30) days prior written notice to Lessee.
Lessee agrees that the name of the Project shall be the sole property of and
belong to Lessor. From and after the termination or expiration of the Term for
any reason whatsoever, Lessee shall cease using the name of the Project for any
purpose.
32. JOINT OBLIGATION. If there be more than one Lessee, the obligations
hereunder imposed shall be joint and several.
33. CONSENTS AND APPROVALS. Except as specifically otherwise stated herein, an
consents or APPROVALS requested of Lessor hereunder may be granted or denied by
Lessor in its sole and absolute discretion.
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34. BASIC TERMS SHEET. The Basic Terms Sheet to which this Lease is attached is
for the convenience of the parties in quickly referencing certain of the basic
terms of the Lease. It is not intended to gene as a complete summary of the
Lease. In the event of any inconsistency between the Basic Terms Sheet and the
Lease, the applicable Lease provision shall prevail and control.
35. TRIPLE NET LEASE. Lessee acknowledges that this is a Triple Net Lease and
that Lessee shall do all acts and make all payments connected with or arising
out of its use and occupation of the Premises to the end that Lessor shad
receive all rent provided for herein free and undiminished by any expenses,
charges, fees, taxes and assessment, and Lessor shall not be obligated to
perform any acts or be subject to any liabilities or to make any payments,
except as otherwise specifically and expressly provided in this Lease.
The parties hereto have executed this Lease on the dates specified immediately
adjacent to their respective signatures.
This Lease has been prepared for submission to your attorney for trio approval.
No representation or recommendation is made by the Lessor or its agents or
employees as to the legal effect or tax consequences of this Lease or the
transaction relating thereto.
LESSOR: LESSEE:
- ------- -------
Holualoa Peoria Avenue Titan Motorcycle Co. of America, Inc.
Industrial, LLC, a Nevada corporation
an Arizona limited liability company
By: /s/ By: /s/
-------------------------- --------------------------
Name: Sandra M. Alter Name: Francis S. Keery
-------------------------- --------------------------
Title: Authorized Agent Title: C.E.O.
-------------------------- --------------------------
Date: 1/24/97 Date: 1/24/97
-------------------------- --------------------------
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EXHIBIT 6.2
ADDENDUM TO STANDARD COMMERCIAL-INDUSTRIAL
TRIPLE NET LEASE
This Addendum to Standard Commercial-Industrial Triple Net Lease
("Addendum") is attached to and incorporated into that certain Standard
Commercial-Industrial Triple Net Lease, dated as of December 16, 1996, between
Holualoa Peoria Avenue Industrial, LLC, an Arizona limited liability company
("Lessor"), and Titan Motorcycle Co. of America, a Nevada corporation
("Lessee"), (the "Lease"). In the event of any inconsistency between the terms
of the Lease and this Addendum, the terms of this Addendum shall control. As
hereinafter used, the term "Lease" means the Lease as amended by this Addendum.
36. Intentionally Deleted.
----------------------
37. HVAC and Mechanical Equipment. Notwithstanding the terms of Paragraph 7 of
the Lease to the contrary, during the first nine (9) months of the Term, Lessor,
shall, at its expense, maintain, service, replace and keep in good repair the
heating, ventilating and air conditioning equipment and all mechanical equipment
serving the Premises; provided, however, the foregoing obligation of Lessor
shall in no event include any of the Leasehold Improvements described on Exhibit
"B" to the Lease.
38. Monthly Base Rent. The monthly base rental shall commence April 1, 1997 (the
"Rental Start Date"). Monthly base rental for the twenty (20) month period
commencing on the Rental Start Date shall be Fifteen Thousand Five Hundred
Twenty and no/100 Dollars ($15,520.00) triple net; monthly base rental for the
second twenty (20) month period after the Rental Start Date shall be Eighteen
Thousand Two Hundred Thirteen and no/100 Dollars ($18,213.00) triple net; and
monthly base rental for the third twenty (20) month period after the Rental
Start Date shall be Twenty Thousand Nine Hundred Six and no/100 Dollars
($20,906.00) triple net. Lessee shall have the right to occupy the Premises from
the Commencement Date until the Rental Start Date rent free.
39. Extension Option.
-----------------
39.1 Lessor hereby grants to Lessee one (1) option (the "Extension
Option") to extend the Term of the Lease for an additional period of five (5)
years (the "Option Terms), on the same terms, covenants and conditions as
provided for in this Lease during the initial Term, except: (a) the monthly base
rent payable during the Option Term shall be the "fair market rental rate" for
the Premises as defined and determined in accordance with the Fair Market Rental
Rate Rider attached to this Lease as Exhibit "C" provided, however, in no event
shall the monthly base rent payable during the Option Term be less than the
Adjusted Monthly Base Rent in effect from time to time, determined pursuant to
Section 39.4 below; (b) Lessor shall have no further right to extend the Term;
and (c) the terms of Exhibit "B" shall be inapplicable to the Option Term.
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39.2 The Extension Option must be exercised, if at all, by written
notice ("Extension Notices) delivered by Lessee to Lessor no later than the date
which is one hundred eighty (180) days prior to the expiration of the initial
Term. The Extension Option shall, at Lessor's sole option, not be deemed to be
properly exercised if, at the time such Extension Option is exercised or on the
scheduled commencement date for the Option Term, Lessee is then in default or
Lessee has been chronically delinquent during the initial Term as described in
Section 15.1(e) of the Lease.
39.3 Notwithstanding the determination of fair market rental rate
pursuant to Exhibit "C" or of Adjusted Monthly Base Rent pursuant to Section
39.4, in no event shall the monthly base rent payable during any month of the
Option Term be less than the monthly base rent payable during the previous
month.
39.4 Adjusted Monthly Base Rent shall be determined in accordance with
the following formula on the first day of each of the five (5) years of the
Option Term (the "Adjustment Date(s)") and shall be in effect for the subsequent
12 months:
Adjusted Monthly Base Rent = monthly base rent as
of the day prior to applicable Adjustment
Date x (CPI-2/CPI-1).
In applying the above, the following definitions shall be used:
39.4.1 "Preceding Year of the Lease Term" Means
the 12 months preceding the Applicable
Adjustment Date.
39.4.2 "Bureau" means the U.S. Department of
Labor, Bureau of Labor Statistics or any
Successor agency that shall issue the
indices or data referred to in Section
39.1.1.3
39.4.3 "CPI" means the monthly indices of the
Consumer Price Index, All Urban Consumers
(CPI-U), U.S. City Average, All Items
(1982-84 equals 100), issued by
the Bureau.
39.4.4 "CPI-1" means the monthly CPI for the
Calendar month three (3) months before
The commencement of the Preceding Year Of
the Lease Term.
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39.4.5 "CPI-2" means the monthly CPI for the
Calendar month three (3) months before
The applicable Adjustment Date.
39.4.6 If at the time of the computations provided for in Section
39.4, no CPI is compiled and published by any agency of the federal government,
the statistics reflecting cost of living increases, as compiled by any
institution or organization or individual generally recognized as an authority
by financial and insurance institutions and acceptable to Lessor, shall be used
as a basis for such adjustments.
39.4.7 If Adjusted Monthly Base Rent exceeds the fair market rental
rate for the Premises, Lessor shall notify Lessee in writing of the Adjusted
Monthly Base Rent. Such notice shall include all the data used by Lessor in
calculating the Adjusted Monthly Base Rent. In the event that Adjusted Monthly
Base Rent is not determined prior to the commencement to any year during the
Option Term, Lessee shall continue to pay to Lessor the monthly base rent last
in effect until Lessee is notified of the Adjusted Monthly Base Rent and that
the same exceeds the fair market rental rate for the Premises. Upon such notice,
Lessee shall commence paying Adjusted Monthly Base Rent at the time the next
monthly base rent payment is due, at which time Lessee shall also reimburse
Lessor for the difference between the amount of rental paid during such interim
period and the amount of the Adjusted Monthly Base Rent for said period.
40. Right of First Offer to Purchase
--------------------------------
40.1 During the Term, before entering into an agreement to sell the
Project, Lessor will notify Lessee ("Lessor's Notice") of the purchase price and
other material terms upon which Lessor would be willing to sell the Project to
Lessee (the "Sales Terms"). If within ten (10) days after receipt of Lessor's
Notice, Lessee agrees in writing to purchase the Project upon the Sales Terms,
Lessor or its counsel will prepare a formal Purchase and Sale Agreement and
Escrow Instructions (the "Agreement"), which Agreement shall be acceptable to
Lessor in its sole and absolute discretion. If Lessee does not deliver its
notice of intent to purchase the Project as offered in Lessor's Notice within
such ten (10) day period, or if the Agreement has not been fully executed and
delivered by Lessor and Lessee within ten (10) days after Lessor's first
delivery of the Agreement to Lessee, Lessor and Lessee shall have no further
rights or obligations under this Paragraph 40, and Lessor will have the right to
sell the Project to a third party at a price and upon such terms as are
acceptable to Lessor, whether or not such price and terms are more or less
favorable than those offered to Lessee. This right of first offer to purchase
the Project is personal to Titan Motorcycle Co. of America and is not
transferrable except to an affiliate of Titan Motorcycle Co. of America ("Titan
Affiliate") in connection with an assignment of this Lease or in connection with
a sublease of all of the Premises for the entire remaining term (less any de
minimus reversion to Titan Motorcycle Co. of America), where such assignment or
sublease transaction has been consented to by Lessor pursuant to Paragraph 14 of
the Lease. For purposes hereof, a Titan Affiliate shall mean an entity
controlled by or under common control with Titan Motorcycle Co. of America.
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40.2 Time is of the essence of the provisions of this Paragraph 40.
40.3 Lessor's obligations under this Paragraph 40 are conditioned
upon the following: (i) Lessee not being in default under this Lease as of the
date Lessor gives Lessor's Notice and no event having occurred as of the date
Lessor gives Lessor's Notice that with the giving of notice or the passage of
time would constitute a default under this Lease; (ii) Lessee not having been
chronically delinquent as described in Section 15.1(e) of the Lease at any time
prior to the date Lessor's Notice is given; and (iii) Lessor's determination,
upon a review of Lessee's most recent financial statements, that Lessee's
financial condition permits it to fully perform in accordance with the
Agreement.
40.4 Except as set forth in Section 17.11 of the Lease, Lessee
shall not allow its rights under this Paragraph 40 to be placed of record. A
violation of the preceding sentence shall terminate Lessee's rights pursuant to
this Paragraph 40 and will constitute an incurable and material default under
this Lease.
40.5 All of Lessee's rights set forth in this Paragraph 40 are
hereby subordinated to any existing or future mortgage or deed of trust
encumbering the Project.
40.6 If Lessee purchases the Property, prepaid rent will be
credited against the purchase price.
41. Right of First Refusal to Lease.
--------------------------------
41.1 Lessor grants Lessee a right of first refusal ("ROFR") to
lease any other space in the Project pursuant to this Paragraph 41.
41.2 If, during the Term of this Lease, Lessor receives a bona fide
offer to lease any portion of the Project from a third party and intends to
accept the offer, or if Lessor decides to make an offer to lease any portion of
the Project, Lessor will give a written copy of the offer (either of which are
herein called a "Lease Offer") to Lessee either prior to acceptance of the offer
or after such acceptance (in which latter case, the lease shall be subject to
Lessee's rights hereunder). For purposes of this Paragraph 41, a non-binding
letter of intent shall be deemed a Lease Offer. Lessee will have the right to
match the offer received by Lessor or accept the offer made by Lessor by written
notice to Lessor given within eight (8) business days after Lessee's receipt of
the offer ("Acceptance Notice"). If Lessee matches or accepts the offer, as the
case may be, in writing, Lessee will be bound to lease such space strictly in
accordance with the terms of the offer.
41.3 The ROFR is a continuing right and, subject to the terms of
this Paragraph 41, shall apply to all Lease Offers made during the term of this
Lease, whether or not Lessee has failed to match or accept any previous Lease
Offer pursuant to this Paragraph 41. If, and only if, (i) Lessee notifies Lessor
in writing that Lessee does not elect to lease the applicable portion of the
Project upon Lessee's receipt of any Lease Offer, or (ii) Lessee does not timely
deliver an Acceptance Notice to Lessor with respect to any Lease Offer, then
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Lessor shall have no further obligation to lease the applicable portion of the
Project to Lessee pursuant to the applicable Lease Offer, and Lessor shall
thereafter have the right to lease the applicable portion of the Project to the
third party who initially made the Lease Offer or to whom Lessor initially made
the Lease Offer, or to any other person, substantially in accordance with the
terms of such Lease Offer. If Lessor does not sign a lease with such third party
or other party within one hundred eighty (180) days after the date of the
original Lease Offer, or if the terms of a Lease Offer are materially changed to
the advantage of such third party after it has been delivered to Lessee, then
Lessee will once again have the first right to lease the applicable portion of
the Project in accordance with the terms of this Paragraph 41 and Lessor will
once again be obligated to comply with the terms of this Paragraph 41 prior to
leasing the applicable portion of the Project to anyone other than Lessee.
41.4 Lessee shall have no ROFR if at the time Lessor gives Lessee
notice of the Lease Offer or if at the time set for the commencement date of
such new lease (i) a default exists under this Lease, or (ii) an event has
occurred that would be a default under this Lease after either notice or the
passage of time, or both, or (iii) Lessee has assigned all or part of this Lease
or has sublet all or part of the Property, whether with or without Lessor's
consent.
41.5 The ROFR is personal to Titan Motorcycle Co. of America, Inc.
and may not be assigned by it except to a Titan Affiliate in connection with an
assignment of this Lease or a sublease of all of the Premises for the entire
remaining Term (less any de minimum reversion to Titan Motorcycle Co. of
America), where such assignment or sublease transaction has been consented to by
Lessor pursuant to Paragraph 14 of the Lease. Except as expressly permitted
above, any attempted assignment of the ROFR will be void, will terminate the
ROFR and will constitute an incurable and material default of this Lease.
41.6 Except as set forth in Section 17.11 of the Lease, Lessee
shall not allow its ROFR to be placed of record. A violation of the preceding
sentence shall terminate the ROFR and will constitute an incurable and material
default under this Lease.
41.7 Time is strictly of the essence of each and every provision in
this Paragraph 41.
42. Covenant of Quiet Enjoyment. Lessor covenants that so long as Lessee
fulfills the conditions and covenants required of it to be performed under this
Lease, Lessee will have peaceful and quiet possession of the Premises during the
term hereof.
43. Brokers. Lessor and Lessee represent and warrant to each other that they
have not had any dealings with any real estate brokers, finders or agents in
connection with this Lease other than CB Commercial Real Estate Group, Inc. (Pat
Feeney and Pete Wentis) (the "Broker"). Lessor and Lessee agree to indemnify,
defend (with counsel selected by the indemnified party and reasonably acceptable
to the indemnifying party) and hold the other party and the other parties'
nominees, successors and assigns harmless from any and all claims, costs,
commissions, fees, or damages by any person or firm whom the indemnifying party
authorized or employed, or acted by implication to authorize or employ, to act
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for the indemnifying party in connection with this Lease. Notwithstanding the
foregoing, Lessor covenants and agrees to pay all commissions owed to the
Broker.
LESSOR:
Holualoa Peoria Avenue Industrial, LLC,
An Arizona limited liability company
By: Holualoa Arizona, Inc.,
An Arizona corporation
Its: Manager
By: /s/
-----------------------------
Its: Authorized Agent
-----------------------------
LESSEE:
Titan Motorcycle Co. of America, Inc.,
A Nevada corporation
By: /s/
-----------------------------
Its: C.E.O.
-----------------------------
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EXHIBIT "B"
WORK LETTER AGREEMENT
This Work Letter Agreement supplements the Standard Commercial
Industrial Triple Net Lease (the "Lease"), dated and executed concurrently
herewith, by and between Lessor and Lessee, covering certain premises described
in the Lease (the "Premises"). All terms not defined herein shall have the same
meaning as set forth in the Lease.
1. Construction of Leasehold Improvements.
- ------------------------------------------
1.1. Leasehold Improvements. Lessee shall furnish and install
within the Premises those items of general construction (including any
distribution to the Premises) of any utilities and heating, ventilating and air
conditioning service as is required to serve the Premises) shown on the plans
and specifications finally approved by Lessor and Lessee pursuant to Paragraph 2
below (the "Leasehold Improvements") in compliance with all applicable codes and
regulations. The Leasehold Improvements shall be constructed substantially in
accordance with the preliminary specifications and architectural renderings
described on Schedule 1 attached hereto (the "Preliminary Plans"). The Leasehold
Improvements shall be constructed pursuant to this Work Letter Agreement by
Lessee's general contractor, MD Construction, Inc. ("Lessee's Contractor") and
subcontractors. Lessee's Contractor shall not be changed without the prior
written consent of Lessor.
1.2. Construction Representatives. Lessor hereby appoints Sandy
Alter as Lessor's representative ("Lessor's Representative") to act for Lessor
in all matters covered by this Exhibit "B." Lessee hereby appoints Frank Kerry
as Lessee's representative ("Lessee's Representatives) to act for Lessee in all
matters covered by this Exhibit "B." All communications with respect to the
matters covered by this Exhibit "B" shall be made to Lessor's Representative or
Lessee's Representative, as the case may be. Either party may change its
representative under this Exhibit "B" at any time by written notice to the other
party.
2. Construction Plans for Premises.
- -----------------------------------
2.1. Preparation of Space Plans. Lessee's Contractor shall prepare
preliminary space plans for the Premises. Lessee's Contractor shall also prepare
detailed space plans sufficient to convey the architectural design of the
Premises and layout of the Leasehold Improvements therein ("Space Plans"). The
Space Plans shall be submitted to Lessor for Lessor's reasonable approval. If
Lessor shall disapprove of any portion of the Space Plans, Lessor shall advise
Lessee in writing of such disapproval and the reasons therefor. Lessee shall
then submit to Lessor for Lessor's reasonable approval, a redesign of the Space
Plans, incorporating those revisions required by Lessor.
2.2. Preparation of Final Plans. Based on the approved Space
Plans, Lessee shall cause an architect selected by Lessee and reasonably
approved by Lessor (the "Architect") to prepare complete architectural plans,
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drawings and specifications and complete engineering, mechanical, structural and
electrical working drawings for all of the Leasehold Improvements for the
Premises (collectively, the "Final Plans") showing: (a) the subdivision
(including partitions and walls), layout, lighting, finish and decoration work
(including carpeting and other floor coverings) desired by Lessee for the
Premises; (b) all internal and external communications and utility facilities
which will require conduiting or other improvements from the shell of the
building of which the Premises are a part (the "Building) and/or within common
areas; and (c) all other specifications for the Leasehold Improvements. The
Final Plans shall be approved in the same manner as provided in Section 2.1
above for approval of Space Plans. Lessor need not approve Final Plans that
would require material alterations of the Building shell.
2.3. Requirements of Lessee's Final Plans. Lessee's Final Plans
shall include locations and complete dimensions and shall: (a) be compatible
with the Building shell and with the design, construction and equipment of the
Building; (b) be compatible with and of at least equal quality to the existing
improvements in the Building, and (c) comply with all applicable laws and
ordinances, and the rules and regulations of all governmental authorities having
jurisdiction, and all applicable insurance regulations.
2.4. Changes to Shell of Building. If the approved Final Plans or
any amendment thereof or supplement thereto shall require material alterations
of the Building shell (without implying any obligation on Lessor to approve of
the same), such alterations shall be performed by Lessee's Contractor as part of
the Leasehold Improvements and the cost of the Building shell work caused by
such alterations shall be charged against the Allowance.
2.5. Approvals. Lessee shall be solely responsible for obtaining
approval of the Final Plans by all governmental agencies having jurisdiction,
including all necessary permits and the temporary and permanent certificate of
occupancy (or other required, equivalent approval from the local governmental
authority permitting occupancy of the Premises). Lessor shall reasonably
cooperate with Lessee in obtaining such approvals.
3. Allowance for Leasehold Improvements.
- ----------------------------------------
3.1. Allowance. Lessee shall receive from Lessor an allowance (the
"Allowances) of up to, but not exceeding, $183,768.00, which Allowance shall be
used solely to contribute toward payment of the Work Cost (as defined below) of
the Leasehold Improvements. All items of Leasehold Improvements, whether or not
the cost thereof is covered by the Allowance, shall become the property of
Lessor upon expiration or earlier termination of the Lease and shall remain on
the Premises at all times during the Term of this Lease, except as otherwise
provided in Section 7.3 of the Lease.
3.2. Excess Work Costs. In the event that the actual Work Costs
exceed the Allowance, Lessee shall pay such excess and Lessor shall have no
responsibility therefor. If prior to or during the construction of the Leasehold
Improvements, Lessor reasonably estimates that the Work Cost will exceed the
Allowance by more than $50,000.00, Lessor may, at its option, require Lessee to
post a payment and performance bond or other surety satisfactory to Lessor for
the estimated excess Work Cost. Such excess shall be paid in accordance with
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Section 3.4 below. If the Allowance exceeds the Work Cost, Lessee shall not be
entitled to any payment, rent reduction or credit therefor.
3.3. Changes. In the event that changes to the Space Plans or
Final Plans are requested by Lessee or required by any governmental agency
subsequent to Lessor's approval thereof, such changes and the costs thereof
shall be forwarded to Lessor for approval (which approval shall not be
unreasonably withheld) prior to incorporation into the work. After Lessor's
approval of the changes and the costs thereof, the changes shall be incorporated
into the work by means of a change order.
3.4. Payment of Allowance. The Allowance shall be paid by Lessor
in accordance with this Section 3.4. Lessee or Lessee's Contractor shall provide
Lessor by the fifteenth (15th) day of each calendar month with an invoice
prepared by Lessee's Contractor (or Lessee's Architect with respect to design
costs) setting forth the Work Cost payable since the last such invoice. Such
invoice shall be accompanied by (i) a certificate from Lessee's Architect or
Lessee's Contractor certifying that the Work Cost set forth in such invoice is
accurate and that all Work Costs set forth in prior invoices have been paid,
(ii) copies of all invoices from subcontractors setting forth the Work Cost on
Lessee's Contractor's invoice, (iii) receipts from such subcontractors
acknowledging payment of the Work Cost set forth in prior invoices, and (iv)
copies of lien waivers, or conditional lien waivers, in both Lessor's and
Lessee's favor, from Lessee's Contractor and subcontractors (such waivers shall
be conditional with respect to the Work Cost set forth in the invoice which they
are accompanying and final with respect to the Work Cost on prior invoices).
Lessor's approval of all such invoices shall not be unreasonably withheld,
conditioned, or delayed. Lessor shall pay to Lessee's Contractor, or to Lessee's
Architect with respect to design costs, within ten (10) calendar days of receipt
of all of the foregoing, the Work Cost set forth on the invoice, less the amount
of the retention as described in Section 4.1 below, to the extent Lessor, in its
reasonable judgment, deems such Work Cost to be accurate. Upon exhaustion of the
Allowance it shall become Lessee's responsibility to pay the Work Cost as set
forth on such invoices, also within such ten (10) calendar day period, and
Lessee shall provide Lessor promptly upon Lessor's request with reasonable
evidence of such payment. Upon final completion of all work to be undertaken by
Lessee (including all punchlist items), which final completion shall be
certified by the Architect and which final completion shall occur not later than
one (1) year after the Lease Commencement Date, Lessee shall execute and deliver
to Lessor a written acknowledgment that the Leasehold Improvements are approved
by Lessee and a written certificate setting forth the amount and nature of all
costs and expenses billed to Lessee in connection with the design, permit
approval and construction of the Leasehold Improvements. Within ten (10) days
after Lessor's receipt of such certificate, accompanied by copies of all related
bills, invoices, receipts and final conditional lien waivers of all lien rights,
in recordable form, from Lessee's Contractor and all subcontractors, Lessor
shall pay to Lessee the remaining amount of such cost and expenses, including
the actual hold back provided in the construction contract, up to and including,
but not exceeding, the Allowance. Lessee shall receive no payment, rent
reduction or credit for any unused portion of the Allowance. Lessor shall not be
obligated to pay any portion of the Allowance for Work Cost incurred after the
date that is one (1) year after the Lease Commencement Date.
4. Construction.
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4.1. Construction Contract. Not less than ten (10) days prior to
commencement of construction of the Leasehold Improvements, Lessee shall enter
into a construction contract with Lessee's Contractor, which contract shall
provide for the retention of not less than ten percent (10%) of the monthly
progress payments, and shall otherwise be approved in writing by Lessor, which
approval shall not be unreasonably withheld or delayed. Lessee shall be solely
responsible for the performance of the work of the Leasehold Improvements to be
performed by Lessee's Contractor and any and all subcontractors, suppliers and
the like performing services for Lessee and/or Lessee's Contractor.
4.2. Construction Schedule. Prior to commencement of construction
of any Leasehold Improvements, Lessee shall furnish to Lessor's Construction
Representative for approval in writing a schedule setting forth projected
completion dates.
4.3. Prosecution of Leasehold Improvements. Following Lessor's
approval of the Final Plans, and Lessee and Lessee's Contractor's selection of
subcontractors (as approved by Lessor) and execution of the construction
contract pursuant to Section 4.1 above, Lessee shall direct Lessee's Contractor
and such subcontractors to immediately commence and diligently complete
construction of the Leasehold Improvements; provided, however, Lessee shall have
up to one year after the Lease Commencement Date to finally complete
construction of the Leasehold Improvements. All Leasehold Improvements work
shall be carried out in accordance with reasonable rules and regulations
promulgated by Lessor. Such work shall be performed diligently, in a
first-class, workmanlike manner and in accordance with all applicable laws.
Prior to commencing such work, Lessee shall furnish Lessor with sufficient
evidence that Lessee and Lessee's Contractor are carrying worker's compensation
insurance in statutorily-required amounts, comprehensive general liability
insurance and all other insurance in compliance with the Lease. Lessor shall
have the right to enter the Premises at all times to inspect the work and to
post notices of nonresponsibility. Lessee shall ensure lien-free completion of
the Premises, and Lessee shall comply with all provisions of the Lease regarding
liens, including Paragraph 15 thereof.
5. Work Cost. 'Work Cost" means: (a) all design and engineering fees
incurred in connection with the preparation of the Preliminary Plans, Space
Plans and Final Plans (including the cost of Lessor's consulting engineers and
other consultants); (b) costs of permits, fees and taxes; (c) testing and
inspecting costs; (d) the actual costs and charges for material and labor,
contractor's profit and contractor's general overhead incurred by Lessee in
having the Leasehold Improvements done; and (e) all other costs expended in the
construction of the Leasehold Improvements.
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LESSOR:
Holualoa Peoria Avenue Industrial, LLC,
An Arizona limited liability company
By: Holualoa Arizona, Inc.,
An Arizona corporation
Its: Manager
By: /s/
-----------------------------
Its: Authorized Agent
-----------------------------
LESSEE:
Titan Motorcycle Co. of America, Inc.,
A Nevada corporation
By: /s/
-----------------------------
Its: C.E.O.
-----------------------------
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EXHIBIT 6.3
TITAN MOTORCYCLE CO. OF AMERICA
STOCK OPTION AND INCENTIVE PLAN
1. PURPOSE
The purpose of the Titan Motorcycle Co. of America Stock
Option and Incentive Plan (the "Plan") is to provide a means through which Titan
Motorcycle Co. of America, an Arizona corporation, (the "Company") and its
Subsidiaries may attract able persons to enter the employ of the Company and its
Subsidiaries and to provide a means whereby those key employees upon whom the
responsibilities for the successful administration and management of the Company
and its Subsidiaries rest, and whose present and potential contributions to the
welfare of the Company and its Subsidiaries are of importance, can acquire and
maintain stock ownership, thereby strengthening their commitment to the welfare
of the Company and its Subsidiaries and the desire to remain in the employ of
the Company and its Subsidiaries.
A further purpose of the Plan is to provide such key employees
with additional incentive and reward opportunities designed to enhance the
profitable growth of the Company and its Subsidiaries. So that the appropriate
incentive can be provided, the Plan provides for granting non-qualified Options,
Incentive Stock Options, Stock Appreciation Rights, Restricted Stock Awards,
Performance Shares and Dividend Equivalents, or any combination of the
foregoing.
2. DEFINITIONS
The following definitions shall be applicable throughout the
Plan:
a. "Act" means the Securities Exchange Act of 1934, as
amended.
b. "Award" means, individually or collectively, any Option,
Stock Appreciation Right, Restricted Stock Award, Performance
Share Award, or Dividend Equivalent Award.
c. "Award Period" means a period of not less than three years.
d. "Board" means the Board of Directors of the Company.
e. "Code" means the Internal Revenue Code of 1986 and any
regulations issued thereunder, as the same may be amended from
time to time.
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f. "Committee" means the committee of the Board described in
Section 4.
g. "Company" means Titan Motorcycle Co. of America.
h. "Date of Grant" means the date on which the granting of an
Award is authorized by the Committee or such later date as may
be specified by the Committee in such authorization.
i. "Dividend Equivalent" means the Award granted under Section
11.
j. "Eligible Employee" means any person regularly employed by
the Company or a Subsidiary on a full-time basis who satisfies
all of the requirements of Section 6.
k. "Fair Market Value" means as follows:
(i) For periods during which the Stock is not
regularly traded on an established securities market, it shall
be the value of a share of Stock as determined by the Board
based on an appraisal of the Company by an independent third
party as of the Valuation Date coinciding with or immediately
preceding the particular date on which Fair Market Value is to
be determined.
(ii) For periods during which the Stock is regularly
traded on an established securities market,
(A) For Options, SARs and Dividend
Equivalents, it shall be the average of the highest
price and the lowest price at which the Stock shall
have been reported as sold on a generally recognized
stock exchange (the "Exchange") or quoted pursuant to
an inter-dealer quotation system of a national
securities association registered with the United
States Securities and Exchange Commission (the
"Quotation System") on a specified date;
(B) For Performance Share Awards, it shall
be the average of the reported closing prices of the
Stock on the Exchange or Quotation System for 30
consecutive trading days prior to the Valuation Date.
l. "Holder" means an Eligible Employee who has been granted an
Award.
m. "Incentive Stock Option" means an Option within the meaning
of Section 422 of the Code.
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n. "Normal Termination" means Termination:
(i) At retirement pursuant to the Company or
Subsidiary retirement plan covering the Holder,
(ii) For permanent and total disability, or
(iii) For any other reason, other than a
Termination for cause,
provided that the Committee has approved, in writing,
the continuation of any Option outstanding on the
date of the Holder's Termination.
o. "Option" means an Award granted under Section 7 of the
Plan.
p. "Performance Share" means an Award granted under Section 9
of the Plan.
q. "Plan" means the Titan Motorcycle Co. of America Stock
Option and Incentive Plan, as set forth herein and as the same may be
amended from time to time.
r. "Restricted Stock Award" means an Award granted under
Section 10 of the Plan.
s. "Stock" means Common Stock of the Company as defined in the
Company's Articles of Incorporation, unless, at any time prior to the
grant of the first Award under the Plan, the Committee, in its sole and
absolute discretion, designates an alternative class of stock of the
Company as "Stock" for purposes of this Plan, and such designation is
consistent with applicable law; and such other stock as shall be
substituted therefor as provided in Section 13.
t. "Stock Appreciation Right" or "SAR" means an Award granted
pursuant to Section 8 of the Plan.
u. "Subsidiary" means any corporation of which a majority of
the outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Company.
v. "Termination" means separation from employment with the
Company or any of its Subsidiaries for any reason other than death.
w. "Valuation Date" means as follows:
(i) For purposes of determining the Fair
Market Value under Section 2k(i), the last day of the
fiscal year of the Company and such other dates as
the Committee shall determine in its discretion; and
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(ii) For purposes of determining Fair Market
Value of Performance Shares Awards under Section
2k(ii)(B), the first day of the year in which the
Award is made for purposes of granting Performance
Share Awards and the first business day following the
end of the Award Period for the purpose of making
Performance Share payments.
3. EFFECTIVE DATE, DURATION AND SHAREHOLDER
APPROVAL
The Plan will become effective on the date it is approved by
the shareholders of the Company holding a majority of the Company's voting
stock. Awards may be made as provided herein for a period of 10 years after such
date.
The Plan shall continue in effect until all matters relating
to the payment of Awards and administration of the Plan have been settled.
4. ADMINISTRATION
The Committee shall administer the Plan. The Committee shall
consist of at least two individuals who are members of the Board, and, to the
extent required to comply with Section 16(b) of the Act and/or Section 162(m) of
the Code, who are "disinterested persons," as such term is defined in the rules
and regulations issued under Section 16(b) and/or Section 162(m). A majority of
the Committee shall constitute a quorum. The acts of a majority of the members
present at any meeting at which a quorum is present and acts approved in writing
by a majority of the Committee in lieu of a meeting shall be deemed the acts of
the Committee. No member of the Committee, while serving as such, shall be
eligible to receive an Award under the Plan. Except as otherwise provided in the
Plan, the Committee shall have exclusive power, authority and discretion to:
a. Select Eligible Employees to participate in the Plan.
b. Determine the Awards to be made to each Eligible Employee
selected.
c. Determine the time or times when Awards will be made.
d. Determine the conditions (including the performance
requirements) to which the payment of Awards may be subject.
e. Prescribe the form or forms evidencing Awards.
f. Establish, adopt or revise such rules and regulations as it
may deem necessary or advisable for the administration of the Plan.
g. Make all determinations relating to the Plan.
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The Committee's interpretation of the Plan or any Awards
granted pursuant thereto and all decisions and determinations by the Committee
with respect to the Plan shall be final, binding, and conclusive on all parties.
5. SHARES SUBJECT TO THE PLAN
The Committee may, from time to time, grant Awards to one or
more Eligible Employees; provided, however, that:
(i) Subject to Section 13, the aggregate number of shares of
Stock made subject to Awards under this Plan may not exceed 1,000,000.
(ii) Shares shall be deemed to have been used in payment of
SARs and Performance Shares only if such shares are actually delivered
to the Holder.
(iii) To the extent that an Award lapses or the rights of its
Holder terminate, any shares of Stock subject to such Award shall again
be available for the grant of an Award, but only if the Holder has not
received any benefits of ownership from such shares prior to the time
of such lapse or termination. A Holder shall not be deemed to have
received benefits of ownership with respect to shares subject to an
Award merely because the Holder has voting rights with respect to such
shares or where dividends accumulate with respect to such shares if
such dividends are forfeited by the Holder when and if the underlying
shares of Stock are forfeited.
(iv) Stock delivered by the Company in settlement under the
Plan may be authorized and unissued Stock, Stock held in the treasury
of the Company, Stock purchased on the open market, or Stock purchased
by private purchase at prices no higher than the Fair Market Value as
defined in Section 2k at the time of purchase.
6. ELIGIBILITY
Officers and key employees of the Company and its Subsidiaries
who, in the opinion of the Committee, are mainly responsible for the continued
growth and development and financial success of the business of the Company or
one or more of its Subsidiaries shall be eligible to be granted Awards under the
Plan. Subject to the provisions of the Plan, the Committee shall, from time to
time, select from such eligible persons those to whom Awards shall be granted
and determine the size or amount of each such Award.
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7. STOCK OPTIONS
One or more Options can be granted to any Eligible Employee.
Each Option so granted shall be subject to the following conditions:
a. Option price. The option price per share of Stock shall be
set by the grant, provided that in the case of an Incentive Stock
Option, the option price per share may not be less than Fair Market
Value at the Date of Grant.
b. Form of payment. Upon the exercise of all or any part of an
Option, the option price shall be payable in full by check, in shares
of Stock owned by the Holder to the extent permitted by law, or in any
combination thereof at the election of the Holder. Payment of the
option price with shares of Stock owned by the Holder shall be made by
assigning and delivering such shares to the Company. The shares shall
be valued at Fair Market Value on the exercise date of the Option.
Except as otherwise provided by law or the terms of the Stock Option
Agreement, the option price may also be paid by the Holder directing
the Company to withhold from the shares of Stock that would otherwise
be issued upon exercise of the Option that number of shares having a
Fair Market Value on the exercise date equal to the option price. A
Holder who elects to exercise all or any part of his Option by
directing the Company to withhold shares subject to the exercised
Option shall notify the Company in writing of his intent to do so. A
Holder electing to pay the option price in such manner shall receive
the number of shares of Stock determined pursuant to the following
formula:
Number Number of Shares Fair Market Value Option
of = as to which the x on Exercise Date - Price
-------------------------
Shares Option is to be Fair Market Value
exercised on Exercise Date
c. Other terms and conditions. If the Holder has not died or
terminated, the Option shall become exercisable in such manner and
within such period or periods, not to exceed 10 years from its Date of
Grant, as set forth in the Stock Option Agreement upon payment in full,
in any manner permitted under Section 7b. Except as otherwise provided
in this Plan or in the applicable Stock Option Agreement, any Option
may be exercised in whole or in part at any time. An Option may lapse
under the following circumstances:
(i) Prior to the Holder's termination of employment
for any reason, the Option shall lapse ten (10) years after it
is granted, unless an earlier time is set
by the grant.
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(ii) If the Holder separates from employment other
than by Normal Termination, it shall lapse at the time of
Termination.
(iii) If the Holder's Termination is a Normal
Termination, it shall lapse three months after his Normal
Termination.
(iv) If the Holder dies within the option period or
within three months after Normal Termination, the Option shall
lapse unless it is exercised within the option period and in
no event later than 15 months after the date of the Holder's
death. Upon the Holder's death, any exercisable Options may be
exercised by the Holder's legal representative or
representatives, by the person or persons entitled to do so
under the Holder's last will and testament or, if the Holder
shall fail to make testamentary disposition of such Option or
shall die intestate, by the person or persons entitled to
receive said Option under the applicable laws of descent and
distribution.
d. Stock Option Agreement. Each Option granted under the Plan
shall be evidenced by a "Stock Option Agreement" between the Company
and the Holder of the Option containing such provisions as may be
determined by the Committee, subject to the following terms and
conditions.
(i) Any Option or portion thereof that is exercisable
shall be exercisable for the full amount or for any part
thereof, except as otherwise determined by the grant.
(ii) Every share purchased through the exercise of an
Option shall be paid for in full at the time of the exercise.
Each Option shall cease to be exercisable, as to any share,
when the Holder purchases the share or exercises a related SAR
or when the Option lapses.
(iii) Options shall not be transferable by the Holder
except by will or the laws of descent and distribution and
shall be exercisable during the Hold er's lifetime only by
him.
(iv) Notwithstanding any provision (other than
Section 7e), in the event of a public tender for all or any
portion of the Stock or in the event that a pro posal to
merge, consolidate, or otherwise combine with another company
is submitted for shareholder approval, the Committee may in
its sole discretion declare previously granted Options to be
immediately exercisable.
e. Individual dollar limitations. The aggregate Fair Market
Value (determined as of the time the Option is granted) of all shares
of Stock with respect to which Incentive Stock Options are first
exercisable by any Holder in any calendar year may not exceed $100,000.
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8. STOCK APPRECIATION RIGHTS
Any Option granted under the Plan may include a SAR, either at
the time of grant or by amendment. SARs may also be separately granted pursuant
to an Award. Such SARs shall be subject to such terms and conditions not
inconsistent with the Plan as the Committee shall impose, including the
following:
a. Right to exercise. A SAR issued pursuant to an Option shall
be exercisable to the extent the Option is exercisable and only with
the consent of the Committee. A SAR which is not issued pursuant to an
Option shall only be exercisable during the Award period specified in
the Stock rights agreement. Unless otherwise provided in the Stock
rights agreement, the Holder's right to exercise any outstanding SARs
shall terminate upon the Holder's termination of employment with the
Company and its Subsidiaries for any reason, including but not limited
to, resignation, discharge, death or disability.
b. Failure to exercise. If, on the last day of the option
period or specified Award period, the Fair Market Value of the Stock
exceeds the option price or SAR price determined at the time the Award
is granted, and the Holder has not exercised such SAR, such right shall
be deemed to have been exercised by the Holder on such last day.
c. Payment. An exercisable SAR granted pursuant to an Option
shall entitle the Holder to surrender unexercised the Option in which
it is included, or any portion thereof, and to receive in exchange
therefor an amount equal to the excess of the "value", as hereinafter
defined, of one share of Stock over the option price per share
multiplied by the number of shares subject to the Option or portion
thereof which is so surrendered. Upon exercise of a SAR not issued
pursuant to an Option, the Holder shall receive Stock and/or cash in an
amount equal to that number of shares of Stock having an aggregate
value equal to the excess of the value of one share of Stock over the
SAR price specified in the Stock rights agreement multiplied by the
number of SARs exercised. The Committee may, in its sole discretion,
elect to have the Company settle its obligation arising out of the
exercise of a SAR by the payment of cash, the delivery of shares of
Stock having an aggregate value equal to the amount of the Company's
obligation as determined pursuant to this Section 8c, or partially by
the payment of cash and partially by the delivery of shares. The
Committee shall also have the right to place such limitations and
restrictions on the Company's obligation to make such cash payments or
deliver shares under SARs as the Committee, in its sole discretion,
deems to be in the best interest of the Company. The term "value" as
applied to shares shall be Fair Market Value on the trading day next
preceding the date on which the SAR is exercised. To the extent that a
SAR included in an Option is exercised, such Option shall be deemed to
have been exercised, and shall not be deemed to have lapsed.
d. Other limitations. Such other limitations as the Committee
and/or the Stock Option Agreement or Stock rights agreement shall
impose.
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9. PERFORMANCE SHARES
Each Performance Share shall be deemed to be the equivalent of
one share of Stock. The Award of Performance Shares under the Plan shall not
entitle the Holder to any interest in or to any dividend, voting, or other
rights of a shareholder of the Company. Performance Shares shall be credited to
a Performance Share account to be maintained for each Holder. The value of the
Performance Shares in a Holder's Performance Share account at the time of Award
or the time of payment shall be an amount equal to the Fair Market Value at such
time of an equivalent number of shares of the Stock (subject to the limitation
provided in Section 9c).
a. Award grants. Performance Share Awards may be made by the
Committee, in its discretion, taking into account a Holder's
responsibility level, performance, potential, cash compensation level,
the Fair Market Value of the Stock at the time of the Awards, and such
other factors as it deems appropriate. Grants of Performance Shares
shall be deemed to have been on January 1 of the year in which such
grants are made.
The Committee shall not, over the term of the Plan, grant to
any single Holder as Performance Shares more than 30 percent of the
maximum number of shares of Stock which may be granted under Paragraph
5a. Awards cancelled or portions of Awards not paid out in full to any
single Holder shall not be included for purposes of applying this
limitation.
b. Right to payment of Performance Shares. Following the end
of the Award Period, the Holder of a Performance Share shall be
entitled to receive payment from his Performance Share account based on
the achievement or performance measures for such Award Period, as
determined by the Committee. The Committee shall have the right to
establish criteria for measuring executive performance prior to the
beginning of the Award Period but subject to such later revisions as
the Committee shall deem appropriate to reflect significant or
unforeseen events or changes.
In the event a Holder terminates employment during an Award Period,
payment of outstanding Performance Share Awards will be as follows:
(i) If the Holder resigns or is discharged, no
payment will be made and the Award will be completely
forfeited.
(ii) If the Holder retires pursuant to the Company or
Subsidiary retirement plan covering that Holder, the Holder
will be entitled to payment at the end of the Award Period in
an amount which bears the same relationship to the Award's
Fair Market Value upon the Valuation Date as the period of
service completed after the grant of the Award but prior to
the retirement bears to the Award Period.
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(iii) If the Holder dies or becomes disabled, the
Holder (or his designated beneficiary or the person entitled
to his Performance Shares under Section 12d) will be entitled
to payment at the end of the Award Period of a prorated amount
which is determined in the same manner as the amount payable
under Section 9b(ii).
c. Form and timing of payment. No payment of Performance
Shares shall be made prior to the end of an Award Period. Payment
therefor shall be made as soon as practicable after the receipt of
audited financial statements relating to the last year of such period.
The Committee may, in its discretion, limit the Company's payment
obligation for Performance Shares to the lesser of Fair Market Value at
the time of payment or an amount equal to not more than 200 percent of
the Fair Market Value at the time such Performance Shares were granted.
The payment to which a Holder shall be entitled at the end of
an Award Period shall be a dollar amount equal to the Fair Market Value
on the Valuation Date (or such lesser amounts as the Committee may
establish) of the number of shares of Stock equal to the number of
Performance Shares earned and payable to him in accordance with Section
9b. Payment shall normally be made 50 percent in cash and 50 percent in
Stock. The Committee, however, may authorize payment in such other
combinations of cash and Stock or all in cash or all in Stock, as it
deems appropriate.
The number of shares of Stock to be paid in lieu of cash will
be determined by dividing the portion of the payment not paid in cash
by:
(i) The Fair Market Value of Stock on the date on
which the shares are issued by the Company, or
(ii) The price per share paid for shares purchased
for a Holder's account should the Committee
determine, in its discretion, to authorize the
purchase of shares on behalf of the Holder on the
open market or through private purchase.
10. RESTRICTED STOCK AWARDS
a. Restriction period to be established by the Committee. At
the time a Restricted Stock Award is made, the Committee shall
establish a period of time (the "Restriction Period") applicable to
such Award, which shall not be less than three years. At the discretion
of the Committee, each Restricted Stock Award may have a different
Restriction Period. In the event of a public tender for all or any
portion of the Stock or in the event that any proposal to merge or
consolidate the Company with another company is submitted to the
shareholders for a vote, the Committee may in its sole discretion
change or eliminate the Restriction Period. Except as permitted above,
under Section 10c, or pursuant to Section 13, the Restriction Period
applicable to a particular Restricted Stock Award shall not be changed.
b. Other terms and conditions. Stock awards pursuant to a
Restricted Stock Award shall be represented by a stock certificate
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registered in the name of the Holder of such Restricted Stock Award.
The Holder shall have the right to enjoy all shareholder rights during
the Restriction Period with the exception that:
(i) The Holder shall not be entitled to delivery of
the stock certificate until the Restriction Period
has expired.
(ii) The Company may either issue shares subject to
such restrictive legends
and/or stop transfer instructions as it deems appropriate or
provide for retention of custody of the Stock during the
Restriction Period.
(iii) The Holder may not sell, transfer, pledge,
exchange, hypothecate, or otherwise dispose of the
Stock during the Restricted Period. (iv) A breach of
the terms and conditions established by the Committee
pursuant to the Restricted Stock Award shall cause a
forfeiture of the Restricted Stock Award, and any
dividends withheld thereon.
(v) Cash and Stock dividends may be either currently
paid or withheld by the Company for the Holder's
account. At the discretion of the Committee, interest
may be paid on the amount of cash dividends withheld,
including cash dividends on stock dividends, at a
rate and subject to such terms as shall be determined
by the Committee.
c. Forfeiture provisions. In the event a Holder terminates
employment during a Restriction Period, his right to a Restricted Stock
Award will be determined as follows:
(i) If the Holder resigns or is discharged, the Award
will be completely forfeited.
(ii) Except as otherwise provided in Section 10c(iv),
if the Holder retires, pursuant to the Company or
Subsidiary retirement plan covering that Holder, the
Holder will be vested in that portion of the Award as
bears the same relationship to the entire Award as
the period of service completed beginning on the date
the Award was made and ending on such retirement
bears to the Restriction Period.
(iii) Except as otherwise provided in Section
10c(iv), if the Holder dies or becomes disabled, the
Holder (or his designated beneficiary or the person
entitled to his Restricted Stock under Section 12d)
will be vested in a portion of the Award, with such
portion to be determined in the same manner as the
portion under Section 10c(ii).
(iv) Notwithstanding Section 10c(ii) and (iii), if
one or more of the restrictions placed on a
Restricted Stock Award by the Committee require an
action by the Holder or the occurrence of an event
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other than the passage of time, and the Holder
retires, dies or becomes disabled before such
restriction or restrictions have been satisfied, the
Holder shall not be vested in any portion of the
Award unless the Committee, in its sole and absolute
discretion, elects to waive satisfaction of such
restriction or restrictions as a condition of
receipt of all or any part of the Award.
Any portion of a Restricted Stock Award in which the Holder is vested
shall be received as soon as practicable following termination.
d. Payment for Restricted Stock. A Holder shall not be
required to make any payment for Stock received pursuant to a
Restricted Stock Award.
11. DIVIDEND EQUIVALENTS
Any Option granted under the Plan may include at no additional
cost Dividend Equivalents, either at the time of grant or by amendment. Dividend
Equivalents will be based on the dividends declared on the Stock on record dates
during the period between the date an Option is granted or the date the Dividend
Equivalents are granted, if later, and the date such Option is exercised. Such
Dividend Equivalents shall be converted to additional shares of the Stock as
follows:
Number of Dividend Number of Shares Dividend
Equivalent Shares = Under the Option x per Share
---------------- ---------
Book Value of Share
The Dividend Equivalents earned with respect to a Holder shall
be distributed to the Holder (or his successor in interest) in the form of
shares of the Stock at the time the Option is exercised. Dividend Equivalents
shall be computed, as of each dividend record date, both with respect to the
number of shares under the Option and with respect to the number of Dividend
Equivalent shares previously earned by the Holder (or his successor in interest)
and not issued during the period prior to the dividend record date. For purposes
of this Section 11, the book value of a share of the Stock shall be determined
in accordance with the Company's regular established accounting practices as of
the last business day of the month immediately preceding the dividend record
date.
12. GENERAL
a. Government and other regulations. The obligation of the
Company to make payment of Awards in Stock or otherwise shall be
subject to all applicable laws, rules, and regulations, and to such
approvals by government agencies as may be required. The Company shall
be under no obligation to register under the Securities Act of 1933, as
amended (the "1933 Act"), any of the shares of Stock paid under the
Plan. If the shares paid under the Plan may in certain circumstances be
exempt from registration under the 1933 Act, the Company may restrict
the transfer of such shares in such manner as it deems advisable to
ensure the availability of any such exemption.
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b. Tax withholding. The Company or a Subsidiary, as
appropriate, shall have the right to deduct from all Awards paid in
cash any federal, state or local taxes as required by law to be
withheld with respect to such cash payments and, in the case of Awards
paid in Stock, the Holder may be required to pay to the Company or a
Subsidiary, by check, in shares of Stock owned by the Holder to the
extent permitted by law, or in any combination thereof elected by the
Holder, the amount of any such taxes which the Company or Subsidiary is
required to withhold with respect to such Stock. Payment of taxes with
shares of Stock owned by the Holder shall be made by assigning and
delivering such shares to the Company. Such shares shall be valued at
Fair Market Value on the business day immediately preceding the date on
which such shares are assigned or delivered. Except as otherwise
provided by law or the terms of the governing Award agreement, any
taxes which are required to be withheld with respect to an Award paid
in Stock may also be paid by the Holder directing the Company to
withhold from the shares of Stock that would otherwise be issued
pursuant to the Award, that number of shares having a Fair Market Value
on the earlier of the date the Award is exercised or the date the Award
is paid (the "Applicable Date") equal to the taxes due. A Holder who
elects to pay any taxes due by directing the Company to withhold shares
subject to the Award shall notify the Company in writing of his intent
to do so. A Holder making such election shall receive the number of
shares of Stock determined pursuant to the following formula.
Number Number of Fair Market Value Taxes
of = Shares Subject x on Applicable Date - Due
-------------------------
Shares to Award Fair Market Value on
Applicable Date
c. Claim to Awards and employment rights. No employee or other
person shall have any claim or right to be granted an Award under the Plan.
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee any right to be retained in the employ of the Company or a
Subsidiary.
d. Beneficiaries. Except as otherwise provided in Section 7,
dealing with Options, or in the agreement evidencing an Award, any
payment of Awards due under this Plan to a deceased Holder shall be
paid to the beneficiary designated by the Holder and filed with the
Committee, provided that if the Holder is married, a designation of a
person other than the Holder's spouse as his beneficiary with respect
to more than 50 percent of the Holder's interest in the Award shall not
be effective without the written consent of the Holder's spouse. If no
such beneficiary has been designated or survives the Holder, payment
shall be made to the person entitled thereto under the Holder's will or
the laws of descent and distribution. Subject to the foregoing, a
beneficiary designation may be changed or revoked by a Holder at any
time provided the change or revocation is filed with the Committee.
e. Nontransferability. Subject to Sections 7d(iii) and 12d, a
person's rights and interests under the Plan, including amounts payable, may not
be assigned, pledged, or transferred, provided that a person's rights and
interests under the Plan may be assigned,
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pledged or transferred pursuant to a domestic relations order which satisfies
the requirements for a "qualified domestic relations order" set forth in Section
414(p)(1)(A) of the Code.
f. Indemnification. Each person who is or shall have been a
member of the Committee or of the Board shall be indemnified and held harmless
by the Company against and from any loss, cost, liability, or expense that may
be imposed upon or reasonably incurred by him in connection with or resulting
from any claim, action, suit, or proceeding to which he may be a party or in
which he may be involved by reason of any action or failure to act under the
Plan and against and from any and all amounts paid by him in satisfaction of
judgment in such action, suit, or proceeding against him. He shall give the
Company an opportunity, at its own expense, to handle and defend the same before
he undertakes to handle and defend it on his own behalf. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to
which such persons may be entitled under the Company's Articles of Incorporation
or By-Laws, as a matter of law, or otherwise, or any power that the Company may
have to indemnify them or hold them harmless.
g. Reliance on reports. Each member of the Committee and each
member of the Board shall be fully justified in relying or acting in good faith
upon any report made by the independent public accountants of the Company and
its Subsidiaries and upon any other information furnished in connection with the
Plan by any person or persons other than himself. In no event shall any person
who is or shall have been a member of the Committee or of the Board be liable
for any determination made or other action taken, including the furnishing of
information, or failure to act, if in good faith.
h. Relationship to other benefits. No payment under the Plan
shall be taken into account in determining any benefits under any pension,
retirement, savings, profit sharing, group insurance, welfare or other benefit
plan of the Company or any Subsidiary.
i. Expenses. The expenses of administering the Plan shall be
borne by the Company and its Subsidiaries.
j. Pronouns. Masculine pronouns and other words of masculine
gender shall refer to both men and women.
k. Titles and headings. The titles and headings of the
sections in the Plan are for convenience of reference only, and in the event of
any conflict, the text of the Plan, rather than such titles or headings, shall
control.
l. Fractional shares. No fractional shares of stock shall be
issued and the Committee shall determine, in its discretion, whether cash shall
be given in lieu of fractional shares or whether such fractional shares shall be
eliminated by rounding up or rounding down.
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13. CHANGES IN CAPITAL STRUCTURE
In the event a stock dividend is declared upon the Stock, the
shares of Stock then subject to each Award (and the number of shares subject
thereto) shall be increased proportionately without any change in the aggregate
purchase price therefor. In the event the Stock shall be changed into or
exchanged for a different number or class of shares of stock or stock of another
corporation, whether through reorganization, recapitalization, stock split-up,
combination of shares, merger or consolidation, there shall be substituted for
each such share of Stock then subject to each Award (and for each share of Stock
then subject thereto) the number and class of shares of Stock into which each
outstanding share of Stock shall be so exchanged, all without any change in the
aggregate purchase price for the shares then subject to each Award.
Subject to any required action by the stockholders, if the
Company shall be the surviving or resulting corporation in any merger or
consolidation, any Award granted hereunder shall pertain to and apply to the
securities or rights to which a holder of the number of shares of Stock subject
to the Award would have been entitled; but a dissolution or liquidation of the
Company or a merger or consolidation in which the Company is not the surviving
or resulting corporation, shall, in the sole discretion of the Committee:
(a) Cause every Award outstanding hereunder to terminate,
except that the surviving or resulting corporation, in its absolute and
uncontrolled discretion, may tender an option or options to purchase
its shares or exercise such rights on terms and conditions, as to the
number of shares and rights and otherwise, which shall substantially
preserve the rights and benefits of any Award then outstanding here
under; or
(b) Subject to the requirements of Section 7e, give each
Holder the right to exercise Options and/or other Awards prior to the
occurrence of the event otherwise terminating the Options and/or other
Awards over such period as the Committee, in its sole and absolute
discretion, shall determine.
14. AMENDMENTS AND TERMINATION
The Board may at any time terminate the Plan.
The Board may, at any time, or from time to time, amend or
suspend and, if suspended, reinstate, the Plan, in whole or in part, provided,
however, that the Board's authority hereunder shall be subject to such
restriction as may be required to comply with Section 16(b) of the Code and/or
Section 162(m) of the Code.
The Committee may cancel or reduce or otherwise alter a
Holder's outstanding Awards thereunder if, in its judgment, (a) such action is
necessary to comply with applicable securities laws, or (b) such action would be
in the best interests of the Company provided that it obtains the written
consent of the Holder.
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IN WITNESS WHEREOF, the Company has caused this Plan to be
executed by its duly authorized representative this 11th day of December, 1996.
TITAN MOTORCYCLE CO. OF AMERICA
By /s/ Frank Keery
-----------------------------
Its CEO
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EXHIBIT 10.1
Consent of Bruce L. Dibb, P.C.
Board of Directors
Titan Motorcycle Co. of America
Phoenix, Arizona
The undersigned hereby consents to the use of the name of the firm of
the undersigned and to the use of any opinion or any statement that the
undersigned has reviewed or passed upon any written information in the
Registration Statement. In giving this consent the undersigned is required under
any act, or under the Rules and Regulations of the Commission thereunder.
Sincerely,
/s/ Bruce L. Dibb P.C.
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EXHIBIT 10.2
CONSENT OF INDEPENDENT AUDITORS'
--------------------------------
Board of Directors
Titan Motorcycle Co. of America
Phoenix, Arizona
We consent to the use in this Registration Statement of Titan Motorcycle Co. of
America on Form 10-SB/A2, of our report dated March 12, 1998 of Titan Motorcycle
Co. of America for the years ended December 31, 1997 and 1996, which are part of
this Registration Statement, and to all references to our firm included in this
Registration Statement.
/s/ Jones, Jensen & Company
Jones, Jensen & Company
Salt Lake City, Utah
September 29, 1998
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