<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 18, 1998
REGISTRATION NO. 333-66317
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
REYNARD MOTORSPORT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3711 52-2121044
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
8431 GEORGETOWN ROAD, SUITE 700
INDIANAPOLIS, INDIANA 46268
(317) 824-5600
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
------------------------
ALEX S. HAWKRIDGE
CHIEF EXECUTIVE OFFICER
8431 GEORGETOWN ROAD, SUITE 700
INDIANAPOLIS, INDIANA 46268
(317) 824-5600
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
JACK A. BJERKE BRUCE S. MENDELSOHN
AMY M. SHEPHERD PAUL A. BELVIN
KEGLER, BROWN, HILL & RITTER CO., L.P.A. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
65 EAST STATE STREET 1333 NEW HAMPSHIRE AVENUE, N.W.
18TH FLOOR WASHINGTON, D.C. 20036
COLUMBUS, OH 43215 (202) 887-4000
(614) 462-5400 FACSIMILE (202) 887-4288
FACSIMILE (614) 462-5419
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
The information in this prospectus is not complete and may be changed without
notice. Reynard Motorsport, Inc. may not sell these securities until the
registration statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities and Reynard
Motorsport, Inc. is not soliciting offers to buy these securities to anyone
where the offer or sale of these securities is not permitted.
PROSPECTUS (Not Complete)
Issued December 18, 1998
3,600,000 SHARES
[LOGO]
REYNARD MOTORSPORT, INC.
COMMON STOCK
------------------
Reynard Motorsport, Inc. is offering 3,240,000 shares of common stock and
selling stockholders identified in this prospectus are offering 360,000 shares
of common stock in a firmly underwritten offering. This is Reynard's initial
public offering, and no public market currently exists for Reynard's shares.
Reynard anticipates that the initial public offering price for its shares will
be between $13.00 and $15.00 per share. After the offering, the market price for
Reynard's shares may be outside of this range.
------------------
Reynard will apply to list the common stock on the New York Stock Exchange
under the symbol "RND."
------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
------------------
<TABLE>
<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Offering Price $ $
Discounts and Commissions to Underwriters $ $
Offering Proceeds to Company $ $
Offering Proceeds to Selling Stockholders $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Selling stockholders identified in this prospectus have granted the
underwriters the right to purchase up to an additional 540,000 shares of common
stock to cover any over-allotments. The underwriters can exercise this right at
any time within thirty days after the offering. NationsBanc Montgomery
Securities LLC expects to deliver the shares of common stock to investors on
, 1999.
NATIONSBANC MONTGOMERY SECURITIES LLC
WHEAT FIRST UNION
JOSEPHTHAL & CO. INC.
------------------
, 1998
<PAGE> 3
[PHOTOS]
<PAGE> 4
Reynard has not authorized any person to give you information that differs
from the information in this prospectus. You should rely solely on the
information contained in this prospectus. This prospectus is not an offer to
sell these securities, and we are not soliciting offers to buy these securities
in any state where the offer or sale of these securities is not permitted. The
information in this prospectus is accurate only as of the date of this
prospectus, even if the prospectus is delivered to you after the prospectus
date, or you buy the common stock after the prospectus date.
--------------------------------
TABLE OF CONTENTS
--------------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Dilution.................................................... 19
Capitalization.............................................. 20
Selected Consolidated Financial and Operating Data.......... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Motorsport Industry Overview................................ 36
Business.................................................... 44
Management.................................................. 60
Principal and Selling Stockholders.......................... 70
Certain Transactions........................................ 70
Description of Capital Stock................................ 71
Shares Eligible for Future Sale............................. 74
Underwriting................................................ 76
Legal Matters............................................... 78
Experts..................................................... 78
Index to Financial Statements............................... F-1
</TABLE>
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete. It may not contain all of the information that you
should consider before investing in the common stock. You should read the entire
prospectus carefully.
Unless otherwise stated, all of the information contained in this
prospectus assumes that the underwriters have not exercised their over-allotment
option to purchase up to 540,000 shares of common stock. Fiscal year references
are to the fiscal year ended September 30.
REYNARD MOTORSPORT
Reynard is one of the world's leading designers and manufacturers of
production racing cars and other high performance specialty vehicles. Since our
inception 25 years ago, our goal has been to dominate every race and win each
championship in every series we enter. Cars that we have designed and produced
have a long history of winning races and setting records in many of the world's
most competitive racing series. Our history of winning is reflected by our
operating performance, with sales growing at a compound annual growth rate of
42.5% from 1994 to 1998.
We design, manufacture and sell racing cars for competition in (1) the CART
Series, the premier open-wheel racing series in North America, (2) the Formula
Nippon Series, the Formula 3000 open-wheel racing series in Japan, and (3) the
Barber Dodge Pro Series, an open-wheel one-make development racing series in the
United States. We also design and engineer touring and sports racing cars in
conjunction with automobile manufacturers, such as Ford, Chrysler, Dodge and
Panoz, for competition in international championships. British American Racing
("BAR") is a joint venture in which we are partners with British American
Tobacco and Mount Eagle, Inc. BAR will make its debut in Formula One in March
1999.
We operate integrated design, production and testing facilities in
Oxfordshire, England. We also operate a North American headquarters and testing
facility in Indianapolis, Indiana. We employ over 250 people, of which over 85%
are highly skilled designers, engineers and other specialized technicians.
OUR KEY COMPETITIVE STRENGTHS
HISTORY OF WINNING. Since the beginning of fiscal 1994, our racing cars
have won a total of 84 races, including eight championships in the CART Series,
Formula 3000 competition and the Formula Nippon Series. As a result of our
winning track record, we supplied 22 of the 28 full-season entries in the 1998
CART Series. We have received orders through December 1, 1998 to supply 38
racing cars for the 1999 CART Series and orders for 13 racing cars for the 1999
Formula Nippon Series.
LEADER IN THE DEVELOPMENT AND APPLICATION OF MOTORSPORTS TECHNOLOGY. We
employ a scientific, rather than the traditional trial and error approach, in
the design, engineering and manufacture of racing cars. We believe that our
participation in the CART Series and Formula One enhances our ability to
effectively develop and apply highly advanced technology to the design,
development and production of racing cars for more junior racing series.
STRATEGIC RELATIONSHIP WITH BRITISH AMERICAN RACING IN FORMULA ONE. BAR
will field a two-car team in the 1999 Formula One World Championship. We believe
that British American Tobacco selected Reynard to be one of their joint venture
partners in BAR
3
<PAGE> 6
as a result of our reputation and expertise. British American Tobacco has
entered into a long-term sponsorship agreement to fund what we believe to be one
of the most significant sponsorship budgets in Formula One. As a result of the
joint venture, we have access to certain of BAR's technological know how (not in
written or machine readable form). We believe that this access to research and
development ideas will enhance our other motorsports projects by improving our
knowledge database and methodology.
HIGHLY EXPERIENCED MANAGEMENT AND OPERATING TEAM. Our senior management
team is comprised of former racing car drivers, managers, race team members and
motorsport enthusiasts who are highly experienced and well known within the
motorsports sector. The members of our senior management team have an aggregate
of over 75 years of service with the Company.
COMMITMENT TO CUSTOMER SERVICE. We demonstrate our commitment to service by
assigning a liaison engineer to each Reynard racing car in the CART Series. This
allows us to respond quickly to customer questions and concerns and to receive
valuable information for the continued development of our racing cars and
equipment.
VERTICALLY INTEGRATED OPERATIONS. We design, engineer and manufacture the
majority of the components of a racing car. Through our vertically integrated
operations, we are able:
- to maintain higher quality control standards in the production of all
components of the racing car;
- to improve operating margins by lowering costs; and
- to control the timing of production and delivery of our products.
With the pending acquisition of Gemini Transmissions Limited, which
manufactures gearbox and transmission systems, we will be able to manufacture
substantially all of the parts necessary to deliver a rolling chassis to the
customer.
OUR GROWTH STRATEGY
CAPITALIZE ON GROWTH OPPORTUNITIES WITHIN EXISTING RACE SERIES. We intend
to increase our presence in the race series in which we are currently involved.
We believe we will grow our business in existing series through:
- capitalizing on the continued expansion of the CART Series and other
existing series;
- introducing a newly designed racing car for the 1999 Formula Nippon
Series; and
- expanding our presence in the touring and sports car racing programs.
You should also consider the information under "Risk Factors -- Contraction
of Motor sports Industry Appeal."
ENTER NEW RACE SERIES AND CONTRACTS WITH NEW CUSTOMERS. We intend to enter
additional motorsports markets selectively through the sale of racing cars and
equipment and through the sale of technological support. We continuously
evaluate existing opportunities to design and produce racing cars or provide
other support services to other race series. In addition, we will provide some
services to BAR, on a commercial basis, for the upcoming Formula One racing
season.
INTRODUCE NEW HIGHER MARGIN SERVICES. We believe that a significant portion
of our future growth will be in the form of expanded sales of higher margin
services to our motorsports customers. These services include computer-aided
aerodynamic design analysis, wind tunnel testing and other testing and design
services.
4
<PAGE> 7
LEVERAGE MOTORSPORTS TECHNOLOGY. We intend to expand selectively our high
margin non-motorsports operations by applying the technological and engineering
resources we have developed in the motorsports sector to other industries. We
believe that our highly skilled designers and engineers can apply our advanced
technology in all areas where wind resistance, weight, fuel conservation and/or
safety concerns are factors.
SELECTIVE ACQUISITIONS. We believe a number of opportunities exist to make
selective strategic acquisitions within the motorsports industry. We will
generally seek to acquire companies that:
- complement and expand our current operations;
- have an experienced management team;
- have an industry leading reputation; and
- have strong customer and supplier relationships.
REORGANIZATION
Reynard Motorsport, Inc., a Delaware company, was formed in September 1998
to become the parent company of Reynard Motorsport Limited, a U.K. company. All
of the shareholders of Reynard Motorsport Limited and its U.K. operating
subsidiaries exchanged their equity interests for shares of common stock of
Reynard Motorsport, Inc. In connection with the reorganization, many of the
previous operating subsidiaries, including Reynard Composites, Reynard Special
Vehicle Projects, Reynard Racing Cars and Reynard Racing Designs have
transferred their operations into a single operating subsidiary.
RECENT DEVELOPMENTS
On October 26, 1998, we entered into an agreement to acquire Princetown
Holdings Limited, the sole owner of Gemini. The aggregate consideration for the
acquisition is $12.1 million payable on completion and $0.7 million payable in
December 2001 (the "Gemini Acquisition"). Gemini manufactures and assembles
gearboxes, gearbox components, suspension components and machined items for
various automobile companies and motorsports teams. Gemini utilizes
state-of-the-art equipment with advanced precision capabilities that are not
generally available to its competitors in the U.K. This acquisition will further
integrate our current operations in the production of racing cars. It will
enable us to manufacture substantially all of the parts necessary for production
of a racing car. We expect the Gemini Acquisition will close concurrently with
the completion of our initial public offering. A portion of the proceeds from
the offering will be used to pay the purchase price for Gemini. See "Use of
Proceeds" and "Business -- Production" for a discussion of the terms of the
Gemini Acquisition and for a discussion of Gemini's business.
5
<PAGE> 8
THE OFFERING
Common stock offered by
Reynard (a)................... 3,240,000 shares
Common stock offered by the
Selling Stockholders (a)...... 360,000 shares
Total shares offered (a)........ 3,600,000 shares
Shares to be outstanding after
the offering (a)(b)............. 13,901,214 shares
Selling Stockholders............ Dr. Adrian Reynard and Mr. Richard Gorne.
Voting rights................... Holders of common stock will have one vote
per share.
Dividend policy................. We do not plan to pay cash dividends in the
near term.
Use of proceeds................. We estimate that we will receive net proceeds
from the offering of approximately $40.5
million. From the proceeds, we expect:
- to use approximately $12.1 million to
acquire Gemini;
- to use approximately $9.7 million to repay
a loan to Reynard from Dr. Reynard;
- to use approximately $4.3 million to
purchase additional computer equipment and
upgrades; and
- to use approximately $14.4 million to fund
future growth and for working capital and
general corporate purposes. These purposes
include purchasing additional computer
equipment and constructing new facilities.
Reynard will not receive any proceeds from
the sale of stock by the Selling
Stockholders.
Risk factors.................... For a discussion of certain risks you should
consider before investing in the common
stock, see "Risk Factors."
Proposed New York Stock Exchange
Symbol........................ RND
- ---------------
(a) Excludes 540,000 shares issuable upon exercise of the over-allotment option
granted to the underwriters by the Selling Stockholders. The over-allotment
option is described in "Underwriting."
(b) Excludes 2,450,000 shares reserved for issuance under our employee and
director stock option plans. See "Management -- Stock Option Plans." It also
excludes additional options for 426,449 shares that we granted in September
1998 at an exercise price of $13.49 per share.
6
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary consolidated financial data as of and for the years
ended September 30, 1996, 1997 and 1998 are derived from the Company's
Consolidated Financial Statements. The unaudited pro forma financial information
gives effect to (1) the Gemini Acquisition, (2) the offering, and (3) the
reorganization, as if each of these events had occurred on October 1, 1997. You
should read the summary consolidated financial data below in conjunction with
"Selected Consolidated Financial Data," the Company's Consolidated Financial
Statements and related notes thereto, the Unaudited Pro Forma Condensed
Consolidated Financial Information and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contained elsewhere in this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------
HISTORICAL PRO
------------------------------ FORMA
1996 1997 1998 1998
-------- -------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
REVENUES.................................................... $28,899 $49,842 $58,717 $ 61,976
------- ------- ------- --------
COST OF GOODS SOLD.......................................... 13,678 25,453 29,089 30,030
------- ------- ------- --------
GROSS PROFIT................................................ 15,221 24,389 29,628 31,946
GENERAL AND ADMINISTRATIVE EXPENSES (1)(2).................. 13,766 21,462 24,367 20,242
------- ------- ------- --------
INCOME FROM OPERATIONS...................................... 1,455 2,927 5,261 11,704
Write-off of equity investment (4)........................ -- -- (7,349) (7,349)
Minority interest in loss of Subsidiary................... -- -- 105 105
Interest income........................................... 166 171 51 51
Interest expense (3)...................................... -- -- (919) (161)
------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... 1,621 3,098 (2,851) 4,350
INCOME TAX EXPENSE.......................................... 563 1,105 1,910 3,838
------- ------- ------- --------
NET INCOME (LOSS)........................................... $ 1,058 $ 1,993 $(4,761) $ 512
======= ======= ======= ========
EARNINGS (LOSS) PER SHARE --
BASIC AND DILUTED......................................... $ .10 $ .19 $ (.45) $ .04
======= ======= ======= ========
WEIGHTED AVERAGE SHARES OUTSTANDING --
BASIC AND DILUTED......................................... 10,661 10,661 10,661 12,218
======= ======= ======= ========
OTHER DATA:
Gross margin.............................................. 52.7% 48.9% 50.5% 51.5%
Operating margin.......................................... 5.0% 5.9% 9.0% 18.9%
Depreciation and amortization............................. $ 535 $ 898 $ 1,040 $ 2,469
Capital and tooling expenditures.......................... $ 1,963 $ 3,494 $ 6,368 6,775
Number of cars produced................................... 38 67 76 N/A
Number of racing wins..................................... 16 16 22 N/A
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------
PRO
FORMA
1998 1998
------- --------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................. $(9,198) $ 20,498
Total assets.............................................. 29,702 65,828
Long-term debt and capital lease obligations (less current
portion)................................................ -- 1,415
Total stockholders' equity (deficit)...................... (3,016) 37,519
</TABLE>
- ---------------
(1) General and Administrative expenses for the years ended September 30, 1996,
1997 and 1998 include remuneration of Dr. Reynard, the Chairman of Reynard
and its principal shareholder. Effective October 1, 1998 Reynard entered
into an agreement with Dr. Reynard whereby his total compensation is fixed
at $1.5 million per annum, plus pension contributions. The agreement expires
December 31, 2001. The pro forma statement of income data for the year ended
September 30, 1998 excludes remuneration of $6,340,000, which will be
discontinued as a result of the agreement. Because Dr. Reynard is a
stockholder of the Company, the agreement constitutes a related party
transaction. Management does not intend to resume making such payments to
Dr. Reynard in the foreseeable future.
(2) General and Administrative expenses for the historical and pro forma year
ended September 30, 1998 include compensation expense of $239,000 related to
the issuance on September 30, 1998 of stock options to Alex S. Hawkridge,
Reynard's President and Chief Executive Officer, below their fair value on
the date of such issuance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
(3) Interest expense for the year ended September 30, 1998 relates to interest
recorded on notes payable to Dr. Reynard. The pro forma statement of income
data for the year ended September 30, 1998 excludes interest expense of
7
<PAGE> 10
$919,000 as a result of the repayment of the notes payable to Dr. Reynard
with a portion of the proceeds of the Offering. See "Use of Proceeds."
(4) The equity investment written off for the historical and pro forma year
ended September 30, 1998 represents the total write-off of Reynard's
investment in BAR including its proportionate share of bank debt guarantees.
Reynard does not expect to incur additional losses in the future relating to
their investment and there are no plans to make additional equity
investments in BAR or extend additional guarantees for BAR indebtedness.
8
<PAGE> 11
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in shares of common stock.
CONTRACTION OF MOTORSPORTS INDUSTRY APPEAL
Substantially all of our current business relates to the auto racing
industry. Auto racing events compete for television viewership, attendance and
sponsorship funding with other racing events sanctioned by various racing bodies
and with other sports, entertainment and recreational events, such as soccer,
football, basketball and baseball. The competition in the sports and
entertainment industry in the United States and throughout the world is intense.
The motorsports industry generates significant recurring revenue from the
promotion, sponsorship and advertising of various companies and their products.
If racing teams in the series in which we compete are not able to secure
sponsorship, promotion and advertising revenues, then it could adversely affect
our financial and business results.
The revenue generated from such sponsorship, promotion and advertising
substantially depends upon the level of advertising expenditures by sponsors or
prospective sponsors. The level of advertising expenditures by sponsors depends
in part on (1) the financial condition of such companies, (2) the availability
and cost of alternative promotional outlets and (3) the sponsors' perception of
the benefits of using motorsports and the specific series, events or race teams
as an advertising medium. The advertising and promotional value to sponsors is
significantly impacted by television viewership of, and spectator attendance at,
motorsports events. If there is a contraction in the appeal of motorsports, in
terms of television viewership, attendance and overall popularity, then the
various race series would be adversely affected. If the various race series are
adversely affected, then our financial and business results could be adversely
affected.
The motorsports industry is affected by economic cycles and entertainment
industry conditions. Declines in general economic conditions or uncertainties
regarding future economic prospects have generally affected consumer spending
habits. A decline in consumer spending could have a material adverse effect on
the auto racing industry in general. This could lead to decreased sales for us,
which would adversely affect our financial and business results.
SUBSTANTIAL COMPETITION
We design, develop and manufacture racing cars and technologically advanced
equipment. This industry is highly competitive, and requires continuous
attention to aerodynamic, technological and safety advances to remain
competitive. We compete primarily with other manufacturers of racing cars. A
purchaser of our racing cars is primarily concerned with performance results and
price. If we fail to continue development of our equipment, then our racing cars
may have less satisfactory performance results. This would directly impact
interest by and sales to particular race teams and series. In addition, if we
increase costs of equipment and spare parts, then we may lose purchasers of our
equipment. Such price increases may also make our products uncompetitive when
attempting to sell to competitors in the CART Series or to negotiate contracts
for a one make series such as the Barber Dodge Series.
9
<PAGE> 12
POTENTIAL LOSS OF MOTORSPORTS INDUSTRY SPONSORSHIPS - TOBACCO AND ALCOHOL
Governmental authorities in many countries regulate advertising by
companies in the alcohol and tobacco industries. Companies involved in these
industries have been significant sponsors of race teams, racing series and
events. Recently, governmental authorities have taken steps to further restrict
advertising by tobacco companies. If the race teams in the various motorsport
events in which we compete lose sponsorship fees from tobacco sponsors without
locating another sponsor, then we could lose that team as a customer and it
could adversely affect our financial and business results.
UNITED STATES. On November 23, 1998, Phillip Morris, Brown & Williamson,
Lorillard, R.J. Reynolds and the Liggett Group entered into a settlement
agreement with the 46 states and the District of Columbia (collectively, the
"States"). The settlement agreement restricts tobacco product advertising and
marketing within the States. Among other restrictions, the settlement agreement:
- prohibits tobacco product brand name sponsorship of concerts, events in
which the intended audience is comprised of a significant percentage of
youth under age 18, events in which any paid participants or contestants
are youths, or any athletic event between opposing teams in any football,
basketball, baseball, soccer or hockey league;
- bans agreement to name any stadium or arena in the name of a tobacco
product brand name;
- prohibits tobacco product brand name sponsorship of any football,
basketball, baseball, soccer or hockey league; and
- limits each participating manufacturer to one tobacco product brand name
sponsorship during any twelve-month period.
We cannot assure you that a tobacco company will choose a motor sports
event as its one annual event to sponsor. If a tobacco company does choose to do
so, the settlement agreement permits the use of a tobacco product brand name for
a race car series and a single race team within that series. If the tobacco
company is not a sponsor of the race series in which the race team is competing,
it can use the tobacco product brand name only for a single race team.
EUROPE. In December 1997, eleven of fifteen member states approved the
European Union Tobacco Advertising Directive. The Directive must be enacted in
domestic legislation by all member states by July 30, 2001. The Directive came
in to force on July 30, 1998. The Directive provides that, within three years
from the date of the Directive , all tobacco advertising and promotion will be
prohibited, other than in print media and sponsorship. Within four years from
the date of the Directive, tobacco advertising will be prohibited in print
media. Within five years of the date of the Directive, tobacco sponsorship will
be prohibited at all events or activities, unless such event or activity is
"organized at world level" and nominated by member states. If such event or
activity has been nominated, then it will be granted a three year extension.
Formula One has been granted such an extension. Within eight years of the date
of the Directive, but no later than October 1, 2006, tobacco sponsorship will be
prohibited at all events or activities arranged at world level. During the
interim period, tobacco sponsorship can only continue in exceptional
circumstances and for justified reasons if there are reductions in levels of
advertising expenditures and voluntary restraints on visibility of advertising.
The Tobacco Manufacturers' Association, comprised of Gallaher, Imperial Tobacco,
Rothmans, British American Tobacco, Phillip Morris, R.J.
10
<PAGE> 13
Reynolds and Japan Tobacco, applied to the English High Court and has received
leave to appeal the Directive to the European Court of Justice. Furthermore, in
October 1998, the German government filed a complaint directly with the European
Court of Justice challenging the Directive.
UNITED KINGDOM. Tobacco promotion is restricted in the U.K. through
voluntary agreement. The tobacco industry agreed with the U.K. government to
limit annual expenditures on poster advertising and promotional activities. In
addition, health warnings must appear on all press and poster advertisements,
and the placement of those advertisements is restricted. Expenditures on sports
sponsorships is limited and events targeted at persons under the age of 18 may
not be sponsored by tobacco companies.
On December 10, 1998, the UK government published a legislative White Paper
on Tobacco containing its proposals for implementing the Directive. The UK
government has indicated its intention to end tobacco advertising on billboards
and in the print media at the earliest practicable opportunity and well before
the deadline required under the Directive. Regulations may be in place as early
as July 1999. The regulations will allow the extra time provided for under the
Directive to phase out tobacco sponsorship of sports and other events.
British American Tobacco ("BAT"), a sponsor for BAR, is involved in the
tobacco industry. BAT has entered into a long-term sponsorship agreement to fund
what Reynard believes to be one of the most significant sponsorship budgets in
Formula One. BAT has the right to terminate its sponsorship agreement with BAR
effective at or at any time after January 1, 2002, with proper notice. If BAT
cancels its sponsorship pursuant to the provisions of its agreement with BAR, it
could have an adverse effect on BAR's business and financial results. Such an
adverse effect on BAR could adversely affect our financial and business results
because of the loss of our consulting agreements and access to technological
know how.
DEPENDENCE ON AVAILABILITY AND PERFORMANCE OF KEY PERSONNEL
Our continued success will depend upon the availability and performance of
Dr. Adrian Reynard and the other members of our senior management team. While we
believe that our senior management team has significant depth, if we lose key
personnel or if we are unable to attract and retain key employees in the future,
then it could adversely affect our operations and business plans. Although we
have entered into employment agreements with key executive officers, we cannot
assure you that any of these individuals will continue in his present capacity
for a particular period of time. See "Management - Employment Agreements."
CONTRACTUAL COMMITMENT OF TIME TO BAR BY KEY PERSONNEL
In our agreement with BAR, Dr. Reynard, Mr. Gorne, our Vice President -
Sales and Mr. Oastler, our Technical Director, have committed a significant
amount of their time to the BAR Formula One racing effort. Mr. Oastler must
devote substantially all of his time over the next three years. Dr. Reynard and
Mr. Gorne must each devote approximately one half of their time for the next
year and approximately one quarter of their time for the subsequent two years.
As a result, our future results and the successful implementation of our growth
strategy will substantially depend upon the remaining members of our senior
management team.
11
<PAGE> 14
POTENTIAL INABILITY TO ATTRACT AND RETAIN PERSONNEL
Our future success depends upon maintaining our advanced technological
position in design, engineering and production of our racing cars. Therefore, we
are particularly dependent upon our ability to identify, attract, motivate and
retain qualified engineers and other professionals with the requisite
educational background and industry experience. We believe we have been
successful in our recruiting and retention efforts in the past. However, we may
not be able to attract and retain qualified engineers and other professionals in
the future. If we lose the services of a significant number of our engineers,
designers and specialized technicians, then our development efforts or business
relationships could be disrupted. Such a disruption could adversely affect our
financial and business results.
POTENTIAL INABILITY TO MAINTAIN PERFORMANCE LEVELS
During recent years, we have had substantial growth in revenues and
expansion of product lines and related businesses. However, our business is
subject to a number of risks, any one of which could have a material adverse
effect on our business, financial condition and results of operations. Our
future operating results will depend on a number of factors, including:
- the continued level of performance of our equipment in the various race
series;
- competitive price structure;
- ability to attract and retain qualified engineers; and
- other factors beyond our control.
A key element of our business strategy is to continue the expansion of our
product lines. We cannot assure you that the expansion of our product lines and
business ventures will be successful or profitable.
POTENTIAL RISKS ASSOCIATED WITH FUTURE ACQUISITIONS
We have and will continue to pursue selective acquisition opportunities
that complement our current operations. Acquisitions involve a number of risks
that could adversely affect our operating results. These risks include:
- the diversion of management's attention;
- the assimilation of operations and personnel of the acquired companies;
- the amortization of acquired intangible assets; and
- the potential loss of key employees of the acquired companies.
We may not be able to identify and consummate additional acquisitions on
satisfactory terms. In addition, we may not be able to obtain adequate financing
on acceptable terms to complete future acquisitions. Finally, if an acquisition
is completed, such business may not have a positive impact on our financial and
business results.
POTENTIAL LIABILITY FOR RACING-RELATED INCIDENTS
Racing events can be dangerous to participants and spectators. During a
race at the Michigan Speedway in July 1998, a driver using a Reynard chassis was
involved in a racing
12
<PAGE> 15
incident that propelled a tire and suspension parts into the grandstands. Three
spectators were killed and six other persons reported minor injuries. No claims
have been made against Reynard, and we do not believe that we would be liable
for this incident. We cannot assure you however, that no claims will be made
against us or, if claims are made, what the outcome of any such claims will be.
We have obtained liability insurance to cover past and any future racing
incidents. To the extent not covered by insurance, any claims and associated
expenses related to prior racing incidents, including the incident at Michigan
Speedway, could adversely affect our financial and business results. In
addition, any claims and associated expenses related to future potential racing
incidents, to the extent not covered by insurance, could adversely affect our
financial and business results. You should see "Business -- Legal Proceedings
and Insurance" for a discussion of the liability insurance coverage we currently
maintain.
Like other manufacturers of products, we face an inherent risk of exposure
to product liability claims in the event that the use of our equipment results
in injury. We may be subjected to various product liability claims. Such claims
may include allegations that (1) our equipment is inherently unsafe, (2) we were
negligent in the manufacture and/or design of a racing car, or (3) similar
claims. To date, we have not been sued or settled any threatened litigation
relating to injuries resulting from the use of our racing cars.
CHANGES IN RACING CAR SPECIFICATIONS BY RACE SERIES' SANCTIONING BODIES
Rule changes, including racing car specification modifications, are
commonplace in the motorsports industry. However, certain changes could
adversely affect our financial and business results. Such changes would include
(1) changes that significantly increase our cost for research and development in
design and engineering a new racing car, or (2) changes that prohibit certain
features of the current racing car we have developed.
We build our racing cars to comply with specifications set by each race
series' sanctioning body. Changes to racing cars and equipment specifications
could have a material adverse effect on our financial and business results. For
example, implementation of stability rules by the CART Series that would
prohibit changes to a racing car for a specified number of years would result in
a decrease in revenues to Reynard. Similarly, cost containment rule changes that
are designed and implemented to reduce the costs to race teams may impact our
ability to pass cost increases on to our customers and may limit our ability to
sell additional products or services to the customer.
EXPOSURE TO EXCHANGE RATE FLUCTUATIONS AND OTHER RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS
We currently have operations in various jurisdictions around the world,
including the U.S., the U.K. and Japan. In the future, we may expand our
operations either within these jurisdictions or into new jurisdictions.
Accordingly, our business is subject to some risks inherent in international
operations. These risks include:
- exposure to exchange rate fluctuations;
- political and economic conditions;
- unexpected changes in regulatory environments;
- exposure to different legal standards;
- difficulties in staffing and managing operations; and
- potentially adverse tax consequences.
13
<PAGE> 16
We have not experienced any material adverse effects with respect to our
foreign operations arising from such factors. However, problems associated with
such risks could arise in the future. Finally, managing operations in multiple
jurisdictions will place further strain on our ability to manage our overall
growth.
Our operating results also are subject to fluctuations in foreign currency
exchange rates. For example, costs for producing products sold to customers
participating in the CART Series are denominated in pounds sterling and the
products are sold in U.S. dollars. This mismatch will result in gains or losses
with respect to movements in foreign exchange rates and may be material. To
mitigate this effect, we engage in hedging transactions. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Foreign Currency Fluctuations" for a description of these hedging activities and
a discussion of foreign exchange rates.
POTENTIAL SHORTAGE OF RAW MATERIALS
The principal raw materials that we use in the manufacturing process for
our racing cars are carbon fiber and Kevlar. An unexpected interruption of
supply could cause our financial and business results to be adversely affected.
We have generally been able to raise our prices in response to significant
increases in the cost of raw materials. However, we may not be able to raise
prices quickly enough to offset the effects of such increased raw material costs
completely.
BROAD DISCRETION REGARDING PROCEEDS OF THE OFFERING
We have allocated a significant portion of the net proceeds of this
offering to fund future growth and for working capital and general corporate
purposes. Accordingly, management will have broad discretion in applying the
offering proceeds. Pending our use of such proceeds, the funds will be placed in
short-term, interest-bearing, investment grade investments. Because we have not
yet determined how we will use all of the proceeds of this offering, you are
unable to predict the financial success of our long-term use of proceeds.
CONTROL BY DR. REYNARD
Upon completion of the offering, Dr. Adrian Reynard will beneficially own
an aggregate of 57.5% of the outstanding shares of common stock. He will
continue to control the outcome of substantially all issues submitted to our
stockholders, including the election of directors. He also will be able to
effect a change of control, merger or combination without the approval of
minority stockholders. Such influence could adversely affect the market price of
the common stock or delay or prevent a change in control of Reynard.
SEASONALITY AND FLUCTUATION OF QUARTERLY RESULTS
We derive a substantial portion of our total revenues from product sales
that are made primarily during the second and third quarters of our fiscal year.
We expense all research and development costs as they are incurred. Similarly, a
substantial amount of project costs are incurred during the first and fourth
quarters of our fiscal year. Historically, our revenues are higher in the second
and third quarters of the year due to the number of racing cars and equipment
delivered during such periods. We account for revenues at the time of delivery
of a racing car. Since we usually deliver racing cars on a Friday, the timing
14
<PAGE> 17
of the delivery of racing cars, particularly for the CART Series, can
significantly affect our quarterly results of operations when compared to a
previous quarter due to the number of Fridays (and therefore the number of
racing cars delivered) in the particular quarter.
When quarterly financial results fluctuate, you may not be able to predict
what our financial results will be for the full year. In addition, you may be
unable to compare our results of one quarter to our results of the previous
quarter due to timing differences. This may affect your ability to analyze
Reynard's results on a quarterly basis. Such a fluctuation could also affect the
market price of Reynard's stock.
The timing of the initiation and conclusion of design and engineering
contracts with our customers also can significantly affect our quarterly results
of operations when compared to a previous quarter. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Seasonality and
Quarterly Results" for a discussion of our quarterly results.
POTENTIAL LIABILITY FOR ENVIRONMENTAL CONTAMINATION
We are involved in the manufacturing industry and have by-products from our
manufacturing processes that must be disposed of in accordance with governmental
requirements. We believe that our operations are in substantial compliance with
all applicable environmental laws and regulations. Nonetheless, if damage to
persons or property or contamination of the environment is determined (1) to
have been caused or exacerbated by our conduct, or (2) to have been caused or
exacerbated by pollutants, substances, contaminants or wastes used, generated or
disposed of by us, or (3) which may be found on our property, then we may be
held liable for such damage and may be required to pay the cost of investigation
and/or remediation of such contamination or any related damage. The amount of
such liability could be material and may not be covered by insurance. Changes in
the provisions or application of environmental laws, regulations or requirements
or the discovery of unknown conditions, could also require us to make additional
material expenditures.
DILUTION
You will experience immediate and substantial dilution of $11.65 per share
in net tangible book value of the common stock from the initial public offering
price. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of significant amounts of the common stock in the public market after
this offering, or the perception that such sales may occur, could cause the
market price of the common stock to drop. After the offering, 13,901,214 shares
of common stock will be outstanding. The 3,600,000 shares offered hereby will be
freely transferable after the offering (4,140,000 shares if the Underwriters'
over-allotment option is exercised in full) unless purchased by affiliates of
Reynard, as defined in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act").
Our officers, directors and current stockholders have agreed not to offer,
sell, contract to sell or otherwise dispose of their shares (approximately
10,301,214 shares) for a period of 180 days from the date of this prospectus
without the prior written consent of NationsBanc
15
<PAGE> 18
Montgomery Securities LLC on behalf of the Underwriters. See "Shares Eligible
for Future Sale" and "Underwriting."
NO CURRENT INTENTION TO PAY DIVIDENDS
We anticipate that all of our earnings in the near term will be used for
the development and expansion of our business. Therefore, we do not plan to pay
cash dividends. Our future dividend policy will depend on our:
- earnings;
- capital requirements;
- financial condition;
- bank facilities; and
- other factors considered relevant by the Board of Directors.
We are a holding company and will not have our own operations. Therefore,
we will rely on dividends or other advances from our subsidiaries to fund any
cash dividends to holders of common stock.
ANTI-TAKEOVER PROVISIONS
The General Corporation Law of the State of Delaware contains certain
provisions which may delay or prevent an attempt by a third party to acquire
control of Reynard. Our Certificate of Incorporation and By-laws contain
provisions that authorize the issuance of preferred stock, and establish advance
notice requirements for director nominations and actions to be taken at
stockholder meetings. These provisions could discourage or impede a tender
offer, proxy contest or other similar transaction involving control of Reynard,
even if viewed favorably by stockholders.
In addition, the severance provisions included in employment agreements
with certain members of management could impede an attempted change of control
of Reynard. We also have adopted a Stockholder Rights Plan which may have the
effect of impeding a hostile attempt to acquire control of Reynard. See
"Description of Capital Stock -- Delaware Law" and -- "Delaware Law and Certain
Charter and By-Law Provisions."
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
Certain statements and information contained in this prospectus are not
historical facts, but are forward-looking statements. Many of these
forward-looking statements are contained under the headings "Business," "Risk
Factors" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." These forward-looking statements concern:
- our future, proposed and anticipated activities;
- certain trends with respect to our revenues;
- operating results on a proforma basis;
- capital resources and liquidity;
- our competitive position;
- the motorsports industry in general; and
- similar statements.
16
<PAGE> 19
These statements include some risks and uncertainties that are beyond our
control. Accordingly, actual results may differ, sometimes materially, from
those expressed in or implied by such forward-looking statements. Factors that
could cause actual results to differ materially include those discussed under
"Risk Factors." The safe harbor provisions of the Private Securities Litigation
Reform Act of 1995 do not apply to this offering or other initial public
offerings.
17
<PAGE> 20
USE OF PROCEEDS
The net proceeds to Reynard from the sale of the 3,240,000 shares of common
stock offered hereby (after deducting underwriting discounts and commissions and
estimated offering expenses) are expected to be approximately $40.5 million.
This assumes an initial public offering price of $14.00 per share, the mid-point
of the price range on the cover page of this prospectus. Reynard intends to use:
- approximately $12.1 million to fund the Gemini Acquisition;
- approximately $9.7 million to repay a loan to Reynard from Dr. Reynard;
- approximately $4.3 million to upgrade the computational fluid dynamics
("CFD") computer systems and to purchase additional computer equipment;
and
- approximately $14.4 million to fund future growth and for working capital
and general corporate purposes.
See "Business--Design and Development" for a discussion of CFD technology.
The estimated amounts and uses set forth above indicates Reynard's
intentions for use of the net proceeds from this offering. Reynard may
reallocate proceeds for other working capital or general corporate purposes
Reynard deems to be in its best interest, due to unforeseen change in
circumstances concerning matters such as economic conditions, availability of
alternate financing or the existence of an acquisition or development
opportunity.
The loan from Dr. Reynard is in the form of a facility letter, due and
payable on demand, with interest accruing at the National Westminster Bank's
base rate plus 2 1/2%. Reynard has received a letter from Dr. Reynard in which
he states that he does not expect to be paid or credited with interest on the
money lent to date. Reynard currently has no agreements with respect to any
acquisitions other than the Gemini Acquisition, but it regularly engages in
discussions relating to potential acquisitions.
Pending application of the net proceeds of this offering, Reynard will
invest the proceeds in short-term, interest-bearing, investment grade
securities. Reynard will not receive any proceeds from the sale of shares of
common stock to be sold by the Selling Stockholders.
DIVIDEND POLICY
Reynard intends to retain future earnings for the operation and expansion
of its business. Reynard does not anticipate paying any cash dividends in the
near term. Any decision by the Board of Directors concerning the payment of
dividends on the common stock in the future will be dependent upon Reynard's (1)
results of operations, (2) financial condition, (3) cash requirements, (4)
capital expenditure requirements and (5) other factors deemed relevant by the
Board of Directors.
18
<PAGE> 21
DILUTION
Reynard's net tangible book value at September 30, 1998 was $(3,886,000) or
$(0.36) per share. Net tangible book value per share represents Reynard's total
tangible assets less its total liabilities, divided by the number of shares of
common stock outstanding. After giving effect to the sale of the shares of
common stock offered hereby (assuming an initial price of $14.00 per share, the
midpoint of the price range on the cover page of this prospectus, and after
deducting underwriting discounts and commissions and estimated offering
expenses), Reynard's pro forma net tangible book value at September 30, 1998
would have been approximately $32,599,000 or $2.35 per share. This represents an
immediate increase in net tangible book value per share of $2.71 to existing
stockholders and an immediate dilution of $11.65 per share to the investors
purchasing shares of common stock at the initial public offering price. Amounts
have been transferred into U.S. dollars, solely for your convenience, at a rate
of L1.00 = $1.6995, the noon buying rate in the City of New York for cable
transfers in pounds sterling for customs purposes by the Federal Reserve Bank of
New York on September 30, 1998. The following table illustrates the dilution and
net tangible book value to new investors:
<TABLE>
<S> <C> <C>
Assumed price to public..................................... $ 14.00
Net tangible book value before offering................... $ (0.36)
Increase attributable to new investors.................... 2.71
--------
Pro forma net tangible book value after offering............ 2.35
--------
Dilution to new investors................................... $ 11.65
========
</TABLE>
The following table provides the number of shares purchased from Reynard,
the effective cash contributions made and the average price per share paid by
existing stockholders and by purchasers of the common stock in this offering
(assuming an initial offering price of $14.00 per share):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION PAID
------------------------ ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing
Stockholders....... 10,661,214 77% $ 428,000 1% $0.04
New Investors........ 3,240,000 23 45,360,000 99 14.00
----------- --- ----------- ---
Total...... 13,901,214 100% $45,788,000 100%
=========== === =========== ===
</TABLE>
19
<PAGE> 22
CAPITALIZATION
The following table provides the total capitalization of Reynard as of
September 30, 1998, and pro forma capitalization to reflect (1) the receipt and
application by Reynard of the estimated net proceeds (based on an assumed
initial public offering price of $14.00 per share) from the issuance by Reynard
of the shares of common stock in the offering, after deducting underwriting
discounts and commissions and estimated expenses of the offering payable by
Reynard and (2) the Gemini Acquisition. Certain information in this prospectus
has been translated into U.S. dollar amounts from pound sterling amounts. Unless
otherwise indicated, the translations of pound sterling amounts into U.S. dollar
amounts have been made at (POUND)1.00 = $1.6995, which is the rate on September
30, 1998. You should read this table in conjunction with the unaudited pro forma
consolidated financial statements of Reynard and the related notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1998
------------------------
ACTUAL PRO FORMA (1)
------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Long-term debt and capital lease obligations (excluding
current portion).......................................... $ -- $ 1,415
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized; none issued and outstanding................... -- --
Common Stock, $.0001 par value:
50,000,000 authorized; 10,661,214 issued and
outstanding as of September 30, 1998; and 13,901,214
issued and outstanding, as adjusted.................... 1 1
Additional paid in capital............................. 1,585 42,120
Foreign Currency Translation Adjustment................ 74 74
Retained earnings (accumulated deficit)................ (4,676) (4,676)
Total stockholders' equity (deficit) (1).................... (3,016) 37,519
Total capitalization........................................ $(3,016) $38,934
======= =======
</TABLE>
- ---------------
(1) Does not include 2,450,000 shares reserved for issuance under Reynard's
employee and director stock option plans. Also excludes additional options
for 426,449 shares which were granted in September 1998 at an exercise price
per share of $13.49. See "Management - Stock Option Plans."
20
<PAGE> 23
SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected consolidated financial data in the table for the four years in
the period ended September 30, 1998 are derived from Reynard's Consolidated
Financial Statements which have been audited by Deloitte & Touche, independent
auditors. The selected consolidated financial data in the table for the year
ended September 30, 1994 are derived from Reynard's audited financial
statements. The pro forma financial information gives effect to (1) the Gemini
Acquisition, (2) the offering and the application of the net proceeds therefrom,
and (3) the reorganization, as if each of the events had occurred on October 1,
1997. You should read the following information in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Unaudited Pro Forma Financial Information and related notes,
and Reynard's Consolidated Financial Statements and notes contained elsewhere in
this prospectus.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
HISTORICAL PRO
----------------------------------------------- FORMA
1994 1995 1996 1997 1998 1998
------- ------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Products......................................... $12,079 $18,952 $22,406 $39,039 $45,929 $ 49,138
Services......................................... 2,147 2,701 6,493 10,803 12,788 12,788
Other revenue.................................... -- -- -- -- -- 50
------- ------- ------- ------- ------- --------
Total Revenues............................. 14,226 21,653 28,899 49,842 58,717 61,976
------- ------- ------- ------- ------- --------
COST OF GOODS SOLD:
Products......................................... 10,375 8,814 9,928 19,502 24,066 25,007
Services......................................... 817 1,232 3,750 5,951 5,023 5,023
------- ------- ------- ------- ------- --------
Total cost of goods sold................... 11,192 10,046 13,678 25,453 29,089 30,030
------- ------- ------- ------- ------- --------
GROSS PROFIT....................................... 3,034 11,607 15,221 24,389 29,628 31,946
GENERAL AND ADMINISTRATIVE EXPENSES (1)(2)......... 2,276 11,285 13,766 21,462 24,367 20,242
------- ------- ------- ------- ------- --------
INCOME FROM OPERATIONS............................. 758 322 1,455 2,927 5,261 11,704
Write-off of equity investment (4)............... -- -- -- -- (7,349) (7,349)
Minority interest in loss of subsidiary.......... -- -- -- -- 105 105
Interest income.................................. 10 165 166 171 51 51
Interest expense (3)............................. (41) (20) -- -- (919) (161)
------- ------- ------- ------- ------- --------
INCOME (LOSS) BEFORE INCOME TAXES.................. 727 467 1,621 3,098 (2,851) 4,350
INCOME TAX EXPENSE................................. 175 114 563 1,105 1,910 3,838
------- ------- ------- ------- ------- --------
NET INCOME (LOSS).................................. $ 552 $ 353 $ 1,058 $ 1,993 $(4,761) $ 512
------- ------- ------- ------- ------- --------
EARNINGS (LOSS) PER SHARE --
BASIC AND DILUTED................................ $ .05 $ .03 $ .10 $ .19 $ (.45) $ .04
------- ------- ------- ------- ------- --------
WEIGHTED AVERAGE SHARES OUTSTANDING --
BASIC AND DILUTED................................ 10,661 10,661 10,661 10,661 10,661 12,218
------- ------- ------- ------- ------- --------
OTHER DATA:
Gross margin..................................... 21.3% 53.6% 52.7% 48.9% 50.5% 51.5%
Operating margin................................. 5.3% 1.5% 5.0% 5.9% 9.0% 18.9%
Depreciation and amortization.................... $ 251 $ 408 $ 535 $ 898 $ 1,040 $ 2,469
Capital and tooling expenditures................. $ 874 $ 650 $ 1,963 $ 3,494 $ 6,368 $ 6,775
Number of cars produced.......................... 38 36 38 67 76 N/A
Number of racing wins............................ 12 18 16 16 22 N/A
BALANCE SHEET DATA:
Working capital (deficit)........................ $ (416) $ (625) $ (595) $(4,793) $(9,198) $ 20,498
Total assets..................................... 5,433 13,149 11,891 18,409 29,702 65,828
Long-term debt and capital lease obligations
(less current portion)......................... -- -- -- -- -- 1,415
Total stockholders' equity (deficit)............. 930 1,285 2,296 741 (3,016) 37,519
</TABLE>
21
<PAGE> 24
- ---------------
(1) General and Administrative expenses for the years ended September 30, 1996,
1997 and 1998 include remuneration to Dr. Reynard, the Chairman of Reynard
and its principal shareholder. Effective October 1, 1998 Reynard entered
into an agreement with Dr. Reynard whereby his total compensation is fixed
at $1.5 million per annum, plus pension contributions. The agreement expires
December 31, 2001. The pro forma statement of income data for the year ended
September 30, 1998 excludes remuneration of $6,340,000, which will be
discontinued as a result of the agreement. Because Dr. Reynard is a
stockholder of the Company, the agreement constitutes a related party
transaction. Management does not intend to resume making such payments to
Dr. Reynard in the foreseeable future.
(2) General and Administrative expenses for the historical and pro forma year
ended September 30, 1998 include compensation expense of $239,000 related to
the issuance on September 30, 1998 of stock options to Alex S. Hawkridge,
Reynard's President and Chief Executive Officer, below their fair value on
the date of such issuance. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(3) Interest expense for the year ended September 30, 1998 relates to interest
recorded on notes payable to Dr. Reynard. The pro forma statement of income
data for the year ended September 30, 1998 excludes interest expense of
$919,000 as a result of the repayment of the notes payable to Dr. Reynard
with a portion of the proceeds of the Offering. See "Use of Proceeds."
(4) The equity investment written off for the historical and pro forma year
ended September 30, 1998 represents the total write-off of Reynard's
investment in BAR including its proportionate share of bank debt guarantees.
Reynard does not expect to incur additional losses in the future relating to
their investment and there are no plans to make additional equity
investments in BAR or extend additional guarantees for BAR indebtedness.
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto and "Selected
Consolidated Financial Data" included elsewhere in this Prospectus.
GENERAL
Reynard's sales have grown at a compounded annual growth rate of 42.5% from
1994 to 1998 and of 42.5% from 1996 to 1998. Reynard typically enters into
purchase agreements for the sale of racing cars and design and engineering
services as much as six months in advance of delivery. As of December 1, 1998,
Reynard had entered into purchase agreements for racing cars and services
representing revenue of $46.90 million in fiscal 1999. Reynard derives a
substantial portion of its total revenues in advance of and during the first
half of the worldwide racing season during the months of January through July. A
racing season will typically run from March through October. A majority of
Reynard's racing car sales occur before the season starts in Reynard's second
quarter. Parts and service sales primarily occur in Reynard's third quarter.
Reynard designs and develops new cars at the conclusion of the racing
season, which corresponds with Reynard's fourth and first quarters. The
associated research and development costs are expensed as they occur. Reynard
generally only manufactures racing cars once purchase orders have been received,
which primarily occurs in Reynard's first quarter. Service revenue, which is
primarily derived from design and engineering programs on touring and sports
racing cars, is generated on a contract by contract basis. The timing of the
initiation and closure of these contracts can lead to significant variances in
quarterly service revenue and Reynard's operating results.
Since its inception, Reynard has progressed from manufacturing racing cars
for Formula Ford in the 1970's, Formula Three in the 1980's, and Formula 3000 in
the late 1980's and early 1990's to CART in 1994, and Formula One in 1999.
Reynard has continued to leverage its success and technical expertise gained in
each of these series and graduate into more advanced series in which revenue and
profit per car are greater. The more advanced race series require superior
research and development using state of the art technology and engineering
expertise. The most advanced work is done within Formula One. Historically,
Reynard has exited some of the less advanced race series upon entering a more
advanced series. This decision has been driven by capacity constraints and the
higher cost structure needed to support production of cars for the more advanced
series. These higher costs are attributable primarily to research and
development and are technology related.
As a result of the BAR joint venture, Reynard will have access to certain
of BAR's technological know how (not in written or machine readable form).
Reynard believes that this access to research and development ideas will enhance
its other motorsports projects by improving its knowledge database and
methodology and manufacturing processes. In particular, Reynard will have access
to technical know how and methodology to increase the performance, safety and
durability of its racing cars. Reynard does not intend to exit any race series
as a result of its entry into Formula One. In order to increase capacity,
Reynard intends to expand its existing operations in Oxfordshire, England and
Indianapo-
23
<PAGE> 26
lis, Indiana. Reynard may seek to acquire companies that will complement and
expand existing operations.
Reynard has a reputation for winning and is able to rapidly design and
engineer new racing cars using advanced techniques in aerodynamics and composite
design. These factors have contributed to Reynard's success in attracting
automobile manufacturers as customers for its engineering and design services.
Over the past two years Chrysler, Ford and Panoz, amongst others, have selected
Reynard to support their motorsports efforts in selective projects. For example
Reynard was awarded the aerodynamic design work and production of composite
parts for the Dodge Viper GT racing cars. These automobile manufacturers are
representative of Reynard's customer base for service projects. The engineering
and design services provided for projects of this type comprise a significant
portion of Reynard's revenue. In fiscal 1998, service revenues from Chrysler,
Ford and Panoz represented 5.7%, 5.4% and 27.0%, respectively, of Reynard's
total service revenues. In fiscal 1997, service revenue from Chrysler, Ford and
Panoz represented 25.1%, 37.0% and 11.6%, respectively, of Reynard's total
service revenue.
In conjunction with Reynard's entry into Formula One, Reynard has expanded
its service technology to include CFD. Reynard currently generates service
revenue by providing engineering staff and software analysis needed for CFD
design applications on a fee-per-usage basis. Reynard believes that a
significant portion of its future growth will be in the form of expanded sales
of higher margin services to its motorsports customers, such as CFD software
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, Reynard's customers are able to simulate and
evaluate the effects of subtle changes in the engineering and set up of
individual cars moving at high speeds and apply the results of such tests to
maximize the performance of their racing cars. Reynard has designed and built a
state-of-the-art 50% scale model, moving ground open jet wind tunnel in
Indianapolis, which is provided on a fee-per-usage basis to CART racing teams
and others. In 1999, Reynard will construct a seven post suspension rig testing
facility in Indianapolis, which will also be provided on a fee-per-usage basis
to CART racing teams and other potential customers.
BAR. In October 1997, Reynard entered into a joint venture agreement with
BAT and Mount Eagle, Inc. to form BAR. Reynard believes that Mount Eagle, Inc.
was formed for the purpose of investing in BAR. Mount Eagle, Inc. owns a 35%
interest in BAR and BAT owns a 50% interest in BAR. Reynard has agreed to commit
its management expertise and technology to BAR, in exchange for an ongoing
management fee for directors' services and access to certain technology (not in
written or machine readable form). In addition, Reynard has invested $5.3
million for a 15% equity interest in BAR. It is anticipated that Reynard will
provide contract manufacturing services to BAR in its early stages on a
fee-for-service basis. Under the terms of the directors service agreements, Dr.
Reynard, Mr. Oastler and Mr. Borne will act as technical director, chief
designer and commercial director and will devote a substantial portion of their
time to BAR. The payments to Reynard from BAR for these management services
during the year ended September 30, 1998 was $2.17 million. Reynard has build
two show cars for BAR and composite work, general research and development, a
gearbox testing and other incidental manufacturing and other services. BAR will
build and maintain its own independent design, engineering, research and
development and manufacturing staff and facilities adjacent to Reynard's
facilities in the Motorsport Valley of the UK. Reynard has accounted for its
ownership stake under the equity method of accounting due to Reynard's ability
to exercise significant influence over the operating
24
<PAGE> 27
and technical policies of BAR. However as a result of losses incurred during the
start up phase of BAR, the equity investment of $5.3 million has been fully
written-off and Reynard has recognized its share of a BAR bank guarantee,
resulting in a charge of $7.35 million in the year ended September 30, 1998.
Reynard does not expect to incur additional losses in the future relating to its
investment. Management currently has no plans to make additional equity
investments in BAR or extend additional guarantees for BAR indebtedness.
REYNARD AVIATION. In January 1998, Reynard and Virgin Airlines joined
together to establish Reynard Aviation. Through this arrangement, Reynard has
capitalized on its expertise in composite material usage, combined with its
technical knowledge, to design and develop a light-weight, strong and functional
fully-reclining business class aircraft seat. The project was primarily funded
by Virgin Airlines, with Reynard receiving a 20% equity interest in Reynard
Aviation. Reynard accounts for its ownership interest in Reynard Aviation under
the cost method of accounting because Reynard does not have the ability to
influence the operating or financial decisions of Reynard Aviation.
WIND TUNNEL FACILITY. Wholly-owned subsidiaries of Reynard are the manager
and a 59% owner of Auto Research Center, LLC ("ARC"). ARC owns and operates the
wind tunnel facility in Indianapolis. Reynard owned a 49% interest at September
30, 1998, which increased to 59% interest in December 1998. Unaffiliated
entities currently own 40% of the membership interest and Bruce Ashmore, a
member of Reynard's senior management team, owns 1% of the membership interest.
ARC sells time in the wind tunnel on a fee-per-usage basis. The operations of
ARC are consolidated in Reynard's financial statements, with a minority interest
recorded with respect to the membership interests owned by unaffiliated
entities.
Set forth below are selected income and expense items and the relationship
of such income and expense items to total revenues for the years ended September
30, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Products........................... $22,406 77.5% $39,039 78.3% $45,929 78.2%
Services........................... 6,493 22.5% 10,803 21.7% 12,788 21.8%
------- ----- ------- ----- ------- -----
Total revenues............. 28,899 100.0% 49,842 100.0% 58,717 100.0%
------- ----- ------- ----- ------- -----
COST OF GOODS SOLD:
Products........................... 9,928 34.4% 19,502 39.2% 24,066 41.0%
Services........................... 3,750 12.9% 5,951 11.9% 5,023 8.6%
------- ----- ------- ----- ------- -----
Total cost of goods sold... 13,678 47.3% 25,453 51.1% 29,089 49.5%
------- ----- ------- ----- ------- -----
GROSS PROFIT......................... 15,221 52.7% 24,389 48.9% 29,628 50.5%
------- ----- ------- ----- ------- -----
GENERAL AND ADMINISTRATIVE EXPENSES
(1)................................ 13,766 47.7% 21,462 43.0% 24,367 41.5%
------- ----- ------- ----- ------- -----
INCOME FROM OPERATIONS............... 1,455 5.0% 2,927 5.9% 5,261 9.0%
Share of loss in equity investment... -- -- (7,349)
Minority interest in loss of
subsidiaries....................... -- -- 105
Interest income...................... 166 171 51
Interest expense..................... -- -- (919)
------- ----- ------- ----- ------- -----
</TABLE>
25
<PAGE> 28
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------------------------------------
1996 1997 1998
--------------- --------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME
TAXES.............................. 1,621 5.6% 3,098 6.2% (2,851) (4.9)%
Income tax expense................... 563 1,105 1,910
------- ----- ------- ----- ------- -----
NET INCOME (LOSS).................... $ 1,058 3.7% $ 1,993 4.0% (4,761) (8.1)%
======= ===== ======= ===== ======= =====
</TABLE>
- ---------------
(1) The results for years ended September 30, 1996, 1997 and 1998 include
remuneration to Dr. Reynard, the Chairman of Reynard and its principal
shareholder. This remuneration has a significant effect on general and
administration expenses and income before taxes of Reynard. Pursuant to a
Services Agreement with Dr. Reynard, compensation payable to Dr. Reynard for
services he will provide to Reynard will total $1.5 million per year plus
pension contributions.
26
<PAGE> 29
REVENUES
Reynard derives its revenues primarily from the sale of products and
provision of services.
PRODUCT SALES. Product sales consist of sales of (1) racing cars and
associated spare parts to CART, Formula Nippon and Barber Dodge racing teams;
and (2) racing cars produced in conjunction with projects for automobile
manufacturer's entries into touring, sports car and GT1 racing series. The sale
of new racing cars is in accordance with negotiated contractual commitments with
race teams that are entered into approximately six months in advance of
delivery. Advance deposits are collected at the time of receiving the order,
with the balance payable upon delivery of the racing car. The sale of a new
racing car will automatically generate an initial sale of spare parts for basic
vehicle servicing and maintenance and an ongoing parts revenue stream over the
life of the racing car. The sale of update kits is dependent upon the life of
the racing car, which varies from race series to race series, combined with the
level of investment by race teams to maintain a competitive edge.
SERVICE SALES. Revenues derived from services include: (1) engineering and
design work for touring car and sports car racing series; (2) specific
engineering and design projects for the CART Series; (3) fees for CFD analysis;
(4) fees for use of Reynard's proprietary wind tunnels; and (5) fees for the
production of wind tunnel models.
COST OF GOODS SOLD
Reynard classifies its cost of goods sold into cost of sales and direct
project expenses that are attributable to product and service revenues, together
with operating and non-operating overheads, as discussed below.
COST OF SALES (PRODUCT). Reynard purchases raw materials to fabricate
components for racing cars and spare parts. Externally manufactured parts may
also be purchased where appropriate. This category also includes personnel
costs.
COST OF SALES (SERVICES). Cost of sales (services) includes costs, such as
personnel, wind tunnel, jigs, molds and tooling costs, specifically linked to
service projects.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
include sales and marketing, warranty, freight and property costs. It also
includes purchases of consumables, personnel costs, directors' remuneration,
administrative expenses, depreciation, foreign exchange gains/losses and other
miscellaneous items.
RESEARCH AND DEVELOPMENT COSTS. Research and development costs related to
present and future products are expensed as incurred. Reynard's research and
development costs historically have fluctuated from year to year. Research and
development costs will be higher during periods when there is significant
vehicle development activity. For example, during 1996, Reynard developed the
Ford Indigo and the Panoz GT1 cars, and commenced work for the Ford Mondeo
Touring Car. In 1998, the Formula Nippon and the hybrid Panoz GT1 cars were
developed. In 1995 and 1997, there were fewer projects at a development stage,
and therefore Reynard had less research and development expenses.
27
<PAGE> 30
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998 COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Total revenues for 1998 were $58.72 million, an increase of $8.88 million,
or 17.8%, from 1997.
Product sales for 1998 were $45.93 million, an increase of $6.89 million,
or 17.6%, from 1997. This increase was attributable to growth of $5.52 million
arising from higher volume of racing cars and spare parts sold to CART teams and
an increase of $1.78 million from the supply of racing cars to the 1998 Barber
Dodge series, which commenced in the final quarter of 1997. This was partially
offset by reductions of $0.67 million as a result of the discontinuation of the
Ford Mondeo Touring Car program and $1.28 million for the various Chrysler
programs, including the Stratus Touring Car.
Service sales for 1998 were $12.79 million, an increase of $1.99 million,
or 18.4% from 1997. Of this increase $2.20 million arose from the Panoz project,
$3.53 million from the BAR program and $0.84 million which was attributable to
commencement of CFD revenues. This was partially offset by reductions of $3.31
million following the completion of the Ford Mondeo Touring Car program, $0.58
million from the Virgin airline seat project and $1.97 million from various
Chrysler programs, including the Stratus Touring Car.
Cost of sales (product) for 1998 was $24.07 million, an increase of $4.56
million, or 23.4%, from 1997, $1.53 million of this increase was attributable to
the Barber Dodge race cars and $3.09 million to the continuing growth of the
CART program. This was partially offset by a reductions in costs of $0.67
million attributable to the various Chrysler programs, including the Stratus
Touring Car.
Cost of sales (services) for 1998 was $5.02 million, a decrease of $0.93
million, or 15.6%, from 1997. This decrease was primarily attributable to cost
reductions of $2.44 million for the Ford Mondeo Touring Car program and $1.03
million for the prototype and testing of Virgin airline seats.
Gross profit was 50.5%, compared to 48.9% for the prior year. This increase
was primarily due to the higher margin services which commenced during the year,
including management fees from BAR and consultancy fees for CFD services. This
was partially offset by the wind down of various programs, including the Ford
Mondeo and Chrysler Stratus Touring Car programs discussed above.
General and administrative expenses, excluding payments to the principal
shareholder ($7.99 million), for 1998 were $16.38 million, an increase of $4.91
million, or 42.8% from 1997 (excluding payments to the principal shareholder of
$10.0 million). This increase was attributable to the expansion of the
administrative and information technology function to support Reynard's growth
and increased depreciation following investment in plant and equipment for the
CFD program. General and administrative expenses, excluding payments to the
principal shareholder, for 1998 represent 27.9% of total sales, compared to
23.0% for 1997. This increase is the result of investment in infrastructure to
support future growth. During 1998, Reynard incurred expenses of $0.74 million
for doubtful accounts. This primarily related to closure expenses of $0.42
million for the Ford Mondeo Touring Car and $0.31 million for the Panoz GT1
programs. General and administrative expenses for 1998 also include compensation
expense of $0.24 million. This non-cash compensation expense relates to the
issuance on September 30, 1998 of stock options below their fair value to Alex
S. Hawkridge, Reynard President and Chief Executive Officer.
28
<PAGE> 31
The write-off of equity investments for 1998 was $7.35 million. This
represents the Company's 15% investment in BAR which has been fully written off
and Reynard's share of BAR's guaranteed debt obligations.
The minority interest in losses of subsidiaries for 1998 was $0.10 million.
This represents the share of the loss incurred by ARC which is attributable to
unaffiliated members.
Interest income for 1998 was comparable to 1997.
Interest expense for 1998 was $0.92 million, an increase of $0.92 million,
or 100%, from 1997. This charge represents the interest due on the loan from Dr.
Reynard. Reynard has received a letter from Dr. Reynard in which he states that
he does not expect to be paid or credited with interest on money lent to date.
Loss before income taxes for 1998 was $2.85 million, a decrease of $5.95
million, as compared to the income achieved during 1997, as a result of the
factors described above.
Income tax expense for 1998 was $1.91 million, an increase of $0.81 million
as compared to 1997.
Net loss for 1998 was $4.76 million, a decrease in net income of $6.75
million from 1997 as a result of the factors described above.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED TO YEAR ENDED SEPTEMBER 30, 1996
Total revenues for 1997 were $49.84 million, an increase of $20.94 million,
or 72.5%, from 1996.
Product sales for 1997 were $39.04 million, an increase of $16.63 million,
or 74.2%, from 1996. This increase was attributable to growth of $9.59 million
arising from the higher volume of racing cars and spare parts sold to CART teams
and increases of $5.96 million and $1.91 million relating to the commencement of
supply of Panoz GT1 cars and Ford Mondeo Touring Cars. In addition, product
sales included $0.37 million for the supply of race cars to the Barber Dodge
Series, which commenced during the final quarter of 1997.
Service sales for 1997 were $10.80 million, an increase of $4.31 million,
or 66.4%, from 1996. This additional revenue was the result of increases of
$0.97 million from various Chrysler projects, including the Stratus Touring Car,
and $3.75 million from the Ford Mondeo Touring Car program, for which
preliminary work commenced during the third quarter of 1996. In addition,
revenue of $1.41 million was derived from the development of the Virgin airline
seat, which commenced in the second quarter of 1997 and continued until the
second quarter of 1998.
Cost of sales (product) for 1997 was $19.50 million, an increase of $9.57
million, or 96.4%, from 1996. This aggregate increase was attributable to costs
of $3.88 million relating to the commencement of the Panoz GT1 project and an
increase of $2.04 million for the Ford Mondeo Touring Car program, together with
an increase of $4.85 million associated with the growth of the CART program.
Cost of sales (service) for 1997 was $5.95 million, an increase of $2.20
million, or 58.7%, from 1996. Of this increase, $2.57 million was attributable
to the Ford Mondeo Touring Car program and $1.03 million to the Virgin airline
seat development, which commenced in the second quarter of 1997 and continued
until the second quarter of 1998.
29
<PAGE> 32
These increases were partially offset by a reduction of $1.87 million following
the completion of the Ford Indigo project.
Gross profit was 48.9%, compared to 52.7% for the prior year. This
reduction was due to the commencement of the new programs, including the
development of the Virgin airline seat and the Ford Mondeo Touring Car discussed
above.
General and administrative expenses, excluding payments to the principal
shareholder ($10.0 million), for 1997 were $11.47 million, an increase of $2.41
million, or 26.6%, from 1996 (excluding payments to the principal shareholder of
$4.70 million). This increase was due to higher depreciation charges following
investment in plant and equipment to increase the Company's engineering
capability. This was partially offset by the reduction in non-specific research
and development expenditure. General and administrative costs, excluding
payments to principal shareholders, for 1997 represent 23.0% of total sales,
compared to 31.4% for 1996. This decrease is due to the Company leveraging its
personnel overhead during a period of significant sales growth.
Interest income and expense for 1997 were comparable to prior years.
Income before income taxes for 1997 was $3.10 million, an increase of $1.48
million, or 91.1% from 1996, as a result of factors described above.
Income tax expense for 1997 was $1.11 million, an increase of $0.54 million
from 1996.
Net income for 1997 was $1.99 million, an increase of $0.94 million from
1996, as a result of the factors described above.
SEASONALITY AND QUARTERLY RESULTS
Reynard derives a substantial portion of its total revenues from product
sales that are made during the second and third quarters of the fiscal year.
Reynard expenses all research and development costs as they are incurred.
Similarly, a substantial amount of project costs are incurred during the first
and fourth quarters of the fiscal year. Historically, Reynard's revenues are
higher in the second and third quarters of the year due to the number of racing
cars and equipment delivered during such period. Reynard accounts for revenues
at the time of delivery of a racing car, which usually occurs on a Friday. The
timing of the delivery of racing cars, particularly for the CART Series, can
significantly alter Reynard's quarterly results of operations when compared to a
previous quarter due to the number of Fridays, and therefore the number of
racing cars delivered, in the particular quarter.
As a result, Reynard's business has been, and is expected to remain,
seasonal based upon these external factors. Reynard's quarterly results are
dependent on the timing of the following activities:
<TABLE>
<CAPTION>
PERIOD ACTIVITY
------ --------
<S> <C>
Quarter ended December 31 Building racing cars for sale
Quarter ended March 31 Selling racing cars
Quarter ended June 30 Selling parts
Quarter ended September 30 Designing racing cars for the upcoming
season
</TABLE>
30
<PAGE> 33
Service income is generated by individual contracts. The timing of the
initiation and closure of these contracts can lead to significant variances in
quarterly service revenue and Reynard's operating results.
The following table presents selected quarterly financial information of
Reynard for each of the four quarters of 1996, 1997 and 1998. This information
has been prepared by Reynard on a basis consistent with Reynard's consolidated
financial statements and related notes included elsewhere in this prospectus and
include, in the opinion of management, all adjustments necessary for a fair
presentation of the results of such quarters. The tables should be read in
conjunction with "Selected Consolidated Financial Data," Reynard's consolidated
financial statements and the related notes thereto and the other financial
information included elsewhere in this prospectus.
<TABLE>
<CAPTION>
QUARTERS ENDED
-----------------------------------------------
DECEMBER 31 MARCH 31 JUNE 30 SEPTEMBER 30 TOTAL
----------- -------- ------- ------------ -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total Revenues
1996 $5,885 $11,332 $8,147 $ 3,535 $28,899
1997 8,239 20,615 13,593 7,395 49,842
1998 11,119 20,957 18,687 7,954 58,717
Gross Profit
1996 $3,539 $ 5,106 $4,677 $ 1,899 $15,221
1997 5,097 10,528 6,600 2,164 24,389
1998 4,631 8,943 11,532 4,522 29,628
Operating Income (Loss)
1996 $ 277 $ 1,694 $1,559 $(2,075) $ 1,455
1997 (78) 5,407 1,075 (3,477) 2,927
1998 (1,571)(2) 1,994 4,561 277 5,261
Income Before
Income Taxes
1996 $ 338 $ 1,735 $1,592 $(2,044) $ 1,621
1997 (57) 5,462 1,143 (3,450) 3,098
1998 (6,070)(1) 1,484 3,717 (1,982) (2,851)
Net Income (Loss)
1996 $ 282 $ 1,580 $1,453 $(2,257) $ 1,058
1997 139 3,622 721 (2,489) 1,993
1998 (5,549)(1) 817 2,229 (2,258) (4,761)
</TABLE>
- ---------------
(1) Attributable to the total write off of Reynard's BAR investment.
(2) Attributable to the discontinuation of the Ford Mondeo Touring Car Program.
Because of Reynard's fluctuations in sales, historical quarterly operating
results do not reflect management's expectations of future quarterly operating
results. Management believes that future operating results will fluctuate on a
quarterly basis due to a variety of factors, including seasonal cycles
associated with the motorsports industry, the timing of orders for racing cars
and spare parts, the timing of service projects undertaken for third parties and
changes in the mix of products and services ordered by customers. Management
anticipates that Reynard's sales will normally be lowest in its first and fourth
fiscal quarters, which end December 31 and September 30, respectively.
31
<PAGE> 34
LIQUIDITY AND CAPITAL RESOURCES
Reynard has historically relied on cash flow from operations, supplemented
by loans from the principal shareholder, to finance working capital, investments
and capital expenditures. The loan from the principal shareholder will not be
available to Reynard following the offering.
For 1998, net cash provided by operating activities was $5.30 million, as
compared to $0.80 million used in 1997. This was largely comprised of a net loss
of $4.76 million offset by non-cash charges for depreciation and amortization of
$1.04 million and the write-off of equity investments of $7.35 million and the
waiver of interest by the principal shareholder of $0.92 million, together with
a net decrease in working capital of $1.31 million.
Net cash used in investing activities was $5.94 million for 1998 as
compared to $1.55 million provided for 1997. This principally consisted of $4.30
million for the investment in the equity of BAR and $6.37 million for the
acquisition of property and equipment. This was partially offset by an increase
in the amount owed to the principal shareholder of $4.05 million. Net cash
provided by financing activities during 1998 amounted to $3.22 million, largely
due to the receipt of $2.89 million relating to recovery of capital investment
from the third party investors in ARC.
Capital expenditures on property and equipment was $6.37 million for 1998
as compared to $3.49 million for 1997. The increase in capital expenditures
relates to the investment in computer hardware and software for the CFD program
and investment in the windtunnel facility in Indianapolis operated through ARC.
Reynard has an unsecured bank line of credit with National Westminster Bank
PLC. Interest is charged at the bank's base rate plus 2% on the first $1.70
million and the bank's base rate plus 6% thereafter (effective rates of 9.0% and
9.5% at September 30, 1997 and 1998, respectively) and is due on demand. At
September 30, 1998, there was $0.52 million outstanding under the line of
credit.
The seasonality of revenue noted above causes working capital requirements
to fluctuate during the year. The financial statements indicate a working
capital deficit for each period as a result of the timing of the year end within
the business cycle. The business is expected to remain seasonal, so no action
will be taken to compensate for this working capital deficiency. These deficits
have not affected Reynard's ability to operate its business. The nature of the
supply of racing cars is such that significant advance deposits are received at
the time of order. This can be up to six months prior to delivery of the car,
and hence reduces the need for short term borrowing.
Reynard has a loan facility provided by Dr. Adrian Reynard. This facility
is repayable on demand, and is secured by way of fixed and floating charges over
Reynard's assets. It bears interest at National Westminster Bank's base rate
plus 2 1/2%. Reynard has received a letter from Dr. Reynard stating that he does
not expect to be paid or credited with interest on the money lent to date. A
portion of the proceeds from this offering will be used to repay the loan in its
entirety. This facility will not be available to Reynard following the offering.
At September 30, 1998, Reynard had cash of $3.32 million offset by short
term debt of $9.67 million owed to the principal shareholder and $0.52 million
owed to National Westminster Bank. In addition to the continuing operations,
Reynard plans to investigate the potential acquisition opportunities in
activities relating to its core business. Reynard has budgeted approximately
$26.59 million of capital expenditures for property and
32
<PAGE> 35
equipment during fiscal 1999. Reynard believes that the existing cash, the
proceeds of the offering and cash flow from future operations will be sufficient
to fund its capital expenditures and other cash needs during fiscal 1999.
Reynard currently has no plans to enter into any long-term financing
arrangements.
FOREIGN CURRENCY FLUCTUATIONS
Reynard's earnings and liquidity are affected by fluctuations in foreign
currency exchange rates, principally the U.S. dollar rate, reflecting the fact
that most of Reynard's revenues and cash receipts are denominated in U.S.
dollars while the large majority of its costs are in pounds sterling. Reynard
reduces this dollar/sterling exchange risk where possible by currency hedging.
Reynard monitors the dollar/sterling exchange rate on a daily basis and
maintains an ongoing currency hedging facility of approximately $8.25 million
with National Westminster Bank. It is the policy of Reynard not to enter into
derivative financial instruments for speculative purposes. Reynard does enter
into foreign currency forward exchange contracts to minimize risk of loss from
currency rate fluctuations on foreign currency commitments entered into in the
ordinary course of business. These commitments are generally for terms of less
than one year.
The foreign currency forward exchange contracts are executed with
creditworthy banks and are denominated in currencies of major industrial
countries. The notional amount of outstanding foreign currency forward exchange
contracts aggregated $5.0 million at September 30, 1997. There were no
outstanding foreign currency forward exchange contracts at September 30, 1996
and September 30, 1998. Reynard does not anticipate any material adverse effect
on its results of operations or financial position relating to these foreign
currency forward exchange contracts. Reynard engages in currency hedging
activity whenever management believes that it is advantageous to do so.
The following table sets forth, for the periods indicated, certain
information concerning the exchange rate between pounds sterling and U.S.
dollars based on the Noon Buying Rate (expressed as U.S. dollars per pound
sterling). Such rates are provided solely for the convenience of the reader and
are not necessarily the exchange rates (if any) used by Reynard in the
preparation of its consolidated financial statements included elsewhere in this
Prospectus. No representation is made that the pound sterling could have been,
or could be, converted into U.S. dollars at these rates or at any other rates.
<TABLE>
<CAPTION>
SPOT RATE - U.S. DOLLARS PER POUND STERLING
-----------------------------------------------------
CALENDAR YEAR PERIOD-END RATE AVERAGE RATE (1) HIGH LOW
------------- --------------- ---------------- ------ ------
<S> <C> <C> <C> <C>
1993............................... 1.4775 1.5030 1.5875 1.4180
1994............................... 1.5647 1.5326 1.6382 1.4620
1995............................... 1.5496 1.5789 1.6400 1.5310
1996............................... 1.7140 1.5624 1.7140 1.4929
1997............................... 1.6451 1.6395 1.7115 1.5797
1998 (through September)........... 1.6995 1.6620 1.7085 1.6125
</TABLE>
- ---------------
(1) The average of the Noon Buying Rates on the last business day of each full
month during the relevant period.
33
<PAGE> 36
YEAR 2000 COMPLIANCE
GENERAL. Reynard has been aware of potentially serious issues arising from
computer programs failing to recognize correctly, dates beyond 1999 for a number
of years. Since 1996, computer system upgrades have been implemented with
supplier compliance assurances. A "Year 2000" compliance project is ongoing to
either ensure compliance, both internally and with regard to suppliers and
customers, or implement a contingency plan to avoid losses where guaranteed
compliance cannot be achieved.
In 1996, Reynard commenced an organization wide implementation of an
integrated manufacturing and financial management computer system to improve
business information reporting. The new systems, which are expected to make
Reynard's business systems substantially Year 2000 compliant, are scheduled for
completion during 1999. The chosen manufacturing package "Fourman" is Unix
based, with the Coda financial package and other administrative software, being
entirely Windows NT based by the end of the second quarter of 1999.
The computer aided design ("CAD") applications used by Reynard are Unix
based and the ongoing program of upgrading to achieve Year 2000 compliance will
be completed by the end of 1998.
Information Technology ("IT") development is viewed as critical to Reynard
for the following reasons:
- to ensure that Reynard remains a leader in motorsport technology;
- to expand the infrastructure to support Reynard's growth; and
- to provide additional service revenue opportunities.
Year 2000 has been viewed as one facet of this development rather than an
interruption of the overall IT development program.
YEAR 2000 PROJECT. Reynard engaged Ashton Court, a U.K. Department of Trade
and Industry approved external consultant, to assist in the management on all
aspects of a Year 2000 compliance review project. The project can be divided
into three stages:
1. IT Systems - Infrastructure and applications software
2. External Agents - Third party suppliers and customers
3. Manufacturing - Process control and implementation
The phases common to all three stages are:
- preparing an inventory of year 2000 items;
- assigning priorities to identified items;
- identifying non-compliance items considered to be material;
- repairing or replacing material items;
- testing material items; and
- designing and implementing contingency and business continuation plans.
With regard to IT systems, Reynard has substantially completed the
replacement of material items and is on target to finalize this exercise by the
end of the second quarter of
34
<PAGE> 37
1999. The IT replacement cost to date is approximately $1.80 million. Management
believes that the key business component is the CAD facility and that this area
of the business is Year 2000 compliant.
The External Agents stage includes the process of identifying and
prioritizing critical suppliers and customers, and communicating with them about
their plans and progress in addressing the Year 2000 problem. Evaluations of the
most critical third parties have been initiated. These evaluations will be
followed by the development of contingency plans that are scheduled for
completion in the first quarter of 1999. The process of evaluating is scheduled
for completion by mid-1999. Follow-up reviews are scheduled through the
remainder of 1999.
Plans detailing the tasks and resources for the manufacturing review are
currently being prepared. The completion of the review and testing is scheduled
for the end of the first quarter of 1999. Any necessary replacement of material
items will be carried out during the second quarter of 1999. This stage includes
all hardware and software embodied in the manufacturing plant utilized by
Reynard. The key equipment is programmed by the CAD stations and is numerically
controlled, rather than date controlled. Reynard currently is engaged in an
evaluation and prioritization program to assess whether there will be a material
impact on its manufacturing ability or a requirement to develop a contingency
plan.
COSTS. Costs to date incurred purely for Year 2000 compliance are
approximately $50,000. Compliance issues are being taken into account and
resolved within Reynard's normal capital expenditure budget. However, personnel
time has been diverted to project activities carried out to date. It is not
anticipated that there will be material costs in the replacement of materials
items, or in the implementation of contingency plans. The cost of the external
consultants and internal personnel time to complete the review will be
approximately $0.15 million. This amount is in addition to the expenditure of
$1.80 million for IT replacement referenced above.
RISKS. Until the compliance review is substantially in process, Reynard
cannot fully estimate the risks of its Year 2000 issue. To date, Reynard has not
identified any assets that present a material risk of not being Year 2000
compliant or for which a suitable alternative cannot be implemented. However, as
the initiative proceeds into subsequent phases, it is possible that Reynard may
identify assets that do present a risk of a Year 2000-related disruption. It is
also possible that such a disruption could have a material adverse effect on
Reynard's financial condition and results of operations. In addition, if any
third parties who provide goods or services that are critical to business
activities fail to appropriately address their Year 2000 issues, it could have a
material adverse effect on Reynard's financial and business results.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income" was issued by the Financial Accounting
Standards Board ("FASB"). SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components. This statement requires that
all items that are required as components of comprehensive income be displayed
in a financial statement. SFAS No. 130 is effective for Reynard's combined
financial statements for the year ended September 30, 1999. For the year ended
September 30, 1999, Reynard will provide
35
<PAGE> 38
information relating to comprehensive income to conform to the requirements. For
the year ended September 30, 1998, comprehensive income would not have been
materially different from net income.
In June 1997, SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" was issued by the FASB. SFAS No. 131 establishes standards
for the way that public business enterprises report financial and descriptive
information about its reporting operating segments. SFAS No. 131 is effective
for Reynard's combined financial statements for the year ending September 30,
1999. For the year ended September 30, 1999, Reynard will provide information
relating to SFAS No. 131 to conform to the requirements. For the year ended
September 30, 1998, segment information was presented in accordance with
Financial Accounting Standards Board Statement No. 14.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued by the FASB. SFAS No. 133 establishes standards
for accounting for derivative instruments, including certain derivative
instruments embedded in other contracts by requiring that an entity recognize
those items as assets or liabilities in the balance sheet and measure them at
fair value. Reynard has not determined the impact on Reynard's combined
financial statements. SFAS No. 133 is effective for Reynard's combined financial
statements for the year ending September 30, 2000.
36
<PAGE> 39
MOTORSPORT INDUSTRY OVERVIEW
INDUSTRY OVERVIEW
Auto racing is the second most watched professional sport in the world
after soccer. In 1997, auto racing had an estimated aggregate television
audience of over 6 billion people. In addition, professional auto racing has
been the fastest growing professional sport in North America over the past five
years based on spectator attendance and television viewership.
Motorsport fans tend to be loyal to their favorite driver or teams. These
fans offer demographic profiles which attract significant corporate sponsorship.
Corporate sponsorships, which are estimated at over $1 billion in North America
alone include (1) event sponsorship, (2) racing team sponsorship and (3)
broadcast television sponsorship. British American Tobacco, Budweiser, DuPont,
Federal Express, Kellogg's, Marlboro, McDonald's, Miller Brewing, Motorola, PPG
Industries, Target Stores, Texaco/Havoline, Valvoline and Winston each sponsor
racing teams, series or events.
Auto racing consists of several distinct categories, each with its own
organizing body and racing events. Internationally, open-wheel racing is the
most recognized form of auto racing. Open-wheel racing utilizes an
aerodynamically designed chassis and technologically advanced equipment. The
most established international open-wheel racing series are Formula One and the
CART Series. The development series for Formula One include Formula Ford 1600,
Formula Ford 2000, various national Formula Three series, progressing to Formula
3000 and Formula Nippon. The development series for the CART Series include the
Barber Dodge Series, Toyota Atlantic and the Indy Lights Series. The IRL was
formed in 1995 as a rival U.S. open-wheel racing series. The IRL competes
directly with the CART Series, with an all oval race schedule including the
Indianapolis 500.
The largest auto racing category in the United States, in terms of
attendance and media exposure, is stock car racing. Stock car racing utilizes
equipment similar in appearance to standard passenger automobiles and races are
typically staged on oval courses. The most prominent organizing body in stock
car racing is NASCAR.
Drag racing typically involves short sprint races on a straight-line drag
strip. The National Hot Rod Association ("NHRA") is the most prominent
organizing body in drag racing.
Sports car racing, with various series throughout the world, includes
several different classifications. World sports cars are open-roof, specially
designed race cars. The cars eligible for racing in a GT Series are high
performance racing cars that must be based on limited production street cars.
ECONOMICS OF MOTORSPORTS
The primary participants in motorsports are spectators, corporate sponsors,
drivers and team members, team owners, suppliers, track owners and sanctioning
bodies. Track owners and sanctioning bodies derive their revenue through
spectator admissions, television broadcast rights fees and corporate event
sponsorship.
Team owners derive their revenue primarily through corporate sponsorship,
which varies with the team's appeal and racing success. Team owners expenditures
include (1) driver's salary, (2) engine, (3) racing car and spare parts, and (4)
team costs consisting
37
<PAGE> 40
of engineers, crew, office and travel expenses. In a series such as CART, team
budgets for a full racing season can range from as low as $5 million to as high
as $15 million per car. A typical two-driver CART team purchases five cars,
spare parts and services each year. Formula One team budgets, which include the
costs of individually produced racing cars by each team, are significantly
higher, in the range of five times the budget of a CART team.
PARTICIPANTS
Motorsports events are generally heavily promoted, with a number of
supporting events surrounding the main race event. Examples of supporting events
include (1) qualifying trials, (2) secondary racing events, (3) driver autograph
sessions, (4) automobile and product expositions, (5) catered parties and (6)
other related events. The supporting events are designed to maximize the
spectator's entertainment experience.
SPECTATORS. Motorsports is among the fastest growing spectator sports in
the United States. After soccer, it is the most watched sport world-wide.
Spectators either attend the motorsport event or view the event on television.
In 1997, auto racing had an estimated world-wide aggregate television audience
of over 6 billion people.
CORPORATE SPONSORS. Drawn to motorsports by the large number of spectators
and television audiences and their attractive demographics, corporate sponsors
are active in all phases of the industry. Spectators are believed to be loyal to
motorsports and to its corporate sponsors. Estimated at over $1 billion per year
in North America alone, corporate sponsorships include (1) event sponsorship,
(2) racing team sponsorship, and (3) broadcast television sponsorship. In
addition to sponsoring the various race series, corporate sponsors support
drivers and teams by funding certain costs of their operations. They support
race promoters and track owners by sponsoring and promoting specific events. In
return, corporate sponsors receive advertising exposure on television and radio,
through newspapers, printed materials and advertising, promotional and
hospitality benefits at the track over the race weekend. Companies negotiate
sponsorship arrangements based on various factors, including a series' or
event's audience size or spectator demographics and the team's racing success.
DRIVERS AND TEAM MEMBERS. The majority of drivers contract independently
with team owners, while select drivers own their own teams. Principally, drivers
receive income from contracts with team owners, sponsorship fees and prize
money. Successful drivers may also receive income from personal endorsement fees
and souvenir sales. The personality and success of the driver can be an
important marketing advantage for team owners because it can help attract
corporate sponsorships and generate sales for licensed merchandise. The efforts
of each driver are supported by a number of other team members, all of whom are
supervised by a crew chief.
TEAM OWNERS. In most instances, team owners underwrite the financial risk
of placing their teams in competition. They contract with drivers, acquire
racing cars and support equipment, employ pit crews and mechanics and syndicate
sponsorship of their teams. Team owners generally receive income primarily from
sponsorships and a percentage of the prize money.
SUPPLIERS. In most race series, third-party companies supply racing cars
and equipment, engines and tires to the race teams. The equipment complies with
rules and specifications developed by that race series' sanctioning body. Many
suppliers are involved
38
<PAGE> 41
in the motorsports industry in order to enhance brand recognition through
advertising, as well as for research and development for use in production road
cars, tires and equipment.
RACE PROMOTERS. Race promoters include track owners, government
organizations and other groups and individuals. Race promoters pay a fee to have
an event sanctioned at their race venue and are responsible for the local
marketing and promotion of the event. Their revenue sources generally include
admissions, sponsorships, corporate hospitality (suites, chalets and tents for
race viewing and other amenities), advertising and concessions and souvenir
sales.
SANCTIONING BODIES. Sanctioning bodies sanction events at various race
venues in exchange for fees from race promoters and track owners. Sanctioning
bodies are responsible for all aspects of race management necessary to "produce"
the race event. Sanctioning bodies are responsible for presenting racing cars,
drivers and teams and providing race officials to ensure fair competition, as
well as providing the race and series' purses and other prize payments.
RACING SERIES AND CLASSIFICATIONS
Motorsports is a highly segmented industry. Each classification of racing
constitutes a distinct product, with different rules and equipment
specifications. Racing series and classifications change regularly, but the
premier racing series currently can be denominated as follows:
- FORMULA ONE. The Federation Internationale de l'Automobile (the "FIA")
sanctions the Formula One World Championship. Formula One events consist
of open-wheel races on road courses in Europe, South America, Canada,
Australia and Japan. The Formula One World Championship was founded in
1950. The 1998 Formula One calendar included 15 events in 13 different
countries. The cars are single-seater, open-wheel racing cars powered
with a non-turbocharged 3000 cubic centimeter capacity engine, capable of
speeds of around 200 miles per hour. The FIA rules require that each team
manufacture its own race car chassis. Formula One events attract large,
world-wide audiences. According to the FIA, the 1997 Formula One World
Championship season attracted a total spectator audience of over three
million people and over 5.4 billion viewers in 202 countries.
- CART. The CART Series is the premier open-wheel motorsports series in
North America. CART racing cars ("Champ Cars") are single-seater,
open-wheel racing cars with a turbocharged four-cycle overhead cam shaft
eight-cylinder engine with allowed maximum cubic inch displacement of
2,650 cubic centimeters. Champ Cars are capable of speeds of up to 240
miles per hour. CART events are staged on four different types of tracks
- superspeedways, ovals, temporary street courses and permanent road
courses. The 1998 CART Series calendar included 19 events in five
different countries, with plans to stage 20 events in 1999. In 1997, CART
races were televised in more than 185 countries with aggregate television
audiences in excess of one billion viewers. Total attendance at CART
races increased significantly from 1.8 million people in 1991 to 2.5
million people in 1997.
- NASCAR. Professional stock car racing developed in the Southeastern
United States in the 1930s, and the National Association of Stock Car
Auto Racing, Inc. ("NASCAR") has been influential in the growth and
development of the sport. NASCAR is the most recognized sanctioning body
of professional stock car racing in
39
<PAGE> 42
North America, staging the Winston Cup and Busch Grand National stock car
race events. Stock cars are production-based sedans that are closely
regulated from an engine and chassis specification standpoint. The 1998
Winston Cup and Busch Grand National race series included 33 and 31
races, respectively, all of which were held in the United States, with
two exhibition events in Japan. NASCAR-sanctioned events, particularly
Winston Cup races, enjoy a large and growing base of spectator support.
Based on statistics developed by Goodyear Tire & Rubber Co., attendance
at NASCAR's Winston Cup Series, Busch Grand National Series and Craftsmen
Truck Series grew 9.0%, 16.6% and 13.5%, respectively, from 1996 to 1997.
Moreover, according to Nielsen, more than 175 million people watched
NASCAR's televised events in 1997. Winston Cup, Busch Grand National and
other major NASCAR-sanctioned races also receive extensive national radio
coverage.
For each of the above racing series, there are established junior formulae
which develop drivers, engineers, suppliers, mechanics and other personnel for
the next level of competition. Although not a strict ladder system, the
conventional tiers are as follows:
FORMULA ONE
- FORMULA 3000. This formula was introduced in 1985 as a replacement for
Formula Two. It remains the secondary European racing formula, acting as
a final training ground and feeder series, in terms of drivers, teams and
engineers, for the Formula One World Championship. The series is for
single-seater open-wheel racing cars with 3000 cubic centimeter engines
generating horsepower of approximately 450-500 bhp with top speeds of
approximately 180 miles per hour. The Formula 3000 Championship has
approximately ten rounds, all in western Europe, of which four typically
act as support races to Formula One World Championship events. Television
coverage is limited to the Eurosport Satellite Channel. Since 1996, the
Formula 3000 Championship has been conducted as a one-make formula, with
identically prepared chassis supplied by one specified manufacturer.
- FORMULA NIPPON. In Japan, the Formula Nippon Series has emerged, taking
the place of the previous Formula 3000 Series in Japan. The series is for
single-seater open-wheel racing cars with 3000 cubic centimeter engines
generating approximately 550 horsepower, with top speeds of approximately
200 miles per hour. The 1998 Formula Nippon Series included 10 races
throughout Japan, on permanent road courses and temporary street
circuits.
- FORMULA THREE. The national Formula Three Series acts as a feeder series
to Formula 3000. Formula Three cars are smaller versions of Formula 3000
cars, but with 2,000 cubic centimeter engines based on standard
production engines yielding around 200 horsepower and a top speed of
approximately 150 miles per hour. Formula Three racing is organized
largely on a national basis, with major series in Britain, Germany and
Italy, and other series in France, Japan, South America, Mexico, Greece
and India. There are also major international Formula Three Series at
Monaco, which support the Formula One World Championship Monaco Grand
Prix and the Macau Grand Prix in the Far East. There are additional
sub-classifications that serve as feeder series to Formula Three,
including the Formula Ford 1600 Series and Formula Ford 2000 Series.
40
<PAGE> 43
CART
- INDY LIGHTS CHAMPIONSHIP. The Indy Lights Championship was formed in 1986
as a one-make series with identical, sealed engines and a single tire
manufacturer. The series utilizes single-seat open-wheel racing cars with
engines generating approximately 450 horsepower with top speeds of
approximately 195 miles per hour. The Indy Lights Championship is
designated as the "Official Development Series of the CART Series" and is
sanctioned by CART. In 1998, the Indy Lights Championship included 14
races, one of the which was run as a stand alone event.
- TOYOTA ATLANTIC SERIES. The Toyota Atlantic Series is a one-make series
with identical Toyota engines and a single tire manufacturer. The series
utilizes single-seater open-wheel racing cars with 1600 cubic centimeter
engines generating approximately 250 horsepower with top speeds of
approximately 165 miles per hour. The races are staged on ovals,
temporary street courses and permanent road courses. In 1998, the series
competed at 13 venues, 11 of which were as support races for the CART
Series.
- BARBER DODGE SERIES. The Barber Dodge Series is a highly competitive
North American race series which utilizes 30 identically prepared
single-seater racing cars, called Reynard Dodges. Serving as a
development series to the CART Series, the Barber Dodge Series races on
temporary street circuits and permanent road courses, with many races run
as a support race to a CART event. Drivers and/or their sponsors lease a
Reynard Dodge for $10,000 per race, with a chance of earning $12,000 for
a win. Unlike other motorsports series, the Barber Dodge Series is
completely self-contained and owned and operated by Skip Barber Racing.
In addition to the various racing series discussed above, the following
series and classifications have attracted a strong fan base and have established
an international following.
- INDY RACING LEAGUE. In 1995, the IRL was formed as a rival United States
open-wheel racing series, competing directly with the CART Series. The
IRL's events are staged solely on oval courses. IRL cars are
single-seater open-wheel racing cars with 4000 cubic centimeter normally
aspirated engines generating horsepower of approximately 700 bhp with top
speeds of approximately 230 miles per hour. The IRL's first season of
racing commenced in 1996 and consisted of five races, including the
Indianapolis 500. The 1998 season consisted of 11 races, including the
Indianapolis 500.
- SUPER TOURING. Super touring is a significant growth area in
international motor racing. The series is developed for touring cars with
a shell outwardly similar to a production model with a rev-limited two
liter engine from the same manufacturer. In many instances, specialist
racing firms produce the cars for major motor manufacturers. The major
series are in Britain, Germany, Italy, France and Japan. Other series are
run in Australia, South Africa, Belgium and Spain. Manufacturers racing
in this series include Alfa Romeo, Audi, BMW, Ford, Honda, Mazda, Nissan,
Peugeot, Renault, Toyota, Vauxhall/Opel and Volvo. Sub-classifications
include oval touring, one-make touring, sports prototype series and
similar touring car race series.
- SPORTS CAR RACING. Sports car racing is sanctioned in the United States
by the Sports Car Club of America, the United States Road Racing
Championship and
41
<PAGE> 44
Professional Sports Car Racing, which sanction races held on road courses
throughout the country, including the Rolex 24 at Daytona, the premier
sports car endurance event held in the United States. Internationally,
the race at LeMans, France is the premier sports car endurance race.
Sports car racing includes several different classifications. World
sports cars are open-roof, specially designed racing cars. Also included
in sports car racing are GT cars. The cars eligible for racing in a GT
Series are high performance racing cars that must be based on limited
production street cars.
- DRAG RACING. Drag racing typically involves short sprint races on a
quarter mile straight-line drag strip. The NHRA is the most prominent
organizing body in drag racing. The NHRA sanctions numerous
classifications of cars, the most prominent of which are "top fuel
dragsters" and "funny cars." Top fuel dragsters frequently exceed 300
miles per hour. Horsepower is the most important aspect of this form of
racing. However, aerodynamics have become increasingly important both
from the standpoint of eliminating aerodynamic drag and providing
downforce to keep the cars on the track with the maximum amount of
traction.
- TRUCK RACING. NASCAR sanctions a series that races trucks based on U.S.
production mid-sized pick-up trucks. The Series events are staged
primarily on oval tracks throughout the United States. The trucks'
engines generate approximately 550 horsepower with top speeds of
approximately 190 miles per hour. The 1998 race season included 27 races.
THE MOTORSPORT VALLEY
British designed and assembled racing cars dominate motorsports throughout
the world. It has been estimated that over 75% of single-seater racing cars used
in 80 countries throughout the world were engineered, designed and assembled in
the U.K. Approximately 600 U.K. companies are currently involved in the
motorsports industry. This concentration of motorsports firms is centered around
the Thames Valley in Oxfordshire and has become known as the "Motorsport
Valley." The reasons for this concentration are numerous, but center mainly upon
the concentration of knowledge and expertise that has been developed over the
past 30 years and the ongoing British interest in the motorsports industry. For
Reynard, being a part of the Motorsport Valley provides it with access to
knowledge, expertise and a workforce that has been a significant benefit to its
expanding business.
42
<PAGE> 45
THE RACING CAR
Following is a diagram of the Reynard Champ Car, with certain of the
components identified:
[DIAGRAM OF REYNARD RACE CAR
WITH CERTAIN COMPONENTS OF THE CAR IDENTIFIED]
LOGO
Reynard builds the CART Champ Car to comply with specifications set by the
sanctioning body. The Champ Car has a maximum allowable length of 196 inches
(190 minimum), a maximum width of 78.5 inches (77 3/4 inch minimum) and a
maximum height of 32 inches, excluding the rollover hoop and rear wings. The
race cars must weigh a minimum of 1,550 pounds including coolant and lubricant.
The rear wing on the short oval and road course race car has a maximum allowable
height of 36 inches, but is limited to 32 inches on super speedways. The minimum
wheel base (distance between the front and back wheel center line) is 96 inches.
Ground effects are the result of designs which channel air under the car to
create a low-pressure area or partial vacuum between the racing car and the race
track. Under-car tunnels, combined with wings on the front and rear of the
racing car, create downforce, similar to lift on airplanes, only in reverse. It
is measured in pounds and can be used to balance the handling of the racing car
by adjusting the front and rear wings. Downforce may create loads up to three
times the weight of the racing car permitting the vehicle to corner at greater
speeds while drivers experience loads of over five Gs (a lateral load equivalent
to more than five times the pull of the earth's gravity) as a result of the
efficiency of ground and other aerodynamic effects.
Wings are critically important to the basic concepts and performance of
current Champ Cars. The wings and racing car underbody have a significant impact
on the handling and stability of the car. The wings work to improve cornering
capabilities, enhance traction and maintain a balanced vehicle. Wings used on
road courses or short ovals differ from those used on superspeedways.
43
<PAGE> 46
Teams can compare different shapes and sizes in wind tunnel experiments to
enhance the aerodynamic performance of the car. Front and rear wings are
frequently adjusted to achieve maximum performance and handling of the racing
car. Though the aerodynamics are fixed when the car is on the track, packages
are often adjusted by the crew based on the track configuration, racing car
speeds and wind speed measurements. On short ovals and road courses, teams must
work to obtain maximum downforce. At super speedways and other especially fast
circuits, downforce becomes less important, and drag must be reduced to obtain
maximum speed. In order to achieve the maximum performance and handling of a
racing car, many teams include a substantial budget for research and development
costs, including wind tunnel experiments, to enhance the aerodynamic performance
of the car.
44
<PAGE> 47
BUSINESS
GENERAL
Reynard Motorsport, Inc. is one of the world's leading designers and
manufacturers of production racing cars and other high performance specialty
vehicles. Cars designed and produced by Reynard have a long history of winning
races and setting records in many of the world's most competitive racing series.
During 1998, Reynard racing cars were used by some of the world's best drivers,
including Alex Zanardi, Jimmy Vasser, Greg Moore, Gil DeFerran, Dario
Franchitti, Mark Blundell, Adrian Fernandez and Bobby Rahal. A majority of the
current drivers in Formula One have competed in a Reynard racing car during
their careers. They include World Champions Mika Hakkinen, Jacques Villeneuve,
Damon Hill and Michael Schumacher.
Reynard was founded 25 years ago by Dr. Adrian Reynard, a former champion
racing car driver who competed in vehicles of his own design. Since its
inception, Reynard's goal has been to dominate every race and win each
championship in every series it enters. Reynard has graduated from Formula Ford
Championships in the mid-1980s to become the reigning CART Series champion by
applying the latest technology in the design and development of safe and
competitive products. Reynard's history of winning is reflected by its operating
performance, with sales growing at a compound annual growth rate of 42.5% from
1994 to 1998. As of December 1, 1998, Reynard had entered into purchase
agreements for racing cars and services representing revenues of $46.9 million
in fiscal 1999.
Reynard designs, manufactures and sells racing cars for competition in the
CART Series, the Formula Nippon Series, and the Barber Dodge Series. The Company
also designs and engineers touring and sports racing cars in conjunction with
automobile manufacturers, such as Ford, Chrysler, Panoz and Dodge, for
competition in international championships.
BAR will make its debut in Formula One in March 1999. BAR is a joint
venture in which Reynard is a partner with British American Tobacco and Mount
Eagle, Inc. The 1997 Formula One World Champion driver, Jacques Villeneuve, will
drive one of the racing cars designed and engineered by BAR.
Reynard operates integrated design, production and testing facilities in
Oxfordshire, England, often referred to as the Motorsport Valley. Reynard also
operates a North American headquarters and testing facility in Indianapolis,
Indiana. Reynard employs over 250 people, of which over 85% are highly skilled
designers, engineers and other specialized technicians. Reynard's employees
utilize the most advanced technology in the design and engineering of racing
cars, with a focus on maximizing aerodynamic efficiency, while continuing to
develop improved safety features. Through the use of computer-aided engineering,
design and manufacturing technology, Reynard meets stringent design criteria,
streamlines production and reacts faster to changing demands. Reynard pioneered
the use of carbon composites in the manufacture of lighter, stronger and safer
production racing cars. Reynard emphasizes after-sales support, including
on-site race day customer service, and focuses on the needs of each individual
customer. Such attention to customer service and satisfaction, coupled with
management's expertise and investment in technology and equipment, has enabled
Reynard to develop a track record of winning within the competitive global
motorsports market.
45
<PAGE> 48
KEY COMPETITIVE STRENGTHS
HISTORY OF WINNING. Since the beginning of fiscal 1994, Reynard racing cars
have won a total of 84 races, including eight championships in the CART Series,
Formula 3000 competition and the Formula Nippon Series. Since winning its first
race in the CART Series with driver Michael Andretti in 1994, Reynard racing
cars have won a total of 55 pole positions and 50 wins in the CART Series alone.
The pole position is the racing car which will start first in the race and is
determined by the car with the fastest time in the qualifying sessions for the
race. Reynard also has won the Constructor's Award for the CART Series each year
from 1995 through 1998. As a result of its winning track record, Reynard
supplied 22 of the 28 full-season entries in the 1998 CART Series. Reynard has
received orders through December 1, 1998 to supply 38 racing cars for the 1999
CART Series and orders for 13 racing cars for the 1999 Formula Nippon Series.
Reynard's reputation for winning has allowed it to establish alliances with
major companies in the motorsports and automotive industries, including
Chrysler, Firestone, Ford, Goodyear, Honda, Mercedes and Toyota. Increasingly, a
number of international companies have sought the technological and engineering
resources of Reynard to provide more diverse commercial solutions.
LEADER IN THE DEVELOPMENT AND APPLICATION OF MOTORSPORTS TECHNOLOGY.
Reynard employs a scientific, rather than the traditional trial and error
approach, in the design, engineering and manufacture of racing cars. Reynard
uses simultaneous engineering, which includes computer-aided engineering, design
and manufacturing systems. With these systems, Reynard can develop and
manufacture a racing car, from initial design to final assembly, in a period of
a few months. Reynard analyzes the aerodynamic effects on a racing car in
simulated race settings by (1) development and application of computational
fluid dynamics, (2) application of finite element analysis, and (3) testing at
its wind tunnel facilities. Reynard uses the results of these tests to engineer
its racing cars. Management believes that its participation at the highest level
of motorsports, such as the CART Series and Formula One, enhance Reynard's
ability to effectively develop and apply highly advanced technology to the
design, development and production of racing cars for junior formulae.
STRATEGIC RELATIONSHIP WITH BRITISH AMERICAN RACING IN FORMULA ONE. BAR
will field a two-car team in the 1999 Formula One World Championship. The 1997
Formula One World Champion driver, Jacques Villeneuve, will drive one of the
racing cars that will be designed and engineered by BAR. Management believes
that British American Tobacco selected Reynard to be one of its joint venture
partners in BAR as a result of Reynard's reputation and expertise. British
American Tobacco has entered into a long-term sponsorship agreement to fund what
management believes to be one of the most significant sponsorship budgets in
Formula One.
Reynard has agreed to commit its management expertise to BAR in exchange
for an ongoing management fee and access to technological know how. In addition,
Reynard has invested $5.3 million for a 15% equity interest in BAR. Reynard
expects to provide certain contract manufacturing services to BAR in its early
stages on a fee-for-service basis. BAR will build and maintain a separate staff
and facilities adjacent to Reynard's facilities in the Motorsport Valley.
Although BAR operates independently, BAR and the Reynard technical staff
regularly hold joint meetings to discuss and analyze research and development
results of mutual interest.
46
<PAGE> 49
As a result of the joint venture, Reynard has access to certain of BAR's
technological know how (not in written or machine readable form). Reynard
believes that this access to research and development ideas will enhance
Reynard's other motorsports projects by improving our knowledge database and
methodology.
HIGHLY EXPERIENCED MANAGEMENT AND OPERATING TEAM. Reynard attributes much
of its success to its management team. It is composed of former racing car
drivers, managers, race team members and motorsports enthusiasts who are highly
experienced and well known within the motorsports sector. Reynard's senior
management team has an aggregate of over 75 years of service with Reynard.
Reynard has successfully manufactured racing cars for 25 years by leveraging the
expertise of its management team in design and engineering, composites and
production.
Reynard also has developed a corporate culture that provides exceptional
training to young designers and engineers. By personally interviewing and
recruiting each applicant, Dr. Reynard and the other members of the senior
management team attempt to identify those skilled engineering students who they
believe will excel in the unique Reynard culture and environment. Management
believes that this recruiting process and corporate culture has enabled Reynard
to attract, retain and develop a team of highly skilled designers, engineers and
technical staff. Upon completion of the offering, officers and employees of
Reynard will beneficially own approximately 58.7% of the outstanding common
stock.
COMMITMENT TO CUSTOMER SERVICE. Reynard believes that service is an
integral component of sales. Reynard demonstrates its commitment to service by
assigning a liaison engineer to each Reynard racing car in the CART Series. By
dedicating an engineer to each team, Reynard can respond quickly to customer
questions and concerns. Reynard also receives valuable information from these
engineers for the continued development of its racing cars and equipment.
Reynard engineers are present at each CART event to monitor the Reynard racing
cars.
In addition to this individualized customer service provided by Reynard
engineers, its customers have access to Reynard's design systems and wind tunnel
results. The customers also have direct access to Reynard's design team through
Reynard's computer-aided design system. Reynard uses the data obtained by the
engineers at each track and the results of wind tunnel testing and engineering
analysis to further refine the racing car design in response to competition on
the track and customer recommendations. Reynard sells update packages, which may
include newly designed wings or other components, to customers periodically
during the season to incorporate these refinements.
VERTICALLY INTEGRATED OPERATIONS. Reynard designs, engineers and
manufactures the majority of the components of a racing car. Through its
vertically integrated operations, the Company is able to (1) maintain higher
quality control standards in the production of all components of the racing car,
(2) improve operating margins by lowering costs, and (3) control the timing of
production and delivery of its products.
Reynard (1) designs and engineers racing cars and component equipment, (2)
makes the patterns to be used in the production process, (3) manufactures the
individual components to specification and (4) assembles the racing car. With
the pending acquisition of Gemini, which manufactures gearbox and transmission
systems, Reynard will be able to manufacture substantially all of the parts
necessary to deliver a rolling chassis to the customer.
47
<PAGE> 50
GROWTH STRATEGY
CAPITALIZE ON GROWTH OPPORTUNITIES WITHIN EXISTING RACE SERIES. Reynard
intends to increase its presence in the race series in which it is currently
involved. Reynard believes it will grow its business in existing series through:
- Capitalizing on the continued expansion of the CART Series and other
existing series. The Company believes it will continue to grow as these
series grow through (1) increases in popularity, (2) expansion of the
number of races and competitors, (3) increases in development budgets,
and (4) expansion internationally. With such expansion, Reynard can
increase sales to existing customers who will require additional high
margin equipment, spare parts and services. In addition, Reynard intends
to construct a composite manufacturing and repair facility in
Indianapolis, Indiana. This facility will support parts sales and repair
work that currently is performed in-house by individual CART teams.
- Introduction of a newly designed racing car for the 1999 Formula Nippon
Series. Reynard believes the new design will result in increased sales of
racing cars and spare parts in this series.
- Expansion of Reynard's presence in the touring and sports car racing
programs. Major automobile manufacturers increasingly view success in
these programs as an effective way to market their products and increase
their prestige. Reynard is planning the production of a world sports car
to be designed and manufactured in conjunction with a major automobile
manufacturers. Reynard is currently engaged in discussions with two major
international automobile manufacturers regarding this project.
ENTER NEW RACE SERIES AND CONTRACTS WITH NEW CUSTOMERS. Reynard intends to
selectively enter additional motorsports markets through the sale of racing cars
and equipment and through the sale of technological support. Reynard
continuously evaluates existing opportunities to design and produce racing cars
or provide support services for a number of race series including: (1) the IRL,
(2) Formula 3000, (3) Indy Lights, and (4) Toyota Atlantic. In addition, Reynard
will provide some contract manufacturing services and show cars to BAR in its
early stages, on a commercial basis, for the upcoming Formula One racing season.
INTRODUCE NEW HIGHER MARGIN SERVICES. Reynard believes that a significant
portion of its future growth will be in the form of expanded sales of higher
margin services to its motorsports customers. These services include CFD
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, Reynard's customers are able to simulate and
evaluate the effects of subtle changes in the engineering and set up of
individual cars moving at high speeds and can apply the results of such tests to
maximize their performance. Reynard has designed and built a state-of-the-art
50% scale model, moving ground open jet wind tunnel in Indianapolis. Reynard
sells time in the wind tunnel to CART racing teams and others on a fee-per-usage
basis. In 1999, Reynard will construct a seven post suspension rig testing
facility in Indianapolis. Reynard will sell time on the suspension rig to CART
racing teams and others on a fee-per-usage basis.
LEVERAGE MOTORSPORTS TECHNOLOGY. Reynard intends to selectively expand its
non-motorsports operations by applying the technological and engineering
resources it has developed in the motorsports sector to other industries.
Reynard believes that its highly
48
<PAGE> 51
skilled designers and engineers can apply its advanced technology in all areas
where wind resistance, weight, fuel conservation and/or safety concerns are
factors. For example, based on Reynard's design and engineering capabilities,
Virgin Airlines selected Reynard to design and develop a light-weight, strong,
fully-reclining business class aircraft seat. The aircraft seat is currently in
the production phase.
To further support efforts outside of motorsports, Reynard plans to open a
computer-aided design office in Detroit, Michigan in 2000. The plans for this
office are in a preliminary concept stage. This office will target design and
engineering projects within the automotive industry, and leverage the strong
relationships Reynard has developed over the years with major automobile
manufacturers. In addition to the projects Reynard has done with Chrysler and
Ford, Reynard has worked closely with Honda, Toyota and Mercedes in the
continued development of its CART Champ Car. Although Reynard's primary focus
will remain in the motorsports industry, management believes that a number of
opportunities outside the motorsports sector are available.
SELECTIVE ACQUISITIONS. Management believes a number of opportunities exist
to make selective strategic acquisitions within the motorsports industry.
Reynard will generally seek to acquire companies that (1) complement and expand
Reynard's current operations, (2) have an experienced management team, (3) have
an industry leading reputation and (4) have strong customer and supplier
relationships. Reynard's acquisition of Gemini meets these objectives by further
integrating Reynard's current operations and providing state-of-the-art
equipment in a highly specialized business. Reynard believes that the
relationships Gemini has developed with Audi, BMW, and Volkswagen, as well as
many other industry customers, will add strategic value to Reynard's future
growth. Management will continue to evaluate methods to further enhance
Reynard's vertical integration.
COMPANY HISTORY
Reynard Motorsport was formed in 1973 when Adrian Reynard designed and
built his first Formula Ford car for competition. Since that time, Reynard has
progressed from manufacturing racing cars for Formula Ford in the 1970's,
Formula Three in the 1980's, Formula 3000 in the late 1980's and early 1990's,
to CART in 1994, and Formula One in 1999. Reynard's cars have dominated each of
these series. Reynard has been able to continually leverage its success and
technical expertise as it graduated into more advanced series in which revenue
and profit per car could be increased. Management believes Reynard has grown to
become a leading manufacturer of racing cars as a result of attracting skilled
and committed individuals, coupled with state of the art equipment and
technology.
As a result of its competitive designs and engineering, Reynard racing cars
have consistently won races and championships in every Formula in which they
have competed:
- Formula Ford Champions 1986, 1987, 1988, 1989
- Formula Three Champions 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993
- Formula 3000 Champions 1988, 1989, 1991, 1992, 1993, 1994, 1995
- Formula Nippon Champions 1996, 1998
- US 500 winners 1996, 1997, 1998
- Indianapolis 500 winners 1995, 1996
49
<PAGE> 52
- CART Series Champions 1995, 1996, 1997, 1998
- CART Series Constructor's Award 1995, 1996, 1997, 1998
Reynard is one of only a few racing car manufacturers which have leveraged
their knowledge and expertise to graduate from lower technology junior formulae
such as Formula Ford and Formula Three, to the more advanced higher margin
series, such as Formula 3000 and CART. Reynard has often exited the junior
series when graduating to higher series. In addition, Reynard has expanded into
international markets such as the United States, Europe, Canada, South America
and Asia by applying its technological expertise to specialized projects within
motorsports and select other industries. As a result, Reynard won the Queen's
Award for Export Achievement for the first time in 1990 and, in 1996, became the
only company in the U.K. to win the award for a second time. Reynard is well
positioned to continue expanding in the series in which it currently competes.
The timeline below shows Reynard's progression from its inception in 1973:
TIME LINE
PRODUCT DEVELOPMENT
FORMULA FORD. In 1973, Dr. Reynard designed and built his first Formula
Ford car. Formula Ford 1600s are simple, lightweight aerodynamic cars. They are
based on a stiff chassis with a 2-liter Ford engine which yields approximately
110 horsepower and a top speed of approximately 120 miles per hour. They are
built in accordance with a stringent set of regulations. Efficient use of
materials and components enhance performance and cost effectiveness. Dr. Reynard
designed the car for his own use in competition. In the process, Dr. Reynard
introduced a number of new ideas to the otherwise conventional design, many of
which later became standard in Formula Ford 1600. The first time Dr. Reynard
raced in the new vehicle, it won.
Following its success in Formula Ford 1600, Reynard began developing a
Formula Ford 2000 car. By 1975, Reynard had produced its first Formula Ford 2000
car. Formula Ford 2000 cars have a 2-liter engine yielding 130 horsepower and a
top speed of approximately 130 miles per hour. They use larger slick tires and
wings than Formula Ford 1600 cars. Reynard's first Formula Ford 2000 car
incorporated much of the design and engineering technology that Dr. Reynard had
learned while designing the Formula Ford 1600. In 1983, the first time Reynard's
Formula Ford 2000 car raced, it won. Over the next ten years, Reynard continued
to achieve success in both the Formula Ford 1600 and Formula Ford 2000 series.
From 1973 to 1988, Reynard manufactured 277 Formula Ford 1600 cars and 384
Formula Ford 2000 cars. At this time, Reynard began to experiment with carbon
fiber
50
<PAGE> 53
in the production of its cars, a technology which, up until that time, had only
been used in Formula One.
FORMULA THREE. By 1985, Reynard began to develop a racing car for
competition in Formula Three. As in Formula Ford, the first time a Reynard car
competed in Formula Three, it won. Formula Three cars are smaller versions of
Formula 3000 cars, with 2,000 cubic centimeter engines based on standard
production engines yielding around 160 horsepower and a top speed of
approximately 150 miles per hour. Reynard's success in Formula Three set Reynard
apart from many of its competitors in Formula Ford who had unsuccessfully
attempted to enter the higher formulae. Formula Three teams were more demanding
and had higher expectations than Formula Ford. Over the next ten years, Reynard
produced approximately 360 Formula Three cars.
FORMULA VAUXHALL LOTUS. In 1987, General Motors decided to launch a racing
series known as Formula Vauxhall Lotus in Britain and Formula Opel-Lotus in
Europe. General Motors selected Reynard to manufacture the car. The Formula
Vauxhall-Lotus series was a one-make series using a 16-valve engine designed by
Cosworth Engineering, which was close in performance to the Formula Three engine
but at a much lower cost. A one-make series refers to a racing series which, by
rules of the series, require all competitors to use the same racing car. The
series will negotiate with chassis manufacturers in selecting that which will
supply the competitors. Reynard was the exclusive chassis supplier to this
series between 1987 and 1992, producing a total of 204 cars for this series.
FORMULA 3000. Reynard's entrance into Formula 3000 in 1988 represented a
turning point for Reynard. The Formula 3000 design was substantially different
from the lower formulae in which Reynard had previously competed. Formula 3000
is the secondary European racing formula, acting as a final training ground and
feeder series for Formula One. Formula 3000 is for single-seater open-wheel race
cars with 3000 cubic centimeter engines generating approximately 450 horse power
with top speeds of approximately 180 miles per hour. Reynard's Formula 3000 car
won the first race in which it competed and went on to win the championship
during its first year. For the next eight years, Reynard continued to apply its
technology to expand its presence in Formula 3000, manufacturing 220 cars during
this time, while discontinuing its production of Formula Ford 1600 and Formula
Ford 2000 cars. Reynard stopped producing Formula 3000 chassis in 1995, but
continued operating successfully in Japan, selling 10 cars and winning the
championship in 1997. Since 1996, Formula 3000 has been conducted as a one-make
series.
TOYOTA ATLANTIC. In 1989, Reynard manufactured the first carbon composite
Toyota Atlantic car. The car debuted in New Zealand and won its first race. The
Toyota Atlantic series was a multiple chassis series with identical Toyota
engines and a single tire manufacturer. The Toyota Atlantic car was closely
related to the Formula Three car with slightly different aerodynamic
characteristics. Reynard continued to manufacture racing cars for this series
for two years, manufacturing 15 cars during this time.
CHRYSLER/DODGE. In 1993, Reynard entered into its initial design and
engineering consulting projects for large international automobile
manufacturers. For example, Chrysler selected Reynard to assist it in the design
and development of the Chrysler Patriot, an endurance racing sports car. Reynard
designed and built the new car, from initial design to assembly, within six
months. The Patriot was intended to be powered by a turbine engine rather than a
traditional piston engine. Because a competitive engine was not developed, the
Chrysler Patriot never raced. Although the Patriot never actually raced, the
alliance
51
<PAGE> 54
Reynard developed with this major automobile manufacturer was a significant step
in Reynard's development. As a direct result of the Chrysler Patriot project,
Reynard was selected by Chrysler for two projects (1) making carbon fiber
composite bodies, consulting on chassis development and designing an
aerodynamics package to be used in the racing car version of the Dodge Viper and
(2) developing the Chrysler Stratus car for the American Touring Championship.
Reynard provided technical support and supplied kits of parts for both cars.
CHAMP CAR. After having successfully entered the U.S. market with a Toyota
Atlantic car, and following its success in Formula 3000, Reynard decided to
participate in the CART Series. CART Champ Cars are single-seater, open-wheel
racing cars with a turbocharged four-cycle overhead cam shaft eight-cylinder
engine with allowed maximum displacement of 2,650 cubic centimeters, capable of
speeds of up to 240 miles per hour. Compared with Formula 3000, the investment
in Champ Cars was much greater, the technology was higher and the customer base
was more remote to Reynard. Therefore, the introduction of a Champ Car involved
a higher degree of risk to Reynard. In addition, compared to many Formula
series, a Champ Car is viewed as a design compromise because it has to be raced
on slower street circuits and road circuits, as well as high-speed short and
long oval tracks.
During 1993, Reynard began the design and marketing efforts for its Champ
Car. By the end of April 1994, Reynard had delivered 13 racing cars to its CART
customers, including Chip Ganassi Racing. Since the inception of the CART
program, Reynard has become very successful in this formula, with driver Michael
Andretti winning the first race in the series in Surfers Paradise, Australia in
the 1994 season. Reynard's successful debut in the CART Series led to a dominant
position during the 1995, 1996, 1997 and 1998 seasons. In each year, Reynard won
the Constructor's and Driver's Championships. In 1997, Reynard racing cars had a
total of 13 wins and 15 pole positions in the 17 race season. Mauricio Gugelmin
with PacWest Racing, driving a Reynard racing car, set the fastest lap ever run
on a closed circuit at the California Speedway in Fontana in 1996, lapping the
oval at 240.942 miles per hour. During 1998, Reynard cars won 18 races and 18
pole positions in the 19 races.
Since introducing its first Champ Car in 1994, Reynard has manufactured 148
cars, including 38 cars in fiscal 1997 and 42 cars in fiscal 1998. As of
December 1, 1998, Reynard has received orders for 38 racing cars for the 1999
CART Series.
PANOZ GT CARS. In January 1996, Panoz selected Reynard to design, develop
and build six LeMans GT cars over the course of two years. The resulting race
car, known as the Panoz GTR 1, shares the same front / mid-engine power train
layout as the street-legal Panoz AIV Roadster. It is powered by a Ford V-8
engine and is unique in every respect, from initial concept to finished product.
It is the only GT car with an external design determined exclusively by
aerodynamic considerations. The combined expertise of Panoz and Reynard has
resulted in one of the most advanced racing cars on the international sports car
racing circuit. Within 12 months of the commencement of the project, the Panoz
GTR 1 completed its proving tests and competed for the first time at Sebring in
the United States. The Panoz GTR 1 won second place overall in the
manufacturer's point standings in the 1997 Professional Sports Car Racing
Series, as well as a second place in the 1997 driver's standing. During 1998,
the Panoz GTR 1 won the manufacturer's and driver's championships.
52
<PAGE> 55
BARBER DODGE. The Barber Dodge Pro Series is a highly competitive North
American racing series which utilizes 30 identically prepared single-seater
racing cars, called Reynard Dodges. Serving as a development series to the CART
Series, the Barber Dodge Series races on temporary street circuits and permanent
road courses. Many of the Barber Dodge races are run as a support race to a CART
event. Unlike other motorsports series, the Barber Dodge Series is completely
self-contained. The series is owned and operated by Skip Barber Racing, which
has four transporters that haul everything, including the cars, parts and
equipment, to each race venue. Skip Barber Racing selected Reynard in 1997 to
design and build their cars as a result of Reynard's reputation and service.
Reynard has manufactured a total of 37 cars for the series. Six cars were built
in 1997 and 31 cars were built in 1998.
FORMULA NIPPON. In Japan, the Formula Nippon Series has emerged, taking the
place of the previous Japan Formula 3000 Series. The series is for single-seater
open-wheel racing cars with 3000 cubic centimeter engines generating
approximately 450 horsepower, with top speeds of approximately 180 miles per
hour. In 1998, Reynard racing cars captured first and second place in the
championship. The 1998 Formula Nippon Series included 10 races, on permanent
road courses and temporary street circuits throughout Japan. A total of 13
Formula Nippon cars have been ordered for the 1999 series.
REYNARD AVIATION. As a result of Reynard's expertise in racing car design
and engineering and composite development, Virgin Airlines selected Reynard to
design and develop an aircraft seat. Through Reynard Aviation, a venture between
Reynard and Virgin Airlines, Reynard has capitalized on its technical knowledge
to design and develop a light-weight, strong and functional fully-reclining
business class aircraft seat. The project was primarily funded by Virgin
Airlines, with Reynard receiving a 20% equity interest in Reynard Aviation in
exchange for its technical expertise. The seats are currently in production.
Reynard expects that Virgin Airlines will install the seats in its aircraft
during 1999.
STRATHCARRON. The Honorable Ian Macpherson (son of Lord Strathcarron, a
former racing car driver who is now the President of the Guild of Motoring
Writers) selected Reynard to design a basic, affordable sports car for street
use that would be the equivalent of a modern day Lotus Seven or a motorcycle on
four wheels. Reynard has designed an open, side by side, two seater without
doors which uses (1) aluminum and composite materials for safety while
maintaining lightweight performance, (2) a mid-engine layout including a compact
4-cylinder, 16 valve, 1200 cubic centimeter modern engine, and (3) a unique
Reynard-designed final drive unit. In 1998, Strathcarron Sports Cars plc
commissioned Reynard to engineer and manufacture three "proof of concept"
prototype chassis.
BRITISH AMERICAN RACING. The British American Racing Team will field a
two-car team in the 1999 Formula One World Championship. The 1997 Formula One
World Champion driver, Jacques Villeneuve will drive one of the racing cars
designed and engineered by BAR. Management believes that BAT selected Reynard to
be one of its joint venture partners in BAR as a result of Reynard's reputation
and expertise. BAT has entered into a long-term sponsorship agreement to fund
what management believes to be one of the most significant sponsorship budgets
in Formula One. Reynard has agreed to commit its management expertise and
technology to BAR in exchange for an ongoing management fee for directors'
services and access to technological know how. In addition, Reynard has invested
$5.3 million for a 15% equity interest in BAR. Reynard expects to
53
<PAGE> 56
provide certain contract manufacturing services to BAR in its early stages on a
fee-for-service basis. BAR will build and maintain its own independent design,
engineering, research and development and manufacturing staff and facilities
adjacent to Reynard's facilities in the Motorsport Valley. From time to time,
BAR and the Reynard technical staff hold joint meetings to discuss and analyze
research and development results of mutual interest. Reynard may access BAR's
technological know-how (not in written or machine-readable form) accumulated by
personnel employed by Reynard. Reynard believes that this access to research and
development ideas will enhance Reynard's other motorsports projects by improving
our knowledge database and methodology. In connection with the services that
Reynard and its personnel will provide to BAR. Reynard will share some of its
technology, but will not provide BAR with propriety databases or products. Since
BAR will be involved solely in its Formula One activities, it will not be in
competition with Reynard.
DESIGN AND DEVELOPMENT
Reynard designers use a vast vehicle dynamics database compiled from actual
results on the track and updated on an ongoing basis to translate past
performance into new racing car designs. Reynard's design engineers use a
variety of computer-aided design systems to design a competitive racing car. A
project's design team will utilize the CAD system to begin "drawing" the various
components of a racing car, with analysis of the vehicle dynamics database and
input from engineers and aerodynamicists. Each member of the design team is
responsible for specific components of the racing car. The CAD systems available
to the design team allow each designer to view the component design from various
angles. The system also allows the components to be assembled on the computer
screen. After each component has been drawn, the entire racing car is assembled
on the computer screen.
During the design phase, a wind tunnel model and/or prototype car is built
based on such design. Extensive engineering and testing is performed on the
racing car to refine the design prior to final production. Wind tunnel models
are built 40% or 50% to scale, depending upon the wind tunnel size, in the same
manner that actual race cars are manufactured and assembled.
Reynard has extensive experience in utilizing wind tunnel testing in the
development of its racing cars and equipment. Through the use of 50% scale
model, moving ground open jet wind tunnel testing at Reynard-operated facilities
in England and in Indianapolis, Reynard designers, engineers and aerodynamicists
can test the car's design and set up under varying conditions. These tests are
used to improve the car's racing efficiency. In wind tunnel testing, the
aerodynamicist analyzes the impact of varying component designs, such as
different wings or nose cones, on the performance of racing cars. The
aerodynamicists may test wind tunnel sample component designs for each part
prior to finalizing the design. The designers then incorporate these findings
into the design of the racing car prior to manufacture and assembly.
Reynard is pioneering the use of computational fluid dynamics in the design
and development of racing cars. The development and application of CFD
technology and finite element analysis, in conjunction with testing performed at
proprietary-designed wind tunnel facilities, enables Reynard to analyze the
aerodynamic effects on a racing car in simulated race settings and provides
Reynard with a competitive advantage in engineering its racing cars.
54
<PAGE> 57
CFD is a computer-aided engineering system for mathematical modeling of air
flows. It allows the engineer to simulate wind tunnel tests on the computer in
advance of testing, thereby removing some of the guess work and expense from the
development process. Through its use of CFD, Reynard is able to analyze the
impact of changing component designs on the computer. This eliminates certain
possible component designs and brings fewer component designs into the wind
tunnel for testing. Through CFD, Reynard is also able to "optimize" component
design according to necessary parameters prior to building and testing parts.
Reynard currently utilizes the CFD data in conjunction with wind tunnel testing
as it further refines its CFD system and analysis processes.
In addition to the use of CFD, Reynard engineers perform extensive finite
element analysis in engineering its racing cars. Through finite element
analysis, engineers are able to mathematically calculate stress in structures,
such as the components of the racing cars, under simulated racing conditions.
Reynard continuously seeks ways in which to improve driver safety in the
design of its racing cars, as well as in the manufacturing techniques developed
to produce the racing cars. The design, engineering and development of a Reynard
racing car continues after cars have been manufactured and delivered to
customers. For example, aerodynamic refinements in the form of update kits are
developed and sold to customers to reflect the updates in car design made during
the year. The nature and frequency of update kits depend upon customer demand
and on-track competition throughout the race season.
PRODUCTION
DESIGN AND ENGINEERING. Simultaneous engineering, which is the concurrent
participation of design, manufacturing, sales and purchasing, allows Reynard to
develop and manufacture each racing car on an individual basis from initial
design to final assembly. This process is completed in a period of two months.
Through Reynard's vertically integrated operations, it is able to (1) maintain
higher quality control standards in the production of all components of the
racing car, (2) improve operating margins by lowering costs and (3) control the
timing of production and delivery of its products.
Reynard designs and engineers racing cars and component equipment, makes
the patterns to be used in the production process, manufactures the individual
components to specification and assembles the chassis. Quality and safety are of
paramount importance in every aspect of production of the composites and Reynard
prides itself on the use of pioneering techniques in the production of its
racing cars.
PATTERNS. Once the design and engineering of the racing car has been
completed, patterns are made to design specification for production of the
racing car components. In May 1997, Reynard acquired the assets of a U.K.-based
partnership with extensive experience in the production of patterns. Patterns
are machined by computerized numerical control using CAD data direct from the
design office. For customers without CAD facilities, Reynard offers skilled
staff to complete the manufacturing process, from drawings to extremely high
precision finished patterns.
MANUFACTURING. Reynard has developed manufacturing techniques that it
believes enables it to produce one of the strongest and safest racing cars in
motor racing. The racing car components, which include the cockpit, sidepods,
wings and the underbody, are manufactured by hand using carbon composites.
Patterns are used to make molds for each chassis component. Precision computer
equipment is used to cut carbon fiber for each
55
<PAGE> 58
component. After Reynard personnel conform the pieces of carbon fiber to the
mold, each component is placed into an autoclave at a specified pressure and
temperature.
Reynard currently manufactures the majority of the suspension components
and other machined or fabricated parts necessary to deliver a rolling chassis to
the customer. With the acquisition of Gemini, Reynard will also manufacture
substantially all of the transmissions and gearbox components. The
technologically advanced equipment owned by Gemini will allow precision
production of components and parts to design specifications. The computer-aided
design and manufacturing features of the equipment allow for fast and efficient
prototyping. This, in turn, allows for small output manufacturing.
ASSEMBLY. Once all components have been produced, Reynard assembles a
rolling chassis for delivery to its customers. The cars are built by a team
split into three groups: (1) assembly, (2) sub-assembly and (3) gearbox
assembly. The sub-assembly and gearbox group has a separate kit of parts, which
are assembled into sections. These sub-assembled suspension components and
gearboxes are brought together into the main assembly area where the cars are
finished. This process ensures that the cars are assembled quickly and
accurately.
CUSTOMER SERVICES
Reynard assigns a liaison engineer to each Reynard-entry in the CART Series
in order to maintain its competitive advantage and demonstrate its commitment to
service. These engineers attend each CART event to monitor the Reynard entries.
The dedication of an engineer to each team allows Reynard to respond quickly to
customer questions and concerns. It also provides valuable information to
Reynard for further development of the chassis and equipment.
In addition to the hands-on assistance provided by Reynard engineers, the
customers from the CART Series have access to Reynard's design systems and wind
tunnel results, as well as direct access to Reynard's design team and
computer-aided design system. The continual communication between Reynard's
engineers and the race teams provide additional data for refinement of the
racing car design.
Reynard continues to enhance the performance and safety features of its
racing cars throughout the race season. Data obtained from the engineers at each
track, in conjunction with continued wind tunnel testing and engineering
analysis, allows Reynard to further refine the racing car design in response to
competition on the track. Update packages which may include newly designed wings
or other chassis components, are made available to Reynard's customers to
enhance performance of the racing car. Reynard believes that its commitment to
the continued development of its racing cars provides a significant competitive
advantage in the industry. In addition, Reynard continues to analyze data and
evaluate designs to improve efficiency in anticipation of the design and
production of the next year's racing car.
Throughout the season, Reynard manufactures and sells spare parts to
customers on an as-needed basis. In order to avoid the cost of carrying obsolete
inventory, Reynard continuously monitors the spare parts needs of its customers
and manufactures chassis components in response to inventory needs throughout
the race season. Spare parts are sold to customers at the race track, as well as
through delivery from Reynard's distribution subsidiaries.
56
<PAGE> 59
Reynard intends to expand sales of higher margin services, such as CFD
analysis, wind tunnel testing and seven post suspension rig testing. Through the
application of these services, Reynard's motorsports customers are able to
simulate and evaluate the effects of subtle changes in the engineering and set
up of individual cars moving at high speeds and apply the results of such tests
to maximize their performance.
Reynard, through ARC, has designed and built a state-of-the-art 50% scale
model, moving ground open jet wind tunnel in Indianapolis, Indiana. Reynard
sells time in the wind tunnel to racing teams from the CART Series and others on
a fee-per-usage basis. In 1999, Reynard will construct a seven post suspension
rig testing facility in Indianapolis. This facility will be used to simulate the
pitch and roll experienced by racing cars under racing conditions in order to
refine suspension, springs and shock absorbers on the racing car. Reynard
intends to sell time on the seven post suspension rig on a fee-per-usage basis
to racing teams from the CART Series and others.
RECRUITING AND TRAINING
During Reynard's 25-year history, Dr. Reynard and the other members of the
senior management team have developed a culture that provides exceptional
training to young designers and engineers. Reynard has developed a total team
environment, with clear objectives, well trained people, a high level of
empowerment, a positive attitude and motivational rewards for success. This
culture encourages designers and engineers to assume responsibility for projects
at a young age.
In 1988, Reynard developed a formal graduate recruitment program. Pursuant
to this program, skilled engineering students are given an opportunity to intern
with Reynard with the expectation of employment following graduation. Each year,
by personally interviewing and recruiting each of the over 300 applicants, Dr.
Reynard and other members of the senior management team attempt to identify
skilled engineering students who they believe will flourish in the culture and
environment that is Reynard.
Reynard is committed to creating an environment that provides its
highly-skilled personnel with stimulating challenges which demand the very best
from each individual. Through the training process, the staff is exposed to the
latest engineering hardware and software, and each young designer and engineer
is encouraged to assume responsibility for projects. Management believes that
this culture, coupled with the in-depth recruitment process, has enabled Reynard
to attract, retain and develop a team of highly-skilled designers, engineers and
technical staff.
COMPETITION
The industry for designing, developing and manufacturing racing cars and
technologically advanced equipment is highly competitive. Reynard competes
primarily with other manufacturers of racing cars, such as Swift and Lola, for
auto racing competitors. Continuous attention to aerodynamic, technological and
safety advances is required in order to remain competitive. Reynard believes
that on-track performance of the racing cars, industry reputation, service after
the sale, pricing and equipment availability are the principal factors that
distinguish competing motorsport manufacturers. It is its attention to those
factors listed above that has allowed Reynard to be the primary racing car
provider to competitors in the CART Series. In that series, Reynard provided
racing cars to 22 of the
57
<PAGE> 60
28 1998 full-season entrants. Reynard has received orders through December 1,
1998 to supply 38 racing cars for the 1999 CART Series.
In providing higher margin services, Reynard competes with other providers
of the specialized technological services. In providing CFD analysis services,
Reynard competes with General Motors, Computational Dynamics, Fluent, Inc., and
AEA Technology. Primary competition for its wind tunnel facilities include
Jordan, Imperial College, Royal College of Military Science, British Airways,
Swift and Boeing. Reynard believes that state-of-the-art equipment, highly
trained personnel and pricing are the principal factors that distinguish
competition.
In the design and production of touring cars, Reynard primarily competes
with Prodrive, MotorSports Development, Triple Eight Engineering and Ray
Mallock. In the design and production of sports cars, Reynard primarily competes
with other chassis manufacturers, including Dallara, Riley & Scott, Williams,
Porsche, BRM and Kudsu. Reynard believes that on-track performance of racing
cars, industry reputation, pricing and equipment availability are the principal
factors that distinguish competition.
EMPLOYEES
As of December 1, 1998, Reynard employed approximately 250 full-time
employees. None of Reynard's employees are represented by a labor union.
Management believes that Reynard enjoys a good relationship with its employees.
LEGAL PROCEEDINGS AND INSURANCE
Reynard is a party to routine litigation incidental to its business.
Management does not believe that the resolution of any or all of such litigation
is likely to have a material adverse effect on Reynard's financial condition.
Racing events can be dangerous to participants and spectators. Reynard
maintains a $10.0 million liability insurance policy to insure Reynard against
claims by participants or spectators. The $10.0 million limit on coverage is for
aggregate claims on an annual basis, with no other coverage limitation on a per
claim basis. Reynard believes that such insurance is sufficient and in keeping
with industry standards. Nevertheless, there can be no assurance that such
insurance will be adequate or available at all times at reasonable premiums and
to cover all circumstances.
ENVIRONMENTAL MATTERS
Reynard believes that the facilities it operates are in material compliance
with applicable environmental statutes and regulations. Nevertheless, if damage
to persons or property or contamination of the environment is determined to have
been caused or exacerbated by the conduct of Reynard's business or by
pollutants, substances, contaminants or wastes used, generated or disposed of by
Reynard, or which may be found on Reynard's property, Reynard may be held liable
for such damage and may be required to pay the cost of investigation and/or
remediation of such contamination or any related damage. The amount of such
liability could be material and Reynard is self-insured. Changes in regulations
or requirements could also require material expenditures by Reynard in order to
become compliant.
58
<PAGE> 61
TRADEMARKS AND PROPRIETARY INFORMATION
Dr. Adrian Reynard has filed a trademark application in the U.K. for the
Reynard brand name and logo. Dr. Reynard will grant a license to Reynard to use
the name and logo until Reynard no longer conducts business operations, at no
cost to Reynard except registration and related costs. Dr. Reynard intends to
file a trademark application with the U.S. Patent and Trademark Office with
respect to the Reynard brand name. U.S. registered trademarks have a perpetual
life, as long as they are renewed on a timely basis and used properly as
trademarks, subject to the rights of third parties to seek cancellation of the
marks.
Reynard does not seek patent protection on its products or processes due to
the continual development and refinement necessary to remain competitive.
Reynard does regard the products, technologies and databases that it has
developed as proprietary. Reynard attempts to protect its trade secrets and
proprietary information through agreements and policies with employees and
consultants. Despite these efforts, there is no assurance that others will not
gain access to Reynard's trade secrets, or that Reynard can meaningfully protect
its technology and intellectual property. Although Reynard intends to protect
its rights vigorously, there is no assurance that such measures will be
successful.
PROPERTIES
Reynard's operations occupy leased property located in Bicester,
Oxfordshire, and Brackley, Northamptonshire, in the Motorsport Valley. The two
facilities in Bicester comprise over 3,000 square meters and those located in
Brackley occupy an area over 5,000 square meters. The lease for the Bicester
sites expire May 11, 2010. The leases for the Brackley sites expire on March 25,
1999, May 31, 2003 and May 11, 2010. Dr. Reynard is the lessor for one of the
Bicester sites, while the Reynard Racing Cars Directors Pension Fund is the
lessor for the remaining Bicester site and two of the Brackley sites. The total
rent per annum for all the sites is approximately $924,000.
WHERE TO FIND ADDITIONAL INFORMATION
Reynard's principal executive offices are located at 8431 Georgetown Road,
Suite 700, Indianapolis, Indiana 46268. The telephone number is (317) 824-5600.
Reynard was incorporated in Delaware on September 2, 1998.
Reynard has filed a Registration Statement on Form S-1 with the Commission.
This prospectus, which forms a part of the Registration Statement, does not
contain all of the information included in the Registration Statement. Certain
information is omitted and you should refer to the Registration Statement and
its exhibits. With respect to references made in this prospectus to any contract
or other document of Reynard, such references are not necessarily complete and
you should refer to the exhibits attached to the Registration Statement for
copies of the actual contract or document. You may review a copy of the
Registration Statement at the Commission's public reference room in Washington,
D.C., and at the Commission's regional offices in Chicago, Illinois and New
York, New York. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. Reynard's Commission
filings and the Registration Statement can also be reviewed by accessing the
Commission's Internet site at http://www.sec.gov.
After this offering, Reynard will file annual, quarterly and current
reports, proxy statements and other information with the Commission. You may
read and copy any
59
<PAGE> 62
reports, statements or other information on file at the Commission's public
reference room in Washington, D.C. You can request copies of those documents,
upon payment of a duplicating fee, by writing to the Commission. Reynard intends
to furnish its stockholders with annual reports containing financial statements
audited by its independent public accountants and to announce publicly its
quarterly results for the first three quarters of each year. The financial
information will be prepared in accordance with U.S. GAAP.
POTENTIAL DIFFICULTIES IN ENFORCEMENT OF CIVIL LIABILITIES
Most of our directors and executive officers and the experts named in this
prospectus are residents of the U.K., not the U.S. Substantially all of our
assets and the assets of our directors and executive officers are located in the
U.K. As a result, you may not be able to (1) effect service of process within
the U.S. upon such persons or (2) enforce judgments of the U.S. courts
predicated upon civil liability provisions of the U.S. federal or state
securities laws if you are attempting to enforce those judgments in U.S. courts.
In addition, it may be difficult for you to enforce certain civil liabilities
predicated upon U.S. federal or state securities laws in England against Reynard
or our directors or executive officers.
Any judgement obtained in a state or federal court in the U.S. against
Reynard or its directors and executive officers is not automatically enforceable
against assets of those entities which are held in the United Kingdom.
Enforcement of judgements obtained in the U.S. courts in the United Kingdom is
possible, but only in limited circumstances prescribed by English common law. In
general judgements can only be enforced where the relevant U.S. court has valid
personal and subject matter jurisdiction and where the judgement debtor is
either (1) resident in the jurisdiction of such U.S. court; or (2) consents in
writing to the dispute being determined by such U.S. court; or (3) participates
in the defence of the proceedings before such U.S. court; or (4) counterclaims
within the U.S. proceedings. Even if the case satisfies these requirements there
are certain exceptions to enforceability which can be applied by the English
courts, for instance where a judgement is obtained by fraud or other improper
means, or where enforcement would be contrary to public policy.
60
<PAGE> 63
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning the executive officers
and directors of Reynard.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Adrian J. Reynard* 47 Chairman of the Board of Reynard
Alex S. Hawkridge* 53 Chief Executive Officer of Reynard
Richard J. Gorne* 44 Vice President -- Sales of Reynard
Malcolm B. Oastler 39 Technical Director of Reynard Motorsport Limited
Paul R. Owens 57 Composites Director of Reynard Motorsport Limited
John C. Gower* 43 Chief Financial Officer, Secretary and Treasurer of Reynard
Peter D. Morgan 44 Production Director of Reynard Motorsport Limited
Bruce G. Ashmore 39 Vice President/Technical Director - Reynard North America,
Inc.
Jeff S. Swartwout 45 Vice President/Operations Director - Reynard North America,
Inc.
</TABLE>
- ---------------
* Member of Reynard's Board of Directors
The Board of Directors are elected annually by the stockholders. The
officers of Reynard serve at the pleasure of the Board of Directors. Reynard
intends to add two additional independent directors as soon as possible after
the offering.
DR. ADRIAN J. REYNARD was elected Chairman of the Board and a director in
September, 1998. He has served as president and chief executive officer of
Reynard Motorsport Limited and its predecessors since 1973. Dr. Reynard's career
in the motorsports industry began in 1973 as a driver who designed and built his
own racing cars. By concentrating on design, engineering and manufacturing,
instead of driving, Dr. Reynard has made Reynard a successful manufacturer of
racing cars over the past 25 years.
ALEX S. HAWKRIDGE was elected Chief Executive Officer and a director of
Reynard in September, 1998. From 1992 to 1998, Mr. Hawkridge provided
specialized advice to many major companies in British motorsports through his
company, Garland Management Ltd. From 1968 to 1992, Mr. Hawkridge served as
Managing Director (chief executive officer) of Toleman Group, a diversified
manufacturing company with over 1,200 employees and operations in the U.K.,
U.S., and Philippines. During Mr. Hawkridge's tenure, Toleman Group owned and
operated Toleman Motorsport, which won the Formula Two European Championship in
1980 and the British Rally Championship in the same year. Toleman Motorsport
entered Formula One in 1981, and sold the team to Benetton in 1985. Toleman
Group also operated Cougar Marine, the winner of 13 consecutive World Powerboat
Championships.
RICHARD J. GORNE was elected Vice President - Sales and a director of
Reynard in September, 1998. Mr. Gorne has served as an executive officer of
Reynard Motorsport Limited and its predecessors for seventeen years. Since 1992,
Mr. Gorne has served as Sales Director of Reynard Motorsport Limited and its
predecessors. Mr. Gorne was a
61
<PAGE> 64
successful racing car driver who competed against Dr. Reynard in the 1970's. Mr.
Gorne focuses primarily on sales and customer service within Reynard.
MALCOLM B. OASTLER has served as Technical Director of Reynard Motorsport
Limited since March 1994. He joined Reynard in 1985 to design the Formula Ford
1600 and 2000 chassis. In 1987, he built the Formula Ford car that won on its
debut. Prior to joining Reynard, Mr. Oastler gained valuable experience working
in junior motor racing categories and competing as a driver in the Formula Ford
2000 series.
PAUL R. OWENS has served as managing director of Reynard Composites for 14
years. He joined Reynard in 1984 in order to develop the construction techniques
for the first ever carbon composite chassis for use in production based racing
cars. He helped start the Chevron Cars business, a race car manufacturer, in
1956. He remained with Chevron Cars until 1980 when he joined Maurer Racing Cars
to design and build Formula Two cars.
JOHN C. GOWER was elected Chief Financial Officer, Secretary, Treasurer and
a director of Reynard in September, 1998. Mr. Gower has served as financial
controller for the Reynard companies since 1991. During this period of rapid
growth he was responsible for setting up new finance and accounting systems.
From 1985 to 1991, he served as financial controller for the Benetton Formula
One team. Mr. Gower is qualified as a Chartered Accountant.
PETER D. MORGAN was elected Production Director of Reynard Motorsport
Limited in September 1998. Mr. Morgan served as vice president of production for
Reynard Motorsport Limited since April 1994. Prior to that, he held the
positions of team manager and race engineer with Madgwick Motorsport in Formula
3000 for ten years. Mr. Morgan began his racing career as a driver in the
Formula Ford series and was Esso National Champion in 1978.
BRUCE G. ASHMORE was elected Vice President/Technical Director of Reynard
North America, Inc. in December, 1997. Mr. Ashmore joined Reynard North America
in 1994 as the technical director of the Company's North American operations.
From 1988 to 1993, he worked as chief designer for Lola Cars Ltd., a chassis
manufacturer.
JEFF S. SWARTWOUT was elected Vice President/Operations Director of Reynard
North America, Inc. in March, 1998. Mr. Swartwout joined Reynard North America
in 1993. He began his career as a mechanic in the Formula Atlantic, Sports
Prototypes and Indy Car series. Mr. Swartwout's accomplishments on the racing
circuits as the lead mechanic include a victory at the 1986 Indianapolis 500 and
three national championships.
Pursuant to Reynard's agreement with BAR, Dr. Reynard and Messrs. Gorne and
Oastler have committed a significant amount of their time to the BAR Formula One
racing effort. Mr. Oastler must devote substantially all of his time over the
next three years. Dr. Reynard and Mr. Gorne must devote approximately one half
of their time for the next year and approximately one quarter of their time for
the subsequent two years.
COMMITTEES
Reynard's Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee recommends the appointment of
Reynard's independent auditors to the Board of Directors, reviews the
compensation of such auditors and reviews with such accountants the plans for
the result and scope of their auditing engagement. The Compensation Committee
reviews the performance and compensation of directors, executive
62
<PAGE> 65
officers and key employees and makes recommendations to the Board of Directors
with respect thereto. It also administers Reynard's Stock Option Plan. See
"--Stock Option Plans."
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS
Reynard's Certificate of Incorporation provides that the liability of the
directors for monetary damages shall be limited to the fullest extent
permissible under Delaware law. This limitation of liability does not apply in
the case of: (1) a breach of the director's duty of loyalty to Reynard or its
stockholders, (2) an act or omission not in good faith or which involves
intentional misconduct or a knowing violation of law, (3) the unlawful payment
of dividends or unlawful stock purchases or redemptions, or (4) a transaction
from which a director derived an improper personal benefit.
Reynard's By-laws indemnify its directors and officers to the fullest
extent possible under Delaware law, except as otherwise provided in the
Certificate of Incorporation. These indemnification provisions require Reynard
to indemnify directors and officers against certain liabilities and expenses to
which they may become subject by reason of their service to Reynard. The
provisions also set forth certain procedures, including the advancement of
expenses, that apply in the event of a claim for indemnification. Reynard
intends to obtain insurance to protect its officers and directors from
liability.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling Reynard
pursuant to the foregoing provisions, Reynard has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not Reynard employees will
receive options to purchase 15,000 shares of common stock when first elected and
options to purchase 5,000 shares of common stock upon each re-election. See
"-- Stock Option Plans -- Director Option Plan." In addition, these independent
directors will be paid a per meeting fee of $10,000 and $250 for each telephonic
meeting. Reynard will reimburse all directors for their expenses incurred in
connection with their activities as directors. Directors who are also Reynard
employees receive no compensation for serving on the Board of Directors.
EXECUTIVE COMPENSATION
Information regarding all forms of compensation paid or payable by Reynard
to the Chief Executive Officer and the four most highly compensated executive
officers whose annual salary and bonus exceeded $100,000 in fiscal 1998 is set
forth below. The principal positions of the named executive officers refer to
titles held by such individual in the operating subsidiaries prior to the
Reorganization.
63
<PAGE> 66
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
NAME AND FISCAL OTHER ANNUAL ALL OTHER
PRINCIPAL POSITIONS YEAR SALARY BONUS COMPENSATION COMPENSATION
------------------- ------ ---------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Adrian J. Reynard (1)............ 1998 $7,263,464 -- $93,534(2) $ --(3)
Chief Executive Officer of the
Company, Chairman of Reynard
Motorsport Limited
Richard J. Gorne................. 1998 476,705 183,815 --(4) 3,823(3)
Sales Director, Reynard
Motorsport Limited
Malcolm B. Oastler............... 1998 759,168 183,815 --(4) --
Technical Director, Reynard
Motorsport Limited
Peter D. Morgan.................. 1998 68,074 183,815 --(4) 9,972(3)
Production Director, Reynard
Motorsport Limited
Paul R. Owens.................... 1998 91,085 183,815 --(4) 39,057(3)
Director, Reynard Motorsport
Limited
</TABLE>
- ---------------
(1) Alex Hawkridge was elected Chief Executive Officer of Reynard in October
1998. The Company anticipates entering into an employment agreement with Mr.
Hawkridge. In addition, Dr. Reynard has entered into an employment agreement
that provides for annual compensation of $1.5 million plus pension
contributions.
(2) Represents $77,532 and $4,247 for the use of a company-owned aircraft and
motorcycle, respectively; $1,994 for personal use of Reynard staff persons;
$1,958 for the use of a phone; $2,491 for medical insurance; and $5,312 for
automobile insurance paid by Reynard.
(3) Represents amounts paid by Reynard on behalf of the named parties into a
defined contribution pension fund.
(4) The aggregate amount of perquisite compensation to be reported herein is
less than the lesser of $50,000 or 10% of the total of annual salary and
bonus reported for the named executive officer. No other annual compensation
was paid or payable to the named executive officers in the years indicated.
STOCK OPTION PLANS
In September 1998, Reynard's Board of Directors authorized, and Reynard's
stockholders approved, a stock incentive plan for executive and key management
employees of Reynard and its subsidiaries, including a limited number of outside
consultants and advisors, effective as of the completion of the Offering (the
"Stock Option Plans").
Under the Stock Option Plan, key employees, outside consultants and
advisors (the "Participants") of Reynard and its Subsidiaries (as defined in the
Stock Option Plan) may receive awards of stock options (both Nonqualified
Options and Incentive Options, as defined in the Stock Option Plan). Up to
2,250,000 shares of common stock (21% of the outstanding shares of common stock
immediately prior to the initial public offering) will be subject to the Stock
Option Plan. The purpose of the Stock Option Plan is to provide key employees
(including officers and directors who are also key employees) and key non-
64
<PAGE> 67
employee consultants and advisors of Reynard and its Subsidiaries ("employees")
with an increased incentive to make significant and extraordinary contributions
to the long-term performance and growth of Reynard and its Subsidiaries. The
Stock Option Plan will also join the interests of key employees with the
interests of the stockholders of Reynard and facilitate the attraction and
retention of key employees of exceptional ability.
In connection with the offering, Reynard intends to grant options to
purchase an aggregate of 1,200,000 shares of common stock to employees, at the
initial public offering price.
ADMINISTRATION. The Compensation Committee of Reynard's Board of Directors
administers the Stock Option Plan. The Stock Option Plan may also be
administered by such other committee as may be specified by the Board of
Directors to perform the functions and duties of the Compensation Committee
under the Stock Option Plan. Subject to the provisions of the Stock Option Plan,
the Compensation Committee shall determine, from those eligible to be
Participants: (1) the persons to be granted stock options, (2) the amount of
stock options granted to each such person and (3) the terms and conditions of
any stock options. Subject to the provisions of the Stock Option Plan, the
Compensation Committee is authorized to: (1) interpret the Stock Option Plan,
(2) make, amend and rescind rules and regulations relating to the Stock Option
Plan and (3) make all other determinations necessary or advisable for the Stock
Options Plan's administration.
PARTICIPANTS. The Participants in the Stock Option Plan are those key
employees, consultants and advisors of Reynard or any Subsidiary who in the
judgment of the Compensation Committee are or will become responsible for the
direction and financial success of Reynard or any Subsidiary. Key employees
include officers and directors who are also key employees of Reynard or any
Subsidiary.
SHARES SUBJECT TO PLAN. The maximum number of shares with respect to which
stock options may be granted under the Stock Option Plan is 150,000 shares of
common stock per person each year. Shares available for future grant under the
Stock Option Plan will be increased as of the first day of each new fiscal year
during the term of the Plan by the number of shares issuable upon exercise of
options granted thereunder in the previous fiscal year, net of returns. This
increase may not exceed 1,000,000 shares in any fiscal year. Shares covered by
expired or terminated stock options will again become available for grant under
the Stock Option Plan.
The number of shares subject to each outstanding stock option, the option
price with respect to outstanding stock options and the aggregate number of
shares remaining available under the Stock Option Plan will be subject to such
adjustment as the Compensation Committee, in its discretion, deems appropriate
to reflect such events as stock dividends, stock splits, recapitalizations,
mergers, consolidations or reorganizations of or by Reynard.
STOCK OPTIONS. Subject to the terms of the Stock Option Plan, the Committee
may grant to Participants either Incentive Options or Nonqualified Options, or
any combination thereof. Incentive Options meet the definition of an incentive
stock option under Section 422 of the Code and Nonqualified Options do not meet
such definition.
The exercise price for an Incentive Option may not be less than 100% of the
fair market value of the stock on the date of grant. But, the exercise price for
an Incentive Option granted to an employee who owns more than 10% of the voting
stock of Reynard or
65
<PAGE> 68
any Subsidiary may not be less than 110% of the fair market value of the stock
on the date of grant. The exercise price for a Nonqualified Option may not be
less than 100% of the fair market value of the stock on the date of grant.
The exercise period for stock options will be determined by the
Compensation Committee, but no stock option may be exercisable after ten years
from the date of grant, subject to certain conditions and limitations.
Stock options are not transferable by a Participant other than by will or
by the laws of descent and distribution, and stock options are exercisable,
during the lifetime of the Participant, only by the Participant.
If the employment or consultancy of a Participant by Reynard or a
Subsidiary terminates, the committee may, in its discretion, permit the exercise
of stock options granted to such Participant (1) for a period not to exceed
three months following termination of employment with respect to Incentive
Options if termination is not due to death or permanent disability of the
Participant, (2) for a period not to exceed one year following termination of
employment with respect to Incentive Options if termination is due to the death
or permanent disability of the Participant, and (3) for a period not to extend
beyond the expiration date with respect to Nonqualified Options.
TERMINATION, DURATION AND AMENDMENTS OF PLAN. The Stock Option Plan may be
abandoned or terminated at any time by the Board of Directors. Unless sooner
terminated, the Stock Option Plan will terminate on the date ten years after its
adoption by the Board of Directors. The termination of the Stock Option Plan
will not affect the validity of any stock option outstanding on the date of
termination.
For the purpose of conforming to any changes in applicable law or
governmental regulation, or for any other lawful purpose, the Board of Directors
will have the right, with or without approval of the stockholders of the
Company, to amend or revise the terms of the Stock Option Plan at any time. No
such amendment or revision will increase the maximum number of shares in the
aggregate which are subject to the Stock Option Plan (other than anti-dilution
adjustments and annual automatic increases) without the approval or ratification
of the stockholders. No such amendment or revision will increase the maximum
number of shares for which any Participant may be granted stock options under
the Stock Option Plan (other than anti-dilution adjustments and annual automatic
increases) without the approval or ratification of the stockholders. No such
amendment or revision will change the class of persons eligible to be
Participants under the Stock Option Plan without the approval or ratification of
the stockholders. Finally, without the consent of the holder thereof, no such
amendment or revision will change the stock option price (other than
anti-dilution adjustments) or alter or impair any stock option which has been
previously granted or awarded under the Stock Option Plan.
FEDERAL INCOME TAX CONSEQUENCES. The rules governing the tax treatment of
stock options, stock appreciation rights, and shares acquired upon the exercise
of stock options are technical. Therefore, the description of federal income tax
consequences below is general in nature and is complete. Also, statutory
provisions and their interpretations change and their application may vary in
individual circumstances. Finally, the applicable state and local income tax
laws may not be the same as under the federal income tax laws and will produce
different consequences.
66
<PAGE> 69
INCENTIVE OPTIONS. Incentive Options granted pursuant to the Plan are
intended to qualify as "Incentive Options" within the meaning of Section 422 of
the Code. If the Participant does not dispose of the shares acquired pursuant to
exercise of an Incentive Option within one year after the transfer of shares to
such Participant and within two years from grant of the option, such Participant
will realize no taxable income as a result of the grant or exercise of such
option. In addition, any gain or loss that is subsequently realized may be
treated as long-term capital gain or loss, as the case may be. Under these
circumstances, the Company will not be entitled to a deduction for federal
income tax purposes with respect to either the issuance of the Incentive Options
or the transfer of shares upon their exercise. However, the exercise of an
Incentive Option is an item of tax preference and a Participant may have
alternative minimum tax liability.
If shares acquired upon exercise of Incentive Options are disposed of prior
to the expiration of the above time periods, the Participant will recognize
ordinary income in the year in which the disqualifying disposition occurs. The
amount of ordinary income will generally be the lesser of (1) the excess of the
market value of the shares on the date of exercise over the option price, or (2)
the gain recognized on such disposition. This amount will ordinarily be
deductible by the Company for federal income tax purposes in the same year, as
long as the amount constitutes reasonable compensation. The excess, if any, of
the amount realized on a disqualifying disposition over the market value of the
shares on the date of exercise will be treated as capital gain.
NONQUALIFIED OPTIONS. A Participant who acquires shares by exercise of a
Nonqualified Option generally realizes taxable ordinary income at the time of
exercise. The taxable ordinary income equals the difference between the exercise
price and the fair market value of the shares on the date of exercise. This
amount will usually be deductible by Reynard in the same year, as long as the
amount constitutes reasonable compensation. Subsequent appreciation or decline
in the value of the shares on the sale or other disposition of the shares will
generally be treated as capital gain or loss.
WITHHOLDING PAYMENTS. If, upon exercise of a Nonqualified Option or upon a
disqualifying disposition of shares acquired upon exercise of an Incentive
Option, Reynard or any Subsidiary must pay amounts for income tax withholding,
then in the Compensation Committee's sole discretion, either Reynard will
appropriately reduce the amount of stock or cash to be delivered or paid to the
Participant or the Participant must pay such amount to Reynard to reimburse
Reynard for such payment. The Compensation Committee may permit a Participant to
satisfy such withholding obligations by electing to reduce the number of shares
of common stock delivered or deliverable to the Participant upon exercise of a
stock option or by electing to tender an appropriate number of shares of common
stock back to Reynard after the exercise of a stock option (with such
restrictions as the Compensation Committee may adopt).
LIMITATION ON COMPENSATION DEDUCTION. Publicly-held corporations are
precluded from deducting compensation paid to certain of its executive officers
in excess of $1.0 million. The employees covered by the $1.0 million limitation
include the chief executive officer and those employees whose annual
compensation is required to be reported to the Securities and Exchange
Commission because the employee is one of the company's four highest compensated
employees for the taxable year (other than the chief executive officer). The
grant of stock options generally are included in an employee's compensation for
purposes of the $1.0 million limitation.
67
<PAGE> 70
There is an exception to the $1.0 million deduction limitation for
compensation (including the grant of stock options paid pursuant to a qualified
performance-based compensation plan). Compensation attributable to stock options
is deemed to satisfy the qualified performance-based compensation exception if
(1) the grant is made by a compensation committee comprised of outside
directors; (2) the plan under which the option is granted states the maximum
number of shares with respect to which options may be granted during a specified
period to any employee and (3) under the terms of the option, the amount of
compensation the employee could receive is based solely on an increase in the
value of the stock after the date of the grant.
If the amount of compensation a covered employee will receive under the
grant is not based solely on an increase of the value of the stock after the
date of the grant (e.g., an option that is granted with an exercise price that
is less than the fair market value as of the date of the grant), none of the
compensation attributable to the grant is qualified performance-based
compensation unless the grant is made on account of the attainment of a
performance goal that has been previously established and approved by the
stockholders of Reynard.
The grant of stock options to a Participant under the Stock Option Plan to
purchase Reynard's stock at fair market value determined on the date of the
grant will, if granted at fair market value, be deemed to satisfy the
requirements of the performance-based compensation exception. Therefore, the
$1.0 million deduction limitation will not otherwise limit the deductibility of
the compensation paid to covered employees by Reynard. But, the grant of a stock
option with an exercise price less than the fair market value of the stock on
the date of grant will be included in a covered employee's compensation in
determining the $1.0 million deductibility limit.
U.K. TAX CONSEQUENCES. It is intended that stock options will be granted to
executives and key management employees of Reynard who are residents in the U.K.
Options granted to U.K. residents under the Stock Option Plan will be treated as
unapproved for U.K. tax purposes. On the exercise of such options, a U.K.
Participant will be subject to U.K. income tax on the difference between the
exercise price and the fair market value of the shares on the date of exercise.
This amount will be subject to U.K. withholding tax. The Committee is authorized
to sell sufficient of the Participant's shares on the exercise of a stock option
to satisfy such withholding liabilities, if necessary.
For options granted to U.K. residents after April 5, 1999 under the Stock
Option Plan, there is a liability to pay U.K. social security contributions upon
the exercise of such options based on the difference between the exercise price
and the fair market value of the shares on the date of exercise.
No deduction will be available to Reynard for corporation tax purposes with
respect to the issuance of options to purchase shares of common stock or the
transfer of shares upon their exercise.
U.K. APPROVED STOCK OPTIONS. It is intended that a sub-plan of the Stock
Option Plan will be established which will be approved by the U.K. Inland
Revenue under the U.K. Taxes Act 1988. Approved stock options may be granted to
selected U.K. employees and full-time directors. The provisions of the sub-plan
will be similar to those of the Stock Option Plan except to the extent required
to obtain and maintain U.K. Inland Revenue approval.
68
<PAGE> 71
In particular, approved options may only be granted to a U.K. individual
over shares worth up to L30,000 at the date of grant. Provided the approved
options are exercised between the third and tenth anniversaries of the date of
grant and not within three years of a previous tax-free exercise of an approved
option by the same individual, no income tax will be payable upon exercise.
Furthermore, there will be no liability for social security contributions on the
exercise of an approved option. Any gain or loss that is subsequently realized
on sale of the shares will be treated as a capital gain, and will be taxed
accordingly.
ACCOUNTING TREATMENT. Under current accounting rules, neither the grant nor
the exercise of an Incentive Option or a Nonqualified Option granted to
employees at an exercise price equal to the fair market value of the shares on
the date of grant requires any charge against earnings. Reynard will follow the
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation. This publication provides for the
disclosure of the pro forma impact of the issuance of options to employees on
net income and earnings per share in the footnotes to Reynard's financial
statements. Management currently believes that there will be no material impact
on earnings of the Company as a result of the adoption of SFAS 123.
DIRECTOR OPTION PLAN. The Director Option Plan permits the granting of non-
qualified stock options ("Director NQSOs") for up to 200,000 shares of Common
stock to Reynard's directors who are not employees of Reynard (an "Independent
Director"). Each person who is first elected or appointed to serve as an
Independent Director of Reynard is automatically granted an option to purchase
15,000 shares of common stock. In addition, each individual who is re-elected as
an Independent Director is automatically granted an option to purchase 5,000
shares of common stock each year on the date of the annual meeting of
stockholders. Each of the options automatically granted upon election,
appointment or re-election as an Independent Director (the "Fixed Options") are
exercisable at a price at least equal to the fair market value of the common
stock on the date of grant. In addition to the Fixed Options, each Independent
Director may elect to receive stock options in lieu of any director's fees
payable to such individuals.
All Directors NQSOs are immediately exercisable upon grant. The exercise
price for all such options may be paid in cash, shares of common stock or other
property. If an Independent Director dies or becomes ineligible to participate
in the Director Option Plan due to disability, his Director NQSOs expire on the
first anniversary of such event. If an Independent Director retires with the
consent of Reynard, his Director NQSOs expire 90 days after his retirement. In
no event may a Director NQSO be exercised more than 10 years from the date of
grant.
EMPLOYMENT AGREEMENTS
In December 1998, Reynard entered into employment agreements with Dr.
Reynard, Messrs., Hawkridge, Gorne, Oastler, Owens, Gower and Morgan. Pursuant
to the terms of the agreements, each employee, other than Dr. Reynard and Mr.
Hawkridge has agreed to be a full-time employee for a period of four years. Dr.
Reynard has agreed to be a full-time employee for a period of three years. Each
employee has also agreed not to compete with Reynard during the term of the
agreement and for a period of one year after termination. In December 1998,
Reynard entered into an employment agreement with Mr. Hawkridge for a period of
three years with an agreement not to compete with Reynard during the term of the
agreement and for a period of one year after termination.
69
<PAGE> 72
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board of Directors has established a Compensation Committee to
deliberate upon matters concerning executive compensation, the issuance of
options under the Stock Option Plan and other benefits payable to Reynard's
executive officers. The members of the Compensation Committee are currently
Adrian J. Reynard and Alex S. Hawkridge. It is anticipated that the Compensation
Committee members will be the two additional independent directors to be elected
as soon as possible after the offering.
70
<PAGE> 73
PRINCIPAL AND SELLING STOCKHOLDERS
The following table contains information, as of December 15, 1998,
concerning the beneficial ownership of the common stock by (1) each director,
(2) each of the named officers, (3) all directors and executive officers as a
group and (4) each person or entity known by Reynard to be the beneficial owner
of more than five percent of the outstanding shares of common stock. the
percentage of shares owned prior to the offering is calculated based upon
10,661,214. Unless otherwise indicated, the address for each of the stockholders
below is Reynard Motorsport Limited, Reynard Centre, Telford Road, Bicester,
Oxfordshire OX6 0UY.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
------------------- SHARES BEING -------------------
NAME OF BENEFICIAL OWNER (1) NUMBER PERCENT OFFERED NUMBER PERCENT
---------------------------- --------- ------- ------------ --------- -------
<S> <C> <C> <C> <C> <C>
Adrian J. Reynard (2)............ 8,299,418 77.8% 309,338 7,990,087 57.5%
Richard J. Gorne................. 50,662 0.5% 50,662 -- --
Paul R. Owens.................... -- -- -- -- --
Malcolm B. Oastler............... -- -- -- -- --
Peter D. Morgan.................. -- -- -- -- --
Alex S. Hawkridge (3)............ 426,449 3.8% -- 426,449 3.0%
Reynard Racing Cars Trustee
Limited (4).................... 1,740,278 16.3% -- 1,740,279 12.5%
All directors and officers, as a
group (6 persons) (5).......... 8,776,529 79.2% 360,000 8,416,535 58.7%
</TABLE>
- ---------------
(1) Unless otherwise noted, each beneficial owner has sole voting and
dispositive power with respect to the shares.
(2) Includes 37 shares held in the name of Gillian Reynard. Includes 696,113
shares held in the name of Spread Trustee Company Ltd. in which Dr. Reynard
is the sole beneficiary and 1,456,362 shares held in the name of Reynard
Racing Cars Directors Pension Fund in which Dr. Reynard is the sole
beneficiary.
(3) Includes 426,449 shares issuable upon exercise of outstanding stock options,
exercisable within 90 days of December 15, 1998.
(4) Includes 386,729 shares held in the name of Richard J. Gorne, 483,411 shares
held in the name of Malcolm B. Oastler, 386,729 shares held in the name of
Paul R. Owens, 193,364 shares held in the name of Peter D. Morgan and
193,364 shares held in the name of John C. Gower. Reynard Racing Cars
Trustee Limited, a wholly-owned subsidiary of Reynard, owns 1,740,279 shares
in trust for the above-named directors. The shares vest five years from the
date of issue to the employee. At this time, no shares are vested. The first
shares vest in 1999.
(5) Includes 426,449 shares issuable upon exercise of outstanding stock options,
exercisable within 90 days of December 5, 1998.
CERTAIN TRANSACTIONS
As of September 30, 1998, Reynard had borrowed an aggregate of $9,673,000
from Dr. Adrian Reynard in the form of a facility letter, due and payable on
demand. The loan is
71
<PAGE> 74
secured by a pledge of all of Reynard's assets, and bears interest at the
National Westminster Bank's base rate plus 2 1/2%. Reynard has received a letter
from Dr. Reynard in which he states that he does not expect to be paid or
credited with interest on the money lent to date. The highest balance due to Dr.
Reynard during the fiscal year was $11,298,585, $5,519,961 and $(287,616) during
1998, 1997 and 1996, respectively, and such balances do not include interest on
the loan. A portion of the proceeds from this offering will be used to repay the
loan in its entirety.
Reynard leases some of its sites from Dr. Reynard and from the Reynard
Racing Cars Limited. Directors' Pension Scheme (the "Directors' Pension"), of
which Dr. Reynard is a trustee and sole beneficiary. Dr. Reynard has leased the
facility located in Unit B4, Telford Road, Bicester, to the Company for a term
of 12 years, commencing on October 1, 1998, for $178,395 per annum. The
Directors' Pension has leased the facility located in Unit B6, Telford Road
Bicester, Oxfordshire, to Reynard for a term of 12 years, commencing on October
1, 1998, for $54,380 per annum, the facility located in Unit 1A, Reynard Park,
Brackley, for a term of 12 years, commencing on May 11, 1998, for $405,739 per
annum, and the facility located in Unit 4, Reynard Park, Brackley, for a term of
12 years, commencing on May 11, 1998, for $285,797 per annum.
In August 1997, Reynard loaned an aggregate of $899,000 to the pension
fund, of which Dr. Reynard is a beneficiary. The loan was partially repaid in
August, 1997, with the balance being repaid in October, 1997. The loan was in
the form of a facility letter, was due and payable on demand and bore interest
at the National Westminster Bank's base rate plus 2% per annum. The loans were
made for the purpose of purchasing property.
On September 25, 1998, Reynard granted options to purchase 426,449 shares
to Alex Hawkridge, Reynard's Chief Executive Officer, at an exercise price of
$13.49 per share. The options are fully vested and may be exercised by Mr.
Hawkridge at any time after the date of the agreement.
During the year ended September 30, 1998, payments of $375,000 were made to
a company owned by Alex Hawkridge, Reynard's Chief Executive Officer, in respect
of consulting services provided to Reynard. At September 30, 1998, Reynard had
approximately $165,000 due to this company.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Reynard consists of 50,000,000 shares of
common stock, par value $.0001 per share, and 5,000,000 shares of preferred
stock, par value $.01 per share. On December 15, 1998, a total of 10,661,214
shares of common stock were issued and outstanding and such shares were held by
11 stockholders. No shares of preferred stock were outstanding. Upon completion
of the Offering, there will be 13,901,214 shares of common stock and no shares
of preferred stock issued and outstanding.
The following summary description of Reynard's capital stock is not
complete. You should read Reynard's Certificate of Incorporation and By-laws.
Copies of Reynard's Certification of Incorporation and By-laws have been filed
as exhibits to the Registration Statement of which this prospectus is a part.
72
<PAGE> 75
COMMON STOCK
All outstanding shares of common stock are, and the shares offered hereby
will be, duly authorized, validly issued, fully paid and nonassessable. Subject
to the prior rights of holders of any preferred stock then outstanding, holders
of common stock are entitled to receive dividends, when and if declared by the
Board of Directors, out of funds legally available therefore. Holders of common
stock will share ratably in the net assets of Reynard upon liquidation.
Reynard's payment of dividends, if any, rests with the Board of Directors and
will depend upon Reynard's results of operation, financial condition and capital
expenditure plans, as well as other factors considered relevant by the Board of
Directors. Holders of common stock do not have preemptive or other rights to
subscribe for additional shares. There are no redemption or sinking fund
provisions associated with the common stock.
Holders of common stock are entitled to one vote per share on all matters
requiring a vote of stockholders. Since the common stock does not have
cumulative voting rights in electing directors, the holders of more than a
majority of the outstanding shares of common stock voting for the election of
directors can elect all of the directors whose terms expire that year.
PREFERRED STOCK
Reynard's Certificate of Incorporation gives the Board of Directors the
power to designate the relative rights and preferences of the preferred stock,
when and if issued, without further action by the holders of the common stock.
The Board of Directors is authorized to issue up to 5,000,000 shares of
preferred stock in one or more series. The rights and preferences could include
preferences as to liquidation, redemption and conversion rights, voting rights,
dividends or other preferences. Any of these may be dilutive to the interests of
the holders of common stock. The issuance of preferred stock may have the effect
of delaying or preventing a change in control of Reynard and may have an adverse
effect on the rights of the holders of common stock.
The issuance of any series of preferred stock, and the relative powers,
preferences, rights, qualifications, limitations and restrictions of such
series, if and when established, will depend upon, among other things, the
future capital needs of Reynard, the then-existing market conditions and other
factors that, in the judgment of the Board of Directors, might warrant the
issuance of preferred stock. At the date of this prospectus, there are no plans,
agreements or understandings relative to the issuance of any shares of preferred
stock.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Certain provisions of the General Corporation Law of the State of Delaware
and of the Company's Certificate of Incorporation and By-laws are summarized in
the following paragraphs. These provisions may be considered to have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
73
<PAGE> 76
OTHER VOTING REQUIREMENTS. The Certificate of Incorporation requires the
approval of 67% of Reynard's voting securities for an amendment of certain
provisions of the Certificate of Incorporation, unless 2/3 of the Board of
Directors first approve the matter. The Certificate of Incorporation also
requires either the approval of 67% of Reynard's voting securities or a vote of
not less than a majority of the Board of Directors to amend the By-Laws.
DELAWARE ANTI-TAKEOVER LAW. Since Reynard is a Delaware corporation, it is
subject to the provisions of the General Corporation Law of the State of
Delaware, including Section 203 thereof. Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder unless: (1) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (2) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203, or (3)
subsequent to such date, the business combination is approved by both the Board
of Directors and by holders of at least 66 2/3% of the corporation's outstanding
voting stock, excluding shares owned by the interested stockholder. For these
purposes, the term "business combination" includes mergers, asset sales and
other similar transactions with an "interested stockholder." An "interested
stockholder" is a person who, together with affiliates and associates, owns (or,
within the prior three years, did own) 15% or more of the corporation's voting
stock. Although Section 203 permits a corporation to elect not to be governed by
its provisions, Reynard has not made this election.
SPECIAL MEETINGS OF STOCKHOLDERS; NO ACTION WITHOUT MEETING. Reynard's
By-laws provide that special meetings of stockholders may be called only by the
Chairman, the President or the Board of Directors. Reynard's Certificate of
Incorporation and By-laws also provide that no action required to be taken or
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting. Additionally, the power of stockholders to consent in
writing, without a meeting, to the taking of any action is specifically denied.
These provisions may make it more difficult for stockholders to take action
opposed by the Board of Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Reynard's By-laws provide that stockholders seeking to bring
business before an annual or special meeting of stockholders, or to nominate
candidates for election as directors at an annual or a special meeting of
stockholders, must provide timely, written notice thereof. To be timely, a
stockholder's notice must be delivered to, or mailed and received at, Reynard's
principal executive office (1) with respect to business to be considered at the
annual meeting of the stockholders of Reynard, not less than 90 days prior to
the anniversary date of the immediately preceding annual meeting of Reynard's
stockholders, and (2) with respect to business to be considered at a special
meeting of Reynard's stockholders, not later than the close of business on the
10th day following the day on which notice of the date of the special meeting
was mailed to stockholders, or public disclosure of the date of the special
meeting was made, whichever occurs first. These provisions may preclude some
stockholders from making nominations for directors at an annual or special
meeting or from bringing other matters before the stockholders at a meeting.
74
<PAGE> 77
RIGHTS AGREEMENT
Reynard and a rights agent have entered into a Rights Agreement. The Rights
Agreement provides for the distribution of a right to purchase one share of
common stock to the holders of each share of common stock. Pursuant to the
Rights Agreement, the rights may have certain anti-takeover effects. The rights
are designed to cause substantial dilution to a person or group that attempts to
acquire Reynard on terms that are not approved by the Board of Directors.
Prior to the date the rights are distributed to the rights holders (the
"Distribution Date"), certificates representing the shares of common stock will
evidence the rights. The rights may only be transferred with shares of common
stock. The rights are not exercisable for common stock until the Distribution
Date. The holders of rights do not have any voting rights and are not entitled
to dividends.
The Distribution Date will occur, if at all, on the earlier of: (1) the
tenth business day following a public announcement that a person (other than
Reynard, Adrian J. Reynard or certain related entities) has acquired or obtained
the right to acquire, beneficial ownership of 15% or more of the outstanding
shares of common stock, or (2) the tenth business day (or such later date as
determined by the Board of Directors) following the commencement of or the first
public announcement of intent of a tender offer or exchange for 15% or more of
the outstanding shares of common stock (other than by Reynard, Adrian J. Reynard
or certain related entities).
After the Distribution Date, once any person (other than Reynard, Adrian J.
Reynard or certain related entities) becomes a 15% beneficial owner of the
outstanding shares of common stock, the rights automatically allow a stockholder
to acquire Reynard common stock at a 50% discount, unless the Board of Directors
has decided to exchange the rights for shares of common stock. The rights
beneficially owned by the acquiring person become null and void and do not allow
such person to acquire Reynard common stock.
If, after the Distribution Date, the Company consolidates or merges with,
or transfers a majority of its assets to, any person, the rights will allow a
stockholder to acquire the voting equity securities of the acquiring person at a
50% discount.
The rights will not interfere with any merger or other business combination
that is approved by the Board of Directors because the rights may be redeemed by
Reynard at $.01 per right at any time prior to 10 business days following a 15%
acquisition.
The rights will expire on , 2008, unless earlier redeemed by
the Company.
The Board of Directors may amend the Rights Agreement, without limitation,
prior to the distribution of the rights, without the approval of the holders of
the rights.
TRANSFER AGENT
The transfer agent and registrar of the common stock is
.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, Reynard will have 13,901,214 shares of
common stock outstanding. Of such outstanding shares, the 3,600,000 shares
(4,140,000 shares if the over-allotment option is exercised in full) sold in the
offering will be freely transferable after the
75
<PAGE> 78
offering and may be resold without further registration under the Securities
Act, unless purchased by affiliates of Reynard, as defined in Rule 144 under the
Securities Act. The remaining 10,301,214 shares outstanding are restricted
shares and the holders will be entitled to resell them only pursuant to a
registration statement under the Securities Act or an applicable exemption from
registration thereunder, such as an exemption provided by Rule 144. None of the
current stockholders have any registration rights with respect to the
outstanding shares of common stock.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted securities"
for at least one year may, under certain circumstances, resell within any
three-month period such number of shares as does not exceed the greater of one
percent of the then-outstanding shares or the average weekly trading volume
during the four calendar weeks prior to such resale. Rule 144 also permits,
under certain circumstances, the resale of shares without any quantity
limitation by a person who has satisfied a two-year holding period and who is
not, and has not been for the preceding three months, an affiliate of Reynard.
In addition, holding periods of successive non-affiliate owners are aggregated
for purposes of determining compliance with these one- and two-year holding
period requirements. The availability of shares for sale or actual sales under
Rule 144 may have an adverse effect on the market price of the common stock.
Sales under Rule 144 also could impair the Company's ability to market
additional equity securities.
Upon completion of the offering, the remaining 10,301,214 restricted shares
may not be resold pursuant to Rule 144 before December 1999.
Reynard and all of its stockholders, executive officers and directors have
each agreed not to offer for sale, sell or otherwise dispose of any shares of
common stock or other securities convertible into or exchangeable for common
stock for a period of 180 days after the date of this prospectus without the
prior written consent of NationsBanc Montgomery Securities LLC on behalf of the
Underwriters.
76
<PAGE> 79
UNDERWRITING
Upon the terms and subject to the conditions stated in the Underwriting
Agreement (the "Underwriting Agreement") by and between Reynard and the
Underwriters (collectively, the "Underwriters"), dated the date hereof, each
underwriter named below has severally agreed to purchase the number of shares of
common stock set forth below opposite the name of such Underwriter at the public
offering price less the underwriting discount set forth on the cover page of
this prospectus.
<TABLE>
<CAPTION>
NAME OF UNDERWRITER NUMBER OF SHARES
------------------- ----------------
<S> <C>
NationsBanc Montgomery Securities LLC.......................
Wheat First Securities, Inc.................................
Josephthal & Co. Inc........................................
--------
Total.............................................
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of common stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.
The Underwriters, for whom NationsBanc Montgomery Securities LLC, Wheat
First Union, a division of Wheat First Securities, Inc., and Josephthal & Co.
Inc. are acting as representatives (the "Representatives"), propose to offer the
shares of common stock directly to the public at the public offering price set
forth on the cover page of this prospectus. The Underwriters may allow selected
dealers a concession not in excess of $ per share under the public offering
price and the Underwriters may allow, and such dealers may reallow, a concession
not in excess of $ per share to certain other dealers. After the initial
offering of the shares to the public, the public offering price and other
selling terms may be changed by the Representatives. The Representatives have
advised Reynard that the Underwriters do not intend to confirm sales of any
shares to any accounts over which they exercise discretionary authority.
The Selling Stockholder has granted an option to the Underwriters to
purchase up to 540,000 additional shares of common stock at the public offering
price set forth on the cover page of this prospectus, minus the underwriting
discounts and commissions. This option is exerciseable for 30 days from the date
of this prospectus. The Underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, in connection with the offering of
the shares of common stock. To the extent such option is exercised, each
Underwriter will be obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares as the number of
shares set forth opposite each Underwriter's name in the preceding table bears
to the total number of shares listed in such table.
77
<PAGE> 80
Reynard, its executive officers and directors and each of its existing
stockholders, who will hold an aggregate of shares of common stock after
this offering, have agreed that until 180 days following the date of this
prospectus, they will not, without the prior written consent of NationsBanc
Montgomery Securities LLC, on behalf of the Underwriters, sell, offer to sell,
solicit any offer to buy, contract to sell, grant any option to purchase, or
otherwise transfer or dispose of any shares, or any securities convertible into,
or exercisable or exchangeable for, shares of common stock, except that Reynard
may grant options under the Stock Option Plan and may issue shares of common
stock pursuant to the exercise of options granted under the Stock Option Plan.
In evaluating any request for a waiver of the 180-day lock-up period,
NationsBanc Montgomery Securities LLC will consider, in accordance with its
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the common
stock, the size of the request and, with respect to a request by the Company to
issue additional equity securities, the purpose of such an issuance.
Prior to this offering, there has not been any public market for the shares
of common stock of the Company. Consequently, the initial public offering price
for the shares of common stock included in the offering will be determined by
negotiations between Reynard and the Representatives. Among the factors to be
considered in determining such price are the history of and prospects for
Reynard's business and the industry in which it competes, an assessment of
Reynard's management and the present state of Reynard's development, the past
and present revenues and earnings of Reynard, the prospects for growth of
Reynard's revenues and earnings, the current state of the economy in the U.S.
and the U.K. and the current level of economic activity in the industry in which
Reynard competes and in related or comparable industries, and currently
prevailing conditions in the securities markets, including current market
valuations of publicly traded companies that are comparable to Reynard.
The Representatives have advised Reynard that, pursuant to Regulation M
under the Exchange Act, certain persons participating in the offering may engage
in transactions, including stabilizing bids, syndicate covering transactions or
the imposition of penalty bids, which may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the Underwriters for the purpose
of fixing or maintaining the price of the common stock. A "syndicate covering
transaction" is the bid for or the purchase of the common stock on behalf of the
Underwriters to reduce a short position incurred by the Underwriters in
connection with the offering. A "penalty bid" is an arrangement permitting the
Representatives to reclaim the selling concession otherwise accruing to an
Underwriter or syndicate member in connection with the offering if the shares of
common stock originally sold by such Underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such Underwriter or syndicate member.
The Underwriters are not required to engage in any of these activities and any
such activities, if commenced, may be discontinued at any time. The
Representatives have advised Reynard that such transactions may be effected on
the NYSE or otherwise and, if commenced, may be discontinued at any time.
The Underwriting Agreement provides that Reynard will indemnify the
Underwriters against certain liabilities, including liabilities arising under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
78
<PAGE> 81
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for Reynard by Kegler, Brown, Hill & Ritter Co., L.P.A., Columbus, Ohio. Certain
other legal matters governed by English law will be passed upon for Reynard by
Davies Arnold Cooper. Legal matters in connection with this offering will be
passed upon for the Underwriters by Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
Washington, D.C.
EXPERTS
The consolidated financial statements of Reynard as of September 30, 1997
and 1998 and for each of the three years in the period ended September 30, 1998,
included in this prospectus and the related financial statement schedule
included elsewhere in the registration statement, have been audited by Deloitte
& Touche, independent auditors, as stated in their reports appearing herein and
elsewhere in the registration statement, and have been included herein in
reliance upon the reports of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of Princetown Holdings Limited as of
August 31, 1997 and 1998 and for each of the two years in the period ended
August 31, 1998, included in this prospectus, have been audited by Deloitte &
Touche, independent auditors, as stated in their report appearing herein and
have been included herein in reliance upon the report of such firm given upon
their authority as experts in accounting and auditing.
79
<PAGE> 82
REYNARD MOTORSPORT, INC.
INDEX TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION AND
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
REYNARD MOTORSPORT, INC. UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL INFORMATION
Unaudited Pro Forma Condensed Consolidated Financial
Information............................................ F-2
Unaudited Pro Forma Condensed Consolidated Balance Sheet
as of September 30, 1998............................... F-3
Unaudited Pro Forma Condensed Consolidated Statement of
Operations for the Year Ended September 30, 1998....... F-4
Notes to Unaudited Pro Forma Consolidated Financial
Information............................................ F-5
REYNARD MOTORSPORT, INC.
Independent Auditors' Report.............................. F-7
Consolidated Balance Sheets as of September 30, 1997 and
1998................................................... F-8
Consolidated Statements of Operations for the Years Ended
September 30, 1996, 1997 and 1998...................... F-9
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended September 30, 1996, 1997 and
1998................................................... F-10
Consolidated Statements of Cash Flows for the Years Ended
September 30, 1996, 1997 and 1998...................... F-11
Notes to the Consolidated Financial Statements............ F-12
PRINCETOWN HOLDINGS LIMITED
Independent Auditors' Report.............................. F-21
Consolidated Balance Sheets as of August 31, 1997 and
1998................................................... F-22
Consolidated Statements of Operations for the Years Ended
August 31, 1997 and 1998............................... F-23
Consolidated Statements of Stockholder's Equity for the
Years Ended August 31, 1997 and 1998................... F-24
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1997 and 1998............................... F-25
Notes to Consolidated Financial Statements................ F-26
</TABLE>
F-1
<PAGE> 83
REYNARD MOTORSPORT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The unaudited pro forma condensed consolidated balance sheet as of
September 30, 1998 gives effect to (i) the Gemini Acquisition (See
"Business -- Growth Strategy") and (ii) the Offering and application of the net
proceeds from the Offering (after deducting underwriting discounts and
commissions and estimated expenses of the Offering, but excluding the
underwriters' over-allotment option), as if each had occurred as of September
30, 1998. The following unaudited pro forma condensed consolidated statements of
operations for the year ended September 30, 1998 give effect to each of the
above transactions as if each had occurred as of October 1, 1997. The
information used in respect of Gemini represents the year ended August 31, 1998.
Pro forma adjustments are described in the accompanying notes. The unaudited pro
forma condensed consolidated financial information should be read in conjunction
with "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this Prospectus. The
unaudited pro forma condensed consolidated statements of operations are not
necessarily indicative of the actual results of operations that would have been
reported if the events described above had occurred as of October 1, 1997, nor
do such statements propose to indicate the results of future operations of the
Company. Furthermore, the pro forma results do not give effect to cost savings
or incremental costs, if any, which may occur as a result of the integration and
consolidation of the Gemini Acquisition or the investment of cash balances
available from the Offering. In the opinion of management, all adjustments
necessary to present fairly such unaudited pro forma condensed consolidated
financial statements have been made.
F-2
<PAGE> 84
REYNARD MOTORSPORT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITION OF GEMINI
------------------------------------- ADJUSTMENTS
REYNARD GEMINI PRO FORMA PRO FORMA FOR THE
HISTORICAL HISTORICAL ADJUSTMENTS FOR GEMINI OFFERING PRO FORMA
---------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 3,318 $ 1 $(12,165)(A) $(8,846) $41,766(B) $ 23,247
(9,673)(B)
Accounts receivable.................. 8,129 606 -- 8,735 -- 8,735
Inventory............................ 4,556 1,854 -- 6,410 -- 6,410
Prepaid expenses..................... 1,489 34 -- 1,523 (1,231)(B) 292
Deferred income taxes................ 870 217 -- 1,087 -- 1,087
------- ------ -------- ------- ------- --------
Total current assets.......... 18,362 2,712 (12,165) 8,909 30,862 39,771
PROPERTY AND EQUIPMENT -- Net.......... 10,876 3,533 7,351(A) 21,760 -- 21,760
INTANGIBLES............................ -- -- 3,833(A) 3,833 -- 3,833
OTHER ASSETS........................... 464 -- -- 464 -- 464
------- ------ -------- ------- ------- --------
TOTAL ASSETS........................... $29,702 $6,245 $ (981) $34,966 $30,862 $ 65,828
======= ====== ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES
Bank lines of credit................. $ 518 $ 82 $ -- $ 600 $ -- $ 600
Accounts payable..................... 6,592 260 -- 6,852 -- 6,852
Accrued liabilities.................. 10,797 626 (492)(A) 10,931 -- 10,931
Notes payable to related party....... 9,653 3,464 (3,464)(A) 9,653 (9,673)(B) (20)
Current portion of capital lease
obligations........................ -- 583 -- 583 -- 583
Current portion of long-term debt.... -- 327 -- 327 -- 327
------- ------ -------- ------- ------- --------
Total current liabilities..... 27,560 5,342 (3,956) 28,946 (9,673) 19,273
CAPITAL LEASE OBLIGATIONS.............. -- 554 -- 554 -- 554
LONG TERM DEBT......................... -- 191 670(A) 861 -- 861
DEFERRED INCOME TAXES.................. 194 258 2,205(A) 2,657 -- 2,657
GUARANTEED DEBT OBLIGATION............. 2,039 -- -- 2,039 -- 2,039
MINORITY INTEREST IN SUBSIDIARY........ 2,925 -- -- 2,925 -- 2,925
COMMITMENTS AND CONTINGENCIES.......... -- -- -- -- -- --
STOCKHOLDERS' EQUITY (DEFICIT)......... (3,016) (100) 100(A) (3,016) 40,535(B) 37,519
------- ------ -------- ------- ------- --------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)..................... $29,702 $6,245 $ (981) $34,966 $30,862 $ 65,828
======= ====== ======== ======= ======= ========
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-3
<PAGE> 85
REYNARD MOTORSPORT, INC.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PRO FORMA FOR ACQUISITION OF GEMINI
------------------------------------- ADJUSTMENTS
REYNARD GEMINI PRO FORMA PRO FORMA FOR THE
HISTORICAL HISTORICAL ADJUSTMENTS FOR GEMINI OFFERING PRO FORMA
---------- ---------- ----------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Products............................. $45,929 $3,209 $ -- $49,138 $ -- $49,138
Services............................. 12,788 -- -- 12,788 -- 12,788
Other................................ -- 50 -- 50 -- 50
------- ------ ----- ------- ------- -------
Total revenues................ 58,717 3,259 -- 61,976 -- 61,976
COST OF GOODS SOLD:
Products............................. 24,066 941 -- 25,007 -- 25,007
Services............................. 5,023 -- -- 5,023 -- 5,023
------- ------ ----- ------- ------- -------
Total cost of goods sold...... 29,089 941 -- 30,030 -- 30,030
------- ------ ----- ------- ------- -------
GROSS PROFIT........................... 29,628 2,318 -- 31,946 -- 31,946
GENERAL AND ADMINISTRATIVE
EXPENSES(H).......................... 24,367 1,288 191(C) 26,582 (6,340)(D) 20,242
736(C)
------- ------ ----- ------- ------- -------
INCOME FROM OPERATIONS................. 5,261 1,030 (927) 5,364 6,340 11,704
OTHER INCOME (EXPENSE)
Write-off of equity investment....... (7,349) -- -- (7,349) -- (7,349)
Minority interest in loss of
subsidiary......................... 105 -- 105 105
Interest income...................... 51 -- -- 51 -- 51
Interest expense..................... (919) (161) -- (1,080) 919(E) (161)
------- ------ ----- ------- ------- -------
INCOME (LOSS) BEFORE TAXES ON INCOME... (2,851) 869 (927) (2,909) 7,259 4,350
INCOME TAX EXPENSE..................... 1,910 184 (221)(F) 1,873 1,965(F) 3,838
------- ------ ----- ------- ------- -------
NET INCOME (LOSS)...................... $(4,761) $ 685 $(706) $(4,782) $ 5,294 $ 512
======= ====== ===== ======= ======= =======
EARNINGS (LOSS) PER SHARE -- BASIC AND
DILUTED (G).......................... $ (.45) $ .04
======= =======
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING -- BASIC AND DILUTED..... 10,661 12,218
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited pro forma
condensed consolidated financial statements.
F-4
<PAGE> 86
REYNARD MOTORSPORT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
BALANCE SHEET -- In October 1998, Reynard entered into an agreement to
acquire all of the outstanding shares of stock of Princetown Holdings Limited,
the sole owner of Gemini Transmissions Limited (together, "Gemini") for
approximately $12.8 million. Gemini manufactures and assembles gearboxes,
gearbox components, suspension components and other fabricated items for various
automobile companies and motorsport teams, and is an industry leader in the
design, manufacture and assembly of fuel-efficient gearboxes. The excess of the
purchases price over the net book value of the net assets acquired of Gemini has
been allocated to the tangible and intangible assets based on Reynard's estimate
of the fair market value of the net assets acquired. The allocation of the
purchase price paid for Gemini is as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Fair market value of net assets acquired.................... $ 9,002
Allocation of purchase price in excess of acquired
assets -- Goodwill........................................ 3,833
-------
Total Purchase Price.............................. $12,835
=======
</TABLE>
The accompanying unaudited pro forma condensed consolidated balance sheet
as of September 30, 1998 has been prepared as if the Offering, the Gemini
Acquisition and the Reorganization had been consummated as of September 30, 1998
and includes:
(A) a pro forma adjustment to:
- record the write-up to fair market value of plant and machinery assets
acquired of $7,351,000 and goodwill ($3,833,000) related to the Gemini
acquisition;
- present the Gemini acquisition for $12,165,000 in cash and $670,000 in
deferred consideration payable on December 31, 2001;
- reflect the deferred tax liability arising in respect of the fair value
adjustment in respect of plant and machinery referred to above;
- reflect the repayment of notes and rent due from Gemini to certain
related parties totalling $3,464,000 and $492,000, respectively.
- eliminate Gemini's historical accumulated deficit.
(B) a pro forma adjustment to present the application of the net proceeds
$40,535,000 of the Offering, assuming Offering expenses of $4,825,000
(of which $1,231,000 was included in prepaid expenses at September 30,
1998), together with repayment of certain related party debt totalling
$9,673,000.
STATEMENT OF OPERATIONS -- The accompanying unaudited pro forma condensed
consolidated statement of operations for the year ended September 30, 1998
presents the results as though the Offering, the Gemini Acquisition and the
Reorganization had been consummated on October 1, 1997. The accompanying
unaudited pro forma condensed consolidated statement of operations for the year
ended September 30, 1998 has been prepared by combining the historical results
for Reynard for the year ended September 30, 1998 and Gemini for the year ended
August 31, 1998. The accompanying unaudited pro forma condensed consolidated
statements of operations include the following adjustments:
(C) pro forma adjustments for the years ended September 30, 1998 have been
made to increase depreciation and amortization for goodwill by $191,000
related to the Gemini Acquisition as
F-5
<PAGE> 87
REYNARD MOTORSPORT, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
INFORMATION -- (CONTINUED)
if the Gemini Acquisition had occurred as of October 1, 1997. Goodwill
is amortized over 20 years. Reynard intends to evaluate periodically
the recoverability of goodwill based upon future profitability and
undiscounted operating cash flows of the Gemini Acquisition. A pro
forma adjustment has also been made for the year ended September 30,
1998 to increase depreciation and amortization by $736,000 for the fair
value adjustment to plant and machinery described in (A) above.
(D) pro forma adjustment for the period presented has been made to reduce
compensation made to Dr. Adrian Reynard. Effective October 1, 1998,
Reynard entered into an agreement with Dr. Reynard whereby his total
compensation is fixed at $1.5 million per annum. Total compensation
will comprise of a basic salary ($1,000,000), and bonus ($500,000).
Accordingly the amount paid to Dr. Reynard for the year ended September
30, 1998 has been reduced to $1,500,000 (together with related
employment taxes) to reflect compensation based on the agreed $1.5
million per annum. Such Agreement expires on December 31, 2001.
(E) pro forma adjustment for the year ended September 30, 1998 has been
made to eliminate interest expense incurred on the related party note
payable referred to in (B) above which is to be repaid as part of the
proceeds of the Offering.
(F) pro forma adjustments for the period presented have been tax effected
based upon the statutory rate then expected to be in effect.
(G) pro forma earnings per share is computed by dividing pro forma net
income by the weighted average common shares outstanding and the shares
offered hereby whose proceeds will be used to acquire Gemini and repay
debt. Pro forma common shares outstanding for the year ended September
30, 1998 were 12,218,000.
(H) General and Administrative expenses for the historical and pro forma
year ended September 30, 1998 include compensation expense of $239,000
related to the issuance on September 30, 1998 of stock options to an
officer of Reynard below their fair value on the date of such issuance.
F-6
<PAGE> 88
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Reynard Motorsport, Inc.
We have audited the consolidated balance sheets of Reynard Motorsport, Inc.
("Reynard") as of September 30, 1997 and 1998, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended September 30, 1998. These consolidated
financial statements are the responsibility of Reynard's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in
all materials respects, the financial position of Reynard at September 30, 1997
and 1998, and the results of their operations and their cash flows for each of
the three years in the period ended September 30, 1998, in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche
London, England
December 1, 1998
F-7
<PAGE> 89
REYNARD MOTORSPORT, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 727 $ 3,318
Accounts receivables (net of allowance for doubtful
accounts of $110,000 and $760,000 in 1997 and 1998,
respectively).......................................... 7,397 8,129
Inventory (net of allowance for obsolescence of $2,012,000
and $3,814,000 in 1997 and 1998, respectively)......... 4,316 4,556
Prepaid expenses.......................................... 179 1,489
Deferred income taxes..................................... 96 870
------- -------
Total current assets.............................. 12,715 18,362
PROPERTY AND EQUIPMENT -- Net............................... 5,694 10,876
OTHER ASSETS................................................ -- 464
------- -------
TOTAL ASSETS................................................ $18,409 $29,702
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank line of credit....................................... $ 35 $ 518
Notes payable to related party............................ 5,246 9,653
Accounts payable.......................................... 5,225 6,592
Accrued liabilities:
Deposits on cars....................................... 3,012 2,319
Taxes.................................................. 528 2,758
Other.................................................. 3,462 5,720
------- -------
Total current liabilities................................. 17,508 27,560
DEFERRED INCOME TAXES....................................... 160 194
GUARANTEED DEBT OBLIGATION (Note 10)........................ -- 2,039
MINORITY INTEREST IN SUBSIDIARY............................. -- 2,925
COMMITMENTS AND CONTINGENCIES (Note 7)...................... -- --
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock: $0.0001 par value; 50,000,000 shares
authorized; 10,661,214 issued and outstanding at
September 30, 1997 and 1998............................ 1 1
Preferred stock: $0.01 par value; 5,000,000 shares
authorized; None issued and outstanding at September
30, 1997 and 1998...................................... -- --
Additional paid-in capital................................ 427 1,585
Foreign currency translation adjustment................... 95 74
Retained earnings (accumulated deficit)................... 218 (4,676)
------- -------
Total stockholders' equity (deficit).............. 741 (3,016)
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)........ $18,409 $29,702
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated statements.
F-8
<PAGE> 90
REYNARD MOTORSPORT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES:
Products............................................... $22,406 $39,039 $45,929
Services............................................... 6,493 10,803 12,788
------- ------- -------
Total revenues................................. 28,899 49,842 58,717
------- ------- -------
COST OF GOODS SOLD:
Products............................................... 9,928 19,502 24,066
Services............................................... 3,750 5,951 5,023
------- ------- -------
Total cost of goods sold....................... 13,678 25,453 29,089
------- ------- -------
GROSS PROFIT............................................. 15,221 24,389 29,628
GENERAL AND ADMINISTRATIVE
EXPENSES............................................... 13,766 21,462 24,367
------- ------- -------
INCOME FROM OPERATIONS................................... 1,455 2,927 5,261
Write-off of equity investment......................... -- -- (7,349)
Minority interest in loss of subsidiary................ -- -- 105
Interest income........................................ 166 171 51
Interest expense-related party......................... -- -- (919)
------- ------- -------
INCOME (LOSS) BEFORE INCOME TAXES........................ 1,621 3,098 (2,851)
INCOME TAX EXPENSE....................................... 563 1,105 1,910
------- ------- -------
NET INCOME (LOSS)........................................ $ 1,058 $ 1,993 $(4,761)
======= ======= =======
EARNINGS (LOSS) PER SHARE -- Basic and Diluted........... $ .10 $ .19 $ (.45)
======= ======= =======
WEIGHTED SHARES OUTSTANDING -- Basic and Diluted......... 10,661 10,661 10,661
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE> 91
REYNARD MOTORSPORT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN RETAINED
COMMON STOCK ADDITIONAL CURRENCY EARNINGS STOCKHOLDERS'
--------------- PAID-IN TRANSLATION (ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) (DEFICIT)
------ ------ ---------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, OCTOBER 1, 1995..... 10,661 $ 1 427 -- $ 857 $ 1,285
Net income.................. -- -- -- -- 1,058 1,058
Foreign currency translation
adjustment................ -- -- -- 1 -- 1
Common stock dividend....... -- -- -- -- (48) (48)
------ ---- ------ ---- ------- -------
BALANCES, SEPTEMBER 30,
1996........................ 10,661 1 427 1 1,867 2,296
Net income.................. -- -- -- -- 1,993 1,993
Foreign currency translation
adjustment................ -- -- -- 94 -- 94
Common stock dividend....... -- -- -- -- (3,642) (3,642)
------ ---- ------ ---- ------- -------
BALANCES, SEPTEMBER 30,
1997........................ 10,661 1 427 95 218 741
Net loss.................... -- -- -- -- (4,761) (4,761)
Foreign currency translation
adjustment................ -- -- -- (21) -- (21)
Common stock dividend....... -- -- -- -- (133) (133)
Compensation expense........ -- -- 239 -- -- 239
Capital contribution (waiver
of interest expense by
stockholder).............. -- -- 919 -- -- 919
------ ---- ------ ---- ------- -------
BALANCES, SEPTEMBER 30,
1998........................ 10,661 $ 1 $1,585 $ 74 $(4,676) $(3,016)
====== ==== ====== ==== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE> 92
REYNARD MOTORSPORT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ 1,058 $ 1,993 $(4,761)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization....................... 535 898 1,040
Capital contribution -- waiver of interest
expense............................................. -- -- 919
Compensation expense................................ -- -- 239
Foreign currency translation adjustment............. (54) 148 179
Deferred income taxes............................... 19 150 (813)
Loss/(gain) from sale of property and equipment..... 260 -- (57)
Minority interest in loss of subsidiary............. -- -- (105)
Write-off of equity investment...................... -- -- 7,349
Changes in assets and liabilities that (used)
provided cash:
Accounts receivables............................ 337 (4,965) (355)
Prepaid expenses................................ 62 1 (1,264)
Inventory....................................... (360) (1,854) (24)
Accounts payable................................ 504 2,493 1,083
Accrued liabilities............................. (1,238) 327 1,873
------- ------- -------
Net cash provided by (used in) operating
activities................................. 1,123 (809) 5,303
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment................... (1,963) (3,494) (6,368)
Proceeds from sale of property and...................... -- 6 672
equipment
Equity investments...................................... -- -- (4,295)
Notes payable to related party.......................... 247 5,034 4,054
------- ------- -------
Net cash (used in) provided by investing
activities.......................................... (1,716) 1,546 (5,937)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of dividends.................................... (48) (3,642) (133)
Net proceeds from bank line of credit................... -- 35 470
Proceeds from capital contributions to subsidiaries by
minority stockholders.................................. -- -- 2,888
------- ------- -------
Net cash (used in) provided by financing
activities.......................................... (48) (3,607) 3,225
------- ------- -------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (641) (2,870) 2,591
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 4,238 3,597 727
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 3,597 $ 727 $ 3,318
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes............................................ $ 304 $ 1,439 $ 710
======= ======= =======
Interest................................................ None None None
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE> 93
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Reynard Engineering Group Limited (a United Kingdom ("UK") Corporation) was
formed in 1994 to act as a holding company for its wholly-owned subsidiaries
("Reynard Engineering"). At September 30, 1998, Reynard Engineering had
wholly-owned subsidiaries as follows: Reynard Racing Cars Limited, Reynard
Manufacturing Limited, Rumfleet Limited and subsidiaries, Reynard Formula One
Limited and Advantage CFD Limited and Reynard Composites Limited. Reynard
Engineering designs, manufactures and sells production racing cars, as well as
providing various engineering and management services.
Reynard Racing Designs Limited (a UK Corporation) was formed in 1994 to
hold the property rights and certain plant, property and equipment of Reynard
Engineering Group Limited and its subsidiaries.
Reynard Special Vehicle Projects Limited (a UK Corporation) was formed in
1996 to design and manufacture vehicle components which do not bear the Reynard
name.
Each of these companies is majority owned by Dr Adrian Reynard, his family
and trusts beneficially owned by Dr Reynard. Other shareholders include an
employee share ownership trust ("ESOT"), which holds shares for the benefit of
employees including the other directors of Reynard Engineering Group Limited.
In September 1998 Reynard Motorsports, Inc., ("Reynard") a Delaware company
was formed in September 1998 to serve as a holding company for Reynard
Engineering (the "Reorganization"). All of the Shareholders of the
above-mentioned entities exchanged their equity interests for shares of common
stock of Reynard.
Since all entities described above have been, and are, related through
common control, and based upon the reorganization, the preceding balance sheets
as of September 30, 1997 and 1998 and the related statements of operations,
stockholders' equity (deficit) and cash flows for the years ended September 30,
1996, 1997 and 1998 have been presented on a consolidated basis. All significant
inter-company balances and transactions have been eliminated in consolidation.
In addition, the consolidated financial statements include the financial
statements of Auto Research Center LLC, ("ARC") a 49% owned subsidiary.
Subsequent to September 30, 1998, Reynard's ownership interest in ARC increased
to 59%.
NATURE OF OPERATIONS
Reynard designs and manufactures production racing cars and other high
performance speciality vehicles. Cars are sold for competition in the CART Fed
Ex Championship Series, the Barber Dodge Pro Series and Formula Nippon Series.
Substantially all of Reynard's revenues are derived from the sale of racing
car chassis and related spare parts ("products") and the provision of services
such as wind-tunnel testing and computer-aided design ("services") in the UK and
United States.
F-12
<PAGE> 94
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventory. Inventory consists of finished goods, spare parts,
work-in-process and raw materials which are stated at the lower of cost or
market on a first-in, first-out (FIFO) basis.
Property and Equipment. Property and equipment are stated at cost and are
depreciated using the straight-line method over their estimated useful lives.
The estimated useful lives of property and equipment are as follows:
<TABLE>
<S> <C>
Equipment 4 to 10 years
Vehicles 4 years
Furniture and fixtures 4 to 10 years
Leasehold improvements 5 to 25 years
Buildings 25 years
</TABLE>
Revenue Recognition. Revenue derived from the sale of products is
recognized at the time of shipment. Revenue derived from the providing of
services is recognized as earned. Deposits received in advance are deferred
until the shipment of products occur.
Cash and Cash Equivalents. Cash and cash equivalents include investments
with original maturities of three months or less at the date of original
acquisition.
Investments. Reynard has a 20% ownership in Reynard Aviation, a joint
venture with Virgin Airlines which was formed in January 1998. This investment
is accounted for under the cost method by Reynard as they do not have the
ability to exercise significant influence over the operating and financial
policies of Reynard Aviation.
Reynard has a 15% ownership in British America Racing ("BAR"), a joint
venture with British American Tobacco, through its subsidiary BAT (Westminster
House) Ltd. and Mount Eagle, Inc. which was formed in November 1997. This
investment has been accounted for under the equity method by Reynard as Reynard
has the ability to exercise significant influence over the operating and
technical policies of BAR. The equity investment in BAR has been written off in
fiscal 1998 including the recording of Reynard's proportionate share of bank
debt guarantees. Reynard has guaranteed (on a joint and several basis) debt
obligations available to BAR of approximately $13,595,000 at September 30, 1998.
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments", requires disclosures about the fair value of financial instruments
whether or not such instruments are recognized on the balance sheet. Due to the
short-term nature of Reynard's financial instruments, other than debt, fair
values are not materially different from their carrying values. Based on the
borrowing rates available to Reynard, the carrying value of debt approximated
fair value prevailing market prices and rates as of September 30, 1997 and 1998.
It is the policy of Reynard not to enter into derivative financial
instruments for speculative purposes. Reynard does enter into foreign currency
forward exchange contracts to minimize risk of loss from currency rate
fluctuations on foreign currency commitments entered into in the ordinary course
of business. These commitments are generally for terms
F-13
<PAGE> 95
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of less than one year. The foreign currency forward exchange contracts are
executed with creditworthy banks and are denominated in currencies of major
industrial countries. The notional amount of outstanding foreign currency
forward exchange contracts aggregated $5 million at September 30, 1997. There
were no outstanding foreign currency forward exchange contracts at September 30,
1998. Reynard does not anticipate any material adverse effect on its results of
operations or financial position relating to these foreign currency forward
exchange contracts.
Foreign Currency Translation. Gains and losses arising from the settlement
of foreign currency transactions are charged to the related period's combined
statement of operations. Reynard's functional currency is UK pounds sterling.
The combined financial statements of Reynard are translated into United States
dollars as of the balance sheet date. All revenue and expense accounts are
translated at a weighted average of exchange rates in effect during the period.
Translation adjustments are recorded as a separate component of stockholders'
equity (deficit).
Research and Development. Research and development costs relating to
present and future products are expensed as incurred. During the years ended
September 30, 1996, 1997, and 1998 Reynard incurred research and development
costs of approximately $4,680,000, $5,267,000 and $5,678,000 respectively.
Earnings (Loss) Per Share. Earnings (loss) per share -- basic and diluted
are based on the weighted average number of common shares outstanding during the
periods presented. All per share information included in these financial
statements have been restated to reflect the effect of the Reorganization of
Reynard.
Management Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at September 30,
1997 and 1998 and the reported amounts of revenues and expenses during the
periods presented. The actual outcome of the estimates could differ from the
estimates made in the preparation of the financial statements.
Recent Accounting Pronouncements. In June 1997, Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income" was
issued by the Financial Accounting Standards Board ("FASB"). SFAS No. 130
establishes standards for reporting and display of comprehensive income and its
components. This Statement requires that all items that are required as
components of comprehensive income be displayed in a financial statement. SFAS
No. 130 is effective for Reynard's consolidated financial statements for the
year ending September 30, 1999. For the year ending September 30, 1999, Reynard
will provide information relating to comprehensive income to conform to the
requirements. For the year ended September 30, 1998, comprehensive income would
not have been materially different from net income.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued by the FASB. SFAS No. 131 establishes
standards for the
F-14
<PAGE> 96
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
way that public business enterprises report financial and descriptive
information about its reporting operating segments. Reynard has not determined
the impact on Reynard's consolidated financial statement disclosure. SFAS No.
131 is effective for Reynard's consolidated financial statements for the year
ending September 30, 1999. For the year ending September 30, 1999, Reynard will
provide information relating to SFAS No. 131 to conform to the requirements. For
the year ended September 30, 1998, segment information was presented in
accordance with Financial Accounting Standards Board Statement No. 14.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued by the FASB. SFAS No. 133 establishes standards
for accounting for derivative instruments, including certain derivative
instruments embedded in other contracts by requiring that an entity recognize
those items as assets or liabilities in the balance sheet and measure them at
fair value. Reynard has not determined the impact on Reynard's consolidated
financial statements. SFAS No. 133 is effective for Reynard's consolidated
financial statements for the year ending September 30, 2000.
2. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
Trade receivables -- gross............................. $6,415 $ 7,134
Allowance for trade receivables........................ (110) (760)
------ -------
Trade receivables -- net............................... 6,305 6,374
Value Added Taxes...................................... 729 1,186
Income taxes........................................... 333 348
Other.................................................. 30 221
------ -------
$7,397 $ 8,129
====== =======
</TABLE>
3. INVENTORY
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
Raw material and supplies.............................. $ 742 $ 828
Work-in-process........................................ 957 881
Finished products and service parts.................... 4,629 6,661
------ ------
Total........................................ $6,328 $8,370
Less allowance for obsolete inventory.................. (2,012) (3,814)
------ ------
$4,316 $4,556
====== ======
</TABLE>
F-15
<PAGE> 97
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
Equipment.............................................. $5,176 $ 8,394
Vehicles............................................... 594 723
Furniture and fixtures................................. 1,513 4,494
Leasehold improvements................................. 222 234
Buildings.............................................. 1,162 901
Land................................................... 280 308
------ -------
Total........................................ 8,947 15,054
Less accumulated depreciation.......................... (3,253) (4,178)
------ -------
$5,694 $10,876
====== =======
</TABLE>
5. BANK LINE OF CREDIT
Reynard has an unsecured bank line of credit with National Westminster Bank
PLC. Interest is charged at the bank's base rate plus 2% on the first $1,699,000
and the bank's base rate plus 6% thereafter (effective rate of 9.0% and 9.5% at
September 30, 1997 and 1998, respectively) and is due on demand.
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
Wages and salaries......................................... $1,292 $2,812
Payroll taxes.............................................. 828 613
Project costs.............................................. 566 --
Accrual for final payment of investment in BAR............. -- 1,529
Other...................................................... 776 766
------ ------
$3,462 $5,720
====== ======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Reynard has entered into various non-cancellable operating leases with its
majority stockholder for office space and equipment which expire through 2003.
Total rent expense for the years ended September 30, 1996, 1997 and 1998 was
approximately $229,000, $229,000 and $430,000, respectively.
F-16
<PAGE> 98
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximate future minimum lease payments under non-cancellable operating
leases are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Year ending September 30:
1999........................................................ $ 924
2000........................................................ 924
2001........................................................ 924
2002........................................................ 924
2003........................................................ 924
------
Total....................................................... $4,620
======
</TABLE>
Reynard is a party to routine litigation incidental to its business.
Management does not believe that the resolution of any or all of such litigation
is likely to have a material adverse effect on Reynard's consolidated financial
condition.
Reynard has employment agreements with several of its officers. The
employment agreements expire at various dates through December 2002. The
employment agreements contain covenants not to compete in the event of
termination.
On September 25, 1998 a stock option agreement was entered into with an
officer of the Company granting such officer options to acquire 426,449 shares
of Reynard's Common Stock. The options were immediately vested and exerciseable
at a weighted average exercise price of $13.49. Compensation expense relating to
such granting of options (representing the difference between the exercise price
and the fair value of Reynard's stock) of $239,000 has been recorded for the
year ended September 30, 1998.
8. MAJOR CUSTOMERS AND GEOGRAPHIC INFORMATION
During the year ended September 30, 1996, Reynard had three customers which
accounted for approximately $16,419,000 (57%), $2,760,000 (10%), and $2,966,000
(10%), respectively, of Reynard's revenues. During the year ended September 30,
1997, Reynard had three customers which accounted for approximately $26,272,000
(53%), $6,398,000 (13%), and $7,204,000 (14%), respectively, of Reynard's
revenues. The aggregate trade receivable balance at September 30, 1997 in
respect of these customers was approximately $3,931,000. During the year ended
September 30, 1998, Reynard had one customer which accounted for approximately
$8,220,000 (14%) of Reynard's revenues. The aggregate trade receivables balance
at September 30, 1998 in respect of this customer was approximately $4,270,000.
F-17
<PAGE> 99
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenues by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
-----------------------------
1996 1997 1998
------- ------- -------
<S> <C> <C> <C>
UK..................................................... $ 1,408 $14,497 $18,846
United States.......................................... 24,724 32,517 39,281
Other.................................................. 2,767 2,828 590
------- ------- -------
$28,899 $49,842 $58,717
======= ======= =======
</TABLE>
9. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
Realization of Reynard's deferred tax assets is dependent on generating
sufficient taxable income. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax assets will be
realized. The amount of the deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of future taxable income are
reduced.
The tax effects of temporary differences giving rise to deferred tax assets
(liabilities) are as follows (thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, SEPTEMBER 30,
1997 1998
------------- -------------
<S> <C> <C>
Deferred tax assets (liabilities):
Depreciation......................................... $(160) $(194)
Development costs.................................... 91 --
Inventory............................................ 5 895
Other................................................ -- (25)
----- -----
Total........................................ (64) 676
Current portion...................................... 96 870
----- -----
Non current portion.................................... $(160) $(194)
===== =====
</TABLE>
The provision for income taxes consists of the following (thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Current............................... $544 $ 955 $2,723
Deferred (benefit).................... 19 150 (813)
---- ------ ------
Total................................. $563 $1,105 $1,910
==== ====== ======
</TABLE>
F-18
<PAGE> 100
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The reconciliation of income tax expense computed at the UK statutory tax
rate to Reynard's effective income tax rate is as follows (thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
Tax at UK statutory rate.............. $530 $1,044 $ (884)
Meals and entertainment............... 13 16 35
Professional fees..................... 12 19 45
Depreciation.......................... 8 26 --
Non deductible losses in equity
investment.......................... -- -- 2,278
Non-deductible expenses............... -- -- 468
Other................................. (32)
---- ------ ------
Total................................. $563 $1,105 $1,910
==== ====== ======
</TABLE>
10. RELATED PARTY TRANSACTIONS
As of September 30, 1998, Reynard has approximately $900,000 due from BAR
and has approximately $2,039,000 recorded as a liability relating to its portion
of the guaranteed debt obligation of BAR. Reynard does not expect to pay the
guaranteed debt obligation during the year ending September 30, 1999. During the
year ended September 30, 1998, Reynard had sales of approximately $1,783,000 to
BAR and received management fees of approximately $2,169,000 from BAR.
Pursuant to Reynard's agreement with BAR, Dr. Reynard and Messrs. Gorne and
Oastler have committed a significant amount of their time to the BAR Formula One
racing effort. Mr. Oastler must devote substantially all of his time over the
next three years. Dr. Reynard and Mr. Gorne must devote approximately one half
of their time for the next year and approximately one quarter of their time for
the subsequent two years.
The management fees received by Reynard during the year ended September 30,
1998, have been drawn from the agreement described in the preceding paragraph.
The terms for such management fees are similar to the terms which have been
agreed for the year ending September 30, 1999.
During the year ended September 30, 1998, payments of $375,000 were made to
a company owned by an officer of Reynard in respect of consulting services
provided to Reynard. At September 30, 1998, Reynard had approximately $165,000
due to this company.
As of September 30, 1997 and 1998, Reynard owed Dr. Reynard $5,246,000 and
$9,673,000 respectively. These notes are secured by way of fixed and floating
charges over the assets of Reynard, bear interest at National Westminster Bank
PLC's base rate plus 2 1/2% and are repayable on demand. For all periods
presented, Reynard has received a letter from Dr. Reynard in which he states
that he does not expect to be paid or credited with interest on the money lent
to date. For the year ended September 30, 1998, interest
F-19
<PAGE> 101
REYNARD MOTORSPORT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
expense of approximately $919,000 has been recorded and treated as a
contribution to additional paid-in capital.
As of September 30, 1997 the pension fund, of which Dr. Adrian Reynard is a
beneficiary, owed Reynard $165,000, which is included in accounts receivable.
11. INITIAL PUBLIC OFFERING
In October 1998, Reynard filed a registration statement with the Securities
and Exchange Commission to register shares of common stock for sale in an
initial public offering (the "Offering").
In October 1998, Reynard entered into an agreement to acquire all of the
outstanding shares of stock of Princetown Holdings Limited, the sole owner of
Gemini Transmissions Limited ("Gemini") for approximately $12,835,000 (including
$670,000 deferred consideration payable at December 31, 2001). The Gemini
acquisition is anticipated to close concurrently with the Offering and a portion
of the proceeds from the Offering will be used to fund the Gemini acquisition.
Gemini manufactures and assembles gearboxes, gearbox components, suspension
components and other fabricated items for various automobile companies and
motorsport teams, and is an industry leader in the design, manufacture and
assembly of fuel efficient gearboxes.
In September 1998, the Board of Directors of Reynard (the "Board")
authorized, and the stockholders of Reynard approved, a stock incentive plan for
executive and key management employees of Reynard, including a limited number of
outside consultants and advisors, effective as of the completion of the Offering
(the "Stock Option Plan"). Under the Stock Option Plan, key employees, outside
consultants and advisors (the "Participants") of Reynard (as defined in the
Stock Option Plan) may receive awards of stock options (both Nonqualified
Options and Incentive Options, as defined in the Stock Option Plan). A maximum
of shares of common stock will be subject to the Stock Option Plan. The purpose
of the Stock Option Plan is to provide key employees (including officers and
directors who are also key employees) and key non-employee consultants and
advisors of Reynard ("employees") with an increased incentive to make
significant contribution to the long-term performance and growth of Reynard.
F-20
<PAGE> 102
INDEPENDENT AUDITOR'S REPORT
To the Director and Stockholder
Of Princetown Holdings Limited
We have audited the consolidated balance sheets of Princetown Holdings
Limited (the "Group") as of August 31, 1997 and 1998, and the related
consolidated statements of income, stockholder's deficit and cash flows for each
of the two years in the period ended August 31, 1998. These consolidated
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Group at August 31, 1997
and August 31, 1998 and the results of their operations and their cash flows for
each of the years in the period ended August 31, 1998 in conformity with
accounting principles generally accepted in the United States of America.
Deloitte & Touche
London, England
December 1, 1998
F-21
<PAGE> 103
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ -- $ 1
Accounts receivable (net of allowance for doubtful
accounts of $170,000 and $69,000 as of August 31, 1997
and 1998, respectively................................. 498 606
Deferred income taxes..................................... 268 217
Inventory................................................. 1,254 1,854
Other current assets...................................... 40 34
------ ------
Total current assets.............................. 2,060 2,712
PROPERTY AND EQUIPMENT -- Net............................... 2,993 3,533
------ ------
TOTAL ASSETS................................................ $5,053 $6,245
====== ======
LIABILITIES AND STOCKHOLDER'S DEFICIT
CURRENT LIABILITIES
Accounts payable.......................................... $ 292 $ 260
Accrued liabilities....................................... 413 626
Current portion of capital lease obligations.............. 510 583
Current portion of long-term debt......................... 172 327
Bank line of credit....................................... 221 82
Loans payable -- related parties.......................... -- 3,464
------ ------
Total current liabilities......................... 1,608 5,342
CAPITAL LEASE OBLIGATIONS (exclusive of current portion).... 448 554
DEFERRED INCOME TAXES....................................... 126 258
LOANS PAYABLE -- RELATED PARTIES............................ 3,317 --
LONG-TERM DEBT (exclusive of current portion)............... 325 191
COMMITMENTS AND CONTINGENCIES (Note 7)...................... -- --
STOCKHOLDER'S DEFICIT
Common stock $1 par value; 40,000 shares authorized;
no shares issued and outstanding at August 31,
1997 and 1998; Bearer stock $1 par value; 10,000
shares authorized; 1 share issued and outstanding
at August 31, 1997 and 1998....................... -- --
Accumulated deficit.................................. (737) (52)
Foreign currency translation adjustments............. (34) (48)
------ ------
Total stockholder's deficit....................... (771) (100)
------ ------
TOTAL LIABILITIES AND STOCKHOLDER'S DEFICIT................. $5,053 $6,245
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-22
<PAGE> 104
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
YEAR ENDED AUGUST 31,
AUGUST 31, 1997 1998
--------------- ----------
<S> <C> <C>
REVENUES
Products................................................ $3,157 $3,209
Other................................................... 19 50
------ ------
Total........................................... 3,176 3,259
COST OF GOODS SOLD........................................ 1,426 941
------ ------
GROSS PROFIT.............................................. 1,750 2,318
GENERAL AND ADMINISTRATIVE EXPENSES....................... 1,399 1,288
------ ------
INCOME FROM OPERATIONS.................................... 351 1,030
INTEREST EXPENSE.......................................... 144 161
------ ------
INCOME BEFORE TAXES ON INCOME............................. 207 869
INCOME TAX EXPENSE........................................ 70 184
------ ------
NET INCOME................................................ $ 137 $ 685
====== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-23
<PAGE> 105
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK CURRENCY
--------------- ACCUMULATED TRANSLATION STOCKHOLDER'S
SHARES AMOUNT DEFICIT ADJUSTMENTS DEFICIT
------ ------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCES, SEPTEMBER 1,
1996..................... 1 $-- $(874) $ -- $(874)
Net income............... -- -- 137 -- 137
Foreign currency
translation
adjustment............ -- -- -- (34) (34)
--- --- ----- ---- -----
BALANCES, SEPTEMBER 1,
1997..................... 1 -- (737) (34) (771)
Net income............... -- -- 685 -- 685
Foreign currency
translation
adjustment............ -- -- -- (14) (14)
--- --- ----- ---- -----
BALANCES, AUGUST 31,
1998..................... 1 $-- $ (52) $(48) $(100)
=== === ===== ==== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-24
<PAGE> 106
PRINCETOWN HOLDINGS LIMITED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 137 $ 685
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 611 502
Deferred income taxes................................ 70 184
Loss (gain) from disposal of property and
equipment......................................... 3 21
Change in assets and liabilities that provided (used)
cash
Accounts receivable............................ (75) (167)
Inventory...................................... (137) (549)
Other current assets........................... (18) 84
Accounts payable............................... 105 (41)
Accrued liabilities............................ 54 195
----- -----
Net cash provided by operating activities............ 750 914
----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (510) (407)
Proceeds from disposal of property and equipment.......... 84 139
----- -----
Net cash used in investing activities................ (426) (268)
----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable to related parties............ 117 35
Proceeds from other notes payable......................... 435 7
Payments on capital lease obligations..................... (968) (543)
Proceeds (payments) from bank line of credit.............. 97 (144)
----- -----
Net cash used in financing activities................ (319) (645)
----- -----
NET INCREASE IN CASH AND CASH EQUIVALENTS................... 5 1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ -- --
FOREIGN CURRENCY TRANSLATION ADJUSTMENT..................... (5) --
----- -----
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ -- $ 1
===== =====
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest.......................................... $ 144 $ 161
===== =====
Income taxes...................................... None None
===== =====
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-25
<PAGE> 107
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS -- Princetown Holdings Limited ("Princetown") and its
wholly-owned subsidiary, Gemini Transmissions Limited ("Gemini") were
incorporated in 1991. Princetown was incorporated in the British Virgin Islands
and is a holding company for Gemini . Gemini was incorporated in the United
Kingdom ("UK") and manufactures and assembles gearboxes and related components.
PRINCIPLES OF CONSOLIDATION -- The consolidated financial statements
include the financial statements of the Princetown and its wholly owned
subsidiary, Gemini (collectively referred to as the "Company"). All significant
inter-company balances and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS -- include investments with original maturities
of three months or less at the date of original acquisition.
INVENTORY -- consists of gearboxes and parts and are stated at the lower of
cost or market on a first-in, first-out (FIFO) basis.
PROPERTY AND EQUIPMENT -- are stated at cost and are depreciated using
accelerated methods over their estimated useful lives which range from five to
seven years.
REVENUE RECOGNITION -- Revenue is recognized at the time the products are
shipped.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- Statement of Financial Accounting
Standards ("SFAS") No. 107, "Disclosures About Fair Value of Financial
Instruments," requires disclosures about the fair value of financial instruments
whether or not such instruments are recognized on the balance sheet. Due to the
short-term nature of the Company's financial instruments, other than debt, fair
values are not materially different from their carrying values. Based on the
borrowings rates available to the Company, the carrying value of debt
approximated their fair value as of August 31, 1997 and August 31, 1998.
MANAGEMENT ESTIMATES -- The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities as of
August 31, 1997 and August 31, 1998 and the reported amounts of revenues and
expenses during the periods presented. The actual outcome of the estimates could
differ from the estimates made in the preparation of the consolidated financial
statements.
FOREIGN CURRENCY TRANSLATION. Gains and losses arising from the settlement
of foreign currency transactions are charged to the related period's
consolidated statement of income. The Company's functional currency is the UK
pounds sterling. The consolidated financial statements of the Company are
translated into United States dollars as of the balance sheet date. All revenue
and expense accounts are translated at a weighted average of exchange rates in
effect during the period. Translation adjustments are recorded as a separate
component of stockholder's equity.
F-26
<PAGE> 108
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
MAJOR CUSTOMERS AND GEOGRAPHICAL INFORMATION. For the years ended August
31, 1997 and 1998, one customer accounted for 57.7% and 31.8%, respectively, of
the Company's revenues. As of August 31, 1997 and 1998, $175,000 and $283,101,
respectively, was receivable from such customer.
Revenues by geographic area are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1998
--------------- ---------------
<S> <C> <C>
UK................................................... $ 931 $ 986
Europe............................................... 2,062 1,870
Other................................................ 183 403
------ ------
$3,176 $3,259
====== ======
</TABLE>
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
Plant and machinery......................................... $5,240 $ 5,995
Fixtures and fittings....................................... 24 32
Motor vehicles.............................................. 31 32
Office equipment............................................ 125 209
------ -------
Total cost............................................. 5,420 6,268
Less accumulated depreciation............................... (2,427) (2,735)
------ -------
$2,993 $ 3,533
====== =======
</TABLE>
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
Trade receivables -- gross.................................. $592 $675
Allowance for trade receivables............................. (170) (69)
---- ----
Trade receivables -- net.................................... 422 606
Value Added Taxes........................................... 75 --
Other....................................................... 1 --
---- ----
$498 $606
==== ====
</TABLE>
F-27
<PAGE> 109
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
Payroll taxes............................................... $ 26 $ 33
Accrued rent................................................ 379 492
Other....................................................... 8 101
---- ----
$413 $626
==== ====
</TABLE>
5. DEBT
BANK LINE OF CREDIT. As of August 31, 1998 and August 31, 1997, the Company
had and secured via a fixed and floating charge over the assets of Gemini a bank
line of credit with National Westminster Bank PLC. Advances against this line of
credit are due on demand. Interest is charged at 3% above the bank's base rate
(10.5% at August 31, 1998 and 10% at August 31, 1997) on amounts up to $167,000
and 6% above base rate on borrowings above this level.
LONG-TERM DEBT. The Company has equipment notes payable to a bank bearing
interest at rates ranging from 5.5% to 9.0%. Future maturities are as follows
(in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
1998........................................................ $ 199 $ --
1999........................................................ 190 390
2000........................................................ 192 218
------ ------
Total minimum obligations................................... 581 608
Interest.................................................... (84) (90)
------ ------
Total....................................................... 497 518
Current Portion............................................. (172) (327)
------ ------
Non current portion......................................... $ 325 $ 191
====== ======
</TABLE>
6. RELATED PARTY TRANSACTIONS
Gemini rents factory premises on a month-by-month basis from an entity
related to one of the Company's directors. Rental expense for the year ended
August 31, 1998 was $99,000 ($98,000 for the year ended August 31, 1997).
Gemini receives loans from an entity related through certain common
ownership and from one of the directors of Gemini. Loans payable to related
parties as of August 31, 1998 were $3,464,000 ($3,317,000 at August 31, 1997).
These loans are non-interest bearing and are due for repayment in 1999.
F-28
<PAGE> 110
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. COMMITMENT AND CONTINGENCIES
The primary property and equipment leased by the Company is plant and
machinery.
Property acquired under capital leases consists of the following (in
thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
Plant and machinery......................................... $2,360 $2,222
Motor vehicles.............................................. 31 32
------ ------
Total cost............................................. 2,391 2,254
Less accumulated depreciation.......................... (739) (563)
------ ------
$1,652 $1,691
====== ======
</TABLE>
Future minimum lease payments for the above assets under capital leases are
as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
1998........................................................ $ 598 $ --
1999........................................................ 335 677
2000........................................................ 159 406
2001........................................................ 11 233
------ ------
Total minimum obligations................................. 1,103 1,316
Interest.................................................. (145) (179)
------ ------
Present value of net minimum obligations.................. 958 1,137
Current portion........................................... (510) (583)
------ ------
Non-current portion....................................... $ 448 $ 554
====== ======
</TABLE>
The Company is a party to routine litigation incidental to its business.
Management does not believe that the resolution of any or all of such litigation
is likely to have a material adverse affect on the Company's consolidated
financial condition.
8. INCOME TAXES
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Realization of the Company's deferred tax assets is dependent on generating
sufficient taxable income. Although realization is not assured, management
believes it is more likely than not that all of the deferred tax assets will be
realized. The amount of the deferred tax
F-29
<PAGE> 111
PRINCETOWN HOLDINGS LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income are reduced.
Income tax expense is the tax payable or refundable for the period plus or
minus the change during the period in deferred tax assets and liabilities. For
the years ended August 31, 1998 and 1997 the income tax expense relates
exclusively to the change in the deferred tax asset. There is no current income
tax expense for the period due to the availability of tax loss carryforwards. At
August 31, 1998 tax loss carryforwards were $1,035,000 ($1,274,000 at August 31,
1997).
The tax effects of temporary differences giving rise to deferred tax assets
(liabilities) are as follows (in thousands):
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
Deferred tax assets (liabilities):
Depreciation.............................................. $ (126) $ (258)
Tax loss carry forwards................................... 268 217
------ ------
Total.................................................. 142 (41)
Current portion........................................... 268 217
------ ------
Non current portion......................................... $ (126) $ (258)
====== ======
</TABLE>
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1997 1998
---------- ----------
<S> <C> <C>
Current..................................................... $ -- $ --
Deferred.................................................... 70 184
------ ------
Total....................................................... $ 70 $ 184
====== ======
</TABLE>
9. SUBSEQUENT EVENT
In October 1998, the Company entered into an agreement to sell to Reynard
Motorsport Ltd. (a wholly-owned subsidiary of Reynard Motorsport, Inc.) the
outstanding shares of stock of Princetown Holdings Limited for approximately
$12,835,000 cash, (including $670,000 in deferred consideration which is payable
on December 31, 2001). The acquisition is anticipated to close concurrently with
the initial public offering (the "Offering") of Reynard Motorsport, Inc. and a
portion of the proceeds from the Offering will be used to fund the acquisition.
F-30
<PAGE> 112
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3,600,000 Shares
[REYNARD MOTORSPORT, INC. LOGO]
REYNARD MOTORSPORT, INC.
------------------------
PROSPECTUS
, 1999
------------------------
NationsBanc Montgomery Securities LLC
Wheat First Union
Josephthal & Co. Inc.
Until , 1999 dealers that buy, sell or trade the common
stock may be required to deliver a prospectus, regardless of whether they are
participating in the offering. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 113
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an estimated statement of expenses payable in connection
with the issuance and sale of the securities being registered, other than
underwriting discounts and commissions:
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee......... $ 15,985
NASD Registration Fee....................................... $ 6,250
New York Stock Exchange Listing Fee......................... $ 175,000
Accounting Fees and Expenses................................ $ 800,000
Engraving Expenses.......................................... $ 27,000
Printing Expenses........................................... $ 200,000
Blue Sky Filing Fees........................................ $ 5,000
Legal Fees and Expenses..................................... $ 350,000
Transfer Agent and Registrar Fees and Expenses.............. $ 25,000
Miscellaneous............................................... $ 45,765
----------
TOTAL............................................. $1,650,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under provisions of Reynard's Certificate of Incorporation and By-laws,
each person who is or was a director or officer of Reynard shall be indemnified
by Reynard as a matter of right to the full extent permitted by law. The effects
of the Certificate of Incorporation, By-laws and General Corporation Law of
Delaware are summarized as follows:
(a) Under Delaware law, to the extent that such a person is successful on
the merits in defense of a suit or proceeding brought against him by
reason of the fact that he is a director or officer of the Company, he
shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred in connection with such action.
(b) If unsuccessful in defense of a third-party civil suit or a criminal
suit, or if such suit is settled, such person shall be indemnified
under such law against both (1) expenses (including attorneys' fees)
and (2) judgments, fines and amounts paid in settlement if he acted in
good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of Reynard, and with respect to any
criminal action, had no reason to believe his conduct was unlawful.
(c) If unsuccessful in a defense of a suit brought by or in the right of
Reynard, or if such suit is settled, such a person shall be indemnified
under such law only against expenses (including attorneys' fees)
incurred in the defense or settlement of such suit if he acted in good
faith and in a manner he reasonably believed to be in, or not opposed
to, the best interests of Reynard except that if such a person is
adjudged to be liable in a suit in the performance of his duty to
Reynard, he cannot be made whole even for expenses unless the court
determines that he is fairly and reasonably entitled to indemnify for
such expenses.
II-1
<PAGE> 114
(d) Reynard may not indemnify a person in respect of a proceeding described
in (b) or (c) above unless it is determined that indemnification is
permissible because the person has met the prescribed standard of
conduct by any one of the following: (i) the Board of Directors, by a
majority vote of a quorum consisting of directors not at the time
parties to the proceeding, (ii) if a quorum of directors not parties to
the proceeding cannot be obtained, or, if obtainable but the quorum so
directs, by independent legal counsel selected by the Board of
Directors or the committee thereof, or (iii) by the stockholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, Reynard has sold shares of its common stock.
The following table sets forth the dates of sales, title and amounts of
securities sold during the past three years by the Registrant:
<TABLE>
<CAPTION>
NUMBER AMOUNT OF PRINCIPAL
OF SHARES DATE OF SALE CONSIDERATION UNDERWRITER EXEMPTION
--------- ----------------- ------------- ----------- ---------------------------
<S> <C> <C> <C> <C>
Section 4(2) -- Share
exchange in connection with
10,661,214 December 17, 1998 N/A None corporate reorganization
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<S> <C>
(a) Exhibits
1.1 Form of Underwriting Agreement*
2.1 Agreement for Sale of Princetown Holdings Limited dated
October 26, 1998*
3.1 Certificate of Incorporation of the Company filed September
2, 1998, with amendments
3.2 Bylaws of the Company*
4.1 Form of Common Stock Certificate (to be filed by amendment)
5.1 Form of Legal Opinion of Kegler, Brown, Hill & Ritter Co.,
L.P.A*
10.1 1998 Stock-Based Incentive Plan*
10.2 Director's Stock Option Plan*
10.3 Form of Employment Agreement to be entered into with
executive officers*
10.4 Stock Option Agreement with Alex Hawkridge dated September
30, 1998.*
10.5 Paul Owens Agreement for Service as Composites Director*
10.6 Adrian John Reynard Agreement for Service as Chairman
(Overseas)*
10.7 Adrian John Reynard Agreement for Service as Managing
Director (United Kingdom)*
10.8 Stock Option Agreement with Alex Hawkridge dated December
18, 1998.
10.9 Employment Agreement with Alex Hawkridge dated December 14,
1998.
10.10 Lease re Unit B4, Telford Road, Bicester, Oxfordshire by and
between
A. J. Reynard, Esq. and Reynard Motorsport Limited, dated
October 1, 1998.
10.11 Lease re Unit B6, Telford Road, Bicester, Oxfordshire by and
between
A. J. Reynard, Esq., M. J. Daniels, Esq. and R. D. Bowerman,
Esq. (Trustees of the Reynard Racing Cars Ltd. Directors'
Pension Scheme) and Reynard Motorsport Limited, dated
October 1, 1998.
</TABLE>
II-2
<PAGE> 115
<TABLE>
<S> <C>
10.12 Lease re Unit 4, Reynard Park, Brackley, Northamptonshire by
and between
A. J. Reynard, Esq., M. J. Daniels, Esq. and R. D. Bowerman,
Esq. (Trustees of the Reynard Racing Cars Ltd. Directors'
Pension Scheme) and Reynard Motorsport Limited and R.T.C.
Management Company Limited, dated October 1, 1998.
10.13 Lease re Unit 1A, Reynard Park, Brackley, Northamptonshire
by and between
A. J. Reynard, Esq., M. J. Daniels, Esq. and R. D. Bowerman,
Esq. (Trustees of the Reynard Racing Cars Ltd. Directors'
Pension Scheme) and Reynard Motorsport Limited and R.T.C.
Management Company Limited, dated October 1, 1998.
21.1 List of Subsidiaries
23.1 Consent of Deloitte & Touche
23.2 Consent of Kegler, Brown, Hill & Ritter Co., L.P.A.
24.1 Power of Attorney of the Company*
27.1 Financial Data Schedule
(b) Financial Statement Schedules
Schedule II
</TABLE>
- ---------------
* Previously filed as an exhibit with this Registration Statement No. 333-66317.
ITEM 17. UNDERTAKINGS.
Reynard hereby undertakes to provide to the underwriter at the closing
specified in the underwriting agreements certificates in such denomination and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Reynard hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of a registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
the registration statement as of the time it is declared effective.
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of Reynard pursuant to the foregoing provisions, or otherwise, Reynard
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by Reynard of expenses incurred or paid
by a director, officer or controlling person of Reynard in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
Reynard will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 116
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 1 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
18th day of December, 1998.
REYNARD MOTORSPORT, INC.
By: /s/ ALEX S. HAWKRIDGE*
-----------------------------------
Alex S. Hawkridge, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 1 to the Registration Statement has been signed on December
18, 1998 by the following persons in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ALEX S. HAWKRIDGE* Chief Executive Officer, Director
- -----------------------------------------------------
Alex S. Hawkridge
/s/ JOHN C. GOWER* Chief Financial and Accounting Officer,
- ----------------------------------------------------- Director
John C. Gower
/s/ ADRIAN J. REYNARD* Chairman of the Board, Director
- -----------------------------------------------------
Adrian J. Reynard
/s/ RICHARD J. GORNE* Vice President -- Sales, Director
- -----------------------------------------------------
Richard J. Gorne
</TABLE>
* Signed Pursuant to a Power of Attorney
By: /s/ JACK A. BJERKE
-----------------------------------------------------
Jack A. Bjerke,
Attorney-in-Fact
II-4
<PAGE> 117
SCHEDULE II
REYNARD MOTORSPORT, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS(1) END OF PERIOD
----------- ------------ ---------------- -------------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
(deducted from accounts
receivable)
Year Ended September 30,
1998..................... $ 110 $740 $ 90 $ 760
Year Ended September 30,
1997..................... 174 (32) 32 110
Year Ended September 30,
1996..................... 328 42 196 174
</TABLE>
- ---------------
(1) Accounts deemed to be uncollectible.
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGED TO COSTS BALANCE AT
DESCRIPTION PERIOD AND EXPENSES DEDUCTIONS END OF PERIOD
----------- ------------ ---------------- ---------- --------------
<S> <C> <C> <C> <C>
Allowance for obsolete inventory
Year Ended September 30, 1998... $2,012 $1,834 $ 32 $3,814
Year Ended September 30, 1997... 1,078 934 -- 2,012
Year Ended September 30, 1996... 1,164 (86) -- 1,078
</TABLE>
<PAGE> 1
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
REYNARD MOTORSPORT, INC.
REYNARD MOTORSPORT, INC., a corporation organized and incorporated on
September 2, 1998, and existing under and by virtue of the General Corporation
Law of the State of Delaware (the "Corporation"), does hereby certify that:
FIRST: That the Board of Directors of the Corporation, by Unanimous
Written consent adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of the Corporation:
RESOLVED, that the Certificate of Incorporation of Reynard Motorsport,
Inc. be amended and restated so that, as amended and restated, the
Certificate of Incorporation shall read as attached hereto as Exhibit
A.
SECOND: That the sole stockholder of said corporation, at a meeting
duly held, adopted a resolution proposing and declaring advisable said
amendment.
THIRD: That the aforesaid amendment and restatement was duly adopted in
accordance with the applicable provisions of Sections 242, 245 and 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Reynard Motorsport, Inc. has caused this
Certificate to be signed by Alex S. Hawkridge, its Chief Executive Officer, and
attested by John C. Gower, its Secretary this 18th day of November, 1998.
REYNARD MOTORSPORT, INC.
By: /s/ Alex S. Hawkridge
---------------------------
Alex S. Hawkridge,
Chief Executive Officer
Attest:
/s/ John C. Gower
- -------------------------
John C. Gower, Secretary
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
REYNARD MOTORSPORT, INC.
FIRST.
The name of the corporation is Reynard Motorsport, Inc. (the "Corporation").
SECOND.
The address of the Corporation's registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD.
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH.
(a) The total number of shares of stock which the Corporation shall have
authority to issue is Fifty-Five Million (55,000,000) shares of capital
stock.
(b) Of such authorized shares, Forty Million (40,000,000) shares shall be
designated "Class A Common Stock" and have a par value of .01 cents per
share.
(c) Of such authorized shares, Ten Million (10,000,000) shares shall be
designated "Class B Common Stock" and have a par value of .01 cents per
share.
(d) Of such authorized shares, Five Million (5,000,000) shares shall be
designated "Preferred Stock" and have a par value of $.01 per share.
The Class A Common Stock shall have all voting rights as permitted by the
General Corporation Law of the State of Delaware and the Bylaws of the
Corporation.
The Class B Common Stock shall have all voting rights as permitted by the
General Corporation Law of the State of Delaware and the Bylaws of the
Corporation on the same basis and with equal voting power as the Class A Common
Stock, except that holders of such Class B Common Stock shall not be permitted
to vote for the election or removal of any directors.
<PAGE> 3
The Board of Directors of the Corporation is hereby expressly authorized, to the
fullest extent now or hereafter permitted by the General Corporation Law of the
State of Delaware, at any time and from time to time, to divide the shares of
Preferred Stock into one or more series, to establish the number of shares to be
included in each such series, to issue in whole or in part the shares of
Preferred Stock or the shares of any series thereof, and to fix by resolution or
resolutions the designation, powers (voting and otherwise), preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions, if any, of the Preferred Stock or
of any series thereof that may be desired.
FIFTH.
The name and mailing address of the incorporator is:
L. J. Vitalo
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
SIXTH.
The Corporation shall have perpetual existence.
SEVENTH.
The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors. Elections of directors need not be by
written ballot except and to the extent required by the bylaws of the
Corporation.
EIGHTH.
The bylaws of the Corporation may be altered, amended, or repealed, or new
bylaws may be adopted, only by (i) the affirmative vote of the holders of at
least sixty-seven percent (67%) of the outstanding voting stock of the
Corporation (in addition to any separate class vote that may be required
pursuant to the terms of any then outstanding Preferred Stock of the
Corporation), or (ii) by resolution of the Board of Directors duly adopted by a
vote of not less than a majority of the directors then constituting the full
Board of Directors.
NINTH.
(a) Directors of the Corporation shall be elected to hold office until the
expiration of the term for which they are elected, and until their
successors have been duly elected and qualified.
<PAGE> 4
(b) The number of directors which constitutes the whole Board of Directors
of the Corporation shall be designated, or determined in the manner
provided in, the Bylaws of the Corporation.
(c) Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of
Directors, although less than a quorum, at any meeting of the Board of
Directors, or by a sole remaining director.
TENTH.
No director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except that this Article Eleventh does not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after the filing of this Certificate of Incorporation to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. Any amendment or repeal of this Article Eleventh, or any adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article Eleventh, shall be prospective only and shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such amendment or repeal or adoption of an inconsistent provision.
ELEVENTH.
Whenever a compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of the General Corporation Law of the State of Delaware or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the General
Corporation Law of the State of Delaware order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
<PAGE> 5
TWELFTH.
Notwithstanding any other provisions of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders all classes of the capital stock
required by law or this Certificate of Incorporation, the affirmative vote of
the holders of one hundred percent (100%) of the combined voting power of all of
the then outstanding shares of all classes of the capital stock of the
Corporation entitled to vote shall be required to alter, amend or repeal
Articles Fourth, Eighth, Tenth, or this Article Twelfth or any provision thereof
or hereof.
THIRTEENTH.
The Corporation reserves the right, at any time and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed herein, and all rights
conferred upon the stockholders and directors herein are granted subject to this
reservation.
<PAGE> 6
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
REYNARD MOTORSPORT, INC.
REYNARD MOTORSPORT, INC., a corporation organized and incorporated on
September 2, 1998, and existing under and by virtue of the General Corporation
Law of the State of Delaware (the "Corporation"), does hereby certify that:
FIRST: That the Board of Directors of the Corporation, by Unanimous
Written consent adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of the Corporation:
RESOLVED, that the Certificate of Incorporation of Reynard Motorsport,
Inc. be amended and restated so that, as amended and restated, the
Certificate of Incorporation shall read as attached hereto as Exhibit
A.
SECOND: That in lieu of a meeting and vote of stockholders, the sole
stockholder has given written consent to said amendment and restatement in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment and restatement was duly adopted in
accordance with the applicable provisions of Sections 242, 245 and 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Reynard Motorsport, Inc. has caused this
Certificate to be signed by Alex S. Hawkridge, its Chief Executive Officer, and
attested by John C. Gower, its Secretary this 26th day of November, 1998.
REYNARD MOTORSPORT, INC.
By: /s/ Alex S. Hawkridge
---------------------------
Alex S. Hawkridge,
Chief Executive Officer
Attest:
/s/ John C. Gower
- ---------------------------
John C. Gower, Secretary
<PAGE> 7
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
REYNARD MOTORSPORT, INC.
FIRST.
The name of the corporation is Reynard Motorsport, Inc. (the "Corporation").
SECOND.
The address of the Corporation's registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD.
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH.
(a) The total number of shares of stock which the Corporation shall have
authority to issue is Fifty-Five Million (55,000,000) shares of capital
stock.
(b) Of such authorized shares, Fifty Million (50,000,000) shares shall be
designated "Common Stock" and have a par value of .01 cents per share.
(c) Of such authorized shares, Five Million (5,000,000) shares shall be
designated "Preferred Stock" and have a par value of $.01 per share.
The Board of Directors of the Corporation is hereby expressly authorized, to the
fullest extent now or hereafter permitted by the General Corporation Law of the
State of Delaware, at any time and from time to time, to divide the shares of
Preferred Stock into one or more series, to establish the number of shares to be
included in each such series, to issue in whole or in part the shares of
Preferred Stock or the shares of any series thereof, and to fix by resolution or
resolutions the designation, powers (voting and otherwise), preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions, if any, of the Preferred Stock or
of any series thereof that may be desired.
<PAGE> 8
EXHIBIT A
FIFTH.
The name and mailing address of the incorporator is:
L. J. Vitalo
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
SIXTH.
The Corporation shall have perpetual existence.
SEVENTH.
The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors. Elections of directors need not be by
written ballot except and to the extent required by the bylaws of the
Corporation.
EIGHTH.
The bylaws of the Corporation may be altered, amended, or repealed, or new
bylaws may be adopted, only by (i) the affirmative vote of the holders of at
least sixty-seven percent (67%) of the outstanding voting stock of the
Corporation (in addition to any separate class vote that may be required
pursuant to the terms of any then outstanding Preferred Stock of the
Corporation), or (ii) by resolution of the Board of Directors duly adopted by a
vote of not less than a majority of the directors then constituting the full
Board of Directors.
NINTH.
(a) Directors of the Corporation shall be elected to hold office until the
expiration of the term for which they are elected, and until their
successors have been duly elected and qualified.
(b) The number of directors which constitutes the whole Board of Directors
of the Corporation shall be designated, or determined in the manner
provided in, the Bylaws of the Corporation.
(c) Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of
Directors, although less than a quorum, at any meeting of the Board of
Directors, or by a sole remaining director.
<PAGE> 9
EXHIBIT A
TENTH.
No director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except that this Article Eleventh does not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after the filing of this Certificate of Incorporation to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. Any amendment or repeal of this Article Eleventh, or any adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article Eleventh, shall be prospective only and shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such amendment or repeal or adoption of an inconsistent provision.
ELEVENTH.
Whenever a compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of the General Corporation Law of the State of Delaware or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the General
Corporation Law of the State of Delaware order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
TWELFTH.
Notwithstanding any other provisions of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of the capital stock required by
law or this Certificate of Incorporation, the affirmative vote of the holders of
at least sixty-seven percent (67%) of the combined voting power of all of the
then outstanding shares of the Corporation entitled to vote shall be required to
<PAGE> 10
EXHIBIT A
alter, amend or repeal Articles Eighth, Tenth, or this Article Twelfth or any
provision thereof or hereof; provided, however, that the sixty-seven percent
(67%) voting requirement shall not be required for such alteration, amendment or
repeal approved by a vote of not less than two-thirds of the directors then
constituting the full Board of Directors.
THIRTEENTH.
The Corporation reserves the right, at any time and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed herein, and all rights
conferred upon the stockholders and directors herein are granted subject to this
reservation.
<PAGE> 11
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
REYNARD MOTORSPORT, INC.
REYNARD MOTORSPORT, INC., a corporation organized and incorporated on
September 2, 1998, and existing under and by virtue of the General Corporation
Law of the State of Delaware (the "Corporation"), does hereby certify that:
FIRST: That the Board of Directors of the Corporation, by Unanimous
Written consent adopted a resolution proposing and declaring advisable the
following amendment to the Certificate of Incorporation of the Corporation:
RESOLVED, that the Certificate of Incorporation of Reynard Motorsport,
Inc. be amended and restated so that, as amended and restated, the
Certificate of Incorporation shall read as attached hereto as Exhibit
A.
SECOND: That in lieu of a meeting and vote of stockholders, the sole
stockholder has given written consent to said amendment and restatement in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid amendment and restatement was duly adopted in
accordance with the applicable provisions of Sections 242, 245 and 228 of the
General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Reynard Motorsport, Inc. has caused this
Certificate to be signed by Alex S. Hawkridge, its Chief Executive Officer, and
attested by John C. Gower, its Secretary this 16th day of December, 1998.
REYNARD MOTORSPORT, INC.
By: /s/ Alex S. Hawkridge
-------------------------
Alex S. Hawkridge,
Chief Executive Officer
Attest:
/s/ John C. Gower
- ---------------------------
John C. Gower, Secretary
<PAGE> 12
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
REYNARD MOTORSPORT, INC.
FIRST.
The name of the corporation is Reynard Motorsport, Inc. (the "Corporation").
SECOND.
The address of the Corporation's registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, Wilmington, County of New Castle,
Delaware 19801. The name of the Corporation's registered agent at such address
is The Corporation Trust Company.
THIRD.
The purpose of the Corporation is to engage in any lawful act or activity for
which corporations may be organized under the General Corporation Law of the
State of Delaware.
FOURTH.
(a) The total number of shares of stock which the Corporation shall have
authority to issue is Fifty-Five Million (55,000,000) shares of capital
stock.
(b) Of such authorized shares, Fifty Million (50,000,000) shares shall be
designated "Common Stock" and have a par value of .01 cents per share.
(c) Of such authorized shares, Five Million (5,000,000) shares shall be
designated "Preferred Stock" and have a par value of $.01 per share.
The Board of Directors of the Corporation is hereby expressly authorized, to the
fullest extent now or hereafter permitted by the General Corporation Law of the
State of Delaware, at any time and from time to time, to divide the shares of
Preferred Stock into one or more series, to establish the number of shares to be
included in each such series, to issue in whole or in part the shares of
Preferred Stock or the shares of any series thereof, and to fix by resolution or
resolutions the designation, powers (voting and otherwise), preferences and
relative, participating, optional or other special rights, and the
qualifications, limitations or restrictions, if any, of the Preferred Stock or
of any series thereof that may be desired.
Effective as of 5:00 p.m., New York, New York time, on the date the Certificate
of Amendment to the Amended and Restated Certificate of Incorporation amending
this Article Fourth is filed
<PAGE> 13
with the Secretary of State of Delaware ("Reverse Split Effective Date"), each
3.037562 issued and outstanding shares of Common Stock, par value .01 cents per
share, of this Corporation ("Pre-Split Common Stock") shall be automatically,
without further action by the holders of the Pre-Split Common Stock, converted
into one share of Common Stock, par value .01 cents per share, of the
Corporation ("Post-Split Common Stock") to give effect to a one-for-3.037562
reverse stock split ("Reverse Split"). From and after the Reverse Split
Effective Date, each certificate representing shares of Pre-Split Common Stock
shall be deemed to represent for all purposes the number of shares of Post-Split
Common Stock into which the shares of Pre-Split Common Stock were converted
pursuant to the Reverse Split, plus the right to receive a cash payment in lieu
of any fractional share as described below.
No fractional shares of Post-Split Common Stock shall be issued in connection
with the Reverse Split. In lieu thereof, each holder of record of shares of
Pre-Split Common Stock who would otherwise have been entitled to receive a
fractional share of Post-Split Common Stock pursuant the Reverse Split shall,
upon surrender of such holder's certificates representing shares of Pre-Split
Common Stock, be entitled to receive a cash payment equal to the fair market
value of the Common Stock as determined by the Board of Directors, multiplied by
the fractional share, and such amount shall in no event accrue any interest.
From and after the Reverse Split Effective Date, all fractional shares shall be
canceled and represent only the right to receive the cash payment described in
this paragraph.
FIFTH.
The name and mailing address of the incorporator is:
L. J. Vitalo
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, DE 19801
SIXTH.
The Corporation shall have perpetual existence.
SEVENTH.
The business and affairs of the Corporation shall be managed by or under the
direction of the Board of Directors. Elections of directors need not be by
written ballot except and to the extent required by the bylaws of the
Corporation.
EIGHTH.
Subject to the rights, if any, of the holders of Preferred Stock to take action
by written consent, any action required or permitted to be taken by the
stockholders of the Corporation must be
<PAGE> 14
effected at a duly called annual or special meeting of stockholders of the
Corporation and may not be effected by any consent in writing by such
stockholders.
NINTH.
The bylaws of the Corporation may be altered, amended, or repealed, or new
bylaws may be adopted, only by (i) the affirmative vote of the holders of at
least sixty-seven percent (67%) of the outstanding voting stock of the
Corporation (in addition to any separate class vote that may be required
pursuant to the terms of any then outstanding Preferred Stock of the
Corporation), or (ii) by resolution of the Board of Directors duly adopted by a
vote of not less than a majority of the directors then constituting the full
Board of Directors.
TENTH.
(a) Directors of the Corporation shall be elected to hold office until the
expiration of the term for which they are elected, and until their
successors have been duly elected and qualified.
(b) The number of directors which constitutes the whole Board of Directors
of the Corporation shall be designated, or determined in the manner
provided in, the Bylaws of the Corporation.
(c) Vacancies occurring on the Board of Directors for any reason may be
filled by vote of a majority of the remaining members of the Board of
Directors, although less than a quorum, at any meeting of the Board of
Directors, or by a sole remaining director.
ELEVENTH.
No director of the Corporation shall be personally liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except that this Article Eleventh does not eliminate or limit the
liability of a director (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of Delaware,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended
after the filing of this Certificate of Incorporation to authorize corporate
action further limiting or eliminating the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware. Any amendment or repeal of this Article Eleventh, or any adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article Eleventh, shall be prospective only and shall not adversely affect any
right or protection of a director of the Corporation existing at the time of
such amendment or repeal or adoption of an inconsistent provision.
<PAGE> 15
TWELFTH.
Whenever a compromise or arrangement is proposed between this Corporation and
its creditors or any class of them and/or between this Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of this
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for this Corporation under the provisions of
Section 291 of the General Corporation Law of the State of Delaware or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the General
Corporation Law of the State of Delaware order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of this Corporation, as the case
may be, and also on this Corporation.
THIRTEENTH.
Notwithstanding any other provisions of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of the capital stock required by
law or this Certificate of Incorporation, the affirmative vote of the holders of
at least sixty-seven percent (67%) of the combined voting power of all of the
then outstanding shares of the Corporation entitled to vote shall be required to
alter, amend or repeal Articles Eighth, Ninth, Eleventh, or this Article
Thirteenth or any provision thereof or hereof; provided, however, that the
sixty-seven percent (67%) voting requirement shall not be required for such
alteration, amendment or repeal approved by a vote of not less than two-thirds
of the directors then constituting the full Board of Directors.
FOURTEENTH.
The Corporation reserves the right, at any time and from time to time,
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed herein, and all rights
conferred upon the stockholders and directors herein are granted subject to this
reservation.
<PAGE> 1
Exhibit 10.8
STOCK OPTION AGREEMENT
REYNARD MOTORSPORT, INC.
December 18, 1998
THIS AGREEMENT is made as of the 18 day of December, 1998, between
Reynard Motorsport, Inc., a Delaware corporation (the "Company"), and Alex
Hawkridge (the "Optionee").
The Board of Directors of Reynard Motorsport Limited ("RML") on
September 25, 1998, voted in favor of granting to the Optionee an option to
purchase ordinary shares of the company with respect to 117,760 shares at a
purchase price of (pound)36.50 per share and subject to other terms and
conditions as payment for services performed prior to September 25, 1998. Upon a
series of transactions, resulting in RML and other entities becoming indirect
wholly owned subsidiaries of the Company and reflecting the agreement of the
parties as to the number of options granted and the exercise price, the options
granted to Optionee in RML have been cancelled and exchanged for options to
purchase shares of common stock in the Company.
In consideration of the promises and mutual covenants herein contained,
the Company and the Optionee agree as follows:
1. The Company hereby grants to the Optionee upon the terms and
conditions hereinafter stated the right and option (the "Option") to purchase
all or any part of an aggregate of 426,449 shares of the Company's authorized
but unissued or reacquired common stock at a purchase price of $13.49 per share.
Optionee hereby cancels all previous options granted to Optionee in RML.
2. The Option is granted upon the following terms:
2.1 Duration of the Options. Subject to reductions in the
Option period as hereinafter provided in the event of death of the Optionee, the
Option shall continue in effect until the earlier of (i) the date the Optionee
purchases shares hereunder, or (ii) ten years from September 25, 1998.
2.2 Time of Exercise. Except as provided in paragraph
2.1 and 2.4 the Option may be exercised from time to time commencing on the
effective date of this agreement.
2.3 Nonassignability. The Option is nonassignable and
nontransferable by the Optionee except by will or by the laws of descent and
distribution of the state or country of the Optionee's domicile at the time of
death, and is exercisable during the Optionee's lifetime only by the Optionee.
<PAGE> 2
2.4 Termination of Engagement.
(a) In the event the Optionee's engagement by the
Company or by any parent or subsidiary of the Company is terminated because of
death or physical disability, the Option shall be fully exercisable and the
Option shall not terminate until the end of the six month period following such
cessation of the relationship, unless by the terms of the Option it sooner
terminates or expires.
(b) In the event the Optionee's engagement by the Company
or by any parent or subsidiary of the Company ceases because of death of the
Optionee, the Option may, to the extent the Optionee would have been able to
exercise the Option, be exercised after his death by the person or persons to
whom the Optionee's rights under the Option shall pass by will or by the laws of
descent and distribution of the state or country of the Optionee's domicile at
the time of death.
(c) In the event of death or termination of engagement
of the Optionee, to the extent the Option shall not have been exercised within
the limited periods provided above, all further rights to purchase shares
pursuant to the Option and all other rights relating to the Option shall cease
and terminate at the expiration of such periods.
2.5 Purchase of Shares. Shares may be purchased or acquired
pursuant to the Option only upon receipt by the Company or notice in writing
from the Optionee of the Optionee's intention to exercise, specifying the number
of shares as to which the Optionee desires to exercise the Option and the date
on which the Optionee desires to exercise the Option, and the date on which the
Optionee desires to complete the transaction, which shall not be more than 30
days after receipt of the notice and, unless in the opinion of counsel for the
Company such representation is not required in order to comply with the United
States Securities Act of 1933, as amended, containing a representation that it
is the Optionee's present intention to acquire the shares for investment and not
with a view to distribution. On or before the date specified for completion of
the purchase of shares pursuant to the Option, the Optionee must have paid the
Company the full price of such shares in cash, or by such other means as is
acceptable to the Company, in its discretion. No shares shall be issued until
full payment therefor has been made, and the Optionee shall have none of the
rights of a shareholder until a certificate for shares is issued to the
Optionee. The Optionee shall, upon notification of the amount due, if any, and
prior to or concurrently with delivery of the certificates representing the
shares with respect to which the Option was exercised pay to the Company amounts
necessary to satisfy any applicable United Kingdom, United States federal,
state, and local withholding tax requirements. If additional withholding becomes
required beyond any amount deposited before delivery of the certificates, the
Optionee shall pay such amount to the Company on demand, including withholding
of shares or proceeds from the sale of shares by Optionee. In the absence of
such payment, the Company may withhold such amount from any funds owed by the
Company to the Optionee.
2.6 Changes in Capital Structure. In the event that the
outstanding shares of the Company are hereafter increased or decreased or
changed into or exchanged for a different
2
<PAGE> 3
number or kind of shares or other securities of the Company or another
corporation, by reason of any reorganization, merger, consolidation,
recapitalization, reclassification, stock split-up, combination of shares, or
dividend payable in shares, appropriate adjustment shall be made by the Board of
Directors in the number and kind of shares for purchase pursuant to the Option
and the corresponding Option price. Any such adjustment made by the Board of
Directors shall be conclusive.
3. The obligations of the Company under this Agreement are subject to
the approval of such state or federal authorities, if any, as may have
jurisdiction in the matter. The Company will use its best efforts to take such
steps as may be required by state or federal law or applicable regulations,
including rules and regulations of the United States Securities and Exchange
Commission and any stock exchange on which the Company's shares may then be
listed, in connection with the issuance or sale of any shares purchased upon the
exercise of the Option, provided, however that the Company shall not be
obligated hereunder to register the Option or shares covered by the Option.
4. Nothing in this Agreement shall confer upon the Optionee any right
to be engaged by the Company as an employee, director, agent, consultant, or
independent contractor or shall interfere in any way with the right of the
Company or any subsidiary by whom the Optionee is engaged to terminate the
Optionee's engagement at any time, for any reason, with or without cause.
5. This Agreement shall be binding upon and shall inure to the benefit
or any successor or successors of the Company but except as hereinabove provided
the Option herein granted shall not be assigned or otherwise disposed of by the
Optionee.
6. No amendment to this Agreement shall be valid unless such amendment
is in writing and is signed by authorized representatives of both parties to
this Agreement.
7. Any of the terms and conditions of this Agreement may be waived at
any time and from time to time in writing by the party entitled to the benefit
thereof, but a waiver in one instance shall not be deemed to constitute a waiver
in any other instance. A failure to enforce any provision of this Agreement
shall not operate as a waiver of the provision or of any other provision hereof.
8. In the event that any provision of this Agreement shall be held to
be invalid, illegal or unenforceable in any circumstances, the remaining
provisions shall nevertheless remain in full force and effect and shall be
construed as if the unenforceable portion or portions were deleted.
9. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Delaware.
10. All notices, requests, payments, instructions, claims or other
communications hereunder shall be in writing and shall be deemed to be given or
made when delivered by first-
3
<PAGE> 4
class, registered or certified mail to the following address or addresses or
such other address or addresses as the parties may designate in writing in
accordance with this Section:
If to Company: Attn: Adrian Reynard
7 Murdock Road
Bicester, Oxon
OX6 7PL England
If to Optionee: Alex Hawkridge
7 Murdock Road
Bicester, Oxon
OX6 7PL England
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate as of the day and year first hereinabove written.
REYNARD MOTORSPORT, INC.
By:
-----------------------------
---------------------------------
Alex Hawkridge
4
<PAGE> 1
Exhibit 10.9
EMPLOYMENT AGREEMENT
This Contract made between ALEX S. HAWKRIDGE ("Employee"), whose
address is _____________________________ and REYNARD MOTORSPORT, INC., a
Delaware corporation with its principal place of business at 8431 Georgetown
Road, Suite 700, Indianapolis, Indiana 46268, and its subsidiaries and
affiliates (the "Company").
In consideration of the mutual covenants and promises, hereinafter set
forth, the parties hereto agree as follows:
RECITALS
WHEREAS, Company is currently undergoing an initial public offering of
its common stock, and
WHEREAS, Company is desirous of employing Employee pursuant to the
terms and conditions and for the consideration set forth in this Agreement, and
WHEREAS, Employee desires to be employed by the Company in the
executive capacity described below pursuant to the terms and conditions and for
the consideration set forth in this Agreement:
NOW, THEREFORE, in consideration for the mutual covenants and promises
contained herein, the Company and Employee hereby agree as follows:
SECTION ONE
EMPLOYMENT
The Company hereby employs Employee as its Chief Executive Officer.
Employee shall at all times discharge his duties in consultation with and under
the supervision of the Company's Board of Directors ("Board"). The Company
through its Board may modify or realign Employee's duties and responsibilities
in a manner consistent with the office of Chief Executive Officer as it deems
necessary during the term of this Agreement. Employee's office shall be located
in Brackley, U.K., or such other location as is mutually agreed upon by Employee
and the Board.
SECTION TWO
BEST EFFORTS OF EMPLOYEE
Employee agrees that he will diligently and conscientiously devote his
full and exclusive time and attention and best efforts in discharging all of the
duties that may be required of or from
<PAGE> 2
him pursuant to the express and implicit terms hereof. Employee acknowledges
that he is obligated to manage the business of the Company in a sound and
business-like manner and in conformity with all laws and regulations governing
the conduct of the business of the Company. Employee may, with prior approval of
the Company's Board, serve as a director for other corporations so long as doing
so does not interfere with his ability to effectively manage the business of the
Company.
SECTION THREE
TERM
A. This Agreement is contingent upon the Company's completion of the
initial public offering of its common stock. In the event such public offering
does not occur, this Agreement shall be deemed null and void.
B. This Agreement shall continue for a term of four years from the date
hereof, unless otherwise terminated in accordance with the provisions of SECTION
FIVE hereof. This Agreement may be extended for additional periods upon the
mutual written agreement of the parties.
SECTION FOUR
COMPENSATION
A. Effective on the effective date of the Company's initial public
offering, the Company shall pay Employee at an annual rate of $350,000, payable
monthly on the last day of each month (reduced by applicable state and federal
taxes and other appropriate deductions). The base salary shall be increased to
an annual base salary of $600,000, effective January 1, 2000, and $650,000
effective January 1, 2001, and may be changed by mutual agreement of the parties
at any time during the term of this Agreement.
B. In addition to his base salary, Employee shall be eligible to
receive an annual incentive bonus as determined by the Board in an amount of not
less than 40% of base salary, payable annually before December 31 of each year.
In addition, the Company shall annually contribute up to 10% of Employee's base
salary to Employee's private pension plan so long as Employee individually
contributes a like amount.
C. In addition to the above base salary, Employee shall be provided
with an executive level benefit program including stock options and/or stock
grants, reimbursement for travel expenses at the same level as the Company
provides to Richard Gorne (including air travel at business or club class),
reimbursement of private and cellular telephone expenses, car mileage, private
health insurance, worldwide accident insurance and such other benefits as
determined by the Company's Board. Employee shall be entitled to 25 days of
vacation plus all U.K. public holidays.
<PAGE> 3
SECTION FIVE
TERMINATION
A. The Company reserves the right to terminate the employment of
Employee at any time without cause. However, except as provided in SECTION FIVE
B. below, if such termination occurs prior to ___________________, Employee
shall be entitled to his base salary as set forth in SECTION FOUR A. until
________________, provided that Employee remains in compliance with the terms
and conditions of this Agreement. During any period of time in which Employee's
base salary is continued pursuant to this SECTION FIVE, Employee agrees that he
shall make himself available to render consulting services, as requested by the
Company, from time to time until such time as he may become employed on a
full-time basis elsewhere.
B. Notwithstanding the other provisions of this Agreement, the Company
shall be entitled to terminate this Agreement immediately and without notice if,
at any time during this Agreement, Employee refuses, without cause, to perform
his assigned duties, is convicted or pleads guilty or nolo contendere to any
felony or any charge involving a crime involving moral turpitude, is adjudicated
bankrupt or files a petition for bankruptcy, or materially breaches the
provisions of SECTION SIX or SEVEN of this Agreement. In such case, the Company
shall only be obligated to pay Employee any base salary due (prorated on a daily
basis) to the date of the breach or other occurrence.
C. In the event that Employee's employment is terminated for any
reason, Employee shall not be eligible to participate in any severance pay plan
established by the Company for its employees.
SECTION SIX
OWNERSHIP AND PROTECTION OF INFORMATION
A. All information, ideas, concepts, improvements, discoveries, and
inventions, whether patentable or not, which are conceived, made, developed or
acquired by Employee, individually or in conjunction with others, during
Employee's employment by Company (whether during business hours or otherwise and
whether on Company's premises or otherwise) and that relate to Company's
business, products or services (including, without limitation, all such
information relating to corporate opportunities, research, financial and sales
data, pricing and trading terms, evaluations, opinions, interpretations,
acquisition prospects, the identity of customers or their requirements, the
identity of key contacts with customer's organizations or within the
organization of acquisition prospects, or marketing and merchandising
techniques, prospective names, and marks) shall be disclosed to Company and are
and shall be the sole and exclusive property of Company. Moreover, all drawings,
memoranda, notes, records, files, correspondence, manuals, models,
specifications, computer programs, maps and all other writings or materials of
any type embodying any of such information, ideas, concepts,
<PAGE> 4
improvements, discoveries, and inventions are and shall be the sole and
exclusive property of Company.
B. Employee acknowledges that the business of Company and its
affiliates is highly competitive and that their strategies, methods, books,
records, and documents, their technical information concerning their products,
equipment, services, and processes, procurement procedures and pricing
techniques, the names of and other information (such as credit and financial
data) concerning their customers and business affiliates, all comprise
confidential business information and trade secrets which are valuable, special,
and unique assets which Company or its affiliates use in their business to
obtain a competitive advantage over their competitors. Employee further
acknowledges that protection of such confidential business information and trade
secrets against unauthorized disclosure and use is of critical importance to
Company or its affiliates in maintaining their competitive position. Employee
hereby agrees that Employee will not, at any time during or after his or her
employment by Company, make any unauthorized disclosure of any confidential
business information or trade secrets of Company or its affiliates, or make any
use thereof, except in the carrying out of his or her employment
responsibilities hereunder. As a result of Employee's employment by Company,
Employee may also from time to time have access to, or knowledge of,
confidential business information or trade secrets of third parties, such as
customers, suppliers, partners, joint venturers, and the like, of Company and
its affiliates. Employee also agrees to preserve and protect the confidentiality
of such third party confidential information and trade secrets to the same
extent, and on the same basis, as Company's confidential business information
and trade secrets. Employee acknowledges that money damages would not be
sufficient remedy for any breach of this SECTION SIX by Employee, and Company
shall be entitled to enforce the provisions of this SECTION SIX by terminating
any payments then owing to Employee under this Agreement and/or to specific
performance and injunctive relief as remedies for such breach or any threatened
breach. Such remedies shall not be deemed the exclusive remedies for a breach of
this SECTION SIX, but shall be in addition to all remedies available at law or
in equity to Company, including the recovery of damages from Employee and his
agents involved in such breach.
C. All written materials, records and other documents made by, or
coming into the possession of, Employee during the period of Employee's
employment by Company which contain or disclose confidential business
information or trade secrets of Company or its subsidiaries or affiliates, shall
be and remain the property of Company or its subsidiaries or affiliates, as the
case may be. Upon termination of Employee's employment by Company, for any
reason, Employee promptly shall deliver the same, and all copies thereof, to
Company.
D. If, during Employee's employment by Company, Employee creates any
original work of authorship fixed in any tangible medium of expression which is
the subject matter of copyright (such as videotapes, written presentations on
acquisitions, computer programs, drawings, maps, architectural renditions,
models, manuals, brochures, or the like) relating to Company's business,
products, or services, whether such work is created solely by Employee or
jointly with others (whether during business hours or otherwise and whether on
Company's premises or otherwise), Employee shall disclose such work to Company.
Company shall be deemed the author of such work if the work is prepared by
Employee in the scope of his or her
<PAGE> 5
employment; or, if the work is not prepared by Employee within the scope of his
or her employment but is specially ordered by Company as a contribution to a
collective work, as a part of an audiovisual work, as a translation, as a
supplementary work, as a compilation, or as an instructional text, then the work
shall be considered to be work made for hire and Company shall be the author of
the work. If such work is neither prepared by the Employee within the scope of
his or her employment nor a work specially ordered and then not deemed to be a
work made for hire, then Employee hereby agrees to assign, and by these presents
does assign, to Company all of Employee's worldwide right, title, and interest
in and to such work and all rights of copyright therein.
E. Both during the period of Employee's employment by Company and
thereafter, Employee shall assist Company and its nominee, at any time, in the
protection of Company's worldwide right, title, and interest in and to
information, ideas, concepts, improvements, discoveries, and inventions, and its
copyrighted works, including without limitation, the execution of all formal
assignment documents requested by Company or its nominee and the execution of
all lawful oaths and applications for patents and registration of copyright in
the United States and foreign countries.
SECTION SEVEN
CONFIDENTIALITY
Employee agrees that, in addition to any other limitations contained in
this Agreement, regardless of the circumstances of Employee's termination of
employment, he will not communicate to any person, firm, corporation or other
entity, any information relating to the Company's customer lists, prices,
secrets, advertising, nor any other confidential knowledge or secrets that
Employee might from time to time acquire with respect to the business of the
Company or any of its affiliates or subsidiaries.
SECTION EIGHT
NON-COMPETITION
Employee agrees that, during the term of this Agreement and for a
period of one year following the termination of this Agreement, Employee shall
not directly or indirectly carry on or be engaged or interested in any business
competitive with the business conducted by Company.
<PAGE> 6
SECTION NINE
ARBITRATION
As additional consideration for this Employment Agreement, Employee
agrees that any differences, claims, or matters in dispute arising between the
Company and Employee out of or in connection with his employment or the
termination of his employment by the Company including, but not limited to the
terms and conditions of this Agreement, allegations of wrongful termination, or
allegations of discriminatory or retaliation discharge under any federal, state
or local discrimination law shall be submitted by them to arbitration by the
American Arbitration Association, or its successor, and the determination of the
American Arbitration Association, or its successor, shall be final and absolute.
The arbitrator shall be governed by the duly promulgated rules and regulations
of the American Arbitration Association, or its successor, and the pertinent
provisions of the laws of the State of Indiana relating to arbitration. The
decision of the arbitrator may be entered as a judgment in any court of
competent jurisdiction in the State of Indiana or elsewhere.
SECTION TEN
MISCELLANEOUS PROVISIONS
A. This Agreement represents the entire agreement between the parties
and any prior understandings or representations of any kind of preceding the
date of this Agreement shall not be binding on either party except to the extent
incorporated into this Agreement. This Agreement shall not be altered, amended
or modified except in writing signed by the authorized agent for the Company's
Board of Directors and by Employee.
B. Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by Employee, his beneficiaries, or legal
representatives without the Company's prior written consent; provided however,
that nothing in this Section shall preclude (i) Employee from designating a
beneficiary to receive any benefit payable hereunder upon his death, or (ii) the
executors, administrators, or other legal representatives of his estate from
assigning or transferring any rights hereunder to the person or persons entitled
thereunto.
C. The headings of sections are included solely for convenience of
reference and shall not control the meaning or interpretation of any of the
provisions of this Agreement.
D. This Agreement shall be construed according to the laws of the State
of Indiana.
E. No term or condition of the Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or of any act other than that specifically
waived.
<PAGE> 7
F. If, for any reason, any provision of the Agreement is held invalid,
such invalidity shall not affect any other provision of the Agreement not held
so invalid, and each such other provision shall to the full extent consistent
with law continue in full force and effect.
G. This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
SECTION ELEVEN
NOTICE
Any notice given hereunder shall be in writing and delivered or mailed
by registered or certified mail, return receipt requested:
A. To the Company, addressed to its Corporate Secretary, 8431
Georgetown Road, Suite 700, Indianapolis, Indiana 46268;
B. To Employee, at _____________________________________________, or
such other address as contained in the Company's current payroll records.
The parties have entered into this Employment Agreement based solely
upon the terms and conditions set forth herein. THIS AGREEMENT CONTAINS A
BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
____ day of ________________, 1998.
REYNARD MOTORSPORT, INC.
By:
--------------------------
John C. Gower, Secretary
-----------------------------
Alex S. Hawkridge
<PAGE> 1
Exhibit 10.10
DATED 1998
--------------------------------------------------
A J REYNARD ESQ
- and -
REYNARD MOTORSPORT LIMITED
COUNTERPART/
L E A S E
re
Unit B4
Telford Road
Bicester
Oxfordshire
ROBERT D BOWERMAN
Solicitor
Old Rectory Offices
Park House
Over Worton
Chipping Norton
Oxfordshire OX7 7ER
<PAGE> 2
T H I S L E A S E is made the ______________ day of __________________
One Thousand Nine Hundred and Ninety-eight
B E T W E E N
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire (hereinafter called "the Landlord") and
(2) REYNARD MOTORSPORT LIMITED whose registered office is at Reynard
Centre Telford Road Bicester Oxfordshire (hereinafter called "the
Tenant)
W I T N E S S E S as follows:
INTERPRETATION
1 IN THIS LEASE
1.1 the following expressions shall have the following
meanings:
"Landlord" includes where the context admits the
estate owner for the time being of the
reversion immediately expectant on the
termination of the Term
"Tenant" includes where the context admits the
successors in title of the Tenant
"Term" means the term hereby granted and
includes where appropriate any
extension thereof by agreement or
pursuant to any Act
"Premises" means the property described in the
First Schedule together with all
additions and improvements thereto and
all additions and fittings therein or
thereon
"Act" means any Act of Parliament now or
hereafter to be passed
"Planning Acts" means the Act or Acts for the time
being in force relating to town and
country planning
"Rents" means the rents reserved in Clause 2
"Principal Rent" means the rent first reserved in Clause
2
"Landlord's Surveyor" means the surveyor for the time being
of the Landlord
1
<PAGE> 3
"Insured Risks" means insurance against loss or damage
by fire storm tempest flood lightning
explosion aircraft articles dropped
therefrom riot or civil commotion
malicious damage impact bursting and
overflowing of pipes heave landslip
subsidence terrorism and such other
risks as the Landlord shall from time
to time during the Term properly
determine
"termination of the Term" means the determination of the Term
whether by effluxion of time re-entry
notice surrender (whether by operation
of law or otherwise) or by any other
means whatsoever
"the last year of the Term" means the year of the Term ending on
the termination of the Term
"notice" means notice in writing
"Part with possession" includes an agreement to part with
possession
"underlet" includes an agreement to underlet
"underlease" and "sub-underlease" include an agreement for underlease or
sub-underlease
"Consent of the Landlord" means a consent in writing signed by
the Landlord not to be unreasonably
withheld or delayed
"approved" and "authorised" means as the case may be approved or
authorised in writing by the Landlord
"Inherent Defect" any defect in the design of or
materials used in the structure or any
part of the Premises or in the
construction of the Premises or any
works carried out to the Premises
whether by the Landlord or any
predecessor in title to the Landlord
and whether before or after the date of
this Lease or any unfitness for purpose
of any materials used in any such works
or as a result of such materials not
2
<PAGE> 4
being of merchantable quality or
attributable to workmanship not carried
out in a good and workmanlike manner in
accordance with good building practice
and all relevant British Standards and
Codes of Practice and any "snagging
items" as listed in any "snagging list"
annexed to a Certificate of Practical
Completion relating to any works
carried out by or on behalf of the
landlord or any predecessor in title
"Perpetuity Period" means the period commencing today and
expiring EIGHTY (80) years after today
"Services" means all or any facilities services
or matter passing through any conduit
"Interest" means interest at the rate of 4% above
National Westminster Bank plc base rate
from time to time and payable upon any
rents payable under this Lease and
which are more than 14 days in arrears
such interest to accrue from the date
upon which the relevant sum is due
until the date of actual payment
"The Machinery" all present and future machinery
boilers air conditioning plant
extractor fans and units radiators
hoists lifts pumps and other apparatus
of a like nature on the Premises
1.2 where the context requires:
1.2.1 words importing the singular include the plural
and vice versa
1.2.2 words importing the masculine include the
feminine and neuter
1.2.3 where a party consists of more than one person
covenants and obligations of that party shall
take effect as joint and several covenants and
obligations
1.3 references to any Act include references to any statutory
modification or re-enactment thereof for the time being in
force and any order instrument regulation or by-law made or
issued thereunder
1.4 the side notes shall not in any way affect the construction
of this Lease
3
<PAGE> 5
DEMISE
2 THE LANDLORD hereby demises the Premises to the Tenant
TOGETHER WITH the rights granted in Part I of the Second Schedule RESERVING to
the Landlord and the Company the rights set out in Part II of the Second
Schedule and SUBJECT TO all rights and easements (if any) enjoyed by any
adjoining or neighbouring property over or in respect of the Premises TO HOLD
for the term of twelve years from the __________ day of _________________ 1998
Paying during the term
RENTS The yearly rent of ONE HUNDRED AND FIVE THOUSAND POUNDS
((pounds) 105,000.00) or such sum as shall be determined
pursuant to the rent review provisions contained in the
Fifth Schedule such rent to be paid without any deduction
(except as required by any Act) by four equal quarterly
payments in advance on the 1st March, 1st June, 1st
September and 1st December in each year the first payment
or the appropriate proportion thereof to be paid upon the
date hereof and Secondly a yearly rent equal to the
reasonable and proper sum or sums properly paid by the
Landlord in performance of the Landlord's covenant for
insurance in Clause 5.2 such yearly rent to be paid on
demand and Thirdly on demand from time to time by the
Company or its duly appointed agent the Percentage
Proportion of the Estate Expenses and in the event that any
such sum thirdly payable hereunder remains unpaid fourteen
(14) days after becoming due and payable the Tenant will
pay Interest thereon
TENANT'S COVENANTS
3 THE TENANT covenants with the Landlord
RENT
3.1 To pay the Rents together with any Value Added Tax thereon
(but only following delivery of a valid Value Added Tax
invoice addressed to the Tenant) at the times and in manner
aforesaid without any deduction (except as aforesaid) and
if so required by bankers standing order
3.2 3.2.1 To defray (or in the absence of direct assessment
on the Premises to pay to the Landlord a fair
proportion of) all existing and future community
charges rates taxes assessments charges and
outgoings payable in respect of the Premises or
any part thereof by any estate owner landlord
tenant or
4
<PAGE> 6
occupier thereof (save only for any such
occasioned by any disposition of or dealing with
or the ownership of any estate or interest
expectant in reversion on the termination of the
Term)
OUTGOINGS 3.2.2 If before the termination of the Term the Tenant
or any undertenant or occupier of the Premises or
any part thereof shall cease to occupy the same
or to use the same for the purpose for which the
same were constructed or have been adapted and if
after the termination of the Term the Landlord
shall pursuant to section 17 or 17A of the
General Rates Act 1967 pay any rates or surcharge
additional to rates to pay to the Landlord a sum
equal to the amount of such payments attributable
to such cessation of occupation or use and in
addition to any such payments that the Landlord
would have had to make if such cessation had not
taken place
CHARGES FOR SERVICES
3.3 3.3.1 To pay the suppliers thereof all charges for gas
water electricity and other services (including
meter rents) consumed in the Premises during the
Term
3.3.2 To comply with the requirements and regulations
of the supply authority with regard to the
electrical wiring installations and equipment and
(if any) the gas pipes installations and
equipment in the Premises PROVIDED THAT the
Tenant will within 28 days of the Landlord's
request supply such details of any alterations or
additions carried out by or on behalf of the
Tenant as the Landlord may reasonably require and
PROVIDED FURTHER that the Tenant will at the
request of the Landlord upon the termination of
the term remove any such alterations or additions
and reinstate the installations and make good any
damage caused to the reasonable satisfaction of
the Landlord REPAIR
3.4 3.4.1 At all times during the said term to keep the
Premises and every part thereof and all additions
thereto and the Landlord's fixtures and fittings
thereon (including all windows window frames
doors door frames plate glass and fibreglass and
the
5
<PAGE> 7
pipes and sanitary and water apparatus thereof)
in good and substantial repair and condition
(damage by an Insured Risk or resulting from an
Inherent Defect excepted)
3.4.2 Without prejudice to the generality of the
preceding paragraph 3.4.1 of this sub-clause at
all times to keep the Machinery in or about the
Premises in proper repair and in good working
order and condition keeping the same free from
rust and clean and oiled and from time to time to
replace renew and reinstate any parts of the
machinery which may become broken lost worn out
or unfit for use
PERMISSION FOR REINSTATEMENT
3.5 If the Premises shall be destroyed or damaged by any of the
Insured Risks if so required to join with the Landlord but
at the Landlord's cost in making application for any
planning or other permission necessary for rebuilding or
reinstating the Premises
MAINTENANCE OF MACHINERY
3.6 To enter into agreements with the manufacturers or with the
approved maintenance contractors for the regular inspection
and servicing of the machinery serving any lifts or lift
shafts or heating or air-conditioning system in the
Premises
EXTERNAL PAINTING
3.7 In the third year of the Term and in the last year of the
Term (provided that the Tenant shall be under no obligation
to carry out such works twice in any period of twelve
months) in a proper and workmanlike manner to clean all the
outside surfaces of the Premises and thereafter prepare and
paint all outside surfaces usually painted with three coats
of good quality paint of an approved colour
INTERNAL PAINTING
3.8 3.8.1 In every fifth year of the Term and the last
three months of the last year of the Term in a
proper and workmanlike manner to prepare and
paint all inside surfaces of the Premises usually
painted with two coats of good quality paint and
to strip and repaper all inside surfaces usually
papered and to restore all other inside surfaces
to their proper condition and appearance
6
<PAGE> 8
3.8.2 In complying with this covenant in the last three
months of the last year of the Term to use only
material of an approved colour quality and finish
LANDLORD'S RIGHT OF INSPECTION
3.9 To permit the Landlord and any authorised person at all
reasonable and mutually convenient times upon previous
notice to enter and inspect the Premises
COMPLIANCE WITH NOTICES TO REMEDY
3.10 3.10.1 To comply with any notice given by the Landlord
requiring the Tenant to remedy any breach of the
Tenant's covenants found upon any such inspection
3.10.2 If the Tenant shall not within a reasonable time
(in the context of the relevant breach) comply
with any such notice to permit the Landlord and
any authorised person to enter the Premises to
remedy any such breach
3.10.3 To pay to the Landlord on demand all the
reasonable costs and expenses properly incurred
by the Landlord under the provisions of
sub-clause 3.10.2.
WINDOW CLEANING
3.11 To clean the windows in the Premises as often as shall be
reasonably necessary
YIELD UP
3.12 At the termination of the Term
3.12.1 to yield up the Premises (tenant's or trade
fixtures only excepted) fully in accordance with
the foregoing Tenant's covenants as to repair
3.12.2 to make good any damage caused to the Premises by
the removal of the Tenant's fixtures fittings
furniture and effects and by the reinstatement of
the Premises pursuant to any covenant with the
landlord
REIMBURSEMENT OF EXPENDITURE
3.13 To reimburse to the Landlord all reasonable expenditure
properly incurred by the Landlord forthwith after the
termination of the Term in repairing
7
<PAGE> 9
painting and decorating the Premises so as to put them into
the condition required by the foregoing Tenant's covenants
MAINTENANCE OF PARTY WALLS
3.14 To pay a fair proportion (to be determined by the Landlord's
Surveyor acting reasonably) of the reasonable expenses
properly incurred in respect of any repairing and cleansing
of any party walls fences sewers drains channels sanitary
apparatus pipes wires passageways stairways entrance ways
roads pavements and other things the use of which is common
to the Premises and to other property
ALTERATIONS AND WASTE
3.15 Not without the consent of the Landlord to erect or permit
or suffer to be erected any other building structure pipe
wire mast or post upon the Premises nor to make or permit
or suffer to be made any alteration therein or addition
thereto (PROVIDED THAT this provision shall not apply to
internal demountable partitioning which the Tenant may
install or remove without the need for any consent) nor
alter the external appearance of the Premises nor to commit
or permit or suffer any waste spoil or destruction in or
upon the Premises nor (save for the purpose of affixing
fixtures and fittings partitioning or similar items) to cut
injure or remove or suffer to be cut injured or removed any
of the roofs structural walls (whether outside or inside)
floors joists timbers wires pipes drains appurtenances or
fixtures thereof
SIGNAGE
3.16 Not to affix or display or permit or suffer to be affixed or
displayed upon any part of the exterior of the Premises or
to or through any window thereof any placard poster notice
advertisement name or sign whatsoever except ones that shall
previously have received the Consent of the Landlord
NOTICES RECEIVED
3.17 Within seven days of the receipt by the Tenant of any notice
order requisition direction or plan given made or issued to
or by a competent authority affecting the Premises or the
occupation or user thereof to supply a copy thereof to the
Landlord and to make or join in making such objections or
representations against or in respect thereof as the
Landlord may reasonably require but at the Landlord's cost
8
<PAGE> 10
REQUIREMENTS OF ANY ACT OR COMPETENT AUTHORITY
3.18 To comply in every respect with the provisions of any Act
or the requirements of any competent authority in respect
of the Premises or any part thereof or in respect of the
occupation or user thereof and to indemnify the Landlord
against all claims demands expenses and liability in
respect of any breach thereof by the Tenant and to pay all
reasonable costs charges and expenses properly incurred by
the Landlord as a result of any such breach by the Tenant
PLANNING ACTS
3.19 Without prejudice to the generality of the last preceding
sub-clause not without the Consent of the Landlord in
relation to the Planning Acts
3.19.1 to make any application for planning permission
in respect of the Premises or any part thereof
whether in respect of the carrying out of any
operations works act or things or the user of the
Premises or any part thereof
3.19.2 to carry out any operations works acts or things
in the Premises or any part thereof or make any
change of use of the same for which planning
permission needs to be obtained
USE
3.20 To use and occupy the Premises only for general industrial
purposes within B1 and B2 of the Town and Country Planning
(Use Classes) Order 1987 with any proper ancillary use (and
the reference to that Order is to be construed so as to
include any modification or re-enactment of that Order)
PROHIBITED MATERIAL
3.21 3.21.1 Save for any such materials or liquid needed by
the Tenant in its business (provided prior
approval of the Landlord's insurers where
necessary has been obtained and that any such
liquids or materials are handled and stored in a
safe and proper manner and excessive quantities
are not kept on the Premises) not to store or
bring upon the Premises any materials or liquid
of a specially combustible inflammable dangerous
or offensive nature
3.21.2 Not to do any act or thing whereby any insurance
effected on the Premises or any adjoining
property may be rendered void or voidable or the
rate of premium thereon may be increased
9
<PAGE> 11
and to comply with all requirements of the
insurers as to fire precautions relating to the
Premises
3.21.3 Not to use the Premises or any part thereof for
any illegal or immoral purpose
3.21.4 Not to bring into or upon the Premises or do
anything which might throw on the Premises any
load or weight in excess of that which the
Premises are designed or constructed to bear with
due margin for safety nor to cause any undue
vibration to the Premises by machinery or
otherwise
3.21.5 Not to hold in the Premises any sale by auction
public exhibition or political meeting
PROVIDED THAT it shall only be a breach by the Tenant of the
sub-paragraphs of this sub-clause 3.21 for the Tenant itself
to commit or for the Tenant to permit or suffer by those
under the control of the Tenant to commit any act expressly
prohibited in this sub-clause
ALIENATION
3.22 3.22.1 Alienation prohibited
Not to hold the Premises on trust for another and
not to part with the possession of the Premises
or any part of them or permit another to occupy
them or any part of them except pursuant to a
transaction permitted by and effected in
accordance with the provisions of this Lease
3.22.2 Assignment, subletting and charging of part Not
to assign, sublet or charge part only of the
Premises
3.22.3 Assignment of the whole
Subject to clauses 3.22.4 Circumstances and
3.22.5 Conditions, not to assign the whole of the
Premises without the consent of the Landlord
(which shall not be unreasonably withheld or
delayed)
3.22.4 Circumstances
If any of the following circumstances - which are
specified for the purposes of the Landlord and
Tenant Act 1927 section 19(1A) - applies either
at the date when application for consent to
assign is made to the Landlord, or after that
date but before the Landlord's consent is given,
the Landlord may withhold his
10
<PAGE> 12
consent and if, after the Landlord's consent has
been given but before the assignment has taken
place, any such circumstances apply, the Landlord
may revoke his consent, whether his consent is
expressly subject to a condition as referred to
in subclause 3.22.5.4 of clause 3.22.5 Conditions
or not. The circumstances are:-
3.22.4.1 that any sum lawfully due from the
Tenant under this Lease remains
unpaid in circumstances where the
Landlord has given express notice
of the same to the Tenant
3.22.4.2 that in the Landlord's reasonable
opinion the assignee is not a
person who is likely to be able to
comply with the tenant's covenants
in this Lease and to continue to be
able to comply with them following
the assignment,
3.22.4.3 that the assignee or any guarantor
for the assignee (other than any
guarantor under an authorised
guarantee agreement,) is a
corporation registered or otherwise
resident in a jurisdiction in which
the order of a court obtained in
England and Wales will not
necessarily be enforced against the
assignee or guarantor without any
consideration of the merits of the
case.
3.22.5 Conditions
The Landlord may impose any or all of the
following conditions ( which are specified for
the purposes of the Landlord and Tenant Act 1927
section 19(1A) ) on giving any consent for an
assignment by the Tenant, and any such consent is
to be treated as being subject to each of the
following:-
3.22.5.1 a condition that upon or before any
assignment and before giving
occupation to the assignee, the
Tenant requesting consent to assign
must enter into an authorised
guarantee agreement in favour of
the Landlord
11
<PAGE> 13
substantially in the terms set out
in the Fourth Schedule (The
Authorised Guarantee Agreement)
3.22.5.2 a condition that if reasonably so
required by the Landlord on an
assignment to a limited company,
the assignee must ensure that some
other guarantor or guarantors
acceptable to the Landlord, enter
into direct covenants with the
Landlord that the assignee will
throughout the residue of the term
of this Lease observe and perform
the covenants on the part of the
Tenant contained in this Lease
3.22.5.3 a condition that upon or before any
assignment, the Tenant making the
request for consent to assign must
give to the Landlord a copy of the
health and safety file required to
be maintained under the
Construction (Design and
Management) Regulations 1994
containing full details of all
works undertaken to the Premises by
that Tenant, and
3.22.5.4 a condition that if, at any time
before completion of the
assignment, the circumstances
specified in clause 3.22.4
Circumstances, or any of them
apply, the Landlord may revoke the
consent by written notice to the
Tenant
3.22.6 Subletting
Not to sublet the whole of the Premises without
the consent of the Landlord (which shall not be
unreasonably withheld or delayed)
3.22.7 Terms of a permitted sublease
Every permitted sublease must be granted, without
a fine or premium at a rent not less than
whichever is the greater of the then open market
rent payable in respect of the Premises or the
rent payable under this Lease and the rent
payable under the
12
<PAGE> 14
sublease payable in advance on the days on which
the Rent is payable under this Lease. Every
permitted sublease must contain provisions:-
3.22.7.1 prohibiting the subtenant from
doing or allowing anything in
relation to the Premises
inconsistent with or in breach of
the provisions of this Lease,
3.22.7.2 for re-entry by the sub-landlord on
breach of any covenants by the
subtenant,
3.22.7.3 imposing an absolute prohibition
against any further subletting of
the whole or any part of the
Premises,
3.22.7.4 prohibiting assignment of the whole
of the Premises without the consent
of the Landlord under this Lease
(which consent shall not be
unreasonably withheld or delayed)
3.22.7.5 requiring the assignee on any
assignment of the sublease to enter
into direct covenants with the
Landlord to the same effect as
those contained in clause 3.22.8
Sub-Tenant's Direct Covenants,
3.22.7.6 prohibiting the sub-tenant from
holding on trust for another or
permitting another to share or
occupy the whole or any part of the
Premises save with a group company
of the sub-tenant on the same basis
as in clause 3.22.11 of this Lease
3.22.7.7 imposing in relation to any
permitted assignment or charge the
same obligations for registration
with the Landlord as are contained
in this Lease in relation to
dispositions by the Tenant
3.22.8 Subtenant's direct covenants
Before any permitted subletting, to ensure that
the subtenant enters into a direct covenant with
the Landlord that while he is
13
<PAGE> 15
bound by the tenant's covenants in the sublease
the subtenant will observe and perform the
tenant's covenants contained in this Lease
(except the covenant to pay the rent reserved by
this Lease ) and in that sublease.
3.22.9 Sublease rent review
3.22.9.1 the Tenant must ensure that the
rent is reviewed in accordance with
the terms of the sublease,
3.22.9.2 the Tenant must not agree the
reviewed rent with the subtenant
without the approval of the
Landlord
3.22.9.3 where the sublease provides such an
option the Tenant must not without
the approval of the Landlord agree
whether the third party determining
the revised rent in default of
agreement should act as an
arbitrator or as an expert
3.22.9.4 the Tenant must not, without the
approval of the Landlord agree any
appointment of a person to act as a
third party determining the revised
rent
3.22.9.5 the Tenant must incorporate as part
of his representations to that
third party representations
required by the Landlord, and
3.22.9.6 the Tenant must give notice to the
Landlord of the details of the
determination of every rent review
within seven days
3.22.10 Registration of permitted dealings
Within 28 days of any assignment, charge or
sublease or any transmission or other devolution
relating to the Premises, to produce a certified
copy of any relevant document for registration
with the Landlord's Solicitor, and to pay the
Landlord's Solicitor's reasonable charges for
registration of at least (pounds) 25.00.
14
<PAGE> 16
3.22.11 Sharing with a group company
Notwithstanding clause 3.22.1 Alienation
Prohibited the Tenant may share occupation of the
whole or any part of the Premises with a company
that is a member of the same group as the Tenant
within the meaning of the Landlord and Tenant Act
1954 section 42, for so long as both companies
remain members of that group and otherwise than
in a manner that transfers or creates a legal
estate
NOTICE OF DAMAGE
3.23 In the event of the Premises being destroyed or damaged to
give notice thereof immediately upon becoming aware of the
same to the Landlord stating (if possible) the cause of such
destruction or damage
SALE OR RE-LETTING NOTICES
3.24 To permit the Landlord during the Term to affix and retain
without interference upon any suitable and conspicuous part
of the Premises (but not so as materially to affect the
access of light and air to the Premises) a notice for
reletting the same (if the termination of the Term is a
prospective possibility) or selling the Landlord's interest
in the Premises and to permit persons with written authority
of the Landlord or the Landlord's agent at reasonable and
mutually convenient times of the day to view the Premises
accompanied by the Landlord or its agent
COSTS
3.25 To pay to the Landlord on demand all reasonable and proper
costs charges and expenses (including reasonable and proper
legal and surveyors' fees and costs and value added tax
thereon) of and incidental to:-
3.25.1 every application made by the Tenant for the
consent of the Landlord where the same be granted
or lawfully refused or proffered subject to any
lawful qualification or condition or where the
application be withdrawn
3.25.2 the preparation and service of a notice under
Section 146 of the Law of Property Act 1925
notwithstanding that forfeiture is avoided
otherwise than by relief granted by the Court
3.25.3 any schedule relating to wants of repair to the
Premises whether served during or within three
months after the termination of the Term
15
<PAGE> 17
3.25.4 the preparation and completion of this Lease and
Stamp Duty payable on the Counterpart
INTEREST
3.26 To pay to the Landlord Interest on any sum due pursuant to
the provisions of this Lease and the aggregate amount for
the time being so payable shall at the option of the
Landlord be recoverable by action or as rent in arrear
VALUE ADDED TAX
3.27 Whenever any sum is payable by the Tenant on which Value
Added Tax or any other tax is properly payable on
presentation of a proper VAT invoice to pay to the Landlord
in addition to such sum the amount of the Value Added Tax or
other tax thereon at the rate applicable to that payment
OBSTRUCTIONS AND EASEMENTS
3.28 Not permanently to obstruct or permit or suffer to be
obstructed any of the windows lights or ventilators
belonging to the Premises nor to permit or suffer any new
window light ventilator passage drainage or other
encroachment or easement to be made into against or over the
Premises or any part thereof AND in case any encroachment or
easement whatsoever shall be attempted to be made or
acquired by any person whomsoever to give notice thereof to
the Landlord immediately the same shall come to the
knowledge of the Tenant and at the cost of the Tenant do all
such things as may be proper for preventing any new
encroachment or easement being made or acquired
LANDLORDS TITLE
3.29 Not to breach the covenants and provisions affecting the
title of the Landlord specified in the Third Schedule
COVENANTS BY THE LANDLORD
4 THE LANDLORD covenants with the Tenant:
QUIET ENJOYMENT
4.1 That the Tenant paying the Rents and performing and
observing the covenants and stipulations on the part of the
Tenant herein shall peaceably hold and enjoy the Premises
during the Term without any interruption by the Landlord or
any person rightfully claiming under or in trust for the
Landlord
16
<PAGE> 18
INSURANCE
4.2 4.2.1 Office, underwriters and agency
To effect and maintain insurance in respect of
the Premises and the Estate in such substantial
and reputable insurance office, or with such
underwriters and through such agency of similar
substance and repute as the Landlord from time to
time reasonably decides
4.2.2 To effect and maintain such insurance for the
following amounts:
4.2.2.1 the sum that the Landlord is from
time to time properly advised by
the Surveyor is the full cost of
rebuilding and reinstating the
Premises, including VAT,
architects', surveyors',
engineers', solicitors' and all
other professional persons' fees,
the fees payable on any
applications for planning
permission or other permits or
consents that may be required in
relation to rebuilding or
reinstating the Premises, the cost
of preparation of the site
including shoring-up, debris
removal, demolition, site clearance
and any works that may be required
by statute, and incidental
expenses, and
4.2.2.2 loss of the Rent for three years.
4.2.3 Risks insured
To effect and maintain such insurance against
damage or destruction by any of the Insured Risks
to the extent that such insurance may ordinarily
be arranged with a substantial and reputable
insurer for properties such as the Premises
subject to such proper excesses exclusions or
limitations as the insurer reasonably and
properly requires
4.2.4. In the event of damage or destruction by any of
the Insured Risks to rebuild or reinstate the
Premises forthwith and to obtain all necessary
consents in relation thereto
17
<PAGE> 19
4.2.5 To procure that there be given a copy of any
relevant policy of insurance to the Tenant on all
reasonable occasions that he the Tenant shall so
request together with evidence of the current
Premium and that it has been paid
4.2.6 To procure that the insurers under the relevant
policy or policies of insurance waive their
rights of subrogation against the Tenant and any
lawful occupier of the Premises and further to
procure that the relevant policy or policies
contain a non-invalidation clause in respect of
any acts or defaults of the Tenant or other
lawful occupier of the Premises
INHERENT DEFECTS
4.3 To carry out any repairs maintenance reinstatement
replacement rebuilding or other works to the Premises
arising from any Inherent Defects
PROVISOS
5 IF:-
5.1 the Rents or any part thereof shall be in arrear
for 21 days after becoming payable (whether
formally demanded or not) or
5.2 there shall be any breach non-performance or
non-observance of any of the Tenant's covenants
or
5.3 the Tenant (being an individual) shall become
bankrupt or (being a company) shall enter into
liquidation whether compulsory or voluntary (save
for the purpose of amalgamation or reconstruction
of a solvent company) or
5.4 the Tenant shall enter into any arrangement or
composition for the benefit of the Tenant's
creditors
it shall be lawful for the Landlord at any time thereafter
to re-enter the Premises or any part thereof in the name of
the whole and thereupon the Term shall absolutely determine
but without prejudice to any rights of action of the
Landlord or the Tenant in respect of any antecedent breach
by the other of any of the covenants or conditions herein
SUSPENSION OF RENT
6 IF the Premises or the means of access thereto from the
public highway shall at any time during the Term be so damaged or destroyed by
any of the Insured Risks so
18
<PAGE> 20
as to render the Premises unfit for occupation and use or incapable of
being occupied by virtue of inaccessibility then (unless the insurance money
shall be wholly or partly irrecoverable by reason solely or in part of any act
or default of the Tenant) the Rents or a fair proportion thereof according to
the nature and extent of the damage sustained shall be suspended until the date
when the Premises shall again be rendered fit for occupation and use or until
the date three years from the date of such damage or destruction whichever date
shall be the earlier and any dispute with reference to this proviso shall be
referred to arbitration in accordance with the Arbitration Act 1950
TERMINATION AND RECONSTRUCTION
7 IF within three years of the Premises or the means of
access thereto from the public highway being destroyed or so damaged by any of
the Insured Risks so as to render the Premises unfit for occupation and use or
incapable of being occupied by virtue of inaccessibility and the Premises or any
material part of them still being unfit for use or occupation or inaccessible
7.1 either party may by not less than three months'
notice expiring at any time determine the Term
and upon the expiry of such notice the Term shall
determine without prejudice to any remedy of
either party against the other in respect of any
antecedent breach of covenant or condition herein
7.2 if the Term is determined under sub-clause 7.1
the insurance monies (other than monies received
for loss of rent) received by the Landlord shall
be apportioned between the Landlord and the
Tenant in proportion to the values of their
respective interests in the Premises
NO WARRANTY AS TO USE
8 Nothing herein shall be deemed to constitute any warranty
by the Landlord that the Premises or any part thereof are under the Planning
Acts authorised for use for any specific purpose
SERVICE OF NOTICES
9 Section 196 of the Law of Property Act 1925 as amended by
the Recorded Delivery Services Act 1962 shall apply to the service of any notice
required to be served under this Lease
19
<PAGE> 21
STAMP DUTY CERTIFICATE
10 It is hereby certified that for the purposes of Section
240(2)(a) Finance Act 1994 there is no agreement to which this Lease gives
effect
IN WITNESS whereof the parties hereto have executed this
instrument as a Deed and have delivered it upon dating it.
FIRST SCHEDULE
The Premises
------------
Unit B4 Telford Road Bicester Oxfordshire
SECOND SCHEDULE
Part I
------
Rights granted
--------------
1 The right to free passage of Services through any conduits
now serving the Premises
2 The right of support and protection from any building
adjoining the Premises from time to time
3 The right to exhibit the name of the Tenant on the
signboard and in the style on the signboard to be approved by the Landlord (such
approval not to be unreasonably withheld or delayed)
Part II
-------
Rights reserved
---------------
The reservations contained in the Property Register and Charges Register of the
freehold title number ON107844 or referred to in a Conveyance dated 28th March
1985 between the Trustees of the Reynard Racing Cars Directors' Pension Scheme
(1) and the Landlord (2)
THIRD SCHEDULE
Covenants and provisions affecting the Landlord's title
-------------------------------------------------------
The matters referred to in the Charges Register of the freehold title number
ON107844 or referred to in a Conveyance dated 28th March 1985 made between the
Trustees of the Reynard Racing Cars Directors' Pension Scheme (1) and the
Landlord (2)
20
<PAGE> 22
FOURTH SCHEDULE
THE AUTHORISED GUARANTEE AGREEMENT
THIS GUARANTEE is made the ......... day of................... 19 BETWEEN
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire ("the Landlord") and
(2) __________ the registered office of which is
("the Tenant")
NOW THIS DEED WITNESSES as follows:
1 DEFINITIONS AND INTERPRETATION
For all purposes of this guarantee the terms defined in this clause have the
meanings specified.
1.1 "THE ASSIGNEE"
"The Assignee" means .....
1.2 "THE LEASE"
"The Lease" means the lease dated............ 19 and made
between (1) Adrian John Reynard and (2) Reynard Motorsport
Limited ("the Tenant") for a term of twelve years commencing
on and including
1.3 "THE PREMISES"
"THE PREMISES" means the premises demised by the Lease.
1.4 "THE LIABILITY PERIOD"
"The Liability Period" means the period during which the
Assignee is bound by the tenant covenants of the Lease which
shall not exceed the unexpired residue of the contractual term
of the Lease
1.5 TERMS FROM THE LANDLORD AND TENANT (COVENANTS) ACT
1995
The expressions "authorised guarantee agreement" and "tenant
covenants" have the same meaning in this guarantee as in the
Landlord and Tenant (Covenants) Act 1995 section 28(1).
1.6 REFERENCES TO CLAUSES
Any references in this deed to a clause without further
designation is to be construed as a reference to the clause of
this deed so numbered
2 RECITALS
2.1 CONSENT REQUIRED
The Landlord's consent to an assignment of the Lease is
required.
21
<PAGE> 23
2.2 AGREEMENT TO CONSENT
The Landlord has agreed to give consent to the assignment to
the Assignee on condition that the Tenant enters into this
guarantee.
2.3 EFFECTIVE TIME
This guarantee takes effect only when the Lease is assigned to
the Assignee
3 TENANT'S COVENANTS
In consideration of the Landlord's consent to the assignment the Tenant
covenants with the Landlord and without the need for any express assignment with
all his successors in title as set out in this clause 3.
3.1 PAYMENT AND PERFORMANCE
The Assignee shall punctually pay the rents reserved by the
Lease and observe and perform the covenants and other terms of
it throughout the Liability Period, and if at any time during
the Liability Period the Assignee defaults in paying the rents
or in observing or performing any of the covenants or other
terms of the Lease, the Tenant shall pay the rents and observe
and perform the covenants or terms in respect of which the
Assignee is in default and make good to the Landlord on demand
and indemnify the Landlord against all losses damages costs
and expenses resulting from such non-payment, non-performance
or non-observance notwithstanding:-
3.1.1 any time or indulgence granted by the
Landlord to the Assignee or any neglect or
forbearance of the Landlord in enforcing the
payment of the rents or the observance or
performance of the covenants or other terms
of the Lease, or any refusal by the Landlord
to accept rents tendered by or on behalf of
the Assignee at a time when the Landlord is
entitled, or will after the service of a
notice under the Law of Property Act 1925
section 146 be entitled, to re-enter the
Premises
3.1.2 that the Assignee has surrendered part of
the Premises in which event the liability of
the Tenant under the Lease is to continue in
respect of the part of the Premises not
22
<PAGE> 24
surrendered after making any necessary
apportionments under the Law of Property Act
1925 section 140, and
3.1.3 anything else by which, but for this clause
3.1, the Tenant would have been released.
3.2 NEW LEASE FOLLOWING DISCLAIMER
If, during the Liability Period any trustee in bankruptcy or
liquidator of the Assignee disclaims the Lease, the Tenant
shall , if required by notice served by the Landlord within
sixty days of the Landlord becoming aware of the disclaimer
take from the Landlord forthwith a lease of the Premises for
the residue of the contractual term of the Lease as at the
date of the disclaimer, at the rent then being paid under the
Lease and subject to the same covenants and terms as in the
Lease (except that the Tenant need not ensure that any other
person is made a party to that lease as guarantor) the new
lease to commence on the date of the disclaimer and the Tenant
shall pay the reasonable and proper costs of the new lease and
execute and deliver to the Landlord a counterpart of it.
4 SEVERANCE
4.1 SEVERANCE OF VOID PROVISIONS
Any provision of this deed rendered void by virtue of the
Landlord and Tenant (Covenants) Act 1995 section 25 is to be
severed from all remaining provisions and the remaining
provisions are to be preserved.
4.2 LIMITATIONS OF PROVISIONS
If any provision of this deed extends beyond the limits
permitted by the Landlord and Tenant (Covenants) Act 1995
section 25, that provision is to be varied so as not to extend
beyond those limits.
FIFTH SCHEDULE
RENT REVIEWS
1 THE REVIEW DATES
The yearly rent payable under this Lease is to be reviewed on the expiry of the
fifth year and tenth year of the Term (referred to in this Schedule as "the
review date(s)" (and "the relevant review date" is to be construed accordingly)
and with effect on and from each review date the reviewed rent (as agreed or
determined in accordance with this Schedule) is to become payable as the yearly
rent reserved by this Lease.
23
<PAGE> 25
2 UPWARD ONLY RENT REVIEWS
The reviewed rent is to be the greater of:
2.1 the yearly rent reserved under this Lease immediately
preceding the relevant review date; and
2.2 the market rent of the Premises at the relevant review date
3 THE MARKET RENT
For the purposes of this Lease, the expression "market rent" means the best
yearly rent at which the Premises might reasonably be expected to be let in the
open market by a willing landlord to a willing tenant:
3.1 with vacant possession
3.2 for a term for the unexpired residue of the Term from the
relevant review date having rent reviews in the same terms as
this Lease
3.3 without the payment of a premium by the willing tenant
3.4 subject to the provisions of this Lease, other than the length
of the term and the amount of rent, but including these
provisions for rent review; but on the assumption, if not the
fact, that at the relevant review date:
3.5 the Premises have been fitted out ready for occupation and
immediate use for the willing tenant's business so that the
willing tenant would not require a rent or other allowance at
the (relevant) review date for that purpose (but this
assumption does not affect the operation of paragraph 4.3);
3.6 in case the Premises have been destroyed or damaged or unfit
for use and occupation they have been fully reinstated or
rendered fit for use and occupation;
3.7 the Premises are in a state of full repair and the covenants
of the Tenant and the Landlord and have been fully observed
and performed;
3.8 there is not in operation any statute order or instrument
regulation or direction which has the effect of regulating or
restricting the amount of rent of the Premises which might
otherwise be payable;
3.9 the Premises may be lawfully used throughout the Term for the
permitted use
3.10 the Tenant and anyone who may become the Tenant is a taxable
person who makes only taxable supplies and no exempt supplies
(words and
24
<PAGE> 26
expressions used in this paragraph 3.10 having the meanings
assigned to them respectively in the Value Added Tax Act 1994
and the regulations made under that Act) and that demand for
the Premises on the open market would not be reduced by reason
of the Landlord having elected to waive exemption from value
added tax in respect of them.
4 MATTERS TO BE DISREGARDED
In agreeing or determining the market rent the effect upon it of the following
matters are to be disregarded:
4.1 the occupation of the Premises by the Tenant
4.2 any goodwill attached to the Premises by reason of the
carrying on at the Premises of the business of the Tenant;
4.3 any improvements to the Premises made by the Tenant with the
consent of the Landlord other than those:
4.3.1 made in pursuance of an obligation to the Landlord;
or
4.3.2 for which the Landlord has made a financial
contribution; or
4.3.3 any works carried out by the tenant which has
diminished the market rent and in this paragraph 4
reference to "the Tenant" include predecessors in
title to the Tenant, and sub-tenants of the Tenant or
of the predecessors in title of the Tenant
5 PROCEDURE FOR DETERMINATION OF MARKET RENT
5.1 The Landlord and the Tenant are to endeavour to agree the
market rent at any time not being earlier than twelve months
before the relevant review date, but if they have not agreed
the market rent three months before the relevant review date
the amount of the market rent is to be determined by reference
to the arbitration of an arbitrator
5.2 The arbitrator is to be nominated by the Landlord and the
Tenant jointly, but, if they cannot or do not do so, then he
is to be nominated by the resident for the time being of the
Royal Institution of Chartered Surveyors on the application
either of the Landlord or of the Tenant
5.3 The reference to and award of the arbitrator is to be governed
by the Arbitration Act 1996
25
<PAGE> 27
5.4 The arbitrator nominated must be a chartered surveyor having
not less than ten years' experience of leasehold valuation of
property being put to the same or similar use as the Premises
and of property in the same region in which the Premises are
situated
5.5 If the arbitrator refuses to act, becomes incapable of acting
or dies, the Landlord or the Tenant may require the
appointment of another arbitrator as provided in paragraph 5.1
6 TIME LIMITS
Time is not of the essence in agreeing or determining the reviewed rent or of
appointing an arbitrator
7 RENTAL ADJUSTMENTS
7.1 If the market rent has not been agreed or determined in
accordance with the provisions of this Schedule before the
relevant review date, then, until the market rent has been so
agreed or determined, the Tenant will continue to pay on
account rent at the rate of yearly rent payable immediately
before the relevant review date.
7.2 The Tenant will pay to the Landlord within seven days after
the time that the market rent has been agreed or determined
all arrears of the reviewed rent which have accrued in the
meantime, with Interest on each of the instalments of the
arrears from the time that it would have become due if the
market rent had then been agreed or determined until payment
becomes due from the Tenant to the Landlord under this
paragraph 7.2
8 REVIEWED RENT RESERVED IN PHASES
The Landlord and the Tenant may, at any time before the market rent is
determined by an arbitrator settle the reviewed rent in more than one amount and
agree to reserve the amounts increasing in phases until the next review date or,
if none, the expiry of the Term.
9 MEMORANDUM OF RENT REVIEW
The parties will cause a memorandum of the reviewed rent duly signed by the
Landlord and the Tenant to be endorsed on or securely annexed to this Lease and
the Counterpart of this Lease.
26
<PAGE> 28
SIGNED as a deed by )
REYNARD MOTORSPORT LIMITED )
- --------------------------
acting by )
and by )
Director
Secretary/Director
27
<PAGE> 29
SIGNED as a deed by )
ADRIAN JOHN REYNARD ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- ------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
28
<PAGE> 1
Exhibit 10.11
DATED 1998
------------------------------------------------------------
A J REYNARD ESQ, M J DANIELS ESQ
AND R D BOWERMAN ESQ
(TRUSTEES OF THE REYNARD RACING CARS LTD
DIRECTORS' PENSION SCHEME)
- and -
REYNARD MOTORSPORT LIMITED
COUNTERPART/
L E A S E
re
Unit B6
Telford Road
Bicester
Oxfordshire
ROBERT D BOWERMAN
Solicitor
Old Rectory Offices
Park House
Over Worton
Chipping Norton
Oxfordshire OX7 7ER
<PAGE> 2
T H I S L E A S E is made the ______________ day of _____________
One Thousand Nine Hundred and Ninety-eight
B E T W E E N
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire and MICHAEL JOHN DANIELS of Kingswood House 29 North
Street Bicester aforesaid and ROBERT DENIS BOWERMAN of Park House Over
Worton Chipping Norton Oxfordshire (hereinafter called "the Landlord")
and
(2) REYNARD MOTORSPORT LIMITED whose registered office is at Reynard
Centre Telford Road Bicester Oxfordshire (hereinafter called "the
Tenant)
W I T N E S S E S as follows:
INTERPRETATION
1 IN THIS LEASE
1.1 the following expressions shall have the following
meanings:
"Landlord" includes where the context admits the estate
owner for the time being of the reversion
immediately expectant on the termination of the
Term
"Tenant" includes where the context admits the successors
in title of the Tenant
"Term" means the term hereby granted and includes where
appropriate any extension thereof by agreement or
pursuant to any Act
"Premises" means the property described in the First
Schedule together with all additions and
improvements thereto and all additions and
fittings therein or thereon
"Act" means any Act of Parliament now or hereafter to
be passed
"Planning Acts" means the Act or Acts for the time being in force
relating to town and country planning
"Rents" means the rents reserved in Clause 2
"Principal Rent" means the rent first reserved in Clause 2
1
<PAGE> 3
"Landlord's Surveyor" means the surveyor for the time being of the
Landlord
"Insured Risks" means insurance against loss or damage by fire
storm tempest flood lightning explosion aircraft
articles dropped therefrom riot or civil
commotion malicious damage impact bursting and
overflowing of pipes heave landslip subsidence
terrorism and such other risks as the Landlord
shall from time to time during the Term properly
determine
"termination of the Term" means the determination of the Term whether by
effluxion of time re-entry notice surrender
(whether by operation of law or otherwise) or by
any other means whatsoever
"the last year of the Term" means the year of the Term ending on the
termination of the Term
"notice" means notice in writing
"Part with possession" includes an agreement to part with possession
"underlet" includes an agreement to underlet
"underlease" and include an agreement for underlease or sub-under
"sub-underlease" lease
"Consent of the Landlord" means a consent in writing signed by the Landlord
not to be unreasonably withheld or delayed
"approved" and "authorised" means as the case may be approved or authorised
in writing by the Landlord
"Inherent Defect" any defect in the design of or materials used in
the structure or any part of the Premises or in
the construction of the Premises or any works
carried out to the Premises whether by the
Landlord or any predecessor in title to the
Landlord and whether before or after the date of
this Lease or any unfitness for
2
<PAGE> 4
purpose of any materials used in any such works
or as a result of such materials not being of
merchantable quality or attributable to
workmanship not carried out in a good and
workmanlike manner in accordance with good
building practice and all relevant British
Standards and Codes of Practice and any "snagging
items" as listed in any "snagging list" annexed
to a Certificate of Practical Completion relating
to any works carried out by or on behalf of the
landlord or any predecessor in title
"Perpetuity Period" means the period commencing today and expiring
EIGHTY (80) years after today
"Services" means all or any facilities services or matter
passing through any conduit
"Interest" means interest at the rate of 4% above National
Westminster Bank plc base rate from time to time
and payable upon any rents payable under this
Lease and which are more than 14 days in arrears
such interest to accrue from the date upon which
the relevant sum is due until the date of actual
payment
"The Machinery" all present and future machinery boilers air
conditioning plant extractor fans and units
radiators hoists lifts pumps and other apparatus
of a like nature on the Premises
1.2 where the context requires:
1.2.1 words importing the singular include the plural
and vice versa
1.2.2 words importing the masculine include the
feminine and neuter
1.2.3 where a party consists of more than one person
covenants and obligations of that party shall
take effect as joint and several covenants and
obligations
3
<PAGE> 5
1.3 references to any Act include references to any statutory modification
or re-enactment thereof for the time being in force and any order
instrument regulation or by-law made or issued thereunder
1.4 the side notes shall not in any way affect the construction of this
Lease
DEMISE
2 THE LANDLORD hereby demises the Premises to the Tenant
TOGETHER WITH the rights granted in Part I of the Second Schedule RESERVING to
the Landlord and the Company the rights set out in Part II of the Second
Schedule and SUBJECT TO all rights and easements (if any) enjoyed by any
adjoining or neighbouring property over or in respect of the Premises TO
HOLD for the term of twelve years from the _____ day of _______________ 1998
Paying during the term
RENTS The yearly rent of THIRTY-TWO THOUSAND POUNDS
((pound) 32,000.00) or such sum as shall be determined
pursuant to the rent review provisions contained in the
Fifth Schedule such rent to be paid without any deduction
(except as required by any Act) by four equal quarterly
payments in advance on the 1st March, 1st June, 1st
September and 1st December in each year the first payment
or the appropriate proportion thereof to be paid upon the
date hereof and Secondly a yearly rent equal to the
reasonable and proper sum or sums properly paid by the
Landlord in performance of the Landlord's covenant for
insurance in Clause 5.2 such yearly rent to be paid on
demand and Thirdly on demand from time to time by the
Company or its duly appointed agent the Percentage
Proportion of the Estate Expenses and in the event that any
such sum thirdly payable hereunder remains unpaid fourteen
(14) days after becoming due and payable the Tenant will
pay Interest thereon
TENANT'S COVENANTS
3 THE TENANT covenants with the Landlord
RENT
3.1 To pay the Rents together with any Value Added Tax thereon
(but only following delivery of a valid Value Added Tax
invoice addressed to the Tenant) at the times and in manner
aforesaid without any deduction (except as aforesaid) and
if so required by bankers standing order
4
<PAGE> 6
3.2 3.2.1 To defray (or in the absence of direct
assessment on the Premises to pay to the
Landlord a fair proportion of) all existing
and future community charges rates taxes
assessments charges and outgoings payable in
respect of the Premises or any part thereof
by any estate owner landlord tenant or
occupier thereof (save only for any such
occasioned by any disposition of or dealing
with or the ownership of any estate or
interest expectant in reversion on the
termination of the Term)
OUTGOINGS 3.2.2 If before the termination of the Term the
Tenant or any undertenant or occupier of the
Premises or any part thereof shall cease to
occupy the same or to use the same for the
purpose for which the same were constructed
or have been adapted and if after the
termination of the Term the Landlord shall
pursuant to section 17 or 17A of the General
Rates Act 1967 pay any rates or surcharge
additional to rates to pay to the Landlord a
sum equal to the amount of such payments
attributable to such cessation of occupation
or use and in addition to any such payments
that the Landlord would have had to make if
such cessation had not taken place
CHARGES FOR SERVICES
3.3 3.3.1 To pay the suppliers thereof all charges for
gas water electricity and other services
(including meter rents) consumed in the
Premises during the Term
3.3.2 To comply with the requirements and
regulations of the supply authority with
regard to the electrical wiring
installations and equipment and (if any) the
gas pipes installations and equipment in the
Premises PROVIDED THAT the Tenant will
within 28 days of the Landlord's request
supply such details of any alterations or
additions carried out by or on behalf of the
Tenant as the Landlord may reasonably
require and PROVIDED FURTHER that the Tenant
will at the request of the Landlord upon the
termination of the term remove any such
alterations or additions and reinstate the
installations and make good any damage
caused to the reasonable satisfaction of the
Landlord
5
<PAGE> 7
REPAIR
3.4 3.4.1 At all times during the said term to keep
the Premises and every part thereof and all
additions thereto and the Landlord's
fixtures and fittings thereon (including all
windows window frames doors door frames
plate glass and fibreglass and the pipes and
sanitary and water apparatus thereof) in
good and substantial repair and condition
(damage by an Insured Risk or resulting from
an Inherent Defect excepted)
3.4.2 Without prejudice to the generality of the
preceding paragraph 3.4.1 of this sub-clause
at all times to keep the Machinery in or
about the Premises in proper repair and in
good working order and condition keeping the
same free from rust and clean and oiled and
from time to time to replace renew and
reinstate any parts of the machinery which
may become broken lost worn out or unfit for
use
PERMISSION FOR REINSTATEMENT
3.5 If the Premises shall be destroyed or damaged by any of the
Insured Risks if so required to join with the Landlord but
at the Landlord's cost in making application for any
planning or other permission necessary for rebuilding or
reinstating the Premises
MAINTENANCE OF MACHINERY
3.6 To enter into agreements with the manufacturers or with the
approved maintenance contractors for the regular inspection
and servicing of the machinery serving any lifts or lift
shafts or heating or air-conditioning system in the
Premises
EXTERNAL PAINTING
3.7 In the third year of the Term and in the last year of the
Term (provided that the Tenant shall be under no obligation
to carry out such works twice in any period of twelve
months) in a proper and workmanlike manner to clean all the
outside surfaces of the Premises and thereafter prepare and
paint all outside surfaces usually painted with three coats
of good quality paint of an approved colour
INTERNAL PAINTING
3.8 3.8.1 In every fifth year of the Term and the last
three months of the last year of the Term in
a proper and workmanlike manner to
6
<PAGE> 8
prepare and paint all inside surfaces of the
Premises usually painted with two coats of
good quality paint and to strip and repaper
all inside surfaces usually papered and to
restore all other inside surfaces to their
proper condition and appearance
3.8.2 In complying with this covenant in the last
three months of the last year of the Term to
use only material of an approved colour
quality and finish
LANDLORD'S RIGHT OF INSPECTION
3.9 To permit the Landlord and any authorised person at all
reasonable and mutually convenient times upon previous
notice to enter and inspect the Premises
COMPLIANCE WITH NOTICES TO REMEDY
3.10 3.10.1 To comply with any notice given by the
Landlord requiring the Tenant to remedy any
breach of the Tenant's covenants found upon
any such inspection
3.10.2 If the Tenant shall not within a reasonable
time (in the context of the relevant breach)
comply with any such notice to permit the
Landlord and any authorised person to enter
the Premises to remedy any such breach
3.10.3 To pay to the Landlord on demand all the
reasonable costs and expenses properly
incurred by the Landlord under the
provisions of sub-clause 3.10.2.
WINDOW CLEANING
3.11 To clean the windows in the Premises as often as shall be
reasonably necessary
YIELD UP
3.12 At the termination of the Term
3.12.1 to yield up the Premises (tenant's or trade
fixtures only excepted) fully in accordance
with the foregoing Tenant's covenants as to
repair
3.12.2 to make good any damage caused to the
Premises by the removal of the Tenant's
fixtures fittings furniture and effects and
by the reinstatement of the Premises
pursuant to any covenant with the landlord
7
<PAGE> 9
REIMBURSEMENT OF EXPENDITURE
3.13 To reimburse to the Landlord all reasonable expenditure
properly incurred by the Landlord forthwith after the
termination of the Term in repairing painting and
decorating the Premises so as to put them into the
condition required by the foregoing Tenant's covenants
MAINTENANCE OF PARTY WALLS
3.14 To pay a fair proportion (to be determined by the
Landlord's Surveyor acting reasonably) of the reasonable
expenses properly incurred in respect of any repairing and
cleansing of any party walls fences sewers drains channels
sanitary apparatus pipes wires passageways stairways
entrance ways roads pavements and other things the use of
which is common to the Premises and to other property
ALTERATIONS AND WASTE
3.15 Not without the consent of the Landlord to erect or permit
or suffer to be erected any other building structure pipe
wire mast or post upon the Premises nor to make or permit
or suffer to be made any alteration therein or addition
thereto (PROVIDED THAT this provision shall not apply to
internal demountable partitioning which the Tenant may
install or remove without the need for any consent) nor
alter the external appearance of the Premises nor to commit
or permit or suffer any waste spoil or destruction in or
upon the Premises nor (save for the purpose of affixing
fixtures and fittings partitioning or similar items) to cut
injure or remove or suffer to be cut injured or removed any
of the roofs structural walls (whether outside or inside)
floors joists timbers wires pipes drains appurtenances or
fixtures thereof
SIGNAGE
3.16 Not to affix or display or permit or suffer to be affixed
or displayed upon any part of the exterior of the Premises
or to or through any window thereof any placard poster
notice advertisement name or sign whatsoever except ones
that shall previously have received the Consent of the
Landlord
NOTICES RECEIVED
3.17 Within seven days of the receipt by the Tenant of any
notice order requisition direction or plan given made or
issued to or by a competent authority affecting the
Premises or the occupation or user thereof to supply a copy
thereof to the Landlord and to make or join in making such
8
<PAGE> 10
objections or representations against or in respect thereof
as the Landlord may reasonably require but at the
Landlord's cost
REQUIREMENTS OF ANY ACT OR COMPETENT AUTHORITY
3.18 To comply in every respect with the provisions of any Act
or the requirements of any competent authority in respect
of the Premises or any part thereof or in respect of the
occupation or user thereof and to indemnify the Landlord
against all claims demands expenses and liability in
respect of any breach thereof by the Tenant and to pay all
reasonable costs charges and expenses properly incurred by
the Landlord as a result of any such breach by the Tenant
PLANNING ACTS
3.19 Without prejudice to the generality of the last preceding
sub-clause not without the Consent of the Landlord in
relation to the Planning Acts
3.19.1 to make any application for planning
permission in respect of the Premises or any
part thereof whether in respect of the
carrying out of any operations works act or
things or the user of the Premises or any
part thereof
3.19.2 to carry out any operations works acts or
things in the Premises or any part thereof
or make any change of use of the same for
which planning permission needs to be
obtained
USE
3.20 To use and occupy the Premises only for general industrial
purposes within B1 and B2 of the Town and Country Planning
(Use Classes) Order 1987 with any proper ancillary use (and
the reference to that Order is to be construed so as to
include any modification or re-enactment of that Order)
PROHIBITED MATERIAL
3.21 3.21.1 Save for any such materials or liquid needed
by the Tenant in its business (provided
prior approval of the Landlord's insurers
where necessary has been obtained and that
any such liquids or materials are handled
and stored in a safe and proper manner and
excessive quantities are not kept on the
Premises) not to store or bring upon the
Premises any materials or liquid of a
specially combustible inflammable dangerous
or offensive nature
9
<PAGE> 11
3.21.2 Not to do any act or thing whereby any
insurance effected on the Premises or any
adjoining property may be rendered void or
voidable or the rate of premium thereon may
be increased and to comply with all
requirements of the insurers as to fire
precautions relating to the Premises
3.21.3 Not to use the Premises or any part thereof
for any illegal or immoral purpose
3.21.4 Not to bring into or upon the Premises or do
anything which might throw on the Premises
any load or weight in excess of that which
the Premises are designed or constructed to
bear with due margin for safety nor to cause
any undue vibration to the Premises by
machinery or otherwise
3.21.5 Not to hold in the Premises any sale by
auction public exhibition or political
meeting
PROVIDED THAT it shall only be a breach by the Tenant of
the sub-paragraphs of this sub-clause 3.21 for the Tenant
itself to commit or for the Tenant to permit or suffer by
those under the control of the Tenant to commit any act
expressly prohibited in this sub-clause
ALIENATION
3.22 3.22.1 Alienation prohibited
Not to hold the Premises on trust for
another and not to part with the possession
of the Premises or any part of them or
permit another to occupy them or any part of
them except pursuant to a transaction
permitted by and effected in accordance with
the provisions of this Lease
3.22.2 Assignment, subletting and charging of part
Not to assign, sublet or charge part only of
the Premises
3.22.3 Assignment of the whole
Subject to clauses 3.22.4 Circumstances and
3.22.5 Conditions, not to assign the whole
of the Premises without the consent of the
Landlord (which shall not be unreasonably
withheld or delayed)
3.22.4 Circumstances
If any of the following circumstances -
which are specified for the purposes of the
Landlord and Tenant Act 1927 section
10
<PAGE> 12
19(1A) - applies either at the date when
application for consent to assign is made to
the Landlord, or after that date but before
the Landlord's consent is given, the
Landlord may withhold his consent and if,
after the Landlord's consent has been given
but before the assignment has taken place,
any such circumstances apply, the Landlord
may revoke his consent, whether his consent
is expressly subject to a condition as
referred to in subclause 3.22.5.4 of clause
3.22.5 Conditions or not. The circumstances
are:-
3.22.4.1 that any sum lawfully
due from the Tenant
under this Lease remains
unpaid in circumstances
where the Landlord has
given express notice of
the same to the Tenant
3.22.4.2 that in the Landlord's
reasonable opinion the
assignee is not a person
who is likely to be able
to comply with the
tenant's covenants in
this Lease and to
continue to be able to
comply with them
following the
assignment,
3.22.4.3 that the assignee or any
guarantor for the
assignee (other than any
guarantor under an
authorised guarantee
agreement,) is a
corporation registered
or otherwise resident in
a jurisdiction in which
the order of a court
obtained in England and
Wales will not
necessarily be enforced
against the assignee or
guarantor without any
consideration of the
merits of the case.
3.22.5 Conditions
The Landlord may impose any or all of the
following conditions ( which are specified
for the purposes of the Landlord and Tenant
Act 1927 section 19(1A) ) on giving any
consent for an assignment by the Tenant, and
any such consent is to be treated as being
subject to each of the following:-
3.22.5.1 a condition that upon or
before any assignment
and before giving
occupation to
11
<PAGE> 13
the assignee, the
Tenant requesting
consent to assign must
enter into an
authorised guarantee
agreement in favour of
the Landlord
substantially in the
terms set out in the
Fourth Schedule (The
Authorised Guarantee
Agreement)
3.22.5.2 a condition that if
reasonably so required
by the Landlord on an
assignment to a limited
company, the assignee
must ensure that some
other guarantor or
guarantors acceptable to
the Landlord, enter into
direct covenants with
the Landlord that the
assignee will throughout
the residue of the term
of this Lease observe
and perform the
covenants on the part of
the Tenant contained in
this Lease
3.22.5.3 a condition that upon or
before any assignment,
the Tenant making the
request for consent to
assign must give to the
Landlord a copy of the
health and safety file
required to be
maintained under the
Construction (Design and
Management) Regulations
1994 containing full
details of all works
undertaken to the
Premises by that Tenant,
and
3.22.5.4 a condition that if, at
any time before
completion of the
assignment, the
circumstances specified
in clause 3.22.4
Circumstances, or any of
them apply, the Landlord
may revoke the consent
by written notice to the
Tenant
3.22.6 Subletting
Not to sublet the whole of the Premises
without the consent of the Landlord (which
shall not be unreasonably withheld or
delayed)
12
<PAGE> 14
3.22.7 Terms of a permitted sublease
Every permitted sublease must be granted,
without a fine or premium at a rent not less
than whichever is the greater of the then
open market rent payable in respect of the
Premises or the rent payable under this
Lease and the rent payable under the
sublease payable in advance on the days on
which the Rent is payable under this Lease.
Every permitted sublease must contain
provisions:-
3.22.7.1 prohibiting the
subtenant from doing
or allowing anything in
relation to the
Premises inconsistent
with or in breach of
the provisions of this
Lease,
3.22.7.2 for re-entry by the
sub-landlord on breach
of any covenants by the
subtenant,
3.22.7.3 imposing an absolute
prohibition against any
further subletting of
the whole or any part of
the Premises,
3.22.7.4 prohibiting assignment
of the whole of the
Premises without the
consent of the Landlord
under this Lease (which
consent shall not be
unreasonably withheld or
delayed)
3.22.7.5 requiring the assignee
on any assignment of the
sublease to enter into
direct covenants with
the Landlord to the same
effect as those
contained in clause
3.22.8 Sub-Tenant's
Direct Covenants,
3.22.7.6 prohibiting the
sub-tenant from holding
on trust for another or
permitting another to
share or occupy the
whole or any part of the
Premises save with a
group company of the
sub-tenant on the same
basis as in clause
3.22.11 of this Lease
3.22.7.7 imposing in relation to
any permitted assignment
or charge the same
obligations for
registration with the
Landlord as are
13
<PAGE> 15
contained in this Lease
in relation to
dispositions by the
Tenant
3.22.8 Subtenant's direct covenants
Before any permitted subletting, to ensure
that the subtenant enters into a direct
covenant with the Landlord that while he is
bound by the tenant's covenants in the
sublease the subtenant will observe and
perform the tenant's covenants contained in
this Lease (except the covenant to pay the
rent reserved by this Lease ) and in that
sublease.
3.22.9 Sublease rent review
3.22.9.1 the Tenant must ensure
that the rent is
reviewed in accordance
with the terms of the
sublease,
3.22.9.2 the Tenant must not
agree the reviewed rent
with the subtenant
without the approval of
the Landlord
3.22.9.3 where the sublease
provides such an option
the Tenant must not
without the approval of
the Landlord agree
whether the third party
determining the revised
rent in default of
agreement should act as
an arbitrator or as an
expert
3.22.9.4 the Tenant must not,
without the approval of
the Landlord agree any
appointment of a person
to act as a third party
determining the revised
rent
3.22.9.5 the Tenant must
incorporate as part of
his representations to
that third party
representations required
by the Landlord, and
3.22.9.6 the Tenant must give
notice to the Landlord
of the details of the
determination of every
rent review within seven
days
3.22.10 Registration of permitted dealings
Within 28 days of any assignment, charge or
sublease or any transmission or other
devolution relating to the Premises, to
14
<PAGE> 16
produce a certified copy of any relevant
document for registration with the
Landlord's Solicitor, and to pay the
Landlord's Solicitor's reasonable charges
for registration of at least 25.00(pound).
3.22.11 Sharing with a group company
Notwithstanding clause 3.22.1 Alienation
Prohibited the Tenant may share occupation
of the whole or any part of the Premises
with a company that is a member of the same
group as the Tenant within the meaning of
the Landlord and Tenant Act 1954 section 42,
for so long as both companies remain members
of that group and otherwise than in a manner
that transfers or creates a legal estate
NOTICE OF DAMAGE
3.23 In the event of the Premises being destroyed or damaged to
give notice thereof immediately upon becoming aware of the
same to the Landlord stating (if possible) the cause of
such destruction or damage
SALE OR RE-LETTING NOTICES
3.24 To permit the Landlord during the Term to affix and retain
without interference upon any suitable and conspicuous part
of the Premises (but not so as materially to affect the
access of light and air to the Premises) a notice for
reletting the same (if the termination of the Term is a
prospective possibility) or selling the Landlord's interest
in the Premises and to permit persons with written
authority of the Landlord or the Landlord's agent at
reasonable and mutually convenient times of the day to view
the Premises accompanied by the Landlord or its agent
COSTS
3.25 To pay to the Landlord on demand all reasonable and proper
costs charges and expenses (including reasonable and proper
legal and surveyors' fees and costs and value added tax
thereon) of and incidental to:-
3.25.1 every application made by the Tenant for the
consent of the Landlord where the same be
granted or lawfully refused or proffered
subject to any lawful qualification or
condition or where the application be
withdrawn
15
<PAGE> 17
3.25.2 the preparation and service of a notice
under Section 146 of the Law of Property Act
1925 notwithstanding that forfeiture is
avoided otherwise than by relief granted by
the Court
3.25.3 any schedule relating to wants of repair to
the Premises whether served during or within
three months after the termination of the
Term
3.25.4 the preparation and completion of this Lease
and Stamp Duty payable on the Counterpart
INTEREST
3.26 To pay to the Landlord Interest on any sum due pursuant to
the provisions of this Lease and the aggregate amount for
the time being so payable shall at the option of the
Landlord be recoverable by action or as rent in arrear
VALUE ADDED TAX
3.27 Whenever any sum is payable by the Tenant on which Value
Added Tax or any other tax is properly payable on
presentation of a proper VAT invoice to pay to the Landlord
in addition to such sum the amount of the Value Added Tax
or other tax thereon at the rate applicable to that payment
OBSTRUCTIONS AND EASEMENTS
3.28 Not permanently to obstruct or permit or suffer to be
obstructed any of the windows lights or ventilators
belonging to the Premises nor to permit or suffer any new
window light ventilator passage drainage or other
encroachment or easement to be made into against or over
the Premises or any part thereof AND in case any
encroachment or easement whatsoever shall be attempted to
be made or acquired by any person whomsoever to give notice
thereof to the Landlord immediately the same shall come to
the knowledge of the Tenant and at the cost of the Tenant
do all such things as may be proper for preventing any new
encroachment or easement being made or acquired
LANDLORDS TITLE
3.29 Not to breach the covenants and provisions affecting the
title of the Landlord specified in the Third Schedule
COVENANTS BY THE LANDLORD
4 THE LANDLORD covenants with the Tenant:
16
<PAGE> 18
QUIET ENJOYMENT
4.1 That the Tenant paying the Rents and performing and
observing the covenants and stipulations on the part of the
Tenant herein shall peaceably hold and enjoy the Premises
during the Term without any interruption by the Landlord or
any person rightfully claiming under or in trust for the
Landlord
INSURANCE
4.2 4.2.1 Office, underwriters and agency
To effect and maintain insurance in respect
of the Premises and the Estate in such
substantial and reputable insurance office,
or with such underwriters and through such
agency of similar substance and repute as
the Landlord from time to time reasonably
decides
4.2.2 To effect and maintain such insurance for
the following amounts:
4.2.2.1 the sum that the
Landlord is from time to
time properly advised
by the Surveyor is the
full cost of rebuilding
and reinstating the
Premises, including VAT,
architects', surveyors',
engineers', solicitors'
and all other
professional persons'
fees, the fees payable
on any applications for
planning permission or
other permits or
consents that may be
required in relation to
rebuilding or
reinstating the
Premises, the cost of
preparation of the site
including shoring-up,
debris removal,
demolition, site
clearance and any works
that may be required by
statute, and incidental
expenses, and
4.2.2.2 loss of the Rent for
three years.
4.2.3 Risks insured
To effect and maintain such insurance
against damage or destruction by any of the
Insured Risks to the extent that such
insurance may ordinarily be arranged with a
substantial and reputable insurer for
properties such as the Premises subject to
17
<PAGE> 19
such proper excesses exclusions or
limitations as the insurer reasonably and
properly requires
4.2.4. In the event of damage or destruction by any
of the Insured Risks to rebuild or reinstate
the Premises forthwith and to obtain all
necessary consents in relation thereto
4.2.5 To procure that there be given a copy of any
relevant policy of insurance to the Tenant
on all reasonable occasions that he the
Tenant shall so request together with
evidence of the current Premium and that it
has been paid
4.2.6 To procure that the insurers under the
relevant policy or policies of insurance
waive their rights of subrogation against
the Tenant and any lawful occupier of the
Premises and further to procure that the
relevant policy or policies contain a
non-invalidation clause in respect of any
acts or defaults of the Tenant or other
lawful occupier of the Premises
INHERENT DEFECTS
4.3 To carry out any repairs maintenance reinstatement
replacement rebuilding or other works to the Premises
arising from any Inherent Defects
PROVISOS
5 IF:-
5.1 the Rents or any part thereof shall be in
arrear for 21 days after becoming payable
(whether formally demanded or not) or
5.2 there shall be any breach non-performance or
non-observance of any of the Tenant's
covenants or
5.3 the Tenant (being an individual) shall
become bankrupt or (being a company) shall
enter into liquidation whether compulsory or
voluntary (save for the purpose of
amalgamation or reconstruction of a solvent
company) or
5.4 the Tenant shall enter into any arrangement
or composition for the benefit of the
Tenant's creditors
it shall be lawful for the Landlord at any time thereafter
to re-enter the Premises or any part thereof in the name of
the whole and thereupon the Term shall absolutely determine
but without prejudice to any rights of
18
<PAGE> 20
action of the Landlord or the Tenant in respect of any
antecedent breach by the other of any of the covenants or
conditions herein
SUSPENSION OF RENT
6 IF the Premises or the means of access thereto from the
public highway shall at any time during the Term be so damaged or destroyed by
any of the Insured Risks so as to render the Premises unfit for occupation and
use or incapable of being occupied by virtue of inaccessibility then (unless the
insurance money shall be wholly or partly irrecoverable by reason solely or in
part of any act or default of the Tenant) the Rents or a fair proportion thereof
according to the nature and extent of the damage sustained shall be suspended
until the date when the Premises shall again be rendered fit for occupation and
use or until the date three years from the date of such damage or destruction
whichever date shall be the earlier and any dispute with reference to this
proviso shall be referred to arbitration in accordance with the Arbitration Act
1950
TERMINATION AND RECONSTRUCTION
7 IF within three years of the Premises or the means of
access thereto from the public highway being destroyed or so damaged by any of
the Insured Risks so as to render the Premises unfit for occupation and use or
incapable of being occupied by virtue of inaccessibility and the Premises or any
material part of them still being unfit for use or occupation or inaccessible
7.1 either party may by not less than three
months' notice expiring at any time
determine the Term and upon the expiry of
such notice the Term shall determine without
prejudice to any remedy of either party
against the other in respect of any
antecedent breach of covenant or condition
herein
7.2 if the Term is determined under sub-clause
7.1 the insurance monies (other than monies
received for loss of rent) received by the
Landlord shall be apportioned between the
Landlord and the Tenant in proportion to the
values of their respective interests in the
Premises
19
<PAGE> 21
NO WARRANTY AS TO USE
8 Nothing herein shall be deemed to constitute any warranty
by the Landlord that the Premises or any part thereof are under the Planning
Acts authorised for use for any specific purpose
SERVICE OF NOTICES
9 Section 196 of the Law of Property Act 1925 as amended by
the Recorded Delivery Services Act 1962 shall apply to the service of any notice
required to be served under this Lease
LIABILITY LIMITED
10 The liability of Michael John Daniels and Robert Denis
Bowerman in relation to the covenants contained in this Lease shall be limited
to the assets of the Reynard Racing Cars Limited Directors' Pension Scheme
STAMP DUTY CERTIFICATE
11 It is hereby certified that for the purposes of Section
240(2)(a) Finance Act 1994 there is no agreement to which this Lease gives
effect
IN WITNESS whereof the parties hereto have executed this
instrument as a Deed and have delivered it upon dating it.
FIRST SCHEDULE
The Premises
------------
Unit B6 Telford Road Bicester Oxfordshire
SECOND SCHEDULE
Part I
------
Rights granted
--------------
1 The right to free passage of Services through any conduits
now serving the Premises
2 The right of support and protection from any building
adjoining the Premises from time to time
3 The right to exhibit the name of the Tenant on the
signboard and in the style on the signboard to be approved
by the Landlord (such approval not to be unreasonably
withheld or delayed)
20
<PAGE> 22
Part II
-------
Rights reserved
---------------
The reservations contained in the Property Register and Charges Register of the
freehold title number ON154785
THIRD SCHEDULE
Covenants and provisions affecting the Landlord's title
-------------------------------------------------------
The matters referred to in the Charges Register of the freehold title number
ON154785
FOURTH SCHEDULE
THE AUTHORISED GUARANTEE AGREEMENT
THIS GUARANTEE is made the ......... day of................... 19 BETWEEN
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire and MICHAEL JOHN DANIELS of Kingswood House 29
North Street Bicester aforesaid and ROBERT DENIS BOWERMAN
of Park House Over Worton Chipping Norton Oxfordshire ("the
Landlord") and
(2) __________________________ the registered office of which
is
("the Tenant")
NOW THIS DEED WITNESSES as follows:
1 DEFINITIONS AND INTERPRETATION
For all purposes of this guarantee the terms defined in this clause have the
meanings specified.
1.1 "THE ASSIGNEE"
"The Assignee" means .....
1.2 "THE LEASE"
"The Lease" means the lease dated............ 19 and made
between (1) Adrian John Reynard and Michael John Daniels
and Robert Denis Bowerman ("the Landlord") and (2) Reynard
Motorsport Limited ("the Tenant") for a term of twelve
years commencing on and including
1.3 "THE PREMISES"
"THE PREMISES" means the premises demised by the Lease.
21
<PAGE> 23
1.4 "THE LIABILITY PERIOD"
"The Liability Period" means the period during which the
Assignee is bound by the tenant covenants of the Lease
which shall not exceed the unexpired residue of the
contractual term of the Lease
1.5 TERMS FROM THE LANDLORD AND TENANT (COVENANTS) ACT 1995
The expressions "authorised guarantee agreement" and
"tenant covenants" have the same meaning in this guarantee
as in the Landlord and Tenant (Covenants) Act 1995 section
28(1).
1.6 REFERENCES TO CLAUSES
Any references in this deed to a clause without further
designation is to be construed as a reference to the clause
of this deed so numbered
2 RECITALS
2.1 CONSENT REQUIRED
The Landlord's consent to an assignment of the Lease is
required.
2.2 AGREEMENT TO CONSENT
The Landlord has agreed to give consent to the assignment
to the Assignee on condition that the Tenant enters into
this guarantee.
2.3 EFFECTIVE TIME
This guarantee takes effect only when the Lease is assigned
to the Assignee
3 TENANT'S COVENANTS
In consideration of the Landlord's consent to the assignment the Tenant
covenants with the Landlord and without the need for any express assignment with
all his successors in title as set out in this clause 3.
3.1 PAYMENT AND PERFORMANCE
The Assignee shall punctually pay the rents reserved by the
Lease and observe and perform the covenants and other terms
of it throughout the Liability Period, and if at any time
during the Liability Period the Assignee defaults in paying
the rents or in observing or performing any of the
covenants or other terms of the Lease, the Tenant shall pay
the rents and observe and perform the covenants or terms in
respect of which the Assignee is in default and make good
to the Landlord on demand and indemnify the Landlord
against all losses damages costs and expenses resulting
from such non-payment, non-performance or non-observance
notwithstanding:-
22
<PAGE> 24
3.1.1 any time or indulgence granted by
the Landlord to the Assignee or
any neglect or forbearance of the
Landlord in enforcing the payment
of the rents or the observance or
performance of the covenants or
other terms of the Lease, or any
refusal by the Landlord to accept
rents tendered by or on behalf of
the Assignee at a time when the
Landlord is entitled, or will
after the service of a notice
under the Law of Property Act
1925 section 146 be entitled, to
re-enter the Premises
3.1.2 that the Assignee has surrendered
part of the Premises in which
event the liability of the Tenant
under the Lease is to continue in
respect of the part of the
Premises not surrendered after
making any necessary
apportionments under the Law of
Property Act 1925 section 140,
and
3.1.3 anything else by which, but for
this clause 3.1, the Tenant would
have been released.
3.2 NEW LEASE FOLLOWING DISCLAIMER
If, during the Liability Period any trustee in bankruptcy
or liquidator of the Assignee disclaims the Lease, the
Tenant shall , if required by notice served by the Landlord
within sixty days of the Landlord becoming aware of the
disclaimer take from the Landlord forthwith a lease of the
Premises for the residue of the contractual term of the
Lease as at the date of the disclaimer, at the rent then
being paid under the Lease and subject to the same
covenants and terms as in the Lease (except that the Tenant
need not ensure that any other person is made a party to
that lease as guarantor) the new lease to commence on the
date of the disclaimer and the Tenant shall pay the
reasonable and proper costs of the new lease and execute
and deliver to the Landlord a counterpart of it.
23
<PAGE> 25
4 SEVERANCE
4.1 SEVERANCE OF VOID PROVISIONS
Any provision of this deed rendered void by virtue of the
Landlord and Tenant (Covenants) Act 1995 section 25 is to
be severed from all remaining provisions and the remaining
provisions are to be preserved.
4.2 LIMITATIONS OF PROVISIONS
If any provision of this deed extends beyond the limits
permitted by the Landlord and Tenant (Covenants) Act
1995 section 25, that provision is to be varied so as not
to extend beyond those limits.
FIFTH SCHEDULE
RENT REVIEWS
1 THE REVIEW DATES
The yearly rent payable under this Lease is to be reviewed on the expiry of the
fifth year and tenth year of the Term (referred to in this Schedule as "the
review date(s)" (and "the relevant review date" is to be construed accordingly)
and with effect on and from each review date the reviewed rent (as agreed or
determined in accordance with this Schedule) is to become payable as the yearly
rent reserved by this Lease.
2 UPWARD ONLY RENT REVIEWS
The reviewed rent is to be the greater of:
2.1 the yearly rent reserved under this Lease immediately
preceding the relevant review date; and
2.2 the market rent of the Premises at the relevant review date
3 THE MARKET RENT
For the purposes of this Lease, the expression "market rent" means the best
yearly rent at which the Premises might reasonably be expected to be let in the
open market by a willing landlord to a willing tenant:
3.1 with vacant possession
3.2 for a term for the unexpired residue of the Term from the
relevant review date having rent reviews in the same terms as
this Lease
3.3 without the payment of a premium by the willing tenant
24
<PAGE> 26
3.4 subject to the provisions of this Lease, other than the length
of the term and the amount of rent, but including these
provisions for rent review; but on the assumption, if not the
fact, that at the relevant review date:
3.5 the Premises have been fitted out ready for occupation and
immediate use for the willing tenant's business so that the
willing tenant would not require a rent or other allowance at
the (relevant) review date for that purpose (but this
assumption does not affect the operation of paragraph 4.3);
3.6 in case the Premises have been destroyed or damaged or unfit
for use and occupation they have been fully reinstated or
rendered fit for use and occupation;
3.7 the Premises are in a state of full repair and the covenants
of the Tenant and the Landlord and have been fully observed
and performed;
3.8 there is not in operation any statute order or instrument
regulation or direction which has the effect of regulating or
restricting the amount of rent of the Premises which might
otherwise be payable;
3.9 the Premises may be lawfully used throughout the Term for the
permitted use
3.10 the Tenant and anyone who may become the Tenant is a taxable
person who makes only taxable supplies and no exempt supplies
(words and expressions used in this paragraph 3.10 having the
meanings assigned to them respectively in the Value Added Tax
Act 1994 and the regulations made under that Act) and that
demand for the Premises on the open market would not be
reduced by reason of the Landlord having elected to waive
exemption from value added tax in respect of them.
4 MATTERS TO BE DISREGARDED
In agreeing or determining the market rent the effect upon it of the following
matters are to be disregarded:
4.1 the occupation of the Premises by the Tenant
4.2 any goodwill attached to the Premises by reason of the
carrying on at the Premises of the business of the Tenant;
4.3 any improvements to the Premises made by the Tenant with the
consent of the Landlord other than those:
4.3.1 made in pursuance of an obligation to the Landlord;
or
25
<PAGE> 27
4.3.2 for which the Landlord has made a financial
contribution; or
4.3.3 any works carried out by the tenant which has
diminished the market rent
and in this paragraph 4 reference to "the Tenant" include
predecessors in title to the Tenant, and sub-tenants of the
Tenant or of the predecessors in title of the Tenant
5 PROCEDURE FOR DETERMINATION OF MARKET RENT
5.1 The Landlord and the Tenant are to endeavour to agree the
market rent at any time not being earlier than twelve months
before the relevant review date, but if they have not agreed
the market rent three months before the relevant review date
the amount of the market rent is to be determined by reference
to the arbitration of an arbitrator
5.2 The arbitrator is to be nominated by the Landlord and the
Tenant jointly, but, if they cannot or do not do so, then he
is to be nominated by the resident for the time being of the
Royal Institution of Chartered Surveyors on the application
either of the Landlord or of the Tenant
5.3 The reference to and award of the arbitrator is to be governed
by the Arbitration Act 1996
5.4 The arbitrator nominated must be a chartered surveyor having
not less than ten years' experience of leasehold valuation of
property being put to the same or similar use as the Premises
and of property in the same region in which the Premises are
situated
5.5 If the arbitrator refuses to act, becomes incapable of acting
or dies, the Landlord or the Tenant may require the
appointment of another arbitrator as provided in paragraph 5.1
6 TIME LIMITS
Time is not of the essence in agreeing or determining the reviewed rent or of
appointing an arbitrator
7 RENTAL ADJUSTMENTS
7.1 If the market rent has not been agreed or determined in
accordance with the provisions of this Schedule before the
relevant review date, then, until the market rent has been
so agreed or determined, the Tenant will continue to
26
<PAGE> 28
pay on account rent at the rate of yearly rent payable
immediately before the relevant review date.
7.2 The Tenant will pay to the Landlord within seven days after
the time that the market rent has been agreed or determined
all arrears of the reviewed rent which have accrued in the
meantime, with Interest on each of the instalments of the
arrears from the time that it would have become due if the
market rent had then been agreed or determined until
payment becomes due from the Tenant to the Landlord under
this paragraph 7.2
8 REVIEWED RENT RESERVED IN PHASES
The Landlord and the Tenant may, at any time before the market rent is
determined by an arbitrator settle the reviewed rent in more than one amount and
agree to reserve the amounts increasing in phases until the next review date or,
if none, the expiry of the Term.
9 MEMORANDUM OF RENT REVIEW
The parties will cause a memorandum of the reviewed rent duly signed by the
Landlord and the Tenant to be endorsed on or securely annexed to this Lease and
the Counterpart of this Lease.
SIGNED as a deed by )
REYNARD MOTORSPORT LIMITED )
- -------------------------- )
acting by )
and by )
Director
Secretary/Director
27
<PAGE> 29
SIGNED as a deed by )
ADRIAN JOHN REYNARD ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- ------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SIGNED as a deed by )
MICHAEL JOHN DANIELS ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- -------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SIGNED as a deed by )
ROBERT DENIS BOWERMAN ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- --------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
28
<PAGE> 1
Exhibit 10.12
DATED___________________________________________ 1998
A J REYNARD ESQ, M J DANIELS ESQ
AND R D BOWERMAN ESQ
(TRUSTEES OF THE REYNARD RACING CARS LTD
DIRECTORS' PENSION SCHEME)
- and -
REYNARD MOTORSPORT LIMITED
- and -
R.T.C. MANAGEMENT COMPANY LIMITED
COUNTERPART/
L E A S E
re
Unit 4
Reynard Park
Brackley
Northamptonshire
ROBERT D BOWERMAN
Solicitor
Old Rectory Offices
Park House
Over Worton
Chipping Norton
Oxfordshire OX7 7ER
<PAGE> 2
THIS LEASE is made the day of
One Thousand Nine Hundred and Ninety-eight
BETWEEN
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire and MICHAEL JOHN DANIELS of Kingswood House 29 North
Street Bicester aforesaid and ROBERT DENIS BOWERMAN of Park House Over
Worton Chipping Norton Oxfordshire (hereinafter called "the Landlord")
and
(2) REYNARD MOTORSPORT LIMITED whose registered office is at Reynard
Centre Telford Road Bicester Oxfordshire (hereinafter called "the
Tenant")
(3) R.T.C. MANAGEMENT COMPANY LIMITED whose registered office is at 1-3
London Road Bicester Oxfordshire having Company Registration Number
3444931 (hereinafter called "the Company")
WITNESSES as follows:
INTERPRETATION
1 IN THIS LEASE
1.1 the following expressions shall have the following
meanings:
"Landlord" includes where the context admits the estate owner
for the time being of the reversion immediately
expectant on the termination of the Term
"Tenant" includes where the context admits the successors
in title of the Tenant
"Term" means the term hereby granted and includes where
appropriate any extension thereof by agreement or
pursuant to any Act
"Premises" means the property described in the First Schedule
together with all additions and improvements
thereto and all additions and fittings therein or
thereon
"Act" means any Act of Parliament now or hereafter to be
passed
"Parking Area" means the area designated for parking tinted
red on the Plan comprising 46 spaces
1
<PAGE> 3
"Planning Acts" means the Act or Acts for the time being in force
relating to town and country planning
"Rents" means the rents reserved in Clause 2
"Principal Rent" means the rent first reserved in
Clause 2
"Landlord's Surveyor" means the surveyor for the time being of the
Landlord
"Insured Risks" means insurance against loss or damage by fire
storm tempest flood lightning explosion aircraft
articles dropped therefrom riot or civil commotion
malicious damage impact bursting and overflowing
of pipes heave landslip subsidence terrorism and
such other risks as the Landlord shall from time
to time during the Term properly determine
"termination of the Term" means the determination of the Term whether by
effluxion of time re-entry notice surrender
(whether by operation of law or otherwise) or by
any other means whatsoever
"the last year of the Term" means the year of the Term ending on the
termination of the Term
"notice" means notice in writing
"Part with possession" includes an agreement to part with possession
"underlet" includes an agreement to underlet
"underlease" and
"sub-underlease" include an agreement for underlease or
sub-underlease
"Consent of the Landlord" means a consent in writing signed by the Landlord
not to be unreasonably withheld or delayed
"approved" and "authorised" means as the case may be approved or authorised in
writing by the Landlord
"Amenity Area" means those areas of the Estate tinted green on
the Plan and available for use by the Tenant and
which are not exclusively owned
2
<PAGE> 4
by or leased to any person or body (other than
R.T.C. Management Company Limited)) and everything
upon that area and the boundary walls of the
Estate together with all conduits within the
Amenity Area
"Estate" means the land shown for identification purposes
only edged blue on the Plan and the buildings
constructed on that land known together as Reynard
Park
"Estate Expenses" means the costs and expenses referred to in the
Fourth Schedule
"Inherent Defect" any defect in the design of or materials used in
the structure or any part of the Premises or in
the construction of the Premises or any works
carried out to the Premises whether by the
Landlord or any predecessor in title to the
Landlord and whether before or after the date of
this Lease or any unfitness for purpose of any
materials used in any such works or as a result of
such materials not being of merchantable quality
or attributable to workmanship not carried out in
a good and workmanlike manner in accordance with
good building practice and all relevant British
Standards and Codes of Practice and any "snagging
items" as listed in any "snagging list" annexed to
a Certificate of Practical Completion relating to
any works carried out by or on behalf of the
landlord or any predecessor in title
"Percentage Proportion" means 10 per centum
"Perpetuity Period" means the period commencing today and expiring
EIGHTY (80) years after today
3
<PAGE> 5
"Plan" means the annexed plan showing for identification
purposes only the Premises the Parking Area and
the Estate
"Services" means all or any facilities services or matter
passing through any conduit
"Interest" means interest at the rate of 4% above National
Westminster Bank plc base rate from time to time
and payable upon any rents payable under this
Lease and which are more than 14 days in arrears
such interest to accrue from the date upon which
the relevant sum is due until the date of actual
payment
"The Machinery" all present and future machinery boilers air
conditioning plant extractor fans and units
radiators hoists lifts pumps and other apparatus
of a like nature on the Premises
1.2 where the context requires:
1.2.1 words importing the singular include the plural and vice versa
1.2.2 words importing the masculine include the feminine and neuter
1.2.3 where a party consists of more than one person covenants and
obligations of that party shall take effect as joint and
several covenants and obligations
1.3 references to any Act include references to any statutory modification
or re-enactment thereof for the time being in force and any order
instrument regulation or by-law made or issued thereunder
1.4 the side notes shall not in any way affect the construction of this
Lease
DEMISE
2 THE LANDLORD hereby demises the Premises to the Tenant TOGETHER WITH
the rights granted in Part I of the Second Schedule RESERVING to the Landlord
and the Company the rights set out in Part II of the Second Schedule and SUBJECT
TO all rights and easements (if any) enjoyed by any adjoining or neighbouring
property over or in respect of the Premises TO HOLD for the term of twelve years
from the day of 1998 Paying during the term
4
<PAGE> 6
RENTS UNTIL 1ST October 1998 no rent and thereafter the yearly rent of ONE
HUNDRED AND SIXTY-EIGHT THOUSAND ONE HUNDRED AND SEVENTY-FIVE POUNDS
(pound)168,175.00) or such sum as shall be determined pursuant to the
rent review provisions contained in the Sixth Schedule such rent to be
paid without any deduction (except as required by any Act) by four
equal quarterly payments in advance on the 1st March, 1st June, 1st
September and 1st December in each year the first payment or the
appropriate proportion thereof to be paid upon the date hereof and
Secondly a yearly rent equal to the reasonable and proper sum or sums
properly paid by the Landlord in performance of the Landlord's covenant
for insurance in Clause 5.2 such yearly rent to be paid on demand and
Thirdly on demand from time to time by the Company or its duly
appointed agent the Percentage Proportion of the Estate Expenses and in
the event that any such sum thirdly payable hereunder remains unpaid
fourteen (14) days after becoming due and payable the Tenant will pay
Interest thereon
TENANT'S COVENANTS
3 THE TENANT covenants with the Landlord and separately (in respect of
sub-clauses 3.7 and 3.17 and 3.22.4 - 3.22.8 inclusive and 3.29 only ) with the
Company:-
RENT
3.1 To pay the Rents together with any Value Added Tax thereon
(but only following delivery of a valid Value Added Tax
invoice addressed to the Tenant) at the times and in
manner aforesaid without any deduction (except as
aforesaid) and if so required by bankers standing order
3.2 3.2.1 To defray (or in the absence of direct
assessment on the Premises to pay to the
Landlord a fair proportion of) all existing
and future community charges rates taxes
assessments charges and outgoings payable in
respect of the Premises or any part thereof
by any estate owner landlord tenant or
occupier thereof (save only for any such
occasioned by any disposition of or dealing
with or the ownership of any estate or
interest expectant in reversion on the
termination of the Term)
OUTGOINGS 3.2.2 If before the termination of the Term the
Tenant or any undertenant or occupier of the
Premises or any part thereof shall cease to
occupy the same or to use the same for the
5
<PAGE> 7
purpose for which the same were constructed
or have been adapted and if after the
termination of the Term the Landlord shall
pursuant to section 17 or 17A of the General
Rates Act 1967 pay any rates or surcharge
additional to rates to pay to the Landlord a
sum equal to the amount of such payments
attributable to such cessation of occupation
or use and in addition to any such payments
that the Landlord would have had to make if
such cessation had not taken place
CHARGES FOR SERVICES
3.3 3.3.1 To pay the suppliers thereof all charges for
gas water electricity and other services
(including meter rents) consumed in the
Premises during the Term
3.3.2 To comply with the requirements and
regulations of the supply authority with
regard to the electrical wiring
installations and equipment and (if any) the
gas pipes installations and equipment in the
Premises PROVIDED THAT the Tenant will
within 28 days of the Landlord's request
supply such details of any alterations or
additions carried out by or on behalf of the
Tenant as the Landlord may reasonably
require and PROVIDED FURTHER that the Tenant
will at the request of the Landlord upon the
termination of the term remove any such
alterations or additions and reinstate the
installations and make good any damage
caused to the reasonable satisfaction of the
Landlord
REPAIR
3.4 3.4.1 At all times during the said term to keep
the Premises and every part thereof and all
additions thereto and the Landlord's
fixtures and fittings thereon (including all
windows window frames doors door frames
plate glass and fibreglass and the pipes and
sanitary and water apparatus thereof) in
good and substantial repair and condition
(damage by an Insured Risk or resulting from
an Inherent Defect excepted)
3.4.2 Without prejudice to the generality of the
preceding paragraph 3.4.1 of this sub-clause
at all times to keep the Machinery in or
about the Premises in proper repair and in
good working order
6
<PAGE> 8
and condition keeping the same free from
rust and clean and oiled and from time to
time to replace renew and reinstate any
parts of the machinery which may become
broken lost worn out or unfit for use
3.4.3 to maintain in working order and to power
the lights affixed to the exterior of the
Premises for the purposes of providing light
to those parts of the Estate adjacent to the
Premises
PERMISSION FOR REINSTATEMENT
3.5 If the Premises shall be destroyed or damaged by any of the
Insured Risks if so required to join with the Landlord but at
the Landlord's cost in making application for any planning or
other permission necessary for rebuilding or reinstating the
Premises
MAINTENANCE OF MACHINERY
3.6 To enter into agreements with the manufacturers or with the
approved maintenance contractors for the regular inspection
and servicing of the machinery serving any lifts or lift
shafts or heating or air-conditioning system in the Premises
EXTERNAL PAINTING
3.7 In the third year of the Term and in the last year of the Term
(provided that the Tenant shall be under no obligation to
carry out such works twice in any period of twelve months) in
a proper and workmanlike manner to clean all the outside
surfaces of the Premises and thereafter prepare and paint all
outside surfaces usually painted with three coats of good
quality paint of an approved colour
INTERNAL PAINTING
3.8 3.8.1 In every fifth year of the Term and the last
three months of the last year of the Term in
a proper and workmanlike manner to prepare
and paint all inside surfaces of the
Premises usually painted with two coats of
good quality paint and to strip and repaper
all inside surfaces usually papered and to
restore all other inside surfaces to their
proper condition and appearance
3.8.2 In complying with this covenant in the last
three months of the last year of the Term to
use only material of an approved colour
quality and finish
7
<PAGE> 9
LANDLORD'S RIGHT OF INSPECTION
3.9 To permit the Landlord and any authorised person at all
reasonable and mutually convenient times upon previous
notice to enter and inspect the Premises
COMPLIANCE WITH NOTICES TO REMEDY
3.10 3.10.1 To comply with any notice given by the
Landlord requiring the Tenant to remedy any
breach of the Tenant's covenants found upon
any such inspection
3.10.2 If the Tenant shall not within a reasonable
time (in the context of the relevant breach)
comply with any such notice to permit the
Landlord and any authorised person to enter
the Premises to remedy any such breach
3.10.3 To pay to the Landlord on demand all the
reasonable costs and expenses properly
incurred by the Landlord under the
provisions of sub-clause 3.10.2.
WINDOW CLEANING
3.11 To clean the windows in the Premises as often as shall be
reasonably necessary
YIELD UP
3.12 At the termination of the Term
3.12.1 to yield up the Premises (tenant's or trade
fixtures only excepted) fully in accordance
with the foregoing Tenant's covenants as to
repair
3.12.2 to make good any damage caused to the
Premises by the removal of the Tenant's
fixtures fittings furniture and effects and
by the reinstatement of the Premises
pursuant to any covenant with the landlord
REIMBURSEMENT OF EXPENDITURE
3.13 To reimburse to the Landlord all reasonable expenditure
properly incurred by the Landlord forthwith after the
termination of the Term in repairing painting and
decorating the Premises so as to put them into the
condition required by the foregoing Tenant's covenants
8
<PAGE> 10
MAINTENANCE OF PARTY WALLS
3.14 To pay a fair proportion (to be determined by the
Landlord's Surveyor acting reasonably) of the reasonable
expenses properly incurred in respect of any repairing and
cleansing of any party walls fences sewers drains channels
sanitary apparatus pipes wires passageways stairways
entrance ways roads pavements and other things the use of
which is common to the Premises and to other property
WORK ON ADJOINING PROPERTY
3.15 To permit the Landlord and any authorised person at all
reasonable and mutually convenient times upon reasonable
prior notice (save in cases of emergency) to enter the
Premises to repair renew cleanse or alter any adjoining or
neighbouring property including the Amenity Area PROVIDED
that such rights shall only be exercised where it is
otherwise not reasonably possible to carry out such works
and the Landlord shall use all endeavours to cause the
minimum possible inconvenience or disruption to the Tenant
and shall make good forthwith all damage to the Premises
caused by such works
ALTERATIONS AND WASTE
3.16 Not without the consent of the Landlord to erect or permit
or suffer to be erected any other building structure pipe
wire mast or post upon the Premises nor to make or permit
or suffer to be made any alteration therein or addition
thereto (PROVIDED THAT this provision shall not apply to
internal demountable partitioning which the Tenant may
install or remove without the need for any consent) nor
alter the external appearance of the Premises nor to commit
or permit or suffer any waste spoil or destruction in or
upon the Premises nor (save for the purpose of affixing
fixtures and fittings partitioning or similar items) to cut
injure or remove or suffer to be cut injured or removed any
of the roofs structural walls (whether outside or inside)
floors joists timbers wires pipes drains appurtenances or
fixtures thereof
SIGNAGE
3.17 Not to affix or display or permit or suffer to be affixed
or displayed upon any part of the exterior of the Premises
or to or through any window thereof any placard poster
notice advertisement name or sign whatsoever except
9
<PAGE> 11
3.17.1 ones that shall previously have received the
Consent of the Landlord or
3.17.2 as may be permitted pursuant to paragraph 5 of
Part I of the Second Schedule hereto
NOTICES RECEIVED
3.18 Within seven days of the receipt by the Tenant of any
notice order requisition direction or plan given
made or issued to or by a competent authority
affecting the Premises or the occupation or user
thereof to supply a copy thereof to the Landlord
and to make or join in making such objections or
representations against or in respect thereof as
the Landlord may reasonably require but at the
Landlord's cost
REQUIREMENTS OF ANY ACT OR COMPETENT AUTHORITY
3.19 To comply in every respect with the provisions of any Act
or the requirements of any competent authority in respect
of the Premises or any part thereof or in respect of the
occupation or user thereof and to indemnify the Landlord
against all claims demands expenses and liability in
respect of any breach thereof by the Tenant and to pay all
reasonable costs charges and expenses properly incurred by
the Landlord as a result of any such breach by the Tenant
PLANNING ACTS
3.20 Without prejudice to the generality of the last preceding
sub-clause not without the Consent of the Landlord in
relation to the Planning Acts
3.20.1 to make any application for planning permission in
respect of the Premises or any part thereof whether
in respect of the carrying out of any operations
works act or things or the user of the Premises or
any part thereof
3.20.2 to carry out any operations works acts or things in
the Premises or any part thereof or make any change
of use of the same for which planning permission
needs to be obtained
USE
3.21 To use and occupy the Premises only for general
industrial/high technology purposes within B1 and B2 of the
Town and Country Planning (Use Classes) Order 1987 with any
proper ancillary use (and the reference to that Order is to
be construed so as to include any modification or
re-enactment of that Order)
10
<PAGE> 12
PROHIBITED MATERIAL
3.22 3.22.1 Save for any such materials or liquid needed
by the Tenant in its business (provided
prior approval of the Landlord's insurers
where necessary has been obtained and that
any such liquids or materials are handled
and stored in a safe and proper manner and
excessive quantities are not kept on the
Premises) not to store or bring upon the
Premises any materials or liquid of a
specially combustible inflammable dangerous
or offensive nature
3.22.2 Not to do any act or thing whereby any
insurance effected on the Premises or any
adjoining property may be rendered void or
voidable or the rate of premium thereon may
be increased and to comply with all
requirements of the insurers as to fire
precautions relating to the Premises
3.22.3 Not to use the Premises or any part thereof
for any illegal or immoral purpose
3.22.4 To comply with all reasonable regulations
made from time to time by the Company in
respect of the Amenity Area and the Parking
Area and their use including (without
limitation) reasonable directions from time
to time given by the Company for the
regulation and control of vehicle movement
within the Amenity Area and the Parking Area
but not so as to interfere with the rights
granted in Part I of the Second Schedule
3.22.5 Not to interfere with or disturb the
existing layout of the Amenity Area and not
to place or permit or suffer to be placed
any obstruction (including without
limitation skips and packing cases)
whatsoever on the Amenity Area or in any way
hinder or block the roads on the Amenity
Area so as to restrict or hamper access to
the remainder of the Estate or neighbouring
land or Property and to use the Parking Area
only for the parking of private motor
vehicles
3.22.6 Not to cause or permit or suffer any rubbish
litter or packing materials to be left or
strewn on the Amenity Area or the Parking
Area
11
<PAGE> 13
3.22.7 Not to cause or permit or suffer the Amenity
Area to be used in any manner as will or may
cause damage to it or any nuisance annoyance
or inconvenience to the Landlord or the
Company or to the owners or occupiers of any
building on the Estate or to any other
person entitled to use the Amenity Area or
to any neighbouring owners or occupiers
subject only to the lawful and proper
exercise by the Tenant of rights expressly
granted to it under this Lease
3.22.8 Not to obstruct or pollute or cause damage
to any of the conduits on the Estate
3.22.9 Not to bring into or upon the Premises or do
anything which might throw on the Premises
any load or weight in excess of that which
the Premises are designed or constructed to
bear with due margin for safety nor to cause
any undue vibration to the Premises by
machinery or otherwise
3.22.10 Not to hold in the Premises any sale by
auction public exhibition or political
meeting
PROVIDED THAT it shall only be a breach by the Tenant of
the sub-paragraphs of this sub-clause 3.22 for the Tenant
itself to commit or for the Tenant to permit or suffer by
those under the control of the Tenant to commit any act
expressly prohibited in this sub-clause
ALIENATION
3.23 3.23.1 Alienation prohibited
Not to hold the Premises on trust for
another and not to part with the possession
of the Premises or any part of them or
permit another to occupy them or any part of
them except pursuant to a transaction
permitted by and effected in accordance with
the provisions of this Lease
3.23.2 Assignment, subletting and charging of part
Not to assign, sublet or charge part only
of the Premises
3.23.3 Assignment of the whole
Subject to clauses 3.23.4 Circumstances and
3.23.5 Conditions, not to assign the whole
of the Premises without the consent of the
Landlord (which shall not be unreasonably
withheld or delayed)
12
<PAGE> 14
3.23.4 Circumstances
If any of the following circumstances -
which are specified for the purposes of the
Landlord and Tenant Act 1927 section 19(1A)
- applies either at the date when
application for consent to assign is made to
the Landlord, or after that date but before
the Landlord's consent is given, the
Landlord may withhold his consent and if,
after the Landlord's consent has been given
but before the assignment has taken place,
any such circumstances apply, the Landlord
may revoke his consent, whether his consent
is expressly subject to a condition as
referred to in subclause 3.23.5.4 of clause
3.23.5 Conditions or not. The circumstances
are:-
3.23.4.1 that any sum lawfully due
from the Tenant under this
Lease remains unpaid in
circumstances where the
Landlord has given express
notice of the same to the
Tenant
3.23.4.2 that in the Landlord's
reasonable opinion the
assignee is not a person
who is likely to be able
to comply with the
tenant's covenants in this
Lease and to continue to
be able to comply with
them following the
assignment,
3.23.4.3 that the assignee or any
guarantor for the assignee
(other than any guarantor
under an authorised
guarantee agreement,) is a
corporation registered or
otherwise resident in a
jurisdiction in which the
order of a court obtained
in England and Wales will
not necessarily be
enforced against the
assignee or guarantor
without any consideration
of the merits of the case.
3.23.5 Conditions
The Landlord may impose any or all of the
following conditions ( which are specified
for the purposes of the Landlord and Tenant
Act 1927 section 19(1A) ) on giving any
13
<PAGE> 15
consent for an assignment by the Tenant, and
any such consent is to be treated as being
subject to each of the following:-
3.23.5.1 a condition that upon or
before any assignment and
before giving occupation
to the assignee, the
Tenant requesting consent
to assign must enter into
an authorised guarantee
agreement in favour of the
Landlord substantially in
the terms set out in the
Fifth Schedule (The
Authorised Guarantee
Agreement)
3.23.5.2 a condition that if
reasonably so required by
the Landlord on an
assignment to a limited
company, the assignee must
ensure that some other
guarantor or guarantors
acceptable to the
Landlord, enter into
direct covenants with the
Landlord that the assignee
will throughout the
residue of the term of
this Lease observe and
perform the covenants on
the part of the Tenant
contained in this Lease
3.23.5.3 a condition that upon or
before any assignment, the
Tenant making the request
for consent to assign must
give to the Landlord a
copy of the health and
safety file required to be
maintained under the
Construction (Design and
Management) Regulations
1994 containing full
details of all works
undertaken to the Premises
by that Tenant, and
3.23.5.4 a condition that if, at
any time before
completion of the
assignment, the
circumstances specified
in clause 3.23.4
Circumstances, or any of
them apply, the Landlord
may revoke the consent
by written notice to the
Tenant
14
<PAGE> 16
3.23.6 Subletting
Not to sublet the whole of the Premises
without the consent of the Landlord (which
shall not be unreasonably withheld or
delayed)
3.23.7 Terms of a permitted sublease
Every permitted sublease must be granted,
without a fine or premium at a rent not less
than whichever is the greater of the then
open market rent payable in respect of the
Premises or the rent payable under this
Lease and the rent payable under the
sublease payable in advance on the days on
which the Rent is payable under this Lease.
Every permitted sublease must contain
provisions:-
3.23.7.1 prohibiting the subtenant
from doing or allowing
anything in relation to
the Premises inconsistent
with or in breach of the
provisions of this Lease,
3.23.7.2 for re-entry by the
sub-landlord on breach of
any covenants by the
subtenant,
3.23.7.3 imposing an absolute
prohibition against any
further subletting of the
whole or any part of the
Premises,
3.23.7.4 prohibiting assignment of
the whole of the Premises
without the consent of the
Landlord under this Lease
(which consent shall not
be unreasonably withheld
or delayed)
3.23.7.5 requiring the assignee on
any assignment of the
sublease to enter into
direct covenants with the
Landlord to the same
effect as those contained
in clause 3.23.8
Sub-Tenant's Direct
Covenants,
3.23.7.6 prohibiting the sub-tenant
from holding on trust for
another or permitting
another to share or occupy
the whole or any part of
the Premises save with a
group company of the
15
<PAGE> 17
sub-tenant on the same
basis as in clause 3.23.11
of this Lease
3.23.7.7 imposing in relation to
any permitted assignment
or charge the same
obligations for
registration with the
Landlord as are contained
in this Lease in relation
to dispositions by the
Tenant
3.23.8 Subtenant's direct covenants
Before any permitted subletting, to ensure
that the subtenant enters into a direct
covenant with the Landlord that while he is
bound by the tenant's covenants in the
sublease the subtenant will observe and
perform the tenant's covenants contained in
this Lease (except the covenant to pay the
rent reserved by this Lease ) and in that
sublease.
3.23.9 Sublease rent review
3.23.9.1 the Tenant must ensure
that the rent is reviewed
in accordance with the
terms of the sublease,
3.23.9.2 the Tenant must not agree
the reviewed rent with the
subtenant without the
approval of the Landlord
3.23.9.3 where the sublease
provides such an option
the Tenant must not
without the approval of
the Landlord agree whether
the third party
determining the revised
rent in default of
agreement should act as an
arbitrator or as an expert
3.23.9.4 the Tenant must not,
without the approval of
the Landlord agree any
appointment of a person to
act as a third party
determining the revised
rent
3.23.9.5 the Tenant must
incorporate as part of his
representations to that
third party
representations required
by the Landlord, and
16
<PAGE> 18
3.23.9.6 the Tenant must give
notice to the Landlord
of the details of the
determination of every
rent review within seven
days
3.23.10 Registration of permitted dealings
Within 28 days of any assignment, charge or
sublease or any transmission or other
devolution relating to the Premises, to
produce a certified copy of any relevant
document for registration with the
Landlord's Solicitor, and to pay the
Landlord's Solicitor's reasonable charges
for registration of at least (pound)25.00.
3.23.11 Sharing with a group company
Notwithstanding clause 3.23.1 Alienation
Prohibited the Tenant may share occupation
of the whole or any part of the Premises
with a company that is a member of the same
group as the Tenant within the meaning of
the Landlord and Tenant Act 1954 section 42,
for so long as both companies remain members
of that group and otherwise than in a manner
that transfers or creates a legal estate
NOTICE OF DAMAGE
3.24 In the event of the Premises being destroyed or damaged to
give notice thereof immediately upon becoming aware of the
same to the Landlord stating (if possible) the cause of such
destruction or damage
SALE OR RE-LETTING NOTICES
3.25 To permit the Landlord during the Term to affix and retain
without interference upon any suitable and conspicuous part of
the Premises (but not so as materially to affect the access of
light and air to the Premises) a notice for reletting the same
(if the termination of the Term is a prospective possibility)
or selling the Landlord's interest in the Premises and to
permit persons with written authority of the Landlord or the
Landlord's agent at reasonable and mutually convenient times
of the day to view the Premises accompanied by the Landlord or
its agent
COSTS
3.26 To pay to the Landlord on demand all reasonable and proper
costs charges and expenses (including reasonable and proper
legal and surveyors' fees and costs and value added tax
thereon) of and incidental to:-
17
<PAGE> 19
3.26.1 every application made by the Tenant for the
consent of the Landlord where the same be
granted or lawfully refused or proffered
subject to any lawful qualification or
condition or where the application be
withdrawn
3.26.2 the preparation and service of a notice
under Section 146 of the Law of Property Act
1925 notwithstanding that forfeiture is
avoided otherwise than by relief granted by
the Court
3.26.3 any schedule relating to wants of repair to
the Premises whether served during or within
three months after the termination of the
Term
3.26.4 the preparation and completion of this Lease
and Stamp Duty payable on the Counterpart
INTEREST
3.27 To pay to the Landlord Interest on any sum due pursuant to the
provisions of this Lease and the aggregate amount for the time
being so payable shall at the option of the Landlord be
recoverable by action or as rent in arrear
VALUE ADDED TAX
3.28 Whenever any sum is payable by the Tenant on which Value Added
Tax or any other tax is properly payable on presentation of a
proper VAT invoice to pay to the Landlord in addition to such
sum the amount of the Value Added Tax or other tax thereon at
the rate applicable to that payment
OBSTRUCTIONS AND EASEMENTS
3.29 Not permanently to obstruct or permit or suffer to be
obstructed any of the windows lights or ventilators belonging
to the Premises nor to permit or suffer any new window light
ventilator passage drainage or other encroachment or easement
to be made into against or over the Premises or any part
thereof AND in case any encroachment or easement whatsoever
shall be attempted to be made or acquired by any person
whomsoever to give notice thereof to the Landlord immediately
the same shall come to the knowledge of the Tenant and at the
cost of the Tenant do all such things as may be proper for
preventing any new encroachment or easement being made or
acquired
LANDLORDS TITLE
3.30 Not to breach the covenants and provisions affecting the title
of the Landlord specified in the Third Schedule
18
<PAGE> 20
COVENANTS BY THE COMPANY
4 THE COMPANY covenants with the Tenant and (separately) with
the Landlord as follows :-
4.1 To keep the Amenity Area and the Parking Area (including plant
and equipment and service systems but excluding any conduit
exclusively serving any individual building within the Estate)
in good and substantial repair and condition and properly
cleansed lighted landscaped and made up as necessary
4.2 To insure the Amenity Area and the Parking Area with a
reputable insurance company or with Lloyd's Underwriters in no
less than the full reinstatement value of the Amenity Area
(including in that expression without limitation architects'
and surveyors' and other professional fees allowance for
inflation in building costs demolition and site clearance
expenses Value Added Tax and all other incidental expenses)
against loss or damage by fire explosion storm tempest
(including lightning) flood burst pipes and impact and (in
peacetime) aircraft and articles dropped therefrom riot civil
commotion and malicious damage and such other risks as would
normally from time to time be insured against in a
comprehensive policy and the insurance policy for the Amenity
Area and the Parking Area will contain no unusual excesses
limitations or conditions
4.3 To insure the Amenity Area and the Parking Area with a
reputable insurance company or with Lloyds's Underwriters
against public liability of the Company (and the landlord
while the Landlord has any interest in the Amenity Area)
arising out of or in connection with any matter involving or
relating to the Amenity Area
4.4 At the reasonable request of the Tenant to deliver to the
Tenant a copy of the insurance policies effected under clauses
4.2 and 4.3 and all endorsements to date and sufficient
evidence of the payment of the last premium
4.5 To observe and perform such covenants stipulations conditions
and restrictions as are contained or referred to in the
Property and Charges Register of Land Registry Title Number
NN163570 insofar as they affect the Amenity Area and will
indemnify the Tenant and (separately) the Landlord against all
costs claims demands and proceedings as may arise in
19
<PAGE> 21
respect of any breach of any of such covenants stipulations
conditions and restrictions
4.6 To remunerate on a reasonable and proper basis any surveyor
accountant or other professional adviser or any other agent or
other person as the Company in any case may reasonably in its
discretion from time to time decide are needed in connection
with or ancillary to the performance and observance of the
obligations undertaken by the Company under this Lease and the
general management of the Amenity Area and the Parking Area
4.7 To pay the proper cost of all charges assessments and
outgoings including general rates water rates electricity and
gas charges relating to the Amenity Area including without
limitation the cost (if applicable) of lighting the Amenity
Area and the Parking Area
4.8 To procure that the affairs of the Company are administered in
a proper and efficient manner
4.9 To make provisions for the establishment of a sinking fund in
such sum as the Company may at its reasonable discretion from
time to time decide
COVENANTS BY THE LANDLORD
5 THE LANDLORD covenants with the Tenant:
QUIET ENJOYMENT
5.1 That the Tenant paying the Rents and performing and observing
the covenants and stipulations on the part of the Tenant
herein shall peaceably hold and enjoy the Premises during the
Term without any interruption by the Landlord or any person
rightfully claiming under or in trust for the Landlord
INSURANCE
5.2 5.2.1 Office, underwriters and agency To effect
and maintain insurance in respect of the
Premises and the Estate in such substantial
and reputable insurance office, or with such
underwriters and through such agency of
similar substance and repute as the Landlord
from time to time reasonably decides
5.2.2 To effect and maintain such insurance for
the following amounts:
20
<PAGE> 22
5.2.2.1 the sum that the Landlord is from time to
time properly advised by the Surveyor is the
full cost of rebuilding and reinstating the
Premises, including VAT, architects',
surveyors', engineers', solicitors' and all
other professional persons' fees, the fees
payable on any applications for planning
permission or other permits or consents that
may be required in relation to rebuilding or
reinstating the Premises, the cost of
preparation of the site including
shoring-up, debris removal, demolition, site
clearance and any works that may be required
by statute, and incidental expenses, and
5.2.2.2 loss of the Rent for three years.
5.2.3 Risks insured To effect and maintain such insurance against
damage or destruction by any of the Insured Risks to the
extent that such insurance may ordinarily be arranged with a
substantial and reputable insurer for properties such as the
Premises subject to such proper excesses exclusions or
limitations as the insurer reasonably and properly requires
5.2.4. In the event of damage or destruction by any of the Insured
Risks to rebuild or reinstate the Premises forthwith and to
obtain all necessary consents in relation thereto
5.2.5 To procure that there be given a copy of any relevant policy
of insurance to the Tenant on all reasonable occasions that he
the Tenant shall so request together with evidence of the
current Premium and that it has been paid
5.2.6 To procure that the insurers under the relevant policy or
policies of insurance waive their rights of subrogation
against the Tenant and any lawful occupier of the Premises and
further to procure that the relevant policy or policies
contain a non-invalidation clause in respect of any acts or
defaults of the Tenant or other lawful occupier of the
Premises
21
<PAGE> 23
TRANSFER OF SHARES
5.3 Not to transfer its shares in the Company to anyone who is not
the freeholder of or does not hold some other legal interest
in the Premises
5.4. To procure a covenant by the Transferee of any shares in the
Company that it will not part with its interest in the
Premises without contemporaneously transferring its shares to
a person or company having a legal interest in the Premises
5.5 During such periods as any part of the Estate is not let on a
tenancy containing similar tenant's covenants in relation to
the maintenance use and payment of the Estate Expenses to
those herein set out or until such time as the freehold of
such unit is sold subject to such covenants at its own cost to
use all reasonable endeavours to procure the observance and
performance of such covenants in relation to any such part of
the Estate
LANDLORD TO ENFORCE COVENANTS
5.6 At the expense of the Tenant to observe and perform or (where
the relevant part of the Estate is owned or tenanted by a
third party) to enforce against the owner or occupier for the
time being of any other part of the Estate covenants of the
nature of those on the part of the Tenant contained in this
Lease :
5.7 To carry out any repairs maintenance reinstatement replacement
rebuilding or other works to the Premises arising from any
Inherent Defects
PROVISOS
6 IF:-
6.1 the Rents or any part thereof shall be in
arrear for 21 days after becoming payable
(whether formally demanded or not) or
6.2 there shall be any breach non-performance or
non-observance of any of the Tenant's
covenants or
6.3 the Tenant (being an individual) shall
become bankrupt or (being a company) shall
enter into liquidation whether compulsory or
voluntary (save for the purpose of
amalgamation or reconstruction of a solvent
company) or
6.4 the Tenant shall enter into any arrangement
or composition for the benefit of the
Tenant's creditors
22
<PAGE> 24
it shall be lawful for the Landlord at any time thereafter
to re-enter the Premises or any part thereof in the name of
the whole and thereupon the Term shall absolutely determine
but without prejudice to any rights of action of the
Landlord or the Tenant in respect of any antecedent breach
by the other of any of the covenants or conditions herein
SUSPENSION OF RENT
7 IF the Premises or the Parking Area or the means of access
thereto from the public highway shall at any time during the Term be so damaged
or destroyed by any of the Insured Risks so as to render the Premises unfit for
occupation and use or incapable of being occupied by virtue of inaccessibility
then (unless the insurance money shall be wholly or partly irrecoverable by
reason solely or in part of any act or default of the Tenant) the Rents or a
fair proportion thereof according to the nature and extent of the damage
sustained shall be suspended until the date when the Premises shall again be
rendered fit for occupation and use or until the date three years from the date
of such damage or destruction whichever date shall be the earlier and any
dispute with reference to this proviso shall be referred to arbitration in
accordance with the Arbitration Act 1950
TERMINATION AND RECONSTRUCTION
8 IF within three years of the Premises the Parking Area or the
means of access thereto from the public highway being destroyed or so damaged by
any of the Insured Risks so as to render the Premises unfit for occupation and
use or incapable of being occupied by virtue of inaccessibility and the Premises
or any material part of them still being unfit for use or occupation or
inaccessible
8.1 either party may by not less than three
months' notice expiring at any time
determine the Term and upon the expiry of
such notice the Term shall determine without
prejudice to any remedy of either party
against the other in respect of any
antecedent breach of covenant or condition
herein
8.2 if the Term is determined under sub-clause
8.1 the insurance monies (other than monies
received for loss of rent) received by the
Landlord shall be apportioned between the
Landlord and the Tenant in proportion to the
values of their respective interests in the
Premises
23
<PAGE> 25
NO WARRANTY AS TO USE
9 Nothing herein shall be deemed to constitute any warranty by
the Landlord that the Premises or any part thereof are under the Planning Acts
authorised for use for any specific purpose
SERVICE OF NOTICES
10 Section 196 of the Law of Property Act 1925 as amended by
the Recorded Delivery Services Act 1962 shall apply to the service of any notice
required to be served under this Lease
LIABILITY LIMITED
11 The liability of Michael John Daniels and Robert Denis
Bowerman in relation to the covenants contained in this Lease shall be limited
to the assets of the Reynard Racing Cars Limited Directors' Pension Scheme
STAMP DUTY CERTIFICATE
12 It is hereby certified that for the purposes of Section
240(2)(a) Finance Act 1994 there is no agreement to which this Lease gives
effect
IN WITNESS whereof the parties hereto have executed this
instrument as a Deed and have delivered it upon dating it.
FIRST SCHEDULE
The Premises
------------
All those premises known as Unit 4 Reynard Park Brackley Northamptonshire as the
same are shown for identification purposes only tinted blue on the Plan
SECOND SCHEDULE
Part I
Rights granted
--------------
1 The right at all times for the purposes of going to and
from the Premises to pass and repass with or without
vehicles over the roadways within the Amenity Area (but
excluding the right to pass and repass over any car parking
spaces other than those in the Parking Area) and on foot
only over the footpaths within the Amenity Area
24
<PAGE> 26
2 The right to free passage of Services through any conduits
now laid or to be laid within the Perpetuity Period in or
under the Amenity Area or the Parking Area or any other
building on the Estate for the benefit in any case of the
Premises (whether or not also for the benefit of the other
buildings within the Estate) together with the right on
reasonable prior written notice to the Company and any
owner or occupier for the time being of any building on the
Estate affected by such entry (except in case of emergency)
to enter the Amenity Area or the Parking Area for the
purpose of repairing maintaining and (where necessary)
renewing any conduit that exclusively serves the Premises
and a similar right on similar terms for similar purposes
(but only insofar as any such repair or maintenance or
renewal cannot practicably be carried out without such
entry) to enter any other building on the Estate the person
exercising such right doing as little damage as possible
and making good all damage caused by such entry
3 The right on reasonable prior written notice to the Company
and any owner or occupier for the time being of any
building on the Estate affected by such entry (except in
case of emergency) to enter the Amenity Area and the
Parking Area and any building within the Estate adjoining
the Premises for the purpose of carrying out repairs or
maintenance to any part of the Premises which cannot be
practicably carried out without such entry the person
exercising such right doing as little damage as possible
and making good all damage caused by such entry
4 The right of support and protection from any building
adjoining the Premises from time to time
5 The right to exhibit the name of the Tenant on the
signboard at the entrance to the Estate and in the style
on the signboard to be approved by the Company (such
approval not to be unreasonably withheld or delayed)
6 The exclusive right for the Tenant and those authorised by
the Tenant to park private motor vehicles in the spaces
provided in the Parking Area
Part II
Rights reserved
---------------
1 The right of free passage and running of water and soil in
and through the sewers drains and channels made or to be
made upon through or under the Premises and the free and
uninterrupted use of all gas electric telephone and other
pipes wires cables and flues upon through or under the same
25
<PAGE> 27
2 All rights of light air and other easements and rights (but
without prejudice to those expressly hereinbefore granted
to the Tenant) now or hereafter belonging to or enjoyed by
the premises from or over any adjoining or neighbouring
land or building
3 The right to build or rebuild or alter any adjoining or
neighbouring land or building in any manner whatsoever and
to let the same for any purpose or otherwise deal therewith
notwithstanding that the light or air to the Premises is in
any such case thereby diminished
4 The right to support and shelter and all other easements
and rights now or hereafter belonging to or enjoyed by all
adjoining or neighbouring land or buildings in respect of
which an interest in possession or reversion is at any time
during the Term vested in the Landlord
THIRD SCHEDULE
Covenants and provisions affecting the Landlord's title
-------------------------------------------------------
The matters referred to in the Charges Register of the freehold title number
NN163570
FOURTH SCHEDULE
(Details of Estate Expenses)
----------------------------
1 The reasonable costs and expenses properly incurred by the
Company from time to time in performing its obligations
under Clause 4
2 Any reasonable costs and expenses properly incurred by the
Company in providing necessary caretaking and/or security
services to the Estate
3 Any costs and expenses properly incurred by the Company in
providing any additional services or facilities from time to
time as the Company reasonably considers desirable for the
benefit of the Estate as a whole acting in the best
interests of all the occupants of the Estate
FIFTH SCHEDULE
THE AUTHORISED GUARANTEE AGREEMENT
THIS GUARANTEE is made the ......... day of................... 19 BETWEEN
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire and MICHAEL JOHN DANIELS of Kingswood House 29
North Street Bicester aforesaid and ROBERT DENIS BOWERMAN
of
26
<PAGE> 28
Park House Over Worton Chipping Norton Oxfordshire ("the
Landlord") and
(2) ________________________ the registered office of which is
("the Tenant")
NOW THIS DEED WITNESSES as follows:
1 DEFINITIONS AND INTERPRETATION
For all purposes of this guarantee the terms defined in this clause have the
meanings specified.
1.1 "THE ASSIGNEE"
"The Assignee" means .....
1.2 "THE LEASE"
"The Lease" means the lease dated............ 19 and made
between (1) Adrian John Reynard and Michael John Daniels and
Robert Denis Bowerman ("the Landlord") and (2) Reynard
Motorsport Limited ("the Tenant") and (3) R.T.C. Management
Company Limited for a term of twelve years commencing on and
including
1.3 "THE PREMISES"
"THE PREMISES" means the premises demised by the Lease.
1.4 "THE LIABILITY PERIOD"
"The Liability Period" means the period during which the
Assignee is bound by the tenant covenants of the Lease
which shall not exceed the unexpired residue of the
contractual term of the Lease
1.5 TERMS FROM THE LANDLORD AND TENANT (COVENANTS)
ACT 1995
The expressions "authorised guarantee agreement" and "tenant
covenants" have the same meaning in this guarantee as in the
Landlord and Tenant (Covenants) Act 1995 section 28(1).
1.6 REFERENCES TO CLAUSES
Any references in this deed to a clause without further
designation is to be construed as a reference to the clause
of this deed so numbered
2 RECITALS
2.1 CONSENT REQUIRED
The Landlord's consent to an assignment of the Lease is
required.
2.2 AGREEMENT TO CONSENT
27
<PAGE> 29
The Landlord has agreed to give consent to the assignment to
the Assignee on condition that the Tenant enters into this
guarantee.
2.3 EFFECTIVE TIME
This guarantee takes effect only when the Lease is assigned
to the Assignee
3 TENANT'S COVENANTS
In consideration of the Landlord's consent to the assignment the Tenant
covenants with the Landlord and without the need for any express assignment with
all his successors in title as set out in this clause 3.
3.1 PAYMENT AND PERFORMANCE
The Assignee shall punctually pay the rents reserved by the
Lease and observe and perform the covenants and other terms
of it throughout the Liability Period, and if at any time
during the Liability Period the Assignee defaults in paying
the rents or in observing or performing any of the covenants
or other terms of the Lease, the Tenant shall pay the rents
and observe and perform the covenants or terms in respect of
which the Assignee is in default and make good to the
Landlord on demand and indemnify the Landlord against all
losses damages costs and expenses resulting from such
non-payment, non-performance or non-observance
notwithstanding:-
3.1.1 any time or indulgence granted by the
Landlord to the Assignee or any neglect
or forbearance of the Landlord in
enforcing the payment of the rents or
the observance or performance of the
covenants or other terms of the Lease,
or any refusal by the Landlord to accept
rents tendered by or on behalf of the
Assignee at a time when the Landlord is
entitled, or will after the service of a
notice under the Law of Property Act
1925 section 146 be entitled, to
re-enter the Premises
3.1.2 that the Assignee has surrendered part
of the Premises in which event the
liability of the Tenant under the Lease
is to continue in respect of the part of
the Premises not surrendered after
making any necessary
28
<PAGE> 30
apportionments under the Law of Property
Act 1925 section 140, and
3.1.3 anything else by which, but for this
clause 3.1, the Tenant would have been
released.
3.2 NEW LEASE FOLLOWING DISCLAIMER
If, during the Liability Period any trustee in bankruptcy or
liquidator of the Assignee disclaims the Lease, the Tenant
shall , if required by notice served by the Landlord within
sixty days of the Landlord becoming aware of the disclaimer
take from the Landlord forthwith a lease of the Premises for
the residue of the contractual term of the Lease as at the
date of the disclaimer, at the rent then being paid under
the Lease and subject to the same covenants and terms as in
the Lease (except that the Tenant need not ensure that any
other person is made a party to that lease as guarantor) the
new lease to commence on the date of the disclaimer and the
Tenant shall pay the reasonable and proper costs of the new
lease and execute and deliver to the Landlord a counterpart
of it.
4 SEVERANCE
4.1 SEVERANCE OF VOID PROVISIONS
Any provision of this deed rendered void by virtue of the
Landlord and Tenant (Covenants) Act 1995 section 25 is to be
severed from all remaining provisions and the remaining
provisions are to be preserved.
4.2 LIMITATIONS OF PROVISIONS
If any provision of this deed extends beyond the limits
permitted by the Landlord and Tenant (Covenants) Act 1995
section 25, that provision is to be varied so as not to
extend beyond those limits.
SIXTH SCHEDULE
RENT REVIEWS
1 THE REVIEW DATES
The yearly rent payable under this Lease is to be reviewed on the expiry of the
fifth year and the tenth year of the Term (referred to in this Schedule as "the
review date(s)" (and "the relevant review date" is to be construed accordingly)
and with effect on and from each review date the reviewed rent (as agreed or
determined in accordance with this Schedule) is to become payable as the yearly
rent reserved by this Lease.
29
<PAGE> 31
2 UPWARD ONLY RENT REVIEWS The reviewed rent is to be the greater of:
2.1 the yearly rent reserved under this Lease immediately
preceding the relevant review date; and
2.2 the market rent of the Premises at the relevant review date
3 THE MARKET RENT
For the purposes of this Lease, the expression "market rent" means the best
yearly rent at which the Premises might reasonably be expected to be let in the
open market by a willing landlord to a willing tenant:
3.1 with vacant possession
3.2 for a term for the unexpired residue of the Term from the
relevant review date having rent reviews in the same terms
as this Lease
3.3 without the payment of a premium by the willing tenant
3.4 subject to the provisions of this Lease, other than the
length of the term and the amount of rent, but including
these provisions for rent review; but on the assumption, if
not the fact, that at the relevant review date:
3.5 the Premises have a net internal area of 21,700 square feet;
3.6 the Premises have been fitted out ready for occupation and
immediate use for the willing tenant's business so that the
willing tenant would not require a rent or other allowance
at the relevant review date for that purpose (but this
assumption does not affect the operation of paragraph 4.3);
3.7 in case the Premises or the Parking Area or the means of
access thereto have been destroyed or damaged or unfit for
use and occupation they have been fully reinstated or
rendered fit for use and occupation;
3.8 the Premises are in a state of full repair and the covenants
of the Tenant and the Landlord and the Company have been
fully observed and performed;
3.9 there is not in operation any statute order or instrument
regulation or direction which has the effect of regulating
or restricting the amount of rent of the Premises which
might otherwise be payable;
3.10 the Premises may be lawfully used throughout the Term for
the permitted use
3.11 the Tenant and anyone who may become the Tenant is a taxable
person who makes only taxable supplies and no exempt
supplies (words and
30
<PAGE> 32
expressions used in this paragraph 3.12 having the meanings
assigned to them respectively in the Value Added Tax Act
1994 and the regulations made under that Act) and that
demand for the Premises on the open market would not be
reduced by reason of the Landlord having elected to waive
exemption from value added tax in respect of them.
4 MATTERS TO BE DISREGARDED
In agreeing or determining the market rent the effect upon it of the following
matters are to be disregarded:
4.1 the occupation of the Premises by the Tenant
4.2 any goodwill attached to the Premises by reason of the
carrying on at the Premises of the business of the Tenant;
4.3 any improvements to the Premises made by the Tenant with the
consent of the Landlord other than those:
4.3.1 made in pursuance of an obligation to the
Landlord; or
4.3.2 for which the Landlord has made a financial
contribution; or
4.3.3 any works carried out by the tenant which has
diminished the market rent
and in this paragraph 4 reference to "the Tenant" include
predecessors in title to the Tenant, and sub-tenants of the
Tenant or of the predecessors in title of the Tenant
5 PROCEDURE FOR DETERMINATION OF MARKET RENT
5.1 The Landlord and the Tenant are to endeavour to agree the
market rent at any time not being earlier than twelve months
before the relevant review date, but if they have not agreed
the market rent three months before the relevant review date
the amount of the market rent is to be determined by
reference to the arbitration of an arbitrator
5.2 The arbitrator is to be nominated by the Landlord and the
Tenant jointly, but, if they cannot or do not do so, then he
is to be nominated by the resident for the time being of the
Royal Institution of Chartered Surveyors on the application
either of the Landlord or of the Tenant
5.3 The reference to and award of the arbitrator is to be
governed by the Arbitration Act 1996
31
<PAGE> 33
5.4 The arbitrator nominated must be a chartered surveyor having
not less than ten years' experience of leasehold valuation
of property being put to the same or similar use as the
Premises and of property in the same region in which the
Premises are situated
5.5 If the arbitrator refuses to act, becomes incapable of
acting or dies, the Landlord or the Tenant may require the
appointment of another arbitrator as provided in paragraph
5.1
6 TIME LIMITS
Time is not of the essence in agreeing or determining the reviewed rent or of
appointing an arbitrator
7 RENTAL ADJUSTMENTS
7.1 If the market rent has not been agreed or determined in
accordance with the provisions of this Schedule before the
relevant review date, then, until the market rent has been
so agreed or determined, the Tenant will continue to pay on
account rent at the rate of yearly rent payable immediately
before the relevant review date.
7.2 The Tenant will pay to the Landlord within seven days after
the time that the market rent has been agreed or determined
all arrears of the reviewed rent which have accrued in the
meantime, with Interest on each of the instalments of the
arrears from the time that it would have become due if the
market rent had then been agreed or determined until
payment becomes due from the Tenant to the Landlord under
this paragraph 7.2
8 REVIEWED RENT RESERVED IN PHASES
The Landlord and the Tenant may, at any time before the market rent is
determined by an arbitrator settle the reviewed rent in more than one amount and
agree to reserve the amounts increasing in phases until the next review date or,
if none, the expiry of the Term.
9 MEMORANDUM OF RENT REVIEW
The parties will cause a memorandum of the reviewed rent duly signed by the
Landlord and the Tenant to be endorsed on or securely annexed to this Lease and
the Counterpart of this Lease.
32
<PAGE> 34
SIGNED as a deed by )
REYNARD MOTORSPORT LIMITED )
- -------------------------- )
acting by )
and by )
Director
Secretary/Director
33
<PAGE> 35
SIGNED as a deed by )
ADRIAN JOHN REYNARD ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- ------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) - - - - - - - - - - - - - - - - -
)
) - - - - - - - - - - - - - - - - -
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SIGNED as a deed by )
MICHAEL JOHN DANIELS ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- -------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) - - - - - - - - - - - - - - - - -
)
) - - - - - - - - - - - - - - - - -
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SIGNED as a deed by )
ROBERT DENIS BOWERMAN ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- --------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) - - - - - - - - - - - - - - - - -
)
) - - - - - - - - - - - - - - - - -
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
34
<PAGE> 36
THE COMMON SEAL of )
R.T.C. MANAGEMENT COMPANY LIMITED )
- --------------------------------- )
was hereunto affixed )
in the presence of : )
Director
Secretary
35
<PAGE> 1
Exhibit 10.13
DATED _____________________________________ 1998
A J REYNARD ESQ, M J DANIELS ESQ
AND R D BOWERMAN ESQ
(TRUSTEES OF THE REYNARD RACING CARS LTD
DIRECTORS' PENSION SCHEME)
- and -
REYNARD MOTORSPORT LIMITED
- and -
R.T.C. MANAGEMENT COMPANY LIMITED
L E A S E
re
Unit 1A
Reynard Park
Brackley
Northamptonshire
ROBERT D BOWERMAN
Solicitor
Old Rectory Offices
Park House
Over Worton
Chipping Norton
Oxfordshire OX7 7ER
<PAGE> 2
THIS LEASE is made the day of
One Thousand Nine Hundred and Ninety-eight
BETWEEN
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire and MICHAEL JOHN DANIELS of Kingswood House 29 North
Street Bicester aforesaid and ROBERT DENIS BOWERMAN of Park House Over
Worton Chipping Norton Oxfordshire (hereinafter called "the Landlord")
and
(2) REYNARD MOTORSPORT LIMITED whose registered office is at Reynard
Centre Telford Road Bicester Oxfordshire (hereinafter called "the
Tenant") and
(3) R.T.C. MANAGEMENT COMPANY LIMITED whose registered office is at 1-3
London Road Bicester Oxfordshire having Company Registration Number
3444931 (hereinafter called "the Company")
WITNESSES as follows:
INTERPRETATION
1 IN THIS LEASE
1.1 the following expressions shall have the
following meanings:
"Landlord" includes where the context admits the estate
owner for the time being of the reversion
immediately expectant on the termination of
the Term
"Tenant" includes where the context admits the
successors in title of the Tenant
"Term" means the term hereby granted and includes
where appropriate any extension thereof by
agreement or pursuant to any Act
"Premises" means the property described in the First
Schedule together with all additions and
improvements thereto and all additions and
fittings therein or thereon
"Act" means any Act of Parliament now or hereafter
to be passed
"Parking Area" means the area designated for parking tinted
red on the Plan comprising 34 spaces
1
<PAGE> 3
"Planning Acts" means the Act or Acts for the time being in
force relating to town and country planning
"Rents" means the rents reserved in Clause 2
"Principal Rent" means the rent first reserved in Clause 2
"Landlord's Surveyor" means the surveyor for the time being of the
Landlord
"Insured Risks" means insurance against loss or damage by
fire storm tempest flood lightning explosion
aircraft articles dropped therefrom riot or
civil commotion malicious damage impact
bursting and overflowing of pipes heave
landslip subsidence terrorism and such other
risks as the Landlord shall from time to
time during the Term properly determine
"termination of the Term" means the determination of the Term whether
by effluxion of time re-entry notice
surrender (whether by operation of law or
otherwise) or by any other means whatsoever
"the last year of the Term" means the year of the Term ending on the
termination of the Term
"notice" means notice in writing
"Part with possession" includes an agreement to part with
possession
"underlet" includes an agreement to underlet
"underlease" and "sub-underlease" include an agreement for underlease or
sub-underlease
"Consent of the Landlord" means a consent in writing signed by the
Landlord not to be unreasonably withheld or
delayed
"approved" and "authorised" means as the case may be approved or
authorised in writing by the Landlord
"Amenity Area" means those areas of the Estate tinted green
on the Plan and available for use by the
Tenant and which are not exclusively owned
2
<PAGE> 4
by or leased to any person or body (other
than R.T.C. Management Company Limited)) and
everything upon that area and the boundary
walls of the Estate together with all
conduits within the Amenity Area
"Estate" means the land shown for identification
purposes only edged blue on the Plan and the
buildings constructed on that land known
together as Reynard Park
"Estate Expenses" means the costs and expenses referred to in
the Fourth Schedule
"Inherent Defect" any defect in the design of or materials
used in the structure or any part of the
Premises or in the construction of the
Premises or any works carried out to the
Premises whether by the Landlord or any
predecessor in title to the Landlord and
whether before or after the date of this
Lease or any unfitness for purpose of any
materials used in any such works or as a
result of such materials not being of
merchantable quality or attributable to
workmanship not carried out in a good and
workmanlike manner in accordance with good
building practice and all relevant British
Standards and Codes of Practice and any
"snagging items" as listed in any "snagging
list" annexed to a Certificate of Practical
Completion relating to any works carried out
by or on behalf of the landlord or any
predecessor in title
"Percentage Proportion" means 13.5 per centum
"Perpetuity Period" means the period commencing today and
expiring EIGHTY (80) years after today
3
<PAGE> 5
"Plan" means the annexed plan showing for
identification purposes only the Premises
the Parking Area and the Estate
"Services" means all or any facilities services or
matter passing through any conduit
"Interest" means interest at the rate of 4% above
National Westminster Bank plc base rate from
time to time and payable upon any rents
payable under this Lease and which are more
than 14 days in arrears such interest to
accrue from the date upon which the relevant
sum is due until the date of actual payment
"The Machinery" all present and future machinery boilers air
conditioning plant extractor fans and units
radiators hoists lifts pumps and other
apparatus of a like nature on the Premises
1.2 where the context requires:
1.2.1 words importing the singular include the
plural and vice versa
1.2.2 words importing the masculine include the
feminine and neuter
1.2.3 where a party consists of more than one
person covenants and obligations of that
party shall take effect as joint and several
covenants and obligations
1.3 references to any Act include references to any statutory
modification or re-enactment thereof for the time being in
force and any order instrument regulation or by-law made or
issued thereunder
1.4 the side notes shall not in any way affect the construction of
this Lease
DEMISE
2 THE LANDLORD hereby demises the Premises to the Tenant
TOGETHER WITH the rights granted in Part I of the Second Schedule RESERVING to
the Landlord and the Company the rights set out in Part II of the Second
Schedule and SUBJECT TO all rights and easements (if any) enjoyed by any
adjoining or neighbouring property over or in respect of the Premises TO HOLD
for the term of twelve years from the 11th day of May 1998 Paying during the
term
4
<PAGE> 6
RENTS UNTIL 1st October 1998 no rent and thereafter yearly rent of
TWO HUNDRED AND THIRTY EIGHT THOUSAND SEVEN HUNDRED AND FIFTY
FOUR POUNDS ((pound)238,754.00) or such sum as shall be
determined pursuant to the rent review provisions contained in
the Sixth Schedule such rent to be paid without any deduction
(except as required by any Act) by four equal quarterly
payments in advance on the 1st March, 1st June, 1st September
and 1st December in each year the first payment or the
appropriate proportion thereof to be paid upon the date hereof
and Secondly a yearly rent equal to the reasonable and proper
sum or sums properly paid by the Landlord in performance of
the Landlord's covenant for insurance in Clause 5.2 such
yearly rent to be paid on demand and Thirdly on demand from
time to time by the Company or its duly appointed agent the
Percentage Proportion of the Estate Expenses and in the event
that any such sum thirdly payable hereunder remains unpaid
fourteen (14) days after becoming due and payable the Tenant
will pay Interest thereon
TENANT'S COVENANTS
3 THE TENANT covenants with the Landlord and separately (in
respect of sub-clauses 3.7 and 3.17 and 3.22.4 - 3.22.8 inclusive and 3.29
only) with the Company:-
RENT
3.1 To pay the Rents together with any Value Added Tax thereon
(but only following delivery of a valid Value Added Tax
invoice addressed to the Tenant) at the times and in manner
aforesaid without any deduction (except as aforesaid) and if
so required by bankers standing order
3.2 3.2.1 To defray (or in the absence of direct
assessment on the Premises to pay to the
Landlord a fair proportion of) all existing
and future community charges rates taxes
assessments charges and outgoings payable in
respect of the Premises or any part thereof
by any estate owner landlord tenant or
occupier thereof (save only for any such
occasioned by any disposition of or dealing
with or the ownership of any estate or
interest expectant in reversion on the
termination of the Term)
OUTGOINGS 3.2.2 If before the termination of the Term the
Tenant or any undertenant or occupier of the
Premises or any part thereof shall cease to
occupy the same or to use the same for the
5
<PAGE> 7
purpose for which the same were constructed
or have been adapted and if after the
termination of the Term the Landlord shall
pursuant to section 17 or 17A of the General
Rates Act 1967 pay any rates or surcharge
additional to rates to pay to the Landlord a
sum equal to the amount of such payments
attributable to such cessation of occupation
or use and in addition to any such payments
that the Landlord would have had to make if
such cessation had not taken place
CHARGES FOR SERVICES
3.3 3.3.1 To pay the suppliers thereof all charges for
gas water electricity and other services
(including meter rents) consumed in the
Premises during the Term
3.3.2 To comply with the requirements and
regulations of the supply authority with
regard to the electrical wiring
installations and equipment and (if any) the
gas pipes installations and equipment in the
Premises PROVIDED THAT the Tenant will
within 28 days of the Landlord's request
supply such details of any alterations or
additions carried out by or on behalf of the
Tenant as the Landlord may reasonably
require and PROVIDED FURTHER that the Tenant
will at the request of the Landlord upon the
termination of the term remove any such
alterations or additions and reinstate the
installations and make good any damage
caused to the reasonable satisfaction of the
Landlord
REPAIR
3.4 3.4.1 At all times during the said term to keep
the Premises and every part thereof and all
additions thereto and the Landlord's
fixtures and fittings thereon (including all
windows window frames doors door frames
plate glass and fibreglass and the pipes and
sanitary and water apparatus thereof) in
good and substantial repair and condition
(damage by an Insured Risk or resulting from
an Inherent Defect excepted)
3.4.2 Without prejudice to the generality of the
preceding paragraph 3.4.1 of this sub-clause
at all times to keep the Machinery in or
about the Premises in proper repair and in
good working order
6
<PAGE> 8
and condition keeping the same free from
rust and clean and oiled and from time to
time to replace renew and reinstate any
parts of the machinery which may become
broken lost worn out or unfit for use
3.4.3 to maintain in working order and to power
the lights affixed to the exterior of the
Premises for the purposes of providing light
to those parts of the Estate adjacent to the
Premises
PERMISSION FOR REINSTATEMENT
3.5 If the Premises shall be destroyed or damaged by any of the
Insured Risks if so required to join with the Landlord but at
the Landlord's cost in making application for any planning or
other permission necessary for rebuilding or reinstating the
Premises
MAINTENANCE OF MACHINERY
3.6 To enter into agreements with the manufacturers or with the
approved maintenance contractors for the regular inspection
and servicing of the machinery serving any lifts or lift
shafts or heating or air-conditioning system in the Premises
EXTERNAL PAINTING
3.7 In the third year of the Term and in the last year of the Term
(provided that the Tenant shall be under no obligation to
carry out such works twice in any period of twelve months) in
a proper and workmanlike manner to clean all the outside
surfaces of the Premises and thereafter prepare and paint all
outside surfaces usually painted with three coats of good
quality paint of an approved colour
INTERNAL PAINTING
3.8 3.8.1 In every fifth year of the Term and the last
three months of the last year of the Term in
a proper and workmanlike manner to prepare
and paint all inside surfaces of the
Premises usually painted with two coats of
good quality paint and to strip and repaper
all inside surfaces usually papered and to
restore all other inside surfaces to their
proper condition and appearance
3.8.2 In complying with this covenant in the last
three months of the last year of the Term to
use only material of an approved colour
quality and finish
7
<PAGE> 9
LANDLORD'S RIGHT OF INSPECTION
3.9 To permit the Landlord and any authorised person at all
reasonable and mutually convenient times upon previous notice
to enter and inspect the Premises
COMPLIANCE WITH NOTICES TO REMEDY
3.10 3.10.1 To comply with any notice given by the
Landlord requiring the Tenant to remedy any
breach of the Tenant's covenants found upon
any such inspection
3.10.2 If the Tenant shall not within a reasonable
time (in the context of the relevant breach)
comply with any such notice to permit the
Landlord and any authorised person to enter
the Premises to remedy any such breach
3.10.3 To pay to the Landlord on demand all the
reasonable costs and expenses properly
incurred by the Landlord under the
provisions of sub-clause 3.10.2.
WINDOW CLEANING
3.11 To clean the windows in the Premises as often as shall be
reasonably necessary
YIELD UP
3.12 At the termination of the Term
3.12.1 to yield up the Premises (tenant's or trade
fixtures only excepted) fully in accordance
with the foregoing Tenant's covenants as to
repair
3.12.2 to make good any damage caused to the
Premises by the removal of the Tenant's
fixtures fittings furniture and effects and
by the reinstatement of the Premises
pursuant to any covenant with the landlord
REIMBURSEMENT OF EXPENDITURE
3.13 To reimburse to the Landlord all reasonable expenditure
properly incurred by the Landlord forthwith after the
termination of the Term in repairing painting and decorating
the Premises so as to put them into the condition required by
the foregoing Tenant's covenants
8
<PAGE> 10
MAINTENANCE OF PARTY WALLS
3.14 To pay a fair proportion (to be determined by the Landlord's
Surveyor acting reasonably) of the reasonable expenses
properly incurred in respect of any repairing and cleansing of
any party walls fences sewers drains channels sanitary
apparatus pipes wires passageways stairways entrance ways
roads pavements and other things the use of which is common to
the Premises and to other property
WORK ON ADJOINING PROPERTY
3.15 To permit the Landlord and any authorised person at all
reasonable and mutually convenient times upon reasonable prior
notice (save in cases of emergency) to enter the Premises to
repair renew cleanse or alter any adjoining or neighbouring
property including the Amenity Area PROVIDED that such rights
shall only be exercised where it is otherwise not reasonably
possible to carry out such works and the Landlord shall use
all endeavours to cause the minimum possible inconvenience or
disruption to the Tenant and shall make good forthwith all
damage to the Premises caused by such works
ALTERATIONS AND WASTE
3.16 Not without the consent of the Landlord to erect or permit or
suffer to be erected any other building structure pipe wire
mast or post upon the Premises nor to make or permit or suffer
to be made any alteration therein or addition thereto
(PROVIDED THAT this provision shall not apply to internal
demountable partitioning which the Tenant may install or
remove without the need for any consent) nor alter the
external appearance of the Premises nor to commit or permit or
suffer any waste spoil or destruction in or upon the Premises
nor (save for the purpose of affixing fixtures and fittings
partitioning or similar items) to cut injure or remove or
suffer to be cut injured or removed any of the roofs
structural walls (whether outside or inside) floors joists
timbers wires pipes drains appurtenances or fixtures thereof
SIGNAGE
3.17 Not to affix or display or permit or suffer to be affixed or
displayed upon any part of the exterior of the Premises or to
or through any window thereof any placard poster notice
advertisement name or sign whatsoever except
9
<PAGE> 11
3.17.1 ones that shall previously have received the
Consent of the Landlord or
3.17.2 as may be permitted pursuant to paragraph 5
of Part I of the Second Schedule hereto
NOTICES RECEIVED
3.18 Within seven days of the receipt by the Tenant of any notice
order requisition direction or plan given made or issued to or
by a competent authority affecting the Premises or the
occupation or user thereof to supply a copy thereof to the
Landlord and to make or join in making such objections or
representations against or in respect thereof as the Landlord
may reasonably require but at the Landlord's cost
REQUIREMENTS OF ANY ACT OR COMPETENT AUTHORITY
3.19 To comply in every respect with the provisions of any Act or
the requirements of any competent authority in respect of the
Premises or any part thereof or in respect of the occupation
or user thereof and to indemnify the Landlord against all
claims demands expenses and liability in respect of any breach
thereof by the Tenant and to pay all reasonable costs charges
and expenses properly incurred by the Landlord as a result of
any such breach by the Tenant
PLANNING ACTS
3.20 Without prejudice to the generality of the last preceding
sub-clause not without the Consent of the Landlord in relation
to the Planning Acts
3.20.1 to make any application for planning
permission in respect of the Premises or any
part thereof whether in respect of the
carrying out of any operations works act or
things or the user of the Premises or any
part thereof
3.20.2 to carry out any operations works acts or
things in the Premises or any part thereof
or make any change of use of the same for
which planning permission needs to be
obtained
USE
3.21 To use and occupy the Premises only for general
industrial/high technology purposes within B1 and B2 of the
Town and Country Planning (Use Classes) Order 1987 with any
proper ancillary use (and the reference to that Order is to be
construed so as to include any modification or re-enactment of
that Order)
10
<PAGE> 12
PROHIBITED MATERIAL
3.22 3.22.1 Save for any such materials or liquid needed
by the Tenant in its business (provided
prior approval of the Landlord's insurers
where necessary has been obtained and that
any such liquids or materials are handled
and stored in a safe and proper manner and
excessive quantities are not kept on the
Premises) not to store or bring upon the
Premises any materials or liquid of a
specially combustible inflammable dangerous
or offensive nature
3.22.2 Not to do any act or thing whereby any
insurance effected on the Premises or any
adjoining property may be rendered void or
voidable or the rate of premium thereon may
be increased and to comply with all
requirements of the insurers as to fire
precautions relating to the Premises
3.22.3 Not to use the Premises or any part thereof
for any illegal or immoral purpose
3.22.4 To comply with all reasonable regulations
made from time to time by the Company in
respect of the Amenity Area and the Parking
Area and their use including (without
limitation) reasonable directions from time
to time given by the Company for the
regulation and control of vehicle movement
within the Amenity Area and the Parking Area
but not so as to interfere with the rights
granted in Part I of the Second Schedule
3.22.5 Not to interfere with or disturb the
existing layout of the Amenity Area and not
to place or permit or suffer to be placed
any obstruction (including without
limitation skips and packing cases)
whatsoever on the Amenity Area or in any way
hinder or block the roads on the Amenity
Area so as to restrict or hamper access to
the remainder of the Estate or neighbouring
land or Property and to use the Parking Area
only for the parking of private motor
vehicles
3.22.6 Not to cause or permit or suffer any rubbish
litter or packing materials to be left or
strewn on the Amenity Area or the Parking
Area
11
<PAGE> 13
3.22.7 Not to cause or permit or suffer the Amenity
Area to be used in any manner as will or may
cause damage to it or any nuisance annoyance
or inconvenience to the Landlord or the
Company or to the owners or occupiers of any
building on the Estate or to any other
person entitled to use the Amenity Area or
to any neighbouring owners or occupiers
subject only to the lawful and proper
exercise by the Tenant of rights expressly
granted to it under this Lease
3.22.8 Not to obstruct or pollute or cause damage
to any of the conduits on the Estate
3.22.9 Not to bring into or upon the Premises or do
anything which might throw on the Premises
any load or weight in excess of that which
the Premises are designed or constructed to
bear with due margin for safety nor to cause
any undue vibration to the Premises by
machinery or otherwise
3.22.10 Not to hold in the Premises any sale by
auction public exhibition or political
meeting
PROVIDED THAT it shall only be a breach by the Tenant of the
sub-paragraphs of this sub-clause 3.22 for the Tenant itself
to commit or for the Tenant to permit or suffer by those under
the control of the Tenant to commit any act expressly
prohibited in this sub-clause
ALIENATION
3.23 3.23.1 Alienation prohibited
Not to hold the Premises on trust for
another and not to part with the possession
of the Premises or any part of them or
permit another to occupy them or any part of
them except pursuant to a transaction
permitted by and effected in accordance with
the provisions of this Lease
3.23.2 Assignment, subletting and charging of part
Not to assign, sublet or charge part only of
the Premises
3.23.3 Assignment of the whole
Subject to clauses 3.23.4 Circumstances and
3.23.5 Conditions, not to assign the whole
of the Premises without the consent of the
Landlord (which shall not be unreasonably
withheld or delayed)
12
<PAGE> 14
3.23.4 Circumstances
If any of the following circumstances -
which are specified for the purposes of the
Landlord and Tenant Act 1927 section 19(1A)
- applies either at the date when
application for consent to assign is made to
the Landlord, or after that date but before
the Landlord's consent is given, the
Landlord may withhold his consent and if,
after the Landlord's consent has been given
but before the assignment has taken place,
any such circumstances apply, the Landlord
may revoke his consent, whether his consent
is expressly subject to a condition as
referred to in subclause 3.23.5.4 of clause
3.23.5 Conditions or not. The circumstances
are:-
3.23.4.1 that any sum lawfully due
from the Tenant under this
Lease remains unpaid in
circumstances where the
Landlord has given express
notice of the same to the
Tenant
3.23.4.2 that in the Landlord's
reasonable opinion the
assignee is not a person
who is likely to be able
to comply with the
tenant's covenants in this
Lease and to continue to
be able to comply with
them following the
assignment,
3.23.4.3 that the assignee or any
guarantor for the assignee
(other than any guarantor
under an authorised
guarantee agreement,) is a
corporation registered or
otherwise resident in a
jurisdiction in which the
order of a court obtained
in England and Wales will
not necessarily be
enforced against the
assignee or guarantor
without any consideration
of the merits of the case.
3.23.5 Conditions
The Landlord may impose any or all of the
following conditions ( which are specified
for the purposes of the Landlord and Tenant
Act 1927 section 19(1A) ) on giving any
13
<PAGE> 15
consent for an assignment by the Tenant, and
any such consent is to be treated as being
subject to each of the following:-
3.23.5.1 a condition that upon or before any
assignment and before giving occupation to
the assignee, the Tenant requesting consent
to assign must enter into an authorised
guarantee agreement in favour of the
Landlord substantially in the terms set out
in the Fifth Schedule (The Authorised
Guarantee Agreement)
3.23.5.2 a condition that if reasonably so required
by the Landlord on an assignment to a
limited company, the assignee must ensure
that some other guarantor or guarantors
acceptable to the Landlord, enter into
direct covenants with the Landlord that the
assignee will throughout the residue of the
term of this Lease observe and perform the
covenants on the part of the Tenant
contained in this Lease
3.23.5.3 a condition that upon or before any
assignment, the Tenant making the request
for consent to assign must give to the
Landlord a copy of the health and safety
file required to be maintained under the
Construction (Design and Management)
Regulations 1994 containing full details of
all works undertaken to the Premises by that
Tenant, and
3.23.5.4 a condition that if, at any time before
completion of the assignment, the
circumstances specified in clause 3.23.4
Circumstances, or any of them apply, the
Landlord may revoke the consent by written
notice to the Tenant
14
<PAGE> 16
3.23.6 Subletting
Not to sublet the whole of the Premises
without the consent of the Landlord (which
shall not be unreasonably withheld or
delayed)
3.23.7 Terms of a permitted sublease
Every permitted sublease must be granted,
without a fine or premium at a rent not less
than whichever is the greater of the then
open market rent payable in respect of the
Premises or the rent payable under this
Lease and the rent payable under the
sublease payable in advance on the days on
which the Rent is payable under this Lease.
Every permitted sublease must contain
provisions:-
3.23.7.1 prohibiting the subtenant
from doing or allowing
anything in relation to
the Premises inconsistent
with or in breach of the
provisions of this Lease,
3.23.7.2 for re-entry by the
sub-landlord on breach of
any covenants by the
subtenant,
3.23.7.3 imposing an absolute
prohibition against any
further subletting of the
whole or any part of the
Premises,
3.23.7.4 prohibiting assignment of
the whole of the Premises
without the consent of the
Landlord under this Lease
(which consent shall not
be unreasonably withheld
or delayed)
3.23.7.5 requiring the assignee on
any assignment of the
sublease to enter into
direct covenants with the
Landlord to the same
effect as those contained
in clause 3.23.8
Sub-Tenant's Direct
Covenants,
3.23.7.6 prohibiting the sub-tenant
from holding on trust for
another or permitting
another to share or occupy
the whole or any part of
the Premises save with a
group company of the
15
<PAGE> 17
sub-tenant on the same
basis as in clause 3.23.11
of this Lease
3.23.7.7 imposing in relation to
any permitted assignment
or charge the same
obligations for
registration with the
Landlord as are contained
in this Lease in relation
to dispositions by the
Tenant
3.23.8 Subtenant's direct covenants
Before any permitted subletting, to ensure
that the subtenant enters into a direct
covenant with the Landlord that while he is
bound by the tenant's covenants in the
sublease the subtenant will observe and
perform the tenant's covenants contained in
this Lease (except the covenant to pay the
rent reserved by this Lease ) and in that
sublease.
3.23.9 Sublease rent review
3.23.9.1 the Tenant must ensure
that the rent is reviewed
in accordance with the
terms of the sublease,
3.23.9.2 the Tenant must not agree
the reviewed rent with the
subtenant without the
approval of the Landlord
3.23.9.3 where the sublease
provides such an option
the Tenant must not
without the approval of
the Landlord agree whether
the third party
determining the revised
rent in default of
agreement should act as an
arbitrator or as an expert
3.23.9.4 the Tenant must not,
without the approval of
the Landlord agree any
appointment of a person to
act as a third party
determining the revised
rent
3.23.9.5 the Tenant must
incorporate as part of his
representations to that
third party
representations required
by the Landlord, and
16
<PAGE> 18
3.23.9.6 the Tenant must give
notice to the Landlord of
the details of the
determination of every
rent review within seven
days
3.23.10 Registration of permitted dealings
Within 28 days of any assignment, charge or
sublease or any transmission or other
devolution relating to the Premises, to
produce a certified copy of any relevant
document for registration with the
Landlord's Solicitor, and to pay the
Landlord's Solicitor's reasonable charges
for registration of at least (pound)25.00.
3.23.11 Sharing with a group company
Notwithstanding clause 3.23.1 Alienation
Prohibited the Tenant may share occupation
of the whole or any part of the Premises
with a company that is a member of the same
group as the Tenant within the meaning of
the Landlord and Tenant Act 1954 section 42,
for so long as both companies remain members
of that group and otherwise than in a manner
that transfers or creates a legal estate
NOTICE OF DAMAGE
3.24 In the event of the Premises being destroyed or damaged to
give notice thereof immediately upon becoming aware of the
same to the Landlord stating (if possible) the cause of such
destruction or damage
SALE OR RE-LETTING NOTICES
3.25 To permit the Landlord during the Term to affix and
retain without interference upon any suitable and conspicuous
part of the Premises (but not so as materially to affect the
access of light and air to the Premises) a notice for
reletting the same (if the termination of the Term is a
prospective possibility) or selling the Landlord's interest in
the Premises and to permit persons with written authority of
the Landlord or the Landlord's agent at reasonable and
mutually convenient times of the day to view the Premises
accompanied by the Landlord or its agent
17
<PAGE> 19
COSTS
3.26 To pay to the Landlord on demand all reasonable and proper
costs charges and expenses (including reasonable and proper
legal and surveyors' fees and costs and value added tax
thereon) of and incidental to:-
3.26.1 every application made by the Tenant for the
consent of the Landlord where the same be
granted or lawfully refused or proffered
subject to any lawful qualification or
condition or where the application be
withdrawn
3.26.2 the preparation and service of a notice
under Section 146 of the Law of Property Act
1925 notwithstanding that forfeiture is
avoided otherwise than by relief granted by
the Court
3.26.3 any schedule relating to wants of repair to
the Premises whether served during or within
three months after the termination of the
Term
3.26.4 the preparation and completion of this Lease
and Stamp Duty payable on the Counterpart
INTEREST
3.27 To pay to the Landlord Interest on any sum due pursuant to the
provisions of this Lease and the aggregate amount for the time
being so payable shall at the option of the Landlord be
recoverable by action or as rent in arrear
VALUE ADDED TAX
3.28 Whenever any sum is payable by the Tenant on which Value Added
Tax or any other tax is properly payable on presentation of a
proper VAT invoice to pay to the Landlord in addition to such
sum the amount of the Value Added Tax or other tax thereon at
the rate applicable to that payment
OBSTRUCTIONS AND EASEMENTS
3.29 Not permanently to obstruct or permit or suffer to be
obstructed any of the windows lights or ventilators belonging
to the Premises nor to permit or suffer any new window light
ventilator passage drainage or other encroachment or easement
to be made into against or over the Premises or any part
thereof AND in case any encroachment or easement whatsoever
shall be attempted to be made or acquired by any person
whomsoever to give notice thereof to the Landlord immediately
the same shall come to the knowledge of the Tenant and at the
cost of the Tenant do all such things as
18
<PAGE> 20
may be proper for preventing any new encroachment or easement
being made or acquired
LANDLORDS TITLE
3.30 Not to breach the covenants and provisions affecting the title
of the Landlord specified in the Third Schedule
COVENANTS BY THE COMPANY
4 THE COMPANY covenants with the Tenant and (separately) with
the Landlord as follows :-
4.1 To keep the Amenity Area and the Parking Area (including plant
and equipment and service systems but excluding any conduit
exclusively serving any individual building within the Estate)
in good and substantial repair and condition and properly
cleansed lighted landscaped and made up as necessary
4.2 To insure the Amenity Area and the Parking Area with a
reputable insurance company or with Lloyd's Underwriters in no
less than the full reinstatement value of the Amenity Area
(including in that expression without limitation architects'
and surveyors' and other professional fees allowance for
inflation in building costs demolition and site clearance
expenses Value Added Tax and all other incidental expenses)
against loss or damage by fire explosion storm tempest
(including lightning) flood burst pipes and impact and (in
peacetime) aircraft and articles dropped therefrom riot civil
commotion and malicious damage and such other risks as would
normally from time to time be insured against in a
comprehensive policy and the insurance policy for the Amenity
Area and the Parking Area will contain no unusual excesses
limitations or conditions
4.3 To insure the Amenity Area and the Parking Area with a
reputable insurance company or with Lloyds's Underwriters
against public liability of the Company (and the landlord
while the Landlord has any interest in the Amenity Area)
arising out of or in connection with any matter involving or
relating to the Amenity Area
4.4 At the reasonable request of the Tenant to deliver to the
Tenant a copy of the insurance policies effected under clauses
4.2 and 4.3 and all endorsements to date and sufficient
evidence of the payment of the last premium
19
<PAGE> 21
4.5 To observe and perform such covenants stipulations conditions
and restrictions as are contained or referred to in the
Property and Charges Register of Land Registry Title Number
NN163570 insofar as they affect the Amenity Area and will
indemnify the Tenant and (separately) the Landlord against all
costs claims demands and proceedings as may arise in respect
of any breach of any of such covenants stipulations conditions
and restrictions
4.6 To remunerate on a reasonable and proper basis any surveyor
accountant or other professional adviser or any other agent or
other person as the Company in any case may reasonably in its
discretion from time to time decide are needed in connection
with or ancillary to the performance and observance of the
obligations undertaken by the Company under this Lease and the
general management of the Amenity Area and the Parking Area
4.7 To pay the proper cost of all charges assessments and
outgoings including general rates water rates electricity and
gas charges relating to the Amenity Area including without
limitation the cost (if applicable) of lighting the Amenity
Area and the Parking Area
4.8 To procure that the affairs of the Company are administered in
a proper and efficient manner
4.9 To make provisions for the establishment of a sinking fund in
such sum as the Company may at its reasonable discretion from
time to time decide
COVENANTS BY THE LANDLORD
5 THE LANDLORD covenants with the Tenant:
QUIET ENJOYMENT
5.1 That the Tenant paying the Rents and performing and observing
the covenants and stipulations on the part of the Tenant
herein shall peaceably hold and enjoy the Premises during the
Term without any interruption by the Landlord or any person
rightfully claiming under or in trust for the Landlord
INSURANCE
5.2 5.2.1 Office, underwriters and agency
To effect and maintain insurance in respect
of the Premises and the Estate in such
substantial and reputable insurance office,
or with such underwriters and through such
agency of similar
20
<PAGE> 22
substance and repute as the Landlord from
time to time reasonably decides
5.2.2 To effect and maintain such insurance for
the following amounts:
5.2.2.1 the sum that the Landlord
is from time to time
properly advised by the
Surveyor is the full cost
of rebuilding and
reinstating the Premises,
including VAT,
architects', surveyors',
engineers', solicitors'
and all other professional
persons' fees, the fees
payable on any
applications for planning
permission or other
permits or consents that
may be required in
relation to rebuilding or
reinstating the Premises,
the cost of preparation of
the site including
shoring-up, debris
removal, demolition, site
clearance and any works
that may be required by
statute, and incidental
expenses, and
5.2.2.2 loss of the Rent for three
years.
5.2.3 Risks insured To effect and maintain such
insurance against damage or destruction by
any of the Insured Risks to the extent that
such insurance may ordinarily be arranged
with a substantial and reputable insurer for
properties such as the Premises subject to
such proper excesses exclusions or
limitations as the insurer reasonably and
properly requires
5.2.4. In the event of damage or destruction by any
of the Insured Risks to rebuild or reinstate
the Premises forthwith and to obtain all
necessary consents in relation thereto
5.2.5 To procure that there be given a copy of any
relevant policy of insurance to the Tenant
on all reasonable occasions that he the
Tenant shall so request together with
evidence of the current Premium and that it
has been paid
5.2.6 To procure that the insurers under the
relevant policy or policies of insurance
waive their rights of subrogation against
21
<PAGE> 23
the Tenant and any lawful occupier of the
Premises and further to procure that the
relevant policy or policies contain a
non-invalidation clause in respect of any
acts or defaults of the Tenant or other
lawful occupier of the Premises
TRANSFER OF SHARES
5.3 Not to transfer its shares in the Company to anyone who is not
the freeholder of or does not hold some other legal interest
in the Premises
5.4. To procure a covenant by the Transferee of any shares in the
Company that it will not part with its interest in the
Premises without contemporaneously transferring its shares to
a person or company having a legal interest in the Premises
5.5 During such periods as any part of the Estate is not let on a
tenancy containing similar tenant's covenants in relation to
the maintenance use and payment of the Estate Expenses to
those herein set out or until such time as the freehold of
such unit is sold subject to such covenants at its own cost to
use all reasonable endeavours to procure the observance and
performance of such covenants in relation to any such part of
the Estate
LANDLORD TO ENFORCE COVENANTS
5.6 At the expense of the Tenant to observe and perform or (where
the relevant part of the Estate is owned or tenanted by a
third party) to enforce against the owner or occupier for the
time being of any other part of the Estate covenants of the
nature of those on the part of the Tenant contained in this
Lease :
5.7 To carry out any repairs maintenance reinstatement replacement
rebuilding or other works to the Premises arising from any
Inherent Defects
PROVISOS
6 IF:-
6.1 the Rents or any part thereof shall be in
arrear for 21 days after becoming payable
(whether formally demanded or not) or
6.2 there shall be any breach non-performance
or non-observance of any of the Tenant's
covenants or
6.3 the Tenant (being an individual) shall
become bankrupt or (being a company) shall
enter into liquidation whether
22
<PAGE> 24
compulsory or voluntary (save for the
purpose of amalgamation or reconstruction of
a solvent company) or
6.4 the Tenant shall enter into any arrangement
or composition for the benefit of the
Tenant's creditors
it shall be lawful for the Landlord at any time thereafter to
re-enter the Premises or any part thereof in the name of the
whole and thereupon the Term shall absolutely determine but
without prejudice to any rights of action of the Landlord or
the Tenant in respect of any antecedent breach by the other of
any of the covenants or conditions herein
SUSPENSION OF RENT
7 IF the Premises or the Parking Area or the means of access
thereto from the public highway shall at any time during the Term be so damaged
or destroyed by any of the Insured Risks so as to render the Premises unfit for
occupation and use or incapable of being occupied by virtue of inaccessibility
then (unless the insurance money shall be wholly or partly irrecoverable by
reason solely or in part of any act or default of the Tenant) the Rents or a
fair proportion thereof according to the nature and extent of the damage
sustained shall be suspended until the date when the Premises shall again be
rendered fit for occupation and use or until the date three years from the date
of such damage or destruction whichever date shall be the earlier and any
dispute with reference to this proviso shall be referred to arbitration in
accordance with the Arbitration Act 1950
TERMINATION AND RECONSTRUCTION
8 IF within three years of the Premises the Parking Area or the
means of access thereto from the public highway being destroyed or so damaged by
any of the Insured Risks so as to render the Premises unfit for occupation and
use or incapable of being occupied by virtue of inaccessibility and the Premises
or any material part of them still being unfit for use or occupation or
inaccessible
8.1 either party may by not less than three
months' notice expiring at any time
determine the Term and upon the expiry of
such notice the Term shall determine without
prejudice to any remedy of either party
against the other in respect of any
antecedent breach of covenant or condition
herein
8.2 if the Term is determined under sub-clause
8.1 the insurance monies (other than monies
received for loss of rent) received
23
<PAGE> 25
by the Landlord shall be apportioned between the Landlord and
the Tenant in proportion to the values of their respective
interests in the Premises
NO WARRANTY AS TO USE
9 Nothing herein shall be deemed to constitute any warranty by
the Landlord that the Premises or any part thereof are under the Planning Acts
authorised for use for any specific purpose
SERVICE OF NOTICES
10 Section 196 of the Law of Property Act 1925 as amended by the
Recorded Delivery Services Act 1962 shall apply to the service of any notice
required to be served under this Lease
LIABILITY LIMITED
11 The liability of Michael John Daniels and Robert Denis
Bowerman in relation to the covenants contained in this Lease shall be limited
to the assets of the Reynard Racing Cars Limited Directors' Pension Scheme
STAMP DUTY CERTIFICATE
12 It is hereby certified that for the purposes of Section
240(2)(a) Finance Act 1994 there is no agreement to which this Lease gives
effect
IN WITNESS whereof the parties hereto have executed this instrument as a Deed
and have delivered it upon dating it.
FIRST SCHEDULE
The Premises
------------
All those premises known as Unit 1A Reynard Park Brackley Northamptonshire as
the same are shown for identification purposes only tinted blue on the Plan
24
<PAGE> 26
SECOND SCHEDULE
Part I
Rights granted
--------------
1 The right at all times for the purposes of going to and from
the Premises to pass and repass with or without vehicles over
the roadways within the Amenity Area (but excluding the right
to pass and repass over any car parking spaces other than
those in the Parking Area) and on foot only over the footpaths
within the Amenity Area
2 The right to free passage of Services through any conduits now
laid or to be laid within the Perpetuity Period in or under
the Amenity Area or the Parking Area or any other building on
the Estate for the benefit in any case of the Premises
(whether or not also for the benefit of the other buildings
within the Estate) together with the right on reasonable prior
written notice to the Company and any owner or occupier for
the time being of any building on the Estate affected by such
entry (except in case of emergency) to enter the Amenity Area
or the Parking Area for the purpose of repairing maintaining
and (where necessary) renewing any conduit that exclusively
serves the Premises and a similar right on similar terms for
similar purposes (but only insofar as any such repair or
maintenance or renewal cannot practicably be carried out
without such entry) to enter any other building on the Estate
the person exercising such right doing as little damage as
possible and making good all damage caused by such entry
3 The right on reasonable prior written notice to the Company
and any owner or occupier for the time being of any building
on the Estate affected by such entry (except in case of
emergency) to enter the Amenity Area and the Parking Area and
any building within the Estate adjoining the Premises for the
purpose of carrying out repairs or maintenance to any part of
the Premises which cannot be practicably carried out without
such entry the person exercising such right doing as little
damage as possible and making good all damage caused by such
entry
4 The right of support and protection from any building
adjoining the Premises from time to time
5 The right to exhibit the name of the Tenant on the signboard
at the entrance to the Estate and in the style on the
signboard to be approved by the Company (such approval not to
be unreasonably withheld or delayed)
25
<PAGE> 27
6 The exclusive right for the Tenant and those authorised by the
Tenant to park private motor vehicles in the spaces provided
in the Parking Area
Part II
Rights reserved
---------------
1 The right of free passage and running of water and soil in
and through the sewers drains and channels made or to be
made upon through or under the Premises and the free and
uninterrupted use of all gas electric telephone and other
pipes wires cables and flues upon through or under the same
2 All rights of light air and other easements and rights (but
without prejudice to those expressly hereinbefore granted
to the Tenant) now or hereafter belonging to or enjoyed by
the premises from or over any adjoining or neighbouring
land or building
3 The right to build or rebuild or alter any adjoining or
neighbouring land or building in any manner whatsoever and
to let the same for any purpose or otherwise deal therewith
notwithstanding that the light or air to the Premises is in
any such case thereby diminished
4 The right to support and shelter and all other easements
and rights now or hereafter belonging to or enjoyed by all
adjoining or neighbouring land or buildings in respect of
which an interest in possession or reversion is at any time
during the Term vested in the Landlord
THIRD SCHEDULE
Covenants and provisions affecting the Landlord's title
-------------------------------------------------------
The matters referred to in the Charges Register of the freehold title number
NN163570
FOURTH SCHEDULE
(Details of Estate Expenses)
----------------------------
1 The reasonable costs and expenses properly incurred by the
Company from time to time in performing its obligations under
Clause 4
2 Any reasonable costs and expenses properly incurred by 2the
Company in providing necessary caretaking and/or security
services to the Estate
3 Any costs and expenses properly incurred by the Company in
providing any additional services or facilities from time to
time as the Company reasonably considers desirable for the
benefit of the Estate as a whole acting in the best interests
of all the occupants of the Estate
26
<PAGE> 28
FIFTH SCHEDULE
THE AUTHORISED GUARANTEE AGREEMENT
THIS GUARANTEE is made the ......... day of................... 19 BETWEEN
(1) ADRIAN JOHN REYNARD of Reynard Centre Telford Road Bicester
Oxfordshire and MICHAEL JOHN DANIELS of Kingswood House 29
North Street Bicester aforesaid and ROBERT DENIS BOWERMAN
of Park House Over Worton Chipping Norton Oxfordshire ("the
Landlord") and
(2) _______________________________ the registered office
of which is
("the Tenant")
NOW THIS DEED WITNESSES as follows:
1 DEFINITIONS AND INTERPRETATION
For all purposes of this guarantee the terms defined in this clause have the
meanings specified.
1.1 "THE ASSIGNEE"
"The Assignee" means .....
1.2 "THE LEASE"
"The Lease" means the lease dated............ 19 and made
between (1) Adrian John Reynard and Michael John Daniels and
Robert Denis Bowerman ("the Landlord") and (2) Reynard
Motorsport Limited ("the Tenant") and (3) R.T.C. Management
Company Limited for a term of twelve years commencing on and
including 11th May 1998
1.3 "THE PREMISES"
"THE PREMISES" means the premises demised by the Lease.
1.4 "THE LIABILITY PERIOD"
"The Liability Period" means the period during which the
Assignee is bound by the tenant covenants of the Lease which
shall not exceed the unexpired residue of the contractual term
of the Lease
1.5 TERMS FROM THE LANDLORD AND TENANT
(COVENANTS) ACT 1995
The expressions "authorised guarantee agreement" and "tenant
covenants" have the same meaning in this guarantee as in the
Landlord and Tenant (Covenants) Act 1995 section 28(1).
27
<PAGE> 29
1.6 REFERENCES TO CLAUSES
Any references in this deed to a clause without further
designation is to be construed as a reference to the clause of
this deed so numbered
2 RECITALS
2.1 CONSENT REQUIRED
The Landlord's consent to an assignment of the Lease is
required.
2.2 AGREEMENT TO CONSENT
The Landlord has agreed to give consent to the assignment to
the Assignee on condition that the Tenant enters into this
guarantee.
2.3 EFFECTIVE TIME
This guarantee takes effect only when the Lease is assigned to
the Assignee
3 TENANT'S COVENANTS
In consideration of the Landlord's consent to the assignment the Tenant
covenants with the Landlord and without the need for any express assignment with
all his successors in title as set out in this clause 3.
3.1 PAYMENT AND PERFORMANCE
The Assignee shall punctually pay the rents reserved by the
Lease and observe and perform the covenants and other terms of
it throughout the Liability Period, and if at any time during
the Liability Period the Assignee defaults in paying the rents
or in observing or performing any of the covenants or other
terms of the Lease, the Tenant shall pay the rents and observe
and perform the covenants or terms in respect of which the
Assignee is in default and make good to the Landlord on demand
and indemnify the Landlord against all losses damages costs
and expenses resulting from such non-payment, non-performance
or non-observance notwithstanding:-
3.1.1 any time or indulgence granted by the
Landlord to the Assignee or any neglect or
forbearance of the Landlord in enforcing the
payment of the rents or the observance or
performance of the covenants or other terms
of the Lease, or any refusal by the Landlord
to accept rents tendered by or on behalf of
the Assignee at a time when the Landlord is
entitled, or will after the service of a
notice
28
<PAGE> 30
under the Law of Property
Act 1925 section 146 be
entitled, to re-enter the
Premises
3.1.2 that the Assignee has
surrendered part of the
Premises in which event
the liability of the
Tenant under the Lease is
to continue in respect of
the part of the Premises
not surrendered after
making any necessary
apportionments under the
Law of Property Act 1925
section 140, and
3.1.3 anything else by which,
but for this clause 3.1,
the Tenant would have been
released.
3.2 NEW LEASE FOLLOWING DISCLAIMER
If, during the Liability Period any trustee in bankruptcy or
liquidator of the Assignee disclaims the Lease, the Tenant
shall , if required by notice served by the Landlord within
sixty days of the Landlord becoming aware of the disclaimer
take from the Landlord forthwith a lease of the Premises for
the residue of the contractual term of the Lease as at the
date of the disclaimer, at the rent then being paid under the
Lease and subject to the same covenants and terms as in the
Lease (except that the Tenant need not ensure that any other
person is made a party to that lease as guarantor) the new
lease to commence on the date of the disclaimer and the Tenant
shall pay the reasonable and proper costs of the new lease and
execute and deliver to the Landlord a counterpart of it.
4 SEVERANCE
4.1 SEVERANCE OF VOID PROVISIONS
Any provision of this deed rendered void by virtue of the
Landlord and Tenant (Covenants) Act 1995 section 25 is to be
severed from all remaining provisions and the remaining
provisions are to be preserved.
4.2 LIMITATIONS OF PROVISIONS
If any provision of this deed extends beyond the limits
permitted by the Landlord and Tenant (Covenants) Act 1995
section 25, that provision is to be varied so as not to extend
beyond those limits.
29
<PAGE> 31
SIXTH SCHEDULE
RENT REVIEWS
1 THE REVIEW DATES
The yearly rent payable under this Lease is to be reviewed on the expiry of the
fifth year and the tenth year of the Term (referred to in this Schedule as "the
review date(s)" (and "the relevant review date" is to be construed accordingly)
and with effect on and from each review date the reviewed rent (as agreed or
determined in accordance with this Schedule) is to become payable as the yearly
rent reserved by this Lease.
2 UPWARD ONLY RENT REVIEWS
The reviewed rent is to be the greater of:
2.1 the yearly rent reserved under this Lease
immediately preceding the relevant review
date; and
2.2 the market rent of the Premises at the
relevant review date
3 THE MARKET RENT
For the purposes of this Lease, the expression "market rent" means the best
yearly rent at which the Premises might reasonably be expected to be let in the
open market by a willing landlord to a willing tenant:
3.1 with vacant possession
3.2 for a term for the unexpired residue of the
Term from the relevant review date having
rent reviews in the same terms as this Lease
3.3 without the payment of a premium by the
willing tenant
3.4 subject to the provisions of this Lease,
other than the length of the term and the
amount of rent, but including these
provisions for rent review; but on the
assumption, if not the fact, that at the
relevant review date:
3.5 the Premises have a net internal area of
30,807 square feet;
3.6 the Premises have been fitted out ready for
occupation and immediate use for the willing
tenant's business so that the willing tenant
would not require a rent or other allowance
at the relevant review date for that purpose
(but this assumption does not affect the
operation of paragraph 4.3);
3.7 in case the Premises or the Parking Area or
the means of access thereto have been
destroyed or damaged or unfit for use and
occupation they have been fully reinstated
or rendered fit for use and occupation;
30
<PAGE> 32
3.8 the Premises are in a state of full repair
and the covenants of the Tenant and the
Landlord and the Company have been fully
observed and performed;
3.9 there is not in operation any statute order
or instrument regulation or direction which
has the effect of regulating or restricting
the amount of rent of the Premises which
might otherwise be payable;
3.10 the Premises may be lawfully used throughout
the Term for the permitted use
3.11 the Tenant and anyone who may become the
Tenant is a taxable person who makes only
taxable supplies and no exempt supplies
(words and expressions used in this
paragraph 3.12 having the meanings assigned
to them respectively in the Value Added Tax
Act 1994 and the regulations made under that
Act) and that demand for the Premises on the
open market would not be reduced by reason
of the Landlord having elected to waive
exemption from value added tax in respect of
them.
4 MATTERS TO BE DISREGARDED
In agreeing or determining the market rent the effect upon it of the following
matters are to be disregarded:
4.1 the occupation of the Premises by the Tenant
4.2 any goodwill attached to the Premises by
reason of the carrying on at the Premises of
the business of the Tenant;
4.3 any improvements to the Premises made by the
Tenant with the consent of the Landlord
other than those:
4.3.1 made in pursuance of an
obligation to the
Landlord; or
4.3.2 for which the Landlord has
made a financial
contribution; or
4.3.3 any works carried out by
the tenant which has
diminished the market rent
and in this paragraph 4 reference to "the
Tenant" include predecessors in title to the
Tenant, and sub-tenants of the Tenant or of
the predecessors in title of the Tenant
5 PROCEDURE FOR DETERMINATION OF MARKET RENT
5.1 The Landlord and the Tenant are to endeavour
to agree the market rent at any time not
being earlier than twelve months before the
relevant review
31
<PAGE> 33
date, but if they have not agreed the market
rent three months before the relevant review
date the amount of the market rent is to be
determined by reference to the arbitration
of an arbitrator
5.2 The arbitrator is to be nominated by the
Landlord and the Tenant jointly, but, if
they cannot or do not do so, then he is to
be nominated by the resident for the time
being of the Royal Institution of Chartered
Surveyors on the application either of the
Landlord or of the Tenant
5.3 The reference to and award of the arbitrator
is to be governed by the Arbitration Act
1996
5.4 The arbitrator nominated must be a chartered
surveyor having not less than ten years'
experience of leasehold valuation of
property being put to the same or similar
use as the Premises and of property in the
same region in which the Premises are
situated
5.5 If the arbitrator refuses to act, becomes
incapable of acting or dies, the Landlord or
the Tenant may require the appointment of
another arbitrator as provided in paragraph
5.1
6 TIME LIMITS
Time is not of the essence in agreeing or determining the reviewed rent or of
appointing an arbitrator
7 RENTAL ADJUSTMENTS
7.1 If the market rent has not been agreed or
determined in accordance with the provisions
of this Schedule before the relevant review
date, then, until the market rent has been
so agreed or determined, the Tenant will
continue to pay on account rent at the rate
of yearly rent payable immediately before
the relevant review date.
7.2 The Tenant will pay to the Landlord within
seven days after the time that the market
rent has been agreed or determined all
arrears of the reviewed rent which have
accrued in the meantime, with Interest on
each of the instalments of the arrears from
the time that it would have become due if
the market rent had then been agreed or
determined until payment becomes due from
the Tenant to the Landlord under this
paragraph 7.2
32
<PAGE> 34
8 REVIEWED RENT RESERVED IN PHASES
The Landlord and the Tenant may, at any time before the market rent is
determined by an arbitrator settle the reviewed rent in more than one amount and
agree to reserve the amounts increasing in phases until the next review date or,
if none, the expiry of the Term.
9 MEMORANDUM OF RENT REVIEW
The parties will cause a memorandum of the reviewed rent duly signed by the
Landlord and the Tenant to be endorsed on or securely annexed to this Lease and
the Counterpart of this Lease.
SIGNED as a deed by )
REYNARD MOTORSPORT LIMITED )
- -------------------------- )
acting by )
and by )
Director
Secretary/Director
33
<PAGE> 35
SIGNED as a deed by )
ADRIAN JOHN REYNARD ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- ------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) - - - - - - - - - - - - - - - - - - -
)
) - - - - - - - - - - - - - - - - - - -
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SIGNED as a deed by )
MICHAEL JOHN DANIELS ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- -------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) - - - - - - - - - - - - - - - - - - -
)
) - - - - - - - - - - - - - - - - - - -
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
SIGNED as a deed by )
ROBERT DENIS BOWERMAN ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
- --------------------- )
in the presence of: )
)
Signature of witness ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Print name ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
Address ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
)
) - - - - - - - - - - - - - - - - - - -
)
) - - - - - - - - - - - - - - - - - - -
)
Occupation ) _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _
34
<PAGE> 36
THE COMMON SEAL of )
R.T.C. MANAGEMENT COMPANY LIMITED )
- --------------------------------- )
was hereunto affixed )
in the presence of : )
Director
Secretary
35
<PAGE> 1
Exhibit 21.1
List of Subsidiaries
--------------------
Jurisdiction of
Name Incorporation
---- -------------
Topbay Ltd. U.K.
Reynard Motorsport Ltd. U.K.
Reynard Race Design Ltd. U.K.
Advantage CFD Ltd. U.K.
British American Reynard Ltd. U.K.
Reynard Composites Ltd. U.K.
Reynard Manufacturing Ltd. U.K.
Reynard Racing Cars Ltd. U.K.
Reynard Special Vehicle Projects Ltd. U.K.
Protoform Patterns Ltd. U.K.
Pearson Associates Ltd. U.K.
Reynard Formula 1 Ltd. U.K.
Reynard Racing Cars Trustee Ltd. U.K.
Reynard Special Vehicle Projects Trustee U.K.
Rumfleet Ltd. U.K.
Reynard North America, Inc. Indiana
Victory LLC Indiana
Auto Research Center LLC Indiana
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Stockholders of
Reynard Motorsport, Inc.
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-66317 of Reynard Motorsport, Inc. (the "Company") on Form S-1 of a) our
report of the consolidated financial statements of Reynard Motorsport, Inc.
dated December 1, 1998 and b) our report of the consolidated financial
statements of Princetown Holdings Limited dated December 1, 1998, appearing in
the Prospectus, which is a part of this Registration Statement, and to the
references to us under the headings "Selected Consolidated Financial Data" and
"Experts" in such Prospectus.
Our audits of the consolidated financial statements of Reynard Motorsport, Inc.
also included the financial statement schedule of Reynard Motorsport, Inc.,
listed in Item 16. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Deloitte & Touche
London, England
December 17, 1998
<PAGE> 1
Exhibit 23.2
KEGLER, BROWN, HILL & RITTER
[LETTER HEAD]
December 18, 1998
Reynard Motorsport, Inc.
8431 Georgetown Road, Suite 700
Indianapolis, Indiana 46268
Gentlemen:
We hereby consent to the reference to Kegler, Brown, Hill & Ritter Co.,
L.P.A. appearing under the heading "Legal Matters" in the Registration Statement
of Reynard Motorsport, Inc. and any amendments thereto and the Prospectus of the
Company relating to its public offering of shares of its Common Stock, par value
$.0001 per share. In giving such consent, we do not hereby admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
KEGLER, BROWN, HILL & RITTER
By: /s/ JACK A. BJERKE
--------------------------------------
Jack A. Bjerke
<TABLE> <S> <C>
<ARTICLE> 5
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,318
<SECURITIES> 0
<RECEIVABLES> 8,889
<ALLOWANCES> 760
<INVENTORY> 4,556
<CURRENT-ASSETS> 18,362
<PP&E> 15,054
<DEPRECIATION> 4,178
<TOTAL-ASSETS> 29,702
<CURRENT-LIABILITIES> 27,560
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> (3,017)
<TOTAL-LIABILITY-AND-EQUITY> 29,702
<SALES> 58,717
<TOTAL-REVENUES> 58,717
<CGS> 29,089
<TOTAL-COSTS> 29,089
<OTHER-EXPENSES> 31,716
<LOSS-PROVISION> 650
<INTEREST-EXPENSE> 919
<INCOME-PRETAX> (2,851)
<INCOME-TAX> 1,910
<INCOME-CONTINUING> (4,761)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,761)
<EPS-PRIMARY> (.45)
<EPS-DILUTED> (.45)
</TABLE>
