U. S. Securities and Exchange Commission
Washington, D. C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
BAD TOYS, INC.
(Name of Small Business Issuer in its charter)
Nevada 33-0677545
----------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
2344 Woodridge Avenue, Kingsport, TN 37664
------------------------------------------
(Address of principal executive offices)
423-247-9560
---------------------------
(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $0.01 par value
-----------------------------
(Title of Class)
<PAGE>
DESCRIPTION OF BUSINESS
Business Development
Bad Toys, Inc. (the "Company") was incorporated on April 21, 1995 in the
State of Nevada. Our initial operations were conducted in southern California
but were moved to Kingsport, Tennessee in 1996. We first had revenues from
operations in March, 1998.
Business of the Company
The Company
o manufactures for sale Harley-Davidson-type motorcycles from
component parts,
o rebuilds used Harleys for resale,
o maintains a customizing and motorcycle servicing operation and,
o special orders premium accessories, parts, customizing items and
apparel related to Harley-Davidson motorcycles.
Distribution Methods
--------------------
We propose to market our custom manufactured, V-Twin, HD-type motorcycles
on a national basis. We presently sell premium accessories, parts, customizing
items and apparel through our Kingsport, Tennessee, retail outlet. We project
revenue increases to come from expansion to locations in additional cities and
from sales through catalogs we propose to distribute nationally. Subject to
availability of capital, we forecast the opening of nine additional stores
during the first 60 months.
New Products and Services
-------------------------
Through 1998 our efforts were limited to opening our first manufacturing
and retail facility in Kingsport, Tennessee. The facility was opened for
business in March 1998 and is equipped to conduct the business described above
in "Business of the Company."
Subject to the availability of additional capital, we will manufacture
V-Twin, Harley-Davidson-type motorcycles from component parts in five basic
styles for sale:
<PAGE>
1. Traditional-classic
2. Pro Street
3. Outlaw Low Riders
4. Tour Glide package
5. Street Custom conversion
Options will include high performance Evo or Pan/Shovel engines,
transmissions and ignition systems. A choice of frames will be available for
softtail or rigid erection and wide glide or springer front ends. The customer
will have a wide variety of fenders and dress to choose from.
We will acquire and recondition used Harley-Davidson motorcycles for
resale. All resale bikes will be in like-new condition. This includes
o new tires, paint and chrome,
o polished aluminum and,
o excellent running condition.
We are not in the "used - as is" resale business.
We will offer a complete "ground-up," custom-design, special construction
motorcycle that incorporates all the customers' desires.
Bolt-on Custom Conversion.
--------------------------
We will emphasize bolt-on upgrades like billet grips, pegs, mirrors, chrome
bolts and custom seats. In addition to maintaining an extensive inventory of
high-demand upgrade parts, we will provide immediate installation service so
that the customer - you - can drive out on your new, improved bike.
Motorcycle Repair Service.
-------------------------
One of the highlights we propose is a high level of service excellence
coupled with quick turnaround. We intend to revolutionize the service segment of
this business by operating seven days a week, twenty-four hours a day. We will
maintain four service crews with four days on, twelve hours per day and four
days off. This scheduling technique will greatly enhance customer access, quick
turnaround and customer satisfaction plus provide us with the highest employee
morale.
<PAGE>
During our retail business hours, 8 am to 8 pm, the service department will
be dedicated to quick turnaround service: first priority - one hour or less, and
second priority - same day repairs, three hours or less.
The second shift service crew, 8 pm to 8 am, will be responsible for the
major repair jobs, custom work, assembly of our V-Twin products and
reconditioning of used Harley-Davidsons for resale.
Since our primary objective is customer service, the day shift service crew
should be fully staffed with six senior mechanics, three helpers and a service
manager. When variations in quick turnaround business occur, the staff on the
day shift will be assigned to second shift projects.
The second shift should be staffed on a flexible basis with a minimum crew
of a night service manager and three senior mechanics to a full crew with six
senior mechanics and three helpers. As business volume should increase, the
assembly of V-Twin HD-type bikes and ground up customs will be relocated to a
separate facility.
Retail Parts and Accessories.
------------------------------
The fixed displays in the showroom will premiere the high markup, bolt-on,
premium custom items in bullet aluminum or chrome. We believe this will elicit
maximum customer impulse purchasing. Product lines we maintain include Pro One,
Bay Area Custom, J. Brake, Arlen Ness and Performance Machine.
We believe we will have the only customer self-service station that
includes all available catalogs and parts books plus a user-friendly computer
terminal and screen. Via the computer, you will be able to easily locate the
desired part and print an express parts purchase order. You can then proceed to
the express service register to experience the quickest parts purchase in the
industry.
Advertising.
-----------
We propose to implement a consistent, high quality and effective
advertising program consisting of:
1. Newsletters: monthly or quarterly
2. Direct mail - motorcycle listings
3. Cycle magazines
4. Nontraditional magazines
5. Internet home page
<PAGE>
The newsletter will highlight new product introductions, repair or
maintenance subjects, after-market product evaluations, local and major national
events and periodic Company-advertised specials.
Direct mail will include an annual mailing of a high-quality brochure. The
brochure will market our custom-built motorcycle program, our mail order catalog
program and the availability of refurbished or new motorcycles for sale. By
specific request we will add an addressee to our newsletter mailing list.
Our monthly program will be a consistent premium-quality advertisement in
all high-circulation magazines for Harley-Davidson riders such as American Iron,
Hot Bike, etc. We plan one-half to full-page, two-color ads for custom
manufacture and catalog sales.
Bad Toys plans to commence a non-traditional advertising program in
magazines such as Newsweek, Time, Sports Illustrated, and the New Yorker. Thanks
to high-profile individuals such as Malcom Forbes and Arnold Schwarzenegger, the
demographics for Harley-Davidson riders now span every social economic group
from truck drivers to company presidents, doctors, lawyers and accountants.
Upper-middle class to the wealthy now comprise the largest group of Harley
riders.
Competition
-----------
Licensed Harley-Davidson dealerships generally offer for sale only new,
manufactured HD motorcycles. Dealerships generally do not maintain significant
inventories of used or custom-built motorcycles for resale to the riding public.
Individuals account for the majority of used motorcycle sales with the remainder
being provided by small, under-capitalized, sole-proprietor motorcycle shops.
Titan has commenced to use some of these shops as a distribution network for its
motorcycles, but Titan does not compete at Harley-Davidson prices.
The provision of special construction, custom-built motorcycles, HD type,
as we propose to do, is an emerging market. Only a few companies like Arlen
Ness, Ultra, CMC and Titan are adequately capitalized to offer this service.
This segment has been treated as an ancillary business and not as a primary
focus. There are currently few companies that are manufacturing custom-built
motorcycles for inventory for sale. Bad Toys proposes to maintain a ten to
fifteen, custom-built-motorcycle inventory at each location in addition to our
ground-up, custom-built, customer-selected program.
<PAGE>
Repair service is the most neglected segment in the motorcycle business.
Dealers provide the most significant competition in this arena, as they are
adequately capitalized, maintain a significant number of service bays, and have
large inventories of parts. Dealerships typically have the negative attributes
of limited hours for access - 8 am to 5 pm, closed Sundays - and no concept of
quick service turnaround. In essence, the traditional queuing system is the
foundation for all repair service; i.e., if the customer needs a three-hour seal
replacement, he can leave the bike for a month. Small shops exhibit the same
characteristics as the large dealerships, but service turnaround is further
exaggerated by limited inventories and no capital. In many instances the small
shop has to collect the money from the customer in advance to purchase the
necessary replacement parts; this, of course, extends the service turnaround
time.
Supplies
--------
We obtain our supplies from Harley-Davidson and other manufacturers of
motorcycle parts, such as Pro One, Bay Area Custom, J. Brake, Arlen Ness and
Performance Machine. These supplies are readily available.
Dependence on Major Customers
-----------------------------
We are not dependent on any major customers.
Patents, Trademarks and Licenses
--------------------------------
We own no patents or trademarks. We are not a licensed Harley Davison
dealer, as we do not sell new Harley Davidson motorcycles.
Government Approval and Regulations
-----------------------------------
We need no U.S. Department of Transportation approval to build special
construction motorcycles that are custom-made to a customer's order, to rebuild
motorcycles or to assemble a motorcycle from component parts that are available
in the open market. Our business is subject to no government regulations other
than those of OSHA, regulating safety in the workplace, and those of EPA,
regulating the disposal of oil, grease, and tires and the prevention of
pollution.
<PAGE>
Research and Development
------------------------
We have expended no funds during the last two years on research and
development.
Cost of Compliance with Environmental Laws
------------------------------------------
The expense of complying with environmental regulations is of minimal
consequence.
Employees
---------
We employ five persons, four persons full time and one person part time.
MANAGEMENT'S PLAN OF OPERATION
The Company's plan of operation for the next twelve months is to expand our
operations in Kingsport, Tennessee and to open a second facility from which to
conduct our business in Phoenix, Arizona.
The lessor of our Kingsport facility has agreed to add an additional 3,000
square feet to the facility during 1999. The lessor will bear all the costs of
this expansion but will charge additional rent once the expanded space is in
use.
We plan, subject to the availability of capital, to add approximately
$50,000 in inventory to the present approximately $140,000 in inventory in order
to offer a complete line of equipment, helmets and soft goods. We also plan to
add approximately $30,000 in plant equipment (benches, lifts, a milling machine
and a drill press) in order to eliminate the present practice of subcontracting
all our machine work.
We plan to open a second facility in Phoenix, Arizona in March 1999,
subject to the availability of capital. We plan for the facility $50,000 in shop
equipment and, depending upon available capital, between $50,000 and $300,000 in
inventory.
We believe our Tennessee facility will cash flow positively by March 1999
and that the planned Phoenix facility will cash flow positively within 90 days
after opening for business.
A shareholder, David Barrick of Phoenix, Arizona (Barrick Properties,
<PAGE>
LLC), has advanced funds to the Company for working capital and offers to
continue to advance working capital funds, as needed, during 1999. Should the
above plans be realized, we would add approximately fifteen employees to our
payroll.
PROPERTIES
The Company leases a retail and manufacturing operation at a single
facility in a specially designed 3,000-square-foot retail and service building.
The retail facility is at 2046 West Stone Drive, Kingsport, Tennessee 37660.
The facility is in a high traffic area with approximately 15,000 vehicles
passing by a day. The facility is easily accessible by freeway and should draw
customers from a 150-mile radius with a population of 3,000,000 people. The
property has ample parking and an outside area for weekend events and motorcycle
display.
The forward area of the showroom is for the display of company custom-built
and rebuilt Harleys for sale.
The facility showroom, when stocked with inventory, will emphasize
permanently affixed displays of products with secured inventory storage
compartments. This should provide an efficient use of display space, increased
security, efficient showroom stocking maintenance and enhanced inventory
control.
The showroom will be organized to allow for variation in location of
displays to accommodate customer traffic flow within the store and to heighten
interest.
The warehouse area of the facility has adequate space to stock and store
quantities of all items on display in the showroom in addition to numerous other
mechanical parts and items not displayed which are in daily demand.
The service and assembly area is large enough to house a staff of mechanics
and service personnel and is capable of accommodating the custom building and
rebuilding of motorcycles.
The lease on the facility expires in September 2002.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The table below sets forth, as of December 31, 1998, the number of shares
of Common Stock of the Company beneficially owned by each officer and director
of the Company, individually and as a group, and by each person known to the
<PAGE>
Company to be the beneficial owner of more than five percent of the Common
Stock.
<TABLE>
<CAPTION>
Number of
Shares of
Common Stock Percent
------------ -------
<S> <C> <C>
Larry N. Lunan 4,221,350(1) 79.6
Susan H. Lunan 3,435,125(2) 63.6
Roger A. Warren 40,000 0.8
Monte W. Barrick(3) 287,500 5.4
Officers and Directors 4,548,850 85.8
as a group (3 persons)
</TABLE>
-------------------------
(1) Includes 3,435,125 shares owned of record by Susan H. Lunan,
Mr. Lunan's spouse.
(2) These shares are also attributed to Mrs. Lunan's spouse, Larry
N. Lunan, but Mr. Lunan disavows any beneficial interest in
the shares.
(3) Mr. Barrick is attributed the shares held of record by Barrick
Properties, LLC, a company affiliated with him.
Changes in Control
There are no arrangements which may result in a change in control of the
Company.
DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSONS
The Company's directors, officers and significant employees occupying
executive officer positions, their ages as of January 10, 1999, the directors'
terms of office and the period each director has served are set forth in the
following table:
Director's
Director Term
Person Positions and Offices Since Expires
------ --------------------- ----- -------
Larry N. Lunan, 58 President, CEO and 1998 1999
Chairman of the Board
of Directors
<PAGE>
Roger A. Warren, 34 Vice President, CFO, 1995 1999
Secretary and Director
Monte W. Barrick, 28 Director 1996 1999
LARRY N. LUNAN.
--------------
Mr. Lunan founded Bad Toys, Inc. in March 1995 and had been involved in its
formation since July 1994. Mr. Lunan has been an active hobbyist since the
mid-1950s. Since 1982, Mr. Lunan has been active in development-stage companies
and capital formation for these entities. The most successful of these
enterprises was Callaway Golf which is currently traded on the New York Stock
Exchange. Most recently, Mr. Lunan has served as president, CEO and chairman of
the board of a Nevada corporation mining company. Mr. Lunan founded and has
served since 1982 as president of Fors Capital Corporation, a business
consulting firm. Fors Capital assists in the formation of development-stage
companies, and Mr. Lunan has held positions with start-up companies as CEO or
president. Mr. Lunan received a certified public accountant certificate in 1968
and was an accountant with Haskins & Sells from 1967 to 1971.
ROGER A. WARREN.
---------------
Mr. Warren is a C.P.A. for Stafford & Warren, LLP, a C.P.A. firm
specializing in small, start-up, and development-stage companies. Client
industries served include manufacturing enterprises, real estate, professional
service corporations, mining operations, and environmental clean-up. Mr. Warren
was an accountant with Arthur Young & Co. from 1986 to 1990 and received a
certified public accounting certificate in 1990.
MONTE W. BARRICK.
----------------
Mr. Barrick is president and chief financial officer of Barrick Properties
LLC. The company is based in Phoenix, Arizona, and is a closely held (family
owned) investment holding company. Barrick Properties, LLC was formed in 1976.
Its investments have included mining companies, energy production companies (oil
and gas), equine syndications and holdings in the banking industry and auto
dealerships (Ford and Chevrolet). Most recently the company has been
specializing in properties for destination resort and gaming activities. Prior
to joining Barrick Properties, LLC, Mr. Barrick was employed in the vitamin and
health food industry in positions in finance, production and distribution. Mr.
Barrick is a recent motorcycle enthusiast with a background in off-road racing
specializing in ATV sports.
EXECUTIVE COMPENSATION
<PAGE>
Set forth below is the aggregate compensation during fiscal years 1996,
1997 and 1998 of the chief executive officer of the Company. During the period,
no executive officer of the Company received compensation that exceeded
$100,000.
<TABLE>
<CAPTION>
Fiscal Annual Compensation
Name Year Salary Bonus
<S> <C> <C> <C>
Larry N. Lunan, 1998 $50,000 $35,000
President
1997 $27,000 -
1996 $27,000 -
</TABLE>
During the last three fiscal years, no executive officer of the Company
other than its president, Larry N. Lunan, has been granted stock options, stock
appreciation rights, or stock in exchange for services. The Company has no
long-term incentive plan intended to serve as incentive for performance to occur
over a period longer than one fiscal year.
Directors of the Company receive no compensation for their services as
directors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There were no transactions during the last two fiscal years, and there are
no proposed transactions, that involve amounts in excess of $60,000 to which the
Company was or is to be a party in which any director, executive officer,
beneficial owner of more than five percent of the Company's Common Stock, or
members of their immediate families had, or is to have, a direct or indirect
material interest, other than the following:
D.W. Barrick of Phoenix, Arizona is the father of Monte W. Barrick, a
director of the Company. During the last two years, D.W. Barrick has loaned an
aggregate of $38,094 to the Company, for working capital, at an annual interest
rate of 10.5 percent. The loans are convertible into common Stock of the Company
at a conversion price of $.50. Interest payments on the notes were paid in the
amount of $551 on December 30, 1997 and $1,525 on December 1, 1998.
D.W. Barrick has made a continued offer to advance needed working capital
to the Company during 1999 on the same terms.
<PAGE>
DESCRIPTION OF SECURITIES
The Company is authorized to issue ten million shares of Common Stock
($0.01 par value). The presently outstanding shares of Common Stock are fully
paid and nonassessable.
Common Stock
Voting Rights.
--------------
Holders of shares of Common Stock have one vote a share on all matters
submitted to a vote of the shareholders. Shares of Common Stock do not have
cumulative voting rights, which means that the holders of a majority of the
shareholder votes eligible to vote and voting for the election of the board of
directors can elect all members of the board of directors.
Dividend Rights.
---------------
Holders of record of shares of Common Stock receive dividends when and if
declared by the board of directors out of funds of the Company legally available
therefor.
Liquidation Rights.
------------------
Upon any liquidation, dissolution or winding up of the Company, holders of
shares of Common Stock receive pro rata all of the assets of the Company
available for distribution to shareholders after distributions are made to the
holders of the Company's Preferred Stock.
Preemptive Rights.
------------------
Holders of Common Stock do not have any preemptive rights to subscribe for
or to purchase any stock, obligations or other securities of the Company.
Registrar and Transfer Agent.
----------------------------
The Company's registrar and transfer agent is Nevada Agency and Trust
Company, 50 West Liberty Street, Suite 880, Reno, Nevada 87501.
Dissenters' Rights.
------------------
Under current Nevada law, a shareholder is afforded dissenters' rights
which, if properly exercised, may require the Company to purchase his shares.
Dissenters' rights commonly arise in extraordinary transactions such as mergers,
consolidations, reorganizations, substantial asset sales, liquidating
distributions, and certain amendments to the Company's Certificate of
Incorporation.
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
<PAGE>
There is no public trading market for the Company's Common Stock. We have
applied for OTC Bulletin Board quotation rights, and we expect our Common Stock
to be quoted by April 1999.
On December 31, 1998 there were 5,3550,000 shares of Common Stock
outstanding. An additional 1,107,520 shares of Common Stock are subject to
outstanding options to purchase, or securities convertible into, such shares of
stock.
On December 31, 1998, some 1,042,625 shares of our outstanding shares of
Common Stock could be sold pursuant to Rule 144 under the Securities Act of
1933.
During the period from September 14, 1998 through the day prior to the
effective date of this Form 10-SB, we offered 1,000,000 shares of our Common
Stock to the public in several states pursuant to the exemption from
registration provided by Regulation D, Rule 504 of the Securities and Exchange
Commission. As of January 31, 1999, 99,930 of these shares had been sold.
Holders
As of January 31, 1999 there were approximately 74 holders of record of our
Common Stock.
Dividends
We have paid no dividends to our stockholders and do not plan to pay
dividends on our Common Stock in the foreseeable future. We currently intend to
retain any earnings to finance future growth.
LEGAL PROCEEDINGS
Neither the Company nor our property is a party to any pending legal
proceeding or any known proceeding that a governmental authority is
contemplating.
RECENT SALES OF UNREGISTERED SECURITIES
During the period from January 1, 1996 through March 13, 1998 the Company
sold 310,400 shares of our Common Stock in an offering exempt from registration
pursuant to the provisions of Regulation D, Rule 506 of the Securities and
Exchange Commission. No underwriters were used to effect the sales. All sales
were made in exchange for services rendered to the Company, except that one sale
was made in exchange for prepaid rent of the Company's leased facilities. The
<PAGE>
names of the persons who exchanged their services or prepaid rent for shares of
stock, the dates the shares were exchanged for services or prepaid rent, the
number of shares issued and the value of the shares on the dates of the
exchanges are set forth below:
<TABLE>
<CAPTION>
No. of
Shares Value of
Person Date Issued Shares
------ ---- ------ ------
<S> <C> <C> <C>
Barrick Properties, LLC 05-31-96 37,500 $ 7,500
Wesley Culbertson 05-31-96 10,000 2,000
Stanley Carlson 12-31-96 1,000 200
Frank Eckles 12-31-96 1,000 200
Donald M. Harper 12-31-96 20,000 4,000
Clinton L. and Sheila K.
Hubbard 12-31-96 4,000 800
Susan H. Lunan 12-31-96 1,500 300
Mario W. Mainero, Inc. 12-31-96 10,000 2,000
Gary C. and Andrea W.
Andes 12-31-97 62,400 31,200(1)
Susan H. Lunan 12-31-97 90,000 45,000
Larry Lunan 03-13-98 10,000 5,000
Steve Snyder 03-13-98 54,000 27,000
-------------------------
</TABLE>
(1) Five years' prepaid rent.
All of the above persons had a preexisting relationship with the Company
and our president, Larry N. Lunan. Some of the persons are employees of the
Company. Susan H. Lunan is the spouse of Larry N. Lunan. The Andes are the
lessors of our facilities. Barrick Properties, LLC. is under the ownership and
control of David Barrick, a longtime friend of Larry N. Lunan and the lender of
much of the working capital of the Company. Mr. Barrick's outstanding loans to
the Company are convertible, at his option, into Common Stock of the Company at
a conversion price of $.50 a share.
<PAGE>
During the period from September 14, 1998 until the day before the
effective date of this Form 10-SB, the Company conducted a public offering of
1,000,000 shares of its Common Stock at $1.00 a share pursuant to the exemption
from registration provided by Regulation D, Rule 504. As of February 22, 1999,
some 105,930 of the offered shares had been sold. The offering was made only in
states where no state registration of the securities was required.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Nevada corporation law, a corporation is authorized to indemnify
officers, directors, employees and agents who are made or threatened to be made
parties to any civil, criminal, administrative or investigative suit or
proceeding by reason of the fact that they are or were a director, officer,
employee or agent of the corporation or are or were acting in the same capacity
for another entity at the request of the corporation. Such indemnification
includes expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such persons if they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation or, with respect to any criminal action or
proceeding, if they had no reasonable cause to believe their conduct was
unlawful. In the case of any action or suit by or in the right of the
corporation against such persons, the corporation is authorized to provide
similar indemnification, provided that, should any such persons be adjudged to
be liable for negligence or misconduct in the performance of duties to the
corporation, the court conducting the proceeding must determine that such
persons are nevertheless fairly and reasonably entitled to indemnification. To
the extent any such persons are successful on the merits in defense of any such
action, suit or proceeding, Nevada law provides that they shall be indemnified
against reasonable expenses, including attorney fees. A corporation is
authorized to advance anticipated expenses for such suits or proceedings upon an
undertaking by the person to whom such advance is made to repay such advances if
it is ultimately determined that such person is not entitled to be indemnified
by the corporation. Indemnification and payment of expenses provided by Nevada
law are not deemed exclusive of any other rights by which an officer, director,
employee or agent may seek indemnification or payment of expenses or may be
entitled to under any by-law, agreement, or vote of shareholders or
disinterested directors. In such regard, a Nevada corporation is empowered to,
and may, purchase and maintain liability insurance on behalf of any person who
<PAGE>
is or was a director, officer, employee or agent of the corporation. As a result
of such corporation law, the Company may, at some future time, be legally
obligated to pay judgments (including amounts paid in settlement) and expenses
in regard to civil or criminal suits or proceedings brought against one or more
of its officers, directors, employees or agents.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, 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 of
1933 and is, therefore, unenforceable.
<PAGE>
FINANCIAL STATEMENTS
There appears below the following financial statements of the Company:
Independent accountant's report . . . . . . . . . . . . . . . 18
Balance Sheets for the Years Ended
December 31, 1998 and December 31, 1997. . . . . . . . . . . 19
Statements of Income and Retained Earnings
for the Years Ended December 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . .. . . 20
Statements of Cash Flows for the Years Ended
December 31, 1997 and December 31, 1998 . . . . . . . . .. . 21
Statements of Changes in Stockholders' Equity
for the Years Ending in December 31, 1998 and
December 31, 1997 . . . . . . . . . . . . . . . .. . . . . . 23
Notes to Financial Statements, December 31, 1998
and December 31, 1997 . . . . . . . . . . . . . . . . . . . 24
<PAGE>
Todd Nimms
Certified Public Accountant
7900 East Greenway, Suite 102
Scottsdale, Arizona 85260
(602) 922-9293
To the Board of Directors
Bad Toys, Inc.
Kingsport, Tennessee
I have audited the accompanying balance sheets of Bad Toys, Inc., (a development
stage company) as of December 31,1998 and December 31, 1997, and the related
statements of income, retained earnings, and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on these financial statements based
on my audits.
I conducted my audits in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain a reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Bad Toys, Inc. as of December 31,
1998 and December 31, 1997, and the results of operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note H to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency, which raise substantial doubt about its
ability to continue as a going concern. Management's plans regarding those
matters also are described in Note H. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ Todd Nims, C.P.A.
February 7, 1999
<PAGE>
<TABLE>
<CAPTION>
Bad Toys, Inc.
(A Development Stage Company)
Balance Sheets
December 31, 1998 & December 31, 1997
Assets 12/31/98 12/31/97
- - ------ --------- ---------
<S> <C> <C>
Cash & Cash Equivalents $ 1,757 476
Accounts Receivable 1,097 0
Inventory (Note B) 180,160 79,950
Prepaid Expenses 23,543 29,850
--------- ---------
Total Current Assets 206,557 110,276
--------- ---------
Property, Plat & Equipment,
net of accumulated
depreciation (Note C) 70,954 26,958
Organization Costs, net of
accumulated amortization 27,146 43,634
Syndication Costs 14,400 13,300
Utility Deposits 280 280
--------- ---------
Total Assets 319,337 194,448
========= =========
Liabilities & Shareholders' Equity
- - ----------------------------------
Accounts Payable & Accrued Liabilities 57,499 9,644
Current Portion of Long Term Debt 8,459 0
--------- ---------
Total Current Liabilities 65,958 9,644
--------- ---------
Notes Payable - Long Term 26,994 0
Notes Payable - Shareholders (Note F) 216,176 78,213
--------- ---------
Total Liabilities 309,128 87,857
--------- ---------
Common Stock 53,550 52,360
Additional Paid in Capital 249,332 164,840
Deficit Accumulated During the
Development Stage (292,673) (110,609)
--------- ---------
Total Liabilities & Shareholders' Equity 319,337 194,448
========= =========
</TABLE>
See accountant's report and notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Income & Retained Earnings
December 31, 1998 & December 31, 1997
12/31/98 12/31/97
---------- ----------
<S> <C>
Sales 77,451 -
Cost of Sales 80,885 -
---------- ---------
Gross Profit (3,434) -
---------- ---------
General & Administrative Expenses 158,371 42,681
---------- ---------
Income (Loss) from operations before
interest expense (161,805) (42,681)
Interest Expense 20,259 551
---------- ---------
Net (Loss) (182,064) (43,232)
---------- ---------
Beginning Retained Earnings\
(Accumulated Deficit) (110,609) (67,377)
---------- ---------
Ending Retained Earnings\
(Accumulated Deficit) (292,673) (110,609)
========== =========
Net Earnings/(Loss) Per Common Share (.03) ( .01)
---------- ---------
</TABLE>
See accountant's report and notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows
December 31, 1998 & December 31, 1997
12/31/98 12/31/97
---------- ----------
Cash flow from operating activities:
<S> <C> <C>
Cash received from customers $ 76,354 0
Cash paid to suppliers and employees (220,835) (20,673)
Interest paid (18,851) (551)
Other Operating Disbursements (50,489) 0
Depreciation & Amortization 6,543 0
---------- ----------
Net cash provided (used)
by operating activities (207,278) (20,122)
Cash flow from investing activities:
Cash payments for the purchase
of property (50,539) 0
---------- ----------
Net cash provided (used)
by investing activities (50,539) 0
Cash flow from financing activities:
Proceeds from issuance of
long-term debt 59,886 3,789
Proceeds from equipment loans 17,126 0
Proceeds From Additional Paid
in Capital 84,492 16,700
Proceeds From Shareholder Debt 216,176 0
Proceeds From Issuance of Common Stock 1,190 0
---------- ----------
Net cash provided (used) by financing
activities 259,098 20,489
---------- ----------
Net increase (decrease) in cash
and equivalents 1,281 367
Cash and equivalents, beginning of year 476 109
---------- ----------
Cash and equivalents, end of year $ 1,757 $ 476
========== ==========
Supplemental disclosures of cash
flow information:
Cash paid during year for:
Interest expense 873 0
</TABLE>
See accountant's report and notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Bad Toys, Inc.
(A Development Stage Company)
Statements of Cash Flows
December 31, 1998 & December 31, 1997
12/31/98 12/31/97
---------- ----------
Reconciliation of net income to net cash
provided by operating activities
<S> <C> <C>
Net Income\(Loss) $ (182,065) $ (43,232)
---------- ----------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 23,032 16,488
(Increase) decrease in accounts
receivable (1,097) 0
(Increase) decrease in subscriptions
receivable 0 41,000
(Increase) decrease in prepaid expenses 6,307 (29,850)
(Increase) decrease in inventories (100,210) (28,987)
(Increase) decrease in fixed assets 0 25,502
(Increase) decrease in syndication costs 0 (800)
Increase (decrease) in accounts payable 27,801 (263)
Increase (decrease) in accrued liabilities 18,646 0
Increase (decrease) in interest payable 1,408 20
(Increase) decrease in other assets (1,100) 0
---------- ----------
Total Adjustments (25,213) 23,110
---------- ----------
Net cash provided (used) by
operating activities $ (207,278) $ (20,122)
========== ==========
</TABLE>
See accountant's report and notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
Bad Toy's, Inc.
Statement of Changes in Stockholders' Equity
For the Years Ending December 31, 1998 & 1997
Additional
Common Paid In Retained
Stock Capital Earnings
----- ------- --------
<S> <C> <C> <C>
Balance, December 31, 1996 50,836 90,164 (67,377)
Issuance of 152,400 shares
of Common Stock 1,524 74,676
Net Loss (43,232)
------ -------- --------
Balance, December 31, 1997 52,360 164,840 (110,609)
Issuance of 119,000 shares
of Common Stock 1,190 84,492
Net Loss (182,064)
------ -------- --------
Balance, December 31, 1998 53,550 249,332 (292,673)
====== ======== =========
</TABLE>
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies of Bad Toys, Inc. (the Company)
is presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management
who is responsible for their integrity and objectivity. These accounting
policies conform to generally accepted accounting principles and have been
consistently applied in the preparation of the financial statements.
Nature of Operations
--------------------
The Company was organized and incorporated on April 21, 1995 and began business
on April 1, 1998. The company operates a custom motorcycle manufacturing and
service facility in Kingsport, TN. The Company offers retail parts and product
sales as well as motorcycle service to its customers seven days a week. Although
principally located in Kingsport, TN, the Company's customers are located
primarily throughout the United States.
Inventories
-----------
The Company's inventories are stated at the lower of standard cost (which
approximates average cost) or market.
Property and Equipment
----------------------
Property and equipment are carried at cost. For financial statement and federal
income tax purposes, depreciation is computed using the modified accelerated
cost recovery system. Expenditures for major renewals and betterments that
extend the useful lives of property and equipment are capitalized. Expenditures
for maintenance and repairs are charged to expense as incurred. Depreciation of
property and equipment is provided using rates based on the following useful
lives:
Years
Machinery and equipment 3 - 10
Furniture and fixtures 3 - 10
Leasehold Improvements 20 - 30
Depreciation expense for the year ended December 31, 1998 is $6,544.
<PAGE>
Organization Costs
------------------
Costs of organizing the Company are recorded as organization costs and amortized
over five years on a straight-line basis.
Concentrations of Credit Risk
-----------------------------
The Company is engaged in the manufacture and servicing of highly custom
motorcycles.
The sales revenues are primarily derived from an area encompassing a two hundred
mile radius of Kingsport Tennessee. The company performs credit evaluations of
customers in the rare cases where credit is granted, and generally requires no
collateral from its customers.
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE B - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of the following:
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Work in Process $ 82,862 $63,731
Finished goods 97,298 16,219
------ ------
$180,160 $79,950
</TABLE>
Inventories are stated at the lower of standard cost (which approximates average
cost) or market.
NOTE C - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Property and equipment are summarized by major classifications as follows:
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Vehicles $20,328 $ -
Equipment 10,042 2,140
Furniture and Fixtures 2,082 1,203
Leasehold Improvements 45,045 23,615
77,497 26,958
Less accumulated depreciation ( 6,543) ( - )
------- -------
$70,954 $26,958
======= =======
</TABLE>
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE D - LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following:
Dec. 31, 1998 Dec. 31, 1997
------------- -------------
<S> <C> <C>
Bank note payable $629.04 per month plus
interest accrued at 9.75%, secured by vehicle. $ 5,425 -
Bank note payable $285.60 per month plus
interest accrued at 9.5%, secured by vehicle. 5,503 -
Unsecured Notes payable to individuals,
corporations, and limited liability companies,
with interest at 10-10.5%, due at renewal cycle,
or at payoff dates ranging from 6-18 months,
convertible to common stock under varying
terms ranging from $1.25 to 1/2 of the weighted
average issuance price of all shares issued. 24,525 -
Unsecured Notes payable to stockholders
due Sept. 30, 2000 with interest at 10.5%,
convertible to common stock under varying
terms ranging from $1.25 to 1/2 of the weighted
average issuance price of all shares issued. 216,176 78,213
------- ------
251,629 78,213
Less current portion (8,459) ( -)
-----
Long-term Debt $ 243,170 $ 78,213
======= ======
</TABLE>
Maturities of long-term debt are as follows:
Year Ending
December 31, Amount
1999 $ 8,459
2000 243,170
-------
$251,629
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 1998 & December 31, 1997
NOTE E - INCOME TAXES
Operating Loss Carry-forwards
-----------------------------
The Company has loss carry-forwards totaling $144,154 that may be offset against
future taxable income. If not used, the carry-forwards will expire as follows:
<TABLE>
<CAPTION>
Operating
Losses
---------
<S> <C>
Year 11 $ 849
Year 12 15,001
Year 13 43,093
Year 14 85,211
-------
$ 144,154
=========
</TABLE>
NOTE F - RELATED PARTY TRANSACTIONS
The following transactions occurred between the Company and affiliated entities:
1. Notes payable to related parties as of December 31, 1998 and December 31,
1997, consisted of the following:
<TABLE>
<CAPTION>
Dec 31, 1998 Dec. 31, 1997
------------ -------------
<S> <C> <C>
Notes payable to Larry & Susan Lunan due
Sept. 30, 2000 with interest at 10.5%. $178,082 $70,213
Notes payable to Barrick Properties, LLC, with
interest at 10-10.5%, with annual renewal options. 38,094 8,000
------- ------
$216,176 $78,213
======= ======
</TABLE>
2. The Company leases its facilities from a minority stockholder as described in
Note G below.
<PAGE>
Bad Toys, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31,1998 & December 31, 1997
NOTE G - LEASING ARRANGEMENTS
The Company conducts its operations from facilities that are leased under a
five-year non-cancelable operating lease expiring in September, 2002. There is
no option to renew the lease. The lessor of the facility is a stockholder of the
Company. Lessor has received shares of stock as prepaid rent for the term of the
lease. Monthly rent is $1,420, which includes monthly-prepaid rent expensed of
$520.
<TABLE>
<CAPTION>
The following is a schedule of future minimum rental payments required under the
above operating lease (excluding prepaid rent expensed) as of December 31, 1998:
Year Ending
December 31, Amount
------------ -------
<S> <C>
1999 $10,800
2000 10,800
2001 10,800
2002 8,100
-------
$40,500
</TABLE>
Rental expense for the nine months ended December 31, 1998 and the year ended
December 31, 1997 were $ 20,040 and $ 8,680, respectively.
NOTE H - OPERATING AND CASH FLOW DEFICITS
The Company has experienced significant adversity during the development stage
of its existence. As a result, the Company has a cumulative operating deficit of
$290,192, and current liabilities, including the current portion of long term
debt, exceeds cash and current receivables by $71,551 at December 31, 1998.
Management is anticipating a large capital inflow from a planned initial public
offering scheduled for April 1999. While the proposed capital injection as well
as potential conversions of long term debt to common stock, do project to
improve the Company's working capital position, there can be no assurance that
the Company will be successful in accomplishing its objectives.
<PAGE>
EXHIBITS
Index to Exhibits
Exhibit No. Description
3 - Articles of Incorporation of Bad Toys, Inc.
3.1 - Bylaws of Bad Toys, Inc.
4 - Convertible promissory note dated January 5,
1999 issued by the Company to Barrick
Properties, Inc., which note is representative
of other convertible promissory notes
issued by the Company.
10 - Kingsport, Tennessee facility lease between the
Company and Gary C. and Andrea W. Andes
10.1 - Stock option agreement between the Company and
its president, Larry N. Lunan
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
BAD TOYS, INC.
Date: February 22, 1999 By /s/ Larry N. Lunan
---------------------------------
Larry N. Lunan, President
Date: February 22, 1999 /s/ Roger A. Warren
-----------------------------------
Roger A. Warren, Chief Financial
Officer, Vice President and
Director
Date: February 22, 1999 /s/ Larry N. Lunan
-----------------------------------
Larry N. Lunan, President and
Director
Date: February 22, 1999 /s/ Monte W. Barrick
-----------------------------------
Monte W. Barrick, Director
SECRETARY OF STATE
[SEAL]
STATE OF NEVADA
CORPORATE CHARTER
I, DEAN HELLER, Secretary of State of the State of Nevada, do hereby certify
that BAD TOYS, INC. did on the TWENTY-FIRST day of APRIL, 1995 file in this
office the original Articles of Incorporation; that said Articles are now on
file and of record in the office of the Secretary of State of the State of
Nevada, and further, that said Articles contain all the provisions required by
the law of said State of Nevada.
IN WITNESS WHEREOF, I have
hereunto set my hand and
affixed the Great Seal of
State, at my office, in
Carson City, Nevada, this
TWENTY-FIRST day of APRIL,
1995.
/s/ Dean Heller
Secretary of State
By /s/ Kari Rhodes
Certification Clerk
[SEAL]
Exhibit 3
Page 1 of 4 Pages
<PAGE>
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
APR 21 1995
No 6668-95
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
ARTICLES OF INCORPORATION
OF
BAD TOYS, INC.
FIRST: The name of the corporation is Bad Toys, Inc.
SECOND: Its registered office in the State of Nevada is located at 510
South Eighth Street, Las Vegas, Nevada 89101. The name of its resident agent at
that address is Dean Kajioka, Esq.
THIRD: The total number of shares which the corporation is authorized
to issue is Ten Million Shares (10,000,000), each of such shares shall have a
par value of One Cent ($0.01).
FOURTH: The governing board of this corporation shall be known as
directors and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the bylaws of this corporation.
The names and addresses of the first board of directors, which shall be
three (3) in number, are as follows:
NAME ADDRESS
---- -------
Larry N. Lunan 1501 Anita Lane
Newport Beach, CA 92660
Roger Warren 1520 Nutmeg Place #207
Costa Mesa, CA 92626
Jay Berger 26691 Plaza Drive, Suite 140
Mission Viejo, CA 92691
FIFTH: The name and address of each of the incorporators
signing the articles of incorporation are as follows:
NAME ADDRESS
R. C. Mindlin 818 West Seventh Street
Los Angeles, CA 90017
SIXTH: The purpose of this corporation is to engage in any
lawful act or activity for which a corporation may be organized
under the General Corporation Law of Nevada.
SEVENTH: To the fullest extent permitted by Chapter 78 of the
Nevada Revised Statutes as the same exists or may hereafter be
Exhibit 3
Page 2 of 4 Pages
<PAGE>
amended, an officer or director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary damages due to breach
of fiduciary duty as such officer or director.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for
the purpose of forming a corporation pursuant to the General Corporation Law of
the State of Nevada, do make and file these articles of incorporation, hereby
declaring and certifying that the facts herein stated are true, and accordingly
have hereunto set our hand this 21st day of April, 1995.
/s/ R. C. Mindlin
--------------------------------
R. C. Mindlin, Sole Incorporator
Exhibit 3
Page 3 of 4 Pages
<PAGE>
STATE OF )
) SS.
COUNTY OF )
On this 21st day of April 1995, before me, James R. Nelson, a Notary
Public, personally appeared R. C. Mindlin, personally known to me to be the
person whose name is subscribed to the within instrument and acknowledged to me
that she executed the same in her authorized capacity, and that by her signature
on the instrument the person, or the entity upon behalf of which the person
acted, executed this instrument.
WITNESS my hand and official seal.
[Notarial Seal]
/s/ James R. Nelson
-------------------------------
Notary Public
CERTIFICATE OF ACCEPTANCE OF APPOINTMENT
BY RESIDENT AGENT
I, Dean Kajioka, Esq., hereby accept the appointment as Resident Agent
of the above named corporation.
/s/ Dean Kajioka
---------------------
Resident Agent
By: Dean Kajioka, Esq. Date: 3/31/95
Exhibit 3
Page 4 of 4 Pages
BYLAWS
OF
BAD TOYS, INC.
ARTICLE I
OFFICES
-------
SECTION 1. REGISTERED OFFICE. The registered office of
the corporation shall be established and maintained at 502 East
John Street, Carson City, Nevada 89706.
SECTION 2. OTHER OFFICES. The corporation may have other
offices, either within or without the State of Nevada, at such place or places
as the Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
SECTION 1. ANNUAL MEETINGS. Annual meetings of stockholders
for the election of directors and for such other business as may be stated in
the notice of the meeting, shall be held at such place, either within or without
the State of Nevada, and at such time and date as the Board of Directors, by
resolution, shall determine and as set forth in the notice of the meeting. In
the event the Board of Directors fails to so determine the time, date and place
of meeting, the annual meeting of stockholders shall be held at the principal
office of the corporation in Tennessee on the last day of December of each year
at 11 a.m., local time.
Exhibit 3.1
Page 1 of 17 Pages
<PAGE>
If the date of the annual meeting shall fall upon a legal
holiday, the meeting shall be held on the next succeeding business day. At each
annual meeting, the stockholders entitled to vote shall elect a Board of
Directors and they may transact such other corporate business as shall be stated
in the notice of the meeting.
SECTION 2. OTHER MEETINGS. Meetings of stockholders for any
purpose other than the election of directors may be held at such time and place
as shall be stated in the notice of the meeting.
SECTION 3. VOTING. Each stockholder entitled to vote in
accordance with the terms of the Certificate of Incorporation and in accordance
with the provisions of these Bylaws shall be entitled to one vote, in person or
by proxy, for each share of stock entitled to vote held by such stockholder, but
no proxy shall be voted after three years from its date unless such proxy
provides for a longer period. Upon the demand of any stockholder, the vote for
directors and the vote upon any question before the meeting, shall be by ballot.
All elections for directors shall be decided by plurality vote of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors; and all other questions shall be decided by the
affirmative vote of the majority of shares present in person or represented by
proxy at the meeting and entitled to vote on the
Exhibit 3.1
Page 2 of 17 Pages
<PAGE>
subject matter, except as otherwise provided by the Certificate of Incorporation
or the laws of the State of Nevada.
A complete list of the stockholders entitled to vote at the
ensuing election, arranged in alphabetical order, with the address of each, and
the number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 4. QUORUM. Except as otherwise required by law, by
the Certificate of Incorporation or by these Bylaws, the presence, in person or
by proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting until the requisite amount of stock entitled to vote
shall be present. At
Exhibit 3.1
Page 3 of 17 Pages
<PAGE>
any such adjourned meeting at which the requisite amount of stock entitled to
vote shall be represented, any business may be transacted which might have been
transacted at the meeting as originally noticed; but only those stockholders
entitled to vote at the meeting as originally noticed shall be entitled to vote
at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. Special meetings of the
stockholders for any purpose or purposes may be called by the President or
Secretary, or by resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. Written notice, stating the
place, date and time of the meeting, and the general nature of the business to
be considered, shall be given to each stockholder entitled to vote thereat at
his address as it appears on the records of the corporation, not less than ten
(10) nor more than sixty (60) days before the date of the meeting. No business
other than that stated in the notice shall be transacted at any meeting without
the unanimous consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. Unless otherwise provided
by the Certificate of Incorporation, any action required to be taken at any
annual or special meeting of stockholders, or any action which may be taken at
any annual or special meeting, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken,
Exhibit 3.1
Page 4 of 17 Pages
<PAGE>
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
---------
SECTION 1. NUMBER AND TERM. The number of directors shall be
one or more. The directors shall be elected at the annual meeting of the
stockholders and each director shall be elected to serve until his or her
successor shall be elected and shall qualify. Directors need not be
stockholders.
SECTION 2. RESIGNATIONS. Any director, member of a committee
or other office may resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. If the office of any director, member
of a committee or other officer becomes vacant, the remaining directors in
office, though less than a quorum by a majority vote, may appoint any qualified
person to fill such
Exhibit 3.1
Page 5 of 17 Pages
<PAGE>
vacancy, who shall hold office for the unexpired term and until his successor
shall be duly chosen.
SECTION 4. REMOVAL. Any director or directors may be removed
either for or without cause at any time by the affirmative vote of the holders
of a majority of all the shares of stock outstanding and entitled to vote, at a
special meeting of the stockholders called for the purpose and the vacancies
thus created may be filled, at the meeting held for the purpose of removal, by
the affirmative vote of a majority in interest of the stockholders entitled to
vote.
SECTION 5. INCREASE OF NUMBER. The number of directors may be
increased by amendment of these Bylaws by the affirmative vote of a majority
vote of a majority in interest of the stockholders, at the annual meeting or at
a special meeting called for that purpose, and by like vote the additional
directors may be chosen at such meeting to hold office until the next annual
election and until their successors are elected and qualify.
SECTION 6. POWERS. The Board of Directors shall exercise all
of the powers of the corporation except such as are by law, or by the
Certificate of Incorporation of the corporation or by these Bylaws conferred
upon or reserved to the stockholders.
SECTION 7. COMMITTEES. The Board of Directors may, by
resolution or resolutions passed by a majority of the whole board, designate one
or more committees, each committee to consist of one
Exhibit 3.1
Page 6 of 17 Pages
<PAGE>
or more of the directors of the corporation. Any such committee, to the extent
provided in the resolution of the Board of Directors, or in these Bylaws, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the corporation, and may authorize
the seal of the corporation to be affixed to all papers which may require it;
but no such committee shall have the power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the Bylaws of the corporation; and, unless the
resolution, these Bylaws or the Certificate of Incorporation expressly so
provide, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock.
SECTION 8. ANNUAL MEETINGS. The annual meeting of the Board
may be held at such time and place as shall be fixed by a vote of the
shareholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order to legally constitute such
meeting.
SECTION 9. REGULAR MEETINGS. Regular meetings of the
directors may be held without notice at such places and times as
Exhibit 3.1
Page 7 of 17 Pages
<PAGE>
shall be determined from time to time by resolution of the directors.
SECTION 10. SPECIAL MEETINGS. Special meetings of the board
may be called by the President or by the Secretary on the written request of any
two (2) directors on at least two (2) days' notice to each director and shall be
held at such place or places as may be determined by the directors, or as shall
be stated in the call of the meeting.
SECTION 11. QUORUM. A majority of the directors shall
constitute a quorum for the transaction of business. If at any meeting of the
board there shall be less than a quorum present, a majority of those present may
adjourn the meeting from time to time until a quorum is obtained, and no further
notice thereof need be given other than by announcement at the meeting which
shall be so adjourned.
SECTION 12. COMPENSATION. Directors shall not receive any
stated salary for their services as directors or as members of committees, but
by resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 13. ACTION WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors,
Exhibit 3.1
Page 8 of 17 Pages
<PAGE>
or of any committee thereof, may be taken without a meeting, if prior to such
action a written consent thereto is signed by all members of the board, or of
such committee as the case may be, and such written consent is filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
--------
SECTION 1. OFFICERS. The officers of the corporation shall be
a President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one (1)
or more Vice Presidents and such Assistant Secretaries and Assistant Treasurers
as they may deem proper. None of the officers of the corporation need be
directors. The officers shall be elected at the first meeting of the Board of
Directors after each annual meeting. More than two (2) offices may be held by
the same person.
SECTION 2. OTHER OFFICERS AND AGENTS. The Board of Directors
may appoint such other officers and agents as it may deem advisable, who shall
hold their offices for such terms and shall exercise such powers and perform
such duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. The Chairman of the Board of Directors,
if one be elected, shall preside at all meetings of the
Exhibit 3.1
Page 9 of 17 Pages
<PAGE>
Board of Directors and he shall have and perform such other duties as from time
to time may be assigned to him by the Board of Directors.
SECTION 4. PRESIDENT. The President shall be the chief
executive officer of the corporation and shall have the general powers and
duties of supervision and management usually vested in the office of President
of a corporation. He shall preside at all meetings of the stockholders if
present thereat, and in the absence or non-election of the Chairman of the Board
of Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or an Assistant Secretary.
SECTION 5. VICE PRESIDENT. Each Vice President shall have
such powers and shall perform such duties as shall be assigned to him by the
directors.
SECTION 6. TREASURER. The Treasurer shall have the custody
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the corporation. He
shall deposit all monies and
Exhibit 3.1
Page 10 of 17 Pages
<PAGE>
other valuables in the name and to the credit of the corporation in such
depositories as may be designated by the Board of Directors.
SECTION 7. SECRETARY. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these Bylaws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these Bylaws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or the President. He shall
have custody of the seal of the corporation and shall affix the same to all
instruments requiring it, when authorized by the directors or the President, and
attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.
Assistant Treasurers and Assistant Secretaries, if any, shall be elected and
shall have such powers and shall perform such duties as shall be assigned to
them, respectively, by the directors.
SECTION 9. SALARIES. The salaries of all officers of the
corporation shall be fixed by the Board of Directors.
Exhibit 3.1
Page 11 of 17 Pages
<PAGE>
SECTION 10. REMOVAL. Any officer elected or appointed by the
Board of Directors may be removed from office, with or without cause, at any
time by the affirmative vote of a majority of the directors present at any
meeting of the Board at which a quorum is present.
ARTICLE V
MISCELLANEOUS
-------------
SECTION 1. CERTIFICATES OF STOCK. Certificates of stock,
signed by the President or Vice President, and the Treasurer or an Assistant
Treasurer, or Secretary or an Assistant Secretary, shall be issued to each
stockholder certifying the number of shares owned by him in the corporation. Any
of or all the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. A new certificate of stock may
be issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
Exhibit 3.1
Page 12 of 17 Pages
<PAGE>
SECTION 3. TRANSFER OF SHARES. The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made for
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. In order that the
corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof, or to express consent to
corporation action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action. A determination of stockholders of record entitled to
notice of or to vote at a meeting of stockholders shall apply to
Exhibit 3.1
Page 13 of 17 Pages
<PAGE>
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 5. REGISTERED STOCKHOLDERS. The corporation shall be
entitled to treat the holder of record of any share or shares as the holder in
fact thereof, and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such share on the part of any other person,
whether or not it shall have express or other notice thereof, except as may be
otherwise expressly provided by the laws of Nevada.
SECTION 6. DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation, the Board of Directors may, out of funds legally
available therefor at any regular or special meeting, declare dividends upon the
capital stock of the corporation as and when they deem expedient. Before
declaring any dividend there may be set apart out of any funds of the
corporation available for dividends, such sum or sums as the directors from or
as a reserve fund to meet contingencies or for equalizing dividends or for such
other purposes as the directors shall deem conducive to the interests of the
corporation.
SECTION 7. SEAL. The corporate seal shall be circular in form
and shall contain the name of the corporation and the words "CORPORATE SEAL."
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Exhibit 3.1
Page 14 of 17 Pages
<PAGE>
SECTION 8. FISCAL YEAR. The fiscal year of the corporation
shall be determined by resolution of the Board of Directors.
SECTION 9. CHECKS. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 10. NOTICE. Whenever any notice is required by these
Bylaws to be given, personal notice is not meant unless expressly so stated, and
any notice so required shall be deemed to be sufficient if given by depositing
the same in the United States mail, postage prepaid, addressed to the person
entitled thereto at his address as it appears on the records of the corporation,
and such notice shall be deemed to have been given on the day of such mailing.
Stockholders not entitled to vote shall not be entitled to receive notice of any
meetings except as otherwise provided by Statute.
SECTION 11. WAIVER OF NOTICE. Whenever any notice whatever
is required to be given under the provisions of any law, or under the provisions
of the Certificate of Incorporation of the corporation or these Bylaws, a waiver
thereof in writing, signed by
Exhibit 3.1
Page 15 of 17 Pages
<PAGE>
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
INDEMNIFICATION OF OFFICERS, DIRECTORS,
---------------------------------------
EMPLOYEES AND AGENTS
--------------------
To the extent and in the manner permitted by the laws of the
State of Nevada, and specifically as is permitted under Section 1031 of the
Nevada General Corporation Act, the corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, other than an action by or in the right of the corporation, by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement.
ARTICLE VII
AMENDMENTS
----------
These Bylaws may be altered or repealed and Bylaws may be made
at any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or Bylaw or Bylaws to be made be
contained in the notice of such
Exhibit 3.1
Page 16 of 17 Pages
<PAGE>
special meeting, by the affirmative vote of a majority of the stock issued and
outstanding and entitled to vote thereat, or by the affirmative vote of a
majority of the Board of Directors, at any regular meeting of the Board of
Directors, or at any special meeting of the Board of Directors, if notice of the
proposed alteration or repeal, or Bylaw or Bylaws to be made, be contained in
the notice of such special meeting.
DATED: April 21, 1995
Exhibit 3.1
Page 17 of 17 Pages
PROMISSORY NOTE
$1,015.00 January 5, 1999
Loan #5027
FOR VALUE RECEIVED, the undersigned, BAD TOYS, INC. ("Borrower"), a
Nevada corporation having a notice address of 2344 Woodridge Avenue, Kingsport,
TN 37664, promises to pay to the order of BARRICK PROPERTIES, INC., or assigns
("Lender"), without grace at the office of the Lender at 4336 East Beck Lane,
Phoenix, Arizona 85032, or at such other place as the Lender may designate to
Borrower in writing from time to time, the principal sum of ONE THOUSAND FIFTEEN
DOLLARS AND NO CENTS $1,015.00 together with interest outstanding and unpaid, at
the rate of nine and seventy-five hundredths (9.75%)per annum. Such indebtedness
shall be payable in lawful money of the United States of America, which shall at
the time of payment be legal tender in payment of all debts and dues, public and
private; such principal and interest to be paid in the following manner, to-wit:
All principal and accrued interest shall be due and payable on June 5,
1999.
This Note may be made prepaid at any time and from time to time without
premium or penalty. Any partial prepayments shall not affect the due dates of
the scheduled payment due thereafter. All payments shall be applied first in
payment of accrued interest and the remainder shall be applied in the reduction
of principal.
At any time a principle payment is made, Lender shall have the option
to purchase shares of stock of BAD TOYS, INC., at $1.25 per share, or an amount
equal to (1/2) one-half of the original offering price, in lieu of principle
payment. In addition Lender may opt to convert all or part of the principle of
the Note for shares of stock at an amount equal to $1.25 per share or an amount
equal to (1/2) one-half of the original offering price, at any time throughout
the term or the Note.
It is hereby expressly agreed that should any default be made in the
payment as stipulated above of either principal or interest or should any
default be made in the performance of any of the covenants or conditions
contained in any document concerning or given as security for the indebtedness
evidenced hereby, then the principal of this obligation or any unpaid part
thereof and all unpaid interest accrued thereon shall, at the option of the
Lender, at once become due and payable and may be collected forthwith,
regardless of the stipulated date of maturity.
Interest shall accrue on the outstanding principal balance of this Note
from the date of any default thereunder (so long as such default continues),
regardless of whether or not there has been an acceleration of the payment of
principal as set forth herein, at the highest rate allowed in the
Exhibit 4
Page 1 of 2 Pages
<PAGE>
State of Arizona which would not be usurious.
Presentment for payment, demand, protest and notice of demand, protest
and payment are hereby waived by the Borrower. Failure to accelerate the debt
evidenced hereby by reason of default in the payment of a monthly installment,
or the acceptance of past due installment, shall not be construed as a novation
of this Note or a waiver of the right of Lender to thereafter insist upon strict
compliance with the terms of this Note. This Note may not be changed orally, but
only by an agreement in writing signed by the party against whom enforcement of
any waiver, change, modification or discharge is sought. If this Note is signed
by more than one individual or entity, such signatories shall be jointly and
severally liable.
The Note is intended to constitute a contract under and shall be
governed by the laws of the State of Arizona. Time is of the essence of this
Note. In the event this Note, or any part thereof, is collected by or through an
attorney, whether suit is filed or not, the Borrower agrees to pay all
attorney's fees and all costs and expenses incurred by Lender to the extent then
permitted by applicable law.
BORROWER HEREBY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF, IN CONNECTION WITH, OR RELATED TO
THIS NOTE, THE INDEBTEDNESS HEREUNDER, ANY AGREEMENT, ANY AGREEMENT OR
INSTRUMENT SECURING THIS NOTE OR THE RELATIONSHIP OF BORROWER AND LENDER AS
BORROWER AND LENDER.
Should any provision or term hereof be or become in violation of any
law, rule of regulation, whether local, state or federal, such provision shall
be deemed automatically amended to conform, to the extent possible without total
waiver of such provision, to such law, and all other provisions hereof shall
remain in full force and effect. As used herein, the terms "Borrower" and
"Lender" shall be deemed to include their respective heirs, successors, legal
representatives and assigns, whether voluntary by action of the parties or
involuntary by operation of law.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
the date first above written.
BAD TOYS, INC. BARRICK PROPERTIES, INC.
By: /s/ Larry N. Lunan By: /s/ Don Barrick CEO
--------------------------- ----------------------
Larry N. Lunan (Borrower) (Lender)
Exhibit 4
Page 2 of 2 Pages
THIS LEASE, made and entered into this the 5th day of August, 1997, by
and between GARY C. ANDES and wife, ANDREA W. ANDES, hereafter referred to as
Lessor, and BAD TOYS, INC., hereafter referred to as Lessee:
WITNESSETH:
THAT FOR AND IN CONSIDERATION of the mutual covenants contained herein,
the Parties agree as follows:
1. Lessor does hereby lease and demise unto Lessee the following
property in the Twelfth (12th) Civil District of Sullivan County, Tennessee, and
being more particularly described as follows:
BEING 2046 W. stone Drive, Kingsport, Sullivan County,
Tennessee.
2. Lessor demises the above premises for a term of five (5) years,
commencing August 1, 1997, and terminating on July 31, 2002, at 12 o'clock noon,
or sooner as provided here, payable in equal monthly installments in advance on
the first day of each month in the amount of $900.00 each, with the fist payment
being September 1, 1997.
All rental payments shall be made to Lessor or such other place as the
Lessor may designate in writing. Lessee shall pay the rent at the time and place
specified without deduction, set-off, notice or demand. Lessee expressly waives
any and all requirements for written notice for nonpayment of rent.
Exhibit 10
Page 1 of 12 Pages
<PAGE>
3. Lessor agrees to pay the state, county and municipal property taxes
and insurance on the building and improvements on the demised premises,
including all alterations and additions, against loss or damages by fire during
the term of this lease.
4. No substantial portion of the building shall be demolished or removed by
Lessee, and if necessary, Lessee may at any time during the lease term, at its
own expense, make any alteration, additions or improvements in and to the
demised premises and the building.
Alterations shall be performed in a workmanlike manner and shall not
weaken or impair the structural strength, or lessen the value, of the building
on the premises, or change the purpose for which the building, or any part
thereof, may be used.
Any alterations, additions and improvements must be approved by Lessor
prior to the beginning of any work.
All alterations, additions and improvements on or in the demised
premises at the commencement of the term, and that may be created or installed
during the term, shall become part of the demised premises and the sole property
of Lessor, except that all movable trade fixtures installed by Lessee shall be
and remain the property of Lessee.
5. Lessee shall, at all times during the lease and at its own cost and
expense, repair, replace, and maintain in a good, safe and substantial
condition, the demised premises and any
Exhibit 10
Page 2 of 12 Pages
<PAGE>
improvements, additions and alterations thereto, and shall use all reasonable
precaution to prevent waste, damage or injury to the demised premises.
6. Lessee shall be responsible for the payment and procurement of telephone
and utility services for the demised premises, and all telephone and utility
services on the demised premises shall be made in the name of Lessee only, and
Lessee shall be solely liable for said telephone and utility charges as they
become due.
7. Lessee shall secure and maintain in force at its expense during the term
of this lease and any extension thereof public liability insurance with insurers
and through brokers approved by Lessor. Such coverage shall be in an amount
adequate to protect against liability occurring in or around the leased
premises, but not to be less than Five Hundred Thousand Dollars ($500,000).
Lessee shall provide and keep in force other insurance in amounts that may from
time to time be required by Lessor against other insurable hazards as are
commonly insured against for the type of business activity that Lessee will
conduct. Lessee shall be responsible at its own cost and expense for any and all
insurance for equipment and other personal property on the premises.
8. The Parties shall be bound by all existing casements, agreements and
encumbrances now or hereafter of record relating to
Exhibit 10
Page 3 of 12 Pages
<PAGE>
the demised premises, if any, and Lessor shall not be liable to Lessee for any
damage resulting from any action taken by a holder of an interest pursuant to
the rights of that holder thereunder.
Except as stated herein Lessor covenants and warrants that Lessee shall
have and enjoy full, quiet and peaceful possession of the demised premises
during the term of this lease and any extensions and renewals thereof.
9. If at any time the premises become totally untenantable by reason of
damage or loss by fire or other casualty, which has not been caused by the
wrongful act of Lessee, the rent shall abate until the premises have been
restored to a tenantable condition. If the premises are so damaged, but not to
the extent that they are totally untenantable, Lessee shall continue to occupy
the same or the tenantable portion thereof, and the rent shall abate
proportionately in the rate that the usable portion bears to the entire
premises. In the event of a loss, fire or other casualty, Lessor shall have an
election not to rebuild or recondition the premises, which election may be
exercised by written notice to Lessee given within 60 days from the date of such
loss. If Lessor exercised its election, this lease shall cease and be
terminated, effective on the date of such loss, and Lessee shall pay the accrued
rent up to the date of such loss, or the Lessor, if the rent has been paid
beyond such date, will refund to Lessee that portion or part of such rent
prepaid, and
Exhibit 10
Page 4 of 12 Pages
<PAGE>
thereafter this lease shall become null and void with no further obligation on
the part of either party.
10. A condemnation of the entire building occupied by Lessee shall result
in a termination of this lease agreement. Lessor shall receive the total of any
consequential damages awarded as a result of condemnation proceedings. All
future rent installments to be paid by Lessee under this lease shall be
terminated in such event. If only a portion, but not less than 25%, of the
improved premises are taken by condemnation, Lessee may terminate this lease at
its option.
Lessee shall not be entitled to participate in or receive any part of
the damages or award which may be paid to or award to Lessor by reason of taking
under this paragraph, except where said award shall provide for moving or other
reimbursable expenses for Lessee under applicable statute. Provided, however, so
long as the condemnation award to Lessor shall not be reduced, the rights of the
Lessor as set forth herein shall in no way prejudice or interfere with any claim
which Lessee may have against the authority exercising the power of eminent
domain for damages or otherwise for the taking of destruction of, or
interference with, the leasehold investment and/or the interest of Lessee in the
leased premises.
11. Lessee waives all claims against Lessor for damages to goods, or for
injuries to persons on or about the premises from any cause arising at any time.
Lessee will indemnify Lessor on
Exhibit 10
Page 5 of 12 Pages
<PAGE>
account of any damage or injury to any person, or to the goods of any person,
arising from the use of the premises by Lessee, or arising from failure of
Lessee to keep the premises in good condition as provided herein. Lessor shall
not be liable to Lessee for any damage by or from any act or negligence of any
owner or occupant of adjoining or contiguous property. Lessee agrees to pay for
all damages to the building, as well as all damage or injury suffered by tenants
or occupants thereof caused by misuse or neglect of the premises by Lessee.
12. Lessee will use and occupy the demised premises for lawful purposes
only, and will comply with any and all laws, ordinances, orders and regulations
of any governmental authority which are applicable to the use of the demised
premises.
Lessee shall be responsible at its own expense for obtaining any
license required for said purposes, and Lessee shall further be liable for any
and all taxes connected with said business.
13. Lessee shall not use or permit the premises, or any part thereof, to be
used for any purposes other those set forth herein. Lessee shall neither permit
on the premises any act, sale, or storage that may be prohibited under standard
forms of fire insurance policies, nor use the premises for any such purposes.
14. Lessee shall have the right to sublease, assign, underlet or grant the
permissive use of the leased premises or any
Exhibit 10
Page 6 of 12 Pages
<PAGE>
part thereof with the prior written consent of the Lessor on the express
condition that the Lessee shall remain primarily responsible to Lessor for the
performance of all covenants and conditions of this lease. In no event shall any
sublease, assignee or tenant be considered whose overall use of the demised
premises would be detrimental. Consent as herein requires shall not be
unreasonably withheld.
15. If Lessee shall at any time be in default in payment of the rent herein
reserved or in the performance of any of the covenants, terms or conditions of
the lease, or if Lessee shall be adjudged a bankrupt, or shall make an
assignment for the benefit of creditors, or if a receiver of any property of the
Lessee in or upon said premises be appointed in any action, suit or proceeding
by or against it, or if the interest of the Lessee in said premises shall be
sold under execution or under legal process, Lessor shall have right to declare
the lease or any renewal thereof forfeited, shall have the right to re-enter
said premises, demand for same being waived, and repossess and enjoy the same,
and thereupon this lease and everything herein contained on the part of the
Lessor to be done and performed shall cease and determine, without prejudice,
however, to the right of Lessor to recover from the Lessee all rent due up to
the time of such entry, and for the remainder of the term except to the extent
that Lessor may collect rent from others to whom said space may be rented
Exhibit 10
Page 7 of 12 Pages
<PAGE>
during the remainder of the term at the highest rent obtainable and may recover
from the Lessee all rent due up to the time of such entry, and for the remainder
of the term, except to the extent that Lessor may collect rent from others whom
said space may be rented during the remainder of such term.
Lessee shall not vacate or abandon the premises at any time during the
term, but if Lessee does vacate or abandon the premises or is dispossessed by
process of law, any personal property left on the premises shall be deemed
abandoned at the option of Lessor and shall become the property of Lessor.
16. If Lessor is compelled to incur any expenses, including reasonable
attorney fees, in instituting and prosecuting any action or proceeding by reason
of any default of Lessee hereunder the sum or sums so paid by Lessor with all
interest, cost and damages shall be deemed to be additional rent hereunder and
shall be due from Lessee to Lessor following the incurring of such respective
expenses.
17. Lessee shall permit Lessor, his agents and other employees, to have
access to and to enter the leased premises at all reasonable and necessary times
to inspect the premises for any purposes connected with the repair, improvement,
care and management of the premises or for any other purpose reasonably
connected with Lessor's interest in the premises and to perform any work or
other act found necessary on such inspection.
Exhibit 10
Page 8 of 12 Pages
<PAGE>
18. Lessee shall immediately quit and surrender possession of the demised
premises or any improvements thereon to Lessor at the termination of this lease,
by expiration of lease term or otherwise, in as good condition as reasonable use
and wear will permit, damage by fire and other elements excepted. Lessee shall
return the keys to the demised premises to Lessor at the place stipulated herein
for the payment of rent. Lessee shall pay as liquidated damages for the whole
time the possession is not surrendered as required herein a sum equal to twice
the amount of the rent herein reserved, prorated and averaged per day of any
withholding. The provisions of this clause and acceptance of any liquidated
damages by Lessor shall not constitute a waiver by Lessor or any right of
re-entry as herein set forth, nor shall any other act in apparent affirmance of
the tenancy operate as a waiver of the right to terminate this lease or operate
as an extension hereof.
19. Time is of the essence in all provisions of this lease, and all
covenants, terms, provisions and conditions contained herein shall enure to the
benefit of and be binding upon the heirs, representatives, successors and
assigns of the Parties hereto.
IN WITNESS WHEREOF, this agreement has been executed by the Lessor and
Lessee, in duplicate original, this day and date first above written.
Exhibit 10
Page 9 of 12 Pages
<PAGE>
LESSOR:
/s/ Gary C. Andes
- - -------------------
GARY C. ANDES
/s/ Andrea W. Andes
- - -------------------
ANDREA W. ANDES
LESSEE:
BAD TOYS, INC.
By /s/ Susan H. Lunan
-----------------------
SUSAN LUNAN, President
/s/ Larry N. Lunan
- - --------------------------
LARRY LUNAN, individually
/s/ Susan H. Lunan
- - --------------------------
SUSAN LUNAN, individually
Exhibit 10
Page 10 of 12 Pages
<PAGE>
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Personally appeared before me, the undersigned authority, a Notary
Public in and for the State and County aforesaid, GARY C. ANDES and wife, ANDREA
W. ANDES, the within named bargainors, with whom I am personally acquainted, or
proved to me on the basis of satisfactory evidence, and who acknowledged that
they executed the foregoing instrument for the purposes therein contained.
WITNESS my hand and official seal, this 4th day of September, 1997.
[Seal]
/s/ Emily S. Neeley
---------------------------
NOTARY PUBLIC
My commission expires:
11-1-97
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Personally appeared before me, the undersigned authority, a Notary
Public in and for the State and County aforesaid, LARRY LUNAN and wife, SUSAN
LUNAN, the within named bargainors, with whom I am personally acquainted, or
proved to me on the basis of satisfactory evidence, and who acknowledged that
they executed the foregoing instrument for the purposes therein contained.
WITNESS my hand and official seal, this 2nd day of September, 1997.
[Seal]
/s/ Melissa A. Casel
---------------------------
NOTARY PUBLIC
My commission expires:
10-14-00
STATE OF TENNESSEE
COUNTY OF SULLIVAN
Personally appeared before me, the undersigned authority, a Notary
Public in and for the State and County aforesaid, SUSAN LUNAN, with whom I am
personally acquainted, or proved to me on the basis of satisfactory evidence,
and who, upon oath,
Exhibit 10
Page 11 of 12 Pages
<PAGE>
acknowledged herself to be the President of BAD TOYS, INC., the within named
bargainor, a corporation, and that she as such President, being authorized so to
do, executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by herself as President.
WITNESS my hand an official seal, this 2nd day of September, 1997.
[Seal]
/s/ Melissa A. Casel
---------------------------
NOTARY PUBLIC
My commission expires:
10-14-00
Exhibit 10
Page 12 of 12 Pages
BAD TOYS, INC.
1999 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Option Plan
are to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentive to Employees and
Consultants of the Company and its Subsidiaries and to promote the success of
the Company's business. Options granted under this Plan may be incentive stock
options (as defined under Section 422 of the Code) or nonqualified stock
options, as determined by the Option Committee at the time of grant of an option
and subject to the applicable provisions of Section 422 of the Code, as amended,
and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
2.1 "Option Committee" means the Board or any of its
committees, as applicable, that is administering the Plan pursuant to Section 4
of the Plan.
2.2 "Board" means the Board of Directors of the Company.
2.3 "Code" means the Internal Revenue Code of 1986, as
amended.
2.4 "Company" means BAD TOYS, INC., a Texas corporation.
2.5 "Consultant" means any consultant or advisor to the
Company or any Parent or Subsidiary and any director of the Company whether
compensated for such services or not, but not including any Employee.
2.6 "Continuous Status as an Employee" means the absence of
any interruption or termination of the employment relationship by the Company or
any Subsidiary. Continuous Status as an Employee shall not be considered
interrupted in the case of: (i) any leave of absence approved by the Board,
including sick leave, military leave, or any other personal leave; provided,
however, that for purposes of Incentive Stock Options, such leave is for a
period of not more than 90 days, unless reemployment upon the expiration of such
leave is guaranteed by contract or statute, or unless provided otherwise
pursuant to Company policy adopted from time to time; or
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(ii) in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or its successors.
2.7 "Employee" means any person, including officers and
directors, employed by the Company or any Parent or Subsidiary of the Company.
The payment of a director's fee by the Company shall not be sufficient to
constitute "employment" by the Company.
2.8 "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
2.9 "Fair Market Value" means, as of any date, the value of
Stock determined as follows:
2.9.1 If the Stock is listed on any established
stock exchange or a national market system including without limitation the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("Nasdaq") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported, as quoted on such system or exchange or the exchange with the greatest
volume of trading in Stock for the last market trading day prior to the time of
determination) as reported in the Wall Street Journal or such other source as
the Option Committee deems reliable;
2.9.2 If the Stock is quoted on Nasdaq SmallCap
(but not on the National Market System) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high and low asked prices for the Stock; or
2.9.3 In the absence of an established market for
the Stock, the Fair Market Value thereof shall be determined in good faith by
the Option Committee.
2.10 "Incentive Stock Option" means an Option intended to
qualify as an incentive stock option within the meaning of Section 422 of the
Code.
2.11 "Nonqualified Stock Option" means an Option not intended
to qualify as an Incentive Stock Option.
2.12 "Option" means a stock option granted pursuant to
the Plan.
2.13 "Optioned Stock" means the Stock subject to an
Option.
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2.14 "Optionee" means an Employee or Consultant who
receives an Option.
2.15 "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
2.16 "Plan" means this 1999 Stock Option Plan.
2.17 "Share" means a share of the Stock, as adjusted in
accordance with Section 13 of the Plan.
2.18 "Stock" means the Common Stock, par value $.001 per
share, of the Company.
2.19 "Subsidiary" means a "subsidiary corporation," whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13
of the Plan, the maximum number of shares of Stock which may be optioned and
sold under the Plan is 500,000 shares. The shares may be authorized, but
unissued, or reacquired Stock. If an Option should expire or become
unexercisable for any reason without having been exercised in full, the
unpurchased Shares which were subject thereto shall, unless the Plan shall have
been terminated, become available for future grant under the Plan.
4. Administration of the Plan.
4.1 Administration By Board or Committee. The Plan shall be
administered by (a) the Board or (b) a committee designated by the Board to
administer the Plan, which committee shall be constituted in such a manner as to
permit the Plan to comply with Rule 16b-3 promulgated under the Exchange Act or
any successor thereto ("Rule 16b-3") with respect to a plan intended to qualify
thereunder as a discretionary plan. Once appointed, such committee shall
continue to serve in its designated capacity until otherwise directed by the
Board. From time to time the Board may increase the size of the committee and
appoint additional members thereof, remove members (with or without cause) and
appoint new members in substitution therefor, fill vacancies, however caused,
and remove all members of the committee and thereafter directly administer the
Plan, all to the extent permitted by Rule 16b-3 with respect to a plan intended
to qualify thereunder as a discretionary plan.
4.2 Limitation on Administration by Board.
Notwithstanding the foregoing, the Plan shall not be administered
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by the Board if (a) the Company and its officers and directors are then subject
to the requirements of Section 16 of the Exchange Act and (b) the Board's
administration of the Plan would prevent the Plan from complying with Rule
16b-3.
4.3 Multiple Administrative Bodies. If permitted by Rule
16b-3, the Plan may be administered by different bodies with respect to
directors, non-director officers and Employees who are neither directors nor
officers.
4.4 Powers of the Option Committee. Subject to the provisions
of the Plan and in, the case of a committee, the specific duties delegated by
the Board to such committee, the Option Committee shall have the authority, in
its discretion:
4.4.1 to determine whether and to what extent
Options shall be granted hereunder;
4.4.2 to select the officers, Consultants and
Employees to whom Options may from time to time be granted
hereunder;
4.4.3 to determine the number of shares of Stock to
be covered by each such award granted hereunder;
4.4.4 to determine the Fair Market Value of the
Stock, in accordance with Section 2.9 of the Plan;
4.4.5 to approve forms of agreement for use under
the Plan;
4.4.6 to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder
(including, but not limited to, the per share exercise price for the Shares to
be issued pursuant to the exercise of an Option and any restriction or
limitation, or any vesting, acceleration or waiver of forfeiture restrictions
regarding any Option or other award and/or the shares of Stock relating thereto,
based in each case on such factors as the Option Committee shall determine, in
its sole discretion);
4.4.7 to determine whether and under what
circumstances an Option may be bought-out for cash under subsection
10.4;
4.4.8 to determine whether, to what extent and
under what circumstances Stock and other amounts payable with respect to an
award under this Plan shall be deferred either
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automatically or at the election of the participant (including providing for and
determining the amount, if any, of any deemed earnings on any deferred amount
during any deferral period); and
4.4.9 to reduce the exercise price of any Option to
the then current Fair Market Value if the Fair Market Value of the Stock covered
by such Option shall have declined since the date the Option was granted.
4.5 Effect of Option Committee's Decision. All decisions,
determinations and interpretations of the Option Committee shall be final and
binding on all Optionees and any other holders of any Options. Neither the
Board, the Committee, nor any member thereof shall be liable for any act,
omission, interpretation, construction or determination made in connection with
the Plan in good faith, and the members of the Board and of the Committee shall
be entitled to indemnification and reimbursement by the Company in respect of
any claim, loss, damage or expense (including counsel fees) arising therefrom to
the full extent permitted by law.
5. Eligibility.
5.1 Nonqualified Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if he is otherwise
eligible, be granted an additional Option or Options.
5.2 Each Option shall be designated in the written option
agreement as either an Incentive Stock Option or a Nonqualified Stock Option.
However, notwithstanding such designations to the extent that the aggregate Fair
Market Value of the Shares, with respect to which Options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company or any Parent or
Subsidiary), exceeds $100,000, such excess Options shall be treated as
Nonqualified Stock Options. For this purpose, Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
5.3 The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his right or the Company's right
to terminate his employment or consulting relationship at any time, with or
without cause,
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unless otherwise agreed in writing by the Company and such
Optionee.
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board of Directors subject only to approval by the holders of a majority of
the outstanding Shares within 12 months after such date. Should the Plan not be
approved by a vote of shareholders as specified above, the Plan shall terminate
12 months after the effective date, all options issued prior to that termination
date shall continue in effect but without the benefits that would accrue under
the Code or the Act from such shareholder approval. Otherwise, it shall continue
in effect until ten years from the effective date, unless extended by the Board
or sooner terminated under Section 15 of the Plan. No grants of Options will be
made pursuant to the Plan after termination of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that in the case of an Incentive Stock
Option, the terms shall be no more than 10 years from the date of grant thereof
or such shorter term as may be provided in the Option Agreement. However, in the
case of an Option granted to an Optionee who, at the time the Option is granted,
owns Stock representing more than 10% of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the term of the Option shall
be five years from the date of grant thereof or such shorter term as may be
provided in the Option Agreement.
8. Option Exercise Price and Consideration.
8.1 The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Option Committee; provided, however, that as to an Incentive Option:
8.1.1 granted to an Employee who, at the time of
the grant of such Incentive Stock Option, owns stock representing more than 10%
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
8.1.2 granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
8.2 The consideration to be paid for the Shares to be
issued upon exercise of an Option may be paid by certified or
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cashier's check. In the discretion of the Option Committee as set forth in the
Option Agreement or, except for Incentive Options, determined at the time of
exercise, payment may also be made by any or all of the following:
8.2.1 check,
8.2.2 promissory note,
8.2.3 other shares of the Company's capital stock
which (a) in the case of shares of the Company's capital stock acquired upon
exercise of an Option either have been owned by the Optionee for more than six
months on the date of surrender or were not acquired, directly or indirectly,
from the Company, and (b) have a Fair Market Value on the date of surrender
equal to the aggregate exercise price of the Shares to which said Option shall
be exercised,
8.2.4 authorization for the Company to retain from
the total number of Shares as to which the Option is exercised that number of
Shares having a Fair Market Value on the date of exercise equal to the exercise
price for the total number of Shares as to which the Option is exercised,
8.2.5 delivery of a properly executed exercise
notice together with irrevocable instructions to a broker to promptly deliver to
the Company the amount of sale or loan proceeds required to pay the exercise
price, or
8.2.6 such other consideration and method of
payment for the issuance of Shares to the extent permitted under
applicable laws.
9. Limitation on Exercise. The following limitations on exercise of
Options shall apply to all Incentive Options and, except to the extent waived by
the Option Committee and stated in the Option Agreement, to all other Options.
9.1 Termination of Employment. In the event of termination of
an Optionee's relationship as a Consultant (unless such termination is for
purposes of becoming an Employee of the Company) or on termination of an
Optionee's Continuous Status as an Employee with the Company (as the case may
be), such Optionee may, but only within 90 days (or, as to Options other than
Incentive Options, such longer period of time as is determined by the Option
Committee) after the date of such termination, but in no event later than the
expiration date of the term of such Option as set forth in the Option Agreement,
exercise his Option to the extent
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that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
9.2 Disability of Optionee. Notwithstanding the provisions of
Section 9.1 above, in the event of termination of an Optionee's relationship as
a Consultant or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within 12 months from the date of such termination and in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement, exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate.
9.3 Death of Optionee. In the event of the death of an
Optionee, the Option may be exercised, at any time within 12 months following
the date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that the Optionee was not entitled to
exercise the Option at the date of termination, or if the Optionee's estate (or
such other person who acquired the right to exercise the Option) does not
exercise such Option to the extent so entitled within the time specified herein,
the Option shall terminate.
10. Exercise of Option.
10.1 Procedure for Exercise; Rights as a Stockholder. An
Option shall be deemed to be exercised, and the Optionee deemed to be a
stockholder of the Shares being purchased upon exercise, when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 8.2 of the Plan. An
Option may not be exercised for a fraction of a Share.
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10.2 Effect on Number of Shares. Exercise of an Option in any
manner shall result in a decrease in the number of shares which thereafter may
be available, both for purposes of the Plan and for sale under the Option, by
the number of Shares as to which the Option is exercised.
10.3 Rule 16b-3. Options granted to persons subject to Section
16(b) of the Exchange Act must comply with the Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
10.4 Buyout Provisions. The Option Committee may at any time
offer to buy out for a payment in cash or Shares, an Option previously granted,
based on such terms and conditions as the Option Committee shall establish and
communicate to the Optionee at the time that such offer is made.
11. Non-Transferability of Options. The Options may not be sold,
pledged, assigned, hypothecated, transferred, or disposed of in any manner other
than by will or by the laws of descent or distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee.
12. Stock Withholding to Satisfy Withholding Tax Obligations.
12.1 At the discretion of the Option Committee, Optionees may
satisfy withholding tax obligations as provided in this paragraph. When an
Optionee incurs tax liability in connection with an Option, which tax liability
is subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
12.2 All elections by an Optionee to have Shares withheld for
this purpose shall be made in writing in a form acceptable to the Option
Committee and shall be subject to the following restrictions:
12.2.1 the election must be made on or prior to the
applicable Tax Date;
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12.2.2 once made, the election shall be irrevocable
as to the particular Shares of the Option as to which the election
is made;
12.2.3 all elections shall be subject to the
consent or disapproval of the Option Committee; and
12.2.4 if the Optionee is subject to Rule 16b-3,
the election must comply with the applicable provisions of Rule 16b-3 and shall
be subject to such additional conditions or restrictions as may be required
thereunder to qualify for the maximum exemption from Section 16 of the Exchange
Act with respect to Plan transactions.
12.3 In the event the election to have Shares withheld is made by an
Optionee, the Tax Date is deferred under Section 83 of the Code and no election
is filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option is exercised but such Optionee
shall be unconditionally obligated to tender back to the Company the proper
number of Shares on the Tax Date.
13. Changes in the Company's Capital Structure. The existence of
outstanding Options shall not affect in any way the right or power of the
Company or its stockholders to make or authorize any or all adjustments,
recapitalizations, reorganizations or other changes in the Company's capital
structure or its business, or any merger or consolidation of the Company, or any
issue of bond, debentures, preferred or prior preference stock ahead of or
affecting the Stock or the rights thereof, or the dissolution or liquidation of
the Company, or any sale or transfer of all or any part of its assets or
business, or any other corporate act or proceeding, whether of a similar
character or otherwise; subject to the following:
13.1 If the Company shall effect a subdivision or
consolidation of shares or other capital readjustment, the payment of a stock
dividend, or other increase or reduction of the number of shares of the Stock
outstanding, without receiving compensation therefor in money, services or
property, then (a) the number, class, and per share price of shares of Stock
subject to outstanding Options hereunder shall be appropriately adjusted in such
a manner as to entitle an Optionee to receive upon exercise of an Option, for
the same aggregate cash consideration, the same total number and class of shares
as he would have received had he exercised his Option; (b) the number and class
of shares of Stock then reserved for issuance under the Plan shall be adjusted
by substituting for the total number and class of shares of Stock then
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reserved that number and class of shares of stock that would have been received
by the owner of an equal number of outstanding shares of each class of Stock as
the result of the event requiring the adjustment.
13.2 Unless otherwise expressly provided in an Option
Agreement, upon a Corporate Change (as defined below), notwithstanding any other
term of this Plan, any and all outstanding Options not fully vested and
exercisable shall vest in full and be immediately exercisable, and any other
restrictions on such Options including, without limitation, requirements
concerning the achievement of specific goals shall terminate. The foregoing
shall apply to Incentive Options, unless stated to the contrary in the Option
Agreement, even though the effect may be to convert part of the Option to a
Nonqualified Option.
13.3 As used in this Plan, a "Corporate Change" shall be
deemed to have occurred upon, and shall mean (a) the acquisition by any
individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Exchange Act) (a "Person"), of beneficial ownership (within the meaning
of Rule 13d-3 promulgated under the Exchange Act) of 80% or more of either (i)
the then outstanding shares of Stock of the Company (the "Outstanding Company
Common Stock") or (ii) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following transactions shall not constitute a Corporate Change: (u) any
acquisition by virtue of the conversion of preferred stock of the Company
outstanding on the effective date hereof; (v) customary transactions with and
between underwriters and selling group members with respect to a bona fide
public offering of securities, (w) any acquisition directly from the Company
(excluding an acquisition by virtue of the exercise of a conversion privilege),
(x) any acquisition by the Company, (y) any acquisition by any employee benefit
plan(s) (or related trust(s)) sponsored or maintained by the Company or any
corporation controlled by the Company or (z) any acquisition by any entity
pursuant to a reorganization, merger or consolidation, if, immediately following
such reorganization, merger or consolidation the conditions described in clauses
(i), (ii) and (iii) of clause (b) of this paragraph are satisfied; or (b) the
approval by the stockholders of the Company of a reorganization, merger or
consolidation, in each case, unless immediately following such reorganization,
merger or consolidation (i) more than 60% of, respectively, the then outstanding
shares of common stock (or other equivalent securities) of the entity resulting
from such reorganization, merger or consolidation and the combined voting power
of the then outstanding
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voting securities of such entity entitled to vote generally in the election of
directors (or other similar governing body) is then beneficially owned, directly
or indirectly, by all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Company Common Stock and
Outstanding Company Voting Securities immediately prior to such reorganization,
merger or consolidation in substantially the same proportions as their
ownership, immediately prior to such reorganization, merger or consolidation of
the Outstanding Company Common Stock and Outstanding Company Voting Securities,
as the case may be, (ii) no Person (excluding the Company, any employee benefit
plan(s) (or related trust(s)) of the Company and/or its subsidiaries or such
entity resulting from such reorganization, merger or consolidation and any
Person beneficially owning, immediately prior to such reorganization, merger or
consolidation, directly or indirectly, 80% or more of the Outstanding Company
Common Stock or Outstanding Company Voting Securities, as the case may be)
beneficially owns, directly or indirectly, 80% or more of, respectively, the
then outstanding shares of common stock (or other equivalent securities) of the
entity resulting from such reorganization, merger or consolidation or the
combined voting power of the then outstanding voting securities of such entity
entitled to vote generally in the election of directors (or other similar
governing body) and (iii) at least a majority of the members of the board of
directors (or other similar governing body) of the entity resulting from such
reorganization, merger or consolidation were members of the Incumbent Board (as
defined below) at the time of the execution of the initial agreement providing
for such reorganization, merger on consolidation. The "Incumbent Board" shall
mean individuals who as of the effective date hereof constitute the Company's
Board of Directors; provided, however, that any individual becoming a director
subsequent to such date whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either (i) an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act), or an
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Company's Board of Directors or (ii) a plan or agreement
to replace a majority of the members of the Board of Directors then comprising
the Incumbent Board.
13.4 The Company intends that this Section shall comply with
the requirements of Rule 16b-3 and any future rules promulgated in substitution
therefor under the Exchange Act during
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the term of the Plan. Should any provision of this Section not be necessary to
comply with the requirements of Rule 16b-3 or should any additional provisions
be necessary for this Section to comply with the requirements of Rule 16b-3, the
Board of Directors may amend the Plan to add to or modify the provisions of the
Plan accordingly.
13.5 Except as hereinbefore expressly provided, the issue by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, for cash or property, or for labor or services
either upon direct sale or upon the exercise of rights or warrants to subscribe
therefor, or upon conversion of shares or obligations of the Company convertible
into such shares or other securities, shall not affect, and no adjustment by
reason thereof shall be made with respect to, the number, class, or price of
shares of Stock then subject to outstanding Options.
14. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Option Committee makes the determination
granting such Option, or such other date as is determined by the Option
Committee. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
15. Amendment and Termination of the Plan.
15.1 Amendment and Termination. The Board may at any time
amend, alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made which would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 under
the Exchange Act or with Section 422 of the Code (or any other applicable law or
regulation, including the applicable requirements of the NASD or an established
stock exchange), the Company shall obtain stockholder approval of any Plan
amendment in such a manner and to such a degree as required.
15.2 Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
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16. Conditions Upon Issuance of Shares.
16.1 Shares shall not be issued pursuant to the exercise of an
Option unless the exercise of such Option and the issuance and delivery of such
Shares pursuant thereto shall comply with all relevant provisions of law,
including without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the Shares may then be listed, and
shall be further subject to the approval of counsel for the Company with respect
to such compliance.
16.2 As a condition to the exercise of an Option, the Company
may require the person exercising such Option to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is required
by any of the aforementioned relevant provisions of law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Information to Optionees. The Company shall provide to each
Optionee, during the period for which such Optionee has one or more Options
outstanding, copies of all annual reports and other information which are
generally provided to all stockholders of the Company. The Company shall not be
required to provide such information to persons whose duties in connection with
the Company assure their access to equivalent information.
19. Governing Law; Construction. All rights and obligations under the
Plan shall be governed by, and the Plan shall be construed in accordance with,
the laws of the State of Texas without regard to the principals of conflicts of
laws. Titles and headings to Sections herein are for purposes of reference only,
and shall in no way limit, define or otherwise affect the meaning or
interpretation of any provisions of the Plan.
ADOPTED by the Directors on February 5, 1999.
APPROVED by the Shareholders on February 8, 1999.
Exhibit 10.1
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