<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1999.
REGISTRATION NO. 333-78357
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JORE CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
MONTANA 3423 81-0465233
(State or other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification Number)
Incorporation or Organization)
45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
(406) 676-4900
(Address and Telephone Number of
Registrant's Principal Executive Offices)
DAVID H. BJORNSON, ESQ.
CHIEF FINANCIAL OFFICER
JORE CORPORATION
45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
TELEPHONE: (406) 676-4900
(Name, Address and Telephone Number of
Agent for Service)
</TABLE>
------------------------------
COPIES TO:
<TABLE>
<S> <C> <C>
William E. Van Valkenberg, Esq. Matthew B. Jore Ronald J. Lone, Esq.
Jonathan K. Wright, Esq. Chief Executive Officer Christopher J. Voss, Esq.
Van Valkenberg Furber Law Group P.L.L.C. Jore Corporation Stoel Rives LLP
1325 Fourth Avenue, Suite 1200 45000 Highway 93 South 3600 One Union Square
Seattle, Washington 98101-2509 Ronan, Montana 59864 600 University Street
Telephone: (206) 464-0460 Telephone: (406) 676-4900 Seattle, Washington 98101-3197
Facsimile: (206) 464-2857 Facsimile: (406) 676-8400 Telephone: (206) 624-0900
Facsimile: (206) 386-7500
</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, check the following box and
list the Securities Act registration statement number of 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this Prospectus is not complete and may be changed. We 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 it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED JULY 8, 1999
3,800,000 Shares
JORE CORPORATION [LOGO]
Common Stock
This is the initial public offering of Jore Corporation common stock. We are
selling 3,500,000 shares and one of our shareholders is selling 300,000 shares.
We will not receive any of the proceeds from the sale of shares by our
shareholder. No public market currently exists for our shares. We anticipate
that the initial public offering price will be between $9.00 and $11.00 per
share. We intend to list our common stock on the Nasdaq National Market under
the symbol "JORE."
We have granted the underwriters a 30 day option to purchase a maximum of
570,000 additional shares to cover over-allotments of shares.
--------------
Investing in the common stock involves risks.
See "Risk Factors" starting on page 7.
--------------
<TABLE>
<CAPTION>
Proceeds to
Underwriting Proceeds to Selling
Price to Public Discount Company Shareholder
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total......................... $ $ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT INC.
FIRST SECURITY VAN KASPER
The date of this prospectus is , 1999
<PAGE>
DESCRIPTION OF PHOTOGRAPHS AND OTHER ARTWORK
Inside front and back covers--Jore Corporation logo including "Where innovation
meets reality" slogan
Gatefold pages--On left page--Caption of "Innovative Products"
- Photograph of an assortment of power tool accessories, such as drill bits,
quick connectors, screwdriver bits, and saw blades under a variety of
brand names, including Stanley and Craftsman
- Photograph of an end-cap display of our products under the Speed-Lok brand
at a Sear's store
- Photograph of a quarter pallet display of Jore products under the Stanley
brand
On right page--Caption of "Innovative Processes"
- Photograph of a Stratasys prototyping machine
- Photograph of a design engineer creating a product/packaging schematic
- Photograph of Jore drill bit manufacturing equipment
<PAGE>
[Photographs and other artwork of products, retail displays,
manufacturing and graphics facilities and customer logos]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 4
Risk Factors.................................... 7
Use of Proceeds................................. 15
S Corporation Distribution...................... 15
Dividend Policy................................. 15
Capitalization.................................. 16
Dilution........................................ 17
Selected Consolidated Financial Data............ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business........................................ 28
Management...................................... 38
<CAPTION>
PAGE
---------
<S> <C>
Summary Compensation Table...................... 41
Certain Transactions............................ 44
Principal and Selling Shareholders.............. 47
Description of Capital Stock.................... 48
Shares Eligible for Future Sale................. 49
Underwriting.................................... 51
Legal Matters................................... 53
Experts......................................... 53
Change in Accountants........................... 53
Additional Information.......................... 53
Index to Consolidated Financial
Statements.................................... F-1
</TABLE>
------------------------
JORE-TM-, SPEED-LOK-TM-, SPEED SHANK-REGISTERED TRADEMARK-,
QUAD-DRIVER-REGISTERED TRADEMARK-, BIT-LOK-REGISTERED TRADEMARK-, HIGH TORQUE
POWER DRIVER-TM-, MONTANA TOOL CORPORATION-TM-, TORQUE DRIVER-TM-, ULTRA
CUT-TM-, JORETECH-TM-, WHERE INNOVATION MEETS REALITY-TM- and AUTO JAW-TM- are
trademarks of Jore Corporation. All other trademarks or service marks appearing
in this prospectus are trademarks or service marks of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS IMPORTANT INFORMATION ABOUT THIS OFFERING THAT IS
DESCRIBED MORE FULLY ELSEWHERE IN THIS PROSPECTUS. THIS SUMMARY IS NOT COMPLETE
AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE
INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY,
IN PARTICULAR THE RISKS OF INVESTING IN THE COMMON STOCK DISCUSSED UNDER "RISK
FACTORS" ON PAGES 7 TO 14.
JORE CORPORATION
Jore Corporation is a leader in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. We offer a comprehensive system of proprietary
drilling and driving products that save users time through enhanced
functionality, productivity and ease of use. We manufacture our products using
advanced technologies and equipment designs, thus achieving competitive
advantages in cost, quality and production capacity. Our products are sold under
private labels to the industry's largest retailers and power tool manufacturers,
such as Sears, Roebuck and Co., TruServ Corporation, Black & Decker Corporation
and Makita Corporation. In addition, we recently signed an agreement with The
Stanley Works that grants us an exclusive license to sell power tool accessories
under the STANLEY-REGISTERED TRADEMARK- brand. From 1996 to 1998, we increased
our annual net revenues from $9.7 million to $44.9 million. Income from
operations increased from a loss of $63,000 to a profit of $7.7 million during
the same period.
The cornerstone of our power tool accessories portfolio is a patented quick
change drilling and driving system that enables single-handed interchangeability
of a full range of hex-shank drilling, driving and surface preparation
accessories. In addition to quick interchangeability, our hex-shank accessories
provide enhanced torque transmission as compared to traditional round-shank
products. Our system also includes our patented reversible drill and driver and
screw guide accessories. We are broadening our product portfolio to include a
variety of other power tool accessories such as saw blades, router bits and
other accessories. We also have recently begun to offer several proprietary hand
tools with innovative features for improved functionality.
The development and commercial availability of cordless power tools since
the early 1980s has created a growing installed base of these tools among
do-it-yourself consumers, professional craftsmen and industrial users. The
increased use of cordless power tools has led to a growing demand for new and
improved power tool accessories. According to industry sources and our market
research, we believe that the worldwide addressable market for our products is
approximately $13.0 billion per year. In the United States, our addressable
market is approximately $5.7 billion per year, consisting of $3.0 billion for
power tool accessories and $2.7 billion for hand tools. The drilling and driving
accessories market represents approximately $1.3 billion of the domestic power
tool accessories market. The remainder of the power tool accessories market
consists of saw blades, router bits and other accessories.
Our objective is to be the leading manufacturer of innovative products for
the global power tool accessories market. Our growth strategy includes the
following specific elements:
- EXPAND THE INSTALLED BASE AND APPLICATIONS OF OUR DRILLING AND DRIVING
SYSTEM--The base of consumers using our proprietary quick change
connectors is rapidly expanding. We believe that we can provide many new
and complementary hex-shank accessory products into this growing installed
base. Accordingly, we intend to develop and introduce new accessories
within our drilling and driving system.
- BROADEN OUR PRODUCT PORTFOLIO--We are broadening our product portfolio to
include other innovative products, such as select hand tools with
proprietary features. In addition, we are using our proprietary
manufacturing processes to achieve cost leadership in producing
traditional round-shank drill bits. We also will introduce other power
tool accessories, initially under the
4
<PAGE>
STANLEY-REGISTERED TRADEMARK- brand. We will continue to seek
opportunities to license new or existing products and technologies to
complement our internal product development efforts.
- ENHANCE EXISTING CUSTOMER RELATIONSHIPS--We believe that there are
significant opportunities to expand our sales to existing customers. We
plan to increase the number of products available to our customers,
establish a presence in customer stores at which Jore Corporation products
are currently not sold, and offer our products under different brands to
enable our customers to effectively target various price points and
consumer segments.
- DEVELOP NEW CUSTOMER RELATIONSHIPS--In order to broaden our customer base,
we are developing and expanding our relationships with retailers such as
The Home Depot Inc., Lowes Companies, Inc., Ace Hardware Corporation and
others. We believe that our ability to offer our products under both
private labels and the STANLEY-REGISTERED TRADEMARK- brand greatly
improves our ability to supply these retailers.
- EXPAND INTO THE INDUSTRIAL MARKET--We believe that the rapid
interchangeability of our accessories will also offer productivity
enhancements to industrial users. Consequently, we intend to introduce our
drilling and driving system to the industrial market, which we believe is
approximately equal in size to the retail market that we presently serve.
We also plan to competitively supply the industrial market with our
internally produced round-shank drill bits.
- EXPAND INTO FOREIGN MARKETS--We have expanded the distribution of our
products into Canada and intend to begin selling our products in Europe.
We will continue to evaluate opportunities to offer our products in other
foreign markets.
Our principal offices are located at 45000 Highway 93 South, Ronan, Montana
59864. Our telephone number is (406) 676-4900.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Jore Corporation..... 3,500,000 shares
Common stock offered by the
selling shareholder........................ 300,000 shares
Common stock to be outstanding
after the offering......................... 13,022,800 shares
Use of proceeds.............................. For repayment of debt, funding the S
corporation distribution, capital
expenditures and working capital and general
corporate purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol....... JORE
</TABLE>
- ------------------------
This table is based on shares outstanding as of June 30, 1999 and excludes:
- 1,188,855 shares of common stock issuable upon exercise of outstanding
options;
- 94,283 shares available for future issuance under our 1997 Stock Plan; and
- 285,615 shares of common stock issuable upon exercise of outstanding
warrants.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The information below should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto, and the sections captioned "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1996 1997 1998 THREE MONTHS
--------- --------- --------- ENDED
MARCH 31,
1994 1995 -------------
------------- ------------- 1998
(UNAUDITED) (UNAUDITED) -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net revenues.................................. $ 9,590 $ 9,416 $ 9,686 $ 23,656 $ 44,888 $ 7,579
Gross profit.................................. 2,216 1,658 1,269 6,558 13,721 2,653
Income (loss) from operations................. 886 561 (63) 3,445 7,734 1,723
Net income (loss) as reported................. 625 189 (558) 2,541 6,240 1,371
Pro forma provision (benefit) for income
taxes(1).................................... 205 95 (199) 900 2,343 515
------ ------ --------- --------- --------- ------
Pro forma net income (loss)(1)................ $ 420 $ 94 $ (359) $ 1,641 $ 3,897 $ 856
------ ------ --------- --------- --------- ------
------ ------ --------- --------- --------- ------
Pro forma basic net income per common
share(1).................................... $ 0.40
---------
---------
Pro forma diluted net income per common
share(1).................................... $ 0.40
---------
---------
Pro forma weighted shares outstanding(1):
Basic....................................... 9,793
---------
---------
Diluted..................................... 9,816
---------
---------
<CAPTION>
STATEMENT OF OPERATIONS DATA:
1999
<S> <C>
Net revenues.................................. $ 9,798
Gross profit.................................. 2,940
Income (loss) from operations................. 1,296
Net income (loss) as reported................. 840
Pro forma provision (benefit) for income
taxes(1).................................... 333
-------------
Pro forma net income (loss)(1)................ $ 507
-------------
-------------
Pro forma basic net income per common
share(1).................................... $ 0.05
-------------
-------------
Pro forma diluted net income per common
share(1).................................... $ 0.05
-------------
-------------
Pro forma weighted shares outstanding(1):
Basic....................................... 9,903
-------------
-------------
Diluted..................................... 10,045
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
--------------------------------------
PRO PRO FORMA
BALANCE SHEET DATA: ACTUAL FORMA(2) AS ADJUSTED(3)
--------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Working capital (deficit)................................................. $ (2,762) $ (6,312) $ 25,238
Property, plant and equipment, net........................................ 24,422 24,422 24,422
Total assets.............................................................. 46,018 46,270 77,820
Operating line of credit.................................................. 9,609 9,609 9,609
Long-term debt, net of current portion.................................... 15,624 15,624 15,624
Total shareholders' equity................................................ 7,212 2,593 34,143
</TABLE>
(1) For all periods presented, we operated as an S corporation and were not
subject to federal and state income taxes. Upon the completion of this
offering, we will become subject to federal and state income taxes. Pro
forma net income (loss) reflects federal and state income taxes as if we had
not elected S corporation status for income tax purposes. Pro forma net
income per share is based on the weighted average number of shares of common
stock outstanding during the period plus the estimated portion of the shares
being offered (380,200 shares) that would be necessary to fund the
distribution of previously taxed but undistributed S corporation earnings,
which is estimated to be $3.8 million at March 31, 1999. See Note 2 of
Consolidated Financial Statements.
(2) The pro forma balance sheet reflects the declaration and payment of the S
corporation distribution, which is estimated to be $3.8 million at March 31,
1999. It also reflects the deferred income tax assets and liabilities that
would have been recorded at that date.
(3) The pro forma as adjusted balance sheet reflects our sale of 3,500,000
shares of common stock in this offering at an assumed initial public
offering price of $10.00 per share, after deducting underwriting discounts
and our estimated offering expenses.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND GIVES EFFECT TO A
216.017-FOR-ONE SPLIT OF OUR COMMON STOCK CONSUMMATED ON MAY 12, 1999.
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. IF ANY OF THE FOLLOWING RISKS
MATERIALIZE, OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION COULD BE
MATERIALLY HARMED. THIS COULD CAUSE THE TRADING PRICE OF OUR COMMON STOCK TO
DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES,
EXPECTATIONS, AND INTENTIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH BELOW. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE INVESTING IN OUR COMMON STOCK.
OUR FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS AND OPERATING RESULTS
We are experiencing significant growth and cannot assure that we will be
able to manage any future growth effectively. We recently expanded our
operations by hiring additional personnel, increasing production capacity and
upgrading our information systems. Continued growth could strain our management,
production, engineering, financial and other resources. To manage our growth
effectively, we must add manufacturing capacity while maintaining high levels of
quality, manufacturing efficiency and customer service. We also must continue to
enhance our operational, financial and management systems and successfully
attract, train, retain and manage our employees. Any failure to manage our
growth effectively could have a material adverse effect on our business,
financial condition and results of operations, such as declines in revenues and
profit margins.
THE LOSS OF A LARGE CUSTOMER WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS
Historically, most of our sales have been derived from a small number of
customers and, due to the continuing consolidation of the industry's
distribution channels, we expect a significant portion of our future sales to
remain concentrated among a limited number of customers. In 1997, sales to
Sears, Black & Decker, Makita and Home Depot accounted for approximately 96% of
our net revenues and in 1998, sales to Sears, Black & Decker and Makita
accounted for approximately 92% of our net revenues. A significant decrease in
sales to, or the loss of, any of our major customers would have a material
adverse effect on our business, prospects, operating results and financial
condition, such as a substantial decline in revenues. We are engaged in adverse
legal proceedings with Black & Decker. This lawsuit is described more fully in
"Business--Legal Proceedings" on page 37.
THE MARKETING OF OUR PRODUCTS UNDER THE STANLEY-REGISTERED TRADEMARK- BRAND MAY
BE UNSUCCESSFUL AND MAY ADVERSELY AFFECT OUR RELATIONSHIPS WITH EXISTING
CUSTOMERS
In April 1999, we signed an agreement with The Stanley Works that grants us
the exclusive license to sell power tool accessories under the
STANLEY-REGISTERED TRADEMARK- brand and indemnifies us for damages and costs
incurred in connection with any infringement claims arising out of our use of
Stanley's trademarks and trade dress. Some of our existing customers may view
our license arrangement with Stanley unfavorably, and therefore reduce or stop
purchases of our products. In June 1999, Black & Decker advised us that our
proposed introduction of STANLEY-REGISTERED TRADEMARK- branded power tool
accessories in yellow and black packaging would violate Black & Decker's
trademark rights under its DEWALT-REGISTERED TRADEMARK- brand. In response to
Black & Decker's assertions, Stanley filed a lawsuit, which we joined as a
co-plaintiff, seeking a judgment that, among other things, the use of the colors
yellow and black with the STANLEY-REGISTERED TRADEMARK- name or trademark on
power tool accessories does not infringe or dilute Black & Decker's trademark
rights. On July 7, Black & Decker asserted counterclaims against Stanley and
Jore for unfair competition and
7
<PAGE>
trademark and trade dress infringement. This lawsuit, which is described more
fully in "Business-- Legal Proceedings" on page 37, poses the risks that:
- We may be required to modify the colors of the packaging and promotional
materials for our STANLEY-REGISTERED TRADEMARK--branded products which
could diminish the value of, and limit our sales and growth prospects
associated with, the STANLEY-REGISTERED TRADEMARK- brand;
- We could incur significant expenses if Stanley fails to fulfill its
indemnification obligations to us; and
- Black & Decker could limit or terminate its business relationship with us.
The occurrence of any of these events could have a material adverse effect on
our business, operating results and financial condition by increasing our costs,
reducing our sales and diverting management resources.
In addition, retailers may choose not to offer our products under the
STANLEY-REGISTERED TRADEMARK- brand. We cannot be certain that the time and
resources we will spend marketing our products under the STANLEY-REGISTERED
TRADEMARK- brand will lead to increased sales and profitability. Other potential
risks in connection with this licensing agreement include:
- The failure by Stanley to maintain the integrity and quality of its brand
image in the minds of consumers; and
- Our inability to meet the performance requirements of the licensing
agreement may cause Stanley to terminate our agreement.
WE MAY NOT SUCCEED IN DEVELOPING NEW DISTRIBUTION CHANNELS
Our growth depends, in part, on our ability to develop new distribution
channels, including penetration of the industrial market for our products. We
cannot assure that we will be able to develop new distribution channels or
penetrate the industrial market or that this growth strategy can be implemented
profitably. Challenges to developing this and other new distribution channels
include:
- Obtaining customer acceptance of our products;
- Managing existing customer relationships;
- Establishing relationships with new customers;
- Displacing incumbent vendor relationships; and
- Successfully introducing new products under the STANLEY-REGISTERED
TRADEMARK- brand.
Our failure to develop new distribution channels could have a material
adverse effect on our business, operating results, and financial condition,
particularly future revenue levels.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO
MANAGE OUR BUSINESS
Our performance and future success depends to a significant extent on our
senior management and technical personnel, and in particular on the skills,
experience, and continued efforts of Matthew Jore, Jore Corporation's founder,
President and Chief Executive Officer. The loss of Matthew Jore or any of our
other key personnel could have a material adverse effect on our business and
prospects. We have an employment agreement with Matthew Jore but do not have
employment agreements with any of our other employees.
8
<PAGE>
OUR MANUFACTURING EQUIPMENT MAY NOT MEET PERFORMANCE EXPECTATIONS OR BE
AVAILABLE FOR FUTURE PURCHASE
Our business is dependent on the successful implementation and operation of
advanced manufacturing technologies. We cannot be certain that our manufacturing
equipment, systems or technologies will meet our performance expectations or
continue to operate reliably. Moreover, we can neither assure that we will
continue to obtain equipment and supplies from our present suppliers nor be
certain that our manufacturing processes will remain competitive with new and
evolving technologies. The failure of our manufacturing equipment, systems or
technologies to perform reliably and as designed, our inability to source such
equipment, systems and technologies from present suppliers, or the obsolescence
of our equipment, systems or technologies could disrupt our production
processes, reduce our sales, increase production costs and adversely affect our
customer relationships.
OUR FAILURE TO DEVELOP OR INTRODUCE NEW PRODUCTS MAY SLOW OUR GROWTH
Our future success will depend in part on our continuous and timely
development and introduction of new products that address evolving market
requirements. We cannot assure that our new products will adequately meet the
requirements of the marketplace, achieve market acceptance or be introduced on a
timely basis. Factors affecting the market acceptance of our new products
include:
- Functionality, quality and pricing;
- Demand from end-users;
- Favorable reviews in trade publications;
- Adequate marketing support;
- The introduction of competitive products; and
- General trends in the power and hand tool industries and the home
improvement market.
Our inability to introduce new products that are accepted by the market
could adversely affect our sales, our reputation in the industry as an innovator
and our ability to obtain new customer accounts.
WE MAY NOT SUCCEED IN ENTERING FOREIGN MARKETS
We intend to expand distribution of our products in foreign markets. Because
of the size and continued growth of the power tools accessories market outside
North America, the failure to enter foreign markets could limit our growth
prospects. In our attempt to enter foreign markets, we may expend financial and
human resources without a corresponding increase in revenues and profitability.
We cannot assure that we will be able to penetrate foreign markets or that this
growth strategy can be implemented profitably. Penetrating and conducting
business in foreign markets involves challenges, including:
- Local acceptance of our products;
- Currency controls and fluctuations in foreign exchange rates;
- Regulatory requirements such as tariffs and trade barriers;
- Longer payment cycles and increased difficulty in collecting accounts
receivable;
- Uncertain tax consequences; and
- Transportation and logistics.
9
<PAGE>
WE FACE COMPETITION IN THE POWER TOOL ACCESSORIES AND HAND TOOLS MARKETS
The power tool accessories and hand tools markets are mature and highly
competitive. We cannot assure that we will be able to compete in our target
markets. In the power tool accessory market competitors include Vermont American
Corporation, Black & Decker Corporation, Greenfield Industries, Inc. (a
wholly-owned subsidiary of Kennametal Inc.), American Tool Companies, Inc. and
others, as well as a number of other companies that supply products under
private labels to OEM and retail customers. Some of these competitors offer
products similar to ours or different products with similar functionalities. In
particular, Black & Decker has developed a product line with similar
characteristics to our quick-change system. In the hand tool market, competitors
include American Tool Companies, Inc., Cooper Industries, Inc., The Stanley
Works and others, including foreign manufacturers such as Sandvik AB.
Many of our competitors are established companies that have significantly
greater financial, technical, manufacturing, sales and marketing, and support
resources than Jore Corporation. In addition, many of our competitors own
well-known brands, enjoy large end-user bases, and benefit from long-standing
customer relationships. We believe that consumers in our markets generally are
loyal to a particular brand. Therefore, it may be difficult to generate sales to
consumers who have purchased products from competitors. Our failure to compete
successfully against current or future competitors would have material adverse
effects on our business, operating results, and financial condition including
loss of customers, declining revenues and loss of market share.
WE DEPEND ON CUSTOMER FORECASTS TO MANAGE OUR BUSINESS
Significant or numerous cancellations, reductions or delays in orders by a
principal customer or a group of customers could have a material adverse effect
on our revenues, inventory levels and profit margins. We rely on our customers'
forecasts to anticipate their future volume of orders, which typically do not
become contractual obligations until approximately 30 days prior to shipment. We
rely on these forecasts when making commitments regarding the level of business
that we will seek and accept, the mix of products that we intend to manufacture,
the timing of production schedules, and our use of equipment and personnel. The
size and timing of orders placed by our customers varies due to a number of
factors, including consumer demand, inventory management by customers, our
customers' manufacturing or marketing strategies, and fluctuations in demand for
competing and complementary products. In addition, a variety of conditions, both
specific to individual customers and generally affecting the markets for our
products, may cause customers to cancel, reduce or delay orders that were
previously made or anticipated.
OUR BUSINESS IS SEASONAL AND OUR OPERATING RESULTS ARE SUBJECT TO QUARTERLY
FLUCTUATIONS
Seasonality and unanticipated changes in customer demand could cause our
revenue, expenses, inventory levels and operating results to fluctuate.
Currently, the majority of our sales occur during the third and fourth fiscal
quarters and our operating results depend significantly on the Christmas selling
season. In 1997 and 1998, approximately 70% and 65%, respectively, of our net
revenues were generated during the third and fourth quarters. To support this
sales peak, we anticipate demand and build inventories of finished goods
throughout the first two fiscal quarters. In addition, our customers may reduce
or delay their orders during the first two fiscal quarters to balance their
inventory between the holiday selling seasons. As a result, our levels of raw
materials and finished goods inventories tend to be at their highest, relative
to sales, during the first half of the year. These factors can cause variations
in our quarterly operating results and potentially expose us to greater adverse
effects of changes in economic and industry trends.
In addition, a substantial portion of our sales depends upon receiving
purchase orders for products to be manufactured and shipped in the same quarter
in which these orders are received. While we
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<PAGE>
monitor our customers' needs, we typically have a small backlog relative to net
revenues, and a significant portion of our orders are placed for production and
delivery within a few weeks from receipt of the order. As a result, the timing
of revenue may be affected by changes in production volume in response to
fluctuations in customer and end-user demand, introduction of new products by
customers, and balancing of customers' inventory to their sales estimates.
UNSATISFACTORY IMPLEMENTATION OR PERFORMANCE OF OUR NEW INFORMATION TECHNOLOGY
SYSTEM COULD SLOW OUR GROWTH
The satisfactory performance and reliability of our information systems are
essential to our operations and continued growth. We are implementing a new
information technology system that we expect to be fully operational by the
second half of 1999. If we are unable to implement our new system successfully,
or if the system fails to perform reliably or otherwise does not meet our
expectations, we could experience design, manufacturing, and shipping delays
which, in turn, could increase our costs and result in deferred or lost sales.
Failure to implement and maintain our new information system, or unsatisfactory
performance of the system, could disrupt manufacturing operations and reporting
systems, cause delays in production and shipping of product, and adversely
affect our responsiveness to customers.
THE LOSS OR NON-PERFORMANCE OF OUR SALES REPRESENTATIVE COULD DISRUPT OUR SALES
EFFORTS
We coordinate our sales and marketing activities with a sales
representative, Manufacturers' Sales Associates, LLC ("MSA"). In 1998, MSA and
its affiliate received a commission on all of our sales. MSA's failure or
inability to represent us effectively, maintain relationships with our
customers, attract new customers, or satisfactorily perform marketing activities
could adversely affect our business, customer relationships, reputation and
prospects for growth. Moreover, MSA can terminate its relationship with us at
any time without penalty. Termination of the MSA relationship would require us
either to conduct all of our sales and marketing activities internally or retain
another sales and marketing representative. Any such change could disrupt our
sales efforts and damage our customer relationships.
UNFAVORABLE CHANGES IN COSTS AND AVAILABILITY OF RAW MATERIALS MAY ADVERSELY
AFFECT OUR MANUFACTURING OPERATIONS AND ABILITY TO SATISFY OUR CUSTOMERS'
ORDERS
We purchase raw materials, key components and certain products from third
party vendors. Although there are alternative sources for these raw materials,
components, and products, we could experience manufacturing and shipping delays
if it became necessary to change or replace current suppliers, or to produce
certain components or products internally. In addition, the prices of raw
materials supplied by certain vendors are influenced by a number of factors,
including general economic conditions, competition, labor costs, and general
supply levels. Our inability to obtain reliable and timely supplies of
out-sourced products and components and raw materials on a cost effective basis,
or any unanticipated change in suppliers, could have a material adverse effect
on our manufacturing operations, revenues and profitability.
WE DEPEND ON PATENT, TRADEMARK AND TRADE SECRET PROTECTION TO MAINTAIN OUR
MARKET POSITION
Our success depends in part on our ability to obtain patent protection for
our products, maintain trade secret protection for our proprietary processes,
and operate without infringing on the proprietary rights of others. Our existing
U.S. and foreign patents expire between 2002 and 2012. We have filed, and intend
to file, applications for additional patents covering our products. We cannot be
certain that any of these patent applications will be granted, that any future
inventions that we develop will be patentable or will not infringe the patents
of others, or that any patents issued to or licensed by us will provide us with
a competitive advantage or adequate protection for our technology. In addition,
we
11
<PAGE>
cannot assure that any patents issued to or licensed by us will not be
challenged, invalidated or circumvented by others.
We believe that trademarks owned or licensed by us enhance our position in
the marketplace and are important to our business. Our inability to use any of
our trademarks could adversely affect our customer relationships and revenues.
We cannot be certain that we will retain full rights to use our trademarks in
the future. For further discussion of these matters, see "Business--Intellectual
Property" and "Business--Legal Proceedings."
THE COST OF PROTECTING AND DEFENDING OUR PATENTS, TRADEMARKS AND TRADE SECRETS
MAY BE SIGNIFICANT
The defense and prosecution of patent claims, and litigation involving
intellectual property rights generally, is both costly and time consuming. If
any of our products are found to have infringed any patent or other third party
proprietary right, we may be unable to obtain licenses to continue to
manufacture and sell such products or may have to pay damages as a result of
such infringement.
We endeavor to protect our trade secrets by entering into confidentiality
agreements with third parties, employees and consultants and generally control
access to our facilities and distribution of our proprietary documentation and
other materials. Confidentiality and non-disclosure obligations are difficult to
enforce, however, and we may lack an adequate remedy for breach of a
confidentiality agreement. Moreover, a third party could gain access to our
trade secrets through means other than by breach of a confidentiality agreement,
or could develop independently a process substantially similar to our trade
secrets. In addition, the laws of other countries in which we market or may
market our products may afford little or no effective protection of our
intellectual property.
WE COULD BECOME SUBJECT TO PRODUCT LIABILITY LAWSUITS
We face a potential risk of product liability claims. Although we have
product liability insurance coverage, we cannot be certain that this insurance
will adequately protect us against product liability claims or that we will be
able to maintain this insurance at reasonable cost and on reasonable terms. To
the extent that we are found liable for damages with respect to a product
liability claim and lack adequate insurance coverage to satisfy such claim, our
business, operating results, and financial condition could be materially and
adversely affected.
AFTER THIS OFFERING, THE JORE FAMILY WILL CONTINUE TO CONTROL ALL MATTERS
REQUIRING SHAREHOLDER APPROVAL POSSIBLY IN CONFLICT WITH YOUR INTERESTS
Upon completion of the offering, Matthew Jore, acting alone, or the Jore
family, acting together, will be able to control all matters requiring
shareholder approval. Matthew Jore, President and Chief Executive Officer, his
brother Michael Jore, Executive Vice President, their father, Merle Jore, trusts
controlled by Matthew and Michael Jore, and other members of the Jore family
will beneficially own approximately 70% of our outstanding common stock (or 62%
if the underwriters' overallotment option is exercised in full). Our Articles of
Incorporation and Bylaws do not provide for cumulative voting; therefore, the
Jore family will have the ability to elect all of our directors. The Jore family
also will have the ability to approve or disapprove significant corporate
transactions without further vote by the investors who purchase common stock in
this offering. This ability to exercise control over all matters requiring
shareholder approval could prevent or significantly delay another company or
person from acquiring or merging with us. For additional information about the
control of Jore Corporation by the Jore family, see "Management" and "Principal
and Selling Shareholders."
WE MAY NEED ADDITIONAL CAPITAL WHICH WOULD DILUTE YOUR INTEREST IN THE COMPANY
We believe that our cash resources, including borrowings under our credit
facilities and cash from operations, and the net proceeds from this offering
will be sufficient to finance our anticipated growth.
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<PAGE>
However, we may be required to raise additional equity or debt capital to
continue our current levels of operations and to enhance our financial position
for future operations. Financings may be unavailable to us when needed or, if
available, may be on unfavorable terms or may be dilutive to our shareholders.
If financing is unavailable to us or is available only on a limited basis, we
may be unable to develop or enhance our products, take advantage of business
opportunities or respond to competitive pressures, any of which could have a
material adverse effect on our business, operating results, and financial
condition.
WE USE DEBT WHICH CREATES FINANCIAL AND OPERATING RISK
We have relied on debt and may seek additional debt funding in the future.
As of March 31, 1999, we had approximately $15.6 million of outstanding
long-term debt, net of current portion, which accounted for 68.4% of our total
capitalization. Our leverage poses the risks that:
- We may be unable to repay our debt due to a decline in revenues or
disruption in cash flow;
- We may be unable to obtain additional financing;
- We must dedicate a substantial portion of our cash flow from operations to
servicing the interest and principal payments on our debt, and any
remaining cash flow may be inadequate to fund our planned operations;
- We have pledged substantially all of our inventory and accounts receivable
as collateral; and
- We may be more vulnerable during economic downturns, less able to
withstand competitive pressures and less flexible in responding to
changing business and economic conditions.
ANY FAILURE OF OUR INFORMATION TECHNOLOGY AND COMPUTER CONTROLLED SYSTEMS TO BE
YEAR 2000 COMPLIANT COULD SUBJECT US TO UNFORESEEN EXPENSES
We may not accurately identify all potential Year 2000 problems within our
business, and the corrective measures that we implement may be ineffective or
incomplete. Any such problems could interrupt our ability to manufacture our
products, process orders, accurately report operating and financial data or
service our customers. Similar problems and consequences could result if any of
our key suppliers or customers experience Year 2000 problems. Our failure or the
failure of our significant suppliers and customers to adequately address the
Year 2000 issue could adversely affect our business, operating results and
financial condition. For more information about our Year 2000 compliance
efforts, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Impact of the Year 2000 Computer Problem."
OUR LOCATION ON PRIVATE PROPERTY WITHIN A NATIVE AMERICAN RESERVATION COULD
SUBJECT US TO UNFORESEEN REGULATION
Our corporate offices and manufacturing facilities are located on private
property within the Flathead Indian Reservation. We may be or become subject to
the jurisdiction of the tribal government or court in any disputes involving any
of the three tribes located on the reservation or their members. In particular,
the tribal government may seek to assert civil regulatory authority over the
conduct of our business under federal laws and treaties under which any of the
tribes, their members, or non-member successors to ownership of land formerly
owned by members of any of the tribes have senior priority. In addition, the
tribal government may have the ability to regulate certain of our activities if
those activities are shown to directly affect any of the tribes, if we enter
into contracts with a tribe or its members, or if a tribe implements laws
governing our business conduct. Currently, the tribal government does not
regulate any of our business activities, however, any regulations that it may
seek to impose could have a material adverse effect on our business, operating
results and financial condition.
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<PAGE>
FUTURE SALES OF CURRENTLY OUTSTANDING SHARES COULD NEGATIVELY AFFECT OUR STOCK
PRICE
The market price of our common stock could decrease as a result of sales of
a large number of shares in the market after this offering or in response to the
perception that such sales could occur. All of the 3,800,000 shares sold in this
offering will be freely tradable, while the 9,222,800 other shares outstanding
after this offering, based on the number of shares outstanding on June 30, 1999,
will be "restricted securities" as defined in Rule 144 of the Securities Act of
1933. Of these restricted securities approximately 9,092,057 will be subject to
180-day lock-up agreements. After expiration of the lock-up period, all of such
shares will be eligible for immediate sale, in certain instances subject to the
volume limitations of Rule 144. D.A. Davidson & Co. can release shares from one
or more of the lock-up agreements without our approval. For additional
information on shares that are currently outstanding, see "Shares Eligible for
Future Sale."
CERTAIN PROVISIONS UNDER STATE CORPORATE LAW AND OUR CORPORATE CHARTER COULD
HAVE AN ADVERSE EFFECT ON OUR STOCK PRICE
Certain provisions of our Articles of Incorporation, Bylaws and Montana
corporate law could be used by our incumbent management to make it substantially
more difficult for a third party to acquire control of Jore Corporation. These
provisions could discourage potential takeover attempts and could adversely
affect the market price of our common stock. For additional information and
further discussion of charter provisions and corporate law, see "Description of
Capital Stock--State Corporate Law and Certain Charter Provisions."
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<PAGE>
USE OF PROCEEDS
At an assumed initial public offering price of $10.00 per share the net
proceeds from the sale of shares of common stock to be sold by Jore Corporation
are expected to be approximately $31.6 million, after deduction of underwriting
discounts and estimated offering expenses payable by us. We will not receive any
proceeds from the sale of common stock by the selling shareholder.
We intend to use the net proceeds from this offering approximately as
follows:
- $6.0 million to repay indebtedness under our revolving line of credit;
- $8.0 million to repay indebtedness under bridge loans incurred since April
1999;
- $3.8 million to fund the S corporation distribution to our current
shareholders; and
- $13.8 million to undertake capital expenditures and for additional working
capital and general corporate purposes.
Our revolving line of credit currently bears interest at a rate of 9.0% and
matures in January 2003. Bridge loans incurred since April 1999 bear interest at
rates ranging from 6.5% to 7.0% and mature five days after the completion of
this offering.
In addition to the uses set forth above, we also may use a portion of the
net proceeds to license or acquire new products or technologies or to acquire or
invest in businesses complementary to ours, although we currently have no
agreements or commitments to do so.
The amounts that we actually expend for capital expenditures, working
capital and general corporate purposes may vary depending on a number of
factors, including future revenue growth, if any, and the amount of cash that we
generate from operations. As a result, we will retain discretion in the
allocation of the net proceeds of this offering. Pending application, we intend
to invest the net proceeds of this offering in short-term, investment-grade,
interest-bearing securities.
S CORPORATION DISTRIBUTION
Prior to the offering, we have been a corporation subject to taxation under
Subchapter S of the Internal Revenue Code of 1986. As a result, our net earnings
have been taxed, for federal and state income tax purposes, as income of our
shareholders. We have periodically paid dividends to our shareholders in amounts
exceeding their liabilities for taxes. For further discussion of 1997 and 1998 S
corporation distributions, see "Certain Transactions."
We will terminate our S corporation status prior to the completion of this
offering and agree to distribute to our current shareholders a final amount
representing our previously taxed but undistributed S corporation earnings
through the S corporation termination date. The amount of the final distribution
would have been approximately $3.8 million at March 31, 1999, but the amount
distributed will include our actual taxable income through the S corporation
termination date. Purchasers of shares of common stock in the offering will not
receive any portion of the S corporation distribution.
DIVIDEND POLICY
Except for the S corporation distribution discussed above, we do not
anticipate paying cash dividends in the foreseeable future, but intend to retain
future earnings, if any, for reinvestment in the operation and expansion of our
business. Any determination to pay cash dividends will be at the discretion of
the Board of Directors and will be dependent upon our financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Jore Corporation as of
March 31, 1999:
- On an actual basis;
- On a pro forma basis to give effect to S corporation distributions after
March 31, 1999 and to create deferred tax balances as a C corporation; and
- On a pro forma as adjusted basis to give effect to the receipt by us of
the estimated $31.6 million of net proceeds from this offering.
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes thereto
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Long-term debt, net of current portion..................................... $ 15,624 $ 15,624 $ 15,624
Shareholders' equity:
Preferred stock, no par value per share; 30,000,000 shares authorized, no
shares issued and outstanding, actual, pro forma, and pro forma as
adjusted............................................................... $ -- $ -- $ --
Common stock, no par value per share; 100,000,000 shares authorized,
9,522,800 shares issued and outstanding, actual; 9,903,000 shares
issued and outstanding, pro forma; 13,403,000 shares issued and
outstanding, pro forma as adjusted(1).................................. 1,777 2,307 33,857
Deferred compensation stock options...................................... (4) (4) (4)
Retained earnings........................................................ 5,439 290 290
--------- ----------- -----------
Total shareholders' equity............................................. 7,212 2,593 34,143
--------- ----------- -----------
Total capitalization................................................. $ 22,836 $ 18,217 $ 49,767
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Based on shares outstanding on March 31, 1999. Excludes 972,076 shares
reserved for issuance under our stock plan, of which 727,095 were issuable
upon exercise of stock options outstanding as of March 31, 1999, with a
weighted average exercise price of $6.11 per share, 311,064 shares issuable
upon the exercise of stock options granted outside our stock plan
outstanding as of March 31, 1999, with a weighted average exercise price of
$9.26 per share, and 11,881 shares issuable upon the exercise of warrants
outstanding as of March 31, 1999, with a weighted average exercise price of
$8.41 per share. See "Management--Employee Benefit Plans" and Note 5 of
Notes to Consolidated Financial Statements.
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<PAGE>
DILUTION
As of March 31, 1999, our net tangible book value was approximately
$2,643,000, or $0.28 per share of common stock after giving effect to an S
corporation distribution of $3,802,000 expected to be declared upon completion
of the offering. Net tangible book value per share represents the amount of our
tangible assets less the amount of our total liabilities, divided by the number
of shares of common stock outstanding.
Without taking into account any adjustment in net tangible book value
attributable to operations subsequent to March 31, 1999, after giving effect to
the sale by us of 3,500,000 shares of common stock in the offering at an assumed
initial public offering price of $10.00 per share and after deducting estimated
underwriting discounts and offering expenses and applying the net proceeds of
this offering, Jore Corporation's net tangible book value as of March 31, 1999
would have been approximately $34.2 million, or $2.63 per share. This represents
an immediate increase in net tangible book value of $2.34 per share to existing
shareholders and an immediate dilution of $7.37 per share to new investors. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $ 10.00
---------
Net tangible book value per share as of March 31, 1999................. 0.68
---------
Net decrease per share attributable to S corporation and tax-related
distributions........................................................ (0.39)
---------
Increase per share attributable to new investors....................... 2.34
---------
Adjusted net tangible book value per share after this offering........... 2.63
---------
Dilution per share to new investors...................................... $ 7.37
---------
---------
</TABLE>
The following table summarizes as of March 31, 1999, the relative investment
of all existing shareholders and the purchasers of shares of common stock in
this offering giving effect to the sale by us of the 3,500,000 shares at an
assumed initial public offering price of $10.00 per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders...................... 9,522,800 73.1% $ 1,770,742 4.8% $ 0.19
New investors.............................. 3,500,000 26.9 35,000,000 95.2 $ 10.00
------------ ----- -----
Total.................................... 13,022,800 100.0% 36,770,742 100.0%
------------ ----- -----
------------ ----- -----
</TABLE>
The above information assumes no exercise of any outstanding options or
warrants. As of March 31, 1999, there were outstanding options to purchase an
aggregate of 1,038,159 shares of common stock at a weighted average price of
$7.06 per share and outstanding warrants to purchase an aggregate of 11,881
shares of common stock at a weighted average price of $8.41 per share. Assuming
all such outstanding options and warrants are exercised, additional dilution to
new shareholders would be approximately $0.24 per share. We also may issue
additional shares of common stock to effect future acquisitions or upon exercise
of future stock option grants, which could result in additional dilution to our
shareholders. See "Management--Employee Benefit Plans" and Note 5 of Notes to
Consolidated Financial Statements.
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of December 31,
1997 and 1998 and for the years ended December 31, 1996, 1997 and 1998 are
derived from our consolidated financial statements, which have been audited by
Deloitte & Touche LLP, independent auditors. The selected consolidated financial
data as of December 31, 1994, 1995 and 1996 and for the years ended December 31,
1994 and 1995 are derived from our unaudited consolidated financial statements.
The selected balance sheet data as of March 31, 1999 and the selected
consolidated statement of operations data for the three months ended March 31,
1998 and 1999 are derived from our unaudited consolidated financial statements.
In the opinion of management, the unaudited consolidated financial statements
have been prepared on a basis consistent with the audited consolidated financial
statements which appear elsewhere in this prospectus and include all
adjustments, which are only normal recurring adjustments, necessary for a fair
statement of the financial position and results of operations for the unaudited
periods. Results for the three months ended March 31, 1999 are not necessarily
indicative of results for the year. You should read the data set forth below
together with "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our Consolidated Financial Statements and the Notes
thereto appearing elsewhere in this prospectus.
For all periods presented, we were an S corporation for income tax purposes
and therefore not subject to federal and state income taxes. We have paid
distributions in the past to permit our shareholders to pay their income taxes
associated with our earnings. Our S corporation status will terminate upon
completion of this offering. The pro forma net income available to common
shareholders has been computed by adjusting net income, as reported, to record
the incremental income tax expense that would have been recorded had we been a C
corporation. The pro forma basic and diluted weighted average shares outstanding
include the estimated number of shares required to pay the S corporation
distribution.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) MARCH 31,
----------------------------------------------------- --------------------
STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues............................ $ 9,590 $ 9,416 $ 9,686 $ 23,656 $ 44,888 $ 7,579 $ 9,798
Cost of goods sold...................... 7,374 7,758 8,417 17,098 31,168 4,926 6,858
--------- --------- --------- --------- --------- --------- ---------
Gross profit.......................... 2,216 1,658 1,269 6,558 13,720 2,653 2,940
Operating expenses:
Product development................... 185 147 1 151 495 54 117
Sales and marketing................... 20 27 31 620 2,509 338 376
General and administrative............ 1,125 923 1,300 2,342 2,983 538 1,150
--------- --------- --------- --------- --------- --------- ---------
Total operating expense............. 1,330 1,097 1,332 3,113 5,987 930 1,643
Income (loss) from operations........... 886 561 (63) 3,445 7,733 1,723 1,297
Other expense........................... 261 372 495 904 1,497 352 457
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) as reported........... 625 189 (558) 2,541 6,240 1,371 840
Pro forma provision (benefit) for income
taxes................................. 205 95 (199) 900 2,343 515 333
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss)............. $ 420 $ 94 $ (359) $ 1,641 $ 3,897 $ 856 $ 507
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma basic net income per common
share................................. $ 0.40 $ 0.05
--------- ---------
--------- ---------
Pro forma diluted net income per common
share................................. $ 0.40 $ 0.05
--------- ---------
--------- ---------
Pro forma weighted average shares
outstanding:
Basic................................. 9,793 9,903
--------- ---------
--------- ---------
Diluted............................... 9,816 10,045
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31, 1999
----------------------------------------------------- ----------------------
BALANCE SHEET DATA: 1994 1995 1996 1997 1998 ACTUAL PRO FORMA
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (deficit).................... $ 29 $ (765) $ (44) $ 826 $ 28 $ (2,762) $ (6,312)
Property, plant and equipment, net........... 1,683 3,022 4,196 6,081 19,816 24,422 24,422
Total assets................................. 3,916 5,169 9,548 17,759 45,963 46,018 46,270
Operating line of credit..................... 302 900 1,094 4,673 13,525 9,609 9,609
Long-term debt, net of current portion....... 1,095 1,541 4,189 4,689 14,589 15,624 15,624
Total shareholders' equity................... 277 763 149 2,521 6,289 7,212 2,593
</TABLE>
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND JORE CORPORATION'S CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. ALL
STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
RELATIVE TO MARKETS FOR JORE CORPORATION'S PRODUCTS AND TRENDS IN REVENUE, GROSS
MARGIN AND ANTICIPATED EXPENSE LEVELS, AS WELL AS OTHER STATEMENTS INCLUDING
WORDS SUCH AS "SEEK," "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT" AND
"INTEND" AND OTHER SIMILAR EXPRESSIONS, CONSTITUTE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO BUSINESS AND ECONOMIC RISKS, AND
OUR ACTUAL RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN
THE FORWARD-LOOKING STATEMENTS. FOR A MORE DETAILED DISCUSSION OF THESE AND
OTHER BUSINESS RISKS, SEE "RISK FACTORS" BEGINNING ON PAGE 7.
OVERVIEW
Jore Corporation was founded to develop and produce innovative power tool
accessories to meet the increasing demand resulting from the growth in the
cordless power tool market. Our revenues have grown substantially through the
addition of new customers, increased sales to established customers and expanded
product offerings. Our business commenced in 1987, when we began selling a
limited number of drilling and driving accessories to independent local and
regional hardware stores and building supply centers. In 1990, Makita became our
first national customer and we devoted significant resources to servicing its
demand for our products. By 1996, we had expanded our product portfolio to
include our reversible drill and drivers and contractor versions of our
products. We also began to diversify our customer base by selling products to
Black & Decker, as well as to retail customers. In 1997 and 1998 we continued to
expand our customer base by selling to Sears, Home Depot, Canadian Tire and
TruServ and further expanded our product line by introducing our quick change
system and new drilling and driving accessories such as wood boring and masonry
bits. We expect to increase our revenues and margins by pursuing direct
relationships with major retailers through sales of STANLEY-REGISTERED
TRADEMARK- and private label branded products, increasing sales to existing
customers, and augmenting our existing product portfolio.
In 1999, we have incurred several significant non-recurring expenses in
order to position us for future growth. These expenses include the direct and
indirect costs to:
- Construct and reorganize our manufacturing, engineering and administrative
facilities;
- Purchase, install and test our new drill bit manufacturing equipment;
- Install our new management information system and train our personnel to
use it;
- Assess our Year 2000 readiness and implement our compliance program; and
- Perform a comprehensive three year audit of our financial statements.
Direct costs included the tangible, out-of-pocket costs incurred by us that
related to each activity. Indirect costs resulted from the diversion of time and
resources away from our normal operations while we administered these
activities.
In addition, we have undertaken several initiatives to enhance our
productivity. In the third quarter of 1998, for example, we more than doubled
our work force from 410 to 839 people. Although necessary at the time to meet
production schedules, this rapid increase in personnel resulted in significant
inefficiencies as we trained and integrated these employees into our operations.
We retained a significant number of employees from the year ended December 31,
1998, to assist us in maintaining quality personnel and to increase our
productivity during the second half of the year when the majority of our sales
occur. Furthermore, to ensure an adequate supply of drill bits while we began
our internal production, we purchased an excess amount of drill bit inventory
from our existing supplier. We expect
19
<PAGE>
to consume this inventory by the fourth quarter of 1999 and fill our future
requirements from our own production capacity.
Net revenues are recognized at the time of shipment and sales terms are
typically net 60 or 90 days. Historically, we have experienced negligible bad
debt and do not expect bad debt to be material in the future. Cost of goods sold
consists primarily of raw materials, labor, shipping and other manufacturing
expenses associated with the production and packaging of products.
Our operating expenses include product development costs, sales and
marketing expenses and general and administrative expenses. Product development
expenses consist principally of personnel costs and material associated with the
development of new products and changes to existing products, which are charged
to operations as incurred. Some expenses relating to product development are
classified in other expense categories, such as cost of goods sold and general
and administrative expenses. Sales and marketing expenses consist of salaries
and employee benefits for internal sales personnel, selling commissions paid to
MSA and costs of promotional events. General and administrative expenses consist
primarily of salaries and employee benefits for executive, managerial and
administrative personnel, license fees, facility leases, depreciation and
amortization of capitalized equipment costs and travel and business development
costs. Other expense consists primarily of interest expense associated with our
borrowings and interest income on cash and cash equivalents.
In connection with this offering we will terminate our S corporation status
and distribute to our current shareholders all of their previously taxed but
undistributed S corporation earnings. Prior to this offering, we engaged in
transactions to consolidate and combine related entities including Montana
American Equipment, LLC and Montana American Manufacturing Corporation. See
"Certain Transactions" and Notes 1, 2 and 8 of Notes to Consolidated Financial
Statements.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold........................... 76.9 82.4 86.9 72.3 69.5 65.0 70.0
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 23.1 17.6 13.1 27.7 30.5 35.0 30.0
Operating expenses:
Product development........................ 1.9 1.6 0.1 0.6 1.1 0.7 1.2
Sales and marketing........................ 0.2 0.3 0.3 2.6 5.6 4.5 3.8
General and administrative................. 11.7 9.8 13.4 9.9 6.6 7.1 11.7
--------- --------- --------- --------- --------- --------- ---------
Total operating expense.................. 13.9 11.7 13.8 13.1 13.3 12.3 16.7
Income (loss) from operations................ 9.2 5.9 (0.7) 14.6 17.2 22.7 13.2
Other expense:
Interest expense........................... 1.0 3.0 5.0 3.4 3.0 3.4 4.9
Other income expense....................... 1.7 0.9 0.1 0.5 0.3 1.2 0.0
--------- --------- --------- --------- --------- --------- ---------
Net other expense........................ 2.7 3.9 5.1 3.9 3.3 4.6 4.9
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)............................ 6.5% 2.0% (5.8)% 10.7% 13.9% 18.1% 8.3%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
20
<PAGE>
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
NET REVENUES. Net revenues increased from $7.6 million for the three months
ended March 31, 1998 to $9.8 million for the three months ended March 31, 1999,
representing a 29.3% increase. Of the $2.2 million increase, sales to existing
customers accounted for $1.9 million and sales to new customers accounted for
$300,000. Most of this increase resulted from additional sales to Black &
Decker, Sears and Makita.
COST OF GOODS SOLD. Cost of goods sold increased from $4.9 million for the
three months ended March 31, 1998 to $6.9 million for the three months ended
March 31, 1999, representing a 39.2% increase. Cost of goods sold as a
percentage of revenues increased from 65.0% for the three months ended March 31,
1998 to 70.0% for the three months ended March 31, 1999. This increase is
attributable to greater indirect overhead, including several non-recurring
expenses, and equipment depreciation associated with our initiatives to expand
our internal manufacturing capabilities.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$54,000 for the three months ended March 31, 1998 to $117,000 for the three
months ended March 31, 1999, representing a 115.5% increase. Professional and
technical labor accounted for the majority of the increase as we hired
additional engineers and machinists to develop our proprietary products and
corresponding processes. In addition to the labor expensed for the three months
ended March 31, 1998 and for the three months ended March 31, 1999, we
capitalized $29,000 and $262,000, respectively, of labor related to equipment
constructed in-house. These amounts are included in property, plant and
equipment on the balance sheet and depreciated over the life of the equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$338,000 for the three months ended March 31, 1998 to $377,000 for the three
months ended March 31, 1999, representing an 11.4% increase. Advertising and
promotion expenses increased by $90,000 due to increased retail advertising, but
this increase was partially offset by a decrease in the sales commission
percentage. We increased our internal marketing and graphics staff to
accommodate increased sales and customer support activities as our customer
diversification efforts required us to produce more packaging and merchandising
materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $538,000 for the three months ended March 31, 1998 to $1.1
million for the three months ended March 31, 1999, representing a 113.7%
increase. The increase is a result of our initiatives to expand our operating
capacity and administrative infrastructure, as well as professional fees,
including several non-recurring expenses, related to the audit and to
consolidate and combine our operations. We increased our administrative staff
from 54 at March 31, 1998 to 97 at March 31, 1999.
OTHER EXPENSE. Other expense increased from $352,000 for the three months
ended March 31, 1998 to $457,000 for the three months ended March 31, 1999. This
increase in other expense is primarily attributable to a larger amount of
borrowings and a corresponding increase in interest expense.
NET INCOME. As a result of all these factors, our net income decreased from
$1.4 million for the three months ended March 31, 1998 to $840,000 for the three
months ended March 31, 1999, representing a 38.8% decrease.
1998 COMPARED TO 1997
NET REVENUES. Net revenues increased from $23.7 million in 1997 to $44.9
million in 1998, representing an 89.8% increase. Of the $21.2 million increase,
sales to existing customers accounted for $19.0 million and sales to new
customers accounted for $2.2 million. In particular, we doubled our shelf space
at most Sears stores, increased the number of products sold to them and
increased the number
21
<PAGE>
of Sears stores carrying our products. These factors combined to more than
triple our sales to Sears during 1998.
COST OF GOODS SOLD. Cost of goods sold increased from $17.1 million in 1997
to $31.2 million in 1998, representing an 82.3% increase. Cost of goods sold
decreased as a percentage of revenues from 72.3% in 1997 to 69.4% in 1998. This
decrease is primarily attributable to the greater absorption of manufacturing
overhead associated with increased revenues and the efficiencies gained from
manufacturing our products internally but was partially offset by the
inefficiencies associated with hiring and training more than 400 new employees
during the year. We believe that our gross margins will improve as we continue
to vertically integrate our manufacturing operations and that the effects of
such integration will impact our margins in the third and fourth quarters of
1999.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$151,000 in 1997 to $495,000 in 1998, representing a 228.6% increase.
Professional and technical labor accounted for the majority of the increase as
we hired additional engineers and machinists to develop our proprietary products
and corresponding processes. In addition to the labor expensed in 1997 and 1998,
we capitalized $184,000 and $211,000, respectively, of labor related to
equipment constructed in-house. These amounts are included in property, plant
and equipment on the balance sheet and depreciated over the life of the
equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$620,000 in 1997 to $2.5 million in 1998, representing a 305.0% increase. Sales
commissions represented $1.3 million of the increase. Advertising and promotion
expenses increased by $474,000 due to increased retail advertising. We increased
our internal marketing and graphics staff to accommodate increased sales and
customer support activities as our customer diversification efforts required us
to produce more packaging and merchandising materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $2.3 million in 1997 to $3.0 million in 1998, representing a
27.4% increase. The increase is a result of our growth and expansion.
Administrative salaries and related benefits increased as professional level
staff members were added, increasing the overall salary base. The total number
of administrative staff increased from 86 at the end of 1997 to 111 at the end
of 1998.
OTHER EXPENSE. Other expense increased from $904,000 in 1997 to $1.5
million in 1998. This increase in other expense is primarily attributable to a
larger amount of borrowings and a corresponding increase in interest expense.
NET INCOME. As a result of all of these factors our net income increased
from $2.5 million in 1997 to $6.2 million in 1998, representing a 145.4%
increase.
1997 COMPARED TO 1996
NET REVENUES. Net revenues increased from $9.7 million in 1996 to $23.7
million in 1997, representing a 144.2% increase. Of the $14.0 million increase,
sales to existing customers accounted for $2.5 million and sales to new
customers accounted for $11.5 million.
COST OF GOODS SOLD. Cost of goods sold increased from $8.4 million in 1996
to $17.1 million in 1997, representing a 103.1% increase. Cost of goods sold
decreased as a percentage of sales from 86.9% in 1996 to 72.3% in 1997. This
decrease was primarily attributable to manufacturing efficiencies, decreased
unit costs and the allocation of our fixed costs to a larger revenue base.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
less than $1,000 in 1996 to $151,000 in 1997. There were fewer engineers and
machinists in 1996 compared to 1997, and the majority of their labor was
capitalized to equipment contructed in-house and to new product
22
<PAGE>
tooling. The amounts capitalized in 1996 were $175,000 compared to $184,000 in
1997. These amounts are included in property, plant and equipment on the balance
sheet and depreciated over the life of the equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$32,000 in 1996 to $620,000 in 1997. This increase was primarily attributable to
a sharp rise in sales commissions paid on our increased sales. We paid $17,000
in commissions in 1996 compared to $468,000 in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $1.3 million in 1996 to $2.3 million in 1997, representing an
80.1% increase. The primary reason for this change was an increase in
administrative personnel, depreciation expense and fees for professional
services.
OTHER EXPENSE. Other expense increased from $495,000 in 1996 to $904,000 in
1997. This increase in other expense is primarily attributable to a larger
amount of borrowings and an increase in interest expense.
NET INCOME. As a result of all of these factors, our net income increased
from a loss of $558,000 in 1996 to net income of $2.5 million in 1997.
23
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth consolidated statements of operations data
for our five most recent quarters, as well as such data expressed as a
percentage of revenues. This information has been derived from our unaudited
consolidated financial statements. In management's opinion, this unaudited
information has been prepared on the same basis as the annual consolidated
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary for fair presentation of the quarters
presented. This information should be read in conjunction with our Consolidated
Financial Statements. and Notes thereto included elsewhere in this Prospectus.
The operating results for any quarter are not necessarily indicative of results
for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER MARCH 31,
1998 1998 1998 31, 1998 1999
----------- ----------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net revenues................................ $ 7,579 $ 7,303 $ 10,548 $ 19,458 $ 9,798
Cost of goods sold.......................... 4,926 4,895 7,411 13,936 6,858
----------- ----------- ------------- ----------- -----------
Gross profit.............................. 2,653 2,408 3,137 5,522 2,940
Operating expenses:
Product development....................... 54 50 102 289 117
Sales and marketing....................... 338 373 597 1,201 376
General and administrative................ 538 606 630 1,209 1,150
----------- ----------- ------------- ----------- -----------
Total operating expense................. 930 1,029 1,329 2,699 1,643
----------- ----------- ------------- ----------- -----------
Income from operations...................... 1,723 1,379 1,808 2,823 1,297
Other expense............................... 352 265 387 489 457
----------- ----------- ------------- ----------- -----------
Net income.................................. $ 1,371 $ 1,114 $ 1,421 $ 2,331 $ 840
----------- ----------- ------------- ----------- -----------
----------- ----------- ------------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
-------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1998 1998 1998 1998 1999
----------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Net revenues...................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 65.0 67.0 70.3 71.6 70.0
----------- ----------- ------------- ------------- -----------
Gross profit.................................... 35.0 33.0 29.7 28.4 30.0
Operating expenses:
Product development............................. 0.7 0.7 1.0 1.5 1.2
Sales and marketing............................. 4.5 5.1 5.6 6.2 3.9
General and administrative...................... 7.1 8.3 6.0 6.2 11.7
----------- ----------- ------------- ------------- -----------
Total operating expense....................... 12.3 14.1 12.6 13.9 16.8
----------- ----------- ------------- ------------- -----------
Income from operations............................ 22.7 18.9 17.1 14.5 13.2
Other expense..................................... (4.6) (3.6) (3.6) (2.5) (4.6)
----------- ----------- ------------- ------------- -----------
Net income........................................ 18.1% 15.3% 13.5% 12.0% 8.6%
----------- ----------- ------------- ------------- -----------
----------- ----------- ------------- ------------- -----------
</TABLE>
Our net revenues and results of operations have fluctuated significantly
from quarter to quarter in the past and we expect these fluctuations to continue
in the future. The following discussion highlights significant events that have
affected our net revenues and financial results for the five quarters ended
March 31, 1999.
NET REVENUES. Our net revenues generally follow seasonal retailing trends
in which sales in the third and fourth quarters increase to coincide with the
holiday shopping season. In the first two quarters of each year, our sales were
affected by carryover purchases from the holiday season, inventory adjustments
by our retail customers and Father's Day promotions.
24
<PAGE>
COST OF GOODS SOLD. Cost of goods sold as a percentage of revenues
increased throughout 1998, primarily as a result of the inefficiencies
associated with a rapid increase in the number of employees engaged in
production, partially offset by an increase in higher margin sales. Cost of
goods sold as a percentage of revenues was higher in the first quarter of 1999
compared to the first quarter of 1998 because we retained a significant number
of employees from the year-end 1998 to ensure that they were properly trained
and integrated into our operations in anticipation of higher sales volumes in
the third and fourth quarters of 1999. In addition, we continued to make the
transition to internal production of drill bits, and incurred substantial costs
associated with the purchase, installation, testing and training on new drill
bit manufacturing machines.
OPERATING EXPENSES. As a percentage of revenues, operating expenses
remained relatively constant throughout 1998. In the first quarter of 1999,
operating expenses as a percentage of revenues increased primarily due to
initiatives to expand our operating capacity and professional fees incurred to
consolidate and combine our operations. We also increased our sales, engineering
and administrative staff, but this increase was partially offset by a decrease
in the commission percentage paid to our sales representative organization.
INTEREST EXPENSE. Interest expense increased as a result of a significant
increase in borrowings to fund expansion of our production facilities and
working capital needs.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded operations with short term lines of credit and
term loans for equipment purchases and, to a lesser extent, net income from
operations. Net cash used by operating activities was $1.0 million in 1996, $2.0
million in 1997 and $1.6 million in 1998. The net cash used in operations
consisted primarily of increases in accounts receivable and inventory which were
partially offset by increased accounts payable and accrued expenses. Net cash
used by investing activities was $1.8 million in 1996, $2.7 million in 1997 and
$14.0 million in 1998. Cash used in investing activities consists primarily of
property and equipment purchases. Net cash provided by financing activities was
$2.8 million in 1996, $4.8 million in 1997 and $15.6 million in 1998. Cash
provided from financing activities was primarily from net proceeds from term
debt and net borrowings on the line of credit.
Currently, we have an accounts receivable revolving line of credit with
Coast Business Credit (CBC) with a maximum borrowing limit of $25 million less
the amounts advanced on the inventory, equipment and term loan lines. Advances
on the line are limited to 85% of eligible accounts receivable. The majority of
trade accounts receivable is, therefore, assigned as product is shipped.
Interest on the revolving credit line advances is at the prime rate plus 1%, but
no less than 9%, currently 9%. The term of the agreement is through January 2003
and contains personal guarantees by certain of our shareholders. Outstanding
advances on the line at December 31, 1998 and 1997 were $10.0 million and $4.7
million, respectively. This line is secured by receivables, inventory, equipment
and general intangibles.
During February 1998, we entered into another agreement with CBC for an
inventory revolving line of credit with a maximum borrowing limit of $4.5
million, which includes a letter of credit sub-line of $500,000. Advances on the
line are limited to 65% of eligible inventory. Interest on the revolving credit
line advances is at the prime rate plus 1%, currently 9.0%. The term of the
agreement is through January 2003 and contains personal guarantees by certain of
our shareholders. Outstanding advances on the line at December 31, 1998 were
$3.5 million. This line is secured by inventory, receivables, equipment and
general intangibles. We are currently evaluating alternatives to increase and
refinance our credit facilities.
Capital expenditures and financing associated with those expenditures have
been primary factors affecting our financial condition over the last three
years. Total capital expenditures net of dispositions were $13.5 million in 1998
compared to $2.7 million in 1997 and $1.6 million in 1996. A significant
25
<PAGE>
portion of these expenditures have been related to the acquisition of
manufacturing equipment to increase production. We anticipate 1999 capital
expenditures of approximately $27.0 million. A significant portion of our 1999
capital expenditures has been and will continue to be for additional investment
in manufacturing equipment for anticipated increases in production levels. We
anticipate spending approximately $5.0 million in 1999 to purchase specialized
drill bit production equipment. In order to maintain an exclusive relationship
with the manufacturer of such equipment we must continue to purchase
approximately $5.3 million of equipment per year over the next five years.
We believe that existing cash balances, new borrowings and cash generated
from operations, together with the net proceeds from this offering, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for approximately the next 12 months. There can be no assurance
that the underlying assumed levels of revenues and expenses will prove to be
accurate. We may seek additional funding through public or private financings or
other arrangements prior to such time. Adequate funds may not be available when
needed or may not be available on terms favorable to us. If additional funds are
raised by issuing equity securities, dilution to existing shareholders will
result. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products, take advantage of business opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on our business, financial condition and results of operations.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
In the beginning of July 1999, we completed the installation of new billing,
accounting and administrative information systems which are fully operational
and which have been represented to be fully Year 2000 compliant. Failures of our
internal systems could temporarily prevent us from processing orders, issuing
invoices, manufacturing and developing products and could require us to devote
significant resources to correcting such problems.
We have tested all of our desktop computers for Year 2000 compliance with
Year 2000 compliance testing software. All of our desktop units are Year 2000
compliant. We have received written assurances from the manufacturers of the
computers used in our manufacturing facility that all of the computers are Year
2000 compliant. We are addressing our embedded systems on a prioritized
piece-by-piece basis. We have ranked our vendors according to the lead times
that we believe they will need to correct Year 2000 problems and have contacted
them to request their Year 2000 compliance status. We have also identified
vendors who are not yet Year 2000 compliant and we have an updated working list
of each vendor's position. We intend to remain in close contact with those
vendors who are not yet compliant and continue to follow up with them as they
complete their respective compliance programs. All of the vendors that we have
identified as critical vendors have informed us that they are Year 2000
compliant and that they have contingency plans in place. To date, we have also
received Year 2000 compliance statements from all of our major suppliers.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. If our customers are not Year 2000 compliant, they may
experience material costs to remedy problems, may face litigation costs and may
delay purchases of our products. As a result, our business, financial condition
and results of operations could be seriously harmed.
We have funded our Year 2000 plan from cash balances. As of June 30, 1999,
we have spent approximately $361,900 to address the Year 2000 problem and expect
to spend approximately $7,800 more toward that objective. We will incur
additional costs related to the Year 2000 plan for administrative personnel to
manage the project, outside contractor assistance and software. In addition, we
may experience material problems and costs with Year 2000 compliance that could
seriously harm our business, financial condition and results of operations.
Finally, we are also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company interruptions
caused by Year 2000 compliance failures.
26
<PAGE>
We have completed a Year 2000 contingency plan. It designates employees from
five information systems divisions to respond to any unexpected failure of any
of our systems due to a Year 2000 compliance problem. The five divisions are
hardware, software, production equipment, utilities and financials. We have
identified each of these five divisions as critical to our continued production
and operations. In the event of any Year 2000 compliance problem, one of our
designated employees will contact the responsible vendor and work with that
vendor towards a solution. We will also identify alternate vendors and make
appropriate scheduling changes to assure uninterrupted production in the event
that the designated employee and responsible vendor cannot reach a solution.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, we adopted the provision of SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes the standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from income, include foreign currency
translation adjustments and unrealized gains/losses on available-for-sale
securities. Reclassification of financial statements for earlier periods
provided for comparative purposes is required upon adoption. SFAS No. 130 does
not address issues of recognition or measurement for comprehensive income and
its components, and therefore, it had no impact on our financial condition or
results of operation upon adoption. Currently, there are no transactions that
would give rise to reporting or disclosure differences between reported income
and comprehensive income.
Effective January 1, 1998, we adopted the provisions of SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
statement requires, among other things, that we provide financial and
descriptive information about our reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available and is regularly evaluated by the
enterprise's chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Currently, we believe that we operate in
only one reportable segment.
In June, 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be used specifically as a hedge, the
objective of which is to match the timing of gain or loss recognition on the
hedging derivative with the recognition of the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk, or the
earnings effect of the hedged forecasted transaction. For a derivative not
designated as a hedging instrument, the gain or loss is recognized in income in
the period of change. SFAS No. 133 is effective for all fiscal quarters of
fiscal years beginning after July 1, 2000. Historically, we have not entered
into derivative contracts either to hedge existing risks or for speculative
purposes.
INFLATION AND INTEREST RATE RISK
Our operating results may be affected by changes in rates of inflation and
market interest rates. In particular, increases in market interest rates will
adversely affect our net income, as most of our indebtedness bears interest at
floating rates tied to the prime rate or other interest rate benchmarks.
Inflation does not currently affect our operating results materially, and we do
not expect inflation to materially affect our operations in the foreseeable
future.
27
<PAGE>
BUSINESS
GENERAL
Jore Corporation is a leader in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. We offer a comprehensive system of proprietary
drilling and driving products that save users time through enhanced
functionality, productivity and ease of use. We manufacture our products using
advanced technologies and equipment designs, thus achieving competitive
advantages in cost, quality and production capacity. Our products are sold under
private labels to the industry's largest power tool retailers and manufacturers
such as Sears, Roebuck and Co., TruServ Corporation, Black & Decker Corporation
and Makita Corporation. Our products also are sold at retailers such as The Home
Depot, Inc., Lowe's Companies, Inc., Ace Hardware Corporation, Canadian Tire
Corporation Limited, Wal-Mart Stores, Inc. and others. In addition, we recently
signed an agreement with The Stanley Works that grants us an exclusive license
to sell power tool accessories directly to retailers under the
STANLEY-REGISTERED TRADEMARK-brand.
INDUSTRY OVERVIEW
The development and widespread availability of cordless power tools since
the early 1980s has created a growing installed base of these tools among
do-it-yourself consumers, professional craftsmen and industrial users. The
increased use of cordless power tools has led to a growing demand for new and
improved power tool accessories. According to industry sources and our market
research, we believe that the worldwide addressable market for our products is
approximately $13.0 billion per year. In the United States, our addressable
market is approximately $5.7 billion per year, consisting of $3.0 billion for
power tool accessories and a $2.7 billion for hand tools. The drilling and
driving accessories market represents approximately $1.3 billion of the domestic
power tool accessories market. The remainder of the power tool accessories
market consists of saw blades, router bits, surface preparation and related
products.
Historically, the power tool accessories industry has been comprised of a
fragmented group of manufacturers that produce traditional drilling, driving,
cutting and surface preparation accessories. The industry is consolidating as
larger manufacturers seek to broaden their product offerings and expand
production capacity. Significant investments have been made in embedded capital
equipment and production facilities which use traditional, multi-step methods of
production that have remained relatively unchanged for years. The industry
generally has been slow to introduce innovative new products and adopt advanced
manufacturing technologies.
In recent years, the retail distribution channel for power tool accessories
and hand tools has undergone substantial consolidation and change. The emergence
of "big box" home center stores has placed tremendous competitive pressure on
small, independently owned hardware stores throughout the United States. The
large home center stores typically limit their purchases within a particular
product category to a few leading national brands and promote their own store
brands to induce customer loyalty. This change in the retail channel has had a
tremendous impact on purchasing and distribution patterns. The need for a large,
national sales force to call on numerous smaller retailers has greatly
diminished as centralized purchasing and distribution through strategically
located distribution centers has emerged. As a result, sales efforts have become
more specialized, focusing on targeted programs that add value through product
merchandising or logistical expertise.
28
<PAGE>
STRATEGY
Our objective is to be the leading manufacturer of innovative products for
the global power tool accessories market. Our growth and operating strategies
include the following specific elements:
GROWTH STRATEGY
EXPAND THE INSTALLED BASE AND APPLICATIONS OF OUR DRILLING AND DRIVING
SYSTEM--The base of consumers using our proprietary quick change connectors is
rapidly expanding. We will seek to further build our user base by expanding
sales of our accessory sets, while concurrently developing new product
applications. We are working with Sears, for example, to incorporate our quick
connector directly into some models of its CRAFTSMAN-REGISTERED TRADEMARK-
cordless power drills. We believe that we can leverage complementary hex-shank
accessory products into our growing installed user base. Accordingly, we intend
to develop and introduce new and innovative accessories within our drilling and
driving system.
BROADEN OUR PRODUCT PORTFOLIO--We are broadening our product portfolio to
include other innovative products, including select hand tools such as ratchet
wrenches and screwdrivers with proprietary features. In connection with our
license of the STANLEY-Registered Trademark- brand, we will also introduce other
power tool accessories. We are also using our proprietary manufacturing
processes to achieve cost leadership in producing traditional round-shank drill
bits. We will continue to seek opportunities to license new or existing
technologies to complement our internal product development efforts.
ENHANCE EXISTING CUSTOMER RELATIONSHIPS--We believe that there are
significant opportunities to increase sales to existing customers:
- We intend to increase the number of products that we supply to our
customers and to expand the retail shelf space dedicated to our products.
For example, from 1997 to 1998 we increased the number of SKUs that we
sell to Sears from approximately 12 to 49 and doubled the shelf space
allocated to our products sold under the CRAFTSMAN-REGISTERED TRADEMARK-
label in most of its stores.
- We intend to increase the number of stores at which our products are sold.
Our products are not yet sold in each of our customers' stores and several
retailers of our products regularly open new stores. As a result, we
believe that there are significant opportunities to expand our presence
with our current customers. For example, our products sold under the
MASTER MECHANIC-Registered Trademark- label currently are found in
approximately 2,300 of the approximately 10,000 TruServ stores.
- We intend to offer our products under different brands to enable our
customers to effectively target various price points and consumer
segments. These include brand names such as CRAFTSMAN-REGISTERED
TRADEMARK-, STANLEY-REGISTERED TRADEMARK-, BLACK & DECKER-REGISTERED
TRADEMARK- and MAKITA-REGISTERED TRADEMARK-.
DEVELOP NEW CUSTOMER RELATIONSHIPS--In order to broaden our customer base,
we are developing and expanding relationships with major retailers. For instance
we have relationships with home center retailers such as The Home Depot,
Menard's and Lowe's, mass merchandisers such as Wal-Mart and buying groups such
as TruServ and Ace Hardware. We believe that offering our products under the
STANLEY-REGISTERED TRADEMARK- brand will further enhance our opportunities with
these customers, while concurrently enabling us to develop new customer
relationships.
EXPAND INTO THE INDUSTRIAL MARKET--We believe that the rapid
interchangeability of our accessories will offer productivity enhancements to
industrial users. Consequently, we intend to introduce our drilling and driving
system to the industrial market, which we believe is roughly equal in size to
the retail market that we presently serve. Moreover, we believe our advanced
drill bit manufacturing facility will allow us to competitively supply the
industrial market with traditional round-shank drill bits. We are presently
evaluating alternative sales and distribution strategies to access the
industrial market.
EXPAND INTO FOREIGN MARKETS--We believe that we have significant
opportunities to expand into foreign markets. We continue to supply the Canadian
market through the largest Canadian hardware
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retailer, Canadian Tire, as well as through Sears and Makita. We are currently
evaluating distribution channels in the European market and we will continue to
evaluate opportunities to enter other foreign markets.
OPERATING STRATEGY
CONTINUALLY IMPROVE OUR MANUFACTURING PROCESSES--We continually monitor and
evaluate production techniques and benchmark our processes against other related
standards to refine and optimize our manufacturing processes. Our focus on
continuous process improvement covers all facets of operations, from inspection
of raw materials to final assembly and packaging of the end product.
CONTINUE TO VERTICALLY INTEGRATE OUR OPERATIONS--We increasingly utilize our
own innovative manufacturing capabilities to reduce our cost of goods sold,
increase our production capacity, provide better customer service, improve the
quality of our products and reduce our reliance on third parties. For example,
in addition to initiating our own round-shank drill bit production, recently we
have substantially reduced the cost of our countersinks and increased our
production and quality control capabilities by producing them in our own
facilities. We are achieving similar results by internally producing other
components.
FOCUS ON CREATIVE MERCHANDISING AND RAPID PROTOTYPING--We distinguish
ourselves by our ability to quickly design and prototype attractive packaging
and retail displays. In addition, we continually evaluate the logistics of
receiving, displaying and purchasing products in retail environments. As a
result, we deliver our products and systems in attractive packages and effective
retail plan-o-grams that, in coordination with each customer's requirements, are
easy to set up and display and are aesthetically appealing to consumers. We
believe this responsiveness and attention to detail provides us with a
competitive advantage in serving our customers and encourages consumer
purchases.
ENHANCE INFORMATION AND CONTROL SYSTEMS TECHNOLOGY--Integrating our design,
development, manufacturing, sales and management operations is critically
important. Our enterprise resource planning software facilitates enterprise-wide
communication and coordination among our employees. Real time communication
among engineers, product managers, quality assurance personnel, and graphic
designers enables us to carefully control design, development, manufacture and
marketing of our products.
DEVELOP, MOTIVATE AND RETAIN HIGHLY PRODUCTIVE PERSONNEL--We are committed
to creating a working environment that values the contributions of all personnel
and rewards personal initiative. We seek to retrain and redeploy, rather than
displace, employees when we implement manufacturing improvements or technology
upgrades. By encouraging employees to attend our internal education programs, we
believe that we improve the capabilities of our employees and leverage our
investment in process technology and information management systems. Our
programs cover a range of topics including computer aided design, spreadsheet
and database management, work-flow efficiency, sales education and automation
training.
PRODUCTS
We produce a variety of power tool accessories and hand tools. We currently
offer a comprehensive drilling and driving system that combines a proprietary
quick change connector with a full range of complementary accessories. We market
our products in sets, which generally include quick change connectors,
reversible drill and driver tools, screw guides and a combination of hex-shank
drill and screw driving bits. Depending on the scope and configuration, these
sets typically sell at retail prices ranging from $19.99 to $99.99. We also
individually package and sell our drilling and driving products.
In addition to our drilling and driving systems, we also manufacture and
sell traditional round-shank drill bits and innovative hand tools, including our
TORQUE DRIVER-TM- screw and nut drivers and
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<PAGE>
wrench ratchets. In connection with our recent licensing of the
STANLEY-REGISTERED TRADEMARK- brand, we will also begin offering other power
tool accessories, such as saw blades, router bits, and related products.
The following tables provide information about each of our product families:
QUICK CHANGE DRILLING AND DRIVING SYSTEMS
[Diagram of Hex-shank Wire Brushes]
The cornerstone of our power tool accessories portfolio is a patented quick
change drilling and driving system that enables single-handed interchangeability
of a full-range of hex-shank drilling, driving and surface preparation
accessories. In addition to quick interchangeability, our hex-shank accessories
provide enhanced torque transmission as compared to traditional round-shank
products. Users chuck the quick connector into their drill and then can quickly
change between accessories throughout their project without having to
continually chuck and re-chuck a particular accessory. We offer the quick change
connectors in a variety of styles and sizes to fit the needs of both
do-it-yourself consumers and professional craftsmen. The quick change connectors
are used in conjunction with a variety of hex-shank accessories including
high-speed drill bits, masonry drill bits, wood boring spade bits and wire
brushes and other surface preparation applications.
REVERSIBLE DRILL AND DRIVERS
[Diagram of Drill and Driver]
The patented reversible drill and driver speeds up the process of drilling
and driving as well as providing both functions in one tool. This product line
consists of a drilling tool on one end and a driving tool on the other. The
reversible drill and driver allows the user to drill and/or countersink a pilot
hole, then quickly release and flip the accessory to drive the screw or other
fastener. The product can be used with a number of drilling and driving tools
and is available in a variety of versions and sizes.
SCREW GUIDES
[Diagram of Screw Guide Standard]
Our patented screw guides are magnetic bit holders with a self-retracting
guide sleeve that provide the user with an easily operated screw driving
accessory for a power drill. The user places the screw head on the magnetized
insert bit and then pulls the self-retracting guide sleeve forward over the
screw. The guide sleeve holds the screw straight and prevents slippage during
driving. The screw guide comes in many variations to serve specific
applications.
HAND TOOLS
[Diagram of TORQUE DRIVER-TM-][Diagram of cartridge driver]
The TORQUE DRIVER-TM- is an ergonomically designed screw and nut driver with
a flip-out handle allowing for greater torque in turning screws and driving
nuts. The cartridge driver is a screw and nut driving tool containing a
retracting cartridge in the handle for storing a number of drilling and driving
bits. This tool also incorporates a quick connect feature allowing fast
interchangeability of screw and nut driving bits.
DRILL BITS
Using our advanced drill bit manufacturing technology, we recently began
producing traditional round-shank drill bits. We have begun to offer
ground-from-solid drill bits in a variety of sizes and for various surfaces. See
"Manufacturing and Process Technologies."
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MANUFACTURING AND PROCESS TECHNOLOGIES
We use advanced technology to create the highest quality, most
cost-effective processes available to manufacture, assemble and package our
products. We operate based on the concept of "Kaizen," a Japanese word meaning
"never ending improvement." Our processes are based on continuing research into
materials, technology and machines from other companies and industries. Our
focus on innovation and continuous process improvement covers all facets of
operations, from inspection of raw materials to final assembly and packaging of
the end product. The application of advanced technology manufacturing allows us
to enhance product quality, lower production costs, improve customer
responsiveness, and rapidly scale and increase production capacity to support
sales growth.
Our in-house manufacturing processes include drill bit grinding, high-speed
machining, injection molding, die-casting, metal forming and stamping. We have
jointly designed and developed a proprietary drill bit manufacturing machine
that automates all aspects of drill bit production, resulting in improved
quality, lower production costs and increased production capacity. We have
entered into an agreement with the manufacturer of this equipment that grants us
an exclusive right to its output and to the machine design for a five-year
period.
We also operate high speed machining centers to produce a variety of our
component parts, such as screwdriver bits and countersinks. Our injection
molding operations produce a variety of plastic components such as storage cases
and screwdriver handles. We produce hex-shank accessories using our proprietary
die-casting processes and screw driving products using our proprietary metal
forming and stamping equipment. Our equipment incorporates microprocessing
technology that allows us to capture, analyze and manipulate data to more
effectively manage and coordinate our operations.
Our internally manufactured component parts, as well as selected outsourced
components, go from our manufacturing or receiving operations to our assembly
and packaging work centers. Finished goods, such as hex- and round-shank drill
bits, move immediately to the packaging area and become part of a multi-product
set or are packaged individually. Through a continual study and assessment of
these assembly and packaging processes, our in-house engineering and automation
staff designs, constructs, and installs equipment that reduces manual labor
requirements, increases throughput and allows us to electronically monitor and
control processes.
We constantly monitor all facets of the manufacturing process for
inefficiencies and strive to use technology or new processes that save time,
reduce costs, and improve quality. We first seek to identify and quantify any
advantages that we believe we can achieve by developing a new process. We then
seek a solution by investigating machine manufacturing companies throughout the
world that can potentially address our needs. If an appropriate machine is not
available from an outside source, we will collaborate in the design with a
manufacturer to build process-specific equipment or design and build such
equipment internally.
PRODUCT DEVELOPMENT
We focus our efforts on the design and development of product improvements
and new products based on an evaluation of the needs and demands of consumers.
We maintain an active dialogue with users of our products to ascertain the most
desirable enhancements for our current products and systems and to aid in the
development of new products. Our technology development and application group is
comprised of 43 people, including ten engineers, 12 industrial designers and
machinists, eight graphics designers and 13 technicians.
We have a disciplined process by which we identify and develop potential new
products and bring them to market.
- CONCEPTUALIZATION AND ENGINEERING OF NEW PRODUCTS OR IMPROVEMENT TO
EXISTING PRODUCTS. Our personnel visit job sites to observe current
construction and manufacturing methods and to identify potential
opportunities to improve existing products or create new products. Once we
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identify a need for a new product or an improvement to an existing product
we begin a conceptualization process involving feedback from end-users and
personnel within our manufacturing operations. Using computerized
engineering software, we develop three-dimensional computerized drawings
and manipulate these images to optimize functionality and form.
- PROTOTYPED PRODUCTION. Once we are satisfied regarding the functional and
aesthetic objectives of a particular product, our engineering software
sends the three-dimensional computerized model to our rapid prototyping
system. Our system produces a three-dimensional plastic model that we then
test for aesthetics, functionality and general design. Once we are
satisfied with the concept prototype, we commission a fully functional
prototype to be made for performance testing and evaluation as a working
prototype. In many cases, the rapid prototype model serves this function
as well.
- SELECTION OF RAW MATERIAL AND PRODUCTION EQUIPMENT. In order to select the
appropriate raw material, we use the working prototype to test alternative
materials in many different conditions. After we have determined the
appropriate raw material and product specifications, we send engineering
drawings, concept prototypes and working prototypes to selected
manufacturing equipment suppliers so that they are able to submit
proposals on design and fixturing of appropriate equipment. Our equipment
committee evaluates the proposals from these suppliers and selects the
best design to produce our product.
- ASSEMBLY, PACKAGING AND AUTOMATION FIXTURES. We design automated work
cells to efficiently assemble and package our products. Our automation
team evaluates and selects the appropriate technology and equipment for
each process. Our work cells, comprised of several process-specific
work-centers, are designed and arranged for efficient flow of product and
personnel. Our automation team designs safe, ergonomic workstations based
upon the needs of our production team.
CUSTOMERS
We sell our products to customers which currently fall into two general
categories:
- Retailers of power tool accessories; and
- Power tool manufacturers.
Our retail customers offer our products in their own stores under their own
private label brands. We coordinate closely with these customers on promotional
and merchandising strategies and displays, and we supply these customers with
products in final packaged form. We will also begin to offer our products to
retail customers under the STANLEY-REGISTERED TRADEMARK- brand.
Our power tool manufacturer customers offer our products through their own
distribution channels under their own brands. We supply our products to these
customers either in final packaged form or as unpackaged products which the
manufacturers combine and package with related drilling and driving products.
Our customers include the industry's leading manufacturers such as Black &
Decker and Makita as well as major retailers such as Sears, Home Depot, Lowe's,
True Value, Ace Hardware, Canadian Tire, Wal-Mart and others. In 1998, Sears,
Black & Decker and Makita each accounted for more than 10% of our revenues, with
sales to those three customers accounting for approximately 91% of our revenues.
For 1997 and 1998, we were named a "Partner in Progress" by Sears, an award
earned by approximately one percent of Sears' vendors. In addition, we received
the Sears Hardlines Group Innovation Award for 1997. Recently, Black & Decker
recognized us with its Performance Scorecard Award for Total Cost Management.
See "Risk Factors--The loss of a large customer would have a material adverse
effect on our business."
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Selected retail customers to which Jore Corporation directly sells products
are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF BRAND NAME AND APPROXIMATE NUMBER OF
STORES IN WHICH TRADEMARK JORE CORPORATION SKUS MARKETS
NAME OF STORE PRODUCTS SOLD OF PRODUCTS CARRIED SERVED
- -------------------------------------------- --------------- -------------------- --------------------- ----------
<S> <C> <C> <C> <C>
Sears (including Orchard Supply and Sears
Hardware)................................. 2,300 Craftsman 58 US and
Canada
Canadian Tire............................... 430 Mastercraft 17 Canada
TruServ (including True Value, Servistar and
Coast to Coast)........................... 2,300 Master Mechanic 63 US
</TABLE>
Selected power tool manufacturers to which we sell our products, as well as
the stores and brands under which our products are sold, are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
JORE CORPORATION STORES IN WHICH
NAME OF BRAND NAME(S) SKUS SOLD BY JORE CORPORATION MARKETS
MANUFACTURER OF PRODUCT MANUFACTURER PRODUCTS ARE SOLD SERVED
- --------------------------- -------------------- ------------------- --------------------------- ---------------
<S> <C> <C> <C> <C>
Makita USA Makita 115 Home Base, Menards, Eagle US, Canada,
Makita Canada 40 Hardware/Lowe's, Payless International
Makita International 18 Cashway, Ace Hardware,
Contractor Supply
Distributors, Costco,
Independent Retailers,
Black & Decker DeWalt, Black & 41 Home Depot, Lowe's, US
Decker, Quantum Pro Wal-Mart, Ace Hardware
and Scorpion Independent Retailers
</TABLE>
SALES AND MARKETING
We seek to develop long-term, mutually beneficial relationships with our
customers and to communicate with decision-makers at all levels within our
customers' organizations. Our internal sales and marketing staff closely
coordinates our activities and strategies with a sales representative
organization, Manufacturers' Sales Associates, LLC ("MSA"). MSA consists of six
sales representatives who formerly were senior sales and marketing executives
with major power tool companies. These representatives are strategically located
near major customers in the industry so they can continually coordinate product
and promotional requirements to optimize market opportunities. We believe that
our relationship with MSA effectively leverages their industry experience while
complementing our focus on product and process development.
Our sales and marketing team works closely with our customers to create
coordinated promotional and merchandising campaigns. Elements of a typical
promotional campaign may include television commercials, direct mail product
circulars, catalogs, newspaper and magazine advertisements and promotional
events. Campaigns may also include merchandising events, plan-o-grams, and
promotional displays, such as aisle end caps, clip strips and center aisle
merchandisers.
Most of our sales are derived from purchase orders for products to be
delivered to our customers within 30 days of receipt of the order. As is
customary in the power tools accessories market, we rely on our customers'
forecasts to anticipate future order volumes, and typically do not enter into
long-
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term supply agreements with our customers. As a result, we typically do not
maintain a significant backlog of purchase orders. See "Risk Factors--We depend
on customer forecasts to manage our business."
We distinguish ourselves with our highly skilled, responsive in-house
graphics department that works closely with our sales and marketing department
and with MSA. Our graphics capabilities provide us with a significant
competitive advantage by allowing us to quickly design and produce packaging
mockups and sample promotional materials for new and existing customers. We also
produce our own point-of-sale displays and collaborate with our customers in
designing unique, customer-specific packaging. We believe that our graphics
capabilities enable us to offer our customers a "turn-key" graphics and
packaging solution that makes it easier for them to merchandise and display our
products and greatly enhances our sales and marketing efforts.
COMPETITION
The power tool accessories market and the hand tool market are highly
competitive. Many of our competitors are established companies that have
significantly greater financial, technical, manufacturing, sales and marketing,
and support resources than Jore Corporation. In addition, many of our
competitors own well-known brands, enjoy large end-user bases, and benefit from
long-standing customer relationships. As we expand into new markets, we can
expect to encounter similar competitive environments.
Competitors in power tool accessories include Vermont American Corporation,
Black & Decker, Greenfield Industries, Inc. (a wholly-owned subsidiary of
Kennametal Inc.), American Tool Companies, Inc. and others, as well as a number
of independent "job shops" that supply products under private labels to OEM and
retail customers. Competitors in the hand tools market include American Tool,
Cooper Industries, Inc., The Stanley Works and others, including some foreign
companies. Competitive factors in our markets include:
- Establishing favorable brand recognition;
- Maintaining manufacturing efficiency and expertise;
- Developing a breadth of product offerings;
- Implementing appropriate pricing;
- Providing strong marketing support;
- Manufacturing high quality products; and
- Obtaining access to retail outlets and sufficient shelf space.
INTELLECTUAL PROPERTY
Our ability to compete effectively depends in part on our ability to develop
and protect our proprietary technology. We own 15 United States and foreign
design and utility patents covering a variety of our products and processes.
While our patents have been important to our business, we do not believe that
our business is dependent on any single patent or group of patents. We also own
several registered trademarks and sell many products to our customers under
licensing arrangements that allow us to maintain ownership of our trademarks
while granting customers exclusive use of specified marks. Our primary
trademarks include JORE-TM-, SPEED-LOK-TM-, SPEED SHANK-Registered Trademark-,
QUAD-DRIVER-Registered Trademark-, BIT-LOK-Registered Trademark-, HIGH TORQUE
POWER DRIVER-TM-, MONTANA TOOL CORPORATION-TM-, TORQUE DRIVER-TM-, ULTRA
CUT-TM-, JORETECH-TM-, WHERE INNOVATION MEETS REALITY-TM- and AUTO JAW-TM-.
Certain of our trademarks are integral to our business and we aggressively
monitor and protect these and other marks.
Norton Company, a manufacturer of surface preparation and abrasive tool
accessories, owns the registered trademark "SPEEDLOK" for use with abrasive
disks and backup pads. We sell our quick change system to Sears under our
SPEED-LOK-TM- trademark. Norton recently advised us that our
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SPEED-LOK-TM- trademark may infringe on Norton's trademark rights. We believe
that our use of our SPEED-LOK-TM- trademark does not infringe on Norton's
trademark rights. To resolve this matter, we are in discussions with Norton to
obtain a royalty-free license to the SPEED-LOK-TM- trademark and enter into a
long-term supply agreement for surface preparation and abrasive tool products.
We enter into confidentiality agreements with our employees and consultants
upon the commencement of an employment or consulting relationship. These
agreements generally require that all confidential information developed or made
known to the individual by us during the course of the individual's relationship
with us be kept confidential and not disclosed to third parties. These
agreements also generally provide that inventions conceived by the individual in
the course of rendering services to us shall be our exclusive property. See
"Risk Factors--We depend on patent, trademark and trade secret protection to
maintain our market position."
INFORMATION MANAGEMENT
Through our information management systems, we seek to electronically
integrate all aspects of our operations, from procurement of raw materials to
sale of our packaged products to end-users. We are currently implementing a
fully-integrated enterprise resource planning software system that will allow
centralized management of key functions, including inventory, order processing,
accounts receivable, accounts payable, general ledger, shop floor control,
engineering change management, bar-coded inventory, material requirements
planning, scheduling, electronic data interchange, and bar-coded labor input.
This information system will enable us to ship to customers on a same-day basis,
respond quickly to order changes and provide a high level of customer service.
Our new system integrates more of our internal processes and allows for
cross-platform information sharing among our various departments. We plan to
have our new enterprise resource planning system in place by the third quarter
of 1999. See "Risk Factors--Unsatisfactory implementation or performance of our
new information technology system could adversely affect our business."
PERSONNEL AND HUMAN RESOURCES
As of June 30, 1999, we employed 517 full-time employees and 128 part-time
employees, of whom 13 were in sales and marketing, 94 in finance and
administration, 37 in technology development and application and 501 in
operations. All of our employees are located at our facility near Ronan,
Montana. No employees are covered by collective bargaining agreements, we have
never had a work stoppage and we believe we maintain good relations with our
employees.
FACILITIES
Our operations are housed in 200,000 square feet of facilities located near
Ronan, Montana. Our existing facilities include three buildings from which we
provide manufacturing, assembly, packaging, warehousing and administrative
functions. We are currently expanding our facilities to 325,000 square feet,
primarily to accommodate our new drill bit manufacturing operation. Our
facilities are located on a 120 acre site that we own. We believe this site is
sufficient to continue to expand our facilities to meet our manufacturing and
office needs for the foreseeable future.
LEGAL PROCEEDINGS
On June 9, 1999, Stanley filed a lawsuit against Black & Decker in the
United States District Court for the District of Connecticut. The lawsuit arises
out of claims made by Black & Decker that our proposed introduction of
STANLEY-REGISTERED TRADEMARK--branded power tool accessories in yellow and black
packaging would violate Black & Decker's trademark rights associated with its
DEWALT-REGISTERED TRADEMARK- brand.
Stanley is seeking a declaratory judgment that the use or license by Stanley
or Jore of yellow and black on power tools or their accessories does not
infringe or dilute any of Black & Decker's federal or
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state trademark rights, or constitute an unfair trade practice under federal or
state law. We have joined Stanley as a co-plaintiff in this suit.
Stanley has advised us that:
- It has used yellow and black on its products since at least 1899;
- It has marketed products under its "Stanley in a notched rectangle"
trademark since at least 1902;
- It has sold power tool accessories since at least 1939;
- It has packaged its power tool accessories utilizing yellow and black
trade dress since at least 1957.
In contrast, we believe that Black & Decker first introduced the DeWalt line of
power tools dressed in yellow and black in 1992. Jore began shipping product
under the Stanley-Registered Trademark- brand on June 14, 1999.
On July 7, 1999 Black & Decker filed an Amended Answer, Affirmative
Defenses, and Counterclaims to Amended Complaint, in which Black & Decker denied
most of the allegations asserted against it and raised counterclaims against
Stanley and Jore alleging, among other things, unfair competition and trademark
and trade dress infringement. In its filing Black & Decker seeks:
- dismissal of Stanley's action;
- an injunction against Stanley and Jore that would prevent Stanley and us
from using the yellow and black color combination for marketing and
selling power tools and power tool accessories;
- damages for our use of the yellow and black color combinations; and
- attorneys' fees and costs.
Under the license agreement, Stanley has agreed to indemnify and hold us
harmless with respect to any alleged trademark infringement action arising out
of the approved use of Stanley's trademarks, and has the sole responsibility for
undertaking and conducting the defense of any such action.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of Jore Corporation, and their ages and
positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Matthew B. Jore(2)................................... 37 President, Chief Executive Officer and Chairman
Michael W. Jore...................................... 39 Executive Vice President and Director
David H. Bjornson.................................... 42 Chief Financial Officer, General Counsel, Secretary
and Director
Daniel A. Gabig...................................... 41 Vice President--Business Development
Kelly D. Grove....................................... 32 Vice President--Controller
Nikki Snyder......................................... 39 Vice President--Corporate Communications and Human
Resources
Robert S. Warren..................................... 53 Vice President--Marketing
Jeffery J. Eidsmoe................................... 41 Vice President--Operations
Jeffrey M. Heutmaker................................. 37 Vice President--Strategic Initiatives
Thomas E. Mahoney(1)................................. 56 Director
Bruce Romfo.......................................... 61 Director
William M. Steele.................................... 66 Director
Blaine Huntsman(1)(2)................................ 63 Director
James P. Mathias(1)(2)............................... 49 Director
</TABLE>
- ------------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
MATTHEW B. JORE is the founder of Jore Corporation. He has served as our
President since June 1990, Chief Executive Officer since March 1999 and a
Director since its inception on February 1990. He holds a B.S. degree in
Economics from the University of Montana.
MICHAEL W. JORE has served as Executive Vice President since November 1998
and Director of Jore Corporation since February 1990. From June 1990 to November
1998, he was the Vice President of Jore Corporation. Before joining Jore
Corporation, he worked for Plum Creek Timber, L.L.C. for ten years. Matthew and
Michael Jore are brothers.
DAVID H. BJORNSON has served as General Counsel and Chief Financial Officer
since November 1998 and as a Director since May 1998. From 1993 to 1998, Mr.
Bjornson was a Partner at Boone, Karlberg & Haddon, a Missoula, Montana law
firm, serving also as outside counsel of Jore since 1994. From 1990 to 1993 he
worked at the law firm of Monahan & Biagi, and from 1988 to 1990 he was employed
by the law firm of Bogle & Gates. Mr. Bjornson worked at the law firm of
Cairncross Clark & Martin from 1985 to 1987. From 1979 to 1981 he worked at the
international accounting firm of Touche Ross & Co. He holds an LL.M. degree in
taxation from New York University, and a J.D. and a B.A. degree in Business
Administration from the University of Montana. Mr. Bjornson also holds a
Certified Public Accountant Certificate.
DANIEL A. GABIG has served as Vice President--Business Development since
March of 1999. From November 1998 to March 1999, he was the General
Manager--Treasurer of Jore Corporation. From February 1995 to November 1998, he
was the Finance Manager of Jore Corporation. From December 1986 to November
1993, he was the Accounting Manager/Senior Financial Analyst for Scios Nova,
Inc., biopharmaceutical company. He has an M.B.A. from the University of
California--Berkeley and a B.S. degree from California Polytechnic State
University.
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KELLY D. GROVE has served as Vice President--Controller of Jore Corporation
since March 1999. From August 1995 to March 1999, she was the Controller of Jore
Corporation. From March 1994 to August 1995, she was the Executive Coordinator
of Jore Corporation. From November 1991 to March 1994, she was a staff
accountant at the Washington Corporations, a holding company. She has a B.S.
degree from Montana State University.
NIKKI SNYDER has served as the Vice President--Corporate Communications and
Human Resources of Jore Corporation since March 1999. From August 1996 to March
1999, she was the Personnel Manager of Jore Corporation. From August 1994 to
August 1996, she was a personnel coordinator of Jore Corporation.
ROBERT S. WARREN has served as Vice President--Marketing of Jore Corporation
since March 1999. From October 1998 to March 1999, he was the General Manager of
Sales and Marketing, and from March 1995 to October 1998, the Sales Manager, of
Jore Corporation. Prior to joining Jore Corporation, he was President and owner
of Pri-Mark, a business consulting company that was formed in May 1994.
JEFFERY J. EIDSMOE has served as Vice President--Operations since May 1999.
From January 1988 to May 1999 he worked for Western Forge, a subsidiary of
Emerson Electric Company, serving as its Director of Product Development for the
past four years. Mr. Eidsmoe was previously employed by Cessna Aircraft Company
as an Industrial Engineer Group Leader and Production Supervisor from March 1983
to December 1988. He has an M.B.A. degree from the University of Colorado and a
B.S. degree from Bemidji State University, Bemidji, Minnesota.
JEFFREY M. HEUTMAKER has served as Vice President--Strategic Initiatives
since June 1999. From June 1996 to June 1999 Mr. Heutmaker was an attorney with
Van Valkenberg Furber Law Group P.L.L.C, a law firm located in Seattle,
Washington, and outside securities counsel to Jore Corporation. From May 1992 to
May 1996, Mr. Heutmaker was the principal of Jeffrey M. Heutmaker, Attorney at
Law, where his practice focused on securities law and mergers and acquisitions
transactions. Prior to founding his own firm, Mr. Heutmaker was an associate
corporate finance attorney with Bogle & Gates. He holds a J.D. degree from Notre
Dame Law School and a B.A. degree in Economics and English Literature from the
University of Puget Sound.
THOMAS E. MAHONEY has served as a Director of Jore Corporation since
February 1999. From 1965 until 1999, he was employed by The Stanley Works in
various positions. From 1997 to 1999, he was the President of The Stanley Works,
Consumer Sales Americas. From 1995 to 1997, he was the President and General
Manager, Customer Support Division and V.P. of Corporate Marketing and
Advertising at Stanley. From 1992 to 1995, he was the President and General
Manager, Hardware and Home Decor Division of Stanley. From 1987 to 1992, he was
the President and General Manager, National Hand Tools Division of Stanley. He
has a B.A. degree from the University of Massachusetts.
BRUCE ROMFO has served as a Director of Jore Corporation since May 1998. He
has served as the President of Printing Press, Inc., a packaging and printing
company since 1983, and currently serves as a Director. Mr. Romfo holds a B.A.
degree from Minot State University and a Masters degree in Accounting from the
University of Idaho.
WILLIAM M. STEELE has served as a director of Jore Corporation since May
1998. He is a founder and a managing member of Manufacturers' Sales Associates,
LLC, a sales and marketing organization that he co-founded along with Gary S.
Houck. Prior to that, Mr. Steele spent 12 years with Makita USA, as Senior Vice
President and as General Manager of Makita's Outdoor Power Equipment Division.
Mr. Steele holds a B.A. degree from University of Connecticut.
BLAINE HUNTSMAN has served as a Director of Jore Corporation since June
1999. He is a director of ZCMI, an intermountain retail chain, and a Trustee of
The Achievement Funds Trust, an equity and bond fund affiliated with First
Security Investment Management, Inc. Mr. Huntsman served as
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<PAGE>
Chairman and Chief Executive Officer of Olympus Capital Corporation, a holding
company for Olympus Bank, from 1988 to 1995 when Olympus merged with Washington
Mutual. Prior to that he served as Dean of the Graduate School of Business and
College of Business, University of Utah, from 1975 to 1980 and is retired as a
Professor of Finance at the David Eccles School of Business at the University of
Utah. Mr. Huntsman has also served as a director for several publicly-held
companies, including Geneva Steel, Dean Witter Reynolds, Inc., Kahler Realty
Corporation, Arcata Corporation and others. He holds a B.S. degree from the
University of Utah and a Ph.D. in Economics from the University of Pennsylvania.
JAMES P. MATHIAS has served as a Director of Jore Corporation since June
1999. He has served as the President and Chief Operating Officer of The JPM
Company, a publicly-held wire harness and cable assembly company, since August
1981. Mr. Mathias has also served on The JPM Company's Board of Directors since
1978. From 1977 to 1981, he held various positions at The JPM Company including
Production Engineer, Production Control and Inventory Manager, and Vice
President of Operations. Prior to that, Mr. Mathias owned and operated a
contracting business from 1972 to 1977.
BOARD COMMITTEES
Jore Corporation maintains two standing committees, an Audit Committee and a
Compensation Committee.
AUDIT COMMITTEE. In June 1999, the Board of Directors formed the Audit
Committee for the purpose of reviewing our internal accounting procedures and
consulting with and reviewing the services provided by our independent public
accountants. Messrs. Mahoney, Mathias and Huntsman currently serve on the Audit
Committee.
COMPENSATION COMMITTEE. In June 1999, the Board of Directors formed the
Compensation Committee. The Compensation Committee reviews and recommends to the
Board the compensation and benefits of all our officers and reviews general
policy relating to compensation and benefits of our employees. The Compensation
Committee administers our 1997 Stock Plan. Messrs. Mathias, Huntsman and Matthew
Jore currently serve on the Compensation Committee.
COMPENSATION OF DIRECTORS
Non-employee directors receive $10,000 and an option to purchase 5,000
shares of common stock per year for services rendered as members of our Board of
Directors. Jore Corporation also reimburses the directors for certain reasonable
out-of-pocket expenses incurred in connection with their attendance at Board and
Committee meetings. For a description of payments to directors unrelated to
their service as directors, see "Certain Transactions."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1999, Jore Corporation's Board of Directors did not maintain a
Compensation Committee of the Board of Directors, and the entire Board
participated in all decisions regarding compensation of our executive officers.
None of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of our Board of Directors or Compensation Committee.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to Matthew Jore, Chief
Executive Officer, and Michael Jore, Executive Vice President, the only other
executive officer of Jore Corporation whose salary and bonus exceeded $100,000
during fiscal year 1998 (collectively, the "Named Executive Officers").
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
<S> <C> <C> <C>
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION
- ------------------------------------------------------------------- -------------- -------------------
Matthew B. Jore.................................................... $ 141,617 $ 18,694(1)
President and Chief Executive Officer
Michael W. Jore.................................................... $ 138,384 $ 21,823(2)
Executive Vice President
</TABLE>
- ------------------------
(1) Comprised of $2,805 in automobile allowances, $4,299 in health insurance
premiums, $4,840 in life insurance premiums and $6,750 in matching 401(k)
contributions to the Jore Corporation 401(k) Profit Sharing Plan.
(2) Comprised of $548 in automobile allowances, $6,808 in health insurance
premiums, $7,967 in life insurance premiums and $6,500 in matching 401(k)
contributions to the Jore Corporation 401(k) Profit Sharing Plan.
No stock options were granted to or exercised by, and no awards or payments
under any long term incentive plan were made to, any of our Named Executive
Officers during our last completed fiscal year.
EMPLOYEE BENEFITS PLANS
STOCK PLAN. On September 15, 1997, the Board of Directors and the
shareholders adopted the Jore Corporation 1997 Stock Plan. The purpose of the
Stock Plan is to enhance the long term shareholder value of Jore Corporation by
offering opportunities to selected employees, directors, officers, consultants,
agents, advisors, and independent contractors of Jore Corporation to participate
in our growth and success, to encourage them to remain in our service, and to
own our stock. We authorized 972,077 shares of common stock for issuance under
the Stock Plan, subject to certain adjustments. For all grants under the Stock
Plan, the date of grant or award, number of options, option price, vesting
period and other terms specific to the options or awards are to be determined by
the plan administrator.
The Stock Plan provides for the grant of both incentive stock options, or
ISOs, that qualify under Section 422 of the Internal Revenue Code, and
nonqualified stock options or NQSOs. ISOs may be granted only to our employees
or employees of a parent or subsidiary. NQSOs and all other awards other than
ISOs may be granted to our employees, directors and other third parties who
render services to us or any parent or subsidiary that are not in connection
with the offer and sale of securities in a capital-raising transaction. The
exercise price of ISOs must be at least equal to the fair market value of the
common stock on the date of grant. The exercise price of NQSOs must be at least
equal to 85% of the fair market value of the common stock on the date of grant.
Options granted under the plan have a maximum term of 10 years.
Options granted under the Stock Plan generally expire three months after the
termination of the optionee's service, except in the case of death or
disability, in which case the options generally may be exercised up to 12 months
following the date of death or termination of service due to disability. Options
will generally terminate immediately upon termination for cause. If Jore
Corporation is dissolved or liquidated or has a "change in control" transaction,
outstanding awards may be assumed or substituted by the successor corporation,
if any. If a successor corporation does not assume or substitute the awards, the
Compensation Committee may accelerate the vesting of the awards prior to the
effectiveness of the transaction.
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The Stock Plan also provides for the issuance of stock awards to eligible
participants of the Stock Plan with terms, conditions, and restrictions
established by the plan administrator in its sole discretion. Generally, stock
issued pursuant to an award is restricted stock. Subject to certain
restrictions, holders of stock awarded under the Stock Plan have all the rights
of other shareholders.
All grants and awards under the plan may not be transferred other than by
will or by the laws of descent and distribution and generally must be exercised
during the lifetime of the recipient only by the recipient.
401(K) PLAN. Jore Corporation maintains a 401(k) tax-qualified employee
savings and retirement plan covering all employees who satisfy certain
eligibility requirements relating to minimum age and length of service (the
"401(k) Plan"). Pursuant to the 401(k) Plan, eligible employees may elect to
reduce their current compensation by up to the lesser of 15% of their annual
compensation or the statutorily prescribed annual limit and have the amount of
such reduction contributed to the 401(k) Plan. We will also match up to five
percent of an employee's annual compensation. The 401(k) Plan is intended to
qualify under Section 401 of the Internal Revenue Code of 1986, as amended, so
that contributions to the 401(k) Plan, and income earned on 401(k) Plan
contributions, are not taxable until withdrawn. The 401(k) Plan is available to
our executive officers on terms not more favorable than those offered to other
employees.
EMPLOYMENT AGREEMENT
In June 1999, we entered into an employment agreement with Matthew B. Jore,
our Chief Executive Officer. During the five year term of the employment
agreement, Mr. Jore will be paid an annual salary of $250,000. In addition, the
employment agreement contains a non-competition provision that prohibits Mr.
Jore from participating in the business of manufacturing or distributing tool
accessories for one year following his termination of employment with us.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
In accordance with Montana law our Amended and Restated Articles of
Incorporation include a provision that eliminates the personal liability of our
directors to Jore Corporation for monetary damages arising from breach of
fiduciary duty as directors, except for liability relating to:
- acts or omissions that involve intentional misconduct or a knowing
violation of law;
- unlawful distributions; or
- any transaction from which the director derived an improper personal
benefit.
In addition, our Bylaws provide that:
- We must indemnify our directors and officers to the fullest extent
permitted by Montana law, subject to certain exceptions;
- We may indemnify our other employees and agents to the same extent that we
indemnify our officers and directors, unless otherwise required by law,
our Amended and Restated Articles of Incorporation, our Bylaws or
agreements; and
- We must advance expenses, as incurred, to our directors and officers in
connection with legal proceedings to the fullest extent permitted by
Montana law.
Prior to the completion of this offering, we intend to enter into indemnity
agreements with each of our directors and executive officers to give them
additional contractual assurances regarding the scope of the indemnification
described above and to provide additional procedural protections. In addition,
we intend to obtain directors' and officers' insurance providing indemnification
for our directors, officers and certain employees for certain liabilities. We
believe that these indemnification provisions
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<PAGE>
and agreements are necessary to attract and retain qualified directors and
officers. Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling
Jore Corporation, we have been informed that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy and is
therefore unenforceable.
The limitation of liability and indemnification provisions in our Amended
and Restated Articles of Incorporation and Bylaws may discourage shareholders
from bringing a lawsuit against directors for breach of their fiduciary duty.
These provisions also may diminish the likelihood of derivative litigation
against our directors and officers, even though such an action, if successful,
might otherwise benefit us and our shareholders. Furthermore, a shareholder's
investment may be adversely affected to the extent that we pay the costs of
settlement and damage awards against directors and officers pursuant to these
indemnification provisions.
At present, there is no pending litigation or proceeding involving any of
our directors, officers or employees for which indemnification is sought, nor
are we aware of any threatened litigation that may result in claims for
indemnification.
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CERTAIN TRANSACTIONS
REORGANIZATION TRANSACTIONS
We have effected an internal reorganization and certain other transactions
in which:
- We acquired Montana American Equipment, LLC ("MAE"), a company that had
leased manufacturing equipment to Jore Corporation;
- We exercised an option to purchase approximately 40 acres of land and
improvements at fair market value from Jore Land, LLC, a company
wholly-owned by Matthew Jore ("Jore Land"); and
- We effected a 216.017-for-one split of our common stock.
In addition, we will terminate our S corporation status upon completion of this
offering and distribute to our shareholders a final amount representing our
previously taxed but undistributed S corporation earnings through the S
corporation termination date.
In connection with this offering and the termination of Jore Corporation's S
corporation tax status, Jore Corporation entered into a tax allocation and
indemnification agreement with its principal shareholders, including Matthew
Jore and Michael Jore, Merle Jore, the father of Michael and Matthew, and
certain trusts administered by Matthew and Michael. The agreement provides that
Jore Corporation and the principal shareholders will indemnify each other for
federal or state income tax liabilities resulting from certain adjustments to
Jore Corporation's income or its shareholders. The agreement also provides that
if there is a determination that we were not an S corporation prior to the
offering, the principal shareholders will reimburse us for the amount that
equals the tax liability resulting from such determination.
Prior to Jore Corporation's acquisition of MAE on January 1, 1999, MAE was
owned by twenty members including four of our directors and several members of
Matthew and Michael Jore's immediate family. The approximate consideration we
issued to these members was:
- 316,897 shares of our common stock to Matthew Jore;
- 14,257 shares of our common stock to Michael Jore;
- 11,017 shares of our common stock to Rick Jore, the brother of Matthew and
Michael Jore; and
- 8,857 shares of our common stock to Bruce Romfo, a Director, and 17,763
shares issued to B&P Manufacturing, LLC of which Mr. Romfo is a
controlling shareholder. All of MAE's members were issued aggregate
consideration of 452,772 shares of common stock of Jore Corporation, with
a value of approximately $2.6 million. In 1998, we paid $758,236 in lease
payments to MAE for use of its machinery.
On February 1, 1999, Jore Land entered into an option agreement with us
under which we had an option to acquire approximately 40 acres of land and the
constructed improvements thereon at fair market value. We exercised that option
on June 28, 1999 and, in satisfaction of the purchase price, paid approximately
$2.8 million, including the forgiveness of a receivable in the amount of $1.3
million relating to advanced construction costs, and assumed approximately $1.3
million of existing debt, which we previously had guaranteed. The land and
buildings were leased to us under both operating and financing leases and,
during 1998, we paid $84,000 to Jore Land.
RELATED PARTY SERVICE PROVIDERS
In February 1998, we entered into sales agreements with Manufacturers'
Specialty Marketing, Incorporated ("MSM") and Manufacturers' Sales Associates,
LLC ("MSA"). William M. Steele, one of our directors, owns 50% of MSA and MSM.
During 1998, MSM was the sole sales and marketing arm for Jore Corporation,
receiving 4% of net revenues as a commission. MSM divided its commissions
44
<PAGE>
with MSA during the course of 1998. In January 1999, we revised our agreements
with MSM and MSA to terminate our relationship with MSM and provide that MSA
will be the sole sales agent for Jore Corporation through December 2003. MSA
will receive a percentage of Jore's net revenues on certain items as
commissions. Commissions accrued in 1998 were $61,700 and $163,579 for MSM and
MSA, respectively. In addition, in February 1999, we granted to Mr. Steele an
option to purchase 155,532 shares of our common stock at a per share exercise
price of $9.26.
In May 1999, we entered into an agreement with Thomas E. Mahoney, one of our
directors, pursuant to which Mr. Mahoney will provide consulting services
relating to our business development activities. We have agreed to pay Mr.
Mahoney $100,000 in 1999 for such services.
Printing Press Incorporated ("PPI") is a printing and packaging company in
which Bruce Romfo, a director of Jore Corporation, has a 30% ownership interest.
Jore Corporation purchased $2,003,062 in printing and packaging material from
PPI in 1998. Jore Corporation likely will continue to purchase a substantial
volume of printed and packaging material from PPI. On September 10, 1998, we
granted Mr. Romfo an option to purchase 11,881 shares of our common stock at a
per share exercise price of $4.42.
Montana American Manufacturing Corporation ("MAMC") provided manufacturing
services to Jore Corporation totalling $826,000 and $1.2 million in 1997 and
1998, respectively. Prior to its merger into Jore Corporation on October 1,
1998, it was owned equally by six members of the Jore family. The shareholders
of MAMC, Matthew Jore, Michael Jore, Rick Jore, Roger Jore, Perry Schneider and
Randy Cote, each received 45,364 shares of common stock of Jore Corporation as
consideration for the merger. Matthew, Michael, Rick and Roger Jore are brothers
and Perry Schneider and Randy Cote are their brothers-in-law.
MANAGEMENT AND SHAREHOLDER TRANSACTIONS
As of May 31, 1999, Matthew Jore is indebted to us for approximately
$685,693 in connection with shareholder and member advances related to his
ownership of stock in Jore Corporation and his membership interests in MAE. Such
indebtedness is evidenced by notes that bear interest annually at the applicable
federal rate.
As of May 31, 1999, Michael Jore is indebted to us for approximately
$270,606 in connection with shareholder and member advances related to his
ownership of stock in Jore Corporation and his membership interests in MAE. Such
indebtedness is evidenced by notes that bear interest annually at the applicable
federal rate.
As of May 31, 1999, Rick Jore is indebted to us for approximately $141,450
in connection with shareholder and member advances related to his ownership of
stock in Jore Corporation and his membership interests in MAE. Such indebtedness
is evidenced by notes that bear interest annually at the applicable federal
rate.
As of May 31, 1999, Roger Jore is indebted to us for approximately $114,510
in connection with shareholder and member advances related to his ownership of
stock in Jore Corporation and his membership interests in MAE. Such indebtedness
is evidenced by notes that bear interest annually at the applicable federal
rate.
As of May 31, 1999, Maxine Schneider is indebted to us for approximately
$62,862 in connection with shareholder and member advances related to her
ownership of stock in Jore Corporation and her membership interests in MAE. Such
indebtedness is evidenced by notes that bear interest annually at the applicable
federal rate.
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<PAGE>
S CORPORATION DISTRIBUTIONS
For tax years 1997 and 1998 we made cash distributions in part to enable our
shareholders to pay their taxes on our net income. For 1997, we made
distributions to Matthew, Michael and Merle Jore in the amounts of approximately
$126,625, $63,565 and $60,033, respectively. For 1998, we made distributions to
Matthew, Michael, Merle, Rick and Roger Jore, and Perry Schneider and Randy Cote
in the amounts of approximately $1,351,895, $605,354, $139,496, $227,918,
$284,862, $227,918 and $243,129, respectively. In addition for 1997, we made a
cash distribution of $243,129 to the Jore family trusts.
OTHER
In 1998, we employed Merle Jore and his annual salary, including
perquisites, was $80,724. He has in the past served as Executive Vice President,
Chairman of the Board of Directors and a Director. Merle Jore is the father of
Maxine Schneider, Matthew, Michael, Rick and Roger Jore.
In the opinion of our Board of Directors, the terms of our transactions with
affiliates of Jore Corporation are as favorable to us as we could have obtained
with unaffiliated parties.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Jore Corporation's outstanding common stock as of June 30, 1999 by:
(i) each of the directors and Named Executive Officers; (ii) all of our
directors and executive officers as a group; (iii) each other person known by us
to own beneficially more than 5% of the common stock and (iv) the Selling
Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY SHARES THAT
OWNED OWNED MAY BE ACQUIRED
BEFORE THE OFFERING AFTER THE OFFERING WITHIN 60 DAYS
NAMED EXECUTIVE OFFICERS AND ------------------------- SHARES BEING ------------------------- OF JUNE 30,
DIRECTORS NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1) 1999
- ------------------------------------- ---------- ------------- ------------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Matthew B. Jore(2)................... 11,054,303 68.4% 10,650,650(3) 54.9%(3) 2,573,004
Michael W. Jore(4)................... 932,882 9.8% -- 932,882 7.2%
David H. Bjornson.................... 17,064 * -- 17,064 * 16,000
Thomas Mahoney....................... 2,376 * -- 2,376 * 2,376
Bruce Romfo.......................... 20,141 * -- 20,141 * 2,376
William M. Steele.................... 155,532 1.6% -- 155,532 1.2% 155,532
Blaine Huntsman...................... 12,376 * -- 12,376 * 12,376
James Mathias........................ 2,376 * -- 2,376 * 2,376
All current directors and executive
officers as a group (12
persons)(5)........................ 12,238,161 74.6% -- 12,238,161 61.5% 2,803,969
SELLING SHAREHOLDER
Merle Jore........................... 707,099 7.4% 300,000 407,099 3.1%
45000 Highway 93 South
Ronan, MT 59864
</TABLE>
- ------------------------------
* LESS THAN 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Common stock subject to options or warrants currently
exercisable or exercisable within 60 days of June 30, 1999, are deemed
outstanding for purposes of computing the percentage ownership of the person
holding such option but are not deemed outstanding for purposes of computing
the percentage ownership of any other person. Except where indicated, and
subject to community property laws where applicable, the persons in the
table above have sole voting and investment power with respect to all common
stock shown as beneficially owned by them.
(2) Includes 3,527,319 shares held pursuant to a voting trust agreement among
Matthew's siblings and 536,441 shares held pursuant to the Michael Jore
Family Trust. Matthew Jore is the trustee of the voting trust and the
Michael Jore Family Trust. Matthew Jore disclaims beneficial ownership to
the shares held by the Michael Jore Family Trust. Matthew Jore holds an
option to purchase all of Merle Jore's and Michael Jore's shares.
(3) Reflects (a) the sale by Merle Jore in this offering of 300,000 shares of
common stock in which Matthew Jore holds a currently exercisable purchase
option and (b) the termination, upon completion of this offering, of an
option to purchase 103,653 shares of common stock.
(4) Includes 536,441 shares held pursuant to the Matthew Jore Family Trust.
Michael Jore is the trustee of the Matthew Jore Family Trust. Michael Jore
disclaims beneficial ownership to the shares held by the Matthew Jore Family
Trust.
(5) Includes 2,573,004 shares issuable upon exercise of options to purchase
Michael and Merle Jore's common stock holdings, and 3,527,319 shares held
pursuant to a voting trust agreement among Matthew Jore's siblings. Matthew
Jore is the trustee of the voting trust.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Jore Corporation consists of 100 million
shares of common stock, no par value per share, and 30 million shares of
preferred stock, no par value per share.
COMMON STOCK
As of June 30, 1999, there were 9,522,800 shares of common stock outstanding
held of record by 32 shareholders. Following this offering, 13,022,800 shares of
common stock will be issued and outstanding (assuming no exercise of stock
options and warrants subsequent to June 30, 1999). Holders of common stock are
entitled to one vote per share on all matters to be voted upon by the
shareholders. Because holders of common stock do not have cumulative voting
rights, the holders of a majority of the shares of common stock can elect all of
the members of the Board of Directors standing for election. Subject to
preferences of any preferred stock that may be issued in the future, the holders
of common stock are entitled to receive such dividends as may be declared by the
Board of Directors. See "Dividend Policy." If Jore Corporation is liquidated,
dissolved, or wound up, the holders of common stock are entitled to receive pro
rata all of our assets available for distribution to our shareholders after
payment of liquidation preferences of any outstanding shares of preferred stock.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are fully paid and non-assessable.
WARRANTS
As of June 30, 1999, we had warrants outstanding to purchase an aggregate of
285,615 shares of common stock at a purchase price of between $8.41 and $9.10
per share.
PREFERRED STOCK
Subject to the provisions of the Articles of Incorporation and limitations
prescribed by law, the Board of Directors has the authority to issue, without
further vote or action by the shareholders, up to 30 million shares of preferred
stock in one or more series. The Board has the power and authority to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series. Any series of
preferred stock may have rights and privileges superior to those of the common
stock. There will be no shares of preferred stock outstanding upon the
consummation of this offering, and we have no present plans to issue any
preferred stock.
REGISTRATION RIGHTS
After this offering, the holders of approximately 201,800 shares of common
stock issuable upon conversion of warrants issued in connection with our sale of
subordinated debt, or persons to whom such shares are transferred, will have
registration rights with respect to such shares. If we propose to register any
of our securities under the Securities Act, either for our own account or for
the account of other security holders, holders of these registrable shares will
be entitled to include their shares in such registration, at our expense.
However, the underwriters of any such offering have the right to limit the
number of shares included in such registration. In addition, holders of at least
50% of the outstanding registrable shares may require us to prepare and file a
registration statement under the Securities Act, at our expense, covering such
shares, and we are generally required to use our reasonable efforts to effect
such registration. We are not obligated to effect more than two of these
"demand" registrations. Further, holders of registrable shares generally may
require us to file additional registration statements on Form S-3 once we become
eligible to use that form.
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<PAGE>
STATE CORPORATE LAW AND CERTAIN CHARTER PROVISIONS
We are subject to certain provisions of the Montana Business Corporations
Act that provide for a two-thirds majority vote of our shareholders in
connection with the approval of a plan of merger or share exchange unless the
Board of Directors require otherwise. This provision could have the effect of
delaying or discouraging unsolicited acquisition proposals, including proposals
to acquire our outstanding common stock at a premium to then-prevailing market
prices.
In addition, our Articles of Incorporation permit the Board to authorize the
issuance of preferred stock, and to designate the rights and preferences of such
preferred stock, without obtaining shareholder approval. One of the effects of
undesignated preferred stock may be to enable the Board of Directors to render
more difficult or to discourage a third party's attempt to obtain control of
Jore Corporation by means of a tender offer, proxy contest, merger, or
otherwise. The issuance of shares of the preferred stock also may discourage a
party from making a bid for the common stock because such issuance may adversely
affect the rights of the holders of common stock. For example, preferred stock
that we issue may rank prior to the common stock as to dividend rights,
liquidation preference, or both, may have special voting rights and may be
convertible into shares of common stock. Accordingly, the issuance of shares of
preferred stock may discourage bids for the common stock or may otherwise
adversely affect the market price of the common stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for our common stock is ChaseMellon
Shareholder Services, L.L.C.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of our common stock in the public
market could adversely affect market prices prevailing from time to time.
Furthermore, because only a limited number of shares will be available for sale
immediately after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and our ability to raise equity capital in
the future.
Upon completion of this offering, based on the number of shares outstanding
on June 30, 1999, we will have an aggregate of 13,022,800 shares of common stock
outstanding, assuming no exercise of options or warrants after June 30, 1999. Of
these shares, the 3,800,000 shares sold in this offering will be freely tradable
without restriction or further registration under the Securities Act, unless
purchased by an affiliate of Jore who may only sell such shares pursuant to the
public information, volume, manner of sale and notice requirements of Rule 144
under the Securities Act. The remaining 9,222,800 shares outstanding upon
completion of this offering will be "restricted securities" as that term is
defined under Rule 144 ("Restricted Shares"). Restricted Shares may be sold in
the public market only if registered or if they qualify for an exemption from
registration under Rules 144, 144(k) or 701 promulgated under the Securities
Act.
Our officers, directors, and most of our shareholders and option holders
have agreed, during the 180-day period after the date of this prospectus (the
"Lock-Up Period"), that they will not, without the prior written consent of D.A.
Davidson & Co., directly or indirectly offer, sell, contract to sell or
otherwise dispose of any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common stock. We agreed
that we will not, without the prior written consent of D.A. Davidson & Co.,
directly or indirectly offer, sell, contract to sell or otherwise dispose of any
shares of our common stock or any securities convertible into or exercisable or
exchangeable for common stock during such 180-day period except for the sale of
the shares of common stock in this
49
<PAGE>
offering, the issuance of shares of common stock upon conversion, exercise or
exchange of securities outstanding on the date of, and disclosed in, this
prospectus and the grant of options (and the issuance of shares issuable upon
exercise of options) pursuant to our stock plan. Any shares subject to the
lock-up agreements may be released at any time, without notice, by D.A. Davidson
& Co. See "Underwriting."
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144,
144(k) and 701, including certain shares issuable upon exercise of options, will
be as follows:
- approximately 23,684 Restricted Shares will be eligible for public resale
90 days after the effective date of the Registration Statement;
- approximately 9,092,057 additional Restricted Shares (as well as an
additional 386,497 shares issuable upon exercise of options or warrants
outstanding at June 30, 1999) are subject to the lock-up and will be
eligible for public resale beginning 180 days after the effective date of
the Registration Statement;
- approximately 98,166 Restricted Shares will be eligible for public resale
180 days after the effective date of the Registration, subject in some
cases to the public information, volume, manner of sale and notice
requirements of Rule 144 under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares at least one year
(including the holding period of any prior owner other than an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (i) one percent of the
number of shares of common stock then outstanding (approximately 130,228 shares
immediately after this offering) or (ii) the average weekly trading volume of
the common stock during the four calendar weeks preceding the required filing of
a Form 144 with respect to such sale. Sales under Rule 144 are subject to manner
of sale provisions and notice requirements and to the availability of current
public information about Jore Corporation. Under Rule 144(k), a person who is
not deemed to have been an affiliate of Jore Corporation at any time during the
90 days preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least two years (including the holding period of any prior owner
other than an affiliate), is entitled to sell such shares without having to
comply with the manner of sale, public information, volume limitation or notice
provisions of Rule 144.
Under Rule 701 promulgated under the Securities Act, employees, officers or
directors of or consultants to Jore Corporation who purchased or were awarded
shares or options to purchase shares pursuant to a written compensatory plan or
contract are entitled to sell such shares 90 days after the effective date of
this offering, without having to comply with the holding period requirements of
Rule 144 and, in the case of non-affiliates, without having to comply with the
public information, volume limitation or notice provisions of Rule 144.
We intend to file a registration statement on Form S-8 under the Securities
Act covering approximately 972,077 shares of our common stock reserved for
issuance under our stock plan. Such registration statement is expected to be
filed and become effective as soon as practicable after the effective date of
this offering. Accordingly, shares registered on Form S-8 will be available for
sale in the public market immediately upon effectiveness of such registration
statement, subject to lock-up and Rule 144 volume limitations applicable to
affiliates, and except to the extent that such shares are subject to vesting
restrictions. As of June 30, 1999, options to purchase 877,793 shares were
issued and outstanding under our stock plan. See "Management--Employee Benefit
Plans."
50
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives, D.A.
Davidson & Co., Janney Montgomery Scott Inc. and First Security Van Kasper (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from Jore Corporation and the selling
shareholder the number of shares of common stock set forth opposite the
Representatives' names below. The underwriters are committed to purchase and pay
for all such shares if any are purchased, subject to certain conditions
precedent.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------- ---------------------
<S> <C>
D.A. Davidson & Co.............................................................
Janney Montgomery Scott Inc....................................................
First Security Van Kasper......................................................
Total..........................................................................
</TABLE>
The Representatives have advised us and the selling shareholder that the
underwriters propose to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus and
to certain dealers at such price, less a concession of not in excess of
$ per share, of which $ may be reallowed to other dealers. After the
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the proceeds
that will be received by the selling shareholder and us as set forth on the
cover page of the prospectus. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase up to 570,000 additional shares of
common stock to cover over-allotments, if any, at the same price per share to be
paid by the underwriters for the other shares of common stock offered hereby. To
the extent that the underwriters exercise this option, each of the underwriters
will have a firm commitment to purchase approximately the same percentage of
such additional shares that the number of shares of common stock to be purchased
by it shown in the table above bears to the 3,800,000 shares of common stock
offered hereby. If purchased, the underwriters will sell such additional shares
on the same terms as those on which the 3,800,000 shares are being sold.
The underwriters will receive an underwriting discount of $ per share, or
an aggregate of $ ($ if the over-allotment option is exercised) on
shares of common stock purchased from the selling shareholder and us in this
offering. In addition, we will pay estimated offering expenses of approximately
$1.0 million, including $25,000 payable to Janney Montgomery Scott Inc. as a
non-accountable expense allowance.
The underwriting agreement contains covenants of indemnity among the
underwriters, Jore Corporation and the selling shareholder against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Our shareholders and option holders, including all officers and directors,
have agreed, for a period of 180 days after the date of this prospectus (the
"Lock-Up Period"), not to offer, pledge, sell, offer to sell, contract to sell,
sell any option or contract to purchase, purchase any option to sell, grant any
option right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any of
51
<PAGE>
the shares of common stock or any securities convertible into, or exercisable or
exchangeable for, common stock, owned as of the date of this prospectus or
thereafter acquired directly by such holders or with respect to which they have
or hereafter acquire the power of disposition, without the prior written consent
of D.A. Davidson & Co. However, D.A. Davidson & Co. may, in its sole discretion
and at any time without notice, release all or any portion of the securities
subject to lock-up agreements. There are no agreements between the
Representatives and any of our shareholders providing consent by the
Representatives to the sale of shares prior to the expiration of the Lock-Up
Period. In addition, we have agreed that, during the Lock-Up Period, we will
not, subject to certain exceptions, issue, sell, contract to sell, or otherwise
dispose of, any shares of common stock, any options or warrants to purchase any
shares of common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, the issuance of common stock upon the exercise or conversion of
outstanding options or warrants, and our issuance of options (and shares
issuable upon exercise of options) under our stock plan without the prior
written consent of the Representatives.
The Representatives have advised us that pursuant to Regulation M under the
Securities Act, certain persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions and
the imposition of penalty bids, that 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 preventing or retarding a decline in the market 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 this 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 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 Representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
In April 1999, an affiliate of D.A. Davidson & Co. loaned Jore Corporation
$2.0 million under a promissory note due five calendar days following the
completion of this offering. The note bears interest at an annual rate of 6.5%.
In connection with this financing, we issued warrants to purchase 71,934 shares
of common stock with an exercise price of $9.10 to the affiliate. In June 1999,
we paid D.A. Davidson & Co. $75,000 in fees in connection with its placement of
$3.0 million in principal amount of our subordinated promissory notes and
warrants to purchase 120,000 shares of our common stock.
Prior to this offering, there was no public market for the common stock. The
initial public offering price for the common stock will be determined by
negotiation among us, the Selling Shareholder and the underwriters. Among other
factors to be considered in determining the initial public offering price are
prevailing market and economic conditions, our revenues and earnings, the state
of our business operations, an assessment of our management and consideration of
the above factors in relation to market valuation of companies in related
businesses and other factors deemed relevant. There can be no assurance,
however, that the prices at which the common stock will sell in the public
market after this offering will be equal to or greater than the initial public
offering price.
52
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby and other legal matters
associated with the offering, except for matters relating to Montana law, will
be passed upon for Jore Corporation and the selling shareholder by Van
Valkenberg Furber Law Group P.L.L.C., Seattle, Washington. Legal matters with
respect to Montana law will be passed upon for Jore Corporation by Boone,
Karlberg & Haddon P.C., Missoula, Montana. Legal matters in connection with this
offering will be passed upon for the underwriters by Stoel Rives LLP, Seattle,
Washington.
EXPERTS
The financial statements as of December 31, 1997 and 1998 and for each of
the three years in the period ended December 31, 1998 included in this
prospectus have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report appearing herein and elsewhere in the registration
statement, and have been so included in reliance upon the reports of such firm
given upon their authority as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In January 1999, we retained Deloitte & Touche LLP as our independent
accountants and replaced Galusha, Higgins & Galusha, our former accountants.
Galusha, Higgins & Galusha resigned as our auditor in December, 1998 because the
firm was not qualified to practice before the Commission. The decision to change
independent accountants was ratified by our Board of Directors. During the
periods where Galusha, Higgins & Galusha served as our independent auditors,
there were no disagreements with Galusha, Higgins & Galusha regarding any
matters with respect to accounting principles or practices, financial statement
disclosure or audit scope or procedure, which disagreements, if not resolved to
the satisfaction of the former accountants, would have caused Galusha, Higgins &
Galusha to make reference to the subject matter of the disagreement in
connection with its report. The former accountants' reports for the years
audited by them are not a part of our financial statements included in this
prospectus. Such reports did not contain an adverse opinion or disclaimer of
opinion or qualifications or modifications as to uncertainty, audit scope or
accounting principles. Prior to retaining Deloitte & Touche LLP, we had not
consulted with Deloitte & Touche LLP regarding the application of accounting
principles.
ADDITIONAL INFORMATION
Jore Corporation has filed with the Commission a registration statement on
Form S-1 under the Securities Act with respect to the common stock offered
hereby. This prospectus, which constitutes part of the registration statement,
omits certain information contained in the registration statement, together with
exhibits and schedules, on file with the Commission pursuant to the Securities
Act and the rules and regulations of the Commission. The registration statement,
including the exhibits and schedules, may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The Commission also maintains a web site on
the Internet that contains reports, proxy and information statements, and other
information regarding registrants, including Jore Corporation, that file
electronically with the Commission at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement, or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
We intend to furnish our shareholders with annual reports containing audited
financial statements and an opinion thereon expressed by independent auditors
and may furnish our shareholders with quarterly reports for the first three
quarters of each fiscal year containing unaudited summary financial information.
53
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
JORE CORPORATION
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity................................................. F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Jore Corporation
Ronan, Montana
We have audited the accompanying consolidated balance sheets of Jore
Corporation and subsidiaries (the Company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Jore Corporation and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
May 12, 1999
(June 28, 1999 as to Note 11)
F-2
<PAGE>
JORE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- MARCH 31, MARCH 31,
1997 1998 1999 1999
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 113,471 $ 34,736 $ 22,616 $ 22,616
Accounts receivable, net of allowance for doubtful
accounts of $10,987 and $-0-, respectively...... 5,986,070 14,672,275 6,856,625 6,856,625
Notes receivable.................................. 29,136 53,576 79,461 79,461
Shareholder notes receivable...................... 272,895 1,350,788 1,273,024 1,273,024
Notes receivable from affiliates.................. 62,578 83,917 8,170 8,170
Other receivables................................. 136,698 38,461 52,278 52,278
Inventory......................................... 4,740,004 8,182,542 11,875,337 11,875,337
Prepaid expenses and other assets................. 34,169 695,076 252,893 252,893
Deferred income tax assets........................ -- -- -- 252,000
------------- ------------- ------------- -------------
Total current assets.......................... 11,375,021 25,111,371 20,420,404 20,672,404
Property, plant and equipment, net.................. 6,080,632 19,815,544 24,421,559 24,421,559
Intangibles and other long-term assets, net......... 303,525 1,035,667 1,175,877 1,175,877
------------- ------------- ------------- -------------
Total............................................... $ 17,759,178 $ 45,962,582 $ 46,017,840 $ 46,269,840
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 3,462,396 $ 7,106,060 $ 7,284,146 $ 7,284,146
Accrued expenses.................................. 1,242,087 2,073,702 3,708,510 3,708,510
Operating line of credit.......................... 4,672,938 13,524,805 9,608,610 9,608,610
Other current liabilities......................... 150,000 125,026 84,053 84,053
Shareholder note payable.......................... -- 256,061 231,061 4,033,061
Current portion of long-term debt................. 1,021,508 1,998,192 2,265,565 2,265,565
------------- ------------- ------------- -------------
Total current liabilities..................... 10,548,929 25,083,846 23,181,945 26,983,945
Long-term debt, net of current portion.............. 4,689,437 14,589,346 15,624,314 15,624,314
Deferred income tax liabilities..................... -- -- -- 1,069,000
------------- ------------- ------------- -------------
Total liabilities............................. 15,238,366 39,673,192 38,806,259 43,677,259
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred stock, no par value
Authorized, 30,000,000 shares; issued and
outstanding, -0- shares....................... -- -- -- --
Common stock, no par value
Authorized, 100,000,000 shares; issued and
outstanding, 9,342,564, 9,508,544 and
9,522,800 shares, respectively................ 736,392 1,694,931 1,777,233 2,999,286
Deferred compensation--stock options.............. -- (4,868) (4,543) (4,543)
Retained earnings................................. 1,784,420 4,599,327 5,438,891 (402,162)
------------- ------------- ------------- -------------
Total shareholders' equity.................... 2,520,812 6,289,390 7,211,581 2,592,581
------------- ------------- ------------- -------------
Total............................................... $ 17,759,178 $ 45,962,582 $ 46,017,840 $ 46,269,840
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH
------------------------------------------ 31,
1996 1997 1998 ---------------------------
------------ ------------- ------------- 1998 1999
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues................................... $ 9,686,034 $ 23,655,966 $ 44,888,324 $ 7,578,754 $ 9,798,361
Cost of goods sold............................. 8,416,594 17,098,184 31,167,724 4,925,502 6,858,694
------------ ------------- ------------- ------------ -------------
Gross profit................................. 1,269,440 6,557,782 13,720,600 2,653,252 2,939,667
Operating expenses:
Product development.......................... 792 150,691 495,235 54,212 116,801
Sales and marketing.......................... 31,517 619,520 2,508,818 338,114 376,652
General and administrative................... 1,300,278 2,342,165 2,983,035 538,010 1,149,883
------------ ------------- ------------- ------------ -------------
Total operating expense.................. 1,332,587 3,112,376 5,987,088 930,336 1,643,336
------------ ------------- ------------- ------------ -------------
Income (loss) from operations.................. (63,147) 3,445,406 7,733,512 1,722,916 1,296,331
Other expense:
Interest expense............................. 484,436 792,932 1,358,328 258,915 454,904
Other expense................................ 10,774 111,424 138,669 93,218 1,863
------------ ------------- ------------- ------------ -------------
Net other expense........................ 495,210 904,356 1,496,997 352,133 456,767
------------ ------------- ------------- ------------ -------------
Net income (loss) before minority interest..... (558,357) 2,541,050 6,236,515 1,370,783 839,564
Minority interest.............................. -- -- 3,519 -- --
------------ ------------- ------------- ------------ -------------
Net income (loss).............................. $ (558,357) $ 2,541,050 $ 6,240,034 $ 1,370,783 839,564
------------ ------------- ------------- ------------ -------------
------------ ------------- ------------- ------------ -------------
Net income (loss) per common share:............
Basic........................................ $ (0.06) $ 0.27 $ 0.66 $ 0.15 $ 0.09
Diluted...................................... $ (0.06) $ 0.27 $ 0.66 $ 0.15 $ 0.09
Shares used in calculation of net income (loss)
per share:...................................
Basic........................................ 9,022,987 9,357,801 9,412,497 9,392,274 9,522,642
Diluted...................................... 9,022,987 9,357,801 9,435,777 9,392,274 9,664,681
Pro forma data (unaudited):
Net income (loss)............................ $ (558,357) $ 2,541,050 $ 6,240,034 $ 1,370,783 $ 839,564
Pro forma provision (benefit) for income
taxes...................................... (199,314) 900,200 2,343,193 514,866 332,445
------------ ------------- ------------- ------------ -------------
Pro forma net income (loss).................. $ (359,043) $ 1,640,850 $ 3,896,841 $ 855,917 $ 507,119
-------------
-------------
Pro forma net income per common share:.......
Basic...................................... $ 0.40 $ 0.05
------------- -------------
Diluted.................................... $ 0.40 $ 0.05
------------- -------------
Shares used in calculation of pro forma net
income per share:..........................
Basic...................................... 9,792,697 9,902,840
------------- -------------
------------- -------------
Diluted.................................... 9,815,977 $ 10,044,881
------------- -------------
------------- -------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
-------------------------- DEFERRED EARNINGS
SHARES AMOUNT COMPENSATION (DEFICIT) TOTAL
------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1996................ 8,640,680 $ 439,392 $ -- $ 323,630 $ 763,022
Common stock issued................... 701,884 147,000 147,000
Shareholder distributions............. (202,240) (202,240)
Net loss.............................. (558,357) (558,357)
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1996.............. 9,342,564 586,392 -- (436,967) 149,425
Common stock issued................... 47,957 150,000 150,000
Shareholder distributions............. (319,663) (319,663)
Net income............................ 2,541,050 2,541,050
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1997.............. 9,390,521 736,392 -- 1,784,420 2,520,812
Common stock issued................... 63,587 757,000 757,000
Common stock issued for land.......... 54,436 195,048 195,048
Shareholder distributions............. (3,425,127) (3,425,127)
Deferred compensation--stock
options............................. 6,491 (6,491) --
Noncash compensation--stock options... 1,623 1,623
Net income............................ 6,240,034 6,240,034
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1998.............. 9,508,544 1,694,931 (4,868) 4,599,327 6,289,390
Common stock issued for land.......... 14,256 82,302 82,302
Noncash compensation--stock options... 325 325
Net income............................ 839,564 839,564
------------ ------------ ------------- ------------- -------------
Balance, March 31, 1999................. 9,522,800 $ 1,777,233 $ (4,543) $ 5,438,891 $ 7,211,581
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------------------------- MARCH 31,
1996 1997 1998 ----------------------------
----------- ------------- ------------- 1998 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income (loss)............................. $ (558,357) $ 2,541,050 $ 6,240,034 $ 1,370,783 $ 839,564
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation................................ 423,359 677,171 973,762 138,916 393,189
Amortization................................ (19,834) 34,829 155,485 111,673 23,155
Compensation expense--stock options......... -- -- 1,623 -- 325
Bad debt expense............................ -- 17,008 -- -- --
Provision for inventory obsolescence........ 27,000 383,802 24,552 -- --
Loss on disposal of fixed assets............ 6,597 100,838 1,244 -- --
Cash provided (used) by changes in operating
assets and liabilities:
Accounts receivable....................... (1,005,553) (4,254,543) (8,686,205) 1,257,905 7,815,650
Other receivables......................... 9,728 (138,570) 98,237 70,878 (13,817)
Inventory................................. (1,895,620) (2,150,004) (3,467,090) (2,012,193) (3,692,795)
Prepaid expenses and other current
assets.................................. (34,690) 4,045 (660,907) 3,049 442,183
Intangibles and other long-term assets.... (116,831) (133,314) (862,686) (1,357,840) (163,365)
Accounts payable.......................... 1,715,238 204,181 3,643,664 (243,263) 178,086
Accrued expenses.......................... 311,491 734,062 831,615 338,121 1,634,808
Other current liabilities................. 102,383 47,617 (24,974) (131,947) (40,973)
----------- ------------- ------------- ------------- -------------
Net cash used by operating activities... (1,035,089) (1,931,828) (1,731,646) (453,918) 7,416,010
Investing activities:
Purchase of property and equipment............ (1,610,877) (2,693,302) (15,216,599) (736,939) (4,916,903)
Proceeds from sale of fixed assets............ 7,343 30,669 701,729 5,544 --
Advances on notes receivable.................. (208,990) (93,003) (1,429,165) 22,202 127,626
Payments on notes receivable.................. 47,615 113,420 305,493 -- --
Payment of patent costs....................... (2,781) (19,279) (24,941) -- --
----------- ------------- ------------- ------------- -------------
Net cash used by investing activities... (1,767,690) (2,661,495) (15,663,483) (709,193) (4,789,277)
Financing activities:
Proceeds from long-term debt.................. 4,551,319 1,862,508 17,149,307 5,684,126 1,804,560
Payments on long-term debt.................... (1,882,550) (587,085) (6,016,653) (4,235,429) (527,219)
Proceeds from operating line, net............. 194,554 3,578,751 8,851,867 (252,309) (3,916,194)
Capital contributions......................... 147,000 150,000 757,000 15,000 --
Shareholder distributions..................... (202,240) (319,663) (3,425,127) (25,049) --
----------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities............................ 2,808,083 4,684,511 17,316,394 1,186,339 (2,638,853)
----------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents................................... 5,304 91,188 (78,735) 23,228 (12,120)
Cash and cash equivalents:
Beginning of period........................... 16,979 22,283 113,471 113,471 34,736
----------- ------------- ------------- ------------- -------------
End of period................................. $ 22,283 $ 113,471 $ 34,736 $ 136,699 $ 22,616
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
Supplemental disclosures
Cash paid:
Interest paid................................. $ 485,790 $ 782,245 $ 1,368,383 262,775 458,474
Noncash financing and investing activities:
Common stock issued for land.................. $ -- $ -- $ 195,048 $ -- $ 82,302
Property contributed to JB Tool, LLC.......... 3,519
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION AND REORGANIZATION
DESCRIPTION OF BUSINESS: Jore Corporation (the Company or Jore) is a
Montana corporation engaged in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. The Company sells its products under private
labels to the industry's largest power tool retailers and manufacturers.
BASIS OF PRESENTATION AND REORGANIZATION: The Company intends to file a
registration statement for an initial public offering (IPO) on Form S-1 with the
Securities and Exchange Commission. In contemplation of the IPO, Jore and
entities under common control have initiated or will initiate certain events.
These entities included Montana American Manufacturing Corporation (MAMC) and
Montana American Equipment, LLC (MAE).
MAMC, a Montana corporation, was formed March 26, 1996, to be a producer of
high volume component parts to Jore on a per piece price basis, as well as to
operate and maintain certain of the Company's manufacturing equipment. MAMC was
owned equally by six shareholders, which included shareholders of Jore and their
immediate family members. On October 1, 1998, MAMC merged with Jore, and the
former MAMC shareholders received 360,654 shares of Jore common stock. Because
MAMC and Jore were under common control the merger was accounted for in a manner
similar to a pooling-of-interests. Accordingly, the assets and liabilities of
MAMC have been consolidated at book value, and the historical financial
statements for all periods presented have been prepared to give effect to the
merger as if it had occurred on March 26, 1996 (inception of MAMC). Under this
presentation, results are presented as consolidated, with all intercompany
transactions and balances eliminated, and the total number of outstanding shares
presented to reflect the combination.
MAE, a Montana limited liability company, was formed September 9, 1996. MAE
owned certain specialized equipment for the manufacture of component parts for
which it received a usage fee calculated on a per piece price basis. On January
1, 1999, Jore acquired the assets of MAE, net of outstanding indebtedness, in
exchange for 452,774 shares of Jore common stock. Because MAE and Jore were
under common control the merger was accounted for in a manner similar to a
pooling-of-interests. Accordingly, the assets and liabilities of MAE have been
consolidated at book value, and historical financial statements for all periods
presented have been prepared to give effect to the combination, as if it had
occurred on September 9, 1996 (inception of MAE). Under this presentation,
results are presented as consolidated, with all intercompany transactions and
balances eliminated, and the total number of outstanding shares is presented to
reflect the combination.
NOTE 2: PRO FORMA INFORMATION (UNAUDITED)
Upon completion of the IPO, the Company's S corporation status will
terminate and it will become subject to federal and state income taxes.
Additionally, upon completion of the IPO, the Company will distribute the
earned, but undistributed, accumulated S corporation earnings (the "S
Corporation Distribution") through the closing date of the IPO. Undistributed S
corporation earnings through March 31, 1999 were approximately $3,802,000. The
difference between the S Corporation Distribution and historical retained
earnings consists primarily of temporary timing differences between book and tax
income, prior year distributions in excess of AAA, effect of elimination entries
and retained earnings of the subsidiaries.
F-7
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 2: PRO FORMA INFORMATION (UNAUDITED) (CONTINUED)
PRO FORMA CONSOLIDATED BALANCE SHEET: The pro forma unaudited consolidated
balance sheet as of March 31, 1999 reflects the termination of the Company's S
corporation status and the distribution of the S Corporation Distribution
through the creation of a shareholder note payable which will be satisfied
subsequent to the IPO. It also reflects the deferred income tax assets and
liabilities that would have been recorded as of that date. A reduction in
shareholders' equity is reflected as a result of the S Corporation Distribution.
PRO FORMA CONSOLIDATED INCOME STATEMENTS DATA: The unaudited pro forma
results of operations information includes a pro forma income tax benefit
(provision) for each of the three years ended December 31, 1996, 1997 and 1998,
assuming effective tax rates of (35.7%), 35.43% and 37.56%, respectively, (see
Note 8), comparable to what would have been reported had the Company operated as
a C Corporation.
The Company has adopted the provisions of SFAS No. 128, EARNINGS PER SHARE,
for purposes of presenting pro forma basic and diluted net income per common
share. The following table reconciles the historical weighted average shares
outstanding to the pro forma weighted average shares outstanding:
<TABLE>
<CAPTION>
BASIC DILUTED
---------- ------------
<S> <C> <C>
Historical weighted average shares outstanding......................................... 9,522,642 9,664,681
Effect of dilutive shares - number of shares required to pay S Corporation
Distribution, estimated to be $3,802,000 at $10.00 per share......................... 380,200 380,200
---------- ------------
Pro forma weighted average shares outstanding.......................................... 9,902,842 10,044,881
---------- ------------
</TABLE>
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The financial statements include the accounts
of Jore Corporation and its subsidiaries which include MAMC, MAE, and JB Tool,
LLC (JB Tool). Intercompany transactions and balances have been eliminated. The
allocation of JB Tool's net loss to the minority interest has been limited to
the amount of minority interest capital.
USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from estimates.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The Company has a cash management system under which a cash
overdraft exists for uncleared checks. Uncleared checks of $334,326 and
$1,180,162 are included in accounts payable at December 31, 1997 and 1998,
respectively.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out basis) or market. Inventory costs include material, labor and factory
overhead. The Company provides for obsolete and
F-8
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
unsaleable inventories based on specific identification of inventory against
current demand and recent usage.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at
cost. Depreciation for financial reporting purposes is computed using the
straight-line method over the following useful lives for purchased assets, and
over the shorter of the following useful lives or the lease term for leased
assets:
<TABLE>
<S> <C>
Buildings........................................................ 40 years
10-15
Land improvements................................................ years
Plant, tooling, and packaging equipment.......................... 5-10 years
Office equipment and furniture................................... 3-7 years
Vehicles......................................................... 5 years
</TABLE>
INTANGIBLES AND OTHER ASSETS: Patents and trademarks are amortized on a
straight-line basis over their estimated useful lives of 17 years. Deferred
financing costs incurred in connection with borrowings are capitalized and
amortized to interest expense over the life of the related obligation.
REVENUE RECOGNITION: Revenues from sales of product are generally
recognized upon shipment.
PRODUCT DEVELOPMENT: Product development expenses consist principally of
personnel costs and material associated with the development of new products and
changes to existing products, which are charged to operations as incurred.
ADVERTISING AND PROMOTION: Costs associated with advertising and promoting
products are expensed as incurred.
STOCK-BASED COMPENSATION: As described in Note 5, the Company has elected
to follow the accounting provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEE for stock-based compensation and
to furnish the pro forma disclosures required under Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
LONG-LIVED ASSETS: Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable or whenever management has committed to a plan to dispose
of the assets. Such assets are carried at the lower of book value or fair value.
An asset is considered impaired when estimated future undiscounted cash flows
are less than the carrying amount of the asset. In the event the carrying amount
of such asset is not deemed recoverable, the asset is adjusted to its estimated
fair value.
NET INCOME (LOSS) PER COMMON SHARE: Basic net income (loss) per common
share was calculated by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted net income per
common share was calculated by dividing net income by the weighted average
number of shares outstanding plus all additional common shares that would have
been outstanding if potentially dilutive common share equivalents had been
issued. Both basic and diluted net income per share reflect the change in the
capital structure discussed in Note 1.
F-9
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table reconciles the number of shares utilized in the net
income (loss) per share calculations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Number of shares:
Common shares -- basic................................................... 9,022,987 9,357,801 9,412,497
Effect of dilutive securities -- stock options........................... -- -- 23,280
---------- ---------- ----------
Common shares -- diluted................................................... 9,022,987 9,357,801 9,435,777
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
STOCK SPLIT: A 216.017-for-1 split of the Company's common stock was
effected on May 12, 1999. All references in the financial statement to shares,
share prices, per share amounts and stock plan have been adjusted retroactively
for the 216.017-for-1 stock split.
INTERIM FINANCIAL INFORMATION: The interim financial information as of
March 31, 1999, and for the three-month periods ended March 31, 1998 and 1999,
was prepared by the Company in a manner consistent with the audited consolidated
financial statements and pursuant to the rules and regulations of the Securities
and Exchange Commission. The unaudited information, in management's opinion,
reflects all adjustments that are of a normal recurring nature and that are
necessary to present fairly the results for the periods presented. The results
of operations for the three-month period ended March 31, 1999 are not
necessarily indicative of the results to be expected for the entire year.
RECENT ACCOUNTING PRONOUNCEMENTS: Effective January 1, 1998, the Company
adopted the provision of SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No.
130 establishes the standards for reporting comprehensive income and its
components in financial statements. Comprehensive income as defined includes all
changes in equity during a period from nonowner sources. Examples of items to be
included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains/losses on
available-for-sale securities. Reclassification of financial statements for
earlier periods for comparative purposes is required upon adoption. Currently,
there are no disclosure differences between reported net income and
comprehensive income.
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
statement requires, among other things, that the Company provide financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available and is regularly evaluated by the
enterprise's chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Currently, the Company operates in only
one reportable segment.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedging
instrument, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of the changes in the
fair value of the hedged asset or liability that are attributable to the
F-10
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
hedged risk, or the earnings effect of the hedged forecasted transaction. For a
derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after July 1, 2000. Historically, the
Company has not entered into derivative contracts either to hedge existing risks
or for speculative purposes. The Company does not expect adoption of SFAS No.
133 to have a material effect on the financial statements.
FINANCIAL INSTRUMENTS: Financial instruments consist of cash and cash
equivalents, notes receivable and long-term debt. The carrying value of cash and
cash equivalents and notes receivable approximates fair value because of the
short-term maturity of those instruments. The fair value of long-term debt with
variable interest rates approximates the carrying amount as the borrowings are
at adjustable interest rates which reprice based on fluctuations in market
conditions and the level of operating cash flow of the Company. The fair value
of the Company's long-term debt with fixed interest rates was based on the
estimated equivalent rate on the last business day of the fiscal year. As of
December 31, 1998, the fair value and principal amount of the fixed rate
long-term debt were $3,950,273 and $3,882,419, respectively.
SIGNIFICANT CUSTOMERS: The Company's sales are concentrated among a few
major customers. Sales to customers who individually accounted for 10% of total
sales for each of the years ended December 31, and receivables from customers
who individually accounted for 10% of total receivables at December 31, are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Sales to:
Customer A...................................................... 31.9% 60.2%
Customer B...................................................... 10.5% 21.5% 17.2%
Customer C...................................................... 63.6% 25.6% 14.5%
Customer D...................................................... 17.0%
Customer E...................................................... 16.4%
--------- --------- ---------
90.5% 96.0% 91.9%
All other customers............................................... 9.5% 4.0% 8.1%
--------- --------- ---------
100.0% 100.0% 100.0%
--------- --------- ---------
--------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Receivables from:
Customer A................................................................ 82.5% 74.1%
Customer B................................................................ 10.4% 11.2%
--------- ---------
92.9% 85.3%
All other customers......................................................... 7.1% 14.7%
--------- ---------
100.0% 100.0%
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Sales are made without collateral, and the Company's bad debts have been
insignificant to date. No allowance for uncollectible receivables was recorded
at December 31, 1998, and $10,987 was recorded at December 31, 1997.
NOTE 4: BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------
<S> <C> <C>
Inventory
Component parts/raw materials............................... $ 3,644,399 $ 5,770,617
Work in progress............................................ 519,664 1,257,704
Finished goods.............................................. 570,599 1,043,179
Supplies inventory.......................................... 5,342 111,042
------------- -------------
$ 4,740,004 $ 8,182,542
------------- -------------
------------- -------------
Property, Plant and Equipment
Buildings and leasehold improvements........................ $ 1,422,511 $ 4,438,668
Land and land improvements.................................. 189,721 595,329
Plant, tooling, packaging equipment......................... 4,751,812 9,763,618
Office equipment and furniture.............................. 568,088 1,340,603
Vehicles.................................................... 264,123 376,465
------------- -------------
7,196,255 16,514,683
Accumulated depreciation.................................... (1,484,475) (2,349,407)
------------- -------------
$ 5,711,780 $ 14,165,276
Construction in progress.................................... 326,841 --
Machinery in progress....................................... 42,011 5,650,268
------------- -------------
$ 6,080,632 $ 19,815,544
------------- -------------
------------- -------------
</TABLE>
NOTE 5: SHAREHOLDERS' EQUITY
AUTHORIZED SHARES: At incorporation, the Company was authorized to issue
50,000 (prior to stock split discussed below) shares of stock with no par value.
The Articles of Incorporation prior to the amendment discussed below limited the
Company to one class of stock, designated as common stock.
On May 11, 1999, the Articles of Incorporation were amended to increase the
authorized number of shares of the Company's common stock to 100,000,000 shares
of no par value common stock and to authorize 30,000,000 shares of no par value
preferred stock.
F-12
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
On May 12, 1999 the Company effected a 216.017-for-1 split of the Company's
common stock. All references in the financial statements to shares, share
prices, per share amounts and stock plans have been adjusted retroactively to
reflect the stock split.
STOCK TRANSACTIONS: On October 1, 1998, the Company exchanged 54,436 shares
of common stock to acquire 40 acres of property with a fair market value of
$195,048. In conjunction with the purchase of property, Jore entered into a
stock put option agreement, under which Jore granted the seller the right and
option to require Jore to purchase all, but not less than all, of the shares for
$240,000 or $4.42 per share. The right is exercisable only on a date which is
after September 30, 2001 and before November 1, 2001.
1997 STOCK PLAN: On September 15, 1997, the Board of Directors approved the
implementation of the 1997 Stock Plan (the Plan). The Plan provides employees an
opportunity to purchase shares of stock pursuant to options which may qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the Code), and employees, outside directors, and consultants of the
Company an opportunity to purchase shares of stock pursuant to options which are
not described in Section 422 of the Code (nonqualified stock options). The Plan
also provides for the direct award or sale of shares to employees, outside
directors, and consultants of the Company. Options granted under the Plan expire
ten years from the date of grant and typically vest over a period of four years
such that 20% vest immediately and 20% after each additional year of continuous
service. Not more than 972,077 shares of stock shall be available for the grant
of options or the issuance of stock under the Plan.
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding, January 1, 1996..................................... -- $ --
Granted........................................................ -- --
---------
Outstanding, December 31, 1996................................... -- --
Granted........................................................ -- --
---------
Outstanding, December 31, 1997................................... -- --
Granted........................................................ 422,312 4.42
---------
Outstanding, December 31, 1998................................... 422,312 4.42
---------
---------
Options exercisable, December 31, 1998........................... 84,462 4.42
---------
---------
</TABLE>
F-13
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
Information regarding stock option grants during the year ended December 31,
1998 is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE FAIR VALUE
--------- ----------------- -----------------
<S> <C> <C> <C>
Exercise price exceeds market price................................ 422,312 $ 4.42 $ 0.14
Exercise price equals market price................................. -- -- --
Exercise price is less than market price........................... -- -- --
</TABLE>
The Company has elected to follow the measurement provisions of APB Opinion
No. 25, under which no recognition of expense is required in accounting for
stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. All options
granted as of December 31, 1998 have been granted at an option price greater
than fair market value on the date of grant. Accordingly, the Company has
recognized no compensation expense for employees during the years ended December
31, 1996, 1997 and 1998. The Company did record compensation expense of $1,623
for options granted to nonemployees for the year ended December 31, 1998.
To estimate compensation expense that would be recognized under SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company uses the modified
Black-Scholes option pricing model with the following weighted average
assumptions for options granted through December 31, 1998: risk-free interest
rate of 4.2%; expected dividend yield of -0-%; no volatility; and an expected
life of six years.
Had compensation expense for the Plan been determined based on fair value at
the grant dates for awards under the Plan consistent with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income (loss) for the
years ended December 31, 1996, 1997 and 1998 would have been adjusted to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) as reported............................................ $ (558,357) $ 2,541,050 $ 6,240,034
Net income (loss), pro forma............................................. (558,357) 2,541,050 6,227,237
Basic net income (loss) per common share, pro forma...................... $ (0.06) $ 0.27 $ 0.66
Diluted net income (loss) per common share, pro forma.................... $ (0.06) $ 0.27 $ 0.65
</TABLE>
Additional information regarding options outstanding as of December 31,
1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
EXERCISE NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING LIFE (YRS.) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------- ----------- ----------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ 4.42 422,312 9.75 $ 4.42 84,462 $ 4.42
</TABLE>
NOTE 6: LINES OF CREDIT
REVOLVING LINES OF CREDIT: The Company has an accounts receivable revolving
line of credit with Coast Business Credit (CBC) with a maximum borrowing limit
of $25,000,000 including the amounts
F-14
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 6: LINES OF CREDIT (CONTINUED)
advanced on the inventory, equipment and term loan lines. Advances on the line
are limited to 85% of eligible accounts receivable. The majority of trade
accounts receivable is, therefore, assigned as product
is shipped. Interest on the revolving credit line advances is at the prime rate
plus 1%, but no less than 9% (currently 9%). The term of the agreement is
through January 2003, and the agreement contains personal guarantees by certain
Company shareholders. Outstanding advances on the line at December 31, 1997 and
1998 were $4,672,438 and $10,024,805, respectively. This line is secured by
receivables, inventory, equipment, patents and general intangibles.
During February 1998, the Company entered into an agreement with CBC for an
inventory revolving line of credit with a maximum borrowing limit of $4,500,000,
which includes a letter of credit sub-line of $500,000. Advances on the line are
limited to 65% of eligible inventory. Interest on the revolving credit line
advances is at the prime rate plus 1%, but no less than 9% (currently 9%). The
term of the agreement is through January 2003, and the agreement contains
personal guarantees by certain Company shareholders. Outstanding advances on the
line at December 31, 1998 were $3,500,000. This line is secured by inventory,
receivables, equipment, patents and general intangibles.
SHORT-TERM NOTE: During August 1998, the Company entered into an agreement
with a software company to purchase software and support on an installment
basis. The total amount of the agreement was for $250,053 to be repaid in 12
monthly installments of $20,838, with no stated interest rate. The outstanding
balance at December 31, 1998 was $125,026.
F-15
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 7: LONG-TERM OBLIGATIONS
The Company has entered into numerous long-term borrowings primarily to
finance the purchase of manufacturing equipment. Unless otherwise noted, the
following long-term obligations require monthly principal and interest payments,
and are secured by underlying equipment.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ -------------
<S> <C> <C>
NOTES PAYABLE
Due January 2003, interest at the highest yield for U.S. Treasury notes (8.31% at
December 31, 1998). Secured by equipment, receivables, inventory and general
intangibles....................................................................... $ -- $ 5,691,717
Due January 2003, interest at prime plus 1% (8.75% at December 31, 1998). Secured by
equipment, receivables, inventory and general intangibles......................... -- 741,843
Due March 2011, interest at 10%..................................................... 3,546,796 --
Due March 2005, interest at 8.85%................................................... 469,787 771,912
Due August 2001, interest at 10%.................................................... -- 1,008,372
Due October 2004, interest at 8.97%................................................. -- 726,981
Due October 2004, interest at 8.97%................................................. -- 969,307
Due December 2004, interest at 8.97%................................................ -- 2,050,265
Due December 2004, interest at 8.97%................................................ -- 582,606
Due January 2006, interest at 8.20%................................................. -- 496,450
Due August 2005, interest at 9.5%................................................... -- 844,971
Due June 2004, interest at 8.50%.................................................... -- 615,840
Due June 2004, interest at 8.85%.................................................... -- 682,502
Due October 2005, interest at 8.50%................................................. -- 823,842
Due April 2002, interest at 10%..................................................... 583,369 --
Due March 1999, interest at 10%..................................................... 438,012 --
Due January 2003, interest at prime plus 2% (9.75% at 12/31/98)..................... 125,469 106,983
Various notes payable due November 1999 through November 2005, interest rates from
7.99% to 11.89%................................................................... 386,298 210,864
------------ -------------
Total notes payable............................................................... 5,549,731 16,324,455
CAPITAL LEASE OBLIGATIONS
Due November 2003, interest at 10.52%............................................... -- 123,420
Various capital lease obligations due July 2001 through November 2003, interest
rates from 6.9% ot 29.7%.......................................................... 161,214 139,663
------------ -------------
Total lease obligations............................................................. 161,214 263,083
------------ -------------
Total long-term obligations....................................................... 5,710,945 16,587,538
Less current portion.............................................................. 1,021,508 1,998,192
------------ -------------
$4,689,437 $ 14,589,346
------------ -------------
------------ -------------
</TABLE>
F-16
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 7: LONG-TERM OBLIGATIONS (CONTINUED)
As of December 31, 1998, future maturities of long-term obligations are as
follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER CAPITAL
NOTES PAYABLE LEASES
------------- ----------------
<S> <C> <C>
1999........................................................ $ 1,947,012 $ 89,978
2000........................................................ 2,056,213 90,082
2001........................................................ 3,146,277 87,512
2002........................................................ 2,285,068 61,650
2003........................................................ 2,388,252 40,200
Thereafter.................................................. 4,501,633 --
------------- ----------------
16,324,455 369,422
Less amounts representing interest.......................... -- (106,339)
------------- ----------------
$ 16,324,455 $ 263,083
------------- ----------------
------------- ----------------
</TABLE>
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED)
The Company has elected to be an S corporation under the Code, and
therefore, its taxable income is reported on the shareholders' individual income
tax returns. The Company's consolidated subsidiaries are also S corporations or
limited liability companies. As a result, no federal or state income taxes are
imposed on the Company or its subsidiaries.
As discussed in Note 2 and in connection with the IPO (see Note 1), the
Company's S corporation status will terminate and it will become subject to
federal and state income taxes applicable to C corporations (corporations
subject to income taxes under Subchapter C of the Code). The accompanying
consolidated statements of income reflect a pro forma provision (benefit) for
all periods for federal and state taxes (as if the consolidated group had been
subject to tax as a C corporation) at effective tax rates of (35.70%), 35.43%,
and 37.56% for 1996, 1997, and 1998, respectively.
The difference between the effective rate and the combined federal and state
statutory rate of 38.46% is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate......................................... (38.46)% 38.46% 38.46%
Indian employment credit................................... (1.93)% (1.00)% (1.18)%
Research & experimentation credit.......................... 0.00% (2.25)% 0.00%
Meals & entertainment...................................... 0.32% 0.21% 0.20%
Other...................................................... 4.37% .01% .08%
--------- --------- ---------
Effective rate............................................. (35.70)% 35.43% 37.56%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Because the Company plant is situated on a Native American Indian
reservation, the Company is entitled to certain tax benefits. Fixed assets are
being depreciated under accelerated tax depreciation lives for property situated
on Native American Indian reservations. In addition, the Company is receiving
the Indian employment tax credit for qualifying wages paid to tribal members and
spouses of tribal members.
F-17
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED) (CONTINUED)
Upon termination of the S corporation status, and based upon management's
determination that it is more likely than not that deferred tax assets will be
realized, the Company will record increases in net deferred tax assets and
liabilities and an accompanying one-time tax expense to reflect the differences
between the financial statement and income tax bases of the assets and
liabilities at C corporation rates.
If the S corporation status had been terminated on March 31, 1999, deferred
tax liabilities for each temporary difference would have been increased to the
following amounts:
Deferred tax liabilities:
<TABLE>
<S> <C>
Basis differential in property, plant and equipment............. $(1,069,000)
----------
Total deferred tax liabilities.................................. $(1,069,000)
----------
----------
</TABLE>
Deferred tax assets:
<TABLE>
<S> <C>
Inventory obsolescence reserve.................................... $ 168,000
Accrued vacation and wages........................................ 74,000
Deferred compensation............................................. 8,000
Allowance for bad debt............................................ 2,000
---------
Total deferred tax assets......................................... $ 252,000
---------
---------
</TABLE>
NOTE 9: RELATED PARTY TRANSACTIONS
Jore Land, LLC (Jore Land), is owned by the Company's majority shareholder
and owns certain real property leased by the Company under an agreement that
expires on September 30, 2003, with an option to renew for an additional five
year term. The lease is being accounted for as a financing lease. Amounts paid
under this lease during the years ended December 31, 1996, 1997 and 1998 were
$4,000, $32,000, and $84,000, respectively. Jore Corporation holds an option to
acquire this property at fair market value. The option expires on February 1,
2009. During the construction period, certain construction bills were paid by
the Company on behalf of Jore Land for which the Company will be reimbursed.
Total advances made to Jore Land during the years ended December 31, 1996, 1997,
and 1998 were $-0-, $94,586, and $170,799, respectively.
At December 31, 1997 and 1998, Jore Land owed the Company the net amounts of
$17,578 and $34,102, respectively.
Periodically, the Company's employees perform work for Jore Land in
administrative and technical areas, such as engineering and accounting. Charges
for these types of services by the Company for the years ended December 31,
1996, 1997 and 1998 were $-0-, $4,843, and $10,151, respectively.
Shareholder notes receivable are all demand notes with interest at the
applicable federal rate as published by the U.S. Treasury Department.
F-18
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 9: RELATED PARTY TRANSACTIONS (CONTINUED)
Beginning January 1, 1998, the Company's sales affiliate, Manufacturers
Specialty Marketing, Inc. (MSM), received a commission on Company sales which
amounted to $1,785,913 during the year ended December 31, 1998. Of this amount,
$225,279 was payable at year end. Beginning January 1, 1999, certain Company
sales will be made through Manufacturers' Sales Associates, LLC (MSA). It is
currently contemplated that MSA will receive a commission on certain Company
sales. The agreement terminates upon notice by either party at least 60 days in
advance of the intended termination date. MSM and MSA are partially-owned by two
non-employee directors of Jore.
At December 31, 1997, the Company held a short-term, non interest-bearing
note receivable from MSA of $45,000 representing advances made to MSA for
funding start-up costs.
Printing Press, Incorporated (PPI), a Company partially owned by a
non-employee director and shareholder of the Company, provides packaging
services to the Company. Total purchases from PPI during the years ended
December 31, 1996, 1997 and 1998 were $526,131, $1,360,286, and $2,003,062,
respectively. Related accounts payable balances at December 31, 1997 and 1998
were $75,340 and $495,686, respectively.
NOTE 10: CONTINGENCIES AND COMMITMENTS
OPERATING LEASES: The Company has noncancellable operating leases for
various property and equipment. These leases expire at various times over the
next five years. A material portion of the leases are for manufacturing
equipment. The agreements pertaining to the manufacturing equipment are five
year leases with two one-year renewal options.
Rent expense for each of the years ended December 31, 1996, 1997, and 1998,
totaled $22,276, $69,036, and $301,181, respectively. Future minimum lease
payments required under operating leases are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
- ------------------------------------------------------------------
<S> <C>
1999............................................................ $ 612,578
2000............................................................ $ 609,890
2001............................................................ $ 609,890
2002............................................................ $ 609,890
2003............................................................ $ 463,494
Thereafter...................................................... $ 136,668
</TABLE>
ASSIGNMENT/LICENSE AGREEMENTS: In 1997, the Company entered into an
agreement with a third party for the assignment of the entire right, title and
interest in the invention of an improvement in a high torque handle. The Company
pays a fee equivalent to 3% of the sum of manufacturing costs and the Company's
margin related to this handle. This agreement continues until the expiration of
any valid patent obtained by the Company for this invention or, if no patent is
issued covering the invention, the term shall continue for a period of ten years
from the date of the agreement. Expense for the years ended December 31, 1997
and 1998 was $9,617 and $11,030, respectively.
F-19
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 10: CONTINGENCIES AND COMMITMENTS (CONTINUED)
In January 1998, the Company entered into an agreement with a third party
for its interest in one invention. The Company pays the party a fee based on the
manufacturing cost and the Company's margin related to this invention. Expense
for the year ended December 31, 1998 was $74,563.
PRODUCT WARRANTY ISSUES: In the past, the Company has experienced minimal
returns of its manufactured products. Therefore, the financial statements do not
include a product warranty reserve at December 31, 1997 or 1998.
LITIGATION: The Company is, from time to time, a party to various legal
actions and administrative proceedings and subject to various claims arising in
the ordinary course of business. The Company and its legal counsel believe the
disposition of these matters will not have a material adverse effect on the
financial position of the Company.
DEBT GUARANTEE: The Company is currently a guarantor of certain debt of
Jore Land, a related party, in the amount of approximately $1,295,000 at
December 31, 1998.
NOTE 11: SUBSEQUENT EVENTS
On April 28, 1999, the Company signed an agreement that grants the exclusive
license to a nationally known brand name for all power tool accessories for a
contracted royalty rate.
In May 1999, the Company entered into a strategic alliance agreement with a
manufacturer of proprietary equipment. The manufacturer has agreed to produce
and sell the Company this equipment for five years on an exclusive basis
provided it purchases approximately $5,250,000 in equipment each year. In
addition to the minimum purchases, the Company must pay an additional $1,000,000
of which $400,000 is payable during the first year and $200,000 in each
subsequent year. In exchange for the these payments, the Company will receive
exclusive access to the equipment and its proprietary design for the five year
period. It is anticipated that this equipment will be financed through capital
leases under an existing master lease agreement. Equipment under construction
and related borrowings are included in the Company's consolidated balance sheet
during the construction period.
On February 1, 1999, the Company acquired an option to purchase
approximately 40 acres of land and the attached construction improvements at
fair market value from Jore Land, LLC, a related party. On June 28, 1999, the
Company exercised the option to purchase existing leased land, facilities, and
facilities under construction for approximately $2.8 million. Existing land and
facilities are utilized in the Company's current operations.
SUBSEQUENT DEBT: The Company entered into the following debt agreements
subsequent to year end:
On January 29, 1999, the Company closed a credit line for the purchase of
equipment with KeyCorp Leasing, A Division of Key Corporate Capital Inc. in
the amount of $15,000,000. Interest is based on the seven-year Treasury
Index plus 4.76%.
On March 3, 1999, the Company closed an Interim Funding Note on equipment
for $1,750,000. Interest is prime rate plus 1%.
F-20
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
On April 7, 1999, the Company closed a loan for $2,000,000 from D.A.
Davidson & Co., who are the managing underwriters of the Company's IPO. The rate
is 6.5% plus warrants to purchase 71,943 shares of common stock at an exercise
price of $9.10 per share. The maturity date of the debt is the earlier of
January 1, 2000, or five calendar days following the closing of an IPO. The
warrants expire three years from the date of grant. No amount will be allocated
to the warrants as they were granted at an exercise price substantially less
than the estimated fair market value of the Company's common stock.
From June 4 to June 11, 1999, the Company closed short-term loans with
various unrelated parties for a total of $4,045,000. Rates range from 6.5% to
7.0% plus warrants to purchase 201,800 shares of the Company's common stock at
$9.10 per share. $3,745,000 is payable on the earlier of December 1, 1999 or
five days after the closing of an IPO and $50,000 is payable on the earlier of
April 30, 2002 or five days after the closing of an IPO. The remaining $250,000
is payable on December 1, 1999. The warrants expire three years from the date of
grant, and have an estimated fair value of $188,667. The proceeds of the debt
will be allocated between the debt and the warrants based on the relative fair
value of the two securities on the date of issuance. The portion allocated to
the warrants will be accreted to interest expense over the term of the debt
agreement.
SUBSEQUENT EQUITY TRANSACTIONS:
In February 1999 the Company granted options to purchase 311,064 shares of
common stock to certain directors. The options are fully vested.
In February 1999, the Company granted warrants to purchase 11,881 shares of
the Company's common stock in exchange for services to be provided in connection
with the Company's IPO.
On January 1, 1999 the Company issued 14,256 shares of stock in exchange for
land.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT INC.
FIRST SECURITY VAN KASPER
, 1999
- --------------------------------------------------------------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. 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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS MAY ONLY BE USED WHERE
IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses of this
offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
AMOUNT(1)
------------
<S> <C>
SEC Registration Fee............................................................ $ 12,510
NASD Filing Fee................................................................. $ 5,000
Nasdaq National Market Listing Fee.............................................. $ 88,500
Non-Accountable Expense Allowance............................................... $ 25,000
Legal Fees and Expenses......................................................... $ 225,000
Accounting Fees and Expenses.................................................... $ 350,000
Blue Sky Qualification Fees and Expenses........................................ $ 5,000
Transfer Agent and Registrar Fees............................................... $ 15,000
Printing Expenses............................................................... $ 100,000
Insurance Policy Premiums....................................................... $ 100,000
Miscellaneous Expenses.......................................................... $ 73,990
------------
Total....................................................................... $ 1,000,000
------------
------------
</TABLE>
- ------------------------
(1) All amounts have been estimated except the NASD filing and SEC Registration
Fee. We will be obligated to pay all of the above expenses.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 35-1-451 through 35-1-457 of the Montana Code Annotated authorize a
court to award, or a corporation's board of directors to grant, indemnification
to directors and officers on terms sufficiently broad to permit indemnification
under certain circumstances for liabilities arising under the Securities Act of
1933, as amended, Article IX of the registrant's Amended and Restated Bylaws
provides for indemnification of the registrant's directors, officers, employees
and agents to an extent not inconsistent with Montana law. Directors of the
registrant also may be indemnified pursuant to a liability insurance policy
maintained by the registrant for such purpose.
Section 35-1-452 of the Montana Code Annotated authorizes a corporation to
limit a director's liability to the corporation or its shareholders for monetary
damages for acts or omissions as a director, except in connection with a
proceeding by or in the right of the corporation in which the director is
adjudged liable to the corporation or in connection with any transaction from
which the director personally receives a benefit in money, property or services
to which the director is not legally entitled. Article VI of the registrant's
Amended and Restated Articles of Incorporation contains provisions implementing,
to the fullest extent permitted by Montana law, such limitations on a director's
liability to the registrant and its shareholders.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification
by the Underwriters of the registrant and its executive officers and directors,
and by the registrant of the Underwriters, for certain liabilities, including
liabilities arising under the Securities Act, in connection with matters
specifically provided by the Underwriters for inclusion in this Registration
Statement.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
We have made the following sales of securities for the consideration
indicated during the past three years, none of which sales were registered under
the Securities Act. The recipients of securities in
II-1
<PAGE>
each such transaction represented their intentions to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. The information below
gives effect to a 216.017-for-1 stock split effected in May 1999.
From September 30, 1998 to February 10, 1999, we granted stock options to
purchase 529,890 shares of common stock at exercise prices ranging from $4.42 to
$9.26 per share to employees, directors and consultants pursuant to our 1997
Stock Plan. We believe that the issuance of the options were exempt from the
registration by virtue of Rule 701.
On October 1, 1998, we issued to the six shareholders of Montana American
Manufacturing Corporation ("MAMC") an aggregate of 360,654 shares of common
stock valued at $3.58 per share in exchange for all of the outstanding capital
stock of MAMC. We believe the issuance of the shares was exempt from
registration under Section 4(2) of the Securities Act and Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering.
On October 1, 1998, we issued to one person in exchange for land an
aggregate of 54,436 shares of common stock valued at $3.58 per share. We believe
the issuance of the shares was exempt from registration under Section 4(2) of
the Securities Act and Regulation D promulgated thereunder, as transactions by
an issuer not involving a public offering.
On January 1, 1999, we issued to the twenty members of Montana American
Equipment, LLC ("MAE") an aggregate of 452,774 shares of common stock valued at
$5.77 per share in exchange for all of the outstanding membership interests of
MAE. We believe the issuance of the shares was exempt from registration under
Section 4(2) of the Securities Act and Regulation D promulgated thereunder, as
transactions by an issuer not involving a public offering.
On February 5, 1999, we issued a warrant to purchase 11,881 shares of common
stock at a per share exercise price of $8.41 to one party. We believe that the
issuance of the warrant was exempt from the registration by virtue of Section
4(2) of the Securities Act as a transaction not involving a public offering.
In February 1999, we issued two options to purchase 155,532 shares each of
common stock at a per share exercise price of $9.26 to one director and one
former director. We believe that the issuance of the options were exempt from
the registration by virtue of Section 4(2) of the Securities Act as a
transaction not involving a public offering.
Since April 1999, the Company issued to 12 persons and entities
approximately $7 million aggregate principal amount of subordinate debt bearing
interest at a rate of 6.5% per annum maturing on December 1, 1999 or within 5
days following the closing of an initial firm commitment underwritten public
offering of the Company. In connection with the issuance of the debt, the
Company also issued warrants to purchase, on a pro-rata basis, an aggregate of
201,800 shares of common stock at an exercise price of $9.10 per share. We
believe the issuance of the debt and the warrants was exempt from registration
under Section 4(2) of the Securities Act and Regulation D promulgated
thereunder, as transactions by an issuer not involving a public offering.
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1** Amended and Restated Articles of Incorporation.
3.2** Bylaws.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
4.1** Description of capital stock contained in the Amended and Restated Articles of Incorporation (See
Exhibit 3.1).
4.2** Description of rights of security holders contained in the Bylaws (See Exhibit 3.2).
4.3** Form of common stock certificate.
5.1* Opinion of Van Valkenberg Furber Law Group, P.L.L.C.
9.1 Voting Trust Agreement, dated June 30, 1997, between various Jore Corporation shareholders and
Matthew Jore, Trustee.
10.1 Amended and Restated Jore Corporation 1997 Stock Plan.
10.2** Common Stock Purchase Option, dated February 10, 1999, between Jore Corporation and William M.
Steele, Trustee of the Steele Family Trust.
10.3** Common Stock Purchase Option, dated February 10, 1999, between Jore Corporation and Gary S. Houck.
10.4+ Exclusive Supply Agreement, dated October 1, 1998, between Jore Corporation and Sears, Roebuck and
Co.
10.5** Lease Agreement, dated September 1, 1996, between Jore Corporation and Jore Land, L.L.C.
10.6** Lease Agreement, dated January 1, 1997, between Jore Corporation and Jore Land, L.L.C.
10.7** Lease Agreement, dated September 1, 1997, between Jore Corporation and Jore Land, L.L.C.
10.8** Lease Agreement, dated October 1, 1998, between Jore Corporation and Jore Land, L.L.C.
10.9** Master Equipment Lease Agreement, dated July 6, 1998, between Key Corp Leasing and Jore Corporation.
10.10** Interim funding Loan and Security Agreement, dated March 3, 1999, between Key Corp Leasing and Jore
Corporation.
10.11** Option Agreement, dated February 1, 1999, between Jore Corporation, Matthew Jore and Jore Land L.L.C.
10.12 Patent Assignment, dated January 1, 1999, between Jore Corporation and Matthew Jore.
10.13 Patent Assignment, dated January 1, 1999, between Jore Corporation and Matthew Jore.
10.14 Patent Assignment, dated January 1, 1999, between Jore Corporation and Matthew Jore.
10.15 Form of Lock-up Agreement executed by certain of Jore Corporation's shareholders.
10.16** Patent Assignment, dated April 2, 1999, between Jore Corporation and Matthew Jore.
10.17+ License Agreement, dated April 28, 1999, by and among Stanley Logistics, Inc., The Stanley Works and
Jore Corporation.
10.18 Loan and Security Agreement, dated May 15, 1996 and as amended May 12, 1999, between Jore Corporation
and Coast Business Credit.
10.19 Patent Assignment, dated January 1, 1999 between Jore Corporation and Matthew Jore.
10.20 Limited Craftsman-Registered Trademark- Trademark License Agreement, dated May 3, 1999, between
Sears, Roebuck and Co. and Jore Corporation.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.21+ Sales and Marketing Agreement, dated January 1, 1999, between Jore Corporation and Manufacturers'
Sales Associates, LLC.
10.22 Employment Agreement, dated June 8, 1999, between Matthew B. Jore and Jore Corporation.
10.23 Purchase Agreement, dated April 7, 1999, between DADCO and Jore Corporation.
10.24 Guaranty, dated April 7, 1999, given by Matthew B. Jore to DADCO.
10.25 Purchase Agreement, dated June 4, 1999, between Blaine Huntsman and Jore Corporation.
10.26 Guaranty dated June 4, 1999, given by Matthew B. Jore to Blaine Huntsman.
10.27 Registration Rights Agreement, dated June 4, 1999, between Jore Corporation and Blaine Hunstman.
10.28 Independent Contractor Agreement, dated June 30, 1999, between Thomas E. Mahoney and Jore
Corporation.
10.29+ Strategic Alliance Agreement, dated May 7, 1999, between Jore Corporation and International Tool
Machines of Florida, Inc.
10.30+ Business Consultant and Management Agreement, dated May 7, 1999, between Jore Corporation and Karl
Giebmanns.
16.1 Letter, dated July 7, 1999, from Galusha, Higgins & Galusha re change in certifying accountant.
21.1** List of Jore Corporation's Subsidiaries.
23.1* Consent of Van Valkenberg Furber Law Group P.L.L.C. (Included in Exhibit 5.1).
23.2* Consent of Boone, Karlberg & Hadden P.C.
23.3 Consent of Deloitte & Touche LLP.
24.1** Power of Attorney.
24.2 Power of Attorney (Included in the signature page to this Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
** Previously filed
+ Portions of this exhibit has been omitted pursuant to an application for
Confidential Treatment filed with the Securities and Exchange Commission
pursuant to Rule 406 of the Securities Act of 1933, as amended.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
II-4
<PAGE>
(ii) reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or together, represent
a fundamental change in the information in the registration statement.
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in the "Calculation
of Registration Fee" table in the effective registration statement; and
(iii) include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement of the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
Offering.
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) For purposes of determining any liability under the Securities Act,
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.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Ronan, State
of Montana, on July 8, 1999.
<TABLE>
<S> <C> <C>
JORE CORPORATION
By: *
-----------------------------------------
Matthew B. Jore
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
Chairman, President and
* Chief Executive Officer
- ------------------------------ (Principal Executive July 8, 1999
Matthew B. Jore Officer)
Chief Financial Officer
/s/ DAVID H. BJORNSON and Director (Principal
- ------------------------------ Financial and Accounting July 8, 1999
David H. Bjornson Officer)
- ------------------------------ Executive Vice President July 8, 1999
Michael W. Jore and Director
- ------------------------------ Director July 8, 1999
Thomas E. Mahoney
- ------------------------------ Director July 8, 1999
Bruce Romfo
- ------------------------------ Director July 8, 1999
William M. Steele
</TABLE>
II-6
<PAGE>
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Matthew B. Jore and David H. Bjornson, or either
of them, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution, and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as such person might or could do in person, hereby ratify and
confirming all that said attorneys-in-fact and agents, or any substitute or
substitutes of any of them, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ JAMES P. MATHIAS
- ------------------------------ Director July 8, 1999
James P. Mathias
/s/ BLAINE HUNTSMAN
- ------------------------------ Director July 8, 1999
Blaine Huntsman
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DAVID H. BJORNSON
------------------------- July 8, 1999
ATTORNEY-IN-FACT
</TABLE>
II-7
<PAGE>
________________ Shares of Common Stock
JORE CORPORATION
UNDERWRITING AGREEMENT
____________, 1999
D.A. Davidson & Co.
Janney Montgomery Scott Inc.
First Security Van Kasper
As Representatives of the Several Underwriters
c/o D.A. Davidson & Co.
8 Third St. North
Davidson Building
Great Falls, MT 59403
Gentlemen:
Jore Corporation, a Montana corporation (the "COMPANY"), and Merle
B. Jore (the "SELLING SHAREHOLDER") severally propose to sell to the several
underwriters (the "UNDERWRITERS") named in Schedule I hereto, for whom you
are acting as representatives (the "REPRESENTATIVES"), an aggregate of
_______________ shares of the Company's Common Stock, $___ par value (the
"FIRM SHARES"), of which ___________ shares will be sold by the Company and
_______ shares will be sold by the Selling Shareholder. The respective
amounts of the Firm Shares to be so purchased by the several Underwriters are
set forth opposite their names in Schedule I hereto, and the amount to be
sold by the Selling Shareholder is set forth opposite his name in Schedule II
hereto. The Company and the Selling Shareholder are sometimes referred to
herein collectively as the "SELLERS." The Company also proposes to sell at
the Underwriters' option an aggregate of up to ____________ additional shares
of the Company's Common Stock (the "OPTION SHARES") solely to cover
over-allotments in the sale of the Firm Shares by the Underwriters, as set
forth below.
As the Representatives, you have advised the Company and the Selling
Shareholder that (a) you are authorized to enter into this Agreement on
behalf of the several Underwriters, and (b) the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm
Shares set forth opposite their respective names in Schedule I, plus their
pro rata portion of the Option Shares if you elect to exercise the
over-allotment option in whole or in part for the accounts of the several
<PAGE>
Underwriters. The Firm Shares and the Option Shares (to the extent the
aforementioned option is exercised) are herein collectively called the
"SHARES."
In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
SHAREHOLDER.
(a) The Company represents and warrants to each of the
Underwriters as follows:
(i) A registration statement on Form S-1
(File No. 333-78357) with respect to the Shares has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933, as
amended (the "ACT"), and the Rules and Regulations (the "RULES AND
REGULATIONS") of the Securities and Exchange Commission (the "COMMISSION")
thereunder and has been filed with the Commission. Copies of such
registration statement, including any amendments thereto, the preliminary
prospectuses (meeting the requirements of the Rules and Regulations)
contained therein and the exhibits, financial statements and schedules, as
finally amended and revised, have heretofore been delivered by the Company to
you. Such registration statement, together with any registration statement
filed by the Company pursuant to Rule 462(b) of the Act, herein referred to
as the "REGISTRATION STATEMENT," which shall be deemed to include all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, has been declared effective by the Commission
under the Act and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. If the Company has elected
to rely on Rule 462(b) under the Act and the Rule 462(b) Registration
Statement has not been declared effective, (x) the Company will file a Rule
462(b) Registration Statement in compliance with, and that is effective upon
filing pursuant to, Rule 462(b) and (y) the Company will give irrevocable
instructions for transmission of the applicable filing fee in connection with
the filing of the Rule 462(b) Registration Statement, in compliance with Rule
111 under the Act, or the Commission has received payment of such filing fee.
The form of prospectus first filed by the Company with the Commission
pursuant to Rule 424(b) and Rule 430A is herein referred to as the
"PROSPECTUS." If the Company has elected to rely on Rule 434 under the Act,
the term sheet that satisfies the requirements of Rule 434 relating to the
Shares that is first filed pursuant to Rule 424(b)(7), together with the
preliminary prospectus that such term sheet supplements, also is referred to
herein as the "PROSPECTUS." Each preliminary prospectus included in the
Registration Statement prior to the time it becomes effective is herein
referred to as a "PRELIMINARY PROSPECTUS."
(ii) The Company has not distributed and,
prior to the later of (a) the Closing Date or the Option Closing Date (as
defined herein), as the case may be, and (b) the
<PAGE>
completion of the distribution of the Shares, will not distribute any
offering material in connection with the Offering other than the Registration
Statement or any amendment thereto, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto.
(iii) The Company has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of Montana, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement; the Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such
qualification, except for jurisdictions in which the failure to so qualify
would not have a material adverse effect on the condition (financial or
otherwise), properties, business, results of operations or prospects of the
Company; the Company is in possession of and operating in compliance with all
material authorizations, licenses, permits, consents, certificates and orders
material to the conduct of its business as such business is described in the
Prospectus, all of which are valid and in full force and effect; and, except
for its 50% ownership interest in JB Tool, LLC, a Montana limited liability
company, the Company does not own or control, directly or indirectly, any
corporation, association or other entity.
(iv) The outstanding shares of Common Stock of
the Company, including all Shares to be sold by the Selling Shareholder, have
been duly authorized and validly issued, are fully paid and non-assessable,
have been issued in compliance with all federal and state securities laws and
were not issued in violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities; the portion of the Shares to
be issued and sold by the Company have been duly authorized and when issued
and paid for as contemplated herein will be validly issued, fully paid and
non-assessable; and no preemptive rights of shareholders exist with respect
to any of the Shares or the issue and sale thereof. Neither the filing of the
Registration Statement nor the offering or sale of the Shares as contemplated
by this Agreement gives rise to any rights, other than those which have been
waived or satisfied, for or relating to the registration of any shares of
Common Stock. No options, warrants or other rights to purchase, agreements or
other obligations to issue or other rights to convert any obligations into
shares of capital stock or ownership interests in the Company are outstanding
except as set forth in the Prospectus.
(v) All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the requirements of Montana law.
(vi) The Commission has not issued an order
preventing or suspending the use of any Preliminary Prospectus relating to
the proposed offering of the Shares or instituted proceedings for that
purpose. The Registration Statement contains, and the Prospectus and any
amendments or supplements thereto will contain, all statements which are
required to be stated therein by, and will conform to, the requirements of
the Act and the Rules and Regulations. The Registration Statement and any
amendment thereto do not contain, and will not contain, any untrue statement
of a material fact and do not omit, and will
<PAGE>
not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus and
any amendments and supplements thereto do not contain, and will not contain,
any untrue statement of material fact and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. The Company has filed with the Commission and the
National Association of Securities Dealers, Inc. (the "NASD") on a timely
basis all documents required by the Commission or the NASD to be so filed by
the Company, and such documents, when they were filed with the Commission or
the NASD, conformed in all material respects to the requirements of the Act,
the Rules and Regulations, the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), the rules and regulations of the Commission promulgated
thereunder, and the rules and regulations of the NASD, as applicable, and
none of such documents contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading.
(vii) The financial statements of the Company,
together with related notes and schedules as set forth in the Registration
Statement, present fairly the financial position and the results of
operations and cash flows of the Company, at the indicated dates and for the
indicated periods. Such financial statements and related schedules have been
prepared in accordance with generally accepted principles of accounting,
consistently applied throughout the periods involved, except as disclosed
therein, and all adjustments necessary for a fair presentation of results for
such periods have been made. The summary financial and statistical data
included in the Registration Statement present fairly the information shown
therein and such data have been compiled on a basis consistent with the
financial statements presented therein. No other financial statements or
schedules are required by the Act or by the Rules and Regulations to be
included in the Registration Statement.
(viii) Deloitte & Touche LLP, who have certified
certain of the financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by the
Act and the Rules and Regulations.
(ix) There is no action, suit, claim or
proceeding pending or, to the knowledge of the Company, threatened against
the Company before any court or administrative agency or otherwise which if
determined adversely to the Company might (a) result in any change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or other) or prospects of the Company that is materially
adverse to the Company, or (b) prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement; and
to the Company's knowledge, except as disclosed in the Prospectus, there are
no material legal or governmental actions, suits or proceedings pending or
threatened against any executive officer or director of the Company, which
could have a material adverse effect on the condition (financial or
otherwise), properties, business, results of operations or prospects of the
Company.
(x) The Company has good and marketable title to
all of the
<PAGE>
properties and assets reflected in the financial statements (or as described
in the Registration Statement) hereinabove described, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those reflected in
such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company occupies its leased properties
under valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement. Except as
disclosed in the Prospectus, the Company owns or leases all such properties
as are necessary to the operations of the Company as now conducted or as
proposed to be conducted.
(xi) The Company has filed all federal, state,
local and foreign income tax returns that have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
the Company to the extent that such taxes have become due and are not being
contested in good faith. All tax liabilities have been adequately provided
for in the financial statements of the Company. The Company has no knowledge
of any tax deficiency which has been asserted or threatened against the
Company.
(xii) Since the respective dates as of which
information is given in the Registration Statement, as it may be amended or
supplemented, there has not been any material adverse change or any
development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company or the earnings,
business affairs, management, or business prospects of the Company, whether
or not occurring in the ordinary course of business, and there has not been
any material transaction entered into by the Company, other than the
transactions in the ordinary course of business and changes and transactions
contemplated by the Registration Statement, as it may be amended or
supplemented. The Company has no material contingent obligations which are
not disclosed in the Registration Statement, as it may be amended or
supplemented. Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, and except
as described in or specifically contemplated by the Prospectus, (a) there has
not been any change in the authorized or outstanding capital stock (other
than upon the sale of the Shares as contemplated hereby or upon the exercise
of outstanding options or warrants disclosed in the Prospectus) of the
Company and (b) there has not been any material increase in the short- or
long-term debt of the Company.
(xiii) The Company is not or, with the giving of
notice or lapse of time or both, will not be, in violation of or in default
under its Articles of Incorporation or Bylaws or under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party
or by which it, or any of its properties, is bound and which default is of
material significance in respect of the business or financial condition of
the Company. The execution and delivery of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of
the terms hereof will not conflict with or result in a breach of any of the
terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust or other agreement or instrument to which the Company
is a party, or of the Articles of Incorporation or Bylaws of the Company, or
any order, rule or regulation applicable to the
<PAGE>
Company of any court or of any regulatory body or administrative agency or
other governmental body having jurisdiction.
(xiv) The Company has full legal right, power
and authority to enter into this Agreement and perform the transactions
contemplated hereby and to file the Registration Statement. This Agreement
has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or affecting
creditors' rights generally or by general equitable principles. Each
approval, consent, order, authorization, designation, declaration or filing
by or with any regulatory, administrative or other governmental body
necessary in connection with the execution and delivery by the Company of
this Agreement and the consummation of the transactions herein contemplated
(except such additional steps as may be required by the Commission, the NASD
or such additional steps as may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws) has
been obtained or made and is in full force and effect.
(xv) There are no other contracts or other
documents required to be described in the Prospectus or to be filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations which have not been described or filed as required. The contracts
so described in the Prospectus are in full force and effect on the date
hereof, and neither the Company, nor to the Company's knowledge any other
party thereto, is in material breach of or default under any of such
contracts.
(xvi) The Company holds all material licenses,
certificates and permits from governmental authorities that are necessary to
the conduct of its business; and the Company has not infringed any patents,
patent rights, trade names, trademarks or copyrights, which infringement is
material to the business of the Company. The Company knows of no infringement
by others of material patents, patent rights, trade names, trademarks or
copyrights owned by or licensed to the Company.
(xvii) The Company has not taken, directly or
indirectly, any action designed to or that might reasonably be expected to
cause or result in the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
(xviii) The Company is not an "investment
company" within the meaning of such term under the Investment Company Act of
1940, as amended (the "1940 ACT"), and the rules and regulations of the
Commission thereunder.
(xix) The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances that
(a) transactions are executed in accordance with management's general or
specific authorization; (b) transactions are recorded as necessary
<PAGE>
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for assets; (c)
access to assets is permitted only in accordance with management's general or
specific authorization; and (d) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(xx) The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the business in which it is engaged.
The Company has not been refused any insurance coverage sought or applied
for, and the Company has no reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition (financial or otherwise), earnings, properties, business affairs or
business prospects, net worth or results of operations of the Company, except
as described in or contemplated by the Prospectus.
(xxi) The Company is not in violation of any
federal or state law or regulation relating to occupational safety and health
or to the storage, handling or transportation of hazardous or toxic materials
and the Company has received all permits, licenses or other approvals
required of it under applicable federal and state occupational safety and
health and environmental laws and regulations to conduct its business, and
the Company is in compliance with all terms and conditions of any such
permit, license or approval, except any such violation of law or regulation,
failure to receive required permits, licenses or other approvals or failure
to comply with the terms and conditions of such permits, licenses or
approvals which would not, singly or in the aggregate, have a material
adverse effect on the condition (financial or otherwise), properties,
business, results of operations or prospects of the Company.
(xxii) No labor dispute with the employees or
subcontractors of the Company exists or is threatened or imminent that could
have a material adverse effect on the condition (financial or otherwise),
properties, business, results of operations or prospects of the Company.
(b) The Selling Shareholder represents and warrants as
follows:
(i) Selling Shareholder now has and at the
Closing Date (as such date is hereinafter defined) will have good and
marketable title to the Firm Shares to be sold by such Selling Shareholder,
free and clear of any liens, encumbrances, and claims, and full right, power
and authority to effect the sale and delivery of such Firm Shares; and upon
the delivery of, against payment for, such Firm Shares pursuant to this
Agreement, the Underwriters will, severally, acquire good and marketable
title thereto, free and clear of any liens, encumbrances, and claims.
<PAGE>
(ii) Selling Shareholder has full legal right,
power and authority to execute and deliver this Agreement, the Power of
Attorney, the Transmittal Letter and the Custody Agreement (collectively
referred to herein as the "CUSTODY AGREEMENT") and to perform its
obligations. The execution and delivery of this Agreement and the
consummation by Selling Shareholder of the transactions herein contemplated
and the fulfillment by Selling Shareholder of the terms hereof will not
require any consent, approval, authorization or other order of any court,
regulatory body, administrative agency or other governmental body (except as
may be required under the Act, state securities laws or Blue Sky laws) or any
indenture, mortgage, deed of trust or other agreement or instrument to which
Selling Shareholder is a party, or of any order, rule or regulation
applicable to Selling Shareholder of any court or of any regulatory body or
administrative agency or other governmental body having jurisdiction.
(iii) Selling Shareholder has not taken,
directly or indirectly, any action designed to stabilize or manipulate, or
which has constituted or might reasonably be expected to cause or result in
the stabilization or manipulation of, the price of the Common Stock of the
Company and, other than as permitted by the Act, the Selling Shareholder will
not distribute any prospectus or other offering material in connection with
the offering of the Shares.
(iv) Without having undertaken to determine
independently the accuracy or completeness of either the representations and
warranties of the Company contained herein or the information contained in
the Registration Statement, Selling Shareholder (a) has no reason to believe
that the representations and warranties of the Company contained in this
Section 1 are not true and correct, and (b) is familiar with the Registration
Statement and has no knowledge of any material fact, condition or information
not disclosed in the Registration Statement which has adversely affected or
may adversely affect the business of the Company. The sale of the Firm Shares
by Selling Shareholder pursuant hereto is not prompted by any information
concerning the Company that is not set forth in the Registration Statement.
The information pertaining to Selling Shareholder under the caption "Selling
Shareholder" in the Prospectus is complete and accurate in all material
respects.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties
and covenants herein contained, and subject to the terms and conditions
herein set forth, the Sellers agree to sell to the Underwriters, and each
Underwriter agrees, severally and not jointly, to purchase from the Sellers,
at a price of $______ per share, the number of Firm Shares set forth opposite
the name of each Underwriter in SCHEDULE I hereof, subject to adjustments in
accordance with Section 9 hereof. The number of Firm Shares to be purchased
by each Underwriter from each Seller shall be as nearly as practicable in the
same proportion to the total number of Firm Shares being sold by each Seller
as the number of Firm Shares being purchased by each Underwriter bears to the
total number of Firm Shares to be sold hereunder. The obligations of the
Company and of the Selling Shareholder shall be several and not joint.
<PAGE>
(b) Firm Shares shall be registered by ChaseMellon
Shareholder Services L.L.C. in the name of the nominee of the Depository
Trust Company, Cede & Co., and credited to the accounts of such of its
participants as the Representatives shall request, upon notice to the Company
and the Selling Shareholder at least 48 hours prior to the Closing Date (as
defined below). The certificates for the Firm Shares will be delivered in
such denominations and in such registrations as the Representatives request
in writing not later than the second full business day prior to the Closing
Date, and will be made available for inspection by the Representatives at
least one business day prior to the Closing Date.
(c) Payment for the Firm Shares to be sold hereunder
shall be made by or on behalf of the Underwriters (i) in the case of Firm
Shares issued and sold by the Company, to the account of the Company of
$__________ by wire transfer in immediately available funds and, (ii) in the
case of Firm Shares sold by the Selling Shareholder, by wire transfer in
immediately available funds, in each case against delivery of the Firm Shares
in accordance with Section 2(b). Delivery or registry of and payment for the
Firm Shares will be made at the offices of D.A. Davidson & Co., 8 Third St.
North, Davidson Building, Great Falls, Montana at 10:00 a.m., Great Falls
time, on the third full business day after the date of this Agreement (or on
the fourth business day if permitted by Rule 15c6-1(c) under the Exchange
Act) or at such other time and date as you and the Company shall agree upon,
such time and date being herein referred to as the "CLOSING DATE." As used
herein, "BUSINESS DAY" means a day on which the New York Stock Exchange and
the Nasdaq National Market are open for trading.
(d) In addition, on the basis of the representations,
warranties and covenants herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
several Underwriters to purchase the Option Shares at the price per share as
set forth in Section 2(a). The option granted hereby may be exercised in
whole or in part by giving written notice (i) at any time before the Closing
Date and (ii) only once thereafter within 30 days after the date of this
Agreement (or, if such 30th day shall be a Saturday, Sunday or holiday, on
the next business day thereafter), by you, as Representatives of the several
Underwriters, to the Company setting forth the number of Option Shares as to
which the several Underwriters are exercising the option, the names and
denominations in which the Option Shares are to be registered and the time
and date at which such certificates are to be delivered. The time and date at
which certificates for Option Shares are to be delivered shall be determined
by the Representatives but shall not be earlier than two nor later than five
full business days after the exercise of such option, nor in any event prior
to the Closing Date (such time and date being herein referred to as the
"OPTION CLOSING DATE"). The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares, adjusted by you in such
manner as to avoid fractional shares. The option with respect to the Option
Shares granted hereunder may be exercised only to cover over-allotments in
the sale of the Firm
<PAGE>
Shares by the Underwriters. You, as Representatives of the several
Underwriters, may cancel such option at any time prior to its expiration by
giving written notice of such cancellation to the Company. If the option is
exercised as to all or any portion of the Option Shares, then such Option
Shares shall be registered and credited, on the related Option Closing Date
in the same manner and upon the same terms and conditions as set forth in
Section 2(b) hereof, except that reference therein to the Firm Shares and the
Closing Date shall be deemed, for purposes of this Section 2(d), to refer to
such Option Shares and Option Closing Date, respectively. To the extent, if
any, that the option is exercised, payment for the Option Shares shall be
made on the Option Closing Date by or on behalf of the Underwriters to the
account of the Company by wire transfer in immediately available funds
against delivery of the Option Shares in accordance with this Section 2(d).
(e) If on the Closing Date the Selling Shareholder
fails to sell the Firm Shares which he has agreed to sell on such date as set
forth in SCHEDULE II hereto, the Company agrees that it will sell or arrange
for the sale of that number of shares of Common Stock to the Underwriters
which represents Firm Shares which the Selling Shareholder has failed to so
sell, as set forth in SCHEDULE II hereto, or such lesser number as may be
requested by the Representatives.
(f) The Shares represented by the certificates held in
custody for the Selling Shareholder under the Custody Agreement are, as a
result of the obligations of such Selling Shareholder under this Agreement,
subject to the interests of the Underwriters hereunder to the extent of such
obligations. The arrangements made by the Selling Shareholder for such
custody, and the appointment by the Selling Shareholder of the
attorneys-in-fact by the Power of Attorney, are to that extent irrevocable.
The obligations of the Selling Shareholder hereunder shall not be terminated
by operation of law, whether by the death or incapacity of the Selling
Shareholder or by the occurrence of any other event. If the Selling
Shareholder should die or become incapacitated, or if any other such event
should occur, before the delivery of the Shares hereunder, certificates
representing the Shares shall be delivered by or on behalf of the Selling
Shareholder in accordance with the terms and conditions of this Agreement and
of the Custody Agreement. Actions taken by the attorneys-in-fact of the
Selling Shareholder pursuant to the Power of Attorney shall be as valid as if
such death, incapacity or other event had not occurred, regardless of whether
or not the custodian named in the Custody Agreement, the attorneys-in-fact of
the Selling Shareholder, or any of them, shall have received notice of such
death, incapacity, or other event.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable
to do so. The Firm Shares are to be initially offered to the public at the
initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option
Shares are purchased pursuant to Section 2 hereof, the Underwriters will
offer them to the public on the foregoing terms.
<PAGE>
It is further understood that you will act as the Representatives
for the Underwriters in the offering and sale of the Shares in accordance
with a Master Agreement Among Underwriters entered into by you and the
several other Underwriters.
4. COVENANTS OF THE COMPANY AND THE SELLING SHAREHOLDER.
(a) The Company covenants and agrees with the several
Underwriters that:
(i) The Company will (a) prepare and timely
file with the Commission under Rule 424(b) of the Rules and Regulations a
Prospectus in a form approved by the Representatives containing information
previously omitted at the time of effectiveness of the Registration Statement
in reliance on Rule 430A of the Rules and Regulations and (b) not file any
amendment to the Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been advised and
furnished with a copy, to which the Representatives shall have reasonably
objected in writing, or which is not in compliance with the Rules and
Regulations.
(ii) The Company will advise the
Representatives promptly of any request of the Commission for amendment of
the Registration Statement or for supplement to the Prospectus or for any
additional information, and of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or the use
of the Prospectus or of the institution of any proceedings for that purpose.
The Company will use its best efforts to prevent the issuance of any such
stop order preventing or suspending the use of the Prospectus and to obtain
as soon as possible the lifting thereof, if issued.
(iii) The Company will cooperate with the
Representatives in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representatives may reasonably
have designated in writing and will make such applications, file such
documents, and furnish such information as may be reasonably required for
that purpose, provided the Company shall not be required to qualify as a
foreign corporation or to file a general consent to service of process in any
jurisdiction where it is not now so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.
(iv) The Company will deliver to, or upon the
order of, the Representatives, from time to time, as many copies of any
Preliminary Prospectus as the Representatives may reasonably request. The
Company will deliver to, or upon the order of, the Representatives during the
period when delivery of a Prospectus is required under the Act, as many
copies of the Prospectus in final form, or as thereafter amended or
supplemented, as the Representatives may reasonably request. The Company will
deliver to the Representatives
<PAGE>
at or before the Closing Date, three signed copies of the Registration
Statement and all amendments thereto including all exhibits filed therewith,
and will deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), and of all amendments thereto,
as the Representatives may reasonably request.
(v) The Company will comply with the Act and
the Rules and Regulations, and the Exchange Act, and the rules and
regulations of the Commission thereunder, so as to permit the completion of
the distribution of the Shares as contemplated in this Agreement and the
Prospectus. If, during the period in which a prospectus is required by law to
be delivered by an Underwriter or dealer, any event shall occur as a result
of which, in the judgment of the Company or in the reasonable opinion of the
Underwriters, it becomes necessary to amend or supplement the Prospectus in
order to make the statements therein, in the light of the circumstances
existing at the time the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary at any time to amend or supplement the
Prospectus to comply with any law, the Company promptly will prepare and file
with the Commission an appropriate amendment to the Registration Statement or
supplement to the Prospectus so that the Prospectus as so amended or
supplemented will not, in the light of the circumstances when it is so
delivered, be misleading, or so that the Prospectus will comply with
applicable law.
(vi) The Company will make generally available
to its shareholders, as soon as it is practicable to do so, but in any event
not later than 15 months after the effective date of the Registration
Statement, an earnings statement (which need not be audited) in reasonable
detail, covering a period of at least 12 consecutive months beginning after
the effective date of the Registration Statement, which earnings statement
shall satisfy the requirements of Section 11(a) of the Act and Rule 158 of
the Rules and Regulations, and will advise you in writing when such statement
has been so made available.
(vii) The Company will, for a period of five
years from the Closing Date, deliver to the Representatives copies of annual
reports and copies of all other documents, reports and information furnished
by the Company to its shareholders or filed with any securities exchange or
market pursuant to the requirements of such exchange or market with the
Commission pursuant to the Act or the Exchange Act.
(viii) No offering, sale, short sale or other
disposition of any shares of Common Stock of the Company or other securities
convertible into or exchangeable or exercisable for shares of Common Stock or
derivative of Common Stock (or agreement for such) will be made for a period
of 180 days after the date of this Agreement, directly or indirectly, by the
Company otherwise than hereunder or with the prior written consent of D.A.
Davidson & Co., except that the Company may, without such consent, (a) issue
shares of common stock upon conversion, exercise or exchange of securities
outstanding on the date hereof and that are disclosed in the Prospectus, or
(b) grant options to purchase shares of common stock, and issue shares of
common stock issuable upon exercise of such options, pursuant to the
Company's stock option plan.
<PAGE>
(ix) The Company will use its best efforts to
cause, subject to notice of issuance, the Shares to be quoted on the Nasdaq
National Market.
(x) The Company has caused each officer and
director and specific shareholders of the Company to furnish to you, on or
prior to the date of this agreement, a letter or letters, in form and
substance satisfactory to the Underwriters, pursuant to which each such
person shall agree not to offer, sell, sell short or otherwise dispose of any
shares of Common Stock of the Company or other capital stock of the Company,
or any other securities convertible, exchangeable or exercisable for Common
Shares or derivative of Common Shares owned by such person or request the
registration for the offer or sale of any of the foregoing (or as to which
such person has the right to direct the disposition of) for a period of 180
days after the date of this Agreement, directly or indirectly, except with
the prior written consent of D.A. Davidson & Co. ("LOCKUP AGREEMENTS").
(xi) The Company will not, and will not allow
any subsidiary to, publicly announce any intention to, and will not itself,
and will not allow any subsidiary to, without the prior written consent of
the Representatives, on behalf of the Underwriters, (a) offer, pledge, sell,
offer to sell, contract to sell, sell any option or contract to purchase,
purchase any option to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any shares of
Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock, or (b) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the shares of Common Stock or securities convertible into, or
exercisable or exchangeable for, shares of Common Stock (whether any such
transaction described in clause (a) or (b) above is to be settled by delivery
of shares of Common Stock or such other securities, in cash or otherwise),
for a period beginning from the date hereof and continuing to and including
the date 180 days after the Closing Date, except pursuant to this Agreement
and other than with respect to shares of Common Stock issued upon conversion,
exercise or exchange of securities outstanding on the date hereof and that
are disclosed in the Prospectus.
(xii) Neither the Company nor any of its
affiliates, nor any person acting on behalf of any of them will, directly or
indirectly, (a) take any action designed to cause or to result in, or that
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares; or (b) sell, bid for, purchase,
or pay anyone any compensation for soliciting purchases of, the Shares, or
pay or agree to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(xiii) The Company will apply the net proceeds
from the sale of the Shares substantially as set forth under "Use of
Proceeds" in the Prospectus.
(xiv) If at any time during the 25 day period
after the Registration
<PAGE>
Statement becomes effective or during the period prior to any Closing Date,
any rumor, publication or event relating to or affecting the Company shall
occur as a result of which, in the Representatives' sole judgment, the market
price of the Shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after notice
from the Representatives advising the Company to the effect set forth above,
consult with the Representatives concerning the substance of, and consider
disseminating a press release or other public statement reasonably
satisfactory to the Representatives responding to or commenting on, such
rumor, publication or event.
(b) The Selling Shareholder covenants and agrees with
the several Underwriters that:
(i) Certificates in negotiable form, endorsed
in blank or accompanied by blank stock powers duly executed with signatures
appropriately guaranteed, representing all of the Shares to be sold by the
Selling Shareholder hereunder, have been placed in custody pursuant to the
Custody Agreement.
(ii) In order to document the Underwriters'
compliance with the reporting and withholding provisions of the Tax Equity
and Fiscal Responsibility Act of 1982 and the Interest and Dividend Tax
Compliance Act of 1983 with respect to the transactions herein contemplated,
the Selling Shareholder agrees to deliver to you prior to or at the Closing
Date a properly completed and executed United States Treasury Department Form
W-9 (or other applicable form or statement specified by Treasury Department
regulations in lieu thereof).
(iii) Selling Shareholder will not, and no
person acting on behalf of the Selling Shareholder will, directly or
indirectly, (a) take any action designed to cause or to result in, or that
has constituted or which might reasonably be expected to constitute, the
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares or (b) sell, bid for, purchase,
or pay anyone any compensation for soliciting purchases of, the Shares or pay
or agree to pay any person any compensation for soliciting another to
purchase any other securities of the Company (except for the sale of Shares
by the Selling Shareholder under this Agreement).
(iv) Selling Shareholder will not publicly
announce any intention to, and will not, without the prior written consent of
the Representatives on behalf of the Underwriters, (a) offer, pledge, sell,
offer to sell, contract to sell, sell any option or contract to purchase,
purchase any option to sell, grant any option, right or warrant to purchase,
or otherwise transfer or dispose of, directly or indirectly, any of the
shares of Common Stock or any securities convertible into, or exercisable or
exchangeable for, Common Stock, or (b) enter into any swap or other agreement
that transfers, in whole or in part, any of the economic consequences of
ownership of the shares of Common Stock or any securities convertible into,
<PAGE>
or exercisable or exchangeable for, shares of Common Stock (whether any such
transaction described in clause (a) and (b) above is to be settled by
delivery of shares of Common Stock or such other securities, in cash or
otherwise), in each case, beneficially owned (within the meaning of Rule
13d-3 under the Exchange Act) or otherwise controlled by such person on the
date hereof or hereafter acquired, for a period beginning from the date
hereof and continuing to and including the date 180 days after the Closing
Date.
5. COSTS AND EXPENSES.
(a) The Company will pay all costs, expenses and fees
incident to the performance of the obligations of the Sellers under this
Agreement, including, without limiting the generality of the foregoing:
accounting fees of the Company; the fees and disbursements of counsel for the
Company and the Selling Shareholder; the cost of printing and delivering to,
or as requested by, the Underwriters copies of the Registration Statement,
Preliminary Prospectuses, the Prospectus, this Agreement, the Blue Sky Survey
and any supplements or amendments thereto prior to or during the period when
delivery of a Prospectus is required under the Act; the filing fees of the
Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the NASD of the
terms of the sale of the Shares; the fees of the Nasdaq Stock Market; and the
expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws, not to exceed five thousand dollars
($5,000.00). To the extent that the Selling Shareholder engages special legal
counsel other than Van Valkenberg Furber Law Group, P.L.L.C., to represent
the Selling Shareholder in connection with this offering, the fees and
expenses of such counsel shall be borne by the Selling Shareholder. Any
transfer taxes imposed on the sale of the Shares to the several Underwriters
will be paid by the Company.
(b) In addition to the foregoing expenses, the Company
shall on the Closing Date pay to Janney Montgomery Scott Inc. a
non-accountable expense allowance of twenty-five thousand dollars ($25,000).
Except for such non-accountable expense allowance and expenses related to
qualification under NASD regulation and State securities or Blue Sky laws,
the Sellers shall not be required to pay for any of the Underwriters'
expenses; PROVIDED THAT, if this Agreement shall not be consummated because
the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant to Section 11(a) or
11(b) hereof, or by reason of any failure, refusal or inability on the part
of the Company or the Selling Shareholder to perform any undertaking or
satisfy any condition of this Agreement or to comply with any of the terms
hereof on their part to be performed, unless such failure to satisfy said
condition or to comply with said terms shall be due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for out-of-pocket expenses, including fees and disbursements of
counsel, reasonably incurred in connection with investigating, marketing and
proposing to market the Shares or in contemplation of performing their
obligations hereunder; but the Company and the Selling Shareholder shall not
in any event be liable to any of the several Underwriters for damages on
<PAGE>
account of loss of anticipated profits from the sale by them of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm Shares
on the Closing Date and the Option Shares, if any, on the Option Closing Date
are subject to the accuracy, as of the Closing Date or the Option Closing Date,
as the case may be, of the representations and warranties of the Company and the
Selling Shareholder contained herein, and to the performance by the Company and
the Selling Shareholder of their covenants and obligations hereunder and to the
following additional conditions:
(a) No stop order suspending the effectiveness of the
Registration Statement, as amended from time to time, shall have been issued and
no proceedings for that purpose shall have been taken or, to the knowledge of
the Company or the Selling Shareholder, shall be contemplated by the Commission
and no injunction, restraining order, or order of any nature by a federal or
state court of competent jurisdiction shall have been issued as of the Closing
Date that would prevent the issuance of the Shares.
(b) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, the opinion of Van
Valkenberg Furber Law Group, P.L.L.C., counsel for the Company and the Selling
Shareholder, dated the Closing Date or the Option Closing Date, as the case may
be, addressed to the Underwriters (and stating that it may be relied upon by
counsel to the Underwriters), with respect to the matters set forth in EXHIBIT A
hereto. In rendering such opinion counsel for the Company may rely as to matters
governed by the laws of states other than Washington or federal laws on local
counsel in such jurisdictions, provided that in each case counsel for the
Company shall state that they believe that they and the Underwriters are
justified in relying on such other counsel. In addition to the matters set forth
above, such opinion shall also include a statement to the effect that nothing
has come to the attention of such counsel which leads it to believe that (i) the
Registration Statement, at the time it became effective under the Act (but after
giving effect to any modifications incorporated therein pursuant to Rule 430A
under the Act) and as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and as
of the Closing Date or the Option Closing Date, as the case may be, contained an
untrue statement of a material fact or omitted to state a material fact
necessary in order to make the statements, in the light of the circumstances
under which they are made, not misleading (except that such counsel need express
no view as to financial statements, schedules and statistical information
therein). With respect to such statement, counsel for the Company may state that
their belief is based upon the procedures set forth therein, but is without
independent investigation and verification.
(c) The Representatives shall have received from Stoel
Rives LLP, counsel
<PAGE>
for the Underwriters, an opinion dated the Closing Date or the Option Closing
Date, as the case may be, covering the issuance and sale of the Shares, the
Registration Statement and the Prospectus, and such other related matters as the
Representatives may reasonably require. In rendering such opinion counsel for
the Underwriters may rely as to all matters governed other than by the laws of
the State of Washington or federal laws on the opinion of counsel referred to in
Section 6(b).
(d) The Representatives shall have received at or prior
to the Closing Date from counsel for the Underwriters a memorandum or summary,
in form and substance satisfactory to the Representatives, with respect to the
qualification for offering and sale by the Underwriters of the Shares under the
State securities or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(e) You shall have received, on the date hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated the
date hereof, the Closing Date or the Option Closing Date, as the case may be, in
form and substance satisfactory to you, of Deloitte & Touche LLP, confirming
that they are independent public accountants within the meaning of the Act and
the applicable Rules and Regulations thereunder and stating that in their
opinion the financial statements and schedules examined by them and included in
the Registration Statement comply in form in all material respects with the
applicable accounting requirements of the Act and the related Rules and
Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(f) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer of
the Company to the effect that, as of the Closing Date or the Option Closing
Date, as the case may be, each of them severally represents as follows:
(i) The Registration Statement has become
effective under the Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such purpose have
been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the
Company contained in Section 1 hereof are true and correct as of the Closing
Date or the Option Closing Date, as the case may be;
(iii) All filings required to have been made
pursuant to Rules 424 or 430A under the Act have been made;
<PAGE>
(iv) He has carefully examined the Registration
Statement and the Prospectus and, in his opinion, as of the effective date of
the Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and Prospectus
did not omit to state a material fact required to be stated therein or necessary
in order to make the statements therein not misleading, and, in his opinion,
since the effective date of the Registration Statement, no event has occurred
which should have been set forth in a supplement to or an amendment of the
Prospectus which has not been so set forth in such supplement or amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the condition, financial or otherwise,
of the Company or the earnings, business affairs, management, or business
prospects of the Company, whether or not occurring in the ordinary course of
business, and there has not been any material transaction entered into by the
Company, other than the transactions in the ordinary course of business and
changes and transactions contemplated by the Registration Statement, as it may
be amended or supplemented.
(g) The Representatives shall have received on the
Closing Date or the Option Closing Date, as the case may be, a certificate or
certificates dated such date and signed by the Selling Shareholder (or by his
attorney-in-fact on his behalf), to the effect that the Selling Shareholder has
examined the Registration Statement, the Prospectus and this Agreement and that
the representations and warranties of the Selling Shareholder in this Agreement
are true and correct on and as of such Closing Date or Option Closing Date, with
the same effect as if made on such date, and that the Selling Shareholder has
performed all covenants and agreements and satisfied all conditions contained in
this Agreement that are required to be performed or satisfied by him at or prior
to such date.
(h) The Company and the Selling Shareholder shall have
furnished to the Representatives such further certificates and documents
confirming the representations and warranties, covenants and conditions
contained herein and related matters as the Representatives may reasonably have
requested.
(i) The Firm Shares and Option Shares, if any, have been
approved for quotation on the Nasdaq National Market.
(j) The Lockup Agreements described in Section 4(a)(x)
are in full force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to Stoel Rives LLP,
counsel for the Underwriters.
<PAGE>
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Shareholder of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be.
In such event, the Selling Shareholder, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE SELLERS.
The obligations of the Sellers to sell and deliver the portion of the
Shares required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless
each Underwriter and each person, if any, who controls any Underwriter within
the meaning of the Act, against any losses, claims, damages or liabilities to
which such Underwriter or any such controlling person may become subject under
the Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person for any legal or other expenses reasonably incurred
by such Underwriter or such controlling person in connection with investigating
or defending any such loss, claim, damage or liability, action or proceeding or
in responding to a subpoena or governmental inquiry related to the offering of
the Shares, whether or not such Underwriter or controlling person is a party to
any action or proceeding; provided, however, that (A) the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus, or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof and (B) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) from whom the person asserting any such loss,
claim, damage or liability purchased the Shares which are the subject thereof if
such Underwriter did not deliver a copy of the Prospectus (or the Prospectus as
amended or supplemented) at or
<PAGE>
prior to the confirmation of the sale of such Shares to such person in any case
where such delivery is required by the Act and the untrue statement or omission
of a material fact contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented). This indemnity
agreement will be in addition to any liability that the Company may otherwise
have.
(b) The Selling Shareholder agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages or liabilities
to which such Underwriter or any such controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any breach of any representation, warranty or covenant of the Selling
Shareholder herein contained; and will reimburse each Underwriter and each such
controlling person for any legal or other expenses incurred by such Underwriter
or such controlling person in connection with investigating or defending any
such loss, claim, damage, liability, action or proceeding or in responding to a
subpoena or government inquiry related to the offering of the Shares, whether or
not such Underwriter or controlling person is a party to any action or
proceeding; provided, however that (A) the Selling Shareholder will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement, or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any such amendment or supplement,
in reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof; and (B) such indemnity with respect to any Preliminary
Prospectus shall not inure to the benefit of any Underwriter (or any person
controlling such Underwriter) from whom the person asserting any loss, claim,
damage or liability based upon any untrue statement or alleged untrue statement
or omission or alleged omission purchased the Shares which are the subject
thereof if such Underwriter did not deliver a copy of the Prospectus (or the
Prospectus as amended or supplemented) at or prior to the confirmation of the
sale of such Shares to such person in any case where such delivery is required
by the Act and the untrue statement or omission of a material fact contained in
such Preliminary Prospectus was corrected in the Prospectus (or the Prospectus
as amended or supplemented). In no event, however, shall the liability of the
Selling Shareholder for indemnification under this Section 8(b) exceed the
proceeds received by such Selling Shareholder from the Underwriters in the
offering. This indemnity agreement will be in addition to any liability that
the Selling Shareholder may otherwise have.
(c) Each Underwriter severally and not jointly agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement, the Selling Shareholder,
and each person, if any, who controls the Company within the meaning of the Act,
against any losses, claims, damages or liabilities to which the Company or any
such director, officer, Selling Shareholder or controlling person may become
subject under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any
<PAGE>
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or the alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances under
which they were made; and will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, Selling Shareholder or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, action or proceeding or in responding to a subpoena or
government inquiry relating to the offering of the Shares, whether or not the
Company or any such director, officer, Selling Shareholder or controlling person
is a party to any action or proceeding; provided, however, that each Underwriter
will be liable in each case only to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission has been made (A) in
the Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof, and (B) in any Preliminary
Prospectus delivered to the person asserting any loss, claim, damage or
liability who purchased the Shares that are the subject of the alleged loss,
claim, damage or liability if the Underwriter that sold such Shares did not
deliver a copy of the Prospectus (or the Prospectus as amended or supplemented)
at or prior to the confirmation of the sale of such Shares to such person in any
case where such delivery is required by the Act and the untrue statement or
omission contained in such Preliminary Prospectus was corrected in the
Prospectus (or the Prospectus as amended or supplemented). This indemnity
agreement will be in addition to any liability that such Underwriter may have
otherwise.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"INDEMNIFIED PARTY") shall promptly notify the person against whom such
indemnity may be sought (the "INDEMNIFYING PARTY") in writing. No
indemnification provided for in Sections 8(a) through (c) shall be available to
any party who shall fail to give notice as provided in this Section 8(d) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was materially prejudiced by the failure to give
such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Sections 8(a) through (c). In case any such proceeding shall be
brought against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party and shall pay as incurred the
fees and disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own counsel
at its own expense. Notwithstanding the foregoing, the indemnifying party shall
pay as incurred (or within 30 days of presentation) the fees and expenses of the
counsel retained by the indemnified party in the
<PAGE>
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same jurisdiction,
be liable for the reasonable fees and expenses of more than one separate firm
for all such indemnified parties. Such firm shall be designated in writing by
you in the case of parties indemnified pursuant to Sections 8(a) and (b) and by
the Company and the Selling Shareholder in the case of parties indemnified
pursuant to Section 8(c). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment.
(e) If the indemnification provided for in this Section 8
is unavailable to or insufficient to hold harmless an indemnified party under
Sections 8(a) through (c) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative benefits
but also the relative fault of the Company and the Selling Shareholder on the
one hand and the Underwriters on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Selling Shareholder on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company and the Selling Shareholder
bear to the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth under the caption "Underwriting" in the
Prospectus. The relative fault shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or the Selling Shareholder on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company, the Selling Shareholder and the Underwriters agree that it
would not be just and equitable if contributions pursuant to this Section 8(e)
were determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any
<PAGE>
other method of allocation that does not take account of the equitable
considerations referred to above in this Section 8(e). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to above in
this Section 8(e) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 8(e), (i) no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts and commissions applicable to the Shares
purchased by such Underwriter, (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation, and (iii) the Selling Shareholder shall not be required to
contribute any amount in excess of the proceeds received by the Selling
Shareholder from the Underwriters in the offering. The Underwriters'
obligations in this Section 8(e) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(f) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having jurisdiction
over any other contributing party, agrees that process issuing from such court
may be served upon him or it by any other contributing party and consents to the
service of such process and agrees that any other contributing party may join
him or it as an additional defendant in any such proceeding in which such other
contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses
for which an indemnified party is entitled to indemnification or contribution
under this Section 8 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred,
except as provided in Section 8(d). A successor to any Underwriter, or to the
Company, its directors or officers, or any person controlling the Company, shall
be entitled to the benefits of the indemnity, contribution and reimbursement
agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Shares
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company or the
Selling Shareholder), you, as Representatives of the Underwriters, shall use
your reasonable efforts to procure within 48 hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company and the
Selling Shareholder such amounts as may be agreed upon and upon the terms set
forth herein, the Firm Shares or Option Shares, as the case may be, which the
defaulting Underwriter or Underwriters failed to purchase. If during such 48
hours you, as such Representatives, shall not have procured such other
Underwriters, or any others, to purchase the Firm Shares or
<PAGE>
Option Shares, as the case may be, agreed to be purchased by the defaulting
Underwriter or Underwriters, then (a) if the aggregate number of shares with
respect to which such default shall occur does not exceed 15% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Shares or Option Shares, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Shares or Option Shares,
as the case may be, which such defaulting Underwriter or Underwriters failed to
purchase, or (b) if the aggregate number of shares of Firm Shares or Option
Shares, as the case may be, with respect to which such default shall occur
exceeds 15% of the Firm Shares or Option Shares, as the case may be, covered
hereby, the Company and the Selling Shareholder or you as the Representatives
of the Underwriters will have the right, by written notice given within the
next 48-hour period to the parties to this Agreement, to terminate this
Agreement without liability on the part of the non-defaulting Underwriters or
of the Company or of the Selling Shareholder except to the extent provided in
Section 8 hereof. In the event of a default by any Underwriter or Underwriters,
as set forth in this Section 9, the Closing Date or Option Closing Date, as the
case may be, may be postponed for such period, not exceeding seven days, as
you, as Representatives, may determine in order that the required changes in
the Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section 9
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, or telecopied and
confirmed as follows:
If to the Representatives: With a copy to:
-------------------------- ---------------
D.A. Davidson & Co. Stoel Rives LLP
8 Third St. North 600 University Street
Davidson Building Suite 3600
Great Falls, Montana 59403 Seattle, Washington 98101-3197
Attention: Mark J. Semmens Attention: Christopher J. Voss
Facsimile: 406-791-7315 Facsimile: 206-386-7500
If to the Company or the Selling With a copy to:
Shareholder:
-------------------------------- ---------------
Jore Corporation Van Valkenberg Furber Law Group
45000 Highway 93 South 1325 Fourth Avenue, Suite 1200
Ronan, Montana 59864 Seattle, Washington 98101
<PAGE>
Attention: David H. Bjornson Attention: William E. Van Valkenberg
Facsimile: 406-676-8400 Facsimile: 206-464-2857
Any such notice shall be effective, in the case of deliver, at the time
of delivery, and in the case of mail or telecopier, at the time of dispatch.
11. TERMINATION.
This Agreement may be terminated by you by notice to the Sellers as
follows:
(a) at any time prior to the Closing Date if any of the
following has occurred:
(i) the Company or the Selling Shareholder shall
have failed to perform all obligations and satisfy all conditions on their part
to be satisfied or performed hereunder at or prior to the Closing Date;
(ii) the Company shall have, in the sole
judgment of the Representatives, sustained any material loss or interference
with its business or properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding, or there shall have been any materially
adverse change (including, without limitation, a change in senior management or
control), or constitute a development involving a prospective materially
adverse change, in the condition (financial or otherwise) of the Company or the
earnings, business, management, properties, assets, rights, operations or
prospects of the Company, except in each case as described in or contemplated
by the Prospectus (exclusive of any amendment or supplement thereto), and such
event singly or together with any other event makes it, in the sole judgment of
the Representatives, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus;
(iii) any outbreak or escalation of hostilities or
declaration of war or national emergency or other national or international
calamity or crisis or material adverse change in economic or political
conditions if the effect of such outbreak, escalation, declaration, emergency,
calamity, crisis or material adverse change on the financial markets of the
United States would, in your reasonable judgment, materially impair the ability
to market the Shares or to enforce contracts for the sale of the Shares;
(iv) suspension of trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market or
limitation on prices (other than limitations on hours or numbers of days of
trading) for securities on such Exchange or Market;
(v) the suspension of trading of the Company's
Common Stock by
<PAGE>
the Commission on the Nasdaq Stock Market or in any over-the-counter market;
(vi) the enactment, publication, decree or other
promulgation of any statute, regulation, rule or order of any court or other
governmental authority which, in your opinion, materially and adversely affects
or may materially and adversely affect the business or operations of the
Company;
(vii) declaration of a banking moratorium by
federal, New York or Montana authorities;
(viii) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which, in your
opinion, has a material adverse effect on the securities markets in the United
States;
(b) as provided in Section 6 of this Agreement; or
(c) as provided in Section 9 of this Agreement.
Termination of this Agreement pursuant to this Section 11 shall be without
liability of any party to any other party except for the liability of the
Company and the Selling Shareholder in relation to expenses as provided in
Section 5 hereof, the indemnity provided in Section 8 hereof and any liability
arising before or in relation to such termination.
12. SUCCESSORS.
This Agreement shall inure to the benefit of and shall be binding upon
the several Underwriters, the Company, the Selling Shareholder and their
respective successors and legal representatives, and nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any other
person any legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person, except that (i)
the indemnities of the Company and the Selling Shareholder contained in Section
8 hereof shall also be for the benefit of any person or persons who control any
Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act; and (ii) the indemnities of the Underwriters contained in Section
8 hereof shall also be for the benefit of the directors of the Company, the
officers of the Company who have signed the Registration Statement, the Selling
Shareholder and any person or persons who control the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act. No purchaser of
Shares from any Underwriter shall be deemed a successor because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
<PAGE>
The Company, the Selling Shareholder and the Underwriters acknowledge
and agree that the only information furnished or to be furnished by any
Underwriter to the Company for inclusion in any Prospectus or the Registration
Statement consists of the information set forth in the second paragraph on the
front cover page, legends required by Item 502(d) of Regulation S-K under the
Act and the information under the caption "Underwriting" (to the extent that
such information relates to the Underwriters) in the Prospectus.
14. MISCELLANEOUS.
Time shall be of the essence of this Agreement.
It is the desire and intent of the parties that the provisions of this
Agreement be enforced to the fullest extent permissible under the law and public
policies applied in each jurisdiction in which enforcement is sought.
Accordingly, in the event that any provision of this Agreement would be held in
any jurisdiction to be invalid, prohibited or unenforceable for any reason, such
provision, as to such jurisdiction, shall be ineffective, without invalidating
the remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Shares under
this Agreement.
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.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Montana.
<PAGE>
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Selling Shareholder, the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
JORE CORPORATION
By: ___________________________________
Matthew B. Jore
President
SELLING SHAREHOLDER
---------------------------------------
Merle B. Jore
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT INC.
FIRST SECURITY VAN KASPER
As Representatives of the several
Underwriters listed on Schedule I
By: D.A. Davidson & Co.
By:___________________________
Authorized Officer
<PAGE>
VOTING TRUST AGREEMENT
This Voting Trust Agreement ("Agreement") is by and between Rick Jore, Roger
Jore, Roxanne L. Cote and Maxine E. Schneider, all being shareholders
("Shareholders") of Jore Corporation, a Montana corporation ("Corporation"),
and any other persons who may become shareholders of the Corporation
subsequent to the date hereof and who elect to join herein, and Matthew B.
Jore in his capacity as trustee hereunder (the "Trustee").
RECITALS
A. Each Shareholder owns shares of the common stock, no par value per
share ("Common Stock"), of the Corporation, with each Shareholder's ownership
representing a proportion of the issued and outstanding shares of the
Corporation's Common Stock as indicated in Exhibit A attached hereto; and
B. In order to promote the effective management of the Corporation and
ensure the stability and continuity thereof, and to consolidate the vote of
the shares of Common Stock into a clear and definite policy under the
direction of the Trustee;
NOW, THEREFORE, it is hereby agreed and declared as follows:
1. CREATION, DURATION AND TERMINATION OF TRUST. There is hereby
created, for the purposes herein expressed, a trust for benefit of the
Shareholders, to be known as "The Jore Corporation Voting Trust", and the
Trustee may transact all affairs of the trust in such name. This trust shall
be effective as of the 30th day of June, 1997, and shall continue until June
30, 2007, unless earlier terminated in accordance with the terms of this
Agreement. This Agreement may be terminated by the mutual consent of the
Shareholders and the Trustee, and by the occurrence of any event which,
consistent with the terms of the Jore Corporation Shareholders' Agreement,
dated June 30, 1997 (the "Shareholders' Agreement"), reduces the number of
shareholders of the Corporation to one.
Upon the termination of the trust, the Trustee shall, upon the surrender
of the voting trust certificates by the respective holders thereof, assign
and transfer to them the number of shares of Common Stock represented thereby.
2. EXCHANGE OF CERTIFICATES. The Shareholders agree to deliver to the
Trustee certificates representing all shares of Common Stock owned by the
Shareholders, duly endorsed (or accompanied by duly endorsed stock powers)
for transfer and agree to take all actions necessary for the transfer to the
Trustee of their shares of Common Stock. The Trustee agrees that he will
cause the certificates representing the shares of Common Stock delivered
hereunder to be transferred on the books of the Corporation into the name of
the Trustee acting in his capacity as such. The Trustee
- -------------------------------------------------------------------------------
JORE/ESTATE/VOTING CERTIFICATES/VOTING TRUST AGREEMENT PAGE 1
<PAGE>
agrees to issue and deliver to each Shareholder a Voting Trust Certificate in
the form attached hereto as Exhibit A ("Voting Trust Certificate"), which
shall evidence receipt by the Trustee of the certificates representing shares
of Common Stock pursuant to the terms of this Agreement. Voting Trust
Certificates shall be subject to the restrictions on the transferability
thereof contained in the Shareholders' Agreement. The Trustee shall keep a
list of the shares of Common Stock transferred to him and shall keep a record
of the name, address and beneficial interest of the holders of Voting Trust
Certificates issued hereunder. Such list and record shall be open at all
reasonable times to the inspection of the holders of Voting Trust
Certificates. A copy of this Agreement shall be available for inspection at
the registered office of the Corporation during the existence of the trust,
and certificates issued to the Trustee in his capacity as such shall bear a
legend reflecting the existence of the trust created hereby.
3. AGREEMENTS OF TRUSTEE. The Trustee agrees to hold the shares of
Common Stock transferred to him hereunder in trust for the common benefit of
the Shareholders, all in accordance with the terms and conditions of this
Agreement.
4. POWERS AND RIGHTS OF TRUSTEE. The Shareholders, in conveying legal
title to the shares of their Common Stock to the Trustee, agree that by
virtue of his control of such stock during the term of and pursuant to this
Agreement, the Trustee shall be the sole possessor of the following
Shareholders' rights with respect to such shares, subject to the other
provisions of this Agreement:
(a) the right to vote the Common Stock in person or by nominee,
agent, attorney-in-fact or proxy at all meetings of shareholders and any
adjournments thereof;
(b) the right to participate in, consent to, or ratify any
corporate or shareholders' action;
(c) the right to become financially interested in any matter or
transaction to which the Corporation or any entity subsidiary to, controlled
by, or affiliated with the Corporation may be a party, and the right to
contract with or become financially interested in any entity subsidiary to,
controlled by or affiliated with the Corporation as fully and freely as
though the Trustee was not the Trustee hereunder;
(d) the right to dissolve the Corporation, or to merge or
consolidate it with another corporation or corporations;
(e) the right to amend the Articles of Incorporation or Bylaws of
the Corporation; and
(f) the right to sell substantially all the assets of the
Corporation, whether or not in the ordinary course of business.
The Shareholders shall retain all rights to dividends, other
distributions and/or rights
- -------------------------------------------------------------------------------
JORE/ESTATE/VOTING CERTIFICATES/VOTING TRUST AGREEMENT PAGE 2
<PAGE>
to the assets of the Corporation upon liquidation of the shares of Common
Stock subject to this trust, subject to the provisions of Section 5 hereof.
It shall be the duty of the Trustee, and he shall have full power and
authority, and he is hereby fully empowered and authorized, to represent the
holders of the Voting Trust Certificates and the Common Stock transferred to
the Trustee as foresaid, and to vote the Common Stock, as in judgment of the
Trustee may be for the best interest of the Corporation, at all meetings of
the shareholders of the Corporation, in the election of directors and upon
any and all matters and questions which may be brought before such meetings or
be presented for action by written consent, as fully as any Shareholder might
do if personally present.
The Trustee, in accepting legal title to the Common Stock deposited
pursuant to this Agreement, agrees to exercise his best judgment in the
interest of the Corporation, to assure propers, stable, and continuous
management of the affairs of the Corporation, but the Trustee is not
responsible for the acts of the directors and officers of the Corporation
whether or not taken pursuant to the vote or consent of the Trustee as
shareholder, or whether ratified afterwards by the Trustee as shareholder.
The Turstee, may, in his discretion, notice and call a meeting to obtain
instructions regarding the voting of the Common Stock upon any question to be
considered at a shareholders' meeting. If the Trustee calls such a meeting
of the holders of Voting Trust Certificates, the Trustee shall be bound to
vote the stock in accordance with the unanimous vote of the holders of Voting
Trust Certificates representing all of the voting power of Common Stock
deposited with the Trustee pursuant to this Agreement or to abstain from
voting thereon if there is no such unanimous consent.
The Trustee does not have the right, power or authority, directly or
indirectly, to sell, pledge, assign, hypothecate, encumber, give, convey,
transfer (whether voluntarily or involuntarily, by operation of law or
judicial decree), mortgage or otherwise dispose of any of the Voting Trust
Certificates (or any interest thereon) or any of the Common Stock (or any
interest therein) deposited in trust except as provided by this Agreement and
the Shareholders' Agreement.
5. DIVIDENDS. The Trustee shall collect and receive all dividends and
distributions that may accrue upon the shares subject to this trust, and,
subject to deduction as provided in the following paragraph, shall divide the
same among the Voting Trust Certificate holders in proportion to the number
of shares of Common Stock represented by their respective Voting Trust
Certificates.
6. TRUSTEE'S INDEMNITY. The Trustee shall be entitled to be fully
indemnified out of the dividends coming into his hands against all costs,
charges, expenses and other liabilities properly incurred by him in the
exercise of any power conferred upon him by this Agreement; and the
Shareholders, and each of them, hereby covenant with the Trustee that in the
event of the moneys and securities in his hands being insufficient for that
purpose the Shareholders and each of them will in proportion to the amounts
of their respective shares of Common Stock save harmless and keep indemnified
the Trustee of and from all loss or damage which he may sustain or suffer by
reason of anything he may lawfully do in the execution of this trust.
- -------------------------------------------------------------------------------
JORE/ESTATE/VOTING CERTIFICATES/VOTING TRUST AGREEMENT PAGE 3
<PAGE>
7. SUCCESSOR TRUSTEES. In the event that the Trustee dies, resigns,
refuses or becomes unable to act, the Trustee (or his legal representative)
shall appoint a successor trustee to fill the vacancy, and any person so
appointed shall thereupon be vested with all the duties, powers, and
authority of a Trustee hereunder as if originally named herein. If the
Trustee (or his legal representative) fails to appoint a successor trustee
within thirty (30) calendar days of such death, resignation, refusal or
inability to act, the Shareholders agree that Michael Jore shall be deemed
appointed successor trustee until such a time as the Trustee (or his legal
representative) shall designate a successor trustee.
8. INSPECTION OF AGREEMENT. A duplicate of this Agreement shall be
filed with the Secretary of the Corporation and shall be open to inspection
by any shareholder, the holder of a Voting Trust Certificate or the agent of
either upon the same terms as the record of shareholders of the Corporation
is open to inspection.
9. CAPTIONS. Titles of the sections hereof are placed herein for
convenience of reference only and shall be accorded no substantive
significance in the construction of this Agreement.
10. WORDS AND GENDER OR NUMBER. As used herein, unless the context
clearly indicates the contrary, the singular number shall include the plural,
the plural the singular, and the use of any gender shall be applicable to all
genders.
11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be taken to be an original, but all of
which together shall constitute one and the same instrument.
12. SEVERABILITY. In the event any portion of this Agreement is found
to be invalid, the remaining provision of this Agreement shall nevertheless
be binding with the same effect as though the invalid provisions had not been
contained herein.
13. AMENDMENT AND WAIVER. To the extent permitted by law, this
Agreement may be amended or modified in writing executed in the same manner
as this Agreement. No waiver of any provisions of this Agreement shall be
valid unless in writing and signed by the person or party against whom
charged.
14. APPLICABLE LAW. This Agreement shall be subject to and governed by
the laws of the State of Montana.
- -------------------------------------------------------------------------------
JORE/ESTATE/VOTING CERTIFICATES/VOTING TRUST AGREEMENT PAGE 4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement this 30th
day of June, 1997.
SHAREHOLDERS:
/s/ Michael W. Jore
---------------------------------------
Michael W. Jore
/s/ Rick D. Jore
---------------------------------------
Rick D. Jore
/s/ Roger D. Jore
---------------------------------------
Roger D. Jore
/s/ Roxanne L. Cote
---------------------------------------
Roxanne L. Cote
/s/ Maxine E. Schneider
---------------------------------------
Maxine E. Schneider
TRUSTEE:
/s/ Matthew B. Jore
---------------------------------------
Matthew B. Jore
- -------------------------------------------------------------------------------
JORE/ESTATE/VOTING CERTIFICATES/VOTING TRUST AGREEMENT PAGE 5
<PAGE>
JORE CORPORATION VOTING TRUST
DETAILS OF SHARES HELD
<TABLE>
<CAPTION>
Voting Trust
Date # Shares Beneficiary Certificate #
<S> <C> <C> <C>
06/30/97 160.00 Mike JC-5
160.00 Rick JC-1
160.00 Roger JC-2
160.00 Roxanne JC-3
160.00 Maxine JC-4
800.00
01/01/98 66.67 Kari Gilge JC-11
66.67 Angie Jore JC-11
66.67 Nicole Jore JC-11
66.67 Rikke Jore JC-11
66.67 Benjamine Jore JC-11
66.67 Roger D. Jore JC-11
66.67 Justin Jore JC-11
66.67 Colt Jore JC-11
66.67 Michelle Cote JC-11
66.67 Tanya Cote JC-11
66.67 Rocky Cote JC-11
733.33
01/01/98 66.67 Rick JC-6
66.67 Roger JC-7
66.67 Mike JC-8
66.67 Roxanne JC-9
66.67 Maxine JC-10
333.33
01/01/98 7716.67 Mike JC-12
3273.35 Merle JC-16
10990.02
01/01/96 694.44 Rick JC-13
694.44 Roger JC-14
694.44 Mike JC-15
694.44 Roxanne JC-16
694.44 Maxine JC-17
3472.22
10/01/98 278.26 Mike JC-19
278.26 Rick JC-20
278.26 Roger JC-21
278.26 Randy JC-22
278.26 Perry JC-23
1391.30
TOTAL 17720.20
</TABLE>
<PAGE>
EXHIBIT A
THE JORE CORPORATION VOTING TRUST
LIST OF SHAREHOLDERS AND SHAREHOLDER OWNERSHIP
<TABLE>
<CAPTION>
Shareholder Name Shares Owned Ownership Interest
- ---------------- ------------ ------------------
<S> <C> <C>
Michael W. Jore 160 shares .4%
Rick D. Jore 160 shares .4%
Roger D. Jore 160 shares .4%
Roxanne L. Cote 160 shares .4%
Maxine E. Schneider 160 shares .4%
TOTAL 800 shares 2.00%
</TABLE>
- -------------------------------------------------------------------------------
JORE/ESTATE/VOTING CERTIFICATES/VOTING TRUST AGREEMENT PAGE 6
<PAGE>
VOTING TRUST CERTIFICATE
FOR SHARES OF COMMON STOCK
OF JORE CORPORATION
CERTIFICATE NO. JC-1
The undersigned, voting trustee ("Trustee") of the common stock, no par
value ("Common Stock"), of Jore Corporation, a Montana corporation
("Corporation"), under a Voting Trust Agreement ("Agreement") dated June 30,
1997, having received one hundred sixty (160) shares of Common Stock from
Rick D. Jore, pursuant to the Agreement, hereby certifies that he or she (i)
is the registered beneficial owner of one hundred sixty (160) shares of
Common Stock, (ii) will be entitled to receive a certificate representing one
hundred sixty (160) fully paid and nonassessable shares of Common Stock on
the expiration or termination of the Agreement, and (iii) prior to expiration
or termination of the Agreement, will be entitled to receive any payments
made by the Corporation in respect of such Common Stock which are received by
the Trustee.
Under the terms of the Agreement (i) the voting trust will expire on
June 30, 2007, unless sooner terminated in accordance with the provisions
thereof, and (ii) the Trustee possesses the sole right to vote the shares of
Common Stock exchanged for this Voting Trust Certificate as the legal and
record owner thereof, subject to the provisions of Section 4 of the Agreement.
BY AGREEMENT AMONG THE CORPORATION AND ITS SHAREHOLDERS, RESTRICTIONS
HAVE BEEN PLACED UPON THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE. THE CORPORATION WILL FURNISH TO THE HOLDER OF THIS CERTIFICATE,
WITHOUT CHARGE UPON WRITTEN REQUEST TO THE CORPORATION AT ITS PRINCIPAL PLACE
OF BUSINESS OR REGISTERED OFFICE, A COPY OF SUCH AGREEMENT.
By acceptance hereof, the holder of this Voting Trust Certificate
accepts, ratifies and agrees to be bound by the terms of the Agreement. A
copy of the Agreement will be furnished to the holder hereof without charge
on the receipt by the Corporation of a written request therefor at its
registered office or principal place of business. The shares of Common Stock
issued in the name of Trustee pursuant to the Agreement shall bear a legend
reflecting the existence of such Agreement.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT
OF 1933 OR AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION IS
NOT REQUIRED.
Dated: June 30, 1997
TRUSTEE
/s/ Matthew B. Jore
-------------------------------
Matthew B. Jore, Trustee
<PAGE>
EXHIBIT 10.4
CERTAIN INFORMATION HAS BEEN OMITTED FROM EXHIBIT 10.4. THIS EXHIBIT 10.4 AS
INDICATED BY '***,' PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS
BEEN FILED SEPARATELY WITH THE COMMISSION.
EXCLUSIVE SUPPLY AGREEMENT
--------------------------
This agreement ("Agreement") is entered into as of October 1, 1998 (the
"Effective Date"), between Sears, Roebuck and Co., a New York corporation
whose principal offices are at 3333 Beverly Road, Hoffman Estates, Illinois
60179 (Sears"), and Jore Corporation, a Montana corporation whose principal
offices are at 45000 Highway 93 South, Ronan, Montana 59864 ("Jore").
RECITALS
--------
WHEREAS, Jore is engaged in the manufacture and sale of certain tools
and parts therefor;
WHEREAS, Jore represents that it has rights to the trademark SPEED-LOK
(the "Mark") for use with Quick Connector power tool bits and bit drivers;
WHEREAS, Jore (or its principal shareholder) is the owner of all right,
title and interest in and to certain patents (including U.S. Patent No.
5470180), patent applications, unfiled invention disclosures, trade secrets
and/or know how now in existence or hereinafter developed covering the Quick
Connector power tool bits and bit drivers produced by or on behalf of Jore
(the "Patent Rights");
WHEREAS, Sears is engaged in the sale and distribution of a wide range
of products through various distribution channels under various trademarks,
service marks, trade dress and trade names owned by Sears (the "Sears Marks");
WHEREAS, Jore wishes to grant to Sears, and Sears wishes to enjoy,
certain rights to purchase certain products from Jore, including power tool
bits and drivers, and to sell such products throughout the world subject to
the terms of the Agreement; and
WHEREAS, Jore wishes to grant to Sears, and Sears wishes to enjoy, the
exclusive right to sell products using the Mark subject to the terms of this
Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the premises and mutual covenants
of the parties herein contained and other good and valuable consideration,
the receipt of which is hereby acknowledged, the parties agree as follows.
<PAGE>
1. GRANT OF RIGHTS
---------------
Subject to the terms and conditions of the Agreement, Jore hereby
grants to Sears and Sears affiliates and subsidiaries, and those parties set
forth in Exhibit A (the "Purchasing Parties") the following:
(a) SPEED-LOK Trademark
(1) *** Jore grants to Sears the exclusive right to sell
through all channels, including the Internet, products
bearing the SPEED-LOK trademark;
(2) *** Jore grants to Sears a non-exclusive right to
sell through all channels, including the Internet,
products bearing the SPEED-LOK TRADEMARK;
(3) Notwithstanding the above, the parties to this
Agreement understand that ***. Jore agrees to
fully indemnify Sears for any liability which may
arise out of the use of the SPEED-LOK mark pursuant to
this Agreement. In the event Jore incurs liability
due to the superior trademark rights of a third
party, it shall have the right to terminate
Sears' license to use the SPEED-LOK trademark.
(b) Jore Products
(1) *** Jore grants to Sears the exclusive right to
sell, through all channels, including the Internet,
SPEED-LOK products utilizing Quick Connectors (the
"Authorized Products") listed in Exhibit B hereto.
The Authorized Products may be updated from time to
time to include improvements to and new products based
on such SPEED-LOK Quick Connector products;
(2) *** Jore grants to Sears a non-exclusive right to
sell through all channels, including the Internet, the
Authorized Products; and
2
<PAGE>
(3) A license, as described in 1 (b) 1 and 1 (b)
2 above, with respect to new SPEED-LOK
products not listed in the current Exhibit B
for the term of *** years measured from the
date of first shipment, and renewable for
*** year upon agreement by both parties.
2. SUPPLY OF AUTHORIZED PRODUCTS; ANNUAL QUANTITIES
(a) Jore agrees to timely provide the Purchasing Parties the
amounts of the Authorized Products indicated in purchase orders submitted by
the Purchasing Parties to Jore from time to time (such amounts are
hereinafter referred to as the "Sears Orders");
(b) the Purchasing Parties shall collectively purchase a minimum of
*** and *** of products from Jore each year (the "Minimum Annual Purchase").
The products comprising the Minimum Annual Purchase shall include, but are
not limited to, Authorized Products supplied to the Purchasing Parties
pursuant to this Agreement, products counting toward the Minimum Annual
Purchase shall also include products ordered by the Purchasing Parties from
Jore that are not Authorized Products. It is expressly agreed that if the
Minimum Annual Purchase is not met in any year in which this Agreement is in
effect, and/or if the Purchasing Parties submit no purchase orders to Jore in
any year, such failure to meet the Minimum Annual Purchase or to submit
purchase orders shall not be considered a material breach of this Agreement.
Jore's sole and exclusive remedy in such event shall be as set forth in
Section 6 hereof.
(c) Jore must give Sears prompt notice of any anticipated delays in
delivery of, or inability to deliver, the Authorized Products. Subject to
paragraph 14, if Jore (i) is unable to or fails to timely fill the Sears
Orders, (ii) fails to give prompt notice of any anticipated delays or
inability to deliver, or (iii) otherwise breaches any term of this Agreement
which results in Sears not having Authorized Products to sell and such breach
remains uncured after 30 days written notice from Sears, then Sears shall be
deemed to have the right and license (including a license of the Patent
Rights and the Mark) to engage third party manufacturers to produce the
Authorized Products, and apply the Mark thereto, for the Purchasing Parties
to sell, and neither Sears not such third party manufacturers shall be liable
to Jore for any royalties or payment for the exercise of such rights. The
right and license granted in this paragraph 2(c) shall continue until Jore
shall demonstrate, to Sears' reasonable satisfaction, that it is again in
a position to timely supply Authorized Products to Sears. Further, except as
provided in this paragraph 2(c), Sears shall not manufacture or second source
copies of Authorized Products.
3. PRICE
The Prices shall be firm and not subject to change for a period of
***, from the Effective Date of this Agreement. Thereafter Jore may adjust
the Prices no more frequently than once *** as set forth hereafter, but in no
event shall Prices change for purchase orders that have already been
submitted to Jore. Prices are subject to adjustment annually solely to
reflect changes in the cost of the metals which are the primary raw materials
used in the Authorized
3
<PAGE>
Products. The price adjustment, if any, shall be based on the specific raw
material content of the authorized Products. The adjustment shall be equal to
not more than *** of any increase or decrease in the average cost of said raw
materials greater than *** over the prior years' average cost. The "average
cost" shall be calculated by using the prices of said raw materials quoted in
the Wall Street Journal (or similar reliable source acceptable to Sears) on the
first business day of January, April, July and October for the calendar
year preceding the calendar year the adjustment is to take effect. Jore must
notify Sears no later than November 1 of an upward price adjustment to be
effective as of the following January 1. Any increases shall be effective for
orders received on or after January 1 of each year. It is agreed that the
Prices shall not exceed the lowest price charged by Jore to any other
customer for the same or similar products.
4. SALE AND PROMOTION OF AUTHORIZED PRODUCTS
It is expressly agreed that Sears may, in its discretion, in addition to
its use of the Mark, advertise, promote and market the Authorized Products
under the Sears Marks or any other trademark, trade name or other designation
other than the Mark.
5. PRODUCT QUALITY
Jore shall produce the Authorized Products in conformance with its
quality control and any additional requirements requested by Sears in its
reasonable discretion (hereafter "Quality Standards"). Jore shall conduct
such inspection and testing as are necessary to ensure that the Authorized
Products conform with the terms of this Agreement and with the Quality
Standards. Jore may alter the design or specifications of any model of the
Authorized Products or deviate from such design or specifications for the
purpose of improving product quality or safety or to conform to the
requirements of a governmental body or standard setting agency, and Jore may
substitute equivalent materials or components for unavailable materials and
components. Notwithstanding the foregoing, unless previously agreed in
writing by the parties, (i) no alteration or deviation that decreases the
performance qualities of the Authorized Products shall be made unless such
alteration or deviation is necessary to improve the safety of the Authorized
Products or to bring the Authorized Products into conformance with the
requirements of a governmental body or standard setting agency, and (ii) Jore
shall notify Sears in advance in writing of any alterations in the design or
specifications of any Authorized Products and of any changes in materials or
components.
6. FAILURE TO MEET MINIMUM ANNUAL PURCHASE: AUDIT RIGHT
During the term of this Agreement, if the total orders placed for a
calendar year by the Purchasing Parties (the "Total Orders") do not meet or
exceed the Minimum Annual Purchase (the "Required Amount"), than as Jore's
sole and exclusive remedy, it may terminate this agreement after sixty (60)
days written notice from Jore to Sears. Notwithstanding the foregoing, Sears
shall have the right to pay to Jore, as a credit against future purchases,
before the termination of the sixty (60) day written notice term, the amount
by which the Total Orders for the year in question fall short of the Required
Amount and thereby retain its rights under this agreement. Jore shall have no
further
4
<PAGE>
remedies against Sears in the event that the Required Amount is not met. Jore
shall have no rights under this Section 6 if Jore is unable to or fails to
timely supply the amounts stated in the Sears Orders as set forth in Section
2. It is expressly agreed that Jore shall permit Sears to inspect Jore's
relevant sales records at anytime during the term of this Agreement upon two
(2) days notice to determine the quantity of Total Orders from the Purchasing
Parties.
7. QUALITY CONTROL
(a) Sears acknowledges the importance to Jore of its reputation and
goodwill and to the public of maintaining high, uniform standards of quality
in the products sold under the Mark. Sears therefore agrees to maintain and
follow standards of quality as may be set by Jore in Jore's reasonable
discretion from time to time with respect to advertising and marketing using
the Mark or manufacture by third parties pursuant to paragraph 2(e). To
determine whether Sears is complying with this Agreement and the quality
standards set forth herein, Jore shall have the right to request samples of
Sears use of the Mark for inspection. Sears agrees to cooperate with Jore for
purposes of such inspection.
(b) Jore acknowledges the importance to Sears of Sears reputation
and goodwill and to the public of maintaining high, uniform standards of
quality in the products sold under the Sears Marks. Jore therefore agrees to
maintain and follow standards of quality as may be set by Sears in Sears
reasonable discretion from time to time with respect to packaging of the
Authorized Products using the Sears Marks. In addition, Jore agrees to obtain
prior written approval from Sears for any proposed packaging and/or labeling
incorporating any Sears Marks before using such packaging and/or labeling.
8. RIGHT OF FIRST REFUSAL
Jore agrees that before it enters an agreement, pursuant to a bona fide
offer, to sell or transfer (i) the Patent Rights, or (ii) the Mark (items
(i) and (ii) being collectively referred to as the "Authorized Product
Rights") to a third party, Jore will offer to Sears, in writing, a sixty (60)
day option (the "Initial Option") to purchase such Authorized Product Rights
from Jore on substantially the same terms and for the same consideration as
Jore is willing to sell or transfer such Authorized Product Rights to such
third party subject only to any bona fide security interests. Jore agrees
that if Jore further negotiates with such third party after the Initial
Option expires and if such negotiations result in Jore offering such third
party the opportunity to purchase any Authorized Product Rights on terms
more favorable to such third party (the "Revised Terms"), before entering a
binding agreement with such third party, Jore shall again offer to Sears, in
writing, a sixty (60) day option to purchase such Authorized Product Rights
from Jore on substantially the same terms and for the same consideration as
contained in the Revised Terms. In the event that Sears does not exercise its
option rights under the Section 8, Jore may sell the Authorized Product
Rights only on terms no more favorable than the terms previously offered to
Sears.
5
<PAGE>
9. ENFORCEMENT OF RIGHTS
(a) Jore retains the exclusive right to take action at its own
expense, against third party infringements or apparent infringements,
including past infringements of the Patent Rights and/or the Mark.
(b) Sears shall notify Jore of any third party infringements or
apparent infringements of the Patent Rights and/or the Mark, of which Sears
has any actual knowledge or notice.
(c) with respect to any such infringement actions taken against
third party infringements or apparent infringements, Jore and Sears shall
cooperate fully, with good faith and due diligence in prosecuting and
settling such infringement claims.
(d) In the event of any recovery or settlement, Jore shall be
entitled to reimbursement of its expenses, and Sears shall be entitled to
expenses, and the balance of any recovery shall belong to Jore.
(e) At all times during which Sears has exclusive rights under
Section 1(a) hereof, if Jore does not promptly act to stop a third party
infringement, Sears may, at its election, terminate pursuant to paragraph
10(b) hereof.
10. TERM AND EARLY TERMINATION
(a) Unless otherwise terminated pursuant to the provisions of this
Section 10, this Agreement shall remain in full force and effect for the
period commencing on the Effective Date and ending at the close of business
five (5) years thereafter, and shall automatically renew for consecutive one
year terms thereafter unless Sears gives written notice of cancellation at
least sixty (60) days prior to the end of any such term.
(b) In the event that either party fails to comply with any of the
provisions hereof, the non-defaulting party shall notify the defaulting party
in writing of such failure and the defaulting party shall have twenty (20)
calendar days in which to take corrective action. In the event that such
correction is not timely made to the reasonable satisfaction of the
non-defaulting party, the non-defaulting party may, at its option, elect to
terminate this Agreement.
(c) Notwithstanding any other provision hereof to the contrary,
either party may terminate this Agreement immediately if any other party
becomes insolvent; admits in writing its insolvency or its inability to pay
its debts as they become due; is unable to, or does not, pay its debts as
they become due; makes or proposes an assignment for the benefit of
creditors; convenes or proposes to convene a meeting of its creditors, or any
class thereof, for purposes of effecting a moratorium upon or extension or
composition of its debts; proposes any such moratorium, extension or
composition; commences or has filed against it any bankruptcy, reorganization
or insolvency proceedings, or any other proceeding under the applicable law
for the relief of debtors, provided,
6
<PAGE>
in the case of any proceeding filed against such party, that the proceeding
is not dismissed within thirty (30) days after the commencement thereof; or
any receiver, trustee or custodian is appointed to take possession of, or any
levy or execution is placed upon, all or any substantial portion of the
assets of such party, and such receiver, trustee, custodian, execution or levy
is not released or discharged within ten (10) days after the appointment,
execution or levy; and the terminating party shall have such additional
remedies for default as may be available at law or in equity regardless of
whether it terminates this Agreement.
11. INTEGRATION
-----------
This Agreement, including the Universal Terms and Conditions previously
signed by the parties (attached hereto as Exhibit C), is intended as the
complete, final and exclusive statement of the terms of the agreement between
Jore and Sears with relation to the subject matter hereof, and supersedes all
prior oral and written agreements, understandings, commitments and practices
between the parties. In the event of a conflict between the terms of the
Agreement and the Universal Terms and Conditions, the terms of this Agreement
shall control.
12. AMENDMENTS
----------
Except as otherwise expressly provided herein or in the Universal Terms
and Conditions, no modification to or amendment of the Agreement may be made
except in a writing signed by both parties.
13. INDEPENDENT CONTRACTOR RELATIONSHIP
-----------------------------------
The relationship created hereunder shall be that of seller-purchaser.
Jore and Sears shall be independent contractors hereunder, and this Agreement
does not create in any manner or for any purpose whatsoever an
employer-employee or a principal-agent relationship between Jore and Sears.
14. FORCE MAJEURE
-------------
Neither of the Parties shall be liable for delay in the performance of
the Agreement arising from any of the following matters: (a) acts of God, or
public enemy or war; (b) acts of government, or regulations or restrictions
imposed by law or by court action; (c) acts of persons engaged in subversive
activities or sabotage; (d) fires, floods, explosions, or other catastrophes;
(e) epidemics or quarantine restrictions; (f) freight embargoes, or
interruptions of transportation; or (g) strikes, labor stoppages or other
industrial actions; and the time for performance by any party so affected
shall be extended by the period of any such delay.
7
<PAGE>
15. NO ASSIGNMENT OF RIGHTS
-----------------------
On and after the date of this agreement Jore shall not assign or grant a
security interest in any Authorized Product Rights relating to the Authorized
Products, without the express written consent of Sears. As of the date of
this agreement the only assignments or security interests in the Authorized
Products Rights are set forth in Exhibit D hereto.
16. NOTICES
-------
All notices required or permitted to be given hereunder shall be given
in writing and shall be sent by certified or registered mail (postage
prepaid), express courier or facsimile with mail confirmation. Notice to:
Seller shall be addressed at: Jore Corporation
45000 Highway 93 South
Ronan, Montana 59864
Attention: Matthew Jore
Purchaser shall be addressed at: Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, Illinois 60179
Attention: Jim Tessier
with copy to: Sears, Roebuck and Co.
3333 Beverly Road
Hoffman Estates, Illinois 60179
Attention: Law Department
Such notices shall take effect upon receipt by the party being notified;
provided, however, that such notice shall be deemed to have been received
upon the expiration of (i) ten days from the date of posting, or (ii) 48
hours from the time of facsimile transmission.
17. CONSTRUCTION OF AGREEMENT
-------------------------
It is understood that this agreement shall not be construed as an
assignment of the Mark nor of the Patent Rights from Jore to Sears.
8
<PAGE>
IT WITNESS WHEREOF, the parties have executed and delivered this
Agreement, in one or more counterparts, as of the Effective Date, by their
respective duly authorized officers.
JORE CORPORATION SEARS, ROEBUCK AND CO.
By: /s/ Michael Jore By: Robert L. Mettler
------------------------------- ---------------------------------
Name: Name: Robert L. Mettler
-------------------------- ----------------------------
Title: Title: President, Merchandising
-------------------------- ----------------------------
Full Line Stores
9
<PAGE>
EXHIBIT A
PURCHASING PARTIES
Sears Full Line Stores
Sears Hardware Stores
Orchard Supply Hardware
Orchard Hardware & Garden
Sears Dealers Stores
Parts America Stores
Sears Service Centers
Sears Canada
Sears Mexico
Catalog
QVC
Industrial Sales
Direct Response TV
Sears Website
Sears International Marketing, Inc.
10
<PAGE>
EXHIBIT B
CURRENT LIST OF AUTHORIZED PRODUCTS
26172 SPEED-LOK Drill Bit/Compact Screwdriver Set
26173 SPEED-LOK Drill Bit w/Driver Combo
26174 SPEED-LOK D/DR Combo w/Power Screwdriver Set
26177 SPEED-LOK Power Bit Set
26199 SPEED-LOK 7/16" Quick Connector
26205 SPEED-LOK 1/4" Quick Connector
26269 SPEED-LOK 4 Pc Drill Bit Set w/Quick Connector 7/16" Shank
26178 SPEED-LOK 30-piece High Torque Set with Quick Connector
26183 SPEED-LOK 6-piece Woodboring Set with Quick Connector
26184 SPEED-LOK 7-piece Masonry Set with Quick Connector
11
<PAGE>
EXHIBIT C
UNIVERSAL TERMS AND CONDITIONS
ATTACHMENT
12
<PAGE>
March 5, 1996
All Vendors of Sears, Roebuck and Co.
Re: UNIVERSAL TERMS AND CONDITIONS
Dear Sears Trading Partner:
It is Sears policy to obtain written agreements with all of its vendors
that set out the terms and conditions governing their relationships with
Sears. This policy ensures that vendors understand Sears expectations and
requirements. In addition, it helps Sears fulfill its commitment to purchase
quality merchandise that is safe and complies with Sears specifications and
with the laws of the United States and other countries where merchandise is
produced and delivered.
Attached is a copy of Sears Universal Terms and Conditions which sets
forth the basic terms and conditions to which every Sears vendor must agree.
The Universal Terms and Conditions replaces the "boiler plate" printed on
Sears form contracts. The following are some of the features of the Universal
Terms and Conditions:
- There are no references to price or quantity of merchandise, rather
these are "generic" terms and conditions that apply with every vendor
relationship and supplement other agreements and documents. It is
anticipated that vendors and Sears buyers will also negotiate separate
purchase orders, specification sheets or other documents with specific
commitments relating to the respective merchandise and relationship.
- There is no term or limit. Once executed, these terms remain in effect
for all purchases between the parties. However, if the vendor is
purged from Sears system due to inactivity, a new Universal Terms and
Conditions must be executed before an order may be placed with such
vendor.
We are requesting that you sign and return two (2) copies of this document in
order do business with Sears. Upon receipt, Sears will execute and return one
(1) copy back to you.
If you have any questions regarding the Universal Terms and Conditions
or the process described above, please call your Sears buyer contact.
Sincerely,
/s/ David L. Giomerri
---------------------
David L. Giomerri
Vice President
<PAGE>
SEARS CODE OF CONDUCT
- --------------------------------------------------------------------------------
Sears, Roebuck and Co. associates are required to follow the Sears Code of
Business Conduct. As a Sears vendor/source you are expected to support the
proper business conduct. The complete Code can be found in the Vendor
Information Guide (call 1-800-HELP510, if you do not have a copy).
The following areas are key to Sears relations with vendors:
1. Sears associates may not accept free travel on a vendor's aircraft. Sears
will reimburse the vendor for the cost of travel.
2. Sears associates must charge Sears for their travel and lodging expenses.
3. Sears associates may not accept gifts in excess of $25.00.
4. Acceptance of vehicles, appliances, other merchandise or the free use of
such items from an individual or organization that conducts business or
seeks to do business with Sears is clearly improper.
5. Hospitality which may include meals, sporting events, or conference
facilities provided in the context of bona fide business meetings that
are customary in the trade are acceptable and permitted.
Sears associates are not permitted to accept anything of value offered to
them in an attempt to influence their business judgment.
If you are being influenced to violate these or any other ethical issue, you
are to call our Ethics Assist Line 1-800-8ASSIST, Resolutions Manager
708-286-6030, Policy Manager 708-286-3131, or the VP of Policy and Ethics
708-286-2902.
As a vendor for Sears, Roebuck and Co., we agree to the spirit of Sears Code
of Conduct and promise to report to Sears any violation or attempt to violate
this code.
JORE CORPORATION
----------------------------------------
Name of Vendor
By MIKE JORE - VICE PRESIDENT
--------------------------------------
Name and Title
45000 HWY 93 S RONAN, MT 59864
----------------------------------------
Address
6/21/96
----------------------------------------
Date
- --------------------------------------------------------------------------------
<PAGE>
UNIVERSAL TERMS AND CONDITIONS
The terms and conditions contained herein ("Agreement") shall be effective
for all merchandise sold by the undersigned vendor ("Seller") to Sears,
Roebuck and Co. ("Sears") and shipped on or after , 199 . This
Agreement shall supersede all other agreements, communications and
understandings between the parties that are inconsistent with the terms
hereof. Nothing contained herein shall be construed as a commitment by Sears
to purchase, or by the Seller to supply, any quantity of merchandise.
Seller and Sears hereby agree as follows:
DEFINITIONS - The following terms as in this Agreement herein shall have the
meanings described below:
- The term "Merchandise" shall mean the goods provided to Sears by Seller,
including all packaging, tags, labels, hangers and containers used in
connection therewith, all parts relating to such goods provided to Sears
and all literature (including owner manuals and training materials)
pertaining to such goods, if applicable, whether or not any of such
items are set forth separately on invoices to Sears.
- The term "Purchase Order" shall mean any written or electronic order for
specified quantities of Merchandise at stated prices; any written
agreement for selling assistance or payments to be provided by Seller
(including any agreement for advertising, point of sale or promotional
services or funding); and any other written agreements, correspondence
or other documentation between Seller and Sears relating to the purchase
of Merchandise to the extent such documentation is not expressly merged
into or superseded by a written agreement between Sears and Seller
specifying that the terms of this Agreement do not apply; provided that
for purposes of determining all monetary obligations between Sears and
Seller, any Purchase Order which may be issued and accepted shall be
deemed to be a single installment in the partial performance of one and
the same agreement and transaction between Sears and Seller.
- The term "Specification" shall mean all, and any part, of the detailed
description of Merchandise agreed upon by Seller and Sears or contained
in the Vendor Guide (as defined below).
VENDOR INFORMATION GUIDE - All of the terms and conditions contained in the
applicable Sears Vendor Information Guide supplied to Seller by Sears, as it
may be amended from time to time (the "Vendor Guide"), are incorporated by
reference in this Agreement and shall be deemed a part hereof.
CODE OF CONDUCT - Seller acknowledges that Seller is aware of Sears Code of
Business Conduct (as set forth in the Vendor Guide)(the "Code of Conduct")
and that Sears associates are required to follow the Code of Conduct, Seller
shall support the Code of Conduct and shall not take any action which may
cause a Sears associate to violate the Code of Conduct. Seller shall report
to Sears any violation of or attempt to violate the Code of Conduct.
PRICES AND QUANTITIES - Seller shall ship only the quantities of Merchandise
ordered by Sears in the applicable Purchase Order. Seller shall not make any
substitutions without Sears prior written approval. Seller shall bill Sears
for the Merchandise at the price specified in the applicable Purchase Order.
The price shall include all costs of packing Merchandise and all costs of
shipping Merchandise to the "F.O.B. point" or other delivery point specified
in the applicable Purchase Order, including (i) local freight to the "F.O.B.
point" or other delivery point, (ii) all duties and taxes (including excise
and withholding taxes) payable in any country where production or delivery
takes place, (iii) any commissions to selling agents, and (iv) other
incidental charges, whether or not such charges are itemized separately on
invoices to Sears.
ESTIMATES OR FORECASTS - Any estimates or forecasts of Sears future needs for
Merchandise which may be provided to Seller by Sears are for long range
planning purposes only and shall not in any way represent a commitment of
Sears. Sears shall have no responsibility for any actions taken by Seller
based on such estimates or forecasts.
SPECIFICATIONS - All Specifications shall be in writing. By agreeing to
and/or using any Specification or any design, product modification or other
manufacturing or production suggestion, whether originating with Sears or
elsewhere. Seller adopts as its own, accepts full responsibility for, and
relieves Sears of all responsibility for such Specification, design,
modification or suggestion.
PACKAGING, LABELING, SHIPPING AND BILLING - Seller shall be responsible for
providing adequate packaging, tagging, labeling, packing, shipping and
billing. Seller shall comply with all packaging, tagging, labeling, packing,
shipping and billing requirements reasonably requested by Sears and/or
established by applicable laws, regulations, carrier tariffs and
classifications. For Merchandise to be shipped to Sears from a point of
origin within the United States, Seller shall deliver Merchandise to the
designated carrier on or before the "ship date(s)" specified in the
applicable Purchase Order. For Merchandise to be shipped to Sears from a
point of origin outside the United States, Seller shall deliver Merchandise
in accordance with the delivery terms specified in the applicable Purchase
Order, and such delivery shall be made on or before the "ready date(s)"
specified in the Purchase Order. Seller shall ship all Merchandise in full
packs and full shipments in accordance with Sears requirements and Purchase
Order.
RISK OF LOSS - All risk of loss or damage to Merchandise shall remain with
Seller until delivery of such Merchandise in accordance with the delivery or
purchase terms specified by Sears in the applicable Purchase Order.
MANUFACTURING - Upon Sears request, Seller shall provide Sears with specific
information as to the location(s) and method(s) of manufacturing Merchandise.
Seller shall obtain written approval from Sears prior to effecting any
changes in the location(s) or method(s) of manufacturing Merchandise, and
Seller shall be fully responsible for all costs and/or delays resulting from
such changes. Upon reasonable notice and during regular business hours,
Sears, its designated representatives and/or any independent inspectors
approved by Sears may inspect any production facilities at which any
Merchandise or any components or piece goods for Merchandise are being
produced (including any facilities of Seller, its subcontractors and
suppliers) and any and all Merchandise at any stage of production or delivery
(including at the delivery point specified in the applicable Purchase Order).
Sears may require Seller to have Merchandise inspected prior to its shipment
to the United States, such inspection to be ?? at Seller's sole
expense, by an independent inspector approved by Sears. Any inspection, any
documentation thereof, and/or any ?? actions taken by Seller with
respect to any Merchandise shall not be deemed an acceptance of any
Merchandise, or a waiver of any nonconformities or defects in any Merchandise
and shall not excuse any failure by Seller to deliver Merchandise in
accordance with the terms of this Agreement and the applicable Purchase
Orders.
<PAGE>
PARTS - Seller shall sell to Sears and any all parts shown on Merchandise
parts lists for a period of at least ten (10) years after the date such
Merchandise is last produced by Seller, provided, however, that if Seller
discontinues manufacturing or supplying any part shown on any Merchandise
parts list, Seller shall give Sears at least ninety (90) days prior written
notice of such discontinuance and Seller shall promptly fulfill any and all
orders placed by Sears within such 90-day period. The price of parts shall be
specified on the applicable Purchase Orders, but in no event shall Seller
charge Sears a price greater than the lowest price charged by Seller to any
other customer for the same or similar parts sold on substantially similar
terms.
SERVICE - Seller shall provide Sears with all available information relating
to Merchandise, including product specifications, parts lists and all
training materials, service manuals and instructions developed by Seller.
Seller authorizes Sears to reproduce such training materials, service manuals
and instructions without payment of any royalties or other fees to Seller.
Seller authorizes Sears to provide repair and maintenance services for all
Merchandise sold to customers, and Sears may advertise that it is authorized
to provide such services. Sears shall provide such repair and maintenance
services in conformance with reasonable standards and guidelines. Sears may
use independent subcontractors or licensees to provide such repair and/or
maintenance services.
WARRANTIES - Seller represents and warrants that all Merchandise shall (i)
conform to the Specifications for such Merchandise, (ii) be merchantable,
(iii) be free from defects in workmanship, materials and packaging, (iv) be
free from defects in construction and design, (v) be fit and sufficient for
the purpose for which it is intended and/or which is stated on any packaging,
labeling or advertising, and (vi) be equivalent in materials, quality, fit,
finish, workmanship, performance and design to any samples submitted to and
approved by Sears. Seller represents and warrants that all patents,
trademarks, trade names, trade dress, copyrights, trade secrets and other
proprietary rights (other than proprietary rights owned by Sears) used by
Seller in connection with Merchandise and/or the development or manufacture
of Merchandise are owned by Seller or that Seller has been properly
authorized by the owner of such proprietary rights to use such rights in
connection with such Merchandise. The provisions of this Section shall
survive the termination of this Agreement and any other agreements between
the parties relating to Merchandise.
LEGAL REQUIREMENTS - Seller represents and warrants that all Merchandise has
been or shall be produced, packaged, tagged, labeled, packed, shipped and
invoiced in compliance with the applicable requirements of federal, state and
local laws, regulations, ordinances and administrative orders and rules of
the United States and all other countries in which Merchandise is produced or
delivered. In addition, Seller represents and warrants that Seller and all
subcontractors and agents involved in the production or delivery of
Merchandise strictly adhere, and shall continue throughout the term of this
Agreement to strictly adhere, to all applicable laws, regulations and
prohibitions of the United States and all countries in which Merchandise is
produced or delivered with respect to the operation of their production
facilities and their other business and labor practices, including laws,
regulations and prohibitions governing the working conditions, wages, hours
and minimum age of the work force. Seller further represents and warrants
that Merchandise has not been and shall not be produced or manufactured, in
whole or in part, by convict or forced labor. Seller shall provide Sears with
any guaranty of compliance in such form as Sears may designate, with respect
to Merchandise, as required or permitted under any law, rule or regulation of
the United States and any other countries where Merchandise is produced or
delivered.
ANTIDUMPING - Seller warrants that all sales of Merchandise to Sears are or
shall be made at no less than fair value under the United States Antidumping
Law. As long as Merchandise is not subject to a United States antidumping
investigation on the date of this Agreement (as first set forth above),
Seller warrants that it shall indemnify Sears for all antidumping duties
deposited on such Merchandise which is (i) sold prior to the date of
publication of the International Trade Administration's preliminary
determination of sales at less than fair value, and (ii) exported before the
date of publication of the International Trade Administration's final
determination of sales at less than fair value. Seller also warrants that it
shall indemnify Sears for any expenses (including reasonable attorneys' fees)
and administrative costs incurred by Sears in its participation in any United
States antidumping proceeding involving such Merchandise.
ELECTRONIC PROCESSING - Unless otherwise agreed to by Sears, the parties
shall process Purchase Orders and other related documents (including
invoices and ship notices) and installment payments and advances in respect
of all monetary obligations between Sears and Seller electronically, through
electronic data interchange ("EDI"), either directly or through a third party
provider satisfactory to both parties. Each party shall be responsible for
its own costs, including the costs of any provider with which it contracts.
All EDI transactions shall be in accordance with standards approved by the
Accredited Standards Committee X 12 (ASCX12), and in accordance with the
instructions and procedures in the applicable Vendor Guide. Each EDI invoice
(or ship notice, in the absence of an invoice) shall contain an appropriate,
agreed upon code, symbol or statement affirming Seller's compliance with all
applicable requirements of the Fair Labor Standards Act, as amended, and of
the regulations and orders of the United States Department of Labor
issued pursuant thereto. All electronic fund transfers and wire transactions
shall be in accordance with National Automated Clearing House Association
(NACHA) rules, and in accordance with the instructions and procedures
established by Sears from time to time. Neither party shall be liable to the
other for any special, incidental, exemplary or consequential damages arising
from or as a result of any delay, omission or error in the electronic
transmission or receipt of any documents, even if the other party has been
advised of the possibility of such damages.
SEARS IDENTIFICATION - If Sears directs Seller to mark or label any
Merchandise with a trade name, trademark, logo or service mark owned by or
licensed to Sears ("Sears Identification"), such marking or labeling shall be
limited to the indicated quantities of such Merchandise and shall be done in
accordance with Sears specific instructions. Seller shall not sell or
otherwise dispose of any Merchandise bearing any Sears Identification
(including any rejected Merchandise) to anyone other than Sears without first
obtaining Sears express written consent and then removing all Sears
Identification prior to such sale or disposal. Sears may elect, but shall
have no obligation, to purchase from Seller any surplus labels, packaging or
other materials bearing Sears Identification. Seller shall have no interest
or rights in any Sears Identification except as expressly granted in this
Agreement. The provisions of this Section shall survive the termination of
this Agreement and of any other agreements between the parties relating to
Merchandise.
DEFENSE - Seller shall defend all allegations asserted in any claim, action,
lawsuit or proceeding (even though such allegations may be false, fraudulent
or groundless) against Sears and/or its officers, directors, employees,
licensees, agents, distributors and independent contractors which contain any
allegations of liability arising out of any actual or alleged (i)
infringement of any patent, trademark, trade name, trade dress, copyright,
trade secret or other proprietary right in connection with Merchandise, or
any unfair competition involving Merchandise, (ii) death of or injury to any
person, damage to any property, or any other damage or loss, by whomsoever
suffered, resulting or claimed to have resulted in whole or in part from any
actual or alleged defect in Merchandise, whether latent or patent, including
actual or alleged improper construction and/or design of Merchandise.
<PAGE>
or actual or alleged failure of Merchandise to comply with any specifications
or samples or with any express or implied warranties of Seller, or any claim
of strict liability in tort relating to any Merchandise, (iii) violation by
Merchandise in its manufacture, possession, use or sale, of any federal,
state or local laws, regulations, ordinances or administrative orders or
rules of the United States or any other country in which Merchandise is
produced or delivered, (iv) defect involving the packaging, tagging,
labeling, packing, shipping and/or invoicing of Merchandise, (v) failure to
warn or inadequate warnings and/or instructions with respect to any
Merchandise, and/or (vi) display, assembly or installation of Merchandise.
Seller shall use counsel satisfactory to Sears in the defense of such
allegations. The obligations of Seller under this Section (collectively,
"Defense Obligations") shall survive the termination of this Agreement and of
any other agreements between the parties relating to Merchandise.
INDEMNITY -- Seller shall hold harmless and indemnify Sears and Sears
officers, directors, employees, licensees, agents, distributors and
independent contractors from and against any and all claims, demands,
actions, lawsuits, proceedings, liabilities, losses, costs and expenses
(including reasonable attorneys' fees and disbursements incurred by Sears in
any claim, demand, action, lawsuit or proceeding between Seller and Sears
and/or between Sears and any third party or otherwise) arising out of any
actual or alleged (i) infringement of any patent, trademark, trade name,
trade dress, copyright, trade secret or other proprietary right in connection
with Merchandise, or any unfair competition involving Merchandise, (ii) death
of or injury to any person, damage to any property, or any other damage or
loss, by whomsoever suffered, resulting or claimed to result in whole or in
part from any actual or alleged defect in Merchandise, whether latent or
patent, including actual or alleged improper construction and/or design of
Merchandise, or actual or alleged failure of Merchandise to comply with any
specifications or samples or with any express or implied warranties of
Seller, or any claim of strict liability in tort relating to any Merchandise,
(iii) violation by Merchandise in its manufacture, possession, use or sale,
of any federal, state or local laws, regulations, ordinances or
administrative orders or rules of the United States or any other country in
which Merchandise is produced or delivered, (iv) defect involving the
packaging, tagging, labeling, packing, shipping and/or invoicing of
Merchandise, (v) failure to warn or inadequate warnings and/or instructions,
and/or (vi) display, assembly or installation of Merchandise. The obligations
of Seller under this Section are unconditional and shall not be affected or
limited in any way by express or implied warranties made by Sears to its
customers; provided, however, that Seller shall not be obligated for
warranties made by Sears in excess of Seller's express or implied warranties.
The obligations of Seller under this Section (collectively, "Indemnity
Obligations") shall survive the termination of this Agreement and of any other
agreements between the parties relating to Merchandise.
INSURANCE -- Seller shall obtain and maintain, at its expense, a policy or
policies of Commercial General Liability Insurance covering liabilities
relating to Merchandise, including products and completed operations
coverage, with a broad form Vender's Endorsement naming Sears, in such
amounts and with such companies and containing such other provisions
satisfactory to Sears. All such policies shall provide that the coverage
thereunder shall not be terminated without at least thirty (30) days prior
written notice to Sears. Certificates of insurance evidencing such coverage
shall be submitted in advance of or concurrent with the execution of this
Agreement by Seller and upon each policy renewal. Approval of any of Seller's
insurance policies by Sears shall not relieve Seller of any obligations
contained herein, including Seller's defense and indemnity obligations set
forth above, even for claims in excess of Seller's policy limits. If at any
time Seller does not provide Sears with the certificates of insurance
required hereunder or if, in Sears opinion, such policies do not provide
adequate protection for Sears, Sears will so advise Seller, and if Seller
does not furnish evidence of acceptable coverage within fifteen (15) days
thereafter, Sears shall have the right to (i) immediately terminate this
Agreement and/or any other agreements between the parties relating to
Merchandise or any part of Sears obligations under such agreements, or cancel
all or any outstanding orders for Merchandise, upon written notice to Seller,
and/or (ii) withhold making any installment payment or advance in respect of
any Sears monetary obligations which may be outstanding under this Agreement
until evidence of acceptable coverage is provided.
SEAR REMEDIES -- Any Merchandise which (i) is not produced, sold, shipped
and/or delivered in compliance with the terms of this Agreement and the
applicable Purchase Order(s), (ii) is delivered in excess of the quantities
specified, in broken packs or partial shipments, or in packages or
assortments other than as specified, (iii) allegedly violates any federal,
state or local laws, regulations issued pursuant to such laws, or any
governmental administrative orders, rules or regulations, of the United
States or any other country in which Merchandise is produced or delivered, or
(iv) allegedly infringes any patent, trademark, trade name, trade dress,
copyright, trade secret or other proprietary right, or allegedly involves any
unfair competition, may be rejected by Sears and abandoned, returned or held
at Seller's expense and risk. Sears right to reject and return or hold
Merchandise at Seller's expense and risk shall, without limiting such right,
extend to Merchandise sold to Sears hereunder which is returned by Sears
customers for any reason entitling Sears to reject such Merchandise. Sears
may, at its option, require Seller to replace any nonconforming Merchandise
or grant Sears a full refund or credit (collectively, "Refund Credit"). Sears
may also charge to Seller all direct and indirect costs incurred by Sears as
a result of any nonconforming Merchandise or delivery, or an administative
fee in an amount reasonably related to such costs whether or not the
Merchandise is rejected by Sears (collectively, "Return Costs"). All Refund
Credits, Return Costs, Defense Obligations, Indemnity Obligations and other
monetary obligations owing by Seller to Sears under this Agreement
(collectively, "Seller's Monetary Obligations"), may at Sears option, be
deducted and recouped from any monetary obligations which may be owing by
Sears at any time pursuant to this Agreement.
CANCELLATION -- Sears shall have the right immediately to terminate this
Agreement and/or any other agreements between the parties relating to
Merchandise or any part of Sears obligations under such agreements, or cancel
all or any outstanding orders for Merchandise if (i) Sears reasonably
believes that Seller does not have Merchandise which conforms to the terms
hereof, and is ready for shipment in the specified quantities and at the
delivery dates specified, (ii) it is alleged that Merchandise infringes any
patent, trademark, trade name, trade dress, copyright, trade secret or other
proprietary rights, (iii) it is alleged that Merchandise was manufactured or
to be sold to Sears in violation of any federal, state or local laws,
regulations, ordinances or administrative orders or rules of the United
States or any country in which the Merchandise is produced or delivered, (iv)
Seller shall refuse to furnish appropriate guaranties to protect Sears as
permitted by any law, rule or regulation, (v) Seller shall fail to maintain
the insurance required hereunder or fail to produce the evidence thereof,
(vi) a petition is filed either by or against Seller in any bankruptcy or
insolvency proceeding (to the extent permitted by law), or if any property of
Seller passes into the hands of any receiver, assignee or creditor, and/or
(vii) Seller commits a material breach of this Agreement or any other
agreement between the parties relating to Merchandise. For any imported
Merchandise which is subject to a customs embargo or quota restriction, Sears
may cancel any Purchase Order or delay any installment payment or advance in
respect of Sears monetary obligations to Seller, if any, under this Agreement
until the embargo is lifted or necessary quota becomes available.
RECOUPMENT AND SET-OFF -- Sears and Seller acknowledge and agree that Sears
monetary obligations to Seller under this Agreement shall at all times be net
of Seller's Monetary Obligations, and any installment payment or advance made
by Sears to Seller in respect of any Purchase Order
<PAGE>
--------------------------- ILLEGIBLE PARAGRAPH ---------------------------
CONFIDENTIALITY -- Any customer lists and/or other information concerning any
of Sears customers (collectively, "Customer Information") are the sole and
exclusive property of Sears. Seller shall not use, reproduce or disclose,
directly or indirectly, to any third party at any time any customer
information. Upon demand by Sears, Seller shall deliver to Sears immediately
all copies of Sears customer information in Seller's possession. In addition,
Seller shall hold in strict confidence and shall not use in any manner,
except in connection with the performance under this Agreement and other
agreements between the parties relating to Merchandise, all information with
respect to Specifications, sales, pricing, inventory, operations, plans and
programs. The provisions of this Section shall survive the termination of
this Agreement and of any other agreements between the parties relating to
Merchandise.
ASSIGNMENT -- Seller shall not assign (by contract, operation of law or
otherwise) its rights or obligations under this Agreement or under any other
agreement between the parties relating to Merchandise, or grant a security
interest in or pledge as collateral any interest herein or therein, except
with Sears prior written consent; provided, however, Seller may assign its
right to receive the installment payments or advances from Sears in respect
of any monetary obligations of Sears to Seller under this Agreement, subject
to the terms and conditions contained herein. Any factor or permitted
assignee, secured creditor or pledgee of Seller shall acquire such interest
subject to all of Sears recoupments, set-offs, claims and defenses and all of
the terms and conditions contained herein, and Seller shall notify any such
factor, assignee, secured creditor or pledgee of such fact. Sears shall have
no obligation to make payments to anyone other than Seller unless and until
Seller (i) notifies Sears in writing of the assignment of such installment
payments or advances along with the name and address of the person to whom
such installment payments or advances should be sent, (ii) obtains a separate
Sears accounts payable number for such installment payments or advances, and
(iii) uses such accounts payable number on every invoice which Sears is to pay
directly to the third party. Seller retains responsibility for all allegedly
misdirected installment payments or advances which result from Seller's
failure to comply with the terms and conditions hereof. This Agreement and
all Purchase Orders issued and accepted between Sears and Seller shall be
deemed a series of installments in one and the same transaction and deemed to
constitute a single "contract" between Sears and Seller within the meaning of
Section 9-318(1) of the Uniform Commercial Code as in effect in the State of
Illinois.
WAIVER -- No right of either party under this Agreement may be waived except
as expressly set forth in a writing signed by the party waiving such right.
No waiver of any provision shall be implied by a party's failure to enforce
any of its rights or remedies herein provided, and no express waiver shall
affect any provision other than that to which the waiver is applicable and
only for that occurrence.
MODIFICATION AND SEVERABILITY -- If any provision of this Agreement is held
to be invalid, illegal or unenforceable by a court of competent jurisdiction,
than such provision shall be deemed modified to the extent necessary to make
such provision enforceable by such court. The invalidity, illegality or
unenforceability of any provision herein shall not affect or impair the
enforcement of any other provision.
CUMULATIVE RIGHTS -- All rights and remedies, under this Agreement and any
other agreement between the parties relating to Merchandise. [ILLEGIBLE]
cumulative, and the exercise of any right or remedy herein provided shall be
without prejudice to the right to exercise any other right or remedy provided
for herein or therein or at law or in equity.
AMENDMENT -- This Agreement may be amended or modified only by a written
instrument signed by the duly authorized representatives of the parties
hereto.
APPLICABLE LAW AND JURISDICTION -- This Agreement shall be construed and
enforced in accordance with the internal laws of the State of Illinois,
without regard to its conflict of law principles. The rights and obligations
of the parties hereto shall not be governed by the provisions of the United
Nations Convention on Contracts for the International Sale of Goods. This
Agreement shall not be effective until it has been received and executed by
Sears in Hoffman Estates, Illinois. The federal and/or state courts of
Illinois shall have personal and subject matter jurisdiction over, and the
parties each hereby submit to the venue of such courts with respect to, any
dispute arising pursuant to this Agreement or pursuant to any other
agreements between the parties relating to Merchandise, and all objections to
such jurisdiction and venue are hereby waived. Seller consents to service of
process permitted under Illinois law or by certified mail, return receipt
requested.
IN WITNESS WHEREOF, Seller and Sears have each caused this Agreement to be
executed by its duly authorized representative as of the date written below
and such execution evidences each party's acceptance of and agreement with
the terms and conditions set forth herein.
SEARS, ROEBUCK AND CO. SELLER
By: /s/ illegible JORE CORPORATION
------------------------------------- ------------------------------------
(Signature)
Title: BUYER By: /s/ Michael Jore
---------------------------------- --------------------------------
Title: Vice President
-----------------------------
<PAGE>
EXHIBIT D
EXISTING SECURITY INTERESTS AND ASSIGNMENTS
RELATING TO AUTHORIZED PRODUCT RIGHTS
1. Coast Business Credit, a division of Southern Pacific Bank
13
<PAGE>
<PAGE>
ASSIGNMENT
WHEREAS, I, Matthew B. Jore a citizen of the United States of America,
and residing at Ronan, Montana, hereinafter referred to as the Inventor, have
invented certain new and useful improvements in a
"TRANSPARENT-SLEEVE SCREW HOLDING AND DRIVING TOOL"
for which an application for Letters Patent of the United States was filed on
August 5, 1993, receiving the Serial No. 08/102,640.
NOW, THEREFORE, to all whom it may concern, as of January 1, 1999, be
it known that the Inventor, for and in consideration of the sum of $1.00 (one
dollar) and other valuable considerations in hand paid to the Inventor by Jore
Corporation, a corporation organized under the laws of the State of Montana,
having a place of business at 45000 Highway 93 South, Ronan, Montana 59864,
hereinafter referred to as the Assignee, the receipt of all of which
considerations is hereby acknowledged, hereby sells, assigns and transfers unto
the Assignee, its successors and assigns, the entire right, title and interest
in and to said application, all the claimable subject matter thereof, any United
States letters patent granted thereon or for said subject matter or any part of
it, and any division, continuation, continuation-in-part, extension or re-issue
of said application or of any such letters patent, together with all rights to
obtain letters patent for said subject matter or any part of it in countries
foreign to the United States and the entire interest in such foreign letters
patent, including, but not limited to the following:
<PAGE>
a) United States Patent No. 5,309,799, issued May 10, 1994
b) Japanese patent application filed on August 5, 1994, receiving the Serial
No. 6-203083;
c) Canadian patent application filed on August 3, 1994, receiving the Serial
No. 2129371;
d) Hong Kong patent registration application filed on June 26, 1998, receiving
the Serial No. 98107051.4;
e) European Patent No. 0637485 issued August 5, 1994 in France;
f) European Patent No. 0637485 issued August 5, 1994 in Great Britain;
g) European Patent No. 0637485 issued August 5, 1994 in the Netherlands; and
h) European Patent No. 69401865.1 issued August 5, 1994 in Germany.
AND, the Inventor hereby covenants with the Assignee, its successors and
assigns:
(1) That the Inventor will communicate to it or them all facts known
to the Inventor pertaining to said subject matter and will, whenever requested
by it or them, give any and all lawful testimony and execute any and all patent
applications, assignments or other documents that may be deemed by it or them
necessary or desirable in order to obtain, maintain or enforce letters patent
for said subject matter or any part of it in the United States or in any country
foreign to the United States, or in order to vest title to any such application
or letters patent in the Assignee or its successors, assigns or nominees; and
<PAGE>
(2) That the Inventor has the full right to convey the rights and
property herein assigned and has made no subsisting license, assignment or other
conveyance of right in or of the same to any person or party other than
Assignee.
Signed at Ronan, MT
this 12th day of April, 1999
/s/ Matthew B. Jore
-------------------------
Matthew B. Jore
STATE OF MONTANA )
)
COUNTY OF Lake )
On this 12th day of April, 1999, before me personally appeared to me
known and known to me to be the person described in and who executed the
foregoing instrument, who duly acknowledged the same to be his free act and
deed.
SEAL
/s/ Stephanie A. McClure
---------------------------------
Notary Public or U.S. Vice-Consul
Residing at: Ronan, MT
Commission Expires: September 2002
<PAGE>
ASSIGNMENT
WHEREAS, I, Matthew B. Jore a citizen of the United States of America,
and residing at Ronan, Montana, hereinafter referred to as the Inventor, have
invented certain new and useful improvements in a
"CLUTCH DRIVER"
for which an application for Letters Patent of the United States was filed on
March 5, 1996, receiving the Serial No. 611,250.
NOW, THEREFORE, to all whom it may concern, as of January 1, 1999, be
it known that the Inventor, for and in consideration of the sum of $1.00 (one
dollar) and other valuable considerations in hand paid to the Inventor by Jore
Corporation, a corporation organized under the laws of the State of Montana,
having a place of business at 45000 Highway 93 South, Ronan, Montana 59864,
hereinafter referred to as the Assignee, the receipt of all of which
considerations is hereby acknowledged, hereby sells, assigns and transfers unto
the Assignee, its successors and assigns, the entire right, title and interest
in and to said application, all the claimable subject matter thereof, any United
States letters patent granted thereon or for said subject matter or any part of
it, and any division, continuation, continuation-in-part, extension or re-issue
of said application or of any such letters patent, together with all rights to
obtain letters patent for said subject matter or any part of it in countries
foreign to the United States and the entire interest in such foreign letters
patent, including, but not limited to the following:
<PAGE>
a) United States Patent No. 5,682,800.
AND, the Inventor hereby covenants with the Assignee, its successors and
assigns:
(1) That the Inventor will communicate to it or them all facts known
to the Inventor pertaining to said subject matter and will, whenever requested
by it or them, give any and all lawful testimony and execute any and all patent
applications, assignments or other documents that may be deemed by it or them
necessary or desirable in order to obtain, maintain or enforce letters patent
for said subject matter or any part of it in the United States or in any country
foreign to the United States, or in order to vest title to any such application
or letters patent in the Assignee or its successors, assigns or nominees; and
(2) That the Inventor has the full right to convey the rights and
property herein assigned and has made no subsisting license, assignment or other
conveyance of right in or of the same to any person or party other than
Assignee.
Signed at Ronan, MT
this 12th day of April, 1999
/s/ Matthew B. Jore
-------------------------
Matthew B. Jore
STATE OF MONTANA )
)
COUNTY OF Lake )
On this 12th day of April, 1999, before me personally appeared to me
known and known to me to be the person described in and who executed the
foregoing instrument, who duly acknowledged the same to be his free act and
deed.
SEAL
/s/ Stephanie A. McClure
---------------------------------
Notary Public or U.S. Vice-Consul
Residing at: Ronan, MT
Commission Expires: September 2002
<PAGE>
ASSIGNMENT
WHEREAS, I, Matthew B. Jore a citizen of the United States of America,
and residing at Ronan, Montana, hereinafter referred to as the Inventor, have
invented certain new and useful improvements in a
"REVERSIBLE DRILL/DRIVER TOOL"
for which an application for Letters Patent of the United States was filed on
May 2, 1994, receiving the Serial No. 08/236992.
NOW, THEREFORE, to all whom it may concern, as of January 1, 1999, be
it known that the Inventor, for and in consideration of the sum of $1.00 (one
dollar) and other valuable considerations in hand paid to the Inventor by Jore
Corporation, a corporation organized under the laws of the State of Montana,
having a place of business at 45000 Highway 93 South, Ronan, Montana 59864,
hereinafter referred to as the Assignee, the receipt of all of which
considerations is hereby acknowledged, hereby sells, assigns and transfers unto
the Assignee, its successors and assigns, the entire right, title and interest
in and to said application, all the claimable subject matter thereof, any United
States letters patent granted thereon or for said subject matter or any part of
it, and any division, continuation, continuation-in-part, extension or re-issue
of said application or of any such letters patent, together with all rights to
obtain letters patent for said subject matter or any part of it in countries
foreign to the United States and the entire interest in such foreign letters
patent, including, but not limited to the following:
<PAGE>
a) United States Patent No. 5,470,180 issued November 28, 1995;
b) United States Patent No. 5,779,404, issued July 14, 1998;
c) European patent application filed on May 2, 1995, receiving Serial No.
95302979;
d) Japanese patent application filed on May 2, 1995, receiving Serial No.
7-132905;
e) Canadian patent application filed on May 10, 1996, receiving Serial No.
2176325
f) European patent application filed on May 10, 1996, receiving Serial No.
96303264.4;
g) Australian patent application filed on May 10, 1996, receiving Serial No.
52222/96;
h) Hong Kong patent application filed on March 19, 1998, receiving Serial No.
98102346.0;
i) Hong Kong patent application filed on March 19, 1998, receiving Serial No.
98102345.1
j) United States patent application for "Quick-Connector" filed on July 8,
1998, receiving Serial No. 09/111568; and
k) United States patent application for "Reversible Drill Driver" filed on
July 8, 1998, receiving Serial No. 09/111,814.
AND, the Inventor hereby covenants with the Assignee, its successors and
assigns:
(1) That the Inventor will communicate to it or them all facts known
to the Inventor pertaining to said subject matter and will, whenever requested
by it or them, give any and all lawful testimony and execute any and all patent
applications, assignments or other documents that may be deemed by it or them
necessary or desirable in order to obtain, maintain or enforce letters patent
for said subject matter or any part of it in the United States or in any country
foreign to the United States, or in order to vest title to any such application
or letters patent in the Assignee or its successors, assigns or nominees; and
(2) That the Inventor has the full right to convey the rights and
property herein
<PAGE>
assigned and has made no subsisting license, assignment or other conveyance of
right in or of the same to any person or party other than Assignee.
Signed at Ronan, MT
this 12th day of April, 1999
/s/ Matthew B. Jore
-------------------------
Matthew B. Jore
STATE OF MONTANA )
)
COUNTY OF Lake )
On this 12th day of April, 1999, before me personally appeared to me
known and known to me to be the person described in and who executed the
foregoing instrument, who duly acknowledged the same to be his free act and
deed.
SEAL
/s/ Stephanie A. McClure
---------------------------------
Notary Public or U.S. Vice-Consul
Residing at: Ronan, MT
Commission Expires: September 2002
<PAGE>
D.A. Davidson & Co.
As Representative of the Several Underwriters
8 Third St. North
Davidson Building
Great Falls, MT 59403
Re: JORE CORPORATION
Ladies and Gentlemen:
1. The undersigned understands that you, as representative (the
"Representative") of the several underwriters (the "Underwriters"), have
proposed to enter into an underwriting agreement with Jore Corporation (the
"Company"), providing for the public offering (the "Public Offering") by the
Underwriters of shares of the Company's common stock (the "Common Stock"),
pursuant to a Registration Statement filed by the Company with the Securities
and Exchange Commission.
2. The undersigned understands further that you have requested that
certain shareholders of the Company enter into this Agreement because the
prospect of public sales of Common Stock by these shareholders during the
several months after the offering would be detrimental to the proposed
underwriting effort. The undersigned recognizes that it is in the best
financial interests of the undersigned, as a shareholder of the Company, that
the proposed Public Offering be completed, and understands that the Company
and the Underwriters will proceed with the proposed Public Offering in
reliance on this Agreement.
3. In consideration of the foregoing and in order to induce the
Underwriters to underwrite the proposed Public Offering, the undersigned
hereby agrees that the undersigned will not, directly or indirectly, offer to
sell, sell, contract to sell, grant any option for the sale or purchase of,
grant a security interest in, pledge, hypothecate, or otherwise dispose of
any shares of Common Stock, or any other shares of capital stock of the
Company convertible into or exchangeable for shares of Common Stock, or any
options, warrants or other rights to acquire shares of Common Stock,
beneficially owned by the undersigned, or request the registration for the
offer or sale of any of the foregoing, for a period of 180 days after the
effective date of the Registration Statement relating to the proposed Public
Offering, without the prior written consent of the Representative, which
consent may be withheld at the sole discretion thereof.
4. The undersigned agrees and consents to the entry of stop transfer
instructions with the Company's registrar and transfer agent to prevent the
transfer of shares of Common Stock held by the undersigned except in
compliance with this Agreement.
5. Notwithstanding the foregoing, the following transactions shall not
be restricted hereby:
(a) if the undersigned is one or more natural persons, any (i) bona
fide gift or (ii) transfer to the undersigned's immediate family or to a
trust for the benefit of the undersigned, his or her immediate family, or
both; or
<PAGE>
D.A. Davidson & Co.
As Representative of the Several Underwriters
Page 2
(b) if the undersigned is a corporation or partnership, any
transfer by the undersigned (i) in connection with the sale or other bona
fide transfer in a single transaction of all or substantially all of the
undersigned's assets not undertaken for the purpose of avoiding the
restrictions imposed hereby; (ii) to another corporation or partnership if
the transferee and the undersigned are direct or indirect affiliates or
otherwise related; or (iii) as a part of a distribution without consideration
from the undersigned to its equity holders on a pro rata basis; PROVIDED,
HOWEVER, that, as a condition of any such transfer, the transferor shall
provide the Representative ten days' advance written notice thereof and each
transferee shall agree to be bound by the terms of this Agreement and shall
execute an agreement substantially in the form hereof which the transferor
shall cause to be delivered to the Representative.
6. The undersigned agrees that the provisions of this Agreement shall
be binding upon the successors, assigns, heirs, and personal representatives
thereof.
7. It is understood that, if the proposed Public Offering does not
close by October 31, 1999, or if any underwriting agreement (other than the
provisions thereof that survive termination) between the Company and the
Representative shall terminate or be terminated prior to payment for and
delivery of the shares that are the subject of the proposed Public Offering,
you will release us from our obligations under this Agreement.
8. This Agreement shall be governed by and construed in accordance with
the laws of the State of Montana applicable to contracts made and to be
performed within the State of Montana.
DATED: 6-30 , 1999
----------------
Very truly yours,
By: /s/ Blaine Huntsman
-----------------------------------
Blaine Huntsman
--------------------------------------
Print Name
--------------------------------------
Title (if applicable)
136 So. Main Street, Ste 421
--------------------------------------
Street Address
Salt Lake City, UT 84111
--------------------------------------
City, State, Zip Code
<PAGE>
CERTAIN INFORMATION HAS BEEN OMITTED FROM THIS EXHIBIT 10.17 AS INDICATED BY
'***', PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT, AND HAS BEEN FILED
SEPARATELY WITH THE COMMISSION.
LICENSE AGREEMENT
THIS AGREEMENT is made and entered into effective April 28, 1998 by and
between STANLEY LOGISTICS, INC., a Delaware corporation, and THE STANLEY WORKS,
a Connecticut corporation, with the principal place of business at 1000 Stanley
Drive, New Britain, Connecticut 06053 (collectively "OWNER"); and JORE
CORPORATION, a Montana corporation with its principal place of business at 45000
Highway 93 South, Ronan, Montana 59864 ("LICENSEE"). The parties hereby agree
as follows:
1. DEFINITIONS.
1.1. LICENSED ARTICLES means each of the articles of merchandise or products,
and their packaging or component parts, bearing the PROPERTY as set forth
in EXHIBIT 1.
1.2. PROPERTY means the names, symbols, designs, logos, artwork, copyrights,
trade dress and trademarks set forth in SCHEDULE A.
1.3. LICENSED TERRITORY means the country or countries set forth in EXHIBIT 2.
1.4. NET SALES means gross sales at the invoice price billed to any of
LICENSEE's customers less actual discounts, actual returns and separately
listed applicable taxes and shipping/handling costs. Quantity discounts
are limited in the aggregate to *** of the total of the regular list price
for all of the LICENSED ARTICLES sold during each calendar year. No
deduction shall be taken for cash discounts, early payment discounts,
year-end rebates, costs incurred in manufacturing, selling, distributing,
or advertising (including cooperative and promotional allowances),
uncollectible accounts, commissions, or any other amounts. At the written
request of LICENSEE, OWNER may allow a deduction for an advertising
allowance granted to customers for the broadcast of a local or national
television spot promoting the LICENSED ARTICLES.
1.5. ROYALTY PAYMENTS means the total NET SALES of all LICENSED ARTICLES sold
during the preceding calendar quarter, multiplied by the applicable ROYALTY
RATE.
1.6. ROYALTY RATE means the percentage of NET SALES to be paid by LICENSEE to
OWNER as provided on Exhibit 3.
1.7. SECONDS means merchantable LICENSED ARTICLES not suitable for sale at list
price because they contain minor production or material flaws not affecting
proper usage of the PROPERTY or the LICENSED ARTICLE.
1.8. PREMIUMS means any product sold at cost or near cost, given away for free
or otherwise used for the purpose of increasing the sale, promoting, or
publicizing any other product, or any service, including but not limited to
incentives for sales forces, trade and consumer promotions and incentives
for fundraising.
<PAGE>
2. GRANT OF LICENSE.
2.1. EXCLUSIVE LICENSE. OWNER hereby grants to LICENSEE an exclusive license
to use the PROPERTY in the LICENSED TERRITORY solely upon or in connection
with LICENSED ARTICLES pursuant to the terms and conditions of this
Agreement. Provided LICENSEE earns and pays the Minimum Royalties required
hereunder each calendar year, this Agreement shall remain exclusive as just
described. In the event LICENSEE fails to earn or pay such Minimum Royalties in
any calendar year, this Agreement shall, by written notice from OWNER, become
non-exclusive.
2.2. TERM. The terms of the license granted by this Agreement shall be for
the period set forth on EXHIBIT 2, unless sooner terminated in accordance
with the provisions hereof.
In the event LICENSEE has earned and paid ROYALTY PAYMENTS in an amount
equal to the GUARANTEED PAYMENTS as set forth under EXHIBIT 3 for the year 2003
and provided, that LICENSEE is not in breach of any provision of the Agreement,
then LICENSEE may renew this Agreement for a term of five (5) years.
2.3. LIMITATIONS ON LICENSE. No license is granted hereunder for the use of the
PROPERTY for any purpose other than upon or in connection with the LICENSED
ARTICLES. The license does not give LICENSEE any right, title or interest in
the PROPERTY other than the right to use the PROPERTY in accordance with the
license. No license is granted hereunder for the manufacture, sale or
distribution of LICENSED ARTICLES to be used as PREMIUMS, in combination sales,
or to be disposed of under similar methods of merchandising.
3. ROYALTIES, MINIMUM GUARANTEES, REPORTS AND PAYMENTS, DISTRIBUTION AND
MARKETING AND SALE TO OWNER
3.1. ROYALTY RATES. LICENSEE agrees that it will pay to OWNER an amount
equal to the percentage set forth on EXHIBIT 3 of all NET SALES of LICENSED
ARTICLES made during the TERM of this Agreement and during any period of
extension or renewal (hereinafter the "ROYALTY PAYMENTS"). The ROYALTY RATE
to be paid on all sales made on a letter of credit or F.O.B. basis shall be
at 140% of the ROYALTY RATE set forth herein. Payments shall be sent and
made payable to The Beanstalk Group, Inc., in accordance with Paragraph 3.7.
3.2. ADVANCE PAYMENT. LICENSEE will pay OWNER the amount set forth on
EXHIBIT 3 on the date specified therein, as a non-refundable advance payment
to be credited against ROYALTY PAYMENTS to become due during the initial term
hereof. Such advance payment shall be sent and made payable to The Beanstalk
Group, Inc., in accordance with Paragraph 3.7.
3.3. MINIMUM ROYALTIES. LICENSEE agrees to pay OWNER the minimum guaranteed
ROYALTY PAYMENTS set forth on EXHIBIT 3, according to the payment schedule
set forth therein, for the initial term and the renewal term, if any. Minimum
guaranteed ROYALTY PAYMENTS shall be applied only against the period they
relate to and shall not be applicable to any other period.
2
<PAGE>
The minimum ROYALTY PAYMENTS set forth in this Paragraph are obligations of
LICENSEE to OWNER and are fully earned by OWNER upon execution of this
Agreement. If such minimum ROYALTY PAYMENTS are not achieved as set forth in
each calendar year and each territory, if applicable, the difference between
such minimum ROYALTY PAYMENTS and the actual ROYALTY PAYMENTS for each calendar
year and each country, if applicable, shall be paid to OWNER within thirty (30)
days from the end of each calendar year.
If this Agreement is terminated by OWNER because of any breach by LICENSEE, all
of the minimum ROYALTY PAYMENTS set forth in this section for the then current
term shall be deemed to be fully earned and shall be paid to OWNER within thirty
(30) days from the effective date of any such termination.
3.4. MINIMUM NET SALES. LICENSEE shall maintain minimum sales of LICENSED
ARTICLES in each annual period as set forth on EXHIBIT 4.
3.5. ROYALTY REPORT FORM. All ROYALTY REPORTS shall be sent to The Beanstalk
Group, Inc. pursuant to Paragraph 3.6 and to OWNER pursuant to Paragraph 16 and
shall be in the form of SCHEDULE B ("ROYALTY REPORT"), or a substantially
similar alternative format approved by OWNER. LICENSEE agrees that OWNER shall
have the right, at its sole discretion, upon thirty (30) days advance written
notice to LICENSEE, to change the form of ROYALTY REPORT. Such change of the
ROYALTY REPORT may include an electronic form to be provided by OWNER.
3.6. REPORTS AND PAYMENTS. Within thirty (30) days from the end of each
calendar quarter, LICENSEE shall furnish ROYALTY REPORTS and make corresponding
ROYALTY PAYMENTS to The Beanstalk Group, Inc., 950 Third Avenue, New York, New
York 10022, U.S.A., on behalf of OWNER, with copies to OWNER, in U.S. Dollars at
LICENSEE's sole expense. ROYALTY REPORTS shall be furnished to OWNER whether or
not any LICENSED ARTICLES have sold and whether or not royalties are due and
payable for the calendar quarter.
3.7. METHOD OF PAYMENT. All ROYALTY PAYMENTS, other payments and any applicable
interest shall be made payable to The Beanstalk Group, Inc., 950 Third Avenue,
New York, New York 10022, U.S.A., or Citibank N.A., 399 Park Avenue, New York,
New York 10043, Account No.: 05405875, ABA No.: 021000089, with copies to
OWNER, utilizing check or electronic bank transfer of funds.
Written confirmation of each electronic transfer and all ROYALTY REPORTS and any
other reports of payments as required by this Agreement shall be signed by
LICENSEE's authorized officer and certified as accurate, and shall be sent to
OWNER pursuant to Paragraph 16 on or before the due date.
If any inconsistencies or mistakes are discovered in such ROYALTY REPORT or
payments, they shall immediately be rectified and the appropriate payment made
by LICENSEE if any
3
<PAGE>
underpayment was made, or set off against LICENSEE's next ROYALTY PAYMENT and/or
other payment to OWNER if an overpayment was made by LICENSEE.
3.8. INTEREST DUE ON ALL PAST DUE AMOUNTS. Any past due amount by LICENSEE
whether due pursuant to this Paragraph or any other Paragraph of this Agreement
shall bear interest at the then current prime rate plus five percent (5%) per
annum as quoted by Citibank, New York, N.Y., United States of America, which is
applicable from the due date until the date of payment.
3.9. CONVERSION INTO DOLLARS AND MISCELLANEOUS PROVISIONS.
(for contracts covering countries outside U.S.)
LICENSEE agrees that all currency conversions into U.S. dollars for sales
made outside the U.S. in currency other than U.S. dollars shall be made by
utilizing the exchange rate in effect on the last business day of the period for
which such royalties are due as reported in THE WALL STREET JOURNAL.
The cost of conversion of all local currencies into U.S. dollars shall be
the sole expense of LICENSEE. Any cost of conversion built into a bank's
exchange rate must be accounted for with a corresponding increase in the amount
being converted so that all the costs of conversion of all local currencies into
U.S. dollars shall be the sole expense of LICENSEE.
LICENSEE shall withhold as taxes on all payments to be made to OWNER only
such amounts as are absolutely required to be withheld by law in the country
from which payment is being made. LICENSEE shall submit to OWNER originals of
the remittance voucher and the official receipt evidencing the payment of the
corresponding taxes. LICENSEE shall fully cooperate with OWNER and provide such
information and records as OWNER may require in connection with any application
by OWNER to the tax authorities in any country of the LICENSED TERRITORY and/or
the United States of America including but not limited to, the obtaining of a
credit for any withholding tax paid in the LICENSED TERRITORY or any country
from which ROYALTY PAYMENTS and any other payments are being made by LICENSEE to
OWNER pursuant to this Agreement.
3.10. BUSINESS PLAN. Upon thirty (30) days from OWNER's written request,
LICENSEE shall provide OWNER a written business plan detailing information
including, but not limited to, LICENSEE's product development plans,
advertising, merchandising and promotional activities and breakdown of sales
by accounts.
3.11. DISTRIBUTION AND MARKETING OF LICENSED ARTICLES. LICENSEE recognizes
that the PROPERTY has a reputation for high quality products, and that the
distribution, sale and marketing of LICENSED ARTICLES might affect the
reputation of the PROPERTY. The nature and quality of all LICENSED ARTICLES
and all related advertising, promotion, distribution, sale, marketing and
other related uses shall conform to the standard set by, and be under the
control of, OWNER, who might, at its sole discretion and subject to
applicable laws and
4
<PAGE>
regulations, restrict or limit the distribution and sale of the LICENSED
ARTICLES to certain channels or means of distribution, sale or marketing. This
license is granted only for sale in the channels of distribution set forth on
EXHIBIT 4.
3.12. SALE TO OWNER. LICENSEE agrees to sell to OWNER such quantities of
the LICENSED ARTICLES as OWNER reasonably requires at the lowest
published/invoiced wholesale price and on as good terms as LICENSEE sells
similar quantities of the LICENSED ARTICLES to the general trade.
4. RECORDS, AUDIT AND AUDITOR'S CERTIFICATION.
4.1. RECORDS. During the TERM of this Agreement and for at least three (3)
years thereafter, LICENSEE shall keep in its possession or under its control
accurate records covering all transactions relating to this Agreement. Records
shall include, but not be limited to, invoices, correspondence, financial
information, inventory records, manufacturing, quality control and approvals.
LICENSEE shall consistently use a separate symbol or number to identify all
LICENSED ARTICLES.
4.2. AUDIT. OWNER shall have the right to conduct an audit and make copies of
all records listed in Paragraph 4.1., above, and to make a physical inventory
count of LICENSED ARTICLES in production and/or storage. If the audit reveals a
royalty underpayment of three percent (3%) or more or if LICENSED ARTICLES were
sold during the audit period without final approval, LICENSEE agrees to
reimburse OWNER for all of its out-of-pocket costs and expenses of the audit.
OWNER shall invoice LICENSEE and LICENSEE shall pay such invoice within thirty
(30) days.
Audits may be performed by OWNER's own employees and/or its designated
independent auditor, all of whom shall hold LICENSEE's audit information in
confidence, pursuant to Paragraph 12. Audit information shall only be used for
purposes of this Agreement, including, without limitation, judicial enforcement
of the obligations of LICENSEE.
5. APPROVALS.
5.1. APPROVAL PROCESS. LICENSEE, at is expense, shall submit to OWNER all items
including, but not limited to, products, packaging, labeling, point of sale
materials, trade show displays, sales materials and advertising, bearing the
PROPERTY, and if such items are in a foreign language, certification that the
translations of such items are accurate, for OWNER's advance written approval
prior to sale or distribution at all stages listed below.
CONCEPT Rough sketches or layout concepts;
PROTOTYPE Prototypes or finished artwork; and
FINAL Pre-production sample.
The following rules shall apply to ALL STAGES of the approval process:
5
<PAGE>
1. LICENSEE shall not make any use of, sell or distribute such items as
listed in this Section 5.1, prior to OWNER granting final written
approval.
2. OWNER shall have twenty (20) business days from OWNER's actual receipt
to review and respond in writing to each of LICENSEE's submissions.
3. OWNER, in its sole discretion, reserves the right to reject an item
approved at a prior stage if it departs from the approved sample.
4. In the event of any modification or change in quality of the items,
whether during the approval process or after final approval has been
granted, such items shall be re-submitted for approval.
5. LICENSEE shall disclose all sources for any artwork not supplied by
OWNER.
6. All submissions become the property of OWNER.
7. Upon LICENSEE's written request, OWNER shall return prototypes and
final artwork at LICENSEE's expense provided LICENSEE supplies
photographs of same.
8. LICENSEE shall not have any rights against OWNER for damages or other
remedy by reason of OWNER's failure or refusal to grant any approval
referred to in this Paragraph.
9. LICENSEE shall not advertise in any publication or communications
medium which could damage the goodwill of the PROPERTY, in OWNER's
sole discretion.
10. LICENSEE shall supply OWNER with twelve (12) production samples of
each LICENSED ARTICLE.
11. No facsimile transmissions will be accepted for approval.
12. LICENSEE agrees not to use the PROPERTY or the OWNER's trademarks,
artwork and/or designs or any component thereof in any business sign,
business cards, stationery or forms nor as part of the name of the
LICENSEE's business or any division thereof.
13. All press releases and/or public announcements by LICENSEE in
connection with the subject matter of this Agreement shall be subject
to prior written approval by OWNER, both as to the content, timing and
distribution of any such release. LICENSEE shall not have any rights
against OWNER for damages or other remedy by reason of OWNER's failure
or refusal to grant approval of any press release.
6
<PAGE>
14. LICENSEE agrees to furnish to OWNER its DHL, Federal Express and/or
UPS number for OWNER to use to transmit samples to expedite the
approval process.
5.2. RIGHT TO SUSPEND APPROVAL PROCESS. In addition to its other remedies,
OWNER reserves the right to suspend the approval process after OWNER has given
LICENSEE notice of breach of this Agreement, until LICENSEE has cured the
breach.
5.3. NO WAIVERS. Approvals granted by OWNER under this Paragraph shall extend
only to LICENSEE's use of the PROPERTY. The provisions for indemnity under this
Agreement and LICENSEE's other obligations shall not be waived by approval of
LICENSED ARTICLES by OWNER.
5.4. INSPECTION. LICENSEE shall allow OWNER or its designees to enter
LICENSEE's premises and/or the premises where the LICENSED ARTICLES are being
manufactured and/or packaged during regular business hours for the purpose of
inspecting the LICENSED ARTICLES and the promotional and packaging material
relating to the LICENSED ARTICLES in order that OWNER may determine that the
provisions of this Agreement are being observed by LICENSEE.
6. QUALITY CONTROL.
6.1. LICENSEE COMPLIANCE WITH APPLICABLE LAW AND SCHEDULE D. All LICENSED
ARTICLES shall be manufactured, sold, labeled, packaged, distributed and
advertised in accordance with all applicable laws and regulations and Schedule D
hereto.
6.2. SECONDS AND DISPOSAL. If, during the manufacture of the LICENSED
ARTICLES, any SECONDS are produced, LICENSEE shall destroy such SECONDS unless
OWNER, in its sole discretion, provides LICENSEE with express written
instructions to otherwise dispose of such SECONDS. All products, packaging,
labeling, point of sale, sales materials and advertising bearing trademarks,
artwork and/or designs of OWNER produced by LICENSEE which are not suitable for
use or sale pursuant to this Agreement shall be promptly destroyed.
7. ARTWORK.
7.1. RIGHT TO USE AND ASSIGNMENT TO OWNER. OWNER, in its sole discretion, will
provide LICENSEE, at LICENSEE's expense, available artwork and designs which
LICENSEE can only use on LICENSED ARTICLES.
LICENSEE irrevocably and in perpetuity assigns to OWNER all worldwide
right, title and interest in and to any artwork, concept, design, image,
model or the like (collectively "Artwork") incorporating, in whole or in
part, the PROPERTY. OWNER has the sole and exclusive right to use, change,
license or modify such Artwork, without any obligation,
7
<PAGE>
financial or otherwise, to LICENSEE. Artwork which qualify as a
"work-made-for-hire" under applicable copyright laws in the LICENSED
TERRITORY are agreed to be "work-made-for-hire" owned by OWNER.
If such Artwork is made by a third party for LICENSEE, LICENSEE shall
obtain an assignment from such third party using SCHEDULE C (Artwork
Assignment Agreement,) and shall use its best efforts to have such Artwork
made as a "work-made-for-hire."
LICENSEE, at its expense, shall provide OWNER with reproducible materials
of all such Artwork within thirty (30) days of OWNER's written request.
This Paragraph does not give OWNER any right, title or interest in or to
the copyrights, trade dress or trademarks of LICENSEE.
8. LICENSED ARTICLE MARKINGS.
8.1. LABELING REQUIREMENTS. LICENSEE shall use and display the PROPERTY only in
such form and manner as are specifically approved by OWNER. LICENSEE shall
cause to appear on all LICENSED ARTICLES produced hereunder and on their tags,
packaging, advertising and promotional materials such legends, markings and
notices as OWNER may request, which unless otherwise notified by OWNER shall be
set forth in EXHIBIT 7.
9. INTELLECTUAL PROPERTY PROTECTION.
9.1. PROTECTION. LICENSEE acknowledges the ownership, validity, great value and
goodwill of the PROPERTY and acknowledges that all rights therein (including
trademark and copyright) and good will attached thereto belongs exclusively to
OWNER, that the PROPERTY has secondary meanings in the minds of the public and
that all use of the PROPERTY will inure to the benefit of OWNER. LICENSEE shall
not, during the term of this Agreement or thereafter, attack or put in issue the
title or any rights of OWNER in and to the PROPERTY.
LICENSEE covenants that, notwithstanding any other provision of this
Agreement, it will never take any action which it knows or has reason to know
would threaten to injure the image or reputation of OWNER or any of its
copyrights, trade dress, trademarks or products.
9.2. REGISTRATIONS. LICENSEE shall assist OWNER at OWNER's expense, to the
extent necessary in OWNER's opinion, in procuring, protecting and defending any
of OWNER's rights in the PROPERTY, in the filing and prosecution of any
trademark application, copyright application or other applications for the
PROPERTY, the recording or canceling of this Agreement, and the publication of
any notices or the doing of any other act or acts with respect to the PROPERTY,
including the prevention of the use thereof by an unauthorized person, firm or
corporation, that in the judgment of OWNER may be necessary or desirable. For
these purposes, LICENSEE shall supply to OWNER, free of cost to OWNER, such
samples, containers, labels and similar materials
8
<PAGE>
as may reasonably be required in connection with any such actions. OWNER, at
its sole expense, shall file all trademark applications, and register the
PROPERTY in the United States with respect to the LICENSED ARTICLES, and shall
do the same to the extent necessary in OWNER's opinion, in countries outside the
United States.
9.3. NOTICE OF INFRINGEMENT. LICENSEE shall notify OWNER promptly in writing of
any alleged infringements or imitations by others of the PROPERTY in the
LICENSED TERRITORY which come to LICENSEE's attention. OWNER shall have the
sole right to determine what, if any, actions shall be taken on account of any
such infringements or imitations. If OWNER so desires it may prosecute any
claims or suits in its own name or join LICENSEE as a party thereto, all at
OWNER'S expense.
LICENSEE shall not institute any suit or take any action on account of any
such infringements or imitations. LICENSEE shall not have any rights against
OWNER for damages or other remedy by reason of OWNER's decision not to prosecute
any alleged infringements or imitations by others of the PROPERTY or OWNER's
artwork and designs. LICENSEE assumes the risk that there may be counterfeit
and/or infringing articles of manufacture in the LICENSED TERRITORY.
9.4. DAMAGES FOR UNAUTHORIZED USE. LICENSEE acknowledges that the PROPERTY
possesses special, unique, and extraordinary characteristics which make
difficult the assessment of monetary damages which OWNER would sustain by
LICENSEE's unauthorized use. LICENSEE recognizes that OWNER would suffer
irreparable injury by such unauthorized use and agrees that injunctive and
other equitable relief is appropriate in the event of a breach of this Agreement
by LICENSEE. Such remedy shall not be exclusive of any other remedies available
to OWNER, nor shall it be deemed an election of remedies by OWNER.
10. WARRANTIES AND INDEMNIFICATION.
10.1. WARRANTIES. LICENSEE hereby warrants and represents to OWNER that:
1. ALL LICENSED ARTICLES, packaging, labeling, advertising and sales
materials are free from defects, merchantable, fit for their intended
use, materially conform to samples which received final approval,
comply with all legally applicable treaties, laws, regulations,
standards and guidelines including, but not limited to, health,
product safety and labeling, and that LICENSEE has obtained the
necessary approvals and certification(s) throughout the LICENSED
TERRITORY.
2. All Artwork of LICENSEE created pursuant to Paragraph 7.1. are
original; not in the public domain; not previously published; not a
violation, infringement, unauthorized use or misappropriation of any
intellectual property of any third party; not libelous or contrary to
law; and to the best of LICENSEE's knowledge not the subject of any
litigation or claim; and
9
<PAGE>
3. Pursuant to Paragraph 7.1., it has obtained a written assignment to
OWNER of all Artwork made by a third party.
10.2. INDEMNIFICATION BY LICENSEE. LICENSEE shall indemnify and hold
harmless OWNER, its officers, directors, employees and agents ("Indemnified
Parties") with respect to any matter which arises out of any lawsuit, action,
legal proceeding, claim or demand based upon:
1. Any alleged defect in the LICENSED ARTICLES or the use or condition
thereof;
2. Any alleged violation, infringement, unauthorized use or
misappropriation of any intellectual property of any third parties
arising under or in conjunction with the manufacture, sale and/or use
of any LICENSED ARTICLES; or
3. Any breach or violation of any warranty, representation, term or
condition of this Agreement by LICENSEE.
This indemnification shall include all damages, interest, reasonable
attorney's fees, costs and expenses which may be levied against or incurred
by Indemnified Parties, including costs of collection of all amounts owed
to OWNER by LICENSEE and costs of all actions by OWNER against LICENSEE to
enforce LICENSEE's compliance with this Agreement.
This obligation to indemnify and hold harmless Indemnified Parties shall
not apply to any lawsuit, action, legal proceeding, claim or demand which
is solely due to the negligence or wrongful acts of the Indemnified Parties
or any alleged copyright or trademark infringement which is based on a
claim that the approved use by LICENSEE of the PROPERTY infringes the
copyright or trademark rights of such third parties.
LICENSEE and its officers, agents and employees shall cooperate fully with OWNER
in the defense of any such lawsuit, action, legal proceeding, claim or demand.
Compliance by LICENSEE with the insurance provision of this Agreement shall not
relieve LICENSEE from liability under this indemnity provision.
LICENSEE shall undertake and conduct the defense of any such lawsuit, action,
legal proceeding, claim or demand and shall have sole responsibility therefore.
10.3. INDEMNIFICATION BY OWNER. OWNER shall indemnify and hold harmless
LICENSEE, its officers, directors, employees and agents ("LICENSEE Indemnitees")
with respect to any matter which arises out of any lawsuit, action, legal
proceeding, claim or demand based upon:
10
<PAGE>
1. Any alleged copyright or trademark infringement arising out of the
approved use of the PROPERTY as authorized in this Agreement; or
2. Any breach or violation of any warranty, representation, term or
condition of this Agreement by OWNER.
This indemnification shall include all damages, interest, reasonable attorney's
fees, costs and expenses which may be levied against or incurred by LICENSEE
Indemnitees.
OWNER shall undertake and conduct the defense of any such lawsuit, action, legal
proceeding, claim or demand, and shall have the sole responsibility therefor.
10.4. COOPERATION. This obligation to indemnify and hold harmless LICENSEE
Indemnitees shall not apply to any lawsuit, action, legal proceeding, claim
or demand that is solely due to the negligence or wrongful acts of the
LICENSEE Indemnitees.
Each party, and its officers, agents and employees, shall cooperate fully with
the other party in the defense of any lawsuit, action, legal proceeding, claim
or demand. Each party claiming a right of indemnification shall given notice to
the other party within fifteen (15) days after learning of such lawsuit, action,
legal proceeding, claim or demand.
11. INSURANCE. Upon execution of this Agreement, LICENSEE shall have and
maintain at its sole cost and expense throughout the term of this Agreement, and
the post-termination or expiration Sell-off Period, and for two (2) years
thereafter, standard liability insurance from a recognized insurance company
acceptable to OWNER. This insurance coverage shall provide a minimum
comprehensive general liability insurance for each occurrence, bodily injury,
property damage, personal injury, product liability, contractual liability and
advertising injury liability in the amount set forth on EXHIBIT 5.
Such insurance coverage shall name OWNER as additional insured party against any
and all claims, demands, causes of action, or damages, including reasonable
attorney's fees.
The stipulated limits of coverage above shall not be construed as a limitation
of any potential liability of LICENSEE to OWNER or third parties, and failure to
request evidence of this insurance shall in no way be construed as a waiver of
LICENSEE's obligation to provide the insurance coverage specified.
Such insurance policy shall provide that it may not be canceled or amended in a
manner which restricts the existing coverage without at least thirty (30) days
prior written notice to OWNER.
Within thirty (30) days after this Agreement is fully executed, (and thereafter
at least thirty (30) days prior to the expiration of insurance coverage),
LICENSEE shall furnish to OWNER a Certificate of
11
<PAGE>
Insurance evidencing the foregoing coverage and specifically listing OWNER as
additional insured party.
12. CONFIDENTIALITY. Neither party shall disclose, reveal, divulge, use or by
whatever means make available, except as required to perform its obligations
pursuant to this Agreement, the terms and conditions of this Agreement and
information of the other party which was denominated or marked as "confidential"
at the time of disclosure or confirmed in writing as "confidential" within
thirty (30) days from an oral disclosure obtained from the other party during
the TERM of this Agreement and for a period of three (3) years after this
Agreement expires or is terminated for any reason without prior written
permission from the other party. Each party hereto may disclose confidential
information from the other party to its affiliates subject to all the terms and
conditions of this Paragraph.
The obligations of confidentiality shall not apply to information which:
(i) Is, or subsequently becomes, available to the public through no fault
of the receiving party.
(ii) The receiving party can show was previously known to it at the time
of disclosure.
(iii) Is subsequently obtained from a third party who has obtained the
information through no fault of the receiving party.
(iv) Is independently developed as evidenced by the written records of the
receiving party.
(v) Is disclosed to a third party by the disclosing party without a
corresponding obligation of confidence.
(vi) Is required to be disclosed by the receiving party pursuant to a
requirement, order or directive of a government agency or by
operation of law subject to prior consultation with the disclosing
party's legal counsel.
13. NO RIGHT TO ASSIGN OR TO SUBLICENSE. This Agreement and all rights and
duties herein are personal to LICENSEE and are not assignable, in whole or in
part, by LICENSEE without OWNER's prior written consent. The rights and
duties hereunder may not be mortgaged or otherwise encumbered. Except as
provided herein, any grant or attempted grant by LICENSEE of any assignment
of part or all of this Agreement, a sublicense, a subcontract or any other
act of LICENSEE which in any way attempts to encumber or transfer, or, in
fact, encumbers or transfers any of LICENSEE's rights and obligations
hereunder, or the sale or attempted sale of a controlling interest in the
shares of LICENSEE constitutes a breach of this Agreement. Any change in the
control of LICENSEE, either directly or indirectly, without notice to and the
prior written consent of OWNER constitutes a breach of this Agreement. Any
assignment or other change approved by OWNER shall make this Agreement fully
binding upon and enforceable against any successors or assigns.
14. TERMINATION. Without prejudice to any other rights, OWNER shall have the
right to terminate this Agreement upon written notice to LICENSEE at any time
if:
12
<PAGE>
(i) LICENSEE shall fail to make any payment (including any payment for
artwork or other allowable expenses) due hereunder or to timely deliver any
of the statements or ROYALTY REPORTS herein referred to, and if such
default shall continue for a period of five (5) business days after written
notice of such default is sent by OWNER via certified or registered mail to
LICENSEE.
(ii) LICENSEE shall discontinue its business, LICENSEE shall make any
assignment for the benefit of creditors, or shall file any petition under
Chapters 10, 11 or 12 of Title 11, United States Code, or file a voluntary
petition in bankruptcy, or be adjudicated a bankrupt or insolvent, or if
any receiver is appointed for its business or property, or if any trustee
in bankruptcy, or insolvency shall be appointed under the laws of the
United States government or of the several states. In such case
termination shall be effective immediately.
(iii) Notwithstanding anything to the contrary set forth herein, if
LICENSEE shall fail to maintain the required minimum NET SALES as provided
in EXHIBIT 4.
(iv) If LICENSEE shall fail to perform any other material term or condition
of this Agreement and not cure such failure within twenty (20) days after
notice.
(v) If for any six (6) month period LICENSEE does not diligently and
commercially distribute and sell all categories of LICENSED ARTICLES
included in EXHIBIT 1 of this Agreement throughout each country in the
LICENSED TERRITORY.
(vi) If OWNER or LICENSEE is ordered to withdraw, discontinue, remove or
recall any LICENSED ARTICLE from the market by a government or governmental
agency, regulatory body, court or the like.
(vii) If during any twelve (12) month period OWNER gives more than two
(2) termination notices to LICENSEE pursuant to this Paragraph regardless
of cure by LICENSEE.
(viii) If LICENSEE does not begin the bona fide manufacture,
distribution and sale of the LICENSED ARTICLES on a national basis on or
before the date specified in EXHIBIT 4.
(ix) If LICENSEE does not provide customer service with respect to the
LICENSED ARTICLES at the same general standard as it provides customer
service with respect to other of its products similar to the LICENSED
ARTICLES and such is not corrected within ten (10) business days after
notice by OWNER. LICENSEE will exercise its best efforts promptly to
resolve any consumer complaints regarding the quality or performance of any
LICENSED ARTICLE, and shall periodically report such complaints and their
resolution to OWNER. LICENSEE shall notify OWNER immediately of any
complaints regarding the LICENSED ARTICLES that involve bodily injury or
death or serious property damage and will cooperate
13
<PAGE>
with OWNER in the resolution of such complaints. OWNER reserves the right
to participate in the resolution of all complaints, but the exercise of
such right shall not relieve LICENSEE of its indemnification obligations
hereunder.
Termination of the Agreement under the provisions of this Paragraph shall
be without prejudice to any rights which OWNER may otherwise have against
LICENSEE. Upon the termination of the license granted herein, notwithstanding
anything to the contrary herein, all royalties on sales theretofore made shall
become immediately due and payable and no minimum royalties shall be repayable
and balances owing on minimum guarantees shall be immediately due and payable.
Notwithstanding any termination or expiration of this Agreement, OWNER shall
have and hereby reserves all rights and remedies which it has or which are
granted to it by operation of law, to enjoin the unlawful or unauthorized use of
the PROPERTY.
In the event this license is so terminated, LICENSEE, its receivers,
representatives, trustees, agents, administrators, successors and/or assigns
shall have no right to sell, exploit or in any way deal with any of the LICENSED
ARTICLES or any carton, container, packing or wrapping material, advertising,
promotional or display material pertaining thereto, except with and under the
special consent and instruction of OWNER, in writing, which they shall be
obligated to follow.
14.1. SELL-OFF PERIOD. After expiration or termination of the license under
this Agreement, LICENSEE shall have no further right to manufacture, advertise,
distribute, sell, or otherwise deal in any LICENSED ARTICLES which utilize the
PROPERTY, except as hereinafter provided.
(i) LICENSEE shall prepare a fully written inventory list and submit same
to OWNER within ten (10) days of the expiration or termination of the
license under this Agreement. Such list will include orders on hand, work
in process, as well as finished LICENSED ARTICLES.
(ii) OWNER shall have twenty (20) days thereafter to decide whether to
purchase any or all inventory at the lower of cost or fair market value.
If OWNER exercises such right of purchase, LICENSEE shall deliver the
inventory referred to in OWNER's notice within ten (10) days after OWNER's
said notice with the exception of inventory necessary to fulfill orders on
hand. OWNER shall pay LICENSEE for such delivered inventory as is in
marketable condition within twenty (20) days after its receipt thereof.
(iii) Upon said expiration or termination, and if OWNER does not elect
to purchase the inventory, unless the expiration or termination shall occur
as a result of a violation of Paragraph 3, 5 or 11 hereof, LICENSEE, on a
non-exclusive basis, may dispose of LICENSED ARTICLES which are on hand or
in process at the time of such expiration or termination, for a period of
ninety (90) days therefrom, provided all payments with respect to that
ninety (90) day period are made in accordance with Paragraph 3 hereof.
14
<PAGE>
15. DISTRIBUTION REQUIREMENTS. LICENSEE agrees to use its best efforts to
sell, distribute and supply the LICENSED ARTICLES within the LICENSED
TERRITORY hereof. LICENSEE must begin the bona fide manufacture,
distribution and sale of the LICENSED ARTICLES on a national basis on or
before the date specified on EXHIBIT 4. LICENSEE further undertakes to make
and maintain adequate reasonable arrangements for the broadest possible
distribution of LICENSED ARTICLES throughout the LICENSED TERRITORY through
all regular and permitted channels of distribution for sales to consumers and
other organizations (as set forth on EXHIBIT 4). LICENSEE agrees to maintain
adequate inventories of the LICENSED ARTICLES as an essential part of its
distribution program. In the event OWNER advises LICENSEE that a special
promotional effort is to take place in one individual store or chain,
LICENSEE agrees to make arrangements for the supply of LICENSED ARTICLES to
said store or chain in such quantities as may be required for such effort.
16. NOTICES. All notices, ROYALTY REPORTS, confirmations and statements to be
given and all payments to be made hereunder, shall be given or made at the
respective address of the parties as set forth below unless notification of a
change of address is given in writing and shall be sent by both generally
recognized overnight courier service and confirmed facsimile transmission and
shall be deemed to have been given when received.
If to OWNER: The Stanley Works
1000 Stanley Drive
New Britain, Connecticut 06053
Attention: Director of Global Licensing
Fax: (860) 827-3910
Stanley Logistics, Inc.
1000 Stanley Drive
New Britain, Connecticut 06053
Attn: Vice-President, Licensing
Fax: (860) 827-3910
If to LICENSEE: To the name and address set
forth on EXHIBIT 6.
16.1 NOTICE OF MANDATED RECALL OF LICENSED ARTICLES. Any notice received by
LICENSEE, or any entity working for LICENSEE, ordering the withdrawal,
discontinuance, removal or recall of any LICENSED ARTICLES from the market by a
government or governmental agency, a regulatory body, court or the like shall be
immediately reported to OWNER in writing.
15
<PAGE>
17. FORCE MAJEURE. Neither party shall be liable for failure to perform any of
their obligations hereunder when such failure is caused by or results from (i)
strike, blacklisting, boycott or sanctions however incurred; (ii) acts of God,
public enemies, authority of law, embargo, quarantine, riot, insurrection or
war; (iii) inability to obtain raw materials; or (iv) any other cause beyond
their respective control.
In the event either party is unable to perform its obligations as a consequent
of any of the contingencies set forth in this Paragraph for a period of six (6)
months or more, either party hereto may terminate this Agreement, which
termination shall relieve each party of any liability to the other based upon
such termination; however, LICENSEE shall not be released from any of its
obligations to make ROYALTY PAYMENTS or any other payments to OWNER pursuant to
the terms and conditions of this Agreement.
18. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
understanding between the parties hereto and terminates and supersedes any prior
agreement or understanding relating to the subject matter hereof between OWNER
and LICENSEE. None of the provisions of this Agreement can be waived or
modified except in writing signed by both parties, and there are no
representations, promises, agreements, warranties, covenants or undertakings
other than those contained herein. Neither the tender of this Agreement by
OWNER to LICENSEE nor the encashment by OWNER of LICENSEE's ADVANCE PAYMENT
shall be binding, provided in the latter case that repayment is made in a
commercially prompt and reasonable manner. Only upon delivery to LICENSEE of a
fully-executed agreement shall this Agreement be binding.
19. NO JOINT VENTURE. Nothing herein contained shall be construed to place the
parties in the relationship of partners or joint venturers or agents, and
LICENSEE shall have no power to obligate or bind OWNER in any manner whatsoever.
20. APPLICABLE LAW AND JURISDICTION. The terms and provisions of this
Agreement shall be interpreted in accordance with and governed by the laws of
the State of Connecticut, United States of America (without reference to any
conflict of law provisions thereof). Any action or proceeding seeking to
enforce any provision of, or based on any right arising out of, or otherwise
related to this Agreement may be brought against any of the parties only in the
Superior Court of the State of Connecticut, or, if it has or can acquire
jurisdiction, in the United States District Court for the District of
Connecticut, and each of the parties consents to the exclusive jurisdiction of
such courts (and of the appropriate appellate courts) in any such action or
proceeding and waives any objection to jurisdiction or venue laid therein.
Process in any action or proceeding referred to in the
16
<PAGE>
preceding sentence may be served on any party anywhere in the world and such
process shall be effective to confer jurisdiction on such courts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
JORE CORPORATION THE STANLEY WORKS
By: /s/ Matt Jore BY: /s/ Barbara B. [illegible]
------------------------------- ---------------------------
TITLE: Pres. TITLE: Director of Licensing
STANLEY LOGISTICS, INC.
BY: /s/ Barbara B. [illegible]
---------------------------
TITLE: Vice President
17
<PAGE>
EXHIBIT 1
LICENSED ARTICLES:
- ---------------------
DRILLING SYSTEMS, SPECIFICALLY, LAUNCH YEAR
*** ***
<PAGE>
EXHIBIT 2
LICENSED TERRITORY:
- ------------------
***
TERM OF AGREEMENT:
- -----------------
May 1, 1999 through December 31, 2004
19
<PAGE>
EXHIBIT 3
ROYALTY RATE:
- ------------
*** of Net Sales
If License Net Sales are *** in the year ***, Licensee has the option to renew
the agreement for a term of ***. Annual guarantees during the renewal term will
be *** annually, adjusted upward or downward in accordance with the Consumer
Price Index for durable goods published by the United States Department of
Labor, Bureau of Labor Statistics.
ADVANCE PAYMENT:
- ---------------
***
***
GUARANTEED PAYMENTS:
- -------------------
Guarantee: No less than *** during the initial term payable as follows:
On or before *** ***
On or before *** ***
On or before *** ***
On or before *** *** Royalty Payments earned in
*** but no less than
On or before *** *** Royalty Payments earned in
*** but no less than
minimum guarantee.
During the renewal term, if any, payable as follows:
adjusted at the start of each calendar year upward or downward in accordance
with the Consumer Price Index for durable goods published by the United States
Department of Labor, Bureau of Labor statistics.
The annual Guaranteed Payments will be remitted quarterly, as follows:
On or before March 31st, *** of the total guarantee,
On or before June 30th, *** of the total guarantee,
On or before September 30th, *** of the total guarantee,
On or before December 31st, *** of the total guarantee.
20
<PAGE>
EXHIBIT 4
MINIMUM SALES:
- -------------
***
DISTRIBUTION CHANNEL(S) AND REQUIREMENTS:
- ----------------------------------------
*** and other channels approval by OWNER.
DISTRIBUTION START DATE:
- -----------------------
1999 Products by ***; 2000 Products by
***; 2001 Products by ***
Any sub-category of Licensed Articles for which the bona-fide distribution has
not commenced by the Distribution Start Date shall be eliminated from this
Agreement by written notice to LICENSEE by OWNER.
21
<PAGE>
EXHIBIT 5
INSURANCE:
- ---------
Five million ($5,000,000) combined single limit
22
<PAGE>
EXHIBIT 6
NOTICES:
- -------
Jore Corporation
45000 Highway 93 South
Ronan, MT 59864
Attention: Matt Jore, President, CEO
23
<PAGE>
EXHIBIT 7
LABELING REQUIREMENTS:
- ---------------------
Standard Form:
- -------------
"[list trademarks used] are the trademarks of The Stanley Works and
subsidiaries."
Short Form (to be used with OWNER's prior written consent):
- ----------------------------------------------------------
-TM-TSW and subs.
24
<PAGE>
SCHEDULE A
PROPERTY:
- --------
STANLEY-Registered Trademark- AND THE STANLEY LOGO.
[LOGO]
[LOGO]
[LOGO]
This schedule may be amended by OWNER upon one hundred twenty (120) days
notice to LICENSEE or expanded upon written approval by OWNER.
<PAGE>
TIME PERIOD COVERED_______________
SCHEDULE B
ROYALTY REPORT FORM (BY COUNTRY)
<TABLE>
<CAPTION>
SKU# Description Price/Unit Units Sold Total Sales Less Returns Less Net Sales
Allowances
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------
</TABLE>
Total Net Sales_______________
x Royalty Rate_______________%
Royalties Due_________________
Less Advances ( )
Total Royalties Due $_________
_________________________________
Signature of Authorized
Officer Certifying foregoing
to be accurate
Name:_____________________________
Title:____________________________
Date:_____________________________
26
<PAGE>
SCHEDULE C
ARTWORK ASSIGNMENT AGREEMENT
IN CONSIDERATION OF One Dollar ($1.00) and other good and valuable consideration
paid or to be paid to ____________________________________(the "Contractor") by
______________________________________________("Company"), the parties hereto
agree as follows:
(a) Contractor represents and warrants that Contractor will create all ______
to be submitted by Contractor hereafter to Company, including, without
limitation, all
__________________________________ and __________________________done and
to be done in connection with a property of _______________________ known
as _____________________________. (All such materials created by
Contractor and all drafts, outlines, and other preparatory materials shall
collectively be called the "Work" herein). Contractor warrants and
represents that the Work shall be original with Contractor and shall not
infringe the rights of any third parties; and that
_________________________has the exclusive right forever and throughout the
universe to exploit the Work and the results and proceeds of Contractor's
services rendered in connection therewith.
(b) The Work is and shall be considered a work made for hire for
____________________ and ________________________owns and shall own all
right, title and interest in and to the Work and the results and proceeds
of Contractor's services rendered in connection therewith, including,
without limitation, all copyrights and renewals and extensions of copyright
therein.
(c) To the extent that any such ownership in such Work does not vest in ______
by reason of Contractor's status as an employee for hire: Contractor hereby
assigns and transfers in whole to _____________________, all right, title,
and interest in and to such Work and the results and proceeds thereof to
the extent that Contractor has, had, or will have any interest therein,
including without limitation, all copyrights and renewals and extensions of
copyright therein.
(d) The Work may be registered for copyright in the name of
____________________, and ____________________________ shall own and
possess all physical material in which or on which the Work is embodied or
reproduced, by or on behalf of Contractor. __________________ shall have
the exclusive right forever throughout the universe to change, adapt,
modify, use, combine with other material, and otherwise exploit the Work in
all media and by all means, whether now known or hereafter invented or
developed. Contractor hereby waives any and all claims that Contractor may
have now or may hereafter have in any jurisdiction to so-called "moral
rights" or "droit moral" with respect to the Work, and to the results and
proceeds thereof.
(e) Any further compensation paid or to be paid to Contractor for services
rendered in connection with the Work shall be described in a separate
writing or writings. This Agreement shall constitute the entire
understanding between the parties. This Agreement may not be altered,
modified or changed in any way without the express written consent of
<PAGE>
both parties and shall be construed in accordance with the laws of the
State of New York applicable to agreements executed and wholly performed
therein.
(f) When requested by Company, or _______________________, Contractor shall
perform all such acts and things and sign all documents and certificates
which the Company may reasonably request in order to carry out the intent
and purpose of this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement.
COMPANY: CONTRACTOR:
BY:___________________________ BY:______________________________
ITS:__________________________ ITS:_____________________________
DATE:_________________________ DATE:____________________________
[to be notarized]
<PAGE>
SCHEDULE D
THE STANLEY WORKS AND STANLEY LOGISTICS, INC.
ENGAGEMENT CRITERIA FOR PARTNERS & SOURCES
The Stanley Works and Stanley Logistics, Inc. are global
organizations that has a tradition of excellence in its products, in the
development of its workforce, and in the high ethical standards that guide our
business practices. As we broaden our reach through expanded selling and
sourcing operations throughout the world, we insist those we do business with
meet those standards and ethical practices that have been associated with our
company.
Partners and sources will be selected on the basis of a shared
approach to business. An approach that is ethical, recognizes human rights, and
protects the environment. Otherwise, we would compromise the reputation of our
company, undermine our values and place our stakeholders at risk.
ENGAGEMENT CRITERIA
- -------------------
The following Engagement Criteria addresses issues primarily under the
control of our business partners, sources and vendors. A prior examination of
the social, political and business environment in the countries in which we wish
to source will also be a factor in our decision to do business in a country.
Where applicable, The Stanley Works and Stanley Logistics, Inc.
existing policies and procedures will apply. The standard of performance in
this document agrees with those policies and procedures. In many cases,
standards defined under the Engagement Criteria will also apply to
subcontractors of our partners and sources.
1. ETHICAL STANDARDS. We will only do business with those who
use sound and legal practices, minimize the potential for conflicts of
interest, prohibit the giving or receiving of gifts and gratuities,
place the utmost importance in truth and full disclosure, and comply
with all specifications, quality criteria and product requirements.
2. HEALTH & SAFETY. Our business partners must be committed to
a safe and healthy work place and must comply with all applicable laws
and regulations that apply to health and safety. Further, there must
be an appropriate method of dealing with hazardous materials. Our
partners who provide residential facilities must also maintain those
facilities in a healthy and safe manner.
3. ENVIRONMENTAL. Our partners must be committed to
environmentally safe practices and must be in compliance with all
applicable laws and environmental regulations. Care must be taken
with any environmentally sensitive substances or processes.
<PAGE>
4. EMPLOYMENT PRACTICES. We will only do business with those
who do not subject their workers to physical risks, recognize the
right of free association, and do not exploit their workers.
WAGES & BENEFITS: Must comply with the law and/or prevailing local
practices. All fees and/or wage deductions must be fair and
reasonable.
WORKING HOURS: Must be present on a daily, weekly and monthly basis
with compensation for overtime. Usually this means no more than a 60
hour work-week with one (1) day off within a seven (7) day period.
CHILD LABOR: Use by our partners or sources or their sources of
vendors of child labor is forbidden. A "child" is a person under the
age of 16 years.
FORCED LABOR: Use by our partners or sources or their sources or
vendors of forced or prison labor is forbidden.
DISCIPLINARY PRACTICES: We will not do business with those who use
mental or physical threats. Physical punishment of any kind is
forbidden.
NON-DISCRIMINATION: We believe in cultural diversity and support
employment practices based on individual skills and abilities. We
will not do business with those you discriminate in any way.
5. GENERAL. Our intent is to do business with partners,
sources and vendors who contribute to the betterment of their
communities and who train and develop their workers.
OUR COMMITMENT
Partners and Sources who do business with The Stanley Works and
Stanley Logistics, Inc. can expect the following:
A professional approach to business that emphasizes customer satisfaction,
product quality, and recognizes the right of our partners and sources to
receive a fair return for their efforts.
Regular contact with The Stanley Works and Stanley Logistics, Inc.
personnel for program and management and technical support.
Business conducted in an open and truthful way with conduct that is ethical
at all times and under all circumstances.
<PAGE>
- -------------------------------------------------------------------------------
COAST
LOAN AND SECURITY AGREEMENT
BORROWER: JORE, INC.
ADDRESS: 45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
DATE: MAY 15, 1996
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan
Association ("Coast"), a California corporation, with offices at 12121
Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and the
borrower(s) named above (jointly and severally, the "Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed
to be a part of this Agreement, and the same is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set
forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts
determined by Coast in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth
to the contrary in this Agreement. Interest shall be payable monthly, on the
last day of the month. Interest may, in Coast's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the
same rate as the other Loans. Regardless of the amount of Obligations that
may be outstanding from time to time, Borrower shall pay Coast minimum
monthly interest during the term of this Agreement with respect to the
Receivable Loans in the amount set forth on the Schedule (the "Minimum
Monthly Interest").
1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
not refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to Coast a security interest
in all of Borrower's interest in the following, whether now owned or
hereafter acquired, and wherever located: All Receivables, Inventory,
Equipment, and General Intangibles, including, without limitation, all of
Borrower's Deposit Accounts, and all money, and all property now or at any
time in the future in Coast's possession (including claims and credit
balances), and all proceeds of any of the foregoing (including proceeds of
any insurance policies, proceeds of proceeds, and claims against third
parties), all products of any of the foregoing, and all books and records
related to any of the foregoing (all of the foregoing, together with all
other property in which Coast may now or in the future be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be
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true, and that Borrower will at all times comply with all of the following
covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Borrower is
and will continue to be qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse
effect on Borrower. The execution, delivery and performance by Borrower of
this Agreement, and all other documents contemplated hereby (i) have been
duly and validly authorized, (ii) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally), and
(iii) do not violate Borrower's articles or certificate of incorporation, or
Borrower's by-laws, or any law or any material agreement or instrument which
is binding upon Borrower or its property, and (iv) do not constitute grounds
for acceleration of any material indebtedness or obligation under any
material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Borrower and all of Borrower's present and prior trade
names. Borrower shall give Coast 30 days' prior written notice before
changing its name or doing business under any other name. Borrower has
complied, and will in the future comply, with all laws relating to the
conduct of business under a fictitious business name.
3.3 PLACE OF BUSINESS, LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at
the locations set forth on the Schedule. Borrower will give Coast at least 30
days prior written notice before opening any additional place of business,
changing its chief executive office, or moving any of the Collateral to a
location other than Borrower's Address or one of the locations set forth on
the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and
will remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has,
and will continue to have, a first-priority perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted
Liens, and Borrower will at all times defend Coast and the Collateral against
all claims of others. None of the Collateral now is or will be affixed to any
real property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral
and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed
of trust, lien or otherwise), Borrower shall, whenever requested by Coast,
use its best efforts to cause such third party to execute and deliver to
Coast, in form acceptable to Coast, such waivers and subordinations as Coast
shall specify, so as to ensure that Coast's rights in the Collateral are, and
will continue to be, superior to the rights of any such third party. Borrower
will keep in full force and effect, and will comply with all the terms of,
any lease of real property where any of the Collateral now or in the future
may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with generally accepted accounting principles (except,
in the case of unaudited financial statements, for the absence of footnotes
and subject to normal year-end adjustments) and now and in the future will
fairly reflect the financial condition of Borrower, at the times and for the
periods therein stated. Between the last date covered by any such statement
provided to Coast and the date hereof, there has been no material adverse
change in the
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financial condition or business of Borrower. Borrower is now and will
continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by Borrower. Borrower
may, however, defer payment of any contested taxes, provided that Borrower
(i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Coast in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other
steps required to keep the contested taxes from becoming a lien upon any of
the Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result
in additional taxes becoming due and payable by Borrower. Borrower has paid,
and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental
agency.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in
all material respects, with all provisions of all material foreign, federal,
state and local laws and regulations relating to Borrower, including, but not
limited to, those relating to Borrower's ownership of real or personal
property, the conduct and licensing of Borrower's business, and environmental
matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower,
or in any material impairment in the ability of Borrower to carry on its
business in substantially the same manner as it is now being conducted.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or
against Borrower involving any single claim of $50,000 or more, or involving
$100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any
"margin stock" (as defined in Regulation G of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used
to purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
4. Receivables.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Coast as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other
documents evidencing the Receivables are and shall be true and correct and
all such invoices, instruments and other documents and all of Borrower's
books and records are and shall be genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Receivable shall fully comply with all applicable laws and governmental
rules and regulations. All signatures and endorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast transaction reports and loan requests, schedules of
Receivables, and schedules of collections, all on Coast's standard forms;
provided, however, that Borrower's failure to execute and deliver the same
shall not affect or limit Coast's security interest and other rights in all
of Borrower's Receivables,
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nor shall Coast's failure to advance or lend against a specific Receivable
affect or limit Coast's security interest and other rights therein. Loan
requests received after 10:30 AM will not be considered by Coast until the
next Business Day. Together with each such schedule, or later if requested by
Coast, Borrower shall furnish Coast with copies (or, at Coast's request,
originals) of all contracts, orders, invoices, and other similar documents,
and all original shipping instructions, delivery receipts, bills of lading,
and other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Receivables, and Borrower warrants the genuineness of
all of the foregoing. Borrower shall also furnish to Coast an aged accounts
receivable trial balance in such form and at such intervals as Coast shall
request. In addition, Borrower shall deliver to Coast the originals of all
instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Receivables, upon receipt
thereof and in the same form as received, with all necessary endorsements,
all of which shall be with recourse. Borrower shall also provide Coast with
copies of all credit memos as and when requested by Coast.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to
collect all Receivables, unless and until an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust
for Coast, and Borrower shall deliver all such payments and proceeds to Coast
within one Business Day after receipt by Borrower, in their original form,
duly endorsed to Coast, to be applied to the Obligations in such order as
Coast shall determine. Coast may, in its discretion, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or
such other "blocked account" as Coast may specify, pursuant to a blocked
account agreement in such form as Coast may specify. Coast or its designee
may, at any time, notify Account Debtors that Coast has been granted a
security interest in the Receivables.
4.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition
of any Collateral shall be delivered to Coast within one Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of
Borrower's other funds or property, but will hold such proceeds separate and
apart from such other funds and property and in an express trust for Coast.
Noting in this Section limits the restrictions on disposition of Collateral
set forth elsewhere in this Agreement.
4.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in
full, or agree to do any of the foregoing, except that Borrower may do so,
provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Coast on the regular reports provided to
Coast; (ii) no Default or Event of Default has occurred and is continuing;
and (iii) taking into account all such discounts settlements and forgiveness,
the total outstanding Loans will not exceed the Credit Limit. Coast may, at
any time after the occurrence of an Event of Default, settle or adjust
disputes or claims directly with Account Debtors for amounts and upon terms
which Coast considers advisable in its reasonable credit judgment and, in all
cases, Coast shall credit Borrower's Loan account with only the net amounts
received by Coast in payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor
in the appropriate amount. In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (i) hold the returned
Inventory in trust for Coast, (ii) segregate all returned Inventory from all
of Borrower's other property, (iii) conspicuously label the returned
Inventory as subject to Coast's security interest, and (iv) immediately
notify Coast of the return of any Inventory, specifying the reason for such
return, the location and condition of the returned Inventory, and on Coast's
request deliver such returned Inventory to Coast.
4.8 VERIFICATION. Coast may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters
relating to the Receivables, by means of mail, telephone or otherwise, either
in the name of Borrower or Coast or such other name as Coast may choose.
4.9 NO LIABILITY. Coast shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss
or destruction of, any goods, the sale or other disposition of which gives
rise to a Receivable, or for any error, act, omission, or delay of any kind
occurring in the settlement, failure to settle, collection or failure to
collect any Receivable, or for
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settling any Receivable in good faith for less than the full amount thereof,
nor shall Coast be deemed to be responsible for any of Borrower's obligations
under any contract or agreement giving rise to a Receivable. Nothing herein
shall, however, relieve Coast from liability for its own gross negligence or
willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast
may reasonably require, and Borrower shall provide evidence of such insurance
to Coast, so that Coast is satisfied that such insurance is, at all times, in
full force and effect. All liability insurance policies of Borrower shall
name Coast as an additional insured, and all property casualty and related
insurance policies of Borrower shall name Coast as a loss payee thereon and
Borrower shall cause a lenders loss payee endorsement in form reasonably
acceptable to Coast. Upon receipt of the proceeds of any such insurance,
Coast shall apply such proceeds in reduction of the Obligations as Coast
shall determine in its sole discretion, except that, provided no Default or
Event of Default has occurred and is continuing, Coast shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$50,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be
so used. If Borrower fails to provide or pay for any insurance, Coast may,
but is not obligated to, obtain the same at Borrower's expense. Borrower
shall promptly deliver to Coast copies of all reports made to insurance
companies.
5.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in the Schedule, and such other written reports
with respect to Borrower (including budgets, sales projections, operating
plans and other financial documentation), as Coast shall from time to time
reasonably specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and
on one Business Day's notice, Coast, or its agents, shall have the right to
inspect, audit and copy Borrowers' books and records and the Collateral (the
"Audits"). Coast shall take reasonable steps to keep confidential all
confidential information obtained in any Audit, but Coast shall have the
right to disclose any such information to its auditors, regulatory agencies,
and attorneys, and pursuant to any subpoena or other legal process. The
Audits shall be conducted every 90 days at Borrower's expense and the charge
for the Audits shall be $550 per person per day (or such higher amount as
shall represent Coast's then current standard charge for the same), plus
reasonable out of pocket expenses. Borrower will not enter into any agreement
with any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address, without first
notifying Coast of the same and obtaining the written agreement from such
accounting firm, service bureau or other third party to give Coast the same
rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement.
5.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior
written consent, do any of the following:
(i) merger or consolidate with another corporation or entity, except in
a transaction in which (A) the shareholders of the Borrower hold at least 50%
of the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (B) the Borrower is the
surviving corporation;
(ii) acquire any assets, except (A) in the ordinary course of business,
or (B) in a transaction or a series of transactions not involving the payment
of an aggregate amount in excess of $200,000;
(iii) enter into any other transaction outside the ordinary course of
business;
(iv) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the
sale of obsolete or unneeded Equipment in the ordinary course of business;
(v) store any Inventory or other Collateral with any warehouseman or
other third party;
(vi) sell any Inventory on a sale-or-return guaranteed sale,
consignment, or other contingent basis;
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(vii) make any loans of any money or other assets, except (A) advances
to customers or suppliers in the ordinary course of business, (B) travel
advances, employee relocation loans and other employee loans and advances in
the ordinary course of business, and (C) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(viii) incur any debts, outside the ordinary course of business, which
would have a material, adverse effect on Borrower or on the prospect of
repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(x) except for "S Corporation Tax Distributions", declare or pay any
dividends, either in cash or property, on any shares of its capital stock of
any class (except dividends or other distributions payable solely in shares
of capital stock of the company) without first obtaining Coast's consent,
such consent shall not be unreasonably withheld;
(xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock, except that Borrower may repurchase
stock owned by employees, directors and consultants of Borrower pursuant to
terms of employment, consulting or other stock restruction agreements at such
time as any such employee, director or consultant terminates his or her
affiliation with the Borrower, for an aggregate purchase price not to exceed
$100,000 in any fiscal year;
(xii) make any change in Borrower's capital structure which would have
a material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or
(xiii) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Coast with respect to any Collateral or relating
to Borrower, Borrower shall, without expense to Coast, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Coast may, deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.
5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold
Coast harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, reasonable costs
and expenses (including reasonable attorneys' fees), of every nature,
character and description, which Coast may sustain or incur based upon or
arising out of any of the Obligations, any actual or alleged failure to
collect and pay over any withholding or other tax relating to Borrower or its
employees, any relationship or agreement between Coast and Borrower, any
actual or alleged failure of Coast to comply with any writ of attachment or
other legal process relating to Borrower or any of its property, or any other
matter, cause or thing whatsoever occurred, done, omitted or suffered to be
done by Coast relating to Borrower or the Obligations (except any such
amounts sustained or incurred as the result of the gross negligence or willful
misconduct of Coast). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full
force and effect.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that
the Maturity date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to
terminate this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days
after written notice of termination is given to Coast; or (ii) by Coast at
any time after the occurrence of an Event of Default, without notice,
effective immediately. If this Agreement is terminated by Borrower or by Coast
under this Section 6.2, Borrower shall pay to Coast a termination fee (the
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"Early Termination Fee") in the amount shown on the Schedule. The Early
Termination Fee shall be due and payable on the effective date of termination
and thereafter shall bear interest at a rate equal to the rate applicable to
the Receivable Loans.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether
or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if on the
Maturity Date, or on any earlier effective date of termination, there are any
outstanding Letters of Credit issued by Coast or issued by another
institution based upon an application, guarantee, indemnity or similar
agreement on the part of Coast, then on such date Borrower shall provide to
Coast cash collateral in an amount equal to the face amount of all such
Letters of Credit plus all interest, fees and cost due or to become due in
connection therewith, to secure all of the Obligations relating to said
Letters of Credit, pursuant to Coast's then standard form cash pledge
agreement. Notwithstanding any termination of this Agreement, all of Coast's
security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until
all Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the discretion of Coast, Coast
may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, Coast shall promptly deliver
to Borrower termination statements, requests for reconveyances and such other
documents as may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Coast immediate written notice thereof: (a) Any material warranty,
representation, statement, report or certificate made or delivered to Coast
by Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail after five (5) days notice, to pay when due any Loan or any
interest thereon or any other monetary Obligation; or (c) the total Loans and
other Obligations outstanding at any time shall exceed the Credit Limit; or
(d) Borrower shall fail after five (5) days notice, to deliver the proceeds
of Collateral to Coast as provided in Section 4.5 above, or shall fail to
give Coast access to its books and records or Collateral as provided in
Section 5.4 above, or shall breach any negative covenant set forth in Section
5.5 above; or (e) Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other
non-monetary Obligation, which by its nature cannot be cured; or (f) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within 5 Business Days after the date due; or (g) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is
made on all or any part of the Collateral which is not cured within 10 days
after the occurrence of the same; or (h) any default or event of default
occurs under any obligation secured by a Permitted Lien, which is not cured
within any applicable cure period or waived in writing by the holder of the
Permitted Lien; or (i) Borrower breaches any material contract or obligation,
which has nor may reasonably be expected to have a material adverse effect on
Borrower's business or financial condition; or (j) Dissolution, termination
of existence, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction, now or in the future in effect; or (k) the commencement
of any proceeding against Borrower or any guarantor of any of the Obligations
under any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, now
or in the future in effect, which is not cured by the dismissal thereof
within 30 days after the date commenced; or (l) revocation or termination of,
or limitation or denial of liability upon, any guaranty of the Obligations or
any attempt to do any of the foregoing, or commencement of proceedings by any
guarantor of any of the Obligations under any bankruptcy of insolvency law;
or (m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property
or asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any
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bankruptcy or insolvency law; or (n) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the
Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) there shall be a change in the record or beneficial ownership of an
aggregate of more than 20% of the outstanding shares of stock of Borrower, in
one or more transactions, compared to the ownership of outstanding shares of
stock of Borrower in effect on the date hereof, without the prior written
consent of Coast; or (p) Borrower shall generally not pay its debts as they
become due, or Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (q) there shall be a
material adverse change in Borrower's business or financial condition; or (r)
Coast, after five (5) days notice, acting in good faith and in a commercially
reasonable manner, deems itself insecure because of the occurrence of an
event prior to the effective date hereof of which Coast had no knowledge on
the effective date or because of the occurrence of an event on or subsequent
to the effective date. Coast may cease making any Loans hereunder during any
of the above cure periods, and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one
or more of the following: (a) Cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it
may be found, and for that purpose Borrower hereby authorizes Coast without
judicial process to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store, or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on
the premises in exclusive control thereof, without charge for so long as
Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however,
that should Coast seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as
an incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii)
any requirement that Coast retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to Coast at
places designated by Coast which are reasonably convenient to Coast and
Borrower, and to remove the Collateral to such locations as Coast may deem
advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Coast shall have the
right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems reasonable, or on Coast's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Coast may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition. Any sale or other disposition of
Collateral shall not relieve Borrower of any liability Borrower may have if
any Collateral is defective as to title or physical condition or otherwise at
the time of sale; (g) Demand payment of, and collect any Receivables and
General Intangibles comprising Collateral and, in connection therewith,
Borrower irrevocably authorizes Coast to endorse or sign Borrower's name on
all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in Coast's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face
value; (h) offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Coast; and (i) Demand and receive possession of
any of Borrower's federal and state income tax returns and the books and
records utilized in the preparation thereof or referring thereto. All
reasonable
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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attorneys' fees, expenses, costs, liabilities aNd obligations incurred by
Coast with respect to the foregoing shall be due from the Borrower to Coast
on demand. Coast may charge the same to Borrower's loan account, and the same
shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans. Without limiting any of Coast's rights and remedies, from
and after the occurrence of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional three
percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in
a newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Coast, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase
price in cash or by cashier's check or wire transfer is required; (Vi) With
respect to any sale of any of the Collateral, Coast may (but is not obligated
to) direct any prospective purchaser to ascertain directly from Borrower any
and all information concerning the same. Coast shall be free to employ other
methods of noticing and selling the Collateral, in its discretion, if they
are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the
continuance, of any Event of Default, without limiting Coast's other rights
and remedies, Borrower grants to Coast an irrevocable power of attorney
coupled with an interest, authorizing and permitting Coast (acting through
any of its employees, attorneys or agents) at any time, at its option, but
without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise,
but Coast agrees to exercise the following powers in a commercially
reasonable manner: (a) Execute on behalf of Borrower any documents that Coast
may, in its sole discretion, deem advisable in order to perfect and maintain
COast's security interest in the Collateral, or in order to exercise a right
of Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future
agreements; (b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose
of or to lease (as lessor or lessee) any real of personal property which is
part of Coast's Collateral or in which Coast has in an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's
or other lien, or assignment or satisfaction of mechanic's, materialman's or
other lien; (d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come
into Coast's possession; (e) Endorse all checks and other forms of
remittances received by Coast; (f) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less
than face value and execute all releases and other documents in connection
therewith; (h) Pay any sums required on account of Borrower's taxes or to
secure the release of any liens therefor, or both; (i) Settle and adjust, and
give releases of, any insurance claim that relates to any of the Collateral
and obtain payment therefor; (j) Instruct any third party having custody or
control of any books or records belonging to, or relating to, Borrower to
give Coast the same rights of access and other rights with respect thereto as
Coast has under this Agreement; and (k) Take any action or pay any sum
required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Coast with respect to the foregoing shall be added to and become
part of the Obligations, and shall be payable on demand. Coast may charge the
foregoing to Borrower's loan account and the foregoing shall thereafter bear
interest at the same rate applicable to the Receivable Loans. In no event
shall Coast's rights under the foregoing power of attorney or any of Coast's
other rights under this Agreement be deemed to indicate that Coast is in
control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral shall be applied by Coast first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Coast in the exercise of its rights under this Agreement,
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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second to the interest due upon any of the Obligations, and third to the
principal of the Obligations, in such order as Coast shall determine in its
sole discretion. Any surplus shall be paid to Borrower or other persons
legally entitled thereto; Borrower shall remain liable to Coast for any
deficiency. If, Coast, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Coast shall have the option, exercisable at any time, in
its sole discretion, of either reducing the Obligations by the principal
amount of purchase price or deferring the reduction of the Obligations until
the actual receipt by Coast of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and
under all other applicable laws, and under any other instrument or agreement
now or in the future entered into between Coast and Borrower, and all of such
rights and remedies are cumulative and none is exclusive. Exercise or partial
exercise by Coast of one or more of its rights or remedies shall not be
deemed an election, nor bar Coast from subsequent exercise or partial
exercise of any other rights or remedies. The failure or delay of Coast to
exercise any rights or remedies shall not operate as a waiver thereof, but
all rights and remedies shall continue in full force and effect until all of
the Obligations have been fully paid and performed.
8. DEFINITIONS. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE
FOLLOWING MEANINGS:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Coast is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE INVENTORY" means inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting the fact that the
determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Inventory: Inventory which (i) consists of
finished goods, in good, new and salable condition which is not perishable,
not obsolete or unmerchantable, and is not comprised of raw materials, work
in process, packaging materials or supplies; (ii) meets all applicable
government standards; (iii) has been manufactured in compliance with the Fair
Labor Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; and (vi) is
situated at a one of the locations set forth on the Schedule.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for
borrowing, based on such considerations as Coast may from time to time deem
appropriate.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory), of every kind and
description used in Borrower's operations or owned by Borrower and any
interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to any of
the foregoing, wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of
this Agreement.
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for
any cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, all claims of Borrower against
Coast, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims
(including without limitation life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease (including
without limitation all raw materials, work in process, finished goods and
goods in transit, and including without limitation all farm products), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise or other personal property, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 1 of the
Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at
any time owing by Borrower to Coast, whether evidenced by this Agreement or
any note or other instrument or document, whether arising from an extension
of credit, opening of a letter of credit, banker's acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect
(including, without limitation, those acquired by assignment and any
participation by Coast in Borrower's debts owing to others), absolute or
contingent, due or to become due, including, without limitation, all
interest, charges, expenses, fees, attorney's fees, expert witness fees,
audit fees, letter of credit fees, collateral monitoring fees, closing fees,
facility fees, termination fees, minimum interest charges and any other sums
chargeable to Borrower under this Agreement or under any other present or
future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Coast, which consent shall not
be unreasonably withheld; (v) security interests being terminated
substantially concurrently with this Agreement; (vi) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not
delinquent; (vii) liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by liens of the type described
above in clauses (i) or (ii) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien
and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; (viii) liens in favor of customs and revenue
authorities which secure payment of customs duties in connection with the
importation of goods. Coast will have the right to require, as a condition
to its consent under subparagraph (iv) above, that the holder of the
additional security interest or lien sign an intercreditor agreement on
Coast's then standard form, acknowledge that the security interest is
subordinate to the security interest in favor of Coast, and agree not to take
any action to enforce its subordinate security interest so long as any
Obligations remain outstanding, and that Borrower agree that any uncured
default in any obligation secured by the subordinate security interest shall
also constitute an Event of Default under this Agreement.
"PERSON" means any individuals, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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earned by performance), letters of credit, contract rights, chattel paper,
instruments, securities, documents and all other forms of obligations at any
time owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of
stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"S CORPORATION TAX DISTRIBUTIONS" shall mean for any period after
December 31, 1993 during which the Company is an S corporation (as defined in
Section 1361 of the Code) the aggregate amount of distributions made by the
Company to all of the holders of the Company's capital stock (each such
holder being a "Shareholder") to pay federal and state income taxes on each
such Shareholder's pro rata share (a "Pro Rata Share") of the items of income
and gain, if any, less the items of losses and deductions, if any, of the
company for such period ("Net Income") required to be reported on the
individual income tax returns of the Shareholder, which taxes shall be
calculated as follows: (ii) in computing federal income taxes, the maximum
marginal federal income tax rate for an individual taxpayer for such period
shall be used, provided, that this definition shall also include any federal
and state income taxes of the Shareholder for any calendar year prior to 1994
which become due subsequent to the Closing Date.
OTHER TERMS: All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in
accordance with generally accepted accounting principles, consistently
applied. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Coast
(including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations three Business
Days after receipt by Coast of immediately available funds, and, for purposes
of the foregoing, any such funds received after 11:00AM on any day shall be
deemed received on the next Business Day. Coast shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Coast in its sole discretion, and Coast may charge
Borrower's loan account for the amount of any item of payment which is
returned to Coast unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Coast's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as Coast shall
determine in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to
Borrower's Loan account, in which event they will bear interest at the same
rate applicable to the Loans. Coast may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or
omissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by
one party to the other party. Notices to Coast shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in
full force and effect.
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH RE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS
SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or
any other present or future agreement between Borrower and Coast shall not
waive or diminish any right of Coast later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent, and whether or not similar. None
of the provisions of this Agreement or any other agreement now or in the
future executed by Borrower and delivered to Coast shall be deemed to have
been waived by any act or knowledge of Coast or its agents or employees, but
only by a specific written waiver signed by an authorized officer of Coast
and delivered to Borrower. Borrower waives demand, protest, notice of
protest and notice of default or dishonor, notice of payment and nonpayment,
release, compromise, settlement, extension or renewal of any commercial
paper, instrument, account, General Intangible, document or guaranty at any
time held by Coast on which Borrower is or may in any way be liable, and
notice of any action taken by Coast, unless expressly required by this
Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims,
demands, losses or damages, of any kind whatsoever, made, claimed, incurred
or suffered by Borrower or any other party through the ordinary negligence of
Coast, or any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing Coast, but nothing herein shall
relieve Coast from liability for its own gross negligence or willful
misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare
and negotiate this Agreement and the documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower; enforce,
or seek to enforce, any of its rights; prosecute actions against, or defend
actions by, Account Debtors; commence, intervene in, or defend any action or
proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Coast's security
interest in, the Collateral; and otherwise represent Coast in any litigation
relating to Borrower. If either Coast or Borrower files any lawsuit against
the other predicated on a breach of this Agreement, the prevailing party in
such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order,
decree, award or judgment. Borrower shall also pay Coast's standard charges
for returned checks and for wire transfers, in effect from time to time. All
attorneys' fees, costs and charges to which Coast may be entitled pursuant to
this Paragraph may be charged by Coast to Borrower's loan account and shall
thereafter bear interest at the same rate as the Receivable Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under
this Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall
release Borrower from its liability for the Obligations.
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<PAGE>
9.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published
announcing the consummation of this transaction and the aggregate amount
thereof.
9.15 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than
one Person, their liability shall be joint and several, and the compromise of
any claim with, or the release of, any Borrower, shall not constitute a
compromise with, or a release of, any other Borrower.
9.16 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Coast, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or
any other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Coast, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of
an action or proceeding in a court of competent jurisdiction by the filing of
a complaint within one year after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based, and the
service of a summons and complaint on an officer of Coast, or on any other
person authorized to accept service on behalf of Coast within thirty (30)
days thereafter. Borrower agrees that such one-year period is a reasonable
and sufficient time for Borrower to investigate and act upon any such claim
or cause of action. The one-year period provided herein shall not be waived,
tolled, or extended except by the written consent of Coast in its sole
discretion. This provision shall survive any termination of this Loan
Agreement or any other present or future agreement.
9.17 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that
the headings may not describe completely the subject matter of the
applicable paragraph, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
The term "including", whenever used in this Agreement, shall mean "including
(but not limited to)". This Agreement has been fully reviewed and negotiated
between the parties and no uncertainty or ambiguity in any term or provision
of this Agreement shall be construed strictly against Coast or Borrower under
any rule of construction or otherwise.
9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Coast and
Borrower shall be governed by the laws of the State of California. As a
material part of the consideration to Coast to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at Coast's option, be litigated in courts
located within California, and that the exclusive venue therefor shall be Los
Angeles County; (ii) consents to the jurisdiction and venue of any such court
and consents to service of process in any such action or proceeding by
personal delivery or any other method permitted by law, and (iii) waives any
and all rights Borrower may have to object to the jurisdiction of any such
court, or to transfer or change the venue of any such action or proceeding.
9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT,
ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
-14-
<PAGE>
Borrower:
JORE, INC.
By /s/ Matthew Jore
-----------------------------------
Matthew Jore
Title: President
By /s/ Michael Jore
------------------------------------
Michael Jore
Title: Secretary
Coast:
COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association
By /s/ Barbara Nitkin
--------------------------------------
Barbara Nitkin
Title: Vice President
By /s/ Ralph X. Stone
--------------------------------------
Ralph X. Stone
Title: Vice President and Regional
Marketing Manager, Eastern
Region
-15-
<PAGE>
COAST
AMENDMENT TO LOAN AND SECURITY AGREEMENT
On May 15, 1996, Jore, Inc. ("Borrower") and Coast Business Credit, a
division of Southern Pacific Thrift & Loan Association ("Coast") entered into
a credit facility and executed a Loan and Security Agreement ("Agreement").
The parties now desire to amend the Loan and Security Agreement and Schedule
thereto as follows:
1. LETTERS OF CREDIT (Section 1.4):
At the request of Borrower, Coast may, in its sole discretion, arrange for
the issuance of letters of credit for the account of Borrower (collectively,
"Letters of Credit"), by issuing guarantees to the issuer of the letter of
credit or by other means. All Letters of Credit shall be in form and
substance satisfactory to Coast in its sole discretion. The aggregate face
amount of all outstanding Letters of Credit from time to time shall not
exceed the amount shown on the Schedule (the "Letter of Credit Sublimit"),
and shall be reserved against Loans which would otherwise be available
hereunder. Borrower shall pay all bank charges for the issuance of Letters of
Credit. Any payment by Coast under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each
Letter of Credit shall have an expiry date no later than thirty days prior to
the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Coast
harmless from any loss, cost, expense, or liability, including payments made
by Coast, expenses, and reasonable attorneys' fees incurred by Coast arising
out of or in connection with any Letters of Credit. Borrower agrees to be
bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Coast and opened for Borrower's account or by Coast's
interpretations of any Letter of Credit issued by Coast for Borrower's
account, and Borrower understands and agrees that Coast shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit
or any modifications, amendments, or supplements thereto. Borrower
understands that Letters of Credit may require Coast to indemnify the issuing
bank for certain costs or liabilities arising out of claims by Borrower
against such issuing bank. Borrower hereby agrees to indemnify and hold Coast
harmless with respect to any loss, cost, expense, or liability incurred by
Coast under any Letter of Credit as a result of Coast's indemnification of
any such issuing bank. The provisions of this Loan Agreement, as it pertains
to Letters of Credit, and any other present or future documents or agreements
between Borrower and Coast relating to Letters of Credit are cumulative.
2. DEFINITIONS (Section 8):
"DILUTION" means all non-cash reductions, including, but not limited to,
credit memos, discounts and journal entries, in the total amount of
Receivables, expressed as a percentage of Receivables.
"TANGIBLE NET WORTH" means stockholders' equity plus debt subordinated to
Coast, less goodwill, patents, trademarks, copyrights, franchises, formulas,
leasehold interests and leasehold improvements, non-compete agreements,
engineering plans, deferred tax benefits, organization costs, start-up costs
and any other intangibles as defined by generally accepted accounting
principles.
3. CREDIT LIMIT (Section 1.1): Loans in a total amount at any time
outstanding not to exceed the lesser of a total of $5,000,000 at any one time
outstanding (the "Maximum Dollar Amount"), or the sum of (a) and (b) below:
1
<PAGE>
(a) Loans (the "Receivable Loans") in an amount not to exceed 80%
of the amount of Borrower's Eligible Receivables, no more than 90
days past invoice date and an amount not to exceed 85% of Eligible
Receivables if Dilution is less than 5%, plus
(b) A Letter of Credit Sublimit not to exceed $500,000 with 100%
against availability on standby Letters of Credit.
4. INTEREST (Section 1.2):
INTEREST RATE: A rate equal to the "Prime Rate" plus 2.0% per annum;
the Interest Rate will be reduced to Prime Rate plus
1.5% per annum upon Borrower's achieving and
maintaining Tangible Net Worth of $2,500,000 for two
consecutive quarters.
MINIMUM MONTHLY
INTEREST: Shall be based on a minimum monthly average loan
outstanding of $1,600,000 through March 31, 1999.
5. FEES (Section 1.3):
LINE INCREASE FEE: $10,000 due upon execution of this Amendment.
LETTER OF CREDIT FEE: 1/4% per month plus bank charges and fees.
The Loan and Security Agreement and the Schedule attached thereto are
incorporated herein by this reference; further, all other terms and
conditions contained in the Agreement shall remain the same.
Executed this 19th day of September, 1997.
Borrower: Coast:
JORE, INC. COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association
By By
------------------------------- ----------------------------------
Matthew Jore Edit Kondorosi
Title: President Title: Senior Vice President
2
<PAGE>
COAST---------------------------------------------------------------------------
SIXTH AMENDMENT TO THE
RESTATED AND AMENDED LOAN AND SECURITY
AGREEMENT AND SCHEDULE
BORROWER: JORE CORPORATION
ADDRESS: 45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
DATE: MAY 12, 1999
This Sixth Amendment to the Loan and Security Agreement and Schedule dated
February 16, 1998 and as amended June 3, 1998, June 29, 1998, September 25,
1998, November 25, 1998 and January 12, 1999 ("Agreement") between Coast
Business Credit-Registered Trademark-, a division of Southern Pacific Bank
formerly Southern Pacific Thrift & Loan Association ("Coast") and Jore
Corporation formerly Jore, Inc. ("Borrower") is entered into the date set
forth above. Coast and Borrower desire to amend the Agreement as set forth
herein ("Amendment"). All other terms and conditions of the Agreement shall
remain the same.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE TO THE LOAN AND SECURITY AGREEMENT
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT: Loans in a total asmount at any time
outstanding not to exceed the lesser of a
total of Twenty-Five Million Dollars
($25,000,000) at any one time outstanding
(the "Maximum Dollar Amount"), or the sum
of (a), (b), (c), (d) and (e) below:
(a) Receivable Loans in an amount not to
exceed the lesser of:
(1) Eighty-five (85%) percent of the
amount of Borrower's Eligible
Receivables (as defined in Section 1
of the Agreement) provided that
Dilution does not exceed five
percent (5%) at which time the advance
rate may be reduced by Coast in its
reasonable judgment, OR
(2) Twenty-Five Million Dollars
($25,000,000), plus
(b) Inventory Loans in an amount not to
exceed the lesser of:
(1) An amount up to sixty percent (60%)
of the value of Borrower's Eligible
Inventory (as defined in Section 1
of the Agreement) consisting of raw
materials and component parts;
1
<PAGE>
Coast Business Credit Sixth Amendment to the Restated
and Amended Loan and Security
Agreement and Schedule
- --------------------------------------------------------------------------------
and an amount up to sixty-five
percent (65%) of the value of
Borrower's Eligible Inventory (as
defined in Section 1 of the
Agreement) consisting of packaged
and unpackaged finished goods,
subject to an appraisal by an
appraisal firm acceptable to Coast,
with all Inventory calculated at
the lower of cost or market value and
determined on a first-in,
first-out basis, or
(2) Four Million Five Hundred Thousand
Dollars ($4,500,000), or
(3) Forty-five percent (45%) of total
Inventory, PLUS
(c) A Senior Term Loan in the original
principal amount of Six Million Five
Hundred Thousand Dollars ($6,500,000),
subject to an appraisal acceptable to
Coast of existing Real Estate and
Equipment by an appraisal firm approved
by Coast, and amortized over eighty-four
(84) months, all due and payable in
five (5) years, PLUS
(d) Equipment Acquisition Loans, in
minimum advances of One Hundred
Thousand Dollars ($100,000), amortized
over sixty (60) months in a total
amount not to exceed the lesser of:
(1) Eighty percent (80%) of the cost
of new Equipment (after subtracting
taxes and installation charges),
PLUS up to eighty percent (80%) of
the appraised forced liquidation
value of used Equipment acquired by
Borrower (after subtracting taxes
and installation charges); or
(2) Four Million Five Hundred Thousand
Dollars ($4,500,000); PLUS
(e) Overadvance Loans not to exceed One
Million Five Hundred Thousand Dollars
($1,500,000) all due and payable July
31, 1999, to be repaid from the
proceeds of an Initial Public Offering,
Private Placement, Bridge Loan,
Collection of Receivables or any other
source.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECTION 3- INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus 1.00%
per annum, calculated on the basis of a
360-day year for the actual number of days
elapsed for the Receivable Loans, Inventory
Loans, Equipment Acquisition Loans and the
Overadvance Loan. The Senior Term Loan
Interest Rate shall be based upon the
highest yield for Seven (7) year Treasury
Notes as published in the Wall Street
Journal on the first Business Day
proceeding the Closing Date plus 350 Basis
Points. The interest rate applicable to
all Loans, except for the Senior Term
Loan, shall be adjusted monthly as of the
first day of each month, and the interest to
be
2
<PAGE>
Coast Business Credit Sixth Amendment to the Restated
and Amended Loan and Security
Agreement and Schedule
- --------------------------------------------------------------------------------
charged for each month shall be based on
the highest Prime Rate in effect during said
month, but in no event shall the rate of
interest charged on any Loans in any month be
less than nine (9.00%) percent per annum.
SECTION 3.1 - MINIMUM MONTHLY
INTEREST: An amount not less than the interest
payable based upon a minimum daily loan
balance of $10,000,000.
SECTION 3.2 - OVERADVANCE FEE: $75,000 fully earned concurrently herewith
and payable $25,000 upon execution of this
Agreement, $25,000 due on June 1, 1999, and
$25,000 due on July 1, 1999.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
This Amendment may be executed in counterparts and a facsimile of this
Amendment may be used as an original.
Borrower: Coast:
JORE CORPORATION COAST BUSINESS CREDIT-Registered
formerly Jore, Inc. Trademark-, a division of Southern
Pacific Bank formerly Southern
Pacific Thrift and Loan Association
By: /s/ Matthew B. Jore By: /s/ Karen Sperry
------------------------------------ --------------------------------
Matthew B. Jore Karen Sperry
Title: President Title: Vice President
3
<PAGE>
ASSIGNMENT
WHEREAS, I, Matthew B. Jore a citizen of the United States of America,
and residing at Ronan, Montana, hereinafter referred to as the Inventor, have
invented certain new and useful improvements in a
"SCREW HOLDING AND DRIVING DEVICE"
for which an application for Letters Patent of the United States was filed on
December 13, 1985, receiving the Serial No. 06/808,738.
NOW, THEREFORE, to all whom it may concern, as of January 1, 1999, be
it known that the Inventor, for and in consideration of the sum of $1.00 (one
dollar) and other valuable considerations in hand paid to the Inventor by Jore
Corporation, a corporation organized under the laws of the State of Montana,
having a place of business at 45000 Highway 93 South, Ronan, Montana 59864,
hereinafter referred to as the Assignee, the receipt of all of which
considerations is hereby acknowledged, hereby sells, assigns and transfers unto
the Assignee, its successors and assigns, the entire right, title and interest
in and to said application, all the claimable subject matter thereof, any United
States letters patent granted thereon or for said subject matter or any part of
it, and any division, continuation, continuation-in-part, extension or re-issue
of said application or of any such letters patent, together with all rights to
obtain letters patent for said subject matter or any part of it in countries
foreign to the United States and the entire interest in
<PAGE>
such foreign letters patent, including, but not limited to the following:
a) United States Patent No. 4,736,658, issued on April 12, 1988.
AND, the Inventor hereby covenants with the Assignee, its successors and
assigns:
(1) That the Inventor will communicate to it or them all facts known
to the Inventor pertaining to said subject matter and will, whenever requested
by it or them, give any and all lawful testimony and execute any and all patent
applications, assignments or other documents that may be deemed by it or them
necessary or desirable in order to obtain, maintain or enforce letters patent
for said subject matter or any part of it in the United States or in any country
foreign to the United States, or in order to vest title to any such application
or letters patent in the Assignee or its successors, assigns or nominees; and
(2) That the Inventor has the full right to convey the rights and
property herein assigned and has made no subsisting license, assignment or other
conveyance of right in or of the same to any person or party other than
Assignee.
Signed at Ronan, MT
this 12th day of April, 1999 /s/ Matthew B. Jore
-------------------------
Matthew B. Jore
STATE OF MONTANA )
)
COUNTY OF Lake )
On this 12th day of April, 1999, before me personally appeared to me
known and known to me to be the person described in and who executed the
foregoing instrument, who duly acknowledged the same to be his free act and
deed.
SEAL
/s/ Stephanie A. McClure
---------------------------------
Notary Public or U.S. Vice-Consul
Residing at: Ronan, MT
Commission Expires: September 2002
<PAGE>
Exhibit 10.20
LIMITED CRAFTSMAN-Registered Trademark- TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT ("Agreement"), entered into and
effective as of the 3rd day of May, 1999, by and between SEARS, ROEBUCK AND
CO., a New York corporation, having its principal place of business at 3333
Beverly Road, Hoffman Estates, Illinois (hereinafter "SEARS") and JORE
CORPORATION, a Montana corporation, having its principal place of business at
P.O. Box 159, 45000 Highway 93S, Ronan, Montana (hereinafter "VENDOR").
WHEREAS, SEARS is the owner of the trademark CRAFTSMAN-Registered
Trademark-, as shown and described in EXHIBIT A (hereinafter the "MARK"), and
is the owner of various trademark applications and registrations in support
of the Mark; and
WHEREAS, VENDOR desires to use the Mark in connection with the
manufacture of certain products as specifically set forth in SECTION 1.1 of
the Agreement (hereinafter the "LICENSED PRODUCTS"), for retail sale by
Advance Stores Company, Inc. in Advance Auto Parts, Parts America and Western
Auto format retail stores (collectively, "Advance Auto") and only for use in
the United States or its territories (hereinafter the "TERRITORY"); and
WHEREAS, SEARS is willing to grant VENDOR a limited license to use the
Mark in the manufacture of certain Licensed Products for Advance Auto; and
WHEREAS, it is the mutual desire of SEARS and VENDOR to set forth in
this instrument the terms and conditions under which the VENDOR IS permitted
to use the Mark for the term of this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual promises
hereinafter set forth, and for other good and valuable consideration set
forth in this Agreement, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE 1
GRANT OF LICENSE
1.1 LICENSE OF MARK. Subject to the terms and conditions hereinafter
set forth, SEARS grants to VENDOR a limited, royalty-free, non-exclusive
right and license to use the Mark solely in the Territory and solely in
connection with the following specific Licensed Uses: for use in the
manufacture of certain products to be sold only to Advance Auto, which
products shall be limited to those products bearing the Mark which are sold
in Sears full line stores.
1.2 TERM OF LICENSE. The license granted herein shall be effective on
the second day of November, 1998, and shall continue until the second day of
November, 2000, unless sooner terminated in accordance with the provisions
hereof.
1.3 LIMITATION OF LICENSE. The license granted herein shall not be
transferable, in any manner, to any entity without the express written
permission of SEARS. VENDOR shall have no right to grant additional licenses
for use of the Mark or participate in sublicensing of the Mark.
<PAGE>
ARTICLE 2
ACKNOWLEDGEMENT OF SEARS'S RIGHTS
2.1 OWNERSHIP AND VALIDITY. VENDOR acknowledges SEARS's exclusive
ownership of the entire right, title and interest in and to the Mark. VENDOR
acknowledges that all use of the Mark shall be for the benefit of SEARS and
its related companies and that such use shall not create in VENDOR or Advance
Auto any right, title or interest in the Mark. VENDOR shall take no action
challenging the validity of SEARS's right to use the Mark throughout the
Territory.
2.2 ACTIONS PROHIBITED. VENDOR acknowledges that any right to use the
Mark is limited to the rights granted therein. During the term of and after
the termination of this Agreement, regardless of how the Agreement is
terminated, VENDOR shall not:
a) produce the Licensed Products for any other entity other than
Advance Auto;
b) attack the validity of this Agreement; or
c) use the Mark in combination with any name, mark, word (in English
or any other language), symbol, letter or design not previously approved by
SEARS ("Approved Mark"), which approval shall not be unreasonably withheld; or
d) adopt or seek to register or take any other action to use or
establish rights in any name, mark, word (in English or any other language),
symbol, letter or design which is confusingly similar to the Mark; or
e) attack or perform any action, direct or indirect, which might
challenge, impair or otherwise adversely affect the validity of the Mark or
SEARS's ownership thereof; or
f) engage in any action which it knows or has reason to know would
threaten, injure or diminish the image or reputation of SEARS or the Mark.
ARTICLE 3
ENFORCEMENT AND PROTECTION OF THE MARK
3.1 REGISTRATION, MAINTENANCE AND ENFORCEMENT. For existing and new
registrations, SEARS may take all reasonable actions to maintain, enforce and
defend the Mark and the registration of the Mark:
a) VENDOR will not apply to register, in any country, a trademark or
service mark similar or identical to the Mark or registrations for any goods
or services at any time during the effective term of this Agreement or
thereafter.
3.2 ACTIONS AGAINST ALLEGED INFRINGERS. VENDOR shall inform SEARS
promptly of each and every past, present or threatened future infringement of
SEARS rights in the Mark which come to VENDOR's attention. Legal proceedings
against alleged third party infringers shall be initiated at SEARS sole
discretion and, if requested by SEARS, VENDOR shall join such claim or suit.
SEARS shall assume primary responsibility for and control the handling of any
such action or the settlement thereof and recover all damages awarded subject
to any amounts to which VENDOR is entitled to indemnification pursuant to the
Agreements unless those damages are directly attributable to actual economic
loss incurred or suffered by SEARS, in which case, such damages shall be
recovered by SEARS after repayment of SEARS enforcement costs. VENDOR shall
not take
<PAGE>
any legal action nor engage in the settlement of any legal matter with
respect to the Mark without the express written consent of SEARS.
ARTICLE 4
QUALITY CONTROL OF PRODUCTS
4.1 SEARS'S RIGHT TO MONITOR AND CONTROL. SEARS shall have the right
to monitor and control the quality of any Licensed Products in connection
with which the Mark is used.
4.2 COMPLIANCE BY VENDOR. VENDOR agrees to the standards,
specifications and instructions set forth by SEARS with respect to the
quality of any products in connection with which the Mark is used. VENDOR
shall comply with all quality control review and approval procedures set by
SEARS, and shall participate and cooperate fully in any and all quality
control programs as directed by SEARS.
4.3 SEARS'S RIGHT TO INSPECT. SEARS or its representative shall have
the right to inspect VENDOR's places of business at reasonable times, with
reasonable notice, to assure compliance with SEARS's quality standards, and
VENDOR shall cooperate fully in such inspections.
4.4 CESSATION OR MODIFICATION OF USE. As instructed by SEARS, VENDOR
shall cease or modify any use of the Mark that SEARS deems not to be in
compliance with the applicable standards or instructions.
ARTICLE 5
NOTICE OF NON-COMPLIANCE
5.1 NOTICE IN WRITING. If SEARS discovers that the products in
connection with which the Mark is used are not of a quality acceptable to
SEARS, or if VENDOR is using the Mark in any manner other than as permitted
herein or if VENDOR fails to use the legends as provided herein, SEARS shall
be entitled to notify the VENDOR in writing, requiring same to be rectified
or remedied within thirty (30) days.
5.2 THIRTY DAYS TO CURE. If, after thirty (30) days, VENDOR has not
raised the quality of the specified goods to a level acceptable to SEARS, or
corrected the noted misuse of the Mark or commenced acceptable use of
legends, SEARS may terminate this Agreement effective upon mailing of written
notice of termination by courier or First Class Mail.
ARTICLE 6
TERMINATION
6.1 TERMINATION. This license will continue for the period specified
in 1.2, except that SEARS may terminate this Agreement effective upon
providing written notice of its intent to terminate if VENDOR is materially
in default in the performance of any of its obligations hereunder and such
default has remained uncured for a period of thirty (30) days after notice of
such default of this Agreement.
<PAGE>
ARTICLE 7
RIGHTS UPON TERMINATION
7.1 Upon termination of this Agreement, SEARS shall be entitled to
procure immediate cancellation of any recordal of this license, or
registration of the VENDOR as user of the Mark and VENDOR shall render all
necessary assistance in the process of such cancellation. In no event can
VENDOR claim any indemnity for the termination, revocation or suspension of
this Agreement if such termination, revocation or suspension is due to
SEARS's exercise of its rights under this Agreement.
ARTICLE 8
CESSATION OF USE
8.1 TERMINATION FOR NON-COMPLIANCE. In the event this Agreement is
terminated for VENDOR's failure to comply with all the terms herein, VENDOR
shall immediately cease all use of the Mark and return or destroy all
undistributed written materials bearing the Mark. VENDOR agrees that it will
not thereafter use the Mark or any other mark or trade name confusingly
similar to the Mark.
8.2 TERMINATION FOR REASONS OTHER THAN NON-COMPLIANCE. If this
Agreement is terminated for reasons other than non-compliance, VENDOR shall
cease use of the Mark as soon as practicable in accordance with a phase-out
schedule mutually agreed upon by the parties. In the absence of such mutual
agreement, VENDOR shall cease using the Mark within (3) months after
termination. VENDOR agrees that it will not thereafter use the Mark or any
other mark or trade name confusingly similar to the Mark.
ARTICLE 9
UNFORESEEN CIRCUMSTANCES
9.1 Except with respect to circumstances specifically described in
other articles of this Agreement, neither party to this Agreement shall be
liable for delay or failure to perform under this Agreement which results
from any occurrence or event which could not have been reasonably avoided,
including, but not limited to, accident; action of the elements; Act of God;
civil commotion; enemy action; epidemic; explosion; fire; flood;
insurrection; strike; lock-out or other labor trouble or shortage; war; act,
or demand or requirement of the law of the government within the Territory or
any other competent governmental authority, if the party in default makes
reasonable efforts to remove or overcome the effects of such occurrence or
event.
9.2 If any other circumstances whatsoever should occur, which are
beyond SEARS's control under which the rights granted under this Agreement
could in any way endanger SEARS's control over its rights in the Mark or the
Name, then SEARS shall be entitled to forthwith suspend for the duration of
such circumstances, by notice in writing, VENDOR's right, in whole or in
part, to use the Mark to the extent necessary to protect SEARS's rights.
ARTICLE 10
INDEMNIFICATION
10.1 VENDOR shall indemnify and hold SEARS harmless from and against
all claims, demands, suits, actions, proceedings and litigation arising out
of any alleged liability of SEARS for the acts of VENDOR in the course of its
business, including, but not limited to, all claims arising out of, or on
account of, alleged improper
<PAGE>
use or infringement of the Mark or Name used by VENDOR, but not for any
assertion of liability based solely on VENDOR's use of the Mark in accordance
with the terms of this Agreement.
ARTICLE 11
GENERAL PROVISIONS
11.1 COSTS INCIDENT TO AGREEMENT. Except as otherwise set forth
herein, each party shall pay its own legal, accounting and other expenses
incident to this Agreement and the consummation of the transactions
contemplated thereby.
11.2 ASSIGNABILITY. Neither this Agreement nor any right or obligation
hereunder is assignable, in whole or in part, by VENDOR to any entity without
the prior written consent of SEARS.
11.3 SURVIVABILITY. Upon termination of the rights granted to VENDOR
hereunder, all obligations and responsibilities of VENDOR as set forth in
this Agreement shall continue.
11.4 NOTICES. All notices and statements to be given shall be sent by
facsimile, overnight mail or courier, and all payments to be made pursuant to
this Agreement shall be mailed by courier or First Class Mail,
if to Sears to:
Name/Position: Michael W. Clark
Vice President & General Merchandise Manager
Hardware & Paint
Address: 3333 Beverly Road D3-168B
Hoffman Estates, Illinois 60179
Phone: (847)286-3420
Fax: (847)286-4435
and if to VENDOR to:
Name/Position: Matt Jore, President
Address: Jore Corporation
45000 Highway 93S
Ronan, Montana 59864
Phone: (406)676-4900
Fax: (406)676-8400
11.5 GOVERNING LAW. This Agreement shall be governed and construed
under the laws of the State of Illinois, United States of America. The
courts of the United States shall have jurisdiction over any dispute or
controversy arising out of this Agreement and both parties hereby submit to
the jurisdiction of such courts.
<PAGE>
ARTICLE 12
CONSTRUCTION OF AGREEMENT
12.1 HEADINGS. The paragraph headings of this Agreement are for
convenience only and shall not be deemed to affect in any way the meaning of
the provisions to which they refer.
12.2 SAVINGS CLAUSE. If any one or more of the provisions contained in
this Agreement or any document executed in connection herewith shall be
invalid, illegal, or unenforceable in any respect under any applicable law,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired; provided that,
in such case, the parties oblige themselves to use their best efforts to
achieve the purpose of the invalid provisions by a new legally valid
stipulation.
12.3 WAIVER. No failure or delay on the part of any party in the
exercise of any power, right, or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privilege.
12.4 NON-EXCLUSIVE NATURE OF EXPRESSED REMEDIES. All of the parties
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
12.5 ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding between the parties as to the subject matter hereof and
merges all prior discussions and negotiations between them. No modification
or amendment of this Agreement shall be valid or binding unless made in
writing and signed on behalf of the parties by their duly authorized officers
or representatives.
12.6 EXECUTION. This Agreement may be executed simultaneously with any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, SEARS and VENDOR have caused this Agreement to be
duly executed on their behalf in the manner legally binding upon them.
SEARS, ROEBUCK AND CO
SIGNATURE:
---------------------------------------
BY:
---------------------------------------
TITLE:
---------------------------------------
VENDOR
SIGNATURE: /s/ Matt Jore
---------------------------------------
BY: Matt Jore
---------------------------------------
TITLE: President
---------------------------------------
<PAGE>
EXHIBIT A
[CRAFTSMAN LOGO]
<PAGE>
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made this 8th day of June, 1999, between JORE
CORPORATION, a Montana corporation (the "Company"), and MATTHEW B. JORE
("Employee").
1. EMPLOYMENT. Beginning on the Effective Date (as defined in Section
7), the Company will employ Employee, and Employee will accept employment by
the Company, as Chief Executive Officer.
2. DUTIES. Employee's primary duties will consist of those as may be
determined by the Board of Directors.
3. TIME OBLIGATIONS; OTHER EMPLOYMENT. Employee will devote the time
and efforts to the Company's business as is consistent with the position of
Chief Executive Officer.
4. TERM OF EMPLOYMENT. Employee will be employed by the Company until
the date which is five (5) years from the Effective Date hereof.
5. COMPENSATION. For all services rendered by Employee under this
Agreement, the Company will pay Employee as follows from the Effective Date
hereof.
5.1 BASE SALARY. A base salary of Two Hundred Fifty Thousand
Dollars ($250,000).
5.2 BENEFITS. Employee shall be entitled to all fringe benefits
offered generally to the Company's senior managers and any other benefit
plans established by the Company, subject to the rules and regulations in
effect regarding participation in such benefit plans. In addition, Employee
shall be entitled to disability insurance coverage at his election, to
various club memberships to be paid for by the Company, and the provision of
a company paid automobile, together with all automobile expenses.
6. NONCOMPETITION AND CONFIDENTIALITY.
6.1 During the term of Employee's employment with the Company and
for a period of one year thereafter, Employee will not, directly or
indirectly, be employed by, own, manage, operate, join, control, or
participate in the ownership, management, operation or control of or be
connected in any manner with the business of manufacturing or distributing of
tool accessories, or any other product lines which the Company includes in
its markets during the course of Employee's employment hereunder. Employee
will be deemed to be connected with a business if such business is carried on
by a partnership in which he is a general or limited partner, consultant or
employee, or a corporation or association of which he is a shareholder,
EMPLOYMENT AGREEMENT PAGE 1
<PAGE>
officer, director, employee, member, consultant or agent; provided, that
nothing herein shall prevent the purchase of ownership by Employee of shares
of less than 1% of the outstanding shares in a publicly or privately held
company.
6.2 Commencing as of the date of this Agreement and continuing
until one year after the termination of Employee's employment with the
Company, Employee shall not solicit the employment of personnel employed
by the Company or by any direct or indirect parent or subsidiary of the
Company during the period of Employee's employment by the Company.
6.3 Employee agrees that, commencing as of the date of this
Agreement and thereafter, he will not, except to the Company, its
subsidiaries, and affiliates, or as required under Securities laws,
communicate or divulge to any person, firm or corporation, either directly or
indirectly, any confidential or proprietary information relating to the
business, customers and suppliers or other affairs of the Company, its
parents, subsidiaries, and their affiliates. Without limiting the foregoing,
all information concerning procedures and strategy of the Company, its
subsidiaries and parents shall be deemed confidential and proprietary
information.
7. TERM AND TERMINATION.
7.1 This Agreement is effective on June 1, 1999 (the "Effective
Date"). Unless otherwise terminated as provided in this Section 7, the term
of Employee's employment shall expire five (5) years from the Effective Date
hereof.
7.2 This Agreement shall be terminated upon the following:
(a) Death of Employee.
8. NOTICE. All notices and requests in connection with this Agreement
shall be in writing and may be given by personal delivery, registered or
certified mail, return receipt requested, telegram, or any other customary
means of communications addressed as follows:
Employee: Matthew B. Jore
Jore Corporation
45000 Highway 93 South
Ronan, MT 59864
Company: Jore Corporation
45000 Highway 93 South
Ronan, MT 59864
EMPLOYMENT AGREEMENT PAGE 2
<PAGE>
or to such other address as the party to receive the notice or request shall
designate by written notice to the other. The effective date of any notice or
request shall be 5 days from the date which it is sent by registered or
certified mail, or when delivered to a telegraph company, properly addressed
as above with charges prepaid, or when personally delivered.
9. ASSIGNMENT.
9.1 Except as provided in Section 9.2 hereof, the rights of either
party shall not be assigned or transferred either voluntarily or by operation
of law without the other party's consent, nor shall the duties of either
party be delegated in whole or in part either voluntarily or by operation of
law without the other party's consent. Any unauthorized assignment, transfer
or delegation shall be of no force or effect.
9.2 Notwithstanding Section 9.1 hereof, the Company may assign
or delegate all or any part of its rights or obligations under this Agreement
to a direct or indirect subsidiary or parent or by merger, consolidation,
sale or transfer of all or substantially all of the Company's assets,
provided any resulting assignee or transferee succeeds to the obligations of
the Company hereunder, and provided that at least eighty percent (80%) of the
ultimate ownership of such assignee or transferee immediately after such
transfer or assignment is held or owned, directly or indirectly, by the same
parties owning or holding immediately prior to the transfer or assignment. All
references to the Company shall include any permitted assignee or successor
to the Company.
10. PRIOR OBLIGATIONS. Employee represents and warrants to the Company
that he may enter into this Agreement and perform his obligations hereunder
without violating any contractual commitment to any other person, and
covenants that in the performance of his duties under this Agreement he will
not use or divulge any information to any person he is lawfully required to
maintain in confidence.
11. PREPARATION OF AGREEMENT. Employee acknowledges that this Agreement
was prepared by attorneys representing the Company. This Agreement will have
tax consequences to Employee. Employee has been advised to consult with an
attorney and tax advisor of his choice before entering into this Agreement
and he has done so. Employee acknowledges that he has not relied upon any
legal or tax advice of the Company's attorneys in connection with this
Agreement.
12. MISCELLANEOUS.
12.1 WAIVER. No waiver of any of the provisions of this Agreement
shall be valid unless in writing, signed by the party against whom such
waiver is sought to be enforced, nor shall failure to enforce any right
hereunder constitute a continuing waiver of the same or a waiver of any other
right hereunder.
EMPLOYMENT AGREEMENT PAGE 3
<PAGE>
12.2 AMENDMENTS. All amendments to this Agreement shall be made
in writing, signed by the parties, and no oral amendment shall be binding on
the parties.
12.3 INTEGRATION. This Agreement constitutes the entire agreement
between the parties relating to the subject matter hereof and supersedes and
cancels all other prior agreements and understandings of the parties in
connection with such subject matter.
12.4 SEVERABILITY. The unenforceability or invalidity of any
provision or provisions of this Agreement shall not render any other provision
or provisions hereof unenforceable or invalid. If any one or more of the
provisions of this Agreement shall for any reason be excessively broad as to
duration, scope, activity or subject, it shall be construed by reducing such
provision, so as to be enforceable to the extent compatible with applicable
law.
12.5 HEADINGS. The headings or titles of this Agreement are for
the purpose of reference only and shall not in any way affect the
interpretation or construction of this Agreement.
12.6 GOVERNING LAW. This Agreement will be governed by the laws
of the State of Montana applicable to agreements between Montana residents to
be performed within the state of Montana.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
COMPANY
JORE CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------
Its: Executive Vice President
EMPLOYEE
/s/ Matthew B. Jore
-----------------------------
MATTHEW B. JORE
EMPLOYMENT AGREEMENT PAGE 4
<PAGE>
PURCHASE AGREEMENT
This PURCHASE AGREEMENT ("Agreement") is made as of April, 7 1999, by
and between JORE CORPORATION, a Montana corporation ("Company"), and DADCO, a
Montana corporation ("Investor").
RECITAL
In reliance on Rule 506 of Regulation D promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), the Company desires to sell to
Investor, and Investor desires to purchase from the Company, a promissory note
in the principal amount of $2,000,000 (the "Note"), and to issue to Investor a
warrant for the purchase of 333 shares of the Company's common stock (the
"Warrant" and, collectively with the Note, the "Securities").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement and other good and valuable consideration the receipt
and adequacy of which the parties acknowledge, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 SALE OF NOTE. The Company agrees to sell to the Investor and,
subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Company contained herein or made pursuant
hereto, the Investor agrees to purchase from the Company on the Closing Date
specified in Section 1.3 hereof, a Note in the aggregate principal amount of
$2,000,000, in substantially the form attached hereto as EXHIBIT A.
1.2 ISSUANCE OF WARRANT. In consideration of Investor's investment in
the Company, the Company agrees to issue to Investor a Warrant in substantially
the form attached hereto as EXHIBIT B.
1.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall be held on such date and at such time on or
before April 7, 1999, as the parties may agree, unless such date is extended by
agreement of the parties (the "Closing Date"). On the Closing Date, Investor
shall pay $2,000,000 in immediately available funds by wire transfer or
certified check to the Company, and the Company shall deliver the Securities to
the Investor.
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
To induce Investor's execution of this Agreement and the consummation of
the transactions contemplated hereby, the Company represents, warrants and
covenants as follows:
2.1 CORPORATE ORGANIZATION; AUTHORIZATION. The Company is duly
incorporated, validly existing and in good standing as a corporation under the
laws of the State of Montana and has full corporate power and authority to enter
into this Agreement and to issue and sell the Securities, including the shares
of Common Stock issuable upon exercise or conversion of the Warrant. This
Agreement has
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<PAGE>
been duly authorized, executed and delivered by the Company and constitutes a
valid and binding agreement of the Company enforceable in accordance with its
terms.
2.2 CAPITAL STOCK. As of April 7, 1999, the Company had authorized
capital stock consisting of 50,000 shares of Common Stock, no par value, of
which 45,051.61 shares of Common Stock were issued and outstanding, and options
and warrants to purchase an additional 3,948.00 shares were issued and
outstanding. There are no preemptive or similar rights of any security holder
of the Company or any other person to acquire any of the Common Stock.
2.3 CHARACTERISTICS OF THE SHARES. The Securities have been duly
authorized and, when issued, the shares of Common Stock issuable upon exercise
or conversion of the Warrant in accordance with the terms thereof, will be duly
and validly issued, fully paid and non-assessable, and free from all taxes,
liens and charges. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be so issued without violation of
any applicable law or regulation. The shares of Common Stock necessary to
permit full exercise or conversion of the Warrant will at all times be reserved
from the authorized but unissued shares of the Company's Common Stock.
2.4 NON-CONTRAVENTION. Neither the execution and delivery of this
Agreement or the performance of any of the provisions of this Agreement by the
Company is in contravention of or in conflict with any law or regulation or any
term or provision of the Company's Articles of Incorporation or Bylaws and does
not require the consent of any governmental body or other regulatory authority.
2.5 LITIGATION. There is no litigation or other proceeding pending or,
to the best knowledge of the Company, threatened against the Company, which
could have an adverse material affect on the Company. The Company is not in
default with respect to any order, writ, injunction, decree or demand of any
court or other governmental or regulatory authority.
2.6 PURCHASE AGREEMENT; NOTE; WARRANT; REGISTRATION RIGHTS AGREEMENT.
This Agreement, the Note, the Warrant, and the Registration Rights Agreement
between the Company and Investor of even date herewith, have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered on behalf of the Company and this Agreement is, and the Warrant, Note
and the Registration Rights Agreement, when executed and delivered by the
Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their respective terms, subject to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and limits upon
rights to indemnity.
2.7 APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by Company for (i) the issuance and sale of the Note and the issuance of the
Warrant as contemplated by this Agreement, and (ii) the issuance of shares upon
exercise or conversion of the Warrant, except for the filing of one or more
Notice of Sale on Form D with respect to the Securities as required under
Regulation D under the Securities Act.
2.8 INFORMATION PROVIDED. The information provided by or on behalf of
the Company to Investor in connection with the transactions contemplated by the
Agreement does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances in which they were made, not misleading.
2.9 ABSENCE OF CERTAIN CHANGES. Since January 1, 1999, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition
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(financial or other), results of operations or prospects of the Company, and,
except as and to the extent disclosed, reflected or reserved against in the
financial statements of the Company has no material (individually or in the
aggregate) liabilities, debts or obligations whether accrued, absolute,
contingent or otherwise, and whether due or to become due. Subsequent to
January 1, 1999, the Company has not incurred any liabilities, debts or
obligations of any nature whatsoever which are individually or in the
aggregate material to the Company, other than those incurred in the ordinary
course of its business.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR
As an inducement to, and with the intent that Company rely on the accuracy
thereof, Investor represents, warrants and covenants as follows:
3.1 ORGANIZATION. Investor is duly incorporated, validly existing and
in good standing as a corporation under the laws of the State of Montana.
Investor has the requisite power and is duly authorized under all applicable
laws and regulations to acquire the Securities.
3.2 APPROVAL OF AGREEMENT. Investor has taken all action required by
applicable law, its governing charter or otherwise to authorize the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby. This Agreement is a legal, valid and binding obligation of
Investor, enforceable against it in accordance with its terms. Investor is not
required to obtain the authorization, approval, consent or order of, or make a
registration or filing with, any court or other regulatory or governmental body
in connection with the execution and delivery by Investor of this Agreement and
the consummation by Investor of the transactions contemplated hereby. The
execution of this Agreement and the consummation of the transactions
contemplated hereby will not result in the breach of any term or provision of,
constitute an event of default under or require the consent or approval of any
third-party pursuant to any material contract, agreement or instrument to which
Investor is a party or by which any of its properties or assets are bound.
3.3 PURCHASE FOR INVESTMENT. Investor is purchasing the Securities for
its own account for investment only and not with a view towards the public sale
or distribution thereof. Investor has been informed and fully understands that
there are significant risks associated with a purchase of the Securities which
factors Investor has considered carefully before executing this Agreement.
3.4 DISCLOSURE OF INFORMATION. The Investor has been furnished with
such materials and has been given access to such information relating to the
Company as the Investor has requested and has been afforded the opportunity to
ask questions regarding the Company and the Securities, all as the Investor has
found necessary to make an informed investment decision. The Investor has been
solely responsible for its own due diligence investigation of the Company and
its proposed business, for its own analysis of the merits and risks of its
investment made pursuant to this Agreement and for its own analysis of the terms
of its investment.
3.5 INVESTOR'S FINANCIAL CONDITION. Investor is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act.
Investor is capable of bearing the economic risk and burden of this investment,
including, without limitation, the possibility of a complete loss of its
investment in the Securities. Investor understands that there are substantial
restrictions on the transferability of the Securities, which may make the
liquidation of the Securities impossible for the immediate future.
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3.6 NO REGISTRATION. Investor acknowledges that the Securities are
being issued without being registered under the Securities Act or other
applicable securities laws under exemptions from such registration
requirements. Investor acknowledges that it must hold the Securities for the
applicable holding period unless the Securities are subsequently registered
under the Securities Act and applicable state securities laws or an exemption
from such registration is available, and that Company will place stop
transfer instructions with the Company's transfer agent regarding the
Securities. The Company is under no obligation to cause or permit the
Securities to be transferred in the absence of such registration or an
opinion satisfactory to the Company's counsel that an exemption is available.
3.7 RULE 144. Investor acknowledges that the Securities are
restricted securities, as defined in Rule 144 under the Securities Act, that
the Securities may not be resold in reliance on Rule 144 for at least one
year after issuance and that once the Securities are eligible for resale
under Rule 144 they will be subject to certain resale restrictions contained
in Rule 144, including volume limitations and restrictions on the manner of
resale, until they have been held for at least one year as provided in Rule
144. If Investor is an affiliate of the Company for purposes of Rule 144,
Investor understands that certain restrictions on resale will continue to
apply under Rule 144 for so long as Investor is an affiliate.
3.8 LEGEND. Investor acknowledges that the certificates representing
the Shares will bear substantially the following legend until such legend may
be removed under applicable securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND WERE
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND SUCH LAWS. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS SUBSEQUENTLY REGISTERED
UNDER THE ACT, AND/OR THE LAWS OF CERTAIN STATES, OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE AND THE HOLDER HAS PROVIDED THE COMPANY WITH A
LEGAL OPINION ACCEPTABLE TO THE COMPANY TO THAT EFFECT.
3.9 FURTHER ACTIONS. Investor shall execute and deliver to the
Company, at or prior to the Closing, such further letters of representation,
acknowledgment, suitability or the like, as the Company and its counsel may
reasonably request in connection with the Company's reliance on exemptions from
registration under Regulation D or any other securities laws.
ARTICLE 4
INDEMNIFICATION
4.1 INDEMNIFICATION BY INVESTOR. Investor will indemnify and hold the
Company and its directors, officers, agents and employees, and each person, if
any, who controls the Company within the meaning of the Securities Act
("Affiliates") harmless from and against any and all claims, damages, expenses,
liabilities or actions ("Claims") to which any of them may become subject under
applicable law (including the Securities Act and the Exchange Act), and will
reimburse them for any legal or other expenses reasonably incurred by them in
connection with the investigation or defense of any Claims arising out of or
based upon a misrepresentation or alleged misrepresentation of material fact
contained in any application or statement filed with a governmental body by the
Company or the omission or alleged omission of a material fact required to be
stated therein, or necessary in order to make the statements made therein not
misleading, but only insofar as any such misrepresentation or omission was made
in reliance upon and in conformity with information furnished in writing by
Investor. Investor agrees at any time upon the request of the Company to
furnish a written letter or statement confirming the accuracy of
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any information provided to the Company by Investor. This Section 4.1 shall
remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Company, and shall survive the
consummation of the transactions contemplated by this Agreement.
4.2 INDEMNIFICATION BY THE COMPANY. The Company will indemnify and
hold Investor and its Affiliates harmless from and against any Claims to which
any of them may become subject under applicable law (including the Securities
Act and the Exchange Act) and will reimburse them for any legal or other
expenses reasonably incurred by them in connection with the investigation or
defense of any Claims arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in this Agreement, or
arising out of or based upon the omission or alleged omission of a material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. This Section 4.2 shall remain operative and in full
force and effect, regardless of any investigation made by or on behalf of
Investor, and shall survive the consummation of the transactions contemplated by
this Agreement.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
The obligations of each party to this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
5.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
made by each party in this Agreement shall have been true when made and shall be
true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement), and such party shall have
performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by such party prior to or at the
Closing.
5.2 NO EVENT OF DEFAULT. There shall exist no condition that would
constitute an event of default by the Company under the Note or which, after
notice or lapse of time, or both, would constitute an event of default by the
Company.
5.3 PAYMENT OF EXPENSES OF THE INVESTOR. The Company shall have paid
to the Investor all expenses incurred by Investor in negotiating this Agreement,
the Note, the Warrant, and the Registration Rights Agreement, including
reasonable fees and expenses of counsel to Investor.
5.4 OTHER ITEMS. Each party shall have received such further
documents, certificates or instruments relating to the transactions contemplated
hereby as the other party may reasonably request.
ARTICLE 6
GENERAL PROVISIONS
6.1 AMENDMENT OR WAIVER. Every right and remedy provided in this
Agreement shall be cumulative with every other right and remedy, whether
conferred in this Agreement, at law or in equity, and may be enforced
concurrently with any right conferred by this Agreement, and no waiver by any
party of the performance of any obligation by the other shall be construed as a
waiver of the same or any other default then, theretofore or thereafter
occurring or existing. At any time prior to the Closing Date, this Agreement
may be amended by a writing signed by the parties with respect to any of the
terms contained in this Agreement, and any term or condition of this Agreement
may be waived or the time for
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performance thereof may be extended by a writing signed by the party or
parties for whose benefit the provision is intended.
6.2 ATTORNEYS' FEES. In the event any party institutes and prevails in
any action or suit to enforce this Agreement or to secure relief from any
default under or breach of this Agreement, the defaulting or breaching party or
parties shall reimburse the nonbreaching party or parties for all costs,
including, without limitation, reasonable attorneys' fees incurred in connection
with such dispute and in enforcing or collecting any judgment rendered pursuant
to such dispute.
6.3 GOVERNING LAW. This Agreement shall in all respects, including all
matters of construction, validity and performance, be governed by and construed
and enforced in accordance with the laws of the State of Montana.
6.4 NO BROKERS. Investor and the Company agree that no third person
has in any way brought the parties together or been instrumental in the
negotiation, execution or consummation of this Agreement. Investor and the
Company each agree to indemnify the other against any claim by any third person
for any commission, brokerage, finders fee or other payment with respect to this
Agreement or the transactions contemplated hereby based upon any alleged
agreement or understanding between such party and such third person, whether
expressed or implied, arising from the actions of such party. The covenants set
forth in this Section 6.4 shall survive the Closing Date and the consummation of
the transactions contemplated hereby.
6.5 NOTICES. All notices, demands, requests or other communications
required or authorized under this Agreement shall be deemed given sufficiently
if in writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and postage
prepaid; or if sent by overnight express delivery:
If to the Company: JORE CORPORATION
Attention: David H. Bjornson
45000 Highway 93 South
Ronan, Montana 59864
Facsimile Transmission: (406) 676-8400
Telephone: (406) 676-4900
If to Investor: To the address, telephone or facsimile
numbers set forth on the signature page
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder. Any such notice,
demand, request or other communication shall be deemed to have been given as of
the date personally delivered or on the first business day after a legible copy
sent by facsimile transmission is received, three days after the date mailed by
registered or certified mail, or on the first business day after the date sent
by overnight delivery.
6.6 SURVIVAL; LIABILITY. The representations, warranties and covenants
of the respective parties set forth in this Agreement shall survive the Closing
the transactions contemplated by this Agreement for a period of one year from
the date of this Agreement.
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6.7 THIRD-PARTY BENEFICIARIES. This Agreement is solely between the
Company and Investor, and no director, officer, stockholder, employee, agent,
independent contractor or any other person or entity shall be deemed to be a
third-party beneficiary of this Agreement.
6.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be a single instrument.
6.9 ENTIRE AGREEMENT. This Agreement, together with the documents to
be delivered pursuant to this Agreement, represents the entire agreement between
the parties relating to the subject matter of this Agreement. There are no
other understandings, agreements, representations or warranties, written or
oral, with respect to the subject matter hereof except as set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
THE COMPANY:
JORE CORPORATION
By: /s/ Matthew B. Jore
---------------------------------------
Matthew B. Jore
President
INVESTOR:
DADCO
By: /s/ [ILLEGIBLE]
--------------------------------------------
Its: Vice Chairman
-------------------------------------
Investor's Address:
8 Third Street N.
Davidson Building
Great Falls, Montana 59403
Attention: Monte Giese
Facsimile Transmission: (406) 791-7315
Telephone: (406) 791-7421
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EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY
STATE SECURITIES LAW. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND APPLICABLE STATE LAW OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
PROMISSORY NOTE
$2,000,000 April 7, 1999
FOR VALUE RECEIVED, Jore Corporation, a Montana corporation (the
"Company"), promises to pay to the order of DADCO, a Montana corporation
("Holder"), at 8 Third Street North in Great Falls, Montana 59401 or such
other place as the Holder from time to time may designate in writing, upon
the terms set forth below, the principal sum of Two million dollars
($2,000,000) in full on the earlier of (a) January 1, 2000 or (b) within five
calendar days following the closing of an initial firm commitment
underwritten public offering of the Company's common stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(a "Public Offering").
1. INTEREST. The unpaid principal balance outstanding from time to time
under this Note shall bear interest at the rate of 6.5% per annum. Accrued
interest shall be due and payable at maturity or upon earlier prepayment by
the Company.
2. PAYMENTS AND PREPAYMENTS. Each payment hereunder shall be first
applied to the payment of any costs and expenses for which the Company is
liable hereunder, next to the payment of accrued interest, and lastly to the
reduction of principal. This Note shall continue to bear interest as provided
herein until and including the date of collection. Prepayments of principal
can be made only upon not less than ten days prior written notice to the
Holder, but there shall be no prepayment fee, premium or penalty. Any
prepayments shall be first credited to any accrued an unpaid interest, then
to principal.
3. SUBORDINATION TO SENIOR DEBT. The payment of principal of this Note
is subordinated to all existing and future indebtedness and liabilities of
the Company other than other subordinated notes and trade payables, and is a
general, unsecured obligation of the Company. Subject to the rights, if any,
of the holders of senior indebtedness under this Section 3 to receive cash,
securities or other properties otherwise payable or deliverable to the
Holder, nothing contained in this Section 3 shall impair, as between the
Company and the Holder, the obligation of the Company, subject to the terms
and conditions of this Section 3 to pay to the Holder the principal hereof as
and when the same becomes due and payable, or shall prevent the Holder, upon
default hereunder, from exercising all rights, powers and remedies otherwise
provided herein or by applicable law. Subject to payment in full of all
senior indebtedness and until this Note shall be paid in full, the Holder
shall be subrogated to the rights of the holders of senior indebtedness (to
the extent of payments or distributions previously made to such holders of
senior indebtedness pursuant to the provisions hereof) to receive payments or
distributions of assets of the Company applicable to the senior indebtedness.
No such payments or distributions applicable to the senior indebtedness, as
between the Company and its creditors, other than the holders of senior
indebtedness and the Holder, shall be deemed to be a payment by the Company
to or on account of this Note; and for the purposes of such subrogation, no
payments or distributions to the holders of senior indebtedness to which the
Holder would be entitled except for the provisions of this
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Section 3, as between the Company and its creditors, other than the holders of
senior indebtedness and the Holder, shall be deemed to be a payment by the
Company to or on account of the senior indebtedness.
4. EVENTS OF DEFAULT. Each of the following shall constitute an event
of default ("Event of Default") hereunder.
4.1 Failure of the Company to make any payment of principal or
interest upon this Note when due; or
4.2 Breach by the Company in any material respect of any warranty
or any obligation of the Company set forth in this Note; or
4.3 Filing by the Company of a voluntary petition in bankruptcy or
filing by the Company of any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation, or
similar relief for itself under any present or future federal, state or other
statute, law or regulation relating to bankruptcy, insolvency or other relief
for debtors, or the seeking, consenting to, or acquiescing by the Company in
the appointment of any trustee, receiver, custodian, conservator or
liquidator for the Company, or the making by the Company of any general
assignment for the benefit of creditors, or the inability of or failure by
the Company to pay its debts generally as they become due; or
4.4 Filing of a petition against the Company seeking any
reorganization, arrangement, composition, readjustment, liquidation, or
similar relief under any present or future federal, state or other law or
regulation relating to bankruptcy, insolvency or other relief for debts, or
the appointment of any trustee, receiver, custodian, conservator or liquidator
of the Company, unless such petition shall be dismissed within sixty (60)
days after such filing, but in any event prior to the entry of an order,
judgment or decree approving such petition.
Upon the occurrence and continuation of any Event of Default, then the
principal of this Note, and all accrued interest, shall at the option of the
Holder become immediately due and payable upon written notice of acceleration
from the Holder of the Company.
No right or remedy conferred upon or reserved to the Holder is intended
to be exclusive of any other right or remedy, and every right and remedy
shall, to the extent permitted by law, be cumulative and in addition to every
other right and remedy given under this Section 4 or one or hereafter existing
at law or in equity or otherwise. The assertion or employment of any right
or remedy hereunder, or otherwise, shall not prevent the concurrent assertion
or employment of any other appropriate right or remedy. No delay or omission
of the holder to exercise any right or remedy accruing upon any Event of
Default shall impair any such right or remedy or constitute a waiver of any
such Event of Default. Every right and remedy given by the Section or by law
to the Holder may be exercised from time to time, and as often as the Holder
may deem necessary. The Holder may waive any past default and its
consequences under this Section 4 by way of a written waiver specifying the
default waived, but no such waiver shall extend to any subsequent or other
default or impair any right of the Holder upon such default.
5. COSTS AND FEES. The Company agrees to pay all expenses, including
without limitation reasonable attorneys' fees and costs, including fees and
costs of appeals, incurred by the Holder or any assignee of this Note in
attempting to collect any amounts payable hereunder that are not paid when
due.
6. OBLIGATIONS. Except as otherwise provided in this Note as to
notices, the undersigned and all endorsers and all persons liable or to
become liable on this Note waive presentment, demand,
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protest and notice of demand, protest and nonpayment, and all other demands
and notices in connection with the delivery, acceptance, performance, default
or enforcement of this Note, and consent to any and all renewals and
extensions of the time of payment hereof and further agree that at any time
the terms of payment hereof may be modified without affecting the liability
of any party to this Note or any person liable or to become liable with
respect to any indebtedness evidenced hereby. In any action on this Note, the
Holder or its assignee need not produce or file the original of this Note,
but need only file a photocopy of this Note certified by the Holder or such
assignee to be a true and correct copy of this Note.
7. NOTICES. All notices and other information hereunder shall be
delivered personally or if mailed, sent first-class postage prepaid, and if
to the Holder, then to the Holder's address appearing on the Company's
records, and if to the Company, then to Joe Corporation, 45000 Highway 93
South, Ronan, Montana 59884 Attention: David H. Bjornson, or to such other
address as the Holder or the Company may have so provided to the other by
written notice given pursuant to this Section.
8. WAIVER. The Holder shall not be deemed, by any act or failure to
act, to waive any of its rights or remedies hereunder unless such waiver is
in writing and signed by the Holder, and then only to the extent specifically
set forth in writing.
9. GOVERNING LAW AND INTERPRETATION. This Note shall be governed by
and construed in accordance with the internal laws of Montana applicable to
contracts executed and to be performed wholly in that state. This Note
(together with the other agreements relating to the Company that are being
executed contemporaneously herewith) constitutes the entire agreement among
the parties with respect to the subject matter hereof, and supersedes any and
all previous agreements, understandings, term sheets, commitments or
discussions relating thereto. This Note has been reviewed and negotiated by
the Company and Holder at arms' length with each party having had the
benefit of, or the opportunity to seek the assistance of, legal counsel and
shall not be construed against either party. The titles and captions in this
Note are inserted for convenience only and in no way define, limit, extend,
or modify the scope or intent of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be executed as
of the date and year first above written.
JORE CORPORATION
By /s/ Matthew B. Jore
------------------------------------
Matthew B. Jore, President
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EXHIBIT B
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR, AT THE
OPTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT.
COMMON STOCK PURCHASE WARRANT
JORE CORPORATION
THIS CERTIFIES that, for value received, DADCO, or registered
assigns, is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time or from time to time at or prior to 11:59 p.m., Pacific
time, on April 7, 2002 (the "EXPIRATION DATE"), to acquire from Jore
Corporation, a Montana corporation (the "COMPANY"), three hundred thirty three
(333) fully paid and nonassessable shares of common stock, or its equivalent,
however designated, of the Company (the "WARRANT SHARES"), for $1,965.37 per
share (the "EXERCISE PRICE"). The number of Warrant Shares, type of security
and Exercise Price are subject to adjustment as provided herein.
1. EXERCISE OF WARRANT. This Warrant is exercisable by the registered holder
hereof, at any time and from time to time at or prior to the Expiration Date by
the surrender of this Warrant and delivery of a Notice of Exercise/Conversion,
the form of which is attached hereto as ANNEX A, duly executed to the principal
offices of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof), and upon
payment of the Exercise Price for the shares thereby purchased (by check payable
to the order of the Company or by wire transfer the account of the Company);
whereupon the Company shall issue to the holder of this Warrant the number of
Warrant Shares so purchased and shall deliver a stock certificate in proper form
representing such number of Warrant Shares.
2. CONVERSION OF WARRANT. The registered holder hereof shall have the right
(but not the obligation) to require the Company to convert this Warrant, in
whole or in part, at any time and from time to time at or prior to the
Expiration Date, by the surrender of this Warrant and delivery of a Notice of
Exercise/Conversion duly executed to the principal offices of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof), into Warrant Shares as provided in
this Section 2. Upon exercise of this conversion right (and without payment by
the holder of the Exercise Price), the holder hereof shall be entitled to
receive that number of Warrant Shares determined in accordance with the
following formula:
Warrant Shares Issuable to Holder = [ (A/B) x C ] DIVIDED BY A
where:
A = the Fair Market Value (as defined below) of one Warrant
Share on the date of conversion of this Warrant;
B = the Exercise Price; and
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C = the number of Warrant Shares as to which this Warrant is
being converted.
"Fair Market Value" of one Warrant Share shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 9 hereof, the value of the consideration
(determined, in the case of non-cash consideration, in good faith by the Board
of Directors of the Company) to be received pursuant to such transaction by the
holder of one Warrant Share;
(b) if the conversion right is being exercised after the occurrence of
an initial public offering of common stock of the Company, the average of the
high and low trading prices of a share of Common Stock as reported by the
principal securities exchange or market on which the common stock is listed for
trading for the three trading days prior to the surrender of this Warrant for
conversion in accordance with the terms hereof; or
(c) in all other cases, the fair value as determined in good faith by
the Board of Directors of the Company.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of Warrant Shares determined in accordance herewith.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP. Certificates for
shares purchased upon exercise or issuable upon conversion hereof shall be
delivered to the holder by the Company's stock transfer agent at the
Company's expense within three business days after the date on which this
Warrant shall have been exercised or converted, as the case may be, in
accordance with the terms hereof. Each certificate so delivered shall be in
such denominations as may be requested by the holder hereof and shall be
registered in the name of such holder or, subject to applicable laws, any
other name or names as shall be requested by such holder; PROVIDED, HOWEVER,
that in the event certificates for Warrant Shares are to be issued in a name
other than the name of the holder of this Warrant, this Warrant when
surrendered for exercise or conversion shall be accompanied by an Assignment
Form, the form of which is attached hereto as ANNEX B, duly executed by the
holder hereof. If, upon exercise or conversion of this Warrant, fewer than
all of the Warrant Shares evidenced by this Warrant are purchased or issued
prior to the Expiration Date, one or more new warrants of like tenor to this
Warrant will be issued for the remaining number of Warrant Shares not
purchased upon such exercise or issued upon such conversion. The Company
agrees that the shares so issued shall be deemed to be issued to such holder
as the record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered for exercise or conversion in
accordance with the terms hereof. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise or conversion of this
Warrant. With respect to any fraction of a share otherwise issuable upon the
exercise or conversion of this Warrant, an amount equal to such fraction
multiplied by the then current price at which each share may be purchased
hereunder shall be paid in cash to the holder of this Warrant.
4. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Warrant Shares upon the exercise or conversion of this Warrant shall be made
without charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company.
5. NO RIGHTS AS SHAREHOLDER. This Warrant does not entitle the holder hereof
to any voting rights or other rights as a shareholder of the Company prior to
the exercise or conversion hereof.
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6. EXCHANGE AND REGISTRY OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the registered holder at the principal above-mentioned
office or agency of the Company, for a new Warrant of like tenor and dated as of
such exchange. The Company shall maintain at its principal offices (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof), a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for
exchange, transfer, exercise or conversion, in accordance with its terms, at
such office or agency of the Company, and the Company shall be entitled to rely
in all respects, prior to written notice to the contrary, upon such registry.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. SATURDAYS, SUNDAYS AND HOLIDAYS. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday or a Sunday or shall be a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
legal holiday.
9. MERGER, SALE OF ASSETS, ETC. If at any time the Company proposes to merge
or consolidate with or into any other corporation, effect any reorganization, or
sell or convey all or substantially all of its assets to any other entity, in a
transaction in which the shareholders of the Company immediately prior to
completion of the transaction will own immediately after completion of the
transaction less than a majority of the outstanding voting securities of the
entity (or its parent) succeeding to the business of the Company, then the
Company shall give the holder of this Warrant sixty (60) days' prior written
notice of the proposed effective date of such transaction, and if this Warrant
has not been exercised or converted by or on the effective date of such
transaction, it shall terminate.
10. SUBDIVISION, COMBINATION, RECLASSIFICATION, CONVERSION, ETC. If the
Company at any time shall, by subdivision, combination, reclassification of
securities or otherwise, change the Warrant Shares into the same or a different
number of securities of any class or classes, this Warrant shall thereafter
entitle the holder to acquire such number and kind of securities as would have
been issuable in respect of the Warrant Shares (or other securities which were
subject to the purchase rights under this Warrant immediately prior to such
subdivision, combination, reclassification or other change) as the result of
such change if this Warrant had been exercised in full for cash immediately
prior to such change. The Exercise Price hereunder shall be adjusted if and to
the extent necessary to reflect such change. If the Warrant Shares or other
securities issuable upon exercise or conversion hereof are subdivided or
combined into a greater or smaller number of shares of such security, the number
of shares issuable hereunder shall be proportionately increased or decreased, as
the case may be, and the Exercise Price shall be proportionately reduced or
increased, as the case may be, in both cases according to the ratio which the
total number of shares of such security to be outstanding immediately after such
event bears to the total number of shares of such security outstanding
immediately prior to such event. The Company shall give the holder prompt
written notice of any change in the type of securities issuable hereunder, any
adjustment of the Exercise Price for the securities issuable hereunder, and any
increase or decrease in the number of shares issuable hereunder.
11. TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT
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(a) This Warrant shall inure to the benefit of the successors to and
assigns of the holder. Prior to the Expiration Date and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable by
the holder hereof, in whole or in part, at the principal offices of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof). Any such transfer shall be made in
person or by the holder's duly authorized attorney, upon surrender of this
Warrant together with a properly endorsed Assignment Form.
(b) Each certificate representing the Warrant Shares or other
securities issued in respect of the Warrant upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall bear a
legend substantially in the following form (in addition to any legend required
under applicable state securities laws):
These securities have not been registered under the Securities Act of
1933, as amended (the "Act"), or any state securities laws. They may
not be sold, offered for sale, pledged, hypothecated or otherwise
transferred n the absence of a registration statement in effect with
respect to the securities under such act or, at the option of the
company, an opinion of counsel reasonably satisfactory to the Company
that such registration is not required, or unless sold pursuant to an
exemption to such Act.
12. COOPERATION. The Company will not, by amendment of its charter documents
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrant against impairment.
13. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder hereof, at least ten days prior to such record date, a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up; and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made.
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Such notice shall also state that the action in question or the record date
is subject to the effectiveness of a registration statement under the
Securities Act of 1933, as amended, or a favorable vote of shareholders, if
either is required. Such notice shall be mailed at least ten days prior to
the date specified in such notice on which any such action is to be taken or
the record date, whichever is earlier.
14. NOTICES, ETC. All notices and other communications from the Company to the
registered holder of this Warrant shall be mailed by first class certified mail,
postage prepaid, at such address as may have been furnished to the Company in
writing by such holder or at the address shown for such holder on the register
of Warrants referred to in Section 6.
15. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Montana.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officers.
Dated: April 7, 1999 JORE CORPORATION,
a Montana corporation,
By: /s/ Matthew B. Jore
-----------------------------------
Matthew B. Jore, President
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ANNEX A
NOTICE OF EXERCISE/CONVERSION
To: JORE CORPORATION
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ Warrant Shares, as defined in the Warrant, of Jore Corporation, a
Montana corporation (the "Company").
2. The undersigned Holder (check one):
- elects to pay the aggregate purchase price for such Warrant
Shares (i) by lawful money of the United States or the
enclosed certified or official bank check payable in United
States dollars to the order of the Company in the amount of
$___________, or (ii) by wire transfer of United States
funds to the account of the Company in the amount of
$____________, which transfer has been made before or
simultaneously with the delivery of this Form of
Exercise/Conversion pursuant to the instructions of the
Company;
or
- elects to receive the number of Warrant Shares as calculated
in accordance with Section 2 of the Warrant.
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3. Please issue a stock certificate or certificates
representing the appropriate number of shares of Common Stock in the name of the
undersigned or in such other names as is specified below:
Name:
------------------------------------------
Address:
--------------------------------------
--------------------------------------
Dated:
------------------ -------------------------------------
(Signature must conform to name of
Holder as specified on the face of the
Warrant)
------------------------------------
------------------------------------
(Address)
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ANNEX B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form
and supply required information.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
-------------------------------------------------------------
(Please Print)
whose address is
-------------------------------------------------------------
(Please Print)
Dated:
---------------------------------------
Holder's Signature:
---------------------
Holder's Address:
-----------------------
-----------------------------------------
Guaranteed Signature:
---------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or enlargement or
any change whatever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
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GUARANTY
THIS GUARANTY is given by Matthew B. Jore ("Guarantor") to DADCO, a
Montana corporation, its successors and assigns ("Lender").
RECITALS
WHEREAS, Guarantor is the President and principal shareholder of Jore
Corporation, a Montana corporation ("Borrower"); and
WHEREAS, Lender has made certain loans to Borrower as documented in the
Promissory Note (the "Note") dated April 7, 1999, delivered by Borrower to
Lender; and
WHEREAS, to induce Lender to purchase the Note, Guarantor has agreed to
unconditionally guarantee to Lender the payment and performance of the Note;
and
WHEREAS, the granting of all loans and financial accommodations by
Lender to Borrower are of direct benefit to Guarantor because Guarantor is
the principal shareholder of Borrower, and Guarantor has weighed the
benefits of such loans and financial accommodations against his contingent
liability hereunder and determined it is in his best interests to enter into
this Guaranty.
AGREEMENT
NOW, THEREFORE, In order to induce Lender to make loans and financial
accommodations to Borrower, Guarantor hereby agrees as follows:
1. GUARANTY.
1.1 Guarantor jointly and severally unconditionally guarantees
the full, prompt, and complete performance, payment, observance, and
fulfillment by Borrower of each obligation, covenant, and condition to be
performed by Borrower under the Note and the payment as and when due of all
Indebtedness thereunder (the "Obligations"). Guarantor further agree to pay
all expenses, including without limitation, reasonable attorneys' fees and
legal expenses paid or incurred by Lender in endeavoring to collect or secure
performance of the Obligations, or any part thereof, or in enforcing this
Guaranty.
1.2 Upon the occurrence of an Event of Default (as defined in the
Note), the entire amount guaranteed hereunder shall mature immediately and
become due and payable.
1.3 In the event of any proceeding by or against Borrower, a
composition, extension, or reorganization under any provision of the
Bankruptcy Code or any other bankruptcy, insolvency, receivership, or similar
proceeding, Guarantor expressly waives the extension of the obligations of
this Guaranty under any provision of such Code or any law or rule applicable
to such proceedings and hereby agrees that Lender may proceed immediately to
collect any amount due under the terms of this Guaranty and to otherwise
enforce this Guaranty.
1.4 Any payment made on the Obligations hereby guaranteed and
which may thereafter be required to be refunded as a preference or a
fraudulent transfer under the Bankruptcy Code or any other federal or state
law shall not be considered as payment of the Obligations, nor shall it have
the effect of reducing the liability of Guarantor under this Guaranty.
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2. RIGHTS AND REMEDIES OF LENDER.
2.1 Neither demand on, nor the pursuit of any remedy against,
Borrower or its property for payment of the Obligations shall be required as
a condition precedent to either the making of a demand on Guarantor by
Lender or the prior or subsequent commencement by Lender against Guarantor of
any action, suit, or proceeding, at law or in equity to enforce this
Guaranty. Neither the pendency nor the prior termination of any action, suit
or proceeding against Borrower or its property shall bar or prejudice either
the making of a demand on Guarantor by Lender or the prior or subsequent
commencement by Lender against Guarantor of any action, suit or proceeding,
at law or in equity to enforce this Guaranty.
2.2 Guarantor's liability under this Guaranty is primary,
direct, and immediate. Guarantor waives any right to require Lender to:
(a) Proceed against Borrower or any other person;
(b) Proceed against or exhaust any collateral; or
(c) Pursue any other available legal remedy.
No delay in the taking, pursuing, or exercising of any of the foregoing
actions, rights, powers, or remedies by Lender shall effect, diminish, or
extinguish the obligations of Guarantor hereunder.
Guarantor waives any defense arising by reason of any disability of the
Borrower, or by reason of the cessation from any cause whatsoever of the
liability of the Borrower or each other. Guarantor shall be liable and remain
liable for the payment of the Obligations to the extent provided herein
notwithstanding:
(a) Any previous discharge (total or partial) of Borrower
from further liability;
(b) Any bar (total, partial, or temporary) to the pursuit
by Guarantor of any right or claim for Indemnification from Borrower;
(c) Any right or claim by Guarantor to be subrogated to the
rights or claims of Lender in and to Borrower's property, or
(d) Any action or inaction or delay in acting by Lender.
Guarantor waives all presentments, demands for performance, notices of
dishonor, and notices of acceptance of this Guaranty and of the existence,
creation, or incurring of the indebtedness covered by this Guaranty.
2.3 Guarantor authorizes Lender, without notice or demand and
without diminishing or releasing Guarantor's liability hereunder, from time
to time, to:
(a) Make new loans and financial accommodations to
Borrower, such loans and financial accommodations to be a part of the
Obligations;
(b) Renew, extend, accelerate, or otherwise change the time
for payment of or otherwise change the terms of the indebtedness or any part
thereof;
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(c) Take and hold security for the payment of this
Guaranty or the indebtedness and exchange, enforce, waive, and release any
such security;
(d) Apply such security and direct the order or manner of
sale thereof as Lender in its discretion may determine. Lender may, without
notice, assign this Guaranty in whole or in part.
Guarantor hereby consents to, ratify, and affirm any and all such new
loans and financial accommodations, renewals, extensions, modifications,
compromises, or releases and any such action shall be binding upon
Guarantor. Guarantor hereby waives all defenses, counterclaims, or rights of
setoff which Guarantor might have by reason of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF GUARANTOR.
Guarantor represents and warrants to Lender that;
(a) To the best of Guarantor's knowledge and belief, the
execution, delivery, and performance by Guarantor of this Guaranty do not and
will not (i) conflict with or contravene any judgment, order, or decree of
any government, governmental instrumentality, or court having jurisdiction
over Guarantor or (ii) conflict with, or result in any default under, any
agreement or instrument of any kind to which Guarantor is a party or by which
Guarantor may be bound or effected;
(b) This Guaranty has been duly executed and delivered by
Guarantor and constitutes a legal, valid, and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its terms;
(c) The rights of Lender hereunder are not subordinate to
the rights of any third party;
(d) There is no action, litigation, or other proceeding
pending or threatened against Guarantor before any court, arbitrator, or
administrative agency which may have a materially adverse effect on the
Guarantor or which would prevent, jeopardize, hinder, or delay the
performance by Guarantor of its obligations under this Guaranty; and
(e) Guarantor is fully familiar with all of the covenants,
terms, and conditions of the Note and Guarantor has been advised by legal
counsel as to the legal consequences of this Guaranty prior to entering into
it.
4. MISCELLANEOUS PROVISIONS
4.1 This Guaranty sets forth the entire agreement of the parties
as to the subject matter hereof and supersedes all prior discussions and
understandings between them. This Guaranty may not be amended or rescinded in
any manner except by an instrument in writing signed by each party hereto.
4.2 This Guaranty shall be governed by, and construed and
enforced in accordance with, the laws of the State of Montana.
4.3 Should any of the provisions of this Guaranty be found to be
invalid, illegal, or unenforceable by any court of competent jurisdiction,
such provision shall be stricken and the remainder
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of this Guaranty shall nonetheless remain in full force and effect unless
striking such provision shall materially alter the intention of the parties.
4.4 In the event any action is brought to enforce this Guaranty,
the parties agree to be subject to exclusive IN PERSONAM jurisdiction in the
appropriate court in the state of Montana.
4.5 No waiver of any right under this Guaranty shall be effective
unless contained in a writing signed by the party sought to be charged with
the waiver and no waiver of any right arising from any breach or failure to
perform shall be deemed to be a waiver of any future right or of any other
right arising under this Guaranty.
4.6 Paragraph headings contained in this Guaranty are included
for convenience only and form no part of the agreement between the parties.
4.7 All notices or requests required or permitted under this
Guaranty shall be in writing; shall be personally delivered or sent by fax
(with confirmation of transmission required), Federal Express, or certified
mail, return receipt requested, postage prepaid; and shall be deemed given
when actually received by the addressee. Any party may change the address to
which notices shall be sent by notice to the other party.
4.8 This Guaranty shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
DATED this 7th day of April, 1999.
GUARANTOR
/s/ Matthew B. Jore
------------------------------
Matthew B. Jore
STATE OF MONTANA )
)ss.
COUNTY OF Lake )
On this day personally appeared before me MATTHEW B. JORE, known to me
to be the individual described in and who executed the within and foregoing
instrument, and acknowledged that he signed the same as his free and
voluntary act and deed, for the uses and purposes mentioned.
Given under my hand and official seal this 7th day of April, 1999.
Signature: /s/ Stephanie A. McClure
------------------------------------
Name (Print): Stephanie A. McClure
---------------------------------
NOTARY PUBLIC in and for the State of Montana,
residing at [ILLEGIBLE]
---------------------------------
My appointment expires: September 2002
----------------------
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PURCHASE AGREEMENT
This PURCHASE AGREEMENT ("Agreement") is made as of June 4, 1999, by and
between JORE CORPORATION, a Montana corporation ("Company"), and Blaine Huntsman
("Investor").
RECITAL
In reliance on Rule 506 of Regulation D promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), the Company desires to sell to
Investor, and Investor desires to purchase from the Company, a promissory note
in the principal amount of $250,000 (the "Note"), and to issue to Investor a
warrant for the purchase of Ten Thousand (10,000) shares of the Company's common
stock (the "Warrant" and, collectively with the Note, the "Securities").
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement and other good and valuable consideration the receipt
and adequacy of which the parties acknowledge, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE
1.1 SALE OF NOTE. The Company agrees to sell to the Investor and,
subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Company contained herein or made pursuant
hereto, the Investor agrees to purchase from the Company on the Closing Date
specified in Section 1.3 hereof, a Note in the aggregate principal amount of
$250,000, in substantially the form attached hereto as EXHIBIT A.
1.2 ISSUANCE OF WARRANT. In consideration of Investor's investment in
the Company, the Company agrees to issue to Investor a Warrant in substantially
the form attached hereto as EXHIBIT B.
1.3 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall be held on such date and at such time on or
before June 4, 1999, as the parties may agree, unless such date is extended by
agreement of the parties (the "Closing Date"). On the Closing Date, Investor
shall pay $250,000 in immediately available funds by wire transfer or certified
check to the Company, and the Company shall deliver the Securities to the
Investor.
ARTICLE 2
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY
To induce Investor's execution of this Agreement and the consummation of
the transactions contemplated hereby, the Company represents, warrants and
covenants as follows:
2.1 CORPORATE ORGANIZATION; AUTHORIZATION. The Company is duly
incorporated, validly existing and in good standing as a corporation under the
laws of the State of Montana and has full corporate power and authority to enter
into this Agreement and to issue and sell the Securities, including the shares
of Common Stock issuable upon exercise or conversion of the Warrant. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding agreement of the Company enforceable in
accordance with its terms.
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2.2 CAPITAL STOCK. As of the date herein, the Company had authorized
capital stock consisting of 100,000,000 shares of Common Stock, no par value, of
which 9,522,798 shares of Common Stock were issued and outstanding, and options
and warrants to purchase an additional 924,765 shares were issued and
outstanding. There are no preemptive or similar rights of any security holder
of the Company or any other person to acquire any of the Common Stock.
2.3 CHARACTERISTICS OF THE SHARES. The Securities have been duly
authorized and, when issued, the shares of Common Stock issuable upon exercise
or conversion of the Warrant in accordance with the terms thereof, will be duly
and validly issued, fully paid and non-assessable, and free from all taxes,
liens and charges. The Company will take all such action as may be necessary to
assure that such shares of Common Stock may be so issued without violation of
any applicable law or regulation. The shares of Common Stock necessary to
permit full exercise or conversion of the Warrant will at all times be reserved
from the authorized but unissued shares of the Company's Common Stock.
2.4 NON-CONTRAVENTION. Neither the execution and delivery of this
Agreement or the performance of any of the provisions of this Agreement by the
Company is in contravention of or in conflict with any law or regulation or any
term or provision of the Company's Articles of Incorporation or Bylaws and does
not require the consent of any governmental body or other regulatory authority.
2.5 LITIGATION. There is no litigation or other proceeding pending or,
to the best knowledge of the Company, threatened against the Company, which
could have an adverse material affect on the Company. The Company is not in
default with respect to any order, writ, injunction, decree or demand of any
court or other governmental or regulatory authority.
2.6 PURCHASE AGREEMENT; NOTE; WARRANT; REGISTRATION RIGHTS AGREEMENT.
This Agreement, the Note, the Warrant, and the Registration Rights Agreement
between the Company and Investor of even date herewith, have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered on behalf of the Company and this Agreement is, and the Warrant, Note
and the Registration Rights Agreement, when executed and delivered by the
Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their respective terms, subject to general
principles of equity and to bankruptcy, insolvency, moratorium and other similar
laws affecting the enforcement of creditors' rights generally and limits upon
rights to indemnity.
2.7 APPROVALS. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, or stock
exchange or market or the shareholders of the Company is required to be obtained
by Company for (i) the issuance and sale of the Note and the issuance of the
Warrant as contemplated by this Agreement, and (ii) the issuance of shares upon
exercise or conversion of the Warrant, except for the filing of one or more
Notice of Sale on Form D with respect to the Securities as required under
Regulation D under the Securities Act.
2.8 INFORMATION PROVIDED. The information provided by or on behalf of
the Company to Investor in connection with the transactions contemplated by the
Agreement does not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements therein, in
the light of the circumstances in which they were made, not misleading.
2.9 ABSENCE OF CERTAIN CHANGES. Since January 1, 1999, there has been
no material adverse change and no material adverse development in the business,
properties, operations, condition (financial or other), results of operations or
prospects of the Company, and, except as and to the extent disclosed, reflected
or reserved against in the financial statements of the Company has no material
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(individually or in the aggregate) liabilities, debts or obligations whether
accrued, absolute, contingent or otherwise, and whether due or to become due.
Subsequent to January 1, 1999, the Company has not incurred any liabilities,
debts or obligations of any nature whatsoever which are individually or in the
aggregate material to the Company, other than those incurred in the ordinary
course of its business and other than a bridge loan from D.A. Davidson.
ARTICLE 3
REPRESENTATIONS, WARRANTIES AND COVENANTS OF INVESTOR
As an inducement to, and with the intent that Company rely on the accuracy
thereof, Investor represents, warrants and covenants as follows:
3.1 ORGANIZATION. Investor has the requisite power and is duly
authorized under all applicable laws and regulations to acquire the Securities.
3.2 APPROVAL OF AGREEMENT. Investor has taken all action required by
applicable law to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. This Agreement is a
legal, valid and binding obligation of Investor, enforceable against it in
accordance with its terms. Investor is not required to obtain the
authorization, approval, consent or order of, or make a registration or filing
with, any court or other regulatory or governmental body in connection with the
execution and delivery by Investor of this Agreement and the consummation by
Investor of the transactions contemplated hereby. The execution of this
Agreement and the consummation of the transactions contemplated hereby will not
result in the breach of any term or provision of, constitute an event of default
under or require the consent or approval of any third-party pursuant to any
material contract, agreement or instrument to which Investor is a party or by
which any of its properties or assets are bound.
3.3 PURCHASE FOR INVESTMENT. Investor is purchasing the Securities for
its own account for investment only and not with a view towards the public sale
or distribution thereof. Investor has been informed and fully understands that
there are significant risks associated with a purchase of the Securities which
factors Investor has considered carefully before executing this Agreement.
3.4 DISCLOSURE OF INFORMATION. The Investor has been furnished with
such materials and has been given access to such information relating to the
Company as the Investor has requested and has been afforded the opportunity to
ask questions regarding the Company and the Securities, all as the Investor has
found necessary to make an informed investment decision. The Investor has been
solely responsible for its own due diligence investigation of the Company and
its proposed business, for its own analysis of the merits and risks of its
investment made pursuant to this Agreement and for its own analysis of the terms
of its investment.
3.5 INVESTOR'S FINANCIAL CONDITION. Investor is an "accredited
investor" within the meaning of Rule 501 promulgated under the Securities Act.
Investor is capable of bearing the economic risk and burden of this investment,
including, without limitation, the possibility of a complete loss of its
investment in the Securities. Investor understands that there are substantial
restrictions on the transferability of the Securities, which may make the
liquidation of the Securities impossible for the immediate future.
3.6 NO REGISTRATION. Investor acknowledges that the Securities are
being issued without being registered under the Securities Act or other
applicable securities laws under exemptions from such registration requirements.
Investor acknowledges that it must hold the Securities for the applicable
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holding period unless the Securities are subsequently registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is available, and that Company will place stop transfer
instructions with the Company's transfer agent regarding the Securities. The
Company is under no obligation to cause or permit the Securities to be
transferred in the absence of such registration or an opinion satisfactory to
the Company's counsel that an exemption is available.
3.7 RULE 144. Investor acknowledges that the Securities are restricted
securities, as defined in Rule 144 under the Securities Act, that the Securities
may not be resold in reliance on Rule 144 for at least one year after issuance
and that once the Securities are eligible for resale under Rule 144 they will be
subject to certain resale restrictions contained in Rule 144, including volume
limitations and restrictions on the manner of resale, until they have been held
for at least one year as provided in Rule 144. If Investor is an affiliate of
the Company for purposes of Rule 144, Investor understands that certain
restrictions on resale will continue to apply under Rule 144 for so long as
Investor is an affiliate.
3.8 LEGEND. Investor acknowledges that the certificates representing
the Shares will bear substantially the following legend until such legend may be
removed under applicable securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE AND WERE
OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF
THE ACT AND SUCH LAWS. THESE SECURITIES CANNOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS SUBSEQUENTLY REGISTERED
UNDER THE ACT, AND/OR THE LAWS OF CERTAIN STATES, OR UNLESS AN EXEMPTION FROM
SUCH REGISTRATION IS AVAILABLE AND THE HOLDER HAS PROVIDED THE COMPANY WITH A
LEGAL OPINION ACCEPTABLE TO THE COMPANY TO THAT EFFECT.
3.9 FURTHER ACTIONS. Investor shall execute and deliver to the Company,
at or prior to the Closing, such further letters of representation,
acknowledgment, suitability or the like, as the Company and its counsel may
reasonably request in connection with the Company's reliance on exemptions from
registration under Regulation D or any other securities laws.
ARTICLE 4
INDEMNIFICATION
4.1 INDEMNIFICATION BY INVESTOR. Investor will indemnify and hold the
Company and its directors, officers, agents and employees, and each person, if
any, who controls the Company within the meaning of the Securities Act
("Affiliates") harmless from and against any and all claims, damages, expenses,
liabilities or actions ("Claims") to which any of them may become subject under
applicable law (including the Securities Act and the Exchange Act), and will
reimburse them for any legal or other expenses reasonably incurred by them in
connection with the investigation or defense of any Claims arising out of or
based upon a misrepresentation or alleged misrepresentation of material fact
contained in any application or statement filed with a governmental body by the
Company or the omission or alleged omission of a material fact required to be
stated therein, or necessary in order to make the statements made therein not
misleading, but only insofar as any such misrepresentation or omission was made
in reliance upon and in conformity with information furnished in writing by
Investor. Investor agrees at any time upon the request of the Company to
furnish a written letter or statement confirming the accuracy of any information
provided to the Company by Investor. This Section 4.1 shall remain operative and
in full force and effect, regardless of any investigation made by or on behalf
of the Company, and shall survive the consummation of the transactions
contemplated by this Agreement.
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4.2 INDEMNIFICATION BY THE COMPANY. The Company will indemnify and hold
Investor and its Affiliates harmless from and against any Claims to which any of
them may become subject under applicable law (including the Securities Act and
the Exchange Act) and will reimburse them for any legal or other expenses
reasonably incurred by them in connection with the investigation or defense of
any Claims arising out of or based upon any untrue statement or alleged untrue
statement of a material fact contained in this Agreement, or arising out of or
based upon the omission or alleged omission of a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. This Section 4.2 shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of Investor, and
shall survive the consummation of the transactions contemplated by this
Agreement.
ARTICLE 5
CONDITIONS PRECEDENT TO OBLIGATIONS
The obligations of each party to this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
5.1 ACCURACY OF REPRESENTATIONS. The representations and warranties
made by each party in this Agreement shall have been true when made and shall be
true at the Closing Date with the same force and effect as if such
representations and warranties were made at and as of the Closing Date (except
for changes therein permitted by this Agreement), and such party shall have
performed or complied with all covenants and conditions required by this
Agreement to be performed or complied with by such party prior to or at the
Closing.
5.2 NO EVENT OF DEFAULT. There shall exist no condition that would
constitute an event of default by the Company under the Note or which, after
notice or lapse of time, or both, would constitute an event of default by the
Company.
5.3 PAYMENT OF EXPENSES OF THE INVESTOR. The Company shall have paid to
the Investor all expenses incurred by Investor in negotiating this Agreement,
the Note, the Warrant, and the Registration Rights Agreement, including
reasonable fees and expenses of counsel to Investor.
5.4 OTHER ITEMS. Each party shall have received such further documents,
certificates or instruments relating to the transactions contemplated hereby as
the other party may reasonably request.
ARTICLE 6
GENERAL PROVISIONS
6.1 AMENDMENT OR WAIVER. Every right and remedy provided in this
Agreement shall be cumulative with every other right and remedy, whether
conferred in this Agreement, at law or in equity, and may be enforced
concurrently with any right conferred by this Agreement, and no waiver by any
party of the performance of any obligation by the other shall be construed as a
waiver of the same or any other default then, theretofore or thereafter
occurring or existing. At any time prior to the Closing Date, this Agreement
may be amended by a writing signed by the parties with respect to any of the
terms contained in this Agreement, and any term or condition of this Agreement
may be waived or the time for performance thereof may be extended by a writing
signed by the party or parties for whose benefit the provision is intended.
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6.2 ATTORNEYS' FEES. In the event any party institutes and prevails in
any action or suit to enforce this Agreement or to secure relief from any
default under or breach of this Agreement, the defaulting or breaching party or
parties shall reimburse the nonbreaching party or parties for all costs,
including, without limitation, reasonable attorneys' fees incurred in connection
with such dispute and in enforcing or collecting any judgment rendered pursuant
to such dispute.
6.3 GOVERNING LAW. This Agreement shall in all respects, including all
matters of construction, validity and performance, be governed by and construed
and enforced in accordance with the laws of the State of Montana.
6.4 NO BROKERS. Investor and the Company agree that no third person has
in any way brought the parties together or been instrumental in the negotiation,
execution or consummation of this Agreement. Investor and the Company each
agree to indemnify the other against any claim by any third person for any
commission, brokerage, finders fee or other payment with respect to this
Agreement or the transactions contemplated hereby based upon any alleged
agreement or understanding between such party and such third person, whether
expressed or implied, arising from the actions of such party. The covenants set
forth in this Section 6.4 shall survive the Closing Date and the consummation of
the transactions contemplated hereby.
6.5 NOTICES. All notices, demands, requests or other communications
required or authorized under this Agreement shall be deemed given sufficiently
if in writing and if personally delivered; if sent by facsimile transmission,
confirmed with a written copy thereof sent by overnight express delivery; if
sent by registered mail or certified mail, return receipt requested and postage
prepaid; or if sent by overnight express delivery:
If to the Company: JORE CORPORATION
Attention: David H. Bjornson
45000 Highway 93 South
Ronan, Montana 59864
Facsimile Transmission: (406) 676-8400
Telephone: (406) 676-4900
If to Investor: To the address, telephone or facsimile
numbers set forth on the signature page
or such other addresses and facsimile numbers as shall be furnished in writing
by any party in the manner for giving notices hereunder. Any such notice,
demand, request or other communication shall be deemed to have been given as of
the date personally delivered or on the first business day after a legible copy
sent by facsimile transmission is received, three days after the date mailed by
registered or certified mail, or on the first business day after the date sent
by overnight delivery.
6.6 SURVIVAL; LIABILITY. The representations, warranties and covenants
of the respective parties set forth in this Agreement shall survive the Closing
the transactions contemplated by this Agreement for a period of one year from
the date of this Agreement.
6.7 THIRD-PARTY BENEFICIARIES. This Agreement is solely between the
Company and Investor, and no director, officer, stockholder, employee, agent,
independent contractor or any other person or entity shall be deemed to be a
third-party beneficiary of this Agreement.
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6.8 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be a single instrument.
6.9 ENTIRE AGREEMENT. This Agreement, together with the documents to be
delivered pursuant to this Agreement, represents the entire agreement between
the parties relating to the subject matter of this Agreement. There are no
other understandings, agreements, representations or warranties, written or
oral, with respect to the subject matter hereof except as set forth herein.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date and year first above written.
THE COMPANY:
JORE CORPORATION
By: /s/ Matthew B. Jore
-------------------------------
Matthew B. Jore
President
INVESTOR:
/s/ Blaine Huntsman
------------------------------------
Blaine Huntsman
Investor's Address:
137 So. Main Street, Ste. 421
------------------------------------
Salt Lake City, UT 8410
------------------------------------
------------------------------------
Telephone: 801-994-0303
-------------------------
Facsimile: 801-994-0305
-------------------------
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EXHIBIT A
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAW. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933 AND APPLICABLE STATE LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
PROMISSORY NOTE
$250,000 June 4, 1999
FOR VALUE RECEIVED, Jore Corporation., a Montana corporation (the
"Company"), promises to pay to the order of Blaine Huntsman ("Holder"), at 136
South Main Street, Suite 421, Salt Lake City, Utah 84101-3649 or such other
place as the Holder from time to time may designate in writing, upon the terms
set forth below, the principal sum of Two Hundred Fifty Thousand Dollars
($250,000) in full on the earlier of (a) December 1, 1999 or (b) within five
calendar days following the closing of an initial firm commitment underwritten
public offering of the Company's common stock pursuant to an effective
registration statement under the Securities Act of 1933, as amended (a "Public
Offering").
1. INTEREST. The unpaid principal balance outstanding from time to time
under this Note shall bear interest at the rate of 6.5% per annum. Accrued
interest shall be due and payable at maturity or upon earlier prepayment by the
Company.
2. PAYMENTS AND PREPAYMENTS. Each payment hereunder shall be first
applied to the payment of any costs and expenses for which the Company is liable
hereunder, next to the payment of accrued interest, and lastly to the reduction
of principal. This Note shall continue to bear interest as provided herein
until and including the date of collection. Prepayments of principal can be
made only upon not less than ten days prior written notice to the Holder, but
there shall be no prepayment fee, premium or penalty. Any prepayments shall be
first credited to any accrued and unpaid interest, then to principal.
3. SUBORDINATION TO SENIOR DEBT. The payment of principal of this Note
is subordinated to all existing and future indebtedness and liabilities of the
Company other than other subordinated notes and trade payables, and is a
general, unsecured obligation of the Company. Subject to the rights, if any, of
the holders of senior indebtedness under this Section 3 to receive cash,
securities or other properties otherwise payable or deliverable to the Holder,
nothing contained in this Section 3 shall impair, as between the Company and the
Holder, the obligation of the Company, subject to the terms and conditions of
this Section 3 to pay to the Holder the principal hereof as and when the same
becomes due and payable, or shall prevent the Holder, upon default hereunder,
from exercising all rights, powers and remedies otherwise provided herein or by
applicable law. Subject to payment in full of all senior indebtedness and until
this Note shall be paid in full, the Holder shall be subrogated to the rights of
the holders of senior indebtedness (to the extent of payments or distributions
previously made to such holders of senior indebtedness pursuant to the
provisions hereof) to receive payments or distributions of assets of the Company
applicable to the senior indebtedness. No such payments or distributions
applicable to the senior indebtedness, as between the Company and its creditors,
other than the holders of senior indebtedness and the Holder, shall be deemed to
be a payment by the Company to or on
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account of this Note; and for the purposes of such subrogation, no payments
or distributions to the holders of senior indebtedness to which the Holder
would be entitled except for the provisions of this Section 3, as between the
Company and its creditors, other than the holders of senior indebtedness and
the Holder, shall be deemed to be a payment by the Company to or on account
of the senior indebtedness.
4. EVENTS OF DEFAULT. Each of the following shall constitute an event
of default ("Event of Default") hereunder:
4.1 Failure of the Company to make any payment of principal or
interest upon this Note when due; or
4.2 Breach by the Company in any material respect of any
warranty or any obligation of the Company set forth in this Note; or
4.3 Filing by the Company of a voluntary petition in bankruptcy
or filing by the Company of any petition or answer seeking or acquiescing in any
reorganization, arrangement, composition, readjustment, liquidation, or similar
relief for itself under any present or future federal, state or other statute,
law or regulation relating to bankruptcy, insolvency or other relief for
debtors, or the seeking, consenting to, or acquiescing by the Company in the
appointment of any trustee, receiver, custodian, conservator or liquidator for
the Company, or the making by the Company of any general assignment for the
benefit of creditors, or the inability of or failure by the Company to pay its
debts generally as they become due; or
4.4 Filing of a petition against the Company seeking any
reorganization, arrangement, composition, readjustment, liquidation, or similar
relief under any present or future federal, state or other law or regulation
relating to bankruptcy, insolvency or other relief for debts, or the appointment
of any trustee, receiver, custodian, conservator or liquidator of the Company,
unless such petition shall be dismissed within sixty (60) days after such
filing, but in any event prior to the entry of an order, judgment or decree
approving such petition.
Upon the occurrence and continuation of any Event of Default, then the
principal of this Note, and all accrued interest, shall at the option of the
Holder become immediately due and payable upon written notice of acceleration
from the Holder to the Company.
No right or remedy conferred upon or reserved to the Holder is intended to
be exclusive of any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to every other right
and remedy given under this Section 4 or now or hereafter existing at law or in
equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy. No delay or omission of the
Holder to exercise any right or remedy accruing upon any Event of Default shall
impair any such right or remedy or constitute a waiver of any such Event of
Default. Every right and remedy given by this Section or by law to the Holder
may be exercised from time to time, and as often as the Holder may deem
necessary. The Holder may waive any past default and its consequences under
this Section 4 by way of a written waiver specifying the default waived, but no
such waiver shall extend to any subsequent or other default or impair any right
of the Holder upon such default.
5. COSTS AND FEES. The Company agrees to pay all expenses, including
without limitation reasonable attorneys' fees and costs, including fees and
costs of appeals, incurred by the Holder or any assignee of this Note in
attempting to collect any amounts payable hereunder that are not paid when due.
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6. OBLIGATIONS. Except as otherwise provided in this Note as to
notices, the undersigned and all endorsers and all persons liable or to become
liable on this Note waive presentment, demand, protest and notice of demand,
protest and nonpayment, and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note, and
consent to any and all renewals and extensions of the time of payment hereof and
further agree that at any time the terms of payment hereof may be modified
without affecting the liability of any party to this Note or any person liable
or to become liable with respect to any indebtedness evidenced hereby. In any
action on this Note, the Holder or its assignee need not produce or file the
original of this Note, but need only file a photocopy of this Note certified by
the Holder or such assignee to be a true and correct copy of this Note.
7. NOTICES. All notices and other information hereunder shall be
delivered personally or if mailed, sent first-class postage prepaid, and if to
the Holder, then to the Holder's address appearing on the Company's records, and
if to the Company, then to Joe Corporation, 45000 Highway 93 South, Ronan,
Montana 59864 Attention: David H. Bjornson, or to such other address as the
Holder or the Company may have so provided to the other by written notice given
pursuant to this Section.
8. WAIVER. The Holder shall not be deemed, by any act or failure to
act, to waive any of its rights or remedies hereunder unless such waiver is in
writing and signed by the Holder, and then only to the extent specifically set
forth in writing.
9. GOVERNING LAW AND INTERPRETATION. This Note shall be governed by
and construed in accordance with the internal laws of Montana applicable to
contracts executed and to be performed wholly in that state. This Note
(together with the other agreements relating to the Company that are being
executed contemporaneously herewith) constitutes the entire agreement among the
parties with respect to the subject matter hereof, and supersedes any and all
previous agreements, understandings, term sheets, commitments or discussions
relating thereto. This Note has been reviewed and negotiated by the Company and
Holder at arms' length with each party having had the benefit of, or the
opportunity to seek the assistance of, legal counsel and shall not be construed
against either party. The titles and captions in this Note are inserted for
convenience only and in no way define, limit, extend, or modify the scope or
intent of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be executed as of
the date and year first above written.
JORE CORPORATION
By /s/ Matt Jore
-----------------------------------
Matt Jore, President
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EXHIBIT B
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION STATEMENT
IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR, AT THE OPTION OF THE
COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO AN EXEMPTION TO SUCH
ACT.
COMMON STOCK PURCHASE WARRANT
JORE CORPORATION
THIS CERTIFIES that, for value received, Blaine Huntsman, or registered
assigns, is entitled, upon the terms and subject to the conditions hereinafter
set forth, at any time or from time to time at or prior to 11:59 p.m., Pacific
time, on June 3, 2002 (the "EXPIRATION DATE"), to acquire from Jore Corporation,
a Montana corporation (the "COMPANY"), Ten Thousand (10,000) fully paid and
nonassessable shares of common stock, or its equivalent, however designated, of
the Company (the "WARRANT SHARES"), for $9.10 per share (the "EXERCISE PRICE").
The number of Warrant Shares, type of security and Exercise Price are subject to
adjustment as provided herein.
1. EXERCISE OF WARRANT. This Warrant is exercisable by the registered holder
hereof, at any time and from time to time at or prior to the Expiration Date by
the surrender of this Warrant and delivery of a Notice of Exercise/Conversion,
the form of which is attached hereto as ANNEX A, duly executed to the principal
offices of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof), and upon
payment of the Exercise Price for the shares thereby purchased (by check payable
to the order of the Company or by wire transfer the account of the Company);
whereupon the Company shall issue to the holder of this Warrant the number of
Warrant Shares so purchased and shall deliver a stock certificate in proper form
representing such number of Warrant Shares.
2. CONVERSION OF WARRANT. The registered holder hereof shall have the right
(but not the obligation) to require the Company to convert this Warrant, in
whole or in part, at any time and from time to time at or prior to the
Expiration Date, by the surrender of this Warrant and delivery of a Notice of
Exercise/Conversion duly executed to the principal offices of the Company (or
such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof), into Warrant Shares as provided in
this Section 2. Upon exercise of this conversion right (and without payment by
the holder of the Exercise Price), the holder hereof shall be entitled to
receive that number of Warrant Shares determined in accordance with the
following formula:
Warrant Shares Issuable to Holder = [ (A / B) x C ] + A
where:
A = the Fair Market Value (as defined below) of one Warrant
Share on the date of conversion of this Warrant;
B = the Exercise Price; and
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C = the number of Warrant Shares as to which this Warrant is
being converted.
"Fair Market Value" of one Warrant Share shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 9 hereof, the value of the consideration
(determined, in the case of non-cash consideration, in good faith by the Board
of Directors of the Company) to be received pursuant to such transaction by the
holder of one Warrant Share;
(b) if the conversion right is being exercised after the occurrence of
an initial public offering of common stock of the Company, the average of the
high and low trading prices of a share of Common Stock as reported by the
principal securities exchange or market on which the common stock is listed for
trading for the three trading days prior to the surrender of this Warrant for
conversion in accordance with the terms hereof; or
(c) in all other cases, the fair value as determined in good faith by
the Board of Directors of the Company.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of Warrant Shares determined in accordance herewith.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP. Certificates for shares
purchased upon exercise or issuable upon conversion hereof shall be delivered to
the holder by the Company's stock transfer agent at the Company's expense within
three business days after the date on which this Warrant shall have been
exercised or converted, as the case may be, in accordance with the terms hereof.
Each certificate so delivered shall be in such denominations as may be requested
by the holder hereof and shall be registered in the name of such holder or,
subject to applicable laws, any other name or names as shall be requested by
such holder; PROVIDED, HOWEVER, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by an Assignment Form, the form of which is attached hereto as ANNEX
B, duly executed by the holder hereof. If, upon exercise or conversion of this
Warrant, fewer than all of the Warrant Shares evidenced by this Warrant are
purchased or issued prior to the Expiration Date, one or more new warrants of
like tenor to this Warrant will be issued for the remaining number of Warrant
Shares not purchased upon such exercise or issued upon such conversion. The
Company agrees that the shares so issued shall be deemed to be issued to such
holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered for exercise or
conversion in accordance with the terms hereof. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant. With respect to any fraction of a share otherwise issuable
upon the exercise or conversion of this Warrant, an amount equal to such
fraction multiplied by the then current price at which each share may be
purchased hereunder shall be paid in cash to the holder of this Warrant.
4. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Warrant Shares upon the exercise or conversion of this Warrant shall be made
without charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of which
taxes and expenses shall be paid by the Company.
5. NO RIGHTS AS SHAREHOLDER. This Warrant does not entitle the holder hereof
to any voting rights or other rights as a shareholder of the Company prior to
the exercise or conversion hereof.
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6. EXCHANGE AND REGISTRY OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the registered holder at the principal above-mentioned
office or agency of the Company, for a new Warrant of like tenor and dated as of
such exchange. The Company shall maintain at its principal offices (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof), a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for
exchange, transfer, exercise or conversion, in accordance with its terms, at
such office or agency of the Company, and the Company shall be entitled to rely
in all respects, prior to written notice to the contrary, upon such registry.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. SATURDAYS, SUNDAYS AND HOLIDAYS. If the last or appointed day for the
taking of any action or the expiration of any right required or granted herein
shall be a Saturday or a Sunday or shall be a legal holiday, then such action
may be taken or such right may be exercised on the next succeeding day not a
legal holiday.
9. MERGER, SALE OF ASSETS, ETC. If at any time the Company proposes to merge
or consolidate with or into any other corporation, effect any reorganization, or
sell or convey all or substantially all of its assets to any other entity, in a
transaction in which the shareholders of the Company immediately prior to
completion of the transaction will own immediately after completion of the
transaction less than a majority of the outstanding voting securities of the
entity (or its parent) succeeding to the business of the Company, then the
Company shall give the holder of this Warrant sixty (60) days' prior written
notice of the proposed effective date of such transaction, and if this Warrant
has not been exercised or converted by or on the effective date of such
transaction, it shall terminate.
10. SUBDIVISION, COMBINATION, RECLASSIFICATION, CONVERSION, ETC. If the
Company at any time shall, by subdivision, combination, reclassification of
securities or otherwise, change the Warrant Shares into the same or a different
number of securities of any class or classes, this Warrant shall thereafter
entitle the holder to acquire such number and kind of securities as would have
been issuable in respect of the Warrant Shares (or other securities which were
subject to the purchase rights under this Warrant immediately prior to such
subdivision, combination, reclassification or other change) as the result of
such change if this Warrant had been exercised in full for cash immediately
prior to such change. The Exercise Price hereunder shall be adjusted if and to
the extent necessary to reflect such change. If the Warrant Shares or other
securities issuable upon exercise or conversion hereof are subdivided or
combined into a greater or smaller number of shares of such security, the number
of shares issuable hereunder shall be proportionately increased or decreased, as
the case may be, and the Exercise Price shall be proportionately reduced or
increased, as the case may be, in both cases according to the ratio which the
total number of shares of such security to be outstanding immediately after such
event bears to the total number of shares of such security outstanding
immediately prior to such event. The Company shall give the holder prompt
written notice of any change in the type of securities issuable hereunder, any
adjustment of the Exercise Price for the securities issuable hereunder, and any
increase or decrease in the number of shares issuable hereunder.
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11. TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT
(a) This Warrant shall inure to the benefit of the successors to and
assigns of the holder. Prior to the Expiration Date and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable by
the holder hereof, in whole or in part, at the principal offices of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof). Any such transfer shall be made in
person or by the holder's duly authorized attorney, upon surrender of this
Warrant together with a properly endorsed Assignment Form.
(b) Each certificate representing the Warrant Shares or other securities
issued in respect of the Warrant upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall bear a legend
substantially in the following form (in addition to any legend required under
applicable state securities laws):
These securities have not been registered under the Securities Act of
1933, as amended (the "Act"), or any state securities laws. They may
not be sold, offered for sale, pledged, hypothecated or otherwise
transferred n the absence of a registration statement in effect with
respect to the securities under such act or, at the option of the
company, an opinion of counsel reasonably satisfactory to the Company
that such registration is not required, or unless sold pursuant to an
exemption to such Act.
12. COOPERATION. The Company will not, by amendment of its charter documents
or through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder of the Warrant against impairment.
13. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend on, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any transfer of all or substantially all of the assets of the Company to or
consolidation or merger of the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder hereof, at least ten days prior to such record date, a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up; and (iii) the amount and character of
any stock or other securities, or rights or
4
<PAGE>
options with respect thereto, proposed to be issued or granted, the date of
such proposed issue or grant and the persons or class of persons to whom such
proposed issue or grant is to be offered or made. Such notice shall also
state that the action in question or the record date is subject to the
effectiveness of a registration statement under the Securities Act of 1933,
as amended, or a favorable vote of shareholders, if either is required. Such
notice shall be mailed at least ten days prior to the date specified in such
notice on which any such action is to be taken or the record date, whichever
is earlier.
14. NOTICES, ETC. All notices and other communications from the Company to the
registered holder of this Warrant shall be mailed by first class certified mail,
postage prepaid, at such address as may have been furnished to the Company in
writing by such holder or at the address shown for such holder on the register
of Warrants referred to in Section 6.
15. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Montana.
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IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized officers.
Dated: June 4, 1999 JORE CORPORATION,
a Montana corporation
By: /s/ Matt Jore
--------------------------------
Matt Jore, President
6
<PAGE>
ANNEX A
NOTICE OF EXERCISE/CONVERSION
To: JORE CORPORATION
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ Warrant Shares, as defined in the Warrant, of Jore Corporation, a
Montana corporation (the "Company").
2. The undersigned Holder (check one):
- elects to pay the aggregate purchase price for such Warrant
Shares (i) by lawful money of the United States or the
enclosed certified or official bank check payable in United
States dollars to the order of the Company in the amount of
$___________, or (ii) by wire transfer of United States
funds to the account of the Company in the amount of
$____________, which transfer has been made before or
simultaneously with the delivery of this Form of
Exercise/Conversion pursuant to the instructions of the
Company;
or
- elects to receive the number of Warrant Shares as calculated
in accordance with Section 2 of the Warrant.
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3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
Name:
-------------------------------------
Address:
-------------------------------------
-------------------------------------
Dated:
--------------------- -----------------------------------
(Signature must conform to name of
Holder as specified on the face of the
Warrant)
-----------------------------------
-----------------------------------
(Address)
8
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ANNEX B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
------------------------------------------------------------------------
(Please Print)
whose address is
---------------------------------------------------------------
(Please Print)
Dated:
--------------------------------------------------
Holder's Signature:
--------------------------------
Holder's Address:
----------------------------------
----------------------------------------------------
Guaranteed Signature:
--------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name
as it appears on the face of the Warrant, without alteration or enlargement or
any change whatever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
9
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GUARANTY
THIS GUARANTY is given by Matthew B. Jore ("Guarantor") to BLAINE
HUNTSMAN, his successors and assigns ("Lender").
RECITALS
WHEREAS, Guarantor is the President and principal shareholder of Jore
Corporation, a Montana corporation ("Borrower"); and
WHEREAS, Lender has made certain loans to Borrower as documented in the
Promissory Note (the "Note") dated June 4, 1999, delivered by Borrower to
Lender; and
WHEREAS, to induce Lender to purchase the Note, Guarantor has agreed to
unconditionally guarantee to Lender the payment and performance of the Note; and
WHEREAS, the granting of all loans and financial accommodations by Lender
to Borrower are of direct benefit to Guarantor because Guarantor is the
principal shareholder of Borrower, and Guarantor has weighed the benefits of
such loans and financial accommodations against his contingent liability
hereunder and determined it is in his best interests to enter into this
Guaranty.
AGREEMENT
NOW, THEREFORE, in order to induce Lender to make loans and financial
accommodations to Borrower, Guarantor hereby agrees as follows:
1. GUARANTY.
1.1 Guarantor jointly and severally unconditionally guarantees
the full, prompt, and complete performance, payment, observance, and fulfillment
by Borrower of each obligation, covenant, and condition to be performed by
Borrower under the Note and the payment as and when due of all indebtedness
thereunder (the "Obligations"). Guarantor further agree to pay all expenses,
including without limitation, reasonable attorneys' fees and legal expenses paid
or incurred by Lender in endeavoring to collect or secure performance of the
Obligations, or any part thereof, or in enforcing this Guaranty.
1.2 Upon the occurrence of an Event of Default (as defined in
the Note), the entire amount guaranteed hereunder shall mature immediately and
become due and payable.
1.3 In the event of any proceeding by or against Borrower, a
composition, extension, or reorganization under any provision of the Bankruptcy
Code or any other bankruptcy, insolvency, receivership, or similar proceeding,
Guarantor expressly waives the extension of the obligations of this Guaranty
under any provision of such Code or any law or rule applicable to such
proceedings and hereby agrees that Lender may proceed immediately to collect any
amount due under the terms of this Guaranty and to otherwise enforce this
Guaranty.
1.4 Any payment made on the Obligations hereby guaranteed and
which may thereafter be required to be refunded as a preference or a fraudulent
transfer under the Bankruptcy Code or any other federal or state law shall not
be considered as payment of the Obligations, nor shall it have the effect of
reducing the liability of Guarantor under this Guaranty.
1
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2. RIGHTS AND REMEDIES OF LENDER.
2.1 Neither demand on, nor the pursuit of any remedy against,
Borrower or its property for payment of the Obligations shall be required as a
condition precedent to either the making of a demand on Guarantor by Lender or
the prior or subsequent commencement by Lender against Guarantor of any action,
suit, or proceeding, at law or in equity to enforce this Guaranty. Neither the
pendency nor the prior termination of any action, suit, or proceeding against
Borrower or its property shall bar or prejudice either the making of a demand on
Guarantor by Lender or the prior or subsequent commencement by Lender against
Guarantor of any action, suit, or proceeding, at law or in equity to enforce
this Guaranty.
2.2 Guarantor's liability under this Guaranty is primary,
direct, and immediate. Guarantor waives any right to require Lender to:
(a) Proceed against Borrower or any other person;
(b) Proceed against or exhaust any collateral; or
(c) Pursue any other available legal remedy.
No delay in the taking, pursuing, or exercising of any of the foregoing
actions, rights, powers, or remedies by Lender shall affect, diminish, or
extinguish the obligations of Guarantor hereunder.
Guarantor waives any defense arising by reason of any disability of the
Borrower, or by reason of the cessation from any cause whatsoever of the
liability of the Borrower or each other. Guarantor shall be liable and remain
liable for the payment of the Obligations to the extent provided herein
notwithstanding:
(a) Any previous discharge (total or partial) of
Borrower from further liability;
(b) Any bar (total, partial, or temporary) to the
pursuit by Guarantor of any right or claim for indemnification from Borrower;
(c) Any right or claim by Guarantor to be subrogated to
the rights or claims of Lender in and to Borrower's property, or
(d) Any action or inaction or delay in acting by
Lender.
Guarantor waives all presentments, demands for performance, notices of
dishonor, and notices of acceptance of this Guaranty and of the existence,
creation, or incurring of the indebtedness covered by this Guaranty.
2.3 Guarantor authorizes Lender, without notice or demand and
without diminishing or releasing Guarantor's liability hereunder, from time to
time, to:
(a) Make new loans and financial accommodations to
Borrower, such loans and financial accommodations to be a part of the
Obligations;
(b) Renew, extend, accelerate, or otherwise change the
time for payment of or otherwise change the terms of the indebtedness or any
part thereof;
2
<PAGE>
(c) Take and hold security for the payment of this
Guaranty or the indebtedness and exchange, enforce, waive, and release any such
security;
(d) Apply such security and direct the order or manner
of sale thereof as Lender in its discretion may determine. Lender may, without
notice, assign this Guaranty in whole or in part.
Guarantor hereby consents to, ratify, and affirm any and all such new
loans and financial accommodations, renewals, extensions, modifications,
compromises, or releases and any such action shall be binding upon Guarantor.
Guarantor hereby waives all defenses, counterclaims, or rights of setoff which
Guarantor might have by reason of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF GUARANTOR.
Guarantor represents and warrants to Lender that:
(a) To the best of Guarantor's knowledge and belief, the
execution, delivery, and performance by Guarantor of this Guaranty do not and
will not (i) conflict with or contravene any judgment, order, or decree of any
government, governmental instrumentality, or court having jurisdiction over
Guarantor or (ii) conflict with, or result in any default under, any agreement
or instrument of any kind to which Guarantor is a party or by which Guarantor
may be bound or affected;
(b) This Guaranty has been duly executed and delivered
by Guarantor and constitutes a legal, valid, and binding obligation of
Guarantor, enforceable against Guarantor in accordance with its terms;
(c) The rights of Lender hereunder are not subordinate
to the rights of any third party;
(d) There is no action, litigation, or other proceeding
pending or threatened against Guarantor before any court, arbitrator, or
administrative agency which may have a materially adverse effect on the
Guarantor or which would prevent, jeopardize, hinder, or delay the performance
by Guarantor of its obligations under this Guaranty; and
(e) Guarantor is fully familiar with all of the
covenants, terms, and conditions of the Note and Guarantor has been advised by
legal counsel as to the legal consequences of this Guaranty prior to entering
into it.
4. MISCELLANEOUS PROVISIONS.
4.1 This Guaranty sets forth the entire agreement of the
parties as to the subject matter hereof and supersedes all prior discussions and
understandings between them. This Guaranty may not be amended or rescinded in
any manner except by an instrument in writing signed by each party hereto.
4.2 This Guaranty shall be governed by, and construed and
enforced in accordance with, the laws of the State of Montana.
4.3 Should any of the provisions of this Guaranty be found to
be invalid, illegal, or unenforceable by any court of competent jurisdiction,
such provision shall be stricken and the remainder
3
<PAGE>
of this Guaranty shall nonetheless remain in full force and effect unless
striking such provision shall materially alter the intention of the parties.
4.4 In the event any action is brought to enforce this
Guaranty, the parties agree to be subject to exclusive IN PERSONAM jurisdiction
in the [Superior Court for the State of Montana.]
4.5 No waiver of any right under this Guaranty shall be
effective unless contained in a writing signed by the party sought to be charged
with the waiver and no waiver of any right arising from any breach or failure to
perform shall be deemed to be a waiver of any future right or of any other right
arising under this Guaranty.
4.6 Paragraph headings contained in this Guaranty are included
for convenience only and form no part of the agreement between the parties.
4.7 All notices or requests required or permitted under this
Guaranty shall be in writing; shall be personally delivered or sent by fax (with
confirmation of transmission required), Federal Express, or certified mail,
return receipt requested, postage prepaid; and shall be deemed given when
actually received by the addressee. Any party may change the address to which
notices shall be sent by notice to the other party.
4.8 This Guaranty shall be binding upon, and inure to the
benefit of, the parties hereto and their respective successors and assigns.
DATED this 4th day of June, 1999.
GUARANTOR
/s/ Matt Jore
------------------------------
Matt Jore
STATE OF MONTANA )
)ss.
COUNTY OF LAKE )
On this day personally appeared before me MATTHEW B. JORE, known to me to
be the individual described in and who executed the within and foregoing
instrument, and acknowledged that he signed the same as his free and voluntary
act and deed, for the uses and purposes mentioned.
Given under my hand and official seal this 4th day of June, 1999.
Signature: /s/ David H. Bjornson
-------------------------------
Name (Print): David H. Bjornson
-----------------------------
NOTARY PUBLIC in and for the State of Montana,
residing at Missouri
-------------------------------
My appointment expires: 7-14-02
------------------
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REGISTRATION RIGHTS AGREEMENT
This Registration Agreement ("AGREEMENT") is entered into as of June 4,
1999 by and among Jore Corporation, a Montana corporation (the "COMPANY") and
Blaine Huntsman (the "HOLDER").
RECITALS
A. The Company has issued to the Holder a warrant ("WARRANT") to
purchase shares of the Company's common stock, no par value ("COMMON STOCK"),
pursuant to the terms of a Purchase Agreement between the parties of even date
herewith (the "PURCHASE AGREEMENT").
B. The Company has agreed to take steps to permit the Holder to
resell the Common Stock issuable to the Holder upon exercise or conversion of
the Warrant without restriction under the Securities Act of 1933, as amended
(the "SECURITIES ACT").
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
For purposes of this Agreement:
(a) The term "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means (i) the Common Stock
issuable or issued upon exercise of the Warrant and (ii) any Common Stock of the
Company issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Common Stock issuable upon exercise of
the Warrant, excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which its rights under this Agreement are not
assigned;
(c) The term "HOLDER" means any person owning or having the right to
acquire Registrable Securities who is a party to this Agreement as of the date
hereof or who may be added as a party hereto pursuant to the terms of this
Agreement, and any assignee thereof in accordance with Section 11;
(d) The term "FORM S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") that similarly permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(e) The term "REGISTRATION EXPENSES" means all expenses incurred by
the Company in complying with this Agreement, including without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and including also the
costs of special audits, if any, and "cold comfort" letters, and expenses of
underwriters, excluding discounts and commissions but including the reasonable
fees and expenses of any necessary special experts; and
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(f) The term "SELLING EXPENSES" means all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities of a
holder.
2. REQUEST FOR REGISTRATION
(a) REQUEST. If the Company shall receive a written request signed by
Holders holding at least 50% of the Registrable Securities then held by all
Holders that the Company file a registration statement under the Securities Act,
then the Company shall, within five business days after receipt of such request,
give written notice to all Holders that such registration is to be effected and
subject to 2(d)(i) below, use its reasonable efforts to effect the registration
under the Securities Act of all Registrable Securities of each Holder who,
within twenty days after receiving the notice from the Company, requests
inclusion in such registration. The rights granted under this Section 2(a) may
not be exercised until six months after the closing date of an initial public
offering of Common Stock of the Company.
(b) NUMBER OF REQUESTS PERMITTED. The Company is obligated to effect
up to two such registrations pursuant to this Section 2; provided, however, that
for the purpose of calculating the number of registrations pursuant to this
Section 2, only registrations that have been declared effective shall be
counted, unless the failure to complete an offering pursuant to such
registration is solely due to factors within the Company's control.
(c) PARTICIPATION BY THE COMPANY. If a registration requested
pursuant to this Section 2 is to involve an underwritten public offering of
Registrable Securities, subject to 2(d)(ii) below the Company may include in the
registration shares of Common Stock to be sold by the Company for its own
account.
(d) LIMITATION ON THE NUMBER OF SHARES OF REGISTRABLE SECURITIES TO BE
INCLUDED IN REGISTRATION.
(i) If, in the judgment of the managing underwriter or
underwriters of the public offering, the inclusion of all of the Registrable
Securities of the Holders covered by requests for registration pursuant to
Section 2(a) above would interfere with the successful marketing of the proposed
offering, the number of shares of Registrable Securities to be included in the
underwritten public offering shall be reduced pro rata among the Holders
requesting registration and inclusion in such registration, based on the number
of Registrable Securities owned by such Holders, in accordance with the
recommendations of the underwriter or underwriters. In such event, the Company
may not include its shares in the registration.
(ii) If, in the judgment of the managing underwriter or
underwriters of the public offering, the inclusion of shares requested by the
Company to be included in the registration would interfere with the successful
marketing of the proposed offering (inclusive of the Registrable Securities of
the Holders as part of the proposed offering), such shares of the Company shall
not be included in the registration.
3. FORM S-3 REGISTRATION
(a) If, at any time after the Company is entitled to use Form S-3
to register the Registrable Securities for resale by the Holders, the Holders
of at least 50% of the Registrable Securities then outstanding request that
the Company file a registration statement on Form S-3 covering the resale of
the Registrable Securities, then the Company shall use its reasonable best
efforts to cause such Registrable Securities to be registered for resale on
such form. Upon receipt of such a request for registration, the Company will:
(i) promptly give written notice of the proposed registration
and any related qualification or compliance to all other Holders; and
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(ii) file a registration statement of Form S-3 covering the
Registrable Securities as soon as practical after receipt of the request or
requests of the Holders, and effect all such other qualifications and
compliances as may be so required to permit or facilitate the sale and
distribution of all or such portion of such Holders' Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any other Holders joining in such request as are
specified in a written request given within 15 days after receipt of written
notice from the Company given in accordance with clause (a)(i).
4. LIMITS ON REGISTRATIONS
Notwithstanding the foregoing, the Company shall not be obliged to
register a Holder's Registrable Shares pursuant to Section 2 or 3 hereof if (i)
the Holder, together with the other Holders, propose to sell Registrable
Securities at an aggregate price to the public of less than $250,000; (ii) the
Company shall furnish to the Holder a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the registration
statement for a period of not more than 90 days after receipt of the request of
a Holder under Section 2 or 3, as the case may be, and provided that the Company
shall not exercise this right more than once in any 12 month period; (iii) the
Company has, within the six month period preceding the date of such request,
already effected one registration pursuant to Section 2 or 3 for the Holders; or
(iv) the Company furnishes to the Holder a written opinion of counsel that such
Holder is able to sell all the Registrable Securities that it in good faith
wishes to sell in a three month period pursuant to Rule 144 or a comparable
successor rule adopted by the SEC.
5. OBLIGATIONS OF THE COMPANY
Whenever required under this Agreement to effect the registration of any
Registrable Securities, the Company shall:
(a) DUE DILIGENCE. Provide the Holders requesting registration or
inclusion of their Registrable Securities in a registration pursuant to Sections
2 or 3 hereof a reasonable opportunity to review and inspect, at their own
expense, the financial, corporate and other documents relevant to a due
diligence review in connection with such proposed offering.
(b) FILING OF REGISTRATION STATEMENT. Prepare, provide the Holders
whose Registrable Securities will be included in the registration with an
opportunity to review, and file with the SEC, a registration statement with
respect to such Registrable Securities; and use its reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of all the Registrable Securities registered thereunder, keep such
registration statement effective for up to 9 months.
(c) FILING OF AMENDMENT. Prepare, provide the Holders whose
Registrable Securities will be included in the registration with an opportunity
to review, and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(d) DELIVERY OF PROSPECTUS. Furnish to the Holders whose Registrable
Securities are covered by the registration statement such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of any Registrable
Securities being sold pursuant to the registration.
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(e) COMPLIANCE WITH BLUE SKY REQUIREMENTS. Use its best efforts to
register and qualify the securities covered by such registration statement under
such other securities or blue sky laws of such states or jurisdictions as shall
be reasonably requested by the Holders of the securities covered by the
registration statement; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(f) UNDERWRITING AGREEMENT. In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the underwriters of such offering.
(g) NOTIFICATION OF CERTAIN EVENTS. Notify each Holder of Registrable
Securities covered by such registration statement, at any time when a prospectus
relating thereto covered by such registration statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(h) DELIVERY OF OPINION LETTER, ETC. Furnish, at the request of any
Holder requesting registration or inclusion of its Registrable Securities in a
registration pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance customarily given to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration and inclusion in a registration of Registrable Securities and
(ii) a letter dated such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration and inclusion in a registration of Registrable Securities.
(i) LISTING OF SECURITIES. List the Registrable Securities being
registered on any national securities exchange on which a class of the Company's
equity securities are listed or qualify the Registrable Securities being
registered for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc. National Market System if the Company
does not have a class of equity securities listed on a national securities
exchange.
6. OBLIGATIONS OF HOLDERS
Whenever a registration is to be effected pursuant to the terms of this
Agreement, each holder whose Registrable Securities are to be registered agrees:
(a) PERFORMANCE OF UNDERWRITING AGREEMENT. If the registration is an
underwritten public offering, such Holder shall enter into and perform its
obligations under the underwriting agreement with the Company and the managing
underwriter of such offering;
(b) NOTIFICATION OF CERTAIN EVENTS. Such Holder shall notify
the Company, at any time when a prospectus relating to such registration
statement is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
regarding such holder of Registrable Securities or information provided by such
Holder or omits to state a material fact regarding such Holder or information
provided by such Holder required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and
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(c) FURNISHING OF INFORMATION. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be reasonably required to effect the
registration of their Registrable Securities.
7. EXPENSES
(a) REGISTRATION EXPENSES. All Registration Expenses incurred in
connection with a registration pursuant to Sections 2 and 3, and the reasonable
fees and expenses of counsel to the Holders whose shares are being registered
pursuant thereto, shall be borne by the Company.
(b) SELLING EXPENSES. All Selling Expenses shall be borne by the
Holders in proportion to the number of their Registrable Securities so
registered.
8. INDEMNIFICATION
In the event any Registrable Securities are included in a registration
statement as a result of the exercise by the Holders thereof of their rights
under this Agreement:
(a) INDEMNIFICATION BY THE COMPANY. The Company will indemnify and
hold harmless, to the fullest extent permitted by law, (i) each Holder whose
Registrable Securities are covered by such registration statement and its
directors and officers, if any, (ii) any underwriter (as defined in the
Securities Act), and (iii) each person, if any, who controls such Holders or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any losses, claims,
damages, or liabilities (joint or several) to which any of the aforementioned
persons or entities become subject under the Securities Act, the Exchange Act,
or other federal or state laws, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions, or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any applicable state securities
laws, or any rule or regulation promulgated under the Securities Act, and the
Exchange Act, or any state securities laws. Subject to Section 8(c) below, the
Company will reimburse (i) each such Holder, its officers and directors, (ii)
any underwriter, and (iii) any controlling person of any such Holders or
underwriter for any legal or other expenses reasonably incurred by them in
connection with investigating or defending such loss, claim, damage, liability,
or action; provided, however, that the indemnity agreement contained in this
Section 8(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable for any loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holders, underwriter or
controlling person.
(b) INDEMNIFICATION BY HOLDERS. Each Holder whose Registrable
Securities are included in a registration statement pursuant to this Agreement
will, severally and not jointly, indemnify and hold harmless (i) the Company,
(ii) each of the Company's directors and officers, (iii) any underwriter, (iv)
each person who controls the Company or any such underwriter within the meaning
of the Securities Act, (v) any other Holders selling securities pursuant to such
registration statement and their directors and officers, and (vi) any person who
controls such other Holders, against any losses, claims, damages or
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liabilities to which any of the aforementioned persons or entities become
subject under the Securities Act, the Exchange Act or other federal or state
laws, insofar as such losses, claims, damages or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in reliance
upon and in conformity with written information furnished by such Holder
expressly for use in connection with such registration. Subject to Section
8(c) below, each such Holder will, severally and not jointly, reimburse (i)
the Company, (ii) each of the Company's directors and officers, (iii) any
underwriter, (iv) each person who controls the Company or any such
underwriter within the meaning of the Securities Act, (v) any other Holders
selling securities pursuant to such registration statement and their
directors and officers, and (vi) any person who controls such other Holders
for any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the indemnity agreement contained in this
Section 8(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the holder or Holders providing the indemnification, which consent
shall not be unreasonably withheld; provided further that such legal or other
expenses shall be shared pro rata among the Holders providing the
indemnification in accordance with their respective shareholdings and the
maximum liability of any such Holder under this Section 8(b) in regard to any
registration statement shall in no event exceed the amount of the proceeds
received by such Holder from the sale of securities under such registration
statement.
(c) PROCEDURES OF INDEMNIFICATION. Each party entitled to
indemnification under this Section 8 (the "Indemnified Party") will give notice
to the party required to provide indemnification hereunder (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and the Indemnifying Party shall have the
right to participate in, and, to the extent the Indemnifying Party so desires,
jointly with any other Indemnifying Party similarly notified, to assume the
defense thereof with counsel mutually satisfactory to the Indemnified Party and
the Indemnifying Party; provided, however, that the Indemnified Party shall have
the right to retain its own counsel, reasonably satisfactory to the Company, at
its own expense; provided further that the fees and expenses of such counsel
shall be paid by the Indemnifying Party if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
having knowledge of any claim, if prejudicial to its ability to defend such
action, shall relieve such Indemnifying Party of any liability to the
Indemnified Party under this Section 8, but the omission so to deliver written
notice to the Indemnifying Party will not relieve it of any liability that it
may have to any Indemnified Party otherwise than under this Section 8.
(d) CONTRIBUTION. If the indemnification provided for in Section 8(a)
and (b) above is unavailable for any reason, then each Indemnifying Party shall,
in lieu of indemnifying such Indemnified Party, contribute to the amount paid or
payable by such Indemnified Party for the losses, claims, damages, or
liabilities in such proportion as appropriate to reflect not only the relative
benefit received but also the relative fault of the Company, on the one hand,
and of the Holders whose Registrable Securities are covered by a registration
statement, on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, or liabilities, as well as any other
relevant equitable considerations, including the failure to give any notice
under Section 8(c). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or written
information supplied by the Holders on the other, specifically for inclusion in
the prospectus or registration statement relating thereto and to the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and Holders agree that it would
not be just and equitable if contributions pursuant to Section 8(d) were
determined by PRO RATA allocation (even if all of the Holders were treated as
one entity for such purpose) or by any other method of allocation which did not
take into account the equitable considerations referred to above. The amount
paid or payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities under this
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Section 8 shall include any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 8(d), a
Holder shall not be required to contribute any amount in excess of the amount
of the proceeds received by such holder from the sale of its Registrable
Securities registered pursuant to this Agreement. No person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
(e) CONTENT OF JUDGMENT OR SETTLEMENT. No Indemnifying Party, in the
defense of any such claim or litigation pursuant to this Section 8, will, except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
9. CHANGES IN COMMON STOCK
In the event that there are any changes in the Common Stock by way of
stock split, stock dividend, combination or reclassification, or through merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof, as may be
required, so that the rights and privileges granted hereby to the Holders shall
continue with respect to the Common Stock as so changed.
10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit such holders to sell securities of the Company to
the public without registration, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) Furnish to any such Holder, so long as it owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company) and the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing any such holder of any rule or regulation of the SEC which permits
the selling of any such securities without registration.
11. ASSIGNMENT OF REGISTRATION RIGHTS
The rights to cause the Company to register Registrable Securities
pursuant to this Agreement may be assigned by a Holder to a transferee or
assignee of such securities; provided (i) the Company is furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; (ii) the
transfer is made in compliance with the terms and conditions of any agreement
among any Holders that may restrict the transfer of the Registrable Securities,
to the extent such holders are parties thereto; and (iii) such assignment shall
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be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted
under the Securities Act.
12. "STAND-OFF" AGREEMENT
Each Holder hereby agrees that it shall not, to the extent requested by
the Company and an underwriter of Common Stock (or other securities) of the
Company, sell or otherwise transfer or dispose of (other than to transferees who
agree to be similarly bound) any Registrable Securities during the 180-day
period, or such shorter period as may be recommended by the underwriter,
following the effective date of a registration statement of the Company filed
under the Securities Act. Notwithstanding the foregoing, a Holder whose
registration rights are otherwise eliminated by virtue of Section 4 above shall
not be subject to this Section 12.
13. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties and supersedes any and all prior agreements,
arrangements and understandings relating to matters provided for herein.
(b) GOVERNING LAW. The construction and performance of this Agreement
will be governed by the laws of the State of Montana (except for the choice of
law provisions thereof).
(c) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
(d) HEADINGS. The headings are for convenience only and will not
control or affect the meaning or construction of the provisions of this
Agreement.
(e) NOTICES. Any notice, demand or request required or permitted to
be given under the provisions of this Agreement (i) shall be in writing; (ii)
shall be delivered personally, including by means of facsimile or courier, or
mailed by registered or certified mail, postage prepaid and return receipt
requested; (iii) shall be deemed given on the date of personal delivery or on
the date set forth on the return receipt; and (iv) shall be delivered or mailed
to the addresses or facsimile numbers set forth below on the signature page of
this Agreement or to such other address as any party may from time to time
direct.
(f) AMENDMENT, WAIVER, ETC. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the Company and
Holders holding at least 80% of the Registrable Securities then outstanding;
provided, however, that such amendment or waiver may not have the effect of
limiting, expanding or otherwise affecting the rights and obligations of one or
more Holders unless the rights and obligations of all holders of Registrable
shall have been equally limited, expanded or otherwise affected. Any waiver of
any term or condition of this Agreement or any breach hereof shall not operate
as a waiver of any other such term, condition or breach, and no failure to
enforce any provision hereof shall operate as a waiver of such provision or of
any other provision hereof.
(g) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provisions shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provisions were so excluded and shall be enforceable in accordance with its
terms.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day first above written.
COMPANY:
JORE CORPORATION
By /s/ Matt Jore
-----------------------------------
Matt Jore, President
45000 Highway 93 South
Ronan, Montana 59864
Facsimile: 406-676-8400
HOLDER:
[ILLEGIBLE]
-----------------------------------
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Exhibit 10.28
INDEPENDENT CONTRACTOR AGREEMENT
THIS AGREEMENT, made and entered into by and between JORE CORPORATION, a
Montana corporation (the "Company"), and THOMAS E. MAHONEY, an Independent
Contractor ("Contractor").
I. RECITALS
1.1 The Company seeks to contract with Contractor to provide sales
consultation services to the Company and assistance in completing the Stanley
licensing package. Contractor desires to perform these services for the
Company and the Company agrees to retain Contractor as an independent
contractor for these purposes.
1.2 Pursuant to the terms and conditions in this Agreement, Contractor
agrees to use his best efforts and expertise to perform these services.
IN CONSIDERATION OF MUTUAL PROMISES set forth in this Agreement, the
Company and Contractor hereby agree as follows:
II. WORK TO BE PERFORMED AND LIMITATIONS
2.1 Contractor will use Contractor's best efforts and expertise to
provide sales assistance, training, and expertise; and to assist in the
completion of the Stanley licensing agreement.
2.2 Contractor will act solely as an independent translator for the
Company. Contractor is not an agent of the Company and shall have no
authority to negotiate with or to offer sales contracts to, any customers of
the Company or potential purchasers of the Company's products, or to
obligate the Company to purchase services other than the consultation
services described herein.
2.3 Contractor shall use Contractor's best efforts and expertise to:
(a) Assist the Company's sales staff in developing sales
management and marketing strategies promoting the Company's
products;
(b) Assist the Company's business development staff in marketing
the Company's products; and
(c) Advise the Company in any other capacity relevant to the
Contractor's expertise.
2.4 The Company will provide the plans, specifications, and all other
materials as are necessary for sales and business development consultation
services.
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Independent Contractor Agreement Page 1
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2.5 Contractor will provide all of Contractor's own tools, if necessary,
including computers, paper and writing utensils, and Contractor's own
workplace.
2.6 Contractor shall not be under the supervision of the Company or its
officers or employees, and shall choose the time Contractor performs the work
and the circumstances under which the work is performed.
III. COMPENSATION AND REIMBURSEMENT OF EXPENSES
3.1 Contractor shall be entitled to compensation for services
associated with the provided services at $100,000 annually. A lump sum
payment of Fifty Eight Thousand Three Hundred Thirty Three Dollars
($58,333.00) is due and payable on July 10, 1999, and the remainder of Eight
Thousand Three Hundred Thirty Three Dollars and 33/100 ($8,333.33) payable on
the first of each month thereafter.
3.2 The Company will reimburse Contractor for all expenses Contractor
incurs relevant to services performed for the Company.
IV. TAXES
4.1 The Company shall not withhold federal, state or local income tax
nor shall the Company pay any federal, state or local payroll taxes on behalf
of Contractor.
4.2 Contractor acknowledges that, as an independent contractor,
Contractor is solely responsible to pay appropriate federal, state and local
income and payroll taxes.
V. TERM AND TERMINATION OF AGREEMENT
5.1 The term of this Agreement shall be from January 1, 1999 through
December 31, 1999. The Company has the option to renew the Agreement annually
for additional one (1) year periods.
5.3 Immediately upon the termination of this Agreement, Contractor
shall return all Company materials in his possession to the Company.
Materials kept longer than 5 days after termination shall be considered
stolen property and will be retaken immediately or at the Company's
convenience, the cost of such retaking to be paid by Contractor, unless prior
arrangements have been made by Contractor in writing. Contractor waives his
right to a hearing before removal of the materials after termination of this
Agreement. Contractor gives express permission for the Company to enter any
property and premises or vehicle where such materials are located for the
purposes of retaking such materials, and agrees to indemnify and hold the
Company harmless from any liability arising from such retaking.
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Independent Contractor Agreement Page 2
<PAGE>
VI. MISCELLANEOUS PROVISIONS
6.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified and supplemented or any provision waived
only by written agreement, executed by both parties.
6.2 ATTORNEY'S FEES. If if shall be necessary for either party to
employ an attorney to enforce its rights pursuant to this Agreement because
of the default of the other party, the defaulting party shall reimburse the
non-defaulting party for reasonable attorneys' fees and expenses.
6.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of either party to
comply with any obligation, covenant, agreement or condition herein, may be
waived in writing as provided in Section 6.1, but such waiver or failure to
insist upon strict compliance with such obligation, covenant, agreement or
condition shall not operate as a waiver of, or estoppel with respect to, any
subsequent or other failure. Whenever this Agreement requires or permits
consent by or on behalf of any party hereto, such consent shall be given in
writing.
6.4 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder shall be in writing and shall be given by:
(a) hand delivery; (b) first-class registered or certified mail with postage
prepaid, (c) overnight receipted courier service, or (d) telephonically
confirmed facsimile transmission, which notice is addressed to the party at
the address set forth below, or such other address as may hereafter be
designated in writing by the party. Notices given in accordance with this
Section shall be effective upon receipt or when receipt is refused.
IF TO The Company, TO:
45000 Highway 93 S. Fax No.: (406) 676-4901
P.O. Box 159
Ronan, MT 59864
IF TO CONTRACTOR, TO:
Thomas E. Mahoney Fax: (860) 673-9775 #1 (to access fax)
15 Hastings Turn
Avon, CT 06001
6.5 ASSIGNMENT; FORM OF TRANSACTION. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by either party hereto without the prior written
consent of the other.
- -------------------------------------------------------------------------------
Independent Contractor Agreement Page 3
<PAGE>
6.6 GOVERNING LAW. This Agreement shall be governed by the internal
law of the State of Montana as to all matters, including but not limited to
matters of validity, construction, effect and performance.
6.7 COUNTERPARTS. 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.
6.8 HEADINGS. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
6.9 ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding of the parties hereto in respect of the transactions
contemplated by this Agreement and supersedes all prior agreements,
representations, warranties, promises, covenants, arrangements,
communications and understandings, oral or written, express or implied,
between the parties with respect to such transactions. There are no
agreements, representations, warranties, promises, covenants, arrangements or
understandings between the parties with respect to such transactions, other
than those expressly set forth or referred to herein.
6.10 SEVERABILITY. Unless otherwise provided herein, if any provision
of this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way
be affected or impaired thereby.
6.11 EXPENSES. The parties hereto shall each bear their own expenses.
DATED this 30th day of June, 1999.
THE COMPANY:
Jore Corporation
By: /s/ Matt Jore
------------------------
Matt Jore,
Its President
CONTRACTOR:
/s/ Thomas E. Mahoney 6/24/99
--------------------------- -------
Thomas E. Mahoney
- -------------------------------------------------------------------------------
Independent Contractor Agreement Page 4
<PAGE>
Exhibit 10.29
STRATEGIC ALLIANCE AGREEMENT
This Strategic Alliance Agreement (the "AGREEMENT") is entered into as
of the 7th day of May, 1999 by and between JORE CORPORATION, a Montana
corporation ("JORE"), and INTERNATIONAL TOOL MACHINES OF FLORIDA, INC., a
Florida corporation ("ITM"), with reference to the following facts:
RECITALS
A. JORE and ITM have collaborated in the design, development and
manufacture of certain machines used in the manufacture of drill bits and
other power tool accessories and components thereof.
B. JORE and ITM desire to formalize their relationship.
AGREEMENT
Now, therefore, in consideration of the foregoing and the mutual
promises contained herein, the parties do hereby agree as follows:
1. EXCLUSIVE SALES TO JORE. For the term of the Agreement, ITM shall
manufacture and sell or otherwise make available the drill bit manufacturing
machine known as the ***, only to JORE and to no other persons or entities.
The *** machine refers to that machine which has been sold and delivered by
ITM to JORE prior to the date of execution of this agreement, or similar
equipment using rotary transfer drill grinding design.
2. MINIMUM ORDER OF THE *** MACHINE. During the term hereof, JORE
shall order a minimum of *** of the Machines per year and the terms shall be
pursuant to ITM's standard terms (EXHIBIT A, attached hereto.)
3. PRICING. During the first year of this Agreement, JORE shall pay
ITM the sum of *** per *** Machine that it orders exclusive of any
accessories it orders, which shall be paid for separately. The terms of
payment and shipping shall be pursuant to EXHIBIT A, attached hereto. ***
prior to each anniversary of this Agreement, ITM may request that the price
it charges JORE for the upcoming year be increased based on the Consumer
Price Index.
4. EXCLUSIVE PURCHASES BY JORE. Without the express written consent of
ITM, during the term hereof, JORE shall not purchase any machines
substantially similar to those manufactured by ITM from any competitors of
ITM so long as the price of the machines are equivalent.
5. TERM.
(a) Unless sooner terminated pursuant to Section Six (6), the term of
this Agreement shall commence on the date hereof and continue in full
Certain information has been omitted from Exhibit 10.29 as indicated by
"***" pursuant to a request for confidential treatment and has been filed
separately with the Commission.
<PAGE>
force and effect for a period of five years.
(b) Either party shall have an option to renew this Agreement for a
period of five (5) years by providing written notice to each other at least
three-hundred sixty-five (365) days prior to the expiration hereof. The price
of the machines during any renewal of this Agreement shall by re-negotiated.
6. TERMINATION. This Agreement may be terminated as follows:
(a) By the mutual agreement of the parties as evidenced by a signed
instrument executed by both Parties.
(b) By either party if
(i) the other party materially and substantially breaches this
Agreement and does not cure or remedy such breach within sixty (60) days of
receipt of the first party's notification of its intention to terminate this
Agreement. The failure to purchase *** of the *** Machines per year shall
constitute a material and substantial breach of this agreement. A material
and substantial breach of any agreement between JORE and ITM shall constitute
a breach of this Agreement.
(ii) upon the institution by or against the other party of
insolvency, receivership or bankruptcy proceedings or any other proceedings
for the settlement of the other party's debts, provided, with respect to
involuntary proceedings, that such proceedings are not dismissed within
thirty (30) days, (ii) upon the other party's making an assignment for the
benefit of creditors, or (iii) upon the other party's dissolution or ceasing
to do business.
7. SALE OR TRANSFER. In the event of a sale or transfer of a
controlling interest in ITM this Agreement shall be binding on any subsequent
buyer or transferee.
8. MISCELLANEOUS.
(a) Each of the parties agrees to execute a Non-Disclosure Agreement in
substantially the form of EXHIBIT B hereto.
(b) In the event the Parties are unable to resolve any dispute, any
controversy or dispute shall be settled by binding arbitration in Palm Coast,
Florida, pursuant to the Rules of the American Arbitration Association.
(c) This Agreement shall be governed, controlled, interpreted and
defined by and under the laws of the State of Florida.
(d) Each party agrees that its rights and obligations under this
Agreement may not be transferred or assigned directly or indirectly
Certain information has been omitted from Exhibit 10.29 as indicated by
"***" pursuant to a request for confidential treatment and has been filed
separately with the Commission.
<PAGE>
without the prior written consent of the other party, which consent shall not
be unreasonably withheld. Subject to the foregoing sentence, this Agreement
shall be binding upon and inure to, the benefit of the parties hereto, their
successors and assigns.
(e) If any provision of this Agreement is held to be invalid by a court
of competent jurisdiction, then the remaining provisions shall remain,
nevertheless, in full force and effect.
(f) No waiver of any term or condition of this Agreement shall be valid
or binding on either party unless agreed in writing by the party to be
charged. The failure of either party to enforce at any time any of the
provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions.
(g) This Agreement, including the Exhibits attached hereto, constitutes
the entire agreement of the parties with respect to the subject matter
hereof, and supersedes all prior or contemporaneous understandings or
agreements. No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing.
(h) The Parties to this Agreement are independent contractors. There is
no relationship of agency, partnership, joint venture, employment or
franchise among the parties and no party shall have any authority to bind any
other party or incur any obligation on the other party's behalf.
INTERNATIONAL TOOL MACHINES
OF FLORIDA, INC.
/s/ Karl H. Giebmanns
- ------------------------------
BY: Karl H. Giebmanns, President
JORE CORPORATION
/s/ Matt Jore
- ------------------------------
BY: Matt Jore, President
<PAGE>
INTERNATIONAL TOOL MACHINES OF FLORIDA, INC
5 INDUSTRY DRIVE Tel: (904) 446-0500
PALM COAST, FLORIDA 32137 Fax: (904) 445-5700
TERMS AND CONDITIONS OF SALES
ALL PROPOSALS AND QUOTATIONS FOR THE ORIGINAL SALE OF OUR PRODUCTS AND OUR
ACCEPTANCE OF PURCHASE ORDERS FOR OUR PRODUCTS ARE EXPRESSLY CONDITIONAL UPON
PURCHASER'S ASSENT TO THE FOLLOWING TERMS AND CONDITIONS:
1. ACCEPTANCE: All orders are subject to acceptance in writing by Seller at
its office listed above.
2. PRICES: Prices are E.X.W. ITM Palm Coast, Florida.
3. VALIDITY OF QUOTATION: Any quotation shall be valid for ninety (90) days
from quotation date unless specified otherwise.
4. PAYMENT TERMS: Seller's normal terms are 30% DUE WITH RECEIPT OF PURCHASE
ORDER, 60% DUE AFTER ACCEPTANCE OF THE MACHINE IN ACCORDANCE TO TERMS AGREED
UPON IN THE PURCHASE ORDER AND PRIOR TO SHIPMENT, 10% AFTER FINAL ACCEPTANCE
AT YOUR FACILITY AS DEFINED IN ITM'S QUOTATION OR 30 DAYS NET AFTER SHIPMENT,
WHICHEVER COMES FIRST. Seller reserves the right to ask for progress payment
when noted specifically in its quotations. Invoices are payable in cash
without any deductions. Invoices past due are subject to a 1-1/2% PER MONTH
SERVICE CHARGE. Instead of a downpayment, ITM will also accept an irrevocable
letter of credit in favor to ITM opened by a bank specified by ITM. The
letter of credit has to be opened to the value of the purchase order and
based upon conditions that it can be collected with presentation of shipping
document when the machine is picked up at ITM's location.
5. SECURITY INTEREST: Seller shall retain a security interest in products
sold until Purchaser has performed all of its obligations hereunder and
Seller shall have all rights of a secured party with respect thereto,
including the right to repossess same without legal process. Upon the request
of Seller, Purchaser shall execute and deliver to Seller such UCC Financing
Statements and other documents as Seller may reasonably request in order to
perfect Seller's security interest. Each order accepted by Seller shall be
deemed a security agreement executed by Purchaser and Seller for purposes of
the Uniform Commercial Code of the State of Florida.
6. TAXES: Prices DO NOT include taxes. If any sales, use or similar tax is
payable by Seller in connection with any transaction or part thereof between
the Seller and Purchaser with respect to products delivered, Purchaser will,
upon demand, pay to Seller the amount of any such tax.
7. DELIVERY: Any proposed shipment date is an estimate only and is subject to
change due to accidents, fire, strikes, or other causes beyond Seller's
control. Under no circumstances shall Seller have any liability whatsoever
for loss of use of goods ordered, or for any direct or consequential damages
resulting from delay in delivery.
8. CANCELLATION: Each order is considered an irrevocable offer to purchase
and is noncancelable after it has been accepted by Seller. Any deviation from
this policy must have written approval of Seller and any cancellation accepted
shall be deemed to have damaged Seller to extent of, but not limited to, the
amount held as non-refundable deposit and Seller shall be entitled to retain
any such deposit. Purchaser will be held responsible for all charges
including, but not limited to, any additional charges which may arise as a
result of any cancellation.
9. PRODUCTION: Production figures furnished by Seller are estimates only and
are based on Seller's understanding of accuracy and finish required,
machinability of the material, amount of material to be removed and
Purchaser's operating conditions.
10. SHIPMENT: Unless otherwise requested by Purchaser, shipment will be made
by the carrier of Seller's choice. It is important to request at all times
proper handling of the machine, such as airride truck, etc., to avoid
abnormal shocks to the machine.
11. LOSS OR DAMAGE IN TRANSIT: Seller's liability for loss or damage to the
machine and equipment covered by this order is limited to events which have
occurred prior to its delivery to the carrier at the E.X.W. point shown on
Seller's order acknowledgement. Any loss subsequent to such delivery is to be
at the risk of Purchaser.
12. WARRANTY: Warranty shall be in effect after all Payment Terms are met.
Seller warrants that its products shall be free from defects in materials and
workmanship for a period of twelve (12) months from the date of arrival
thereof at Purchaser's plant, substantiated by return copy of signed and
dated consignee's freight invoice attached to the warranty card, provided
such products are used only one [illegible] shift per day. Such warranty
period shall be reduced prorated to the extent the products are used on more
than one shift per day, the warranty period thus being four (4)
<PAGE>
months if the products are used on three shifts per day during the entire
period. For the ITM Series 2003 machines the warranty period will be (6) months
from the date of arrival thereof at Purchaser's plant. Any part or parts which
upon examination Seller finds defective in workmanship or material shall, at
Seller's option, be repaired or replaced free of charge, provided that (i) the
products are in possession of Purchaser; (ii) on Seller's request the parts are
returned to Seller's plant freight prepaid; and (iii) the products have been
maintained and operated in accordance with instructions in Seller's manual.
Parts furnished under warranty "free of charge" shall be made available to
Purchaser E.X.W. ITM Palm Coast, Florida. Purchaser shall pay all delivery
costs to his plant.
The parties agree that the warranty stated herein, along with the maintenance
service contained in paragraph 13, is the entirety of the warranty given form
Seller to Purchaser. The parties expressly agree that in no event does the
seller warrant to the Buyer for any incidental or consequential damages
caused by any failure in the product, regardless of the cause of the failure.
This limitation includes, but is not limited to, any damages related to:
lost production, lost sales, increased overhead, mobilization, finance
charges or any other damages beyond what is expressly warranted in this
paragraph and paragraph 13 herein. THE PURCHASER EXPRESSLY WAIVES ITS RIGHT
TO ANY DAMAGES OTHER THAN AS SET FORTH HEREIN.
13. MAINTENANCE SERVICE WITHIN WARRANTY PERIOD: During the warranty period, as
defined, remedial service assistance on Seller's products will be furnished at
no charge by Seller. Service beyond warranty period will be furnished by Seller
at Seller's then prevailing rates.
IT IS EXPRESSLY UNDERSTOOD THAT THE WARRANTY MADE BY SELLER HEREIN SHALL BE IN
LIEU OF ANY AND ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED, INCLUDING ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR USE.
If Purchaser accepts the products and does not notify Seller of any defect or
breach of warranty within 30 DAYS FROM DATE OF SHIPMENT. Purchaser shall be
deemed to have waived any claim with respect thereto. No claim shall be made
for any damages, including incidental and consequential damages or damages to
any product of Purchaser or damages due to Purchaser's inability to perform its
contracts with others.
PURCHASER AGREES TO INDEMNIFY, HOLD HARMLESS, AND DEFEND SELLER FROM ANY AND ALL
CLAIMS AND LIABILITIES CAUSED BY THE NEGLIGENCE OF PURCHASER, ITS AGENTS,
SERVANTS AND EMPLOYEES AND THOSE WHO MAY ACQUIRE FROM PURCHASER PRODUCTS
PURCHASED FROM SELLER.
14. INDEMNITY: Purchaser shall notify Seller promptly and in any event
WITHIN 30 DAYS, of any accident or malfunction involving Seller's products
which results in personal injury or damage to property, and shall cooperate
fully with Seller in investigating and determining the cause of such accident
or malfunction. In the event that Purchaser fails to give such notice to
Seller and to so cooperate, Purchaser shall indemnify and save Seller
harmless from any claims from such accident or malfunction.
15. OSHA: Purchaser acknowledges that due to the large variety of sizes and
geometric shapes of grinding wheels, it is virtually impossible to completely
guard the grinding wheel and that it is Purchaser's responsibility, by law,
to provide an appropriate point of operation protection as described in the
ANSI Standard B11.9, Section 4.5.
Coolant guards (housing), as provided with a machine, are designed only to
contain the coolant in the machine and are not constructed as guards to protect
against wheel breakage.
Purchaser acknowledges that it is Purchaser's obligation to comply with the
Federal Occupational Safety and Health Act of 1970 (OSHA) and agrees to do so
with respect to the use of Seller's products.
Seller will be ready to quote any modifications or additions which Purchaser may
need to meet OSHA requirements. If during the time between the order and the
actual delivery of a machine or other product of Seller any specific OSHA
requirement comes to Purchaser's attention. Purchaser shall promptly notify
Seller in writing requesting said modification. Upon receipt of such request, a
quotation will be given for modification in compliance with Purchaser's request.
Seller shall not be responsible for any failure to so comply which results from
the location, operation, design, use, or maintenance of Seller's products or
from alteration of such products by persons other than Seller or from any
optional accessories to the equipment which were available to Purchaser, but
omitted at Purchaser's direction from design or instructions furnished by the
Purchaser or its agents. To ensure Purchaser's compliance with the safety
regulations of OSHA as they pertain to grinding equipment. Seller encourages
Purchaser to review the complete ANSI B11.9 Standards.
16. DISPUTES: Any disputes arising from this agreement shall be governed by
the laws of the State of Florida. The parties agree that the proper venue for
any litigation will be in Flagier County, Florida. In the event that the
parties engage in any litigation, the prevailing party will be entitled to
recover its attorneys fees and costs.
ALL CONDITIONS RESPECTING WARRANTY MADE HEREIN SHALL BE APPLICABLE TO THOSE
WHO MAY PURCHASE, LEASE, OR OTHERWISE ACQUIRE MACHINERY OR OTHER PRODUCTS, OF
SELLER FROM PURCHASER, AND PURCHASER SHALL INFORM ANY SUCH PERSON THAT SELLER
DOES NOT MAKE ANY WARRANTY RESPECTING SAME OTHER THAN AS HEREIN PROVIDED.
<PAGE>
Exhibit 10.30
BUSINESS CONSULTANT AND MANAGEMENT AGREEMENT
AGREEMENT made this 7th day of May, 1999, by and between JORE
CORPORATION, a Montana corporation ("JORE"), and KARL H. GIEBMANNS, an
individual ("GIEBMANNS"), with reference to the following facts:
Recitals
JORE desires to engage the services of GIEBMANNS as an independent
contractor and not as an employee to perform consulting services for JORE
regarding the technology to manufacture and design tools which JORE intends
on producing in the future.
Agreement
1. TERM.
(a) Unless sooner terminated pursuant to Section Two (2), the term of
this Agreement shall commence on the date hereof and continue in full force
and effect for a period of five years.
(b) Either party shall have an option to renew this Agreement for a
period of five (5) years by providing written notice to each other at least
three-hundred sixty-five (365) days prior to the expiration hereof.
2. TERMINATION. This Agreement may be terminated as follows:
(a) By the mutual agreement of the parties as evidenced by a signed
instrument executed by both Parties.
(b) By either party if the other party materially and substantially
breaches this Agreement. A material and substantial breach of any agreement
between JORE and International Tool Machines of Florida, Inc. shall
constitute a breach of this Agreement.
3. LIMITED LIABILITY. With regard to the services to be performed
by GIEBMANNS pursuant to the terms of this Agreement, GIEBMANNS shall not be
liable to JORE, or to anyone who may claim any right due to any relationship
with JORE, for any acts or omissions in the performance of services on the
part of GIEBMANNS or on the part of the agents or employees of GIEBMANNS,
except when said acts or omissions of GIEBMANNS are due to their willful
misconduct or culpable negligence. JORE shall hold GIEBMANNS free and
harmless from any obligations, costs, claims, judgments,
<PAGE>
attorneys' fees, and attachments arising from or growing out of the services
rendered to JORE pursuant to the terms of this agreement or in any wasy
connected with the rendering of services, except when the same shall arise
due to the willful misconduct of culpable negligence of GIEBMANNS and
GIEBMANNS is adjudged to be guilty of willful misconduct or culpable
negligence by a court of competent jurisdiction.
4. PAYMENT. JORE shall pay to GIEBMANNS, the sum of *** . Such
sum shall be payable as follows: On September *** , one installment of
*** , and installments of *** beginning on the day that is *** from the
date hereof, and continuing for *** successive years.
5. MISCELLANEOUS.
(a) Each of the parties agrees to execute a Non-Disclosure Agreement
in substantially the form of EXHIBIT B hereto.
(b) In the event the Parties are unable to resolve any dispute, any
controversy or dispute shall be settled by binding arbitration in Palm Coast,
Florida, pursuant to the Rules of the American Arbitration Association.
(c) This Agreement shall be governed, controlled, interpreted and
defined by and under the laws of the State of Florida.
(d) Each party agrees that its rights and obligations under this
Agreement may not be transferred or assigned directly or indirectly without
the prior written consent of the other party, which consent shall not be
unreasonably withheld. Subject to the foregoing sentence, this Agreement
shall be binding upon and inure to, the benefit of the parties hereto, their
successors and assigns.
(e) If any provision of this Agreement is held to be invalid by a
court of competent jurisdiction, then the remaining provisions shall remain,
nevertheless, in full force and effect.
(f) No waiver of any term or condition of this Agreement shall be
valid or binding on either party unless agreed in writing by the party to be
charged. The failure of either party to enforce at any time any of the
provisions of this Agreement, or the failure to require at any time
performance by the other party of any of the provisions of this Agreement,
shall in no way be construed to be a present or future waiver of such
provisions.
(g) This Agreement, including the Exhibits attached hereto,
constitutes the entire agreement of the parties with respect to the subject
matter hereof, and supersedes all prior or contemporaneous understandings or
agreements. No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing.
Certain information has been omitted from this Exhibit 10.30 as indicated by
"***" pursuant to a request for confidential treatment and has been filed
separately with the Commission.
<PAGE>
(h) The Parties to this Agreement are independent contractors. There is
no relationship of agency, partnership, joint venture, employment or franchise
among the parties and no party shall have any authority to bind any other
party or incur any obligation on the other party's behalf.
/s/ Kurt H. Giebmanns
- ------------------------------------------
Kurt H. Giebmanns
JORE CORPORATION
/s/ Matt Jore
- ------------------------------------------
BY: Matt Jore, President
<PAGE>
EXHIBIT B
MUTUAL NONDISCLOSURE AGREEMENT
Each undersigned party (the "Receiving Party") understands that the other
party (the "Disclosing Party") has disclosed or may disclose information
relating to the design, development and manufacture of drill bit manufacturing
machines employing rotary transfer mechanisms or relating to the Disclosing
Party's business (including, without limitation, computer programs, technical
drawings, algorithms, know-how, formulas, processes, ideas, inventions (whether
patentable or not), schematics and other technical, business, financial,
customer and product development plans, forecasts, strategies and information),
which to the extent previously, presently, or subsequently disclosed to the
Receiving Party is hereinafter referred to as "Proprietary Information" of the
Disclosing party.
In consideration of the parties' discussions and any access of the
Receiving Party to Proprietary Information of the Disclosing Party, the
Receiving Party hereby agrees as follows:
1. HOLD INFORMATION IN CONFIDENCE. The Receiving Party agrees: (i) to hold
the Disclosing Party's Proprietary Information in confidence and to take
reasonable precautions to protect such Proprietary Information (including,
without limitation, all precautions the Receiving Party employs with respect to
its confidential materials), (ii) not to divulge any such Proprietary
Information or any information derived therefrom to any third person, (iii) not
to make any use whatsoever at any time of such Proprietary Information except to
evaluate internally its relationship with the Disclosing Party, (iv) not to copy
or reverse engineer any of such Proprietary Information, and (v) not to export
or reexport (within the meaning of U.S. or other export control laws or
regulations) any such Proprietary Information or product thereof. Without
granting any right or license, the Disclosing Party agrees that the foregoing
shall not apply with respect to any information after five years following the
disclosure thereof or any information that the Receiving Party can document
(i) is or becomes (through no improper action or inaction by the Receiving Party
or any affiliate, agent, consultant or employee) generally available to the
public, or (ii) was in its possession or known by it prior to receipt from the
Disclosing Party, provided the Receiving Party complies with restrictions
imposed thereon by third parties, or (iii) was rightfully disclosed to it by a
third party without restriction, provided the Receiving Party complies with
restrictions imposed thereon by third parties, or (iv) was independently
developed without Use of any Proprietary Information of the Disclosing Party by
employees of the Receiving Party who have had no access to such information.
The Receiving Party may make disclosures required by law (including, without
limitation, disclosures required under federal and state securities laws) or
court order provided the
<PAGE>
Receiving Party uses diligent reasonable efforts to limit disclosure and to
obtain confidential treatment or a protective order.
2. RETURN OF INFORMATION. Immediately upon a request by the Disclosing
Party at any time the Receiving Party will turn over to the Disclosing Party all
Proprietary Information of the Disclosing Party and all documents or media
containing any such Proprietary Information and any and all copies or extracts
thereof. The Receiving Party understands that nothing herein (i) requires the
disclosure of any Proprietary Information of the Disclosing Party or (ii)
requires the Disclosing Party to proceed with any transaction or relationship.
3. EQUITABLE REMEDIES. The Receiving Party acknowledges and agrees that
due to the unique nature of the Disclosing Party's Proprietary Information,
there can be no adequate remedy at law for any breach of its obligations
hereunder, which breach may result in irreparable harm to the Disclosing Party,
and therefore, that upon any such breach or any threat thereof, the Disclosing
Party shall be entitled to appropriate equitable relief in addition to whatever
remedies it might have at law. In the event that any of the provisions of this
Agreement shall be held by a court or other tribunal of competent jurisdiction
to be illegal, invalid or unenforceable, such provisions shall be limited or
eliminated to the minimum extent necessary so that this Agreement shall
otherwise remain in full force and effect. This Agreement shall be governed by
the law of the State of Florida without regard to the conflicts of law
provisions thereof. This Agreement supersedes all prior discussions and
writings regarding the subject matter hereof and constitutes the entire
agreement between, the parties with respect to the subject matter hereof. The
prevailing party in any action to enforce this Agreement shall be entitled to
costs and attorneys' fees. No waiver or modification of this Agreement shall be
binding upon a party unless made in writing and signed by a duly authorized
representative of such party and no failure or delay in enforcing any right will
be deemed a waiver.
Executed as of April ___, 1999.
INTERNATIONAL TOOL MACHINES OF FLORIDA, INC.
/s/ Karl Giebmanns
- -------------------------------
By, Karl Giebmanns, President
JORE CORPORATION
/s/ Matt Jore
- --------------------------------
By: Matt JORE, President
<PAGE>
[LETTERHEAD]
July 7, 1999
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
To whom it may concern:
The purpose of this letter is to confirm our agreement with the disclosure
made by JORE CORPORATION entitled "Change in Accountants" as required under
Item 304(a) of the SEC Rules and Regulations.
We concur with all representations made within the above mentioned disclosure
without exception.
Please contact us if we can be of further assistance.
Sincerely,
/s/ Richard F. Shull, CPA
Richard F. Shull, CPA
maf
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Jore Corporation
Ronan, Montana
We consent to the use in this Amendment No. 1 to Registration Statement No.
333-78357 of Jore Corporation on Form S-1 of our report dated May 12, 1999
(June 28, 1999 as to Note 11) on the consolidated financial statements of Jore
Corporation, 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.
/s/ Deloitte & Touche LLP
Seattle, Washington
May 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JORE
CORPORATION CONSOLIDATED BALANCE SHEETS AT MARCH 31, 1998 AND 1999, RESPECTIVELY
AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FO RTHE YEARS THEN ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1999 DEC-31-1998 MAR-31-1998 DEC-31-1997
<CASH> 22,616 34,736 136,699 113,471
<SECURITIES> 0 0 0 0
<RECEIVABLES> 8,269,558 16,199,017 5,136,392 6,498,364
<ALLOWANCES> 0 0 0 10,987
<INVENTORY> 11,875,337 8,182,542 6,752,197 4,740,004
<CURRENT-ASSETS> 20,420,404 25,111,371 12,056,408 11,375,021
<PP&E> 26,770,335 22,164,951 8,257,325 6,318,940
<DEPRECIATION> 2,348,776 2,349,407 1,584,214 1,484,475
<TOTAL-ASSETS> 46,017,840 45,962,582 20,279,211 17,759,178
<CURRENT-LIABILITIES> 23,181,945 25,083,846 10,481,221 10,548,929
<BONDS> 15,624,314 14,589,346 5,916,444 4,689,437
0 0 0 0
0 0 0 0
<COMMON> 1,777,233 1,694,931 751,392 736,392
<OTHER-SE> 5,434,348 4,594,459 3,130,154 1,784,420
<TOTAL-LIABILITY-AND-EQUITY> 46,017,840 45,962,582 20,279,211 17,759,178
<SALES> 9,798,361 44,888,324 7,518,754 23,655,966
<TOTAL-REVENUES> 9,798,361 44,888,324 7,578,754 23,655,966
<CGS> 6,858,694 31,167,724 4,925,502 17,098,184
<TOTAL-COSTS> 6,858,694 31,167,724 4,925,502 17,098,184
<OTHER-EXPENSES> 1,645,199 6,125,757 1,023,554 3,223,800
<LOSS-PROVISION> 0 0 0 10,987
<INTEREST-EXPENSE> 454,904 1,356,328 258,915 792,932
<INCOME-PRETAX> 839,564 6,236,515 1,370,783 2,541,050
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 839,564 6,236,515 1,370,783 2,541,050
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 839,564 6,236,515 1,370,783 2,541,050
<EPS-BASIC> 0.09 0.66 0.15 0.27
<EPS-DILUTED> 0.09 0.66 0.15 0.27
</TABLE>
