<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 16, 1999.
REGISTRATION NO. 333-78357
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4
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 SEPTEMBER 16, 1999
4,000,000 Shares
[LOGO]
Common Stock
This is the initial public offering of Jore Corporation common stock. We are
selling 3,700,000 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
600,000 additional shares to cover over-allotments of shares.
--------------
Investing in the common stock involves risks.
See "Risk Factors" starting on page 4.
--------------
<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 LLC
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>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 1
Risk Factors.................................... 4
Use of Proceeds................................. 13
S Corporation Distribution...................... 13
Dividend Policy................................. 13
Capitalization.................................. 14
Dilution........................................ 15
Selected Consolidated Financial Data............ 16
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 17
Business........................................ 26
<CAPTION>
PAGE
---------
<S> <C>
Management...................................... 39
Certain Transactions............................ 45
Principal and Selling Shareholders.............. 48
Description of Capital Stock.................... 49
Shares Eligible for Future Sale................. 50
Underwriting.................................... 52
Legal Matters................................... 54
Experts......................................... 54
Change in Accountants........................... 54
Additional Information.......................... 54
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-, 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.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS THE MOST IMPORTANT INFORMATION ABOUT THIS OFFERING.
THIS SUMMARY IS NOT COMPLETE AND DOES 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 4 TO 12.
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 and hand tools under
1
<PAGE>
the STANLEY-REGISTERED TRADEMARK- brand and our customers' private labels.
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..... 3,700,000 shares
Common stock offered by the
selling shareholder........................ 300,000 shares
Common stock to be outstanding
after the offering......................... 13,222,800 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 August 15, 1999 and
excludes:
- 1,224,692 shares of common stock issuable upon exercise of outstanding
options;
- 386,372 shares available for future issuance under our 1997 Stock Plan, as
amended; and
- 611,214 shares of common stock issuable upon exercise of outstanding
warrants.
2
<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 SIX MONTHS
--------- --------- --------- ENDED
JUNE 30,
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 $ 14,881
Gross profit.................................. 2,216 1,658 1,269 6,558 13,721 5,060
Income (loss) from operations................. 886 561 (63) 3,445 7,734 3,102
Net income (loss) as reported................. 625 189 (558) 2,541 6,240 2,484
Pro forma provision (benefit) for income
taxes....................................... 205 95 (199) 900 2,343 932
------ ------ --------- --------- --------- -------------
Pro forma net income (loss)................... $ 420 $ 94 $ (359) $ 1,641 $ 3,897 $ 1,552
------ ------ --------- --------- --------- -------------
------ ------ --------- --------- --------- -------------
Pro forma basic net income per common share... $ 0.40
---------
---------
Pro forma diluted net income per common
share....................................... $ 0.40
---------
---------
Pro forma weighted shares outstanding:
Basic....................................... 9,773
---------
---------
Diluted..................................... 9,797
---------
---------
<CAPTION>
STATEMENT OF OPERATIONS DATA:
1999
<S> <C>
Net revenues.................................. $ 18,057
Gross profit.................................. 5,312
Income (loss) from operations................. 2,011
Net income (loss) as reported................. 957
Pro forma provision (benefit) for income
taxes....................................... 366
-------------
Pro forma net income (loss)................... $ 591
-------------
-------------
Pro forma basic net income per common share... $ 0.06
-------------
-------------
Pro forma diluted net income per common
share....................................... $ 0.06
-------------
-------------
Pro forma weighted shares outstanding:
Basic....................................... 9,884
-------------
-------------
Diluted..................................... 10,056
-------------
-------------
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA PRO FORMA
BALANCE SHEET DATA: ACTUAL ----------- AS ADJUSTED
--------- (UNAUDITED) -----------
(UNAUDITED)
<S> <C> <C> <C>
Working capital (deficit).................................................... $ (8,444) $ (11,808) $ 21,602
Property, plant and equipment, net........................................... 31,727 31,727 31,727
Total assets................................................................. 56,735 56,980 90,390
Operating line of credit..................................................... 10,279 10,279 10,279
Long-term debt, net of current portion....................................... 18,326 18,326 18,326
Total shareholders' equity................................................... 7,496 2,957 36,367
</TABLE>
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 360,900 shares, the estimated portion of the shares being
offered that would be necessary to fund the distribution of previously taxed but
undistributed S corporation earnings, which is estimated to be $3.6 million at
June 30, 1999. See Note 2 of Consolidated Financial Statements.
The preceding table summarizes:
- the pro forma balance sheet reflecting the declaration and payment of the
S corporation distribution, which is estimated to be $3.6 million at June
30, 1999. It also reflects the deferred income tax assets and liabilities
that would have been recorded at that date.
- the pro forma as adjusted balance sheet reflecting our sale of 3,700,000
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.
3
<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 RAPID GROWTH MAY MAKE IT DIFFICULT TO EFFECTIVELY ALLOCATE OUR RESOURCES AND
MANAGE OUR BUSINESS
We are experiencing significant growth in the sales of our products, the
number of employees and the amount of our production 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 COULD RESULT IN A SUBSTANTIAL DECREASE IN REVENUES
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/DeWalt, Makita and Home Depot accounted for 31.9%, 21.5%,
25.6% and 17.0%, respectively, of our net revenues. In 1998, sales to Sears,
Black & Decker/DeWalt and Makita accounted for 60.2%, 17.2% and 14.5%,
respectively, 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.
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. For example, 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
4
<PAGE>
competition and trademark and trade dress infringement. This lawsuit, which is
described more fully in "Business--Legal Proceedings" on page 36, 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 and be required to pay damages 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 its consumers; and
- Our inability to meet the performance requirements of the licensing
agreement may cause Stanley to terminate our agreement.
OUR FAILURE TO DEVELOP NEW DISTRIBUTION CHANNELS COULD DIMINISH OUR REVENUE
GROWTH
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. Our growth depends, in part, on our ability to develop
new distribution channels, including penetration of the industrial market for
our products. Challenges that we face in developing 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.
5
<PAGE>
OUR PRODUCTION PROCESSES COULD BE DISRUPTED AND OUR COST OF PRODUCTION COULD
INCREASE SIGNIFICANTLY IF OUR MANUFACTURING EQUIPMENT DOES NOT MEET
PERFORMANCE EXPECTATIONS OR IS NOT AVAILABLE FOR FUTURE PURCHASE
The failure of our manufacturing equipment to perform reliably and as
designed, our inability to source such equipment from present suppliers, or the
obsolescence of our equipment could disrupt our production processes, reduce our
sales and increase production costs. Our business is dependent on the successful
implementation and operation of advanced manufacturing technologies. Our
manufacturing equipment may fail to meet our performance requirements or
continue to operate reliably because of unexpected design flaws or manufacturing
defects. Moreover, we may be unable to continue to obtain equipment and supplies
from our present suppliers if they cease producing or selling such equipment or
supplies or opt not to sell to us. In addition, we cannot be certain that our
manufacturing processes will remain competitive with new and evolving
technologies.
OUR INABILITY TO INTRODUCE NEW PRODUCTS THAT ARE ACCEPTED BY THE MARKET COULD
ADVERSELY AFFECT OUR SALES, OUR REPUTATION AS AN INNOVATIVE MANUFACTURER AND
OUR ABILITY TO OBTAIN NEW CUSTOMERS
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 be introduced on a
timely basis or will achieve market acceptance. We may be unable to successfully
develop and produce new products because of a lack of market demand, production
capacity constraints or the lack of relevant technical and engineering
expertise. 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 GROWTH STRATEGY DEPENDS IN PART ON OUR EXPANSION INTO FOREIGN MARKETS, WHICH
MAY BE DIFFICULT OR UNPROFITABLE
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 successfully 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;
- Unfavorable tax consequences; and
- Transportation and logistics.
6
<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.,
Snap-On Incorporated 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.
OUR DEPENDENCE ON CUSTOMER FORECASTS TO MANAGE OUR BUSINESS MAY CAUSE US TO
MISALLOCATE OUR PRODUCTION, INVENTORY OR OTHER RESOURCES
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 economic
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 holiday selling
season. In 1997 and 1998, approximately 69% and 67%, 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.
7
<PAGE>
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 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 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 have implemented a new
information technology system that became operational during August 1999. 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
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. In 1998, Manufacturers'
Sales Associates and its affiliate received a commission on all of our sales.
The failure or inability of Manufacturers' Sales Associates 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,
Manufacturers' Sales Associates can terminate its relationship with us at any
time without penalty. Termination of this 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.
EXISTING AND POTENTIAL LITIGATION MAY DIVERT MANAGEMENT RESOURCES AND COULD
ADVERSELY AFFECT OUR OPERATING RESULTS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business. Such
claims, even if not meritorious, could require the expenditure of significant
financial and managerial resources.
On August 16, 1999, Pete K. Block and Paul K. Block instituted separate
actions in Montana District Court against us, Matthew Jore individually and dba
Jore Enterprises, Michael Jore and Merle Jore. In their complaints, the Blocks
alleged, among other things, that they are collectively entitled to a 25%
interest in the capital stock of Jore Enterprises and any successor corporation.
Their lawsuits are based in part upon an agreement, dated October 10, 1989,
between the Blocks and Matthew, Michael and Merle Jore. The Blocks seek as
remedies dissolution of Jore Corporation and a preliminary injunction preventing
us from proceeding with this offering. In addition, the Blocks have alleged that
they have suffered damages of not less than $10 million and are seeking
compensatory and punitive damages, attorneys' fees and costs, and injunctive
relief preventing any reorganization or sale that would cause them to
collectively own less than 25% of the equity of Jore Enterprises and any
successor corporation.
Litigation is inherently uncertain, and we cannot assure that we and/or the
Jores will prevail in the suit. To the extent that the Blocks become entitled to
shares of our common stock as a result of the suit, we may be required to
recognize an expense equal to the number of shares issued multiplied by the fair
value of the common stock on the date of issuance. Satisfaction of such
liabilities through the
8
<PAGE>
issuance of shares could result in the recognition of future expenses, which
could have a material adverse effect on our results of operations. For further
discussion of this matter, see "Business--Legal Proceedings."
WE SUBSTANTIALLY RELY ON CONTRACTS WITH AFFILIATES WHOSE INTERESTS MAY NOT
ALWAYS COINCIDE WITH THOSE OF OUR PUBLIC SHAREHOLDERS
The existence of, or potential for, conflicts-of-interest between two of our
directors and us could adversely influence decisions relating to sales and
marketing and printing and packaging of our products. We rely substantially on
our sales representative, Manufacturers' Sales Associates, for sales and
marketing assistance and on Printing Press Incorporated for printing and
packaging materials. Our director William M. Steele is the managing member and
owns 50% of Manufacturers' Sales Associates, and our director Bruce Romfo owns
30% of Printing Press Incorporated. In 1998, Manufacturers' Sales Associates and
its affiliate earned an aggregate of $1.8 million in sales commissions and we
purchased $2.0 million printing and packaging materials from Printing Press.
Because of their significant ownership stakes in these two entities, the
interests of Messrs. Steele and Romfo may diverge from those of Jore Corporation
and its public shareholders.
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 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
9
<PAGE>
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 because our products
may be used in activities where injury may occur such as the building and
construction industries. 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, trusts controlled by Matthew and
Michael Jore, and other members of the Jore family will beneficially own
approximately 66.2% of our outstanding common stock or 64.3% 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 COULD DILUTE YOUR INTEREST IN THE COMPANY
AND WHICH MAY NOT BE AVAILABLE WHEN NEEDED
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 for approximately the next
12 months. 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. In connection with our private
placement of subordinated notes and warrants between April and August 1999, we
may have a contingent liability arising out of a possible violation of Section 5
of the Securities Act of 1933. If purchasers of the subordinated notes were to
pursue an action against us for a violation of Section 5, we could be required
to repay approximately $1.75 million in principal, plus interest thereon, in
addition to the approximately $12.7 million in principal amount of notes that we
expect to repay with the proceeds of this offering. 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
10
<PAGE>
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 June 30, 1999, we had approximately $18.3 million of outstanding long-term
debt, net of current portion, which accounted for 71.0% 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.
11
<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 4,000,000 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 August 15,
1999, will be "restricted securities" as defined in Rule 144 of the Securities
Act of 1933. Of these restricted securities 8,974,903 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."
POTENTIAL INVESTORS SHOULD NOT RELY ON STATEMENTS MADE IN OUR PRESS RELEASES
WHEN DECIDING WHETHER TO PURCHASE OUR COMMON STOCK
From time to time, we issue press releases concerning our products and
business. In April 1999, for example, we issued a press release announcing a
relationship with Time Domain Corporation. It contained statements regarding our
belief that this relationship will allow us to produce an entirely new
generation of tools. These statements may not be verifiable by third parties and
were based on our internal development efforts and projections based on our
understanding of Time Domain's inventions. As a result, these statements are
subject to potential risks and uncertainties including many of the risks
described in this prospectus. You should not rely on any of the statements from
our press releases when deciding whether to purchase our common stock. Instead,
you should rely only on the information contained in this prospectus when making
an investment decision.
WE HAVE ISSUED WARRANTS IN CONNECTION WITH OUR RECENT PRIVATE PLACEMENT THAT MAY
BE DILUTIVE TO NEW INVESTORS
In connection with our recent private placement of subordinated notes and
warrants, we issued common stock purchase warrants that may be exercisable at a
price below the initial public offering price. We issued 599,333 warrants to
purchase common stock at an exercise price of $9.10 and 50,000 warrants to
purchase common stock at an exercise price of $10.00. If the price of our common
stock is greater than the exercise price of the warrants when they are
exercised, then new investors will suffer dilution and the holders of the
warrants will obtain gains.
12
<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 $33.4 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:
- $12.7 million to repay indebtedness under bridge loans incurred between
April and August 1999;
- $3.6 million to fund the S corporation distribution to our current
shareholders; and
- $16.9 million to undertake capital expenditures and for additional working
capital and general corporate purposes.
Bridge loans incurred between April and August 1999 bear interest at rates
ranging from 6.5% to 7.0% and will mature within 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 $3.6 million at June 30, 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
any future earnings 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.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Jore Corporation as of
June 30, 1999:
- On an actual basis;
- On a pro forma basis to give effect to S corporation distributions after
June 30, 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 $33.4 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. The following table is based on shares
outstanding as of June 30, 1999. It excludes:
- 972,076 shares reserved for issuance under our stock plan, of which
877,791 were issuable upon exercise of stock options outstanding as of
June 30, 1999, with a weighted average exercise price of $6.63 per share;
- 311,064 shares issuable upon the exercise of stock options granted outside
our stock plan outstanding as of June 30, 1999, with a weighted average
exercise price of $9.26 per share; and
- 285,614 shares issuable upon the exercise of warrants outstanding as of
June 30, 1999, with a weighted average exercise price of $9.07 per share.
See "Management--Employee Benefit Plans" and Note 5 of Notes to Consolidated
Financial Statements.
<TABLE>
<CAPTION>
JUNE 30, 1999
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Long-term debt, net of current portion..................................... $ 18,326 $ 18,326 $ 18,326
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; 13,603,000 shares issued and
outstanding, pro forma as adjusted..................................... 1,952 3,231 36,641
Deferred compensation stock options...................................... (5) (5) (5)
Retained earnings........................................................ 5,549 (269) (269)
--------- ----------- -----------
Total shareholders' equity............................................. 7,496 2,957 36,367
--------- ----------- -----------
Total capitalization................................................. $ 25,822 $ 21,283 $ 54,693
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
14
<PAGE>
DILUTION
As of June 30, 1999, our net tangible book value was approximately
$2,709,000, or $0.28 per share of common stock after giving effect to an S
corporation distribution of $3,609,000 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 June 30, 1999, after giving effect to
the sale by us of 3,700,000 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 June 30, 1999
would have been approximately $36.1 million, or $2.73 per share. This represents
an immediate increase in net tangible book value of $2.45 per share to existing
shareholders and an immediate dilution of $7.27 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 June 30, 1999.................. 0.66
---------
Net decrease per share attributable to S corporation and tax-related
distributions........................................................ (0.38)
---------
Increase per share attributable to new investors....................... 2.45
---------
Adjusted net tangible book value per share after this offering........... 2.73
---------
Dilution per share to new investors...................................... $ 7.27
---------
---------
</TABLE>
The following table summarizes as of June 30, 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 3,700,000 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 72.0% $ 1,945,102 5.0% $ 0.19
New investors............................. 3,700,000 28.0 37,000,000 95.0 $ 10.00
------------ ----- ------------- -----
Total................................... 13,222,800 100.0% $ 38,945,102 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
The above information assumes no exercise of any outstanding options or
warrants. As of June 30, 1999, there were outstanding options to purchase an
aggregate of 1,188,855 shares of common stock at a weighted average price of
$7.31 per share and outstanding warrants to purchase an aggregate of 285,614
shares of common stock at a weighted average price of $9.07 per share. Assuming
all of these options or warrants are exercised, dilution per share to new
investors would be $7.03 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.
15
<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 June 30, 1999 and the selected
consolidated statement of operations data for the six months ended June 30, 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 six months ended June 30, 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, SIX MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA) JUNE 30,
----------------------------------------------------- --------------------
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 $ 14,881 $ 18,057
Cost of goods sold..................... 7,374 7,758 8,417 17,098 31,168 9,821 12,745
--------- --------- --------- --------- --------- --------- ---------
Gross profit......................... 2,216 1,658 1,269 6,558 13,720 5,060 5,312
Operating expenses:
Product development.................. 185 147 1 151 495 104 225
Sales and marketing.................. 20 27 31 620 2,509 711 759
General and administrative........... 1,125 923 1,300 2,342 2,983 1,144 2,317
--------- --------- --------- --------- --------- --------- ---------
Total operating expense............ 1,330 1,097 1,332 3,113 5,987 1,959 3,301
Income (loss) from operations.......... 886 561 (63) 3,445 7,733 3,102 2,011
Other expense.......................... 261 372 495 904 1,497 (617) (1,054)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) as reported.......... 625 189 (558) 2,541 6,240 2,484 957
Pro forma provision (benefit) for
income taxes......................... 205 95 (199) 900 2,343 933 366
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss)............ $ 420 $ 94 $ (359) $ 1,641 $ 3,897 $ 1,551 $ 591
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma basic net income per common
share................................ $ 0.40 $ 0.06
--------- ---------
--------- ---------
Pro forma diluted net income per common
share................................ $ 0.40 $ 0.06
--------- ---------
--------- ---------
Pro forma weighted average shares
outstanding:
Basic................................ 9,773 9,884
--------- ---------
--------- ---------
Diluted.............................. 9,797 10,056
--------- ---------
--------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 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 $ (8,444) (11,808)
Property, plant and equipment, net........... 1,683 3,022 4,196 6,081 19,816 31,727 31,727
Total assets................................. 3,916 5,169 9,548 17,759 45,963 56,735 56,980
Operating line of credit..................... 302 900 1,094 4,673 13,525 10,279 10,279
Long-term debt, net of current portion....... 1,095 1,541 4,189 4,689 14,589 18,326 18,326
Total shareholders' equity................... 277 763 149 2,521 6,289 7,496 2,957
</TABLE>
16
<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 4.
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/DeWalt, 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 private label and
STANLEY-REGISTERED TRADEMARK- 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 and fourth quarters 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
17
<PAGE>
supplier. We expect to consume this excess inventory by the fourth quarter of
1999 and to fill most of 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
Manufacturers' Sales Associates, our sales representative, 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>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
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 66.0 70.6
--------- --------- --------- --------- --------- --------- ---------
Gross profit............................... 23.1 17.6 13.1 27.7 30.5 34.0 29.4
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 4.8 4.2
General and administrative................. 11.7 9.8 13.4 9.9 6.6 7.7 12.8
--------- --------- --------- --------- --------- --------- ---------
Total operating expense.................. 13.9 11.7 13.8 13.1 13.3 13.2 18.3
Income (loss) from operations................ 9.2 5.9 (0.7) 14.6 17.2 20.8 11.1
Other expense:
Interest expense........................... 1.0 3.0 5.0 3.4 3.0 (3.5) (5.8)
Other income expense....................... 1.7 0.9 0.1 0.5 0.3 (0.7) 0
--------- --------- --------- --------- --------- --------- ---------
Net other expense........................ 2.7 3.9 5.1 3.9 3.3 (4.1) (5.8)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) as reported................ 6.5% 2.0% (5.8)% 10.7% 13.9% 16.7% 5.3%
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
18
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
NET REVENUES. Net revenues increased from $14.9 million for the six months
ended June 30, 1998 to $18.1 million for the six months ended June 30, 1999,
representing a 21.3% increase. Of the $3.2 million increase, sales to existing
customers accounted for $2.8 million and sales to new customers accounted for
$361,000. Most of this increase resulted from additional sales to Black &
Decker, Sears and Makita.
COST OF GOODS SOLD. Cost of goods sold increased from $9.8 million for the
six months ended June 30, 1998 to $12.7 million for the six months ended June
30, 1999, representing a 29.8% increase. Cost of goods sold as a percentage of
revenues increased from 66.0% for the six months ended June 30, 1998 to 70.6%
for the six months ended June 30, 1999. This increase is attributable to greater
indirect overhead, including several non-recurring start-up expenses related to
new manufacturing processes, and equipment depreciation associated with
expanding our internal manufacturing capabilities. Having fully absorbed these
costs during the first half of 1999, we expect to realize the benefits of these
initiatives in the third and fourth quarters of 1999.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$104,000 for the six months ended June 30, 1998 to $225,000 the six months ended
June 30, 1999, representing a 116.2% 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 six months ended June 30, 1998 and for
the six months ended June 30, 1999, we capitalized $66,000 and $648,000,
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
$711,000 for the six months ended June 30, 1998 to $759,000 for the six months
ended June 30, 1999, representing a 6.8% increase. Advertising and promotion
expenses increased by $250,000 due to increased retail advertising, but this
increase was partially offset by a decrease in the sales commission percentage
paid to our sales representative. 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 $1.1 million for the six months ended June 30, 1998 to $2.3
million for the six months ended June 30, 1999, representing a 102.6% increase.
The increase is primarily a result of an increase in depreciation of equipment
from $330,000 for the six months ended June 30, 1998 to $869,000 for the six
months ended June 30, 1999, a 163.3% increase. The increase was also a result of
our initiatives to expand our operating capacity and administrative
infrastructure, as well as an increase in professional fees, including several
non-recurring expenses related to the audit of our financial statements and the
consolidation and combination of our operations. Further, we increased our
finance and administrative staff from 52 at June 30, 1998 to 94 at June 30,
1999. Having fully absorbed these costs during the first half of 1999, we expect
to realize the benefits of these initiatives in the third and fourth quarters of
1999.
OTHER EXPENSE. Other expense increased from $617,000 for the six months
ended June 30, 1998 to $1.1 million for the six months ended June 30, 1999,
representing a 70.9% increase. This increase in other expense is primarily
attributable to a larger amount of borrowings and a corresponding increase in
interest expense.
19
<PAGE>
PRO FORMA NET INCOME. As a result of all these factors, our pro forma net
income decreased from $1.6 million for the six months ended June 30, 1998 to
$591,000 for the six months ended June 30, 1999, representing a 61.9% 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 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 $182,000 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.
PRO FORMA NET INCOME. As a result of all of these factors our pro forma net
income increased from $1.6 million in 1997 to $3.9 million in 1998, representing
a 137.5% increase.
20
<PAGE>
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 $2.4 million and sales to new
customers accounted for $11.6 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 tooling. The
amounts capitalized in 1996 were $175,000 compared to $182,000 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 $481,525 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.
PRO FORMA NET INCOME. As a result of all of these factors, our pro forma
net income increased from a loss of $359,000 in 1996 to net income of $1.6
million in 1997.
21
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth consolidated statements of operations data
for our six 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, JUNE 30,
1998 1998 1998 31, 1998 1999 1999
----------- ----------- ------------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net revenues....................... $ 7,579 $ 7,303 $ 10,548 $ 19,458 $ 9,798 $ 8,259
Cost of goods sold................. 4,926 4,895 7,411 13,936 6,858 5,886
----------- ----------- ------------- ----------- ----------- -----------
Gross profit..................... 2,653 2,408 3,137 5,522 2,940 2,373
Operating expenses:
Product development.............. 54 50 102 289 117 109
Sales and marketing.............. 338 373 597 1,201 376 382
General and administrative....... 538 606 630 1,209 1,150 1,167
----------- ----------- ------------- ----------- ----------- -----------
Total operating expense........ 930 1,029 1,329 2,699 1,643 1,658
----------- ----------- ------------- ----------- ----------- -----------
Income from operations............. 1,723 1,379 1,808 2,823 1,297 715
Other expense...................... 352 265 387 489 457 598
----------- ----------- ------------- ----------- ----------- -----------
Net income as reported............. $ 1,371 $ 1,114 $ 1,421 $ 2,331 $ 840 $ 117
----------- ----------- ------------- ----------- ----------- -----------
----------- ----------- ------------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS A PERCENTAGE OF REVENUES
--------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30,
1998 1998 1998 1998 1999 1999
----------- ----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenues............................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold...................... 65.0 67.0 70.3 71.6 70.0 71.3
----------- ----------- ------------- ------------- ----------- -----------
Gross profit.......................... 35.0 33.0 29.7 28.4 30.0 28.7
Operating expenses:
Product development................... 0.7 0.7 1.0 1.5 1.2 1.3
Sales and marketing................... 4.5 5.1 5.6 6.2 3.9 4.6
General and administrative............ 7.1 8.3 6.0 6.2 11.7 14.1
----------- ----------- ------------- ------------- ----------- -----------
Total operating expense............. 12.3 14.1 12.6 13.9 16.8 20.1
----------- ----------- ------------- ------------- ----------- -----------
Income from operations.................. 22.7 18.9 17.1 14.5 13.2 8.6
Other expense........................... (4.6) (3.6) (3.6) (2.5) (4.6) (7.2)
----------- ----------- ------------- ------------- ----------- -----------
Net income as reported.................. 18.1% 15.3% 13.5% 12.0% 8.6% 1.4%
----------- ----------- ------------- ------------- ----------- -----------
----------- ----------- ------------- ------------- ----------- -----------
</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 six quarters ended June
30, 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.
22
<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 two quarters of
1999 compared to the first two quarters 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 two quarters of 1999,
operating expenses as a percentage of revenues increased primarily due to
increased equipment depreciation, 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.
We recently obtained a revolving line of credit with First Security Bank,
N.A., with a maximum borrowing limit of $25.0 million. Advances on the line are
limited to 85% of eligible accounts receivable and 65% of eligible inventory.
Trade accounts receivable and inventory are assigned as collateral. We have
drawn approximately $8.0 million of the line to finance our real estate,
including our new drill bit manufacturing facility. The revolving line of credit
provides that we must repay these advances within 180 days. Interest on the
revolving credit line is at the prime rate plus 1% or, at our option, LIBOR plus
3%. The applicable interest rate will be reduced by one-half percent upon
closing of this offering. The term of the agreement is through August 2001. This
line is secured by receivables, inventory, real estate, equipment and general
intangibles.
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 $14.5 million in 1998
compared to $2.7 million in 1997 and $1.6 million in 1996. A significant 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 $7.8 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.
23
<PAGE>
We may have a contingent liability arising out of a possible violation of
Section 5 of the Securities Act of 1933 with respect to the offers and sales,
between April and August 1999, of $14.4 million in aggregate principal amount of
subordinated notes and warrants to purchase 599,333 shares of our common stock
issued therewith. After we filed the registration statement with respect to this
offering and prior to completing this offering, we offered and sold these notes
and warrants to 31 accredited investors in unregistered transactions. Of the
notes, $550,000 in aggregate principal amount bear interest at 7.0% and $13.9
million in aggregate principal amount bear interest at 6.5%. Except for notes in
the aggregate principal amount of $1.75 million, all of these notes mature
within five days following the closing of this offering. We believe that we
offered and sold the notes and warrants pursuant to valid exemptions from the
registration requirements of the Securities Act and applicable state securities
laws. However, we could be found liable for offering and selling securities in
transactions that were neither registered nor exempt from applicable
registration requirements. If one or more purchasers of our notes and warrants
were to pursue an action for our alleged failure to comply with applicable
securities laws, we could be required to repay all or a portion of the principal
amount of the notes, with interest thereon at the applicable statutory rate
(currently 10%), or damages according to proof if the investor no longer owned
the securities. We do not believe that our potential liability to these
purchasers would, in any event, be materially greater than the amount that we
are obligated and prepared to pay to them pursuant to the terms of the notes.
Moreover, rescission of any purchaser's investment would be anti-dilutive
because the warrants issued in connection with the sale of the notes would be
terminated in connection therewith. We do not believe that our actions in
selling these securities will give rise to actual liability that will have a
material adverse effect on our business, operations, or financial condition.
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 PCs and laptop computers for Year 2000 compliance
with Year 2000 compliance testing software. All of our PCs and laptop units are
Year 2000 compliant. Because of our inability to undertake testing of certain of
our third party equipment, we addressed processors embedded in our manufacturing
systems on a prioritized piece-by-piece basis. We have received written
assurances from the manufacturers of the PCs and embedded processors used in our
manufacturing facility that all are Year 2000 compliant. In order to determine
Year 2000 compliance of our vendors, we ranked our vendors according to the lead
times that we believed they needed to correct Year 2000 problems and contacted
them to request their Year 2000 compliance status. All of the vendors that we
have identified as critical vendors have informed us that they are Year 2000
compliant and that they
24
<PAGE>
have contingency plans in place. We have also received Year 2000 compliance
statements from all of our major suppliers.
Approximately 50% of our customer base has provided us with statements of
compliance, and all of our customers have stated they will be or plan to be
compliant by the end of December 1999. 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, interruptions caused by Year 2000 compliance failures.
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 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
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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.
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<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.
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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-, DEWALT-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.
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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 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.
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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 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 diagrams and text provide information about each of our
product families:
QUICK CHANGE DRILLING AND DRIVING SYSTEMS
[ART]
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
[ART]
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
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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
[ART]
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
<TABLE>
<S> <C>
[ART] [ART]
</TABLE>
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-TM- 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.
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
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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. In order to maintain our exclusive rights, we are required to purchase a
minimum number of machines annually during the term of the agreement. We also
have entered into an agreement with the designer of the equipment pursuant to
which he will provide consulting services relating to our future manufacturing
technologies.
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 product and process innovation group is
comprised of 47 people, including 11 engineers, 14 industrial designers and
machinists, nine 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
identify a need for a new product or an improvement to an existing product
we begin a
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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 have also begun 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/DeWalt and Makita each accounted for 60.2%, 17.2% and 14.5%,
respectively, 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
could result in a substantial decrease in revenues."
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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. Manufacturers' Sales
Associates, which receives a commission that is a percentage of our sales to
selected customers, 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
Manufacturers' Sales Associates 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.
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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-term supply agreements with our customers. As a result, we typically do not
maintain a significant backlog of purchase orders. See "Risk Factors--Our
dependence on customer forecasts to manage our business may cause us to
misallocate our production, inventory or other resources."
We distinguish ourselves with our highly skilled, responsive in-house
graphics department that works closely with our sales and marketing department
and with Manufacturers' Sales Associates. 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., Snap-On Incorporated 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 14 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. For example, we have
granted Sears an exclusive license to use our Speed-Lok trademark in connection
with Sears' sales of quick change systems and other products, provided that
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Sears purchases a minimum quantity of Jore products annually. 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-, 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.
In April 1998, we entered into an agreement with The Stanley Works that
grants us the exclusive license to sell power tool accessories under the
STANLEY-REGISTERED TRADEMARK- brand. The agreement provides for the payment by
us to Stanley of a percentage of our sales of our STANLEY-REGISTERED TRADEMARK-
branded products, with certain minimum payment obligations, during the term of
the agreement. The term of the Agreement is through December 2004, and may be
renewed by us through December 2009.
Norton Company, a manufacturer of surface preparation and abrasive tool
accessories, owns the registered trademark "SPEEDLOK" and "SPEED-LOK" 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
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. We are currently in discussions with Norton to resolve this
matter.
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 have recently implemented a
fully-integrated enterprise resource planning software system that allows
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. See "Risk
Factors--Unsatisfactory performance of our new information technology system
could slow our growth."
PERSONNEL AND HUMAN RESOURCES
As of August 15, 1999, we employed 610 full-time employees and 89 part-time
employees, of whom 17 were in sales and marketing, 104 in finance and
administration, 41 in technology development and application and 537 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
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<PAGE>
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
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights. Such claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources.
BLACK & DECKER LITIGATION. 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 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 copyright or 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.
BLOCK BROTHERS LITIGATION. On August 16, 1999, Pete K. Block and Paul K.
Block instituted separate actions in the Montana Fourth Judicial District Court
of Missoula County, Montana against us, Matthew Jore individually and dba Jore
Enterprises, Michael Jore, individually, and Merle Jore, individually. In their
complaints, the Blocks alleged, among other things, that they are collectively
37
<PAGE>
entitled to a 25% interest in the capital stock of Jore Enterprises and any
successor corporation. Their lawsuits are based in part upon an agreement, dated
October 10, 1989, between the Blocks and Matthew, Michael and Merle Jore
pursuant to which the Blocks contend that Matthew, Michael and Merle Jore agreed
to issue them shares of stock of Jore Enterprises and any successor corporation
and to grant them a collective 25% interest in all patent rights, profits and
real and personal property. The Blocks seek as remedies dissolution of Jore
Corporation and a preliminary injunction preventing Jore Corporation from
proceeding with this offering. In addition, the Blocks have alleged that they
have suffered damages of not less than $10 million and are seeking compensatory
damages, plus interest, punitive damages, attorneys' fees and costs and
injunctive relief preventing any capital reorganization or sale that would cause
them to collectively own less than 25% of the equity of Jore Enterprises and any
successor corporation.
We intend to answer the complaint, vigorously defend against the claims,
assert affirmative defenses and potentially assert counterclaims. While we
believe that we have meritorious defenses and potential counterclaims to the
Blocks' claims, litigation is inherently uncertain, and we cannot assure that we
and/or the Jores will prevail in the suit. To the extent that the Blocks become
entitled to shares of our common stock as a result of the suit, we may be
required to recognize an expense equal to the number of shares issued multiplied
by the fair value of the common stock on the date of issuance. This could have a
material adverse effect on our results of operations.
In order to protect Jore Corporation and investors in this offering from any
adverse outcome in this or any future proceeding involving the Blocks, Matthew,
Michael and Merle Jore have agreed to enter into an indemnification agreement
with Jore Corporation pursuant to which they will indemnify and hold Jore
Corporation harmless against these and any other future claims, including any
damages and costs resulting therefrom, that the Blocks may assert against us. In
addition, the agreement will provide that if the Blocks become entitled to any
shares of our common stock pursuant to a definitive judicial or arbitral
determination or a settlement agreement with us, then the Jores will deliver to
us such shares from their own shareholdings for reissuance by Jore Corporation
to the Blocks. We cannot be certain, however, that the Jores will be able to
perform their indemnification obligations or that such performance will not
adversely affect the market for our stock. Satisfaction of such liabilities
through the issuance of shares could result in the recognition of future
expenses, which could have a material adverse effect on our results of
operations.
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<PAGE>
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...................................... 40 Executive Vice President and Director
David H. Bjornson.................................... 42 Chief Financial Officer, General Counsel, Secretary
and Director
Daniel A. Gabig...................................... 42 Vice President--Business Development
Kelly D. Grove....................................... 32 Vice President--Controller
Nikki M. Snyder...................................... 40 Vice President--Corporate Communications and Human
Resources
Robert S. Warren..................................... 54 Vice President--Marketing
Jeffery J. Eidsmoe................................... 41 Vice President--Operations
Jeffrey M. Heutmaker................................. 37 Vice President--Strategic Initiatives
Thomas E. Mahoney(1)................................. 57 Director
R. Bruce Romfo....................................... 61 Director
William M. Steele.................................... 67 Director
A. 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 in 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 Hillis
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.
39
<PAGE>
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 M. 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.
R. 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, our sales and marketing representative. 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
the University of Connecticut.
A. 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. Matthew and Michael Jore are referred to collectively
as the "Named Executive Officers."
41
<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
President and Chief Executive Officer
Michael W. Jore.................................................... $ 138,491 $ 21,823
Executive Vice President
</TABLE>
The amounts listed under the column captioned "All Other Compensation" for
Matthew Jore represent $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 and for
Michael Jore represent $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 and amended it on June
14, 1999. 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 have authorized 1.3 million
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.
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.
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<PAGE>
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. 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 also will match employee contributions of 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 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
43
<PAGE>
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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<PAGE>
CERTAIN TRANSACTIONS
REORGANIZATION TRANSACTIONS
We have effected an internal reorganization and certain other transactions
in which:
- We acquired Montana American Equipment, LLC, 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; 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 has entered into a tax allocation and
indemnification agreement with its principal shareholders, including Matthew
Jore and Michael Jore, Merle Jore, father of Michael and Matthew, and certain
trusts administered by Matthew and Michael. The agreement provides that Jore
Corporation and these shareholders will indemnify each other for federal or
state income tax liabilities resulting from certain adjustments to Jore
Corporation's income or that of 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 its acquisition by Jore Corporation on January 1, 1999, Montana
American Equipment was owned by twenty members, including four of our directors
and several members of Matthew and Michael Jore's immediate family. The
approximate consideration that we issued to these members in connection with our
acquisition of Montana American Equipment 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, one of our directors, and
17,763 shares issued to B&P Manufacturing, LLC of which Mr. Romfo is a
controlling shareholder.
All of Montana American Equipment'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
Montana American Equipment for use of its machinery.
On February 1, 1999, Jore Land, LLC 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. The purchase price included forgiveness of a receivable in the
amount of $1.3 million relating to advanced construction costs, and assumption
of approximately $1.3 million of existing debt that 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 and Manufacturers' Sales Associates. William
M. Steele, one of our directors, owns 50% of each of these entities. During
1998, Manufacturers' Specialty Marketing was the sole sales and marketing arm
for Jore Corporation, receiving 4% of our net revenues as a commission.
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<PAGE>
Manufacturers' Specialty Marketing divided its commissions with Manufacturers'
Sales Associates during the course of 1998. In January 1999, we revised our
agreements with these entities to terminate our relationship with Manufacturers'
Specialty Marketing and provide that Manufacturers' Sales Associates would be
the sole sales agent for Jore Corporation through December 2003. Manufacturers'
Sales Associates will receive as a sales commission a percentage of Jore's sales
to selected customers. Commissions earned in 1998 were $1.8 million for
Manufacturers' Specialty Marketing and Manufacturers' Sales Associates. 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 is a printing and packaging company in which
Bruce Romfo, a director of Jore Corporation, has a 30% ownership interest. Jore
Corporation purchased $2.0 million in printing and packaging material from
Printing Press in 1998 and likely will continue to purchase a substantial volume
of printed and packaging material from this vendor. In September 1998 and July
1999, we granted Mr. Romfo options to purchase an aggregate of 15,000 shares of
our common stock at a weighted average exercise price of $5.39 per share. We
currently lease equipment from Printing Press in consideration for lease
payments of $20,000 per month.
Montana American Manufacturing Corporation 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 Montana
American Manufacturing, 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.
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.
MANAGEMENT AND SHAREHOLDER TRANSACTIONS
As of June 30, 1999, each of the following shareholders was indebted to us
in the amount set forth opposite his or her respective name in connection with
shareholder and member advances related to his or her shareholdings in Jore
Corporation and membership interests in Montana American Equipment. Outstanding
indebtedness is evidenced by notes that bear interest annually at the applicable
federal rate:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
SHAREHOLDER OF INDEBTEDNESS
- ---------------------------------------------------------------------------- ----------------
<S> <C>
Matthew Jore................................................................ $ 754,809
Michael Jore................................................................ $ 329,501
Rick Jore................................................................... $ 151,450
Roger Jore.................................................................. $ 108,400
Maxine Schneider............................................................ $ 62,862
</TABLE>
In June 1999, Blaine Huntsman, one of our directors, and an affiliate of Mr.
Huntsman loaned Jore Corporation $500,000 at a rate of 6.5% per annum, with the
loan maturing on the earlier of December 1, 1999 or within five days following
the closing of this offering. In connection with the loan, we also issued Mr.
Huntsman and his affiliate warrants to purchase an aggregate of 20,000 shares of
common stock at an exercise price of $9.10 per share.
46
<PAGE>
S CORPORATION DISTRIBUTIONS
For tax years 1997 and 1998 we made the following cash distributions in part
to enable our shareholders to pay their taxes on our net income:
<TABLE>
<CAPTION>
1997 1998
SHAREHOLDER DISTRIBUTION DISTRIBUTION
- ------------------------------------------------------------------- ----------- ------------
<S> <C> <C>
Matthew Jore....................................................... $ 126,625 $ 1,351,895
Michael Jore....................................................... $ 63,565 $ 605,354
Merle Jore......................................................... $ 60,033 $ 139,496
Jore Family Trusts................................................. -- $ 243,129
Roger Jore......................................................... -- $ 227,918
Perry Schneider.................................................... -- $ 227,918
Randy Cote......................................................... -- $ 227,918
Rick Jore.......................................................... -- $ 275,370
</TABLE>
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
Roxanne Cote, Maxine Schneider, Matthew, Michael, Rick and Roger Jore.
47
<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 August 15, 1999
by:
- each of the directors and Named Executive Officers;
- all of our directors and executive officers as a group;
- each other person known by us to own beneficially more than 5% of the
common stock; and
- the selling shareholder.
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 September 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.
Matthew Jore holds a currently exercisable option to purchase all shares
beneficially owned by each of Michael and Merle Jore. Matthew Jore's
shareholdings after this offering will decrease by 300,000 shares because of the
sale of 300,000 shares by Merle Jore in this offering. Matthew Jore will not
receive any proceeds from Merle Jore's sale of shares. In addition, Matthew
Jore's and Michael Jore's shareholdings after this offering will decrease by
200,033 shares because, upon closing of this offering, Matthew has agreed to
terminate his right to acquire these shares from Michael Jore and Michael has
agreed to place them in trust for the benefit of his children and his former
spouse in connection with the dissolution of their marriage.
<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 SEPTEMBER 30,
DIRECTORS NUMBER PERCENT OFFERED NUMBER PERCENT 1999
- --------------------------------- ---------- ------------- ------------- ---------- ------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Matthew B. Jore.................. 11,054,303 68.4% -- 10,554,270 54.5% 2,573,004
Michael W. Jore.................. 2,536,773 25.2% -- 2,336,740 17.0% --
David H. Bjornson................ 23,327 * -- 23,327 * 22,263
Thomas E. Mahoney................ 2,999 * -- 2,999 * 2,999
R. Bruce Romfo................... 23,140 * -- 23,140 * 5,375
William M. Steele................ 155,532 1.6% -- 155,532 1.2% 155,532
A. Blaine Huntsman............... 22,999 * -- 22,999 * 22,999
James P. Mathias................. 2,999 * -- 2,999 * 2,999
All current directors and
executive officers as a group
(12 persons)................... 13,884,326 81.8% -- 13,184,260 65.4% 2,846,243
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%
48
<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 August 15, 1999, there were 9,522,800 shares of common stock
outstanding held of record by 31 shareholders. Following this offering,
13,222,800 shares of common stock will be issued and outstanding, assuming no
exercise of stock options and warrants subsequent to August 15, 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 August 15, 1999, we had warrants outstanding to purchase an aggregate
of 661,214 shares of common stock at purchase prices between $8.41 and $10.00
per share. The warrants expire at various dates from April 8, 2002 to February
4, 2004. Generally, each warrant contains provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon exercise under
certain circumstances, including stock splits, reorganizations,
reclassifications, consolidations, stock dividends or similar events. All
warrants are currently exercisable.
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 599,333 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.
49
<PAGE>
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.
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 August 15, 1999, we will have 13,222,800 shares of common stock outstanding,
assuming no exercise of options or warrants after August 15, 1999. Of these
shares, the 4,000,000 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 securities 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 under the Securities Act.
Our officers, directors, and substantially all of our shareholders and
option holders have agreed, during the 180-day lock-up period after the
effective date of the Registration Statement of which this prospectus
constitutes a part, 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
50
<PAGE>
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 lock-up period except for the
sale of the shares of common stock in this 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:
- 206,424 shares will be eligible for public resale 90 days after the
effective date of the Registration Statement;
- 8,974,903 shares are subject to the lock-up and will be eligible for
public resale beginning 180 days after the effective date of the
Registration Statement, 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 one percent of the number
of shares of common stock then outstanding, or approximately 132,228 shares
immediately after this offering, or 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, 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 1.3 million shares of our common stock reserved for
issuance under our stock plan and 311,064 shares of common stock reserved for
issuance under fully vested options granted to certain members of Manufacturers'
Sales Associates, including 155,532 granted to William Steele, a director. 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 August
15, 1999, options to purchase 913,628 shares were issued and outstanding under
our stock plan. See "Management--Employee Benefit Plans."
51
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives, D.A.
Davidson & Co., Janney Montgomery Scott LLC 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 LLC....................................................
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 600,000 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 4,000,000 shares of common stock
offered hereby. If purchased, the underwriters will sell such additional shares
on the same terms as those on which the 4,000,000 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 LLC 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 lock-up period of 180 days after the effective date of the
registration statement of which this prospectus constitutes a part, 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
52
<PAGE>
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, 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 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.
From April through August 1999, seven affiliates of D.A. Davidson & Co.
loaned Jore Corporation an aggregate of $6.0 million under promissory notes due
five calendar days following the completion of this offering. The notes bear
interest at an annual rate of 6.5%. In connection with this financing, we issued
warrants to purchase an aggregate of 231,934 shares of common stock with an
exercise price of $9.10 to these affiliates of D.A. Davidson. These warrants
will be restricted from sale, transfer, pledge, assignment or hypothecation for
a period of one year from the effective date of this offering except to officers
or partners (but not directors) of D.A. Davidson & Co. and to the other
underwriters and their officers and directors. We have paid D.A. Davidson & Co.
$206,000 in fees in connection with its placement of $8.25 million in principal
amount of our subordinated promissory notes and warrants to purchase 330,000
shares of our common stock between April and August 1999.
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.
53
<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.
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.
54
<PAGE>
JORE CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CONTENTS
<TABLE>
<S> <C>
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
(August 19, 1999 as to Note 11)
F-2
<PAGE>
JORE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
---------------------------- JUNE 30, JUNE 30,
1997 1998 1999 1999
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 113,471 $ 34,736 $ 46,929 $ 46,929
Accounts receivable, net of allowance for doubtful
accounts of $10,987 and $-0-, respectively...... 5,986,070 14,672,275 6,937,474 6,937,474
Notes receivable.................................. 29,136 53,576 25,000 25,000
Shareholder notes receivable...................... 272,895 1,350,788 1,516,598 1,516,598
Notes receivable from affiliates.................. 62,578 83,917 -- --
Other receivables................................. 136,698 38,461 65,643 65,643
Inventory......................................... 4,740,004 8,182,542 13,426,661 13,426,661
Prepaid expenses and other assets................. 34,169 695,076 450,302 450,302
Deferred income tax assets........................ -- -- -- 245,000
------------- ------------- ------------- -------------
Total current assets.......................... 11,375,021 25,111,371 22,468,607 22,713,607
Property, plant and equipment, net.................. 6,080,632 19,815,544 31,726,932 31,726,932
Intangibles and other long-term assets, net......... 303,525 1,035,667 2,539,109 2,539,109
------------- ------------- ------------- -------------
Total............................................... $ 17,759,178 $ 45,962,582 $ 56,734,648 $ 56,979,648
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 3,462,396 $ 7,106,060 $ 6,357,068 $ 6,357,068
Accrued expenses.................................. 1,242,087 2,073,702 5,130,155 5,130,155
Operating line of credit.......................... 4,672,938 13,524,805 10,279,163 10,279,163
Notes payable..................................... -- -- 6,064,077 6,064,077
Other current liabilities......................... 150,000 125,026 560,881 560,881
Shareholder note payable.......................... -- 256,061 235,858 3,844,858
Current portion of long-term debt................. 1,021,508 1,998,192 2,285,535 2,285,535
------------- ------------- ------------- -------------
Total current liabilities..................... 10,548,929 25,083,846 30,912,737 34,521,737
Long-term debt, net of current portion.............. 4,689,437 14,589,346 18,326,210 18,326,210
Deferred income tax liabilities..................... -- -- -- 1,175,000
------------- ------------- ------------- -------------
Total liabilities............................. 15,238,366 39,673,192 49,238,947 54,022,947
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 1,951,593 3,230,249
Deferred compensation--stock options.............. -- (4,868) (4,543) (4,543)
Retained earnings................................. 1,784,420 4,599,327 5,548,651 (269,005)
------------- ------------- ------------- -------------
Total shareholders' equity.................... 2,520,812 6,289,390 7,495,701 2,956,701
------------- ------------- ------------- -------------
Total............................................... $ 17,759,178 $ 45,962,582 $ 56,734,648 $ 56,979,648
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------ ----------------------------
1996 1997 1998 1998 1999
------------ ------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenues.................................. $ 9,686,034 $ 23,655,966 $ 44,888,324 $ 14,881,454 $ 18,057,185
Cost of goods sold............................ 8,416,594 17,098,184 31,167,724 9,821,195 12,744,521
------------ ------------- ------------- ------------- -------------
Gross profit................................ 1,269,440 6,557,782 13,720,600 5,060,259 5,312,664
Operating expenses:
Product development......................... 792 150,691 495,235 104,200 225,267
Sales and marketing......................... 31,517 619,520 2,508,818 710,749 758,823
General and administrative.................. 1,300,278 2,342,165 2,983,035 1,143,738 2,317,035
------------ ------------- ------------- ------------- -------------
Total operating expense................. 1,332,587 3,112,376 5,987,088 1,958,687 3,301,125
------------ ------------- ------------- ------------- -------------
Income (loss) from operations................. (63,147) 3,445,406 7,733,512 3,101,572 2,011,539
Other expense:
Interest expense............................ 484,436 792,932 1,358,328 519,595 1,047,505
Other expense............................... 10,774 111,424 138,669 97,620 7,410
------------ ------------- ------------- ------------- -------------
Net other expense....................... 495,210 904,356 1,496,997 617,215 1,054,915
------------ ------------- ------------- ------------- -------------
Net income (loss) before minority interest.... (558,357) 2,541,050 6,236,515 2,484,357 956,624
Minority interest............................. -- -- 3,519 -- --
------------ ------------- ------------- ------------- -------------
Net income (loss)............................. $ (558,357) $ 2,541,050 $ 6,240,034 $ 2,484,357 $ 956,624
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
Net income (loss) per common share:...........
Basic....................................... $ (0.06) $ 0.27 $ 0.66 $ 0.26 $ 0.10
Diluted..................................... $ (0.06) $ 0.27 $ 0.66 $ 0.26 $ 0.10
Shares used in calculation of net income
(loss) per share:...........................
Basic....................................... 9,022,987 9,357,801 9,412,497 9,392,274 9,522,798
Diluted..................................... 9,022,987 9,357,801 9,435,777 9,392,274 9,695,505
Pro forma data (unaudited):
Net income (loss)........................... $ (558,357) $ 2,541,050 $ 6,240,034 $ 2,484,357 $ 956,625
Pro forma provision (benefit) for income
taxes..................................... (199,314) 900,200 2,343,193 932,876 366,129
------------ ------------- ------------- ------------- -------------
Pro forma net income (loss)................. $ (359,043) $ 1,640,850 $ 3,896,841 $ 1,551,481 $ 590,496
------------ ------------- ------------- ------------- -------------
------------ ------------- ------------- ------------- -------------
Pro forma net income per common share:......
Basic..................................... $ 0.40 $ 0.06
------------- -------------
Diluted................................... $ 0.40 $ 0.06
------------- -------------
Shares used in calculation of pro forma net
income per share:.........................
Basic..................................... 9,792,697 9,883,698
------------- -------------
------------- -------------
Diluted................................... 9,815,977 10,056,405
------------- -------------
------------- -------------
</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
Common stock warrants................. 174,360 174,360
Noncash compensation--stock options... 325 325
Shareholder distributions............. (7,300) (7,300)
Net income............................ 956,624 956,624
------------ ------------ ------------- ------------- -------------
Balance, June 30, 1999
(unaudited)........................... 9,522,800 $ 1,951,593 $ (4,543) $ 5,548,651 $ 7,495,701
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED
----------------------------------------- JUNE 30,
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 $ 2,484,357 $ 956,625
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating
activities:
Depreciation................................ 423,359 677,171 973,762 329,994 857,876
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) 1,633,577 7,734,801
Other receivables......................... 9,728 (138,570) 98,237 106,488 (27,182)
Inventory................................. (1,895,620) (2,150,004) (3,467,090) (3,443,273) (5,244,119)
Prepaid expenses and other current
assets.................................. (34,690) 4,045 (660,907) (118,646) 244,774
Intangibles and other long-term assets.... (116,831) (133,314) (862,686) (2,521,406) (1,526,597)
Accounts payable.......................... 1,715,238 204,181 3,643,664 747,325 (748,991)
Accrued expenses.......................... 311,491 734,062 831,615 102,069 3,056,453
Other current liabilities................. 102,383 47,617 (24,974) (131,947) 74,536
----------- ------------- ------------- ------------- -------------
Net cash used by operating activities... (1,035,089) (1,931,828) (1,731,646) (699,789) 5,401,656
Investing activities:
Purchase of property and equipment............ (1,610,877) (2,693,302) (15,216,599) (3,580,313) (12,686,962)
Proceeds from sale of fixed assets............ 7,343 30,669 701,729 (2,940) --
Advances on notes receivable.................. (208,990) (93,003) (1,429,165) (213,982) (34,697)
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) (3,797,235) (12,721,659)
Financing activities:
Proceeds from long-term debt.................. 4,551,319 1,862,508 17,149,307 8,623,826 5,062,149
Payments on long-term debt.................... (1,882,550) (587,085) (6,016,653) (4,682,763) (1,037,942)
Proceeds from operating line, net............. 194,554 3,578,751 8,851,867 2,225,744 (3,245,642)
Capital contributions......................... 147,000 150,000 757,000 --
Shareholder distributions..................... (202,240) (319,663) (3,425,127) (1,658,032) (7,300)
Proceeds from short-term debt................. 150,000 6,560,930
----------- ------------- ------------- ------------- -------------
Net cash provided by financing
activities............................ 2,808,083 4,684,511 17,316,394 4,658,775 7,332,195
----------- ------------- ------------- ------------- -------------
Net increase (decrease) in cash and cash
equivalents................................... 5,304 91,188 (78,735) 161,751 12,192
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 $ 275,222 $ 46,928
----------- ------------- ------------- ------------- -------------
----------- ------------- ------------- ------------- -------------
Supplemental disclosures
Cash paid:
Interest paid................................. $ 485,790 $ 782,245 $ 1,368,383 $ 592,602 $ 1,047,505
Noncash financing and investing activities:
Common stock issued for land.................. $ -- $ -- $ 195,048 $ -- $ 82,302
Property contributed to JB Tool, LLC.......... 3,519
Warrants issued with debt..................... 174,360
</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 June 30, 1999 were approximately $3,609,000. 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 accumulated adjustment account,
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 June 30, 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......................................... 9,522,798 9,695,505
Effect of dilutive shares - number of shares required to pay S Corporation
Distribution, estimated to be $3,609,000 at $10.00 per share......................... 360,900 360,900
---------- ------------
Pro forma weighted average shares outstanding.......................................... 9,883,698 10,056,405
---------- ------------
</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, PERIOD
---------------------------------- ENDED
1996 1997 1998 JUNE 30, 1999
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Number of shares:
Common shares -- basic.................................... 9,022,987 9,357,801 9,412,497 9,522,798
Effect of dilutive securities -- stock options............ -- -- 23,280 172,707
---------- ---------- ---------- -------------
Common shares -- diluted.................................... 9,022,987 9,357,801 9,435,777 9,695,505
---------- ---------- ---------- -------------
---------- ---------- ---------- -------------
</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 June
30, 1999, and for the six-month periods ended June 30, 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 six-month period ended June 30, 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
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)
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, 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>
JUNE 30,
1996 1997 1998 1999
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
Sales to:
Customer A.......................................... 31.9% 60.2% 40.5%
Customer B.......................................... 10.5% 21.5% 17.2% 36.0%
Customer C.......................................... 63.6% 25.6% 14.5% 10.9%
Customer D.......................................... 17.0%
Customer E.......................................... 16.4%
--------- --------- --------- -----
90.5% 96.0% 91.9% 87.4%
All other customers................................... 9.5% 4.0% 8.1% 12.6%
--------- --------- --------- -----
100.0% 100.0% 100.0% 100.0%
--------- --------- --------- -----
--------- --------- --------- -----
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1997 1998 1999
--------- --------- -----------
<S> <C> <C> <C>
Receivables from:
Customer A.................................................... 82.5% 74.1% 43.3%
Customer B.................................................... 10.4% 11.2% 32.8%
--------- ---------
92.9% 85.3% 76.1%
All other customers............................................. 7.1% 14.7% 23.9%
--------- --------- -----
100.0% 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, JUNE 30,
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Inventory
Component parts/raw materials............... $ 3,644,399 $ 5,770,617 $ 6,896,861
Work in progress............................ 519,664 1,257,704 3,308,032
Finished goods.............................. 570,599 1,043,179 2,693,360
Supplies inventory.......................... 5,342 111,042 528,408
------------- ------------- -------------
$ 4,740,004 $ 8,182,542 $ 13,426,661
------------- ------------- -------------
------------- ------------- -------------
Property, Plant and Equipment
Buildings and leasehold improvements........ $ 1,422,511 $ 4,438,668 $ 5,475,816
Land and land improvements.................. 189,721 595,329 889,853
Plant, tooling, packaging equipment......... 4,751,812 9,763,618 12,295,004
Office equipment and furniture.............. 568,088 1,340,603 1,837,023
Vehicles.................................... 264,123 376,465 386,949
------------- ------------- -------------
7,196,255 16,514,683 20,884,645
Accumulated depreciation.................... (1,484,475) (2,349,407) (3,202,681)
------------- ------------- -------------
5,711,780 14,165,276 17,681,964
Construction in progress.................... 326,841 -- 2,030,446
Machinery in progress....................... 42,011 5,650,268 12,014,522
------------- ------------- -------------
$ 6,080,632 $ 19,815,544 $ 31,726,932
------------- ------------- -------------
------------- ------------- -------------
</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 June 30, 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............. $(1,175,000)
----------
Total deferred tax liabilities.................................. $(1,175,000)
----------
----------
</TABLE>
Deferred tax assets:
<TABLE>
<S> <C>
Inventory obsolescence reserve.................................... $ 158,000
Accrued vacation and wages........................................ 74,000
Deferred compensation............................................. 11,000
Allowance for bad debt............................................ 2,000
---------
Total deferred tax assets......................................... $ 245,000
---------
---------
</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 with The Stanley Works
that grants the exclusive license to their nationally known brand name for all
power tool accessories for a contracted royalty rate. The Company is the
licensee and will pay a royalty to the licensor, Stanley, based on sales.
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. This equipment is being 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 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
F-20
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
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 greater 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 $174,600. 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.
On June 7, 1999, the Company closed a short-term uncollateralized note with
First Security Bank for $500,000. The note is due either at the closing of a
long term facility with First Security Bank or October 1999, whichever is
earlier.
From July 14 to Aug. 9, 1999, the Company closed short-term loans with
various unrelated parties for a total of $7,390,000. Rates range from 6.5% to 7%
plus warrants to purchase 325,600 shares of the Company's common stock at $9.10
to $10.00 per share. $6,890,000 is payable on the earlier of January 1, 2000 or
five days after the closing of an IPO and $500,000 is payable on the earlier of
July 13, 2000 or five days after the closing of an IPO. The warrants expire
three years from the date of grant, and have an estimated fair value of
$272,198. 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.
On August 19, 1999, the Company closed a new financing facility with First
Security Bank. The total facility has a maximum borrowing limit of $25 million
dollars. The term of the agreement is through August 2001. Interest on the line
is prime plus 1%, or, at the Company's option, it may elect LIBOR plus 3% for
limited principal portions. Advances on the line are limited to 85% of eligible
accounts receivable and 65% of eligible inventory. Approximately $8 million of
the line will be used for short term real estate financing.
SUBSEQUENT EQUITY TRANSACTIONS:
On January 1, 1999 the Company issued 14,256 shares of stock in exchange for
land.
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.
F-21
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
LITIGATION:
On August 16, 1999, Pete K. Block and Paul K. Block instituted separate
actions in Montana District Court against the Company, Matthew Jore individually
and dba Jore Enterprises, Michael Jore and Merle Jore. In their complaints, the
Blocks allege among other things, that they are collectively entitled to a 25%
interest in the capital stock of Jore Enterprises and any successor corporation.
Their lawsuits are based in part upon an agreement, dated October 10, 1989,
between the Blocks and Matthew, Michael and Merle Jore pursuant to which the
Blocks contend that Matthew, Michael and Merle Jore agreed to issue them shares
of stock of Jore Enterprises and any successor corporation and grant them a
collective 25% interest in all patent rights, profits and real and personal
property. The Blocks seek as remedies dissolution of the Company and a
preliminary injunction preventing the Company from proceeding with its initial
public offering. In addition, the Blocks have alleged that they have suffered
damages of not less than $10 million and are seeking compensatory damages, plus
interest, punitive damages, attorneys' fees and costs, and injunctive relief
preventing any capital reorganization or sale that would cause them each not to
be 12.5% owners of the equity of Jore Enterprises and any successor corporation.
The Company intends to answer the complaint. The Company will vigorously
defend against the claims, assert affirmative defenses and potentially assert
counterclaims. While the Company believes that it has meritorious defenses and
potential counterclaims to the Blocks' claims, litigation is inherently
uncertain, and there can be no assurance that the Company will prevail in the
suit. To the extent the Company is required to issue shares of common stock as a
result of the suit, the Company would recognize an expense equal to the number
of shares issued multiplied by the fair value of the common stock on the date of
issuance. This could have a material adverse effect on the Company's results of
operations, and any such issuance would be dilutive to existing stockholders. No
estimate of the possible range of loss can be made at this time.
F-22
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4,000,000 SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT LLC
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 July 27, 1999, we granted stock options to
purchase 913,628 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.
Between April and August 1999, we issued to 31 accredited investors
approximately $14.4 million aggregate principal amount of subordinate debt
bearing interest at rates ranging from 6.5% to 7.0% per annum. Of this debt,
$3.7 million in principal amount will mature on the earlier of December 1, 1999
or within five days following the closing of this offering; $8.9 million in
principal amount will mature on the earlier of January 1, 2000 or within five
days after the closing of this offering; $750,000 in principal amount will
mature on December 1, 1999; and the balance will mature beginning in April 2000.
In connection with the issuance of the debt, we also issued warrants to
purchase, on a pro-rata basis, an aggregate of 599,333 shares of common stock at
an exercise price from $9.10 to $10.00 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 under Rule 506 of 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.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
3.2** Bylaws.
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.
10.21+ Sales and Marketing Agreement, dated January 1, 1999, between Jore Corporation and Manufacturers'
Sales Associates, LLC.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <S>
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.
10.31 Credit Agreement, dated August 19, 1999, between First Security Bank, N.A. and Jore Corporation.
10.32 Indemnity Agreement, dated September 14, 1999, between Matthew B. Jore, Michael W. Jore, Merle B.
Jore, The Michael Jore Family Trust, the Matthew Jore Family Trust and the Merle and Fay Jore Family
Trust.
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 & Haddon P.C.
23.3* Consent of Deloitte & Touche LLP.
24.1** Power of Attorney.
24.2** Power of Attorney.
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 September 14, 1999.
<TABLE>
<S> <C> <C>
JORE CORPORATION
By: *
-----------------------------------------
Matthew B. Jore
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
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 September 14, 1999
Matthew B. Jore Officer)
Chief Financial Officer
/s/ DAVID H. BJORNSON and Director (Principal
- ------------------------------ Financial and Accounting September 14, 1999
David H. Bjornson Officer)
- ------------------------------ Executive Vice President September 14, 1999
Michael W. Jore and Director
- ------------------------------ Director September 14, 1999
Thomas E. Mahoney
- ------------------------------ Director September 14, 1999
Bruce Romfo
- ------------------------------ Director September 14, 1999
William M. Steele
- ------------------------------ Director September 14, 1999
James P. Mathias
- ------------------------------ Director September 14, 1999
Blaine Huntsman
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ DAVID H. BJORNSON
------------------------- September 14, 1999
David H. Bjornson
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
[VAN VALKENBERG FURBER LAW GROUP P.L.L.C. LETTERHEAD]
September 15, 1999
Jore Corporation
45000 Highway 93
Ronan, Montana 59864
Ladies and Gentlemen:
We have acted as counsel to Jore Corporation, a Montana corporation
(the "Company") in connection with the proceedings for the authorization,
issuance and proposed sale by the Company and Merle Jore (the "Selling
Shareholder") of up to 4,000,000 shares (the "Offered Shares") of the
Company's common stock, without par value per share (the "Common Stock"),
together with an additional 600,000 shares of Common Stock if and to the
extent the underwriters exercise an over-allotment option granted by the
Company (the "Over-Allotment Shares"), and the preparation and filing of a
registration statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), which you are
filing with the Securities and Exchange Commission with respect to the
Offered Shares and the Over-Allotment Shares (collectively, the "Shares").
We have examined the Registration Statement and such documents and
records of the Company and other documents as we have deemed necessary for
the purpose of this opinion. Based upon the foregoing, we are of the opinion
that upon the happening of the following events:
(a) the filing and effectiveness of the Registration Statement and any
amendments thereto,
(b) due execution by the Company and registration by its registrar of the
Shares,
(c) the offering and sale of the Shares as contemplated by the
Registration Statement, and
(d) receipt by the Company and the Selling Shareholder of the
consideration required for the Shares contemplated by the
Registration Statement,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as an exhibit to
the Registration Statement and any amendment thereto, including any and all
post-effective amendments and any registration statement relating to the same
offering that is to be
<PAGE>
September 15, 1999
Page 2
effective upon filing pursuant to Rule 462(b) under the Securities Act, and
to the reference to our firm in the Prospectus of the Registration Statement
under the heading "Legal Matters." In giving such consent, we do not thereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act.
Very truly yours,
/S/ Van Valkenberg Furber Law Group P.L.L.C.
<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>
EXHIBIT 10.21 AS INDICATED BY "***", PURSUANT TO A REQUEST FOR CONFIDENTIAL
TREATMENT, AND HAS BEEN FILED SEPARATELY WITH THE COMMISSION.
SALES AND MARKETING AGREEMENT
THIS AGREEMENT ("Agreement") is made and entered into as of January 1,
1999, by and between JORE CORPORATION, a Montana corporation ("Jore"), having
a principal place of business at 45000 Highway 93 South, Ronan, Montana
59864, and MANUFACTURERS' SALES ASSOCIATES, LLC, an Illinois limited
liability company ("Sales Rep"), having a principal place of business at
277 Sandy Point Lane, Lake Zurich, IL 60047.
RECITALS:
WHEREAS, Jore is the manufacturer and developer of certain products and
is desirous to have those products marketed and sold in certain markets; and
WHEREAS, Sales Rep has experience in marketing and sales, and wishes to
contract with Jore to assist in its sales and marketing efforts; and
WHEREAS, subject to the terms and conditions herein, the parties desire
that Jore contract with Sales Rep to assist in its efforts to market and sell
Jore products to certain markets.
NOW THEREFORE, in consideration of the covenants set forth herein, the
parties agree as follows:
AGREEMENTS
CONTRACT. Subject to the terms and conditions set forth herein, Jore
hereby agrees to contract with Sales Rep to assist Jore in its efforts to
market and sell certain Jore products in certain markets on an exclusive
basis. The types of Jore products covered by this Agreement are limited to
those items listed on Schedule A to this Agreement (the "Products"). Jore may
amend this Agreement to include additional products that may be developed in
the future at Jore's sole discretion.
EXCLUSIVITY LIMITATION. The exclusivity of this arrangement is limited
to those geographical areas set forth on Schedule B and mutually agreed to
hereunder (the "Territory"), and within the Territory, to those businesses or
persons listed on Schedule B (to be designated as "Commissioned Customers").
The nature of the exclusivity is such that Jore will pay a commission to
Sales Rep (as provided herein) on all Products sold to Commissioned
Customers. Jore reserves the right to not distribute its Products to certain
customers in its sole discretion. Jore is not precluded from entering into
direct or indirect marketing arrangements with customers other than
Commissioned Customers within the Territory, upon which no commission would
be due to Sales Rep (i.e., other than those reflected on Exhibit B-1).
However, it is the intent of Jore that, during the term of this Agreement, if
a Commissioned Customer fails to reasonably develop the commercial potential
of a market or discontinues marketing Jore products that Jore has the right
to demand that other customers be developed to achieve distribution in the
former customer's market. Sales Rep will be paid a commission on such sales
only if it assists in the establishment and growth of such new customer.
COMMISSIONS. As compensation for services rendered hereunder, Jore
agrees to pay Sales Rep a commission of a certain percentage of NET receipts
on all sales to Commissioned Customers, net of applicable discounts and sales
and marketing allowances. The applicable commission rates may
- -------------------------------------------------------------------------------
DISTRIBUTOR LICENSE AGREEMENT PAGE 1
<PAGE>
differ according to the niche industry or distribution chain within which
each Commissioned Customer is situated, and is detailed on Schedule B, as it
may be amended from time to time. The commissions shall be deemed earned when
Jore receives payment on the invoice which was rendered by Jore on such sales.
Jore shall provide Sales Rep with duplicate copies of all invoices for sales
generated for Commissioned Customers, and will, on a monthly basis, within
thirty (30) days of the end of the prior month, issue a commission statement,
reflecting all invoices rendered, all shipments made, and all collections of
receivables upon which the commissions are payable. Payment of the
commissions shall accompany the statement.
TERM. This Agreement shall commence as of the date hereof and shall
terminate on December 31, 2003, unless renewed by the parties for an
additional 5 year term. This Agreement shall terminate upon notice by either
party at least sixty (60) days in advance of the intended termination date.
In the event of termination, it is agreed that Sales Rep shall have earned,
and shall be paid, commissions on all sales against orders and order
commitments made by or through Sales Rep during the term of this Agreement,
irrespective of whether the products are shipped and the receivables are
collected after the effective termination date.
ASSIGNABILITY. Sales Rep may not assign its rights under this Agreement
to another party without the prior written consent of Jore, in its sole
discretion.
CONTACT REPORTS. Both parties to this Agreement will update and keep
current the other party with written reports generally describing the current
status of relevant marketing development efforts with Commissioned Customers,
and with potential Commissioned Customers within the Territory. Sales Rep
will, within thirty (30) days of its occurrence, report to Jore each contact
made with a business or person that may become designated as a Commissioned
Customer so that Jore may maintain the exclusivity described above. Each
party will provide the other party with copies of material correspondence
associated with relevant market activities.
DILIGENCE. Sales Rep and Jore shall use their best efforts to develop
and market Jore products for the Territory as is commercially reasonable.
Sales Rep covenants to exercise due diligence and good faith efforts
commensurate with its role as the primary sales organization for Jore, and
commensurate with the substantial volume of sales and commissions which will
be subject to this Agreement, and with the large percentage of sales of Sales
Rep that it is anticipated Jore sales will represent. Jore expects that Sales
Rep will devote a SUBSTANTIAL amount of its resources and attention to Jore
sales and Products. Jore and Sales Rep will review the due diligence and best
efforts on a semi-annual basis, and each will have an opportunity to appraise
and comment.
MANUFACTURE. Sales Rep will not market, make or cause to have made
licensed Jore products as listed on Attachment A (except by Jore) or products
similar to Jore Products as listed on Attachment A during the term of this
Agreement. Jore does not grant Sales Rep the right to make or have Jore
products made.
PATENT MATTERS. Jore will have sole responsibility and discretion as to
maintenance of patent rights in all territories for Jore Products. In the
event Sales Rep or Jore becomes aware of (i) any infringement of any patent
rights by a third party related to Jore products; or (ii) any claim alleging
that a Jore product infringes any patent of a third party; or (iii) any legal
action brought by any third party for the purpose of invalidating any patent
related to Jore products; that party shall promptly notify the other party in
writing. Jore shall assume the primary responsibility for the conduct of the
defense of any suit alleging patent infringement in connection with the
manufacture, use
- -------------------------------------------------------------------------------
DISTRIBUTOR LICENSE AGREEMENT PAGE 2
<PAGE>
or sale of a Jore product and shall indemnify and hold Sales Rep harmless
against any damages, costs, fees and expenses resulting from any such claim.
Jore shall bear the costs of the defense of such suits. Upon the reasonable
request of Jore, Sales Rep shall assist Jore and cooperate with Jore in the
defense of any such litigation.
INDEPENDENT CONTRACTORS. In making and performing this Sales and
Marketing Agreement, Sales Rep and Jore act and shall act at all times as
independent contractors and nothing contained in this Agreement shall be
construed or implied to create and agency, partnership or employer
relationship between Sales Rep and Jore. At no time shall one party make
commitments or incur any charges or expenses for or in the name of the other
party except as specifically provided herein.
INDEMNIFICATION. Each party shall be responsible for the safety of its
own employees and agents with respect to the handling or use of any of the
Products involved in this Agreement. Jore agrees to indemnify and hold Sales
Rep harmless from any liability for property damage, personal injuries
(including death) or expense (including reasonable attorney's fees) resulting
from or in connection with any claims relating to the manufacturing of a Jore
licensed product distributed or sold by Sales Rep to third parties pursuant
to this Agreement, except to the extent such property damage or personal
injury (including death) is caused, directly or directly, by the negligence,
error or willful misconduct of Sales Rep.
NO CONSEQUENTIAL DAMAGES. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR
SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THIS AGREEMENT OR
THE EXERCISE OF RIGHTS HEREUNDER.
WARRANTY. Jore is committed to producing quality products and values its
customer's satisfaction. Therefore, any product manufactured by Jore which
fails to render satisfactory service due to defect in workmanship or material
will be refunded, repaired or replaced at Jore's option, at no charge to the
using purchaser. This warranty does not apply to any products which have been
misused, abused, or altered in any way, or worn out from use. To obtain
performance of this warranty, the Product must be returned, freight prepaid,
to Jore.
IN NO EVENT SHALL JORE BE LIABLE FOR ANY INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES FROM THE SALE OR USE OF JORE PRODUCTS.
THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED,
WHETHER FOR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE.
This Warranty provides the purchaser of Jore products specific legal
rights, and such purchaser may also have other rights which vary from state
to state and country to country. Some states or countries do not allow the
exclusion or limitation of incidental or consequential damages, so the above
limitations or exclusion may not apply in those states or countries. Some
states or countries do not allow limitation on how long implied warranty
lasts, so the above limitation my not apply in those states or countries.
No attempt to alter, amend or extend this warranty shall be effective
unless authorized in writing by an officer of Jore. Jore neither assumes, nor
authorizes any person to assume for it, any other warranty express or implied.
- -------------------------------------------------------------------------------
DISTRIBUTOR LICENSE AGREEMENT PAGE 3
<PAGE>
DISCLAIMER. Jore reserves the right to make changes or improvements on
any Product without incurring any obligation and without being required to
make any corresponding changes or improvements on Products previously sold,
and to discontinue models or change specifications at any time. If Jore does
decide to make significant changes or improvements to a licensed Product,
Jore will notify Sales Rep of such change within a reasonable time.
GOVERNING LAW AND JURISDICTION. This Agreement shall be interpreted and
construed in accordance with the laws of the State of Montana.
SEVERABILITY. If any term, condition or provision of this Agreement is
held to be unenforceable for any reason, it shall, if possible, be
interpreted rather than voided, in order to achieve the intent of the parties
to this Agreement to the extent possible. In any event, all other terms,
conditions and provisions of this Agreement shall remain valid and
enforceable to the full extent.
ADDITIONAL DOCUMENTS. From time to time, either party shall, at the
request of the other party, execute such further documents or agreements or
take such additional actions as the other party may reasonably request to
effect the purpose of this Agreement.
AMENDMENT. No amendment or modification hereof shall be valid or binding
upon the parties unless made in writing and signed by both parties.
ENTIRE AGREEMENT. This Agreement embodies the entire understanding of
the parties and shall supersede all previous communications, representations
or understandings, either oral or written, between the parties relating to
the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
respective officers hereunto duly authorized, as of the day and year first
above written.
JORE CORPORATION MANUFACTURERS' SALES ASSOCIATES, LLC
By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE]
------------------------------- --------------------------------
Title: President Title: Managing Member
---------------------------- -----------------------------
- -------------------------------------------------------------------------------
DISTRIBUTOR LICENSE AGREEMENT PAGE 4
<PAGE>
SCHEDULE A
TO
SALES AND MARKETING AGREEMENT
DESCRIPTION OF LICENSED JORE PRODUCTS
*** sold to Commissioned Customers (as defined herein) for retail
distribution.
<PAGE>
SCHEDULE B
TO
SALES AND MARKETING AGREEMENT
TERRITORY GRANTED EXCLUSIVITY
***
TERRITORY NOT GRANTED EXCLUSIVITY
Anywhere where Jore has executed an Exclusive Licensing Agreement -
currently NONE
COMMISSIONED CUSTOMERS:
***
APPLICABLE COMMISSIONS:
***
<PAGE>
FIRST AMENDMENT TO SALES AND MARKETING AGREEMENT
THIS FIRST AMENDMENT TO SALES AND MARKETING AGREEMENT is made and
entered into as of June 1, 1999, by and between Jore Corporation ("Jore") and
Manufacturers' Sales Associates, LLC ("Sales Rep").
RECITALS
A. The parties entered into a sales and marketing agreement as of
January 1, 1999 (the "Agreement"), under which Sales Rep is to perform
certain services and is to be compensated by Jore under a certain commission
schedule on certain sales.
B. The parties desire to modify the Agreements and understandings as to
the commissioned products, the commissioned customers and the commission
rates.
AMENDMENTS
1. AMENDMENT OF SCHEDULES. Schedules A, B, and B-1 are hereby amended in
their entirety to be reflected to the extent modified hereto.
2. REMAINING PROVISIONS. All remaining provisions of the Agreement shall
remain in full force and effect except to the extent modified hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
respective officers or managers duly authorized, as of the day and year first
above written.
JORE CORPORATION
By:
--------------------------
Its
--------------------------
MANUFACTURERS' SALES ASSOCIATES, LLC
By:
--------------------------
Its Managing Member
2
<PAGE>
SCHEDULE A
TO
SALES AND MARKETING AGREEMENT
DESCRIPTION OF LICENSED JORE PRODUCTS
*** sold to Commissioned Customers (as defined herein) for retail
distribution.
3
<PAGE>
SCHEDULE B
TO
SALES AND MARKETING AGREEMENT
TERRITORY GRANTED EXCLUSIVITY
***
TERRITORY NOT GRANTED EXCLUSIVITY
Anywhere where Jore has executed an Exclusive Licensing Agreement -
currently NONE
COMMISSIONED CUSTOMERS:
***
APPLICABLE COMMISSIONS:
***
4
<PAGE>
"EXHIBIT B-1"
Jore Corporation Top 20 Customers for 1998
Sears, Roebuck and Co Black & Decker
3333 Beverly Road 626 Hanover Pike
Hoffman Estates IL 60179 Hampstead MD 21074
Phone: A/P (214) 265-3380 Phone: (410) 239-5000
Purchasing (847) 286-3522
Makita USA Sears Canada
14930-C Northern Street 222 Jarvis Street 3rd Floor
La Mirada CA 90638 Toronto ON M5B 2B8
Phone: (714) 522-8088 Phone: A/P (416) 941-9155
A/P: ext 4226 Purchasing: (416) 941-2317
Purchasing: ext 4274
QVC, Inc Sears International
1365 Enterprise Drive 3333 Beverly Road
West Chester PA 19380 Hoffman Estates IL 60179
Phone: (610) 701-1000 Phone: (847) 286-7482
Orchard Supply Black & Decker Canada
PO Box 49024 100 Central Avenue
San Jose CA 95161-9024 Brockville ON K6V 5W6
Phone: (408) 365-2751 Phone: (905) 764-4647
Western Auto Supply * * *
4650 S Gn Bruce
Temple TX 76503
Phone: (816) 346-4000
Decatur Hopkins
800 John Quincy Adams Road
Myles Standish Industrial Park
Taunton MA 02780
Phone: (508) 824-8650 x244
5
<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 2020DPC, only to JORE and to no other persons or
entities. The 2020DPC 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 2020DPC MACHINE. During the term hereof, JORE
shall order a minimum of 15 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 $350,000 per 2020DPC 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. 60
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
<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 15 of the 2020DPC 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
<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 1,000,000.
Such sum shall be payable as follows: On September 10, 1999, one
installment of $400,000, and installments of $200,000 per year beginning on
the day that is one year from the date hereof, and continuing for 2
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.
<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>
CREDIT AGREEMENT
BETWEEN
FIRST SECURITY BANK, N.A.
AND
JORE CORPORATION
DATED
AUGUST 19, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 - DEFINITIONS...........................................................................................1
ARTICLE 2 - LOANS AND TERMS OF PAYMENT............................................................................9
2.1 REVOLVING LINE OF CREDIT........................................................................9
2.1.1 MANNER OF REQUESTING....................................................................9
2.2 INTEREST ON THE REVOLVING LINE OF CREDIT.......................................................10
2.3 REVOLVING NOTE.................................................................................11
2.4 REPAYMENT OF REVOLVING LINE OF CREDIT..........................................................11
2.4.1 METHOD OF PAYMENT......................................................................11
2.4.2 LATE CHARGES AND DEFAULT INTEREST......................................................12
2.4.3 PREPAYMENTS............................................................................12
2.5 COMMITMENT FEE.................................................................................12
2.6 DOCUMENTATION FEE..............................................................................12
2.7 USE OF PROCEEDS OF REVOLVING LINE OF CREDIT....................................................12
2.8 ADDITIONAL INTEREST RATE PROVISIONS............................................................13
2.9 LIBOR LOAN EXTENSIONS AND CONVERSIONS..........................................................14
2.10 FUNDING LOSS INDEMNIFICATION...................................................................14
2.11 TAXES ON PAYMENTS..............................................................................14
ARTICLE 3 - SECURITY INTEREST....................................................................................15
3.1 GRANT OF SECURITY INTEREST.....................................................................15
3.2 FINANCING STATEMENTS...........................................................................15
ARTICLE 4 - CONDITIONS PRECEDENT.................................................................................16
4.1 INITIAL ADVANCE................................................................................16
4.1.1 REVOLVING NOTE.........................................................................16
4.1.2 SECURITY AGREEMENTS....................................................................16
4.1.3 GUARANTY...............................................................................16
4.1.4 EVIDENCE OF INSURANCE..................................................................16
4.1.5 OPINION OF COUNSEL FOR BORROWER AND JB TOOL............................................16
4.1.6 EVIDENCE OF ALL CORPORATE ACTION BY BORROWER AND JB TOOL...............................16
4.1.7 CERTIFICATES OF EXISTENCE FOR BORROWER AND JB TOOL.....................................17
4.1.8 ARTICLES OF INCORPORATION AND BYLAWS OF BORROWER.......................................17
4.1.9 ARTICLES OF ORGANIZATION AND OPERATING AGREEMENT OF JB TOOL............................17
4.1.10 CERTIFICATES OF ASSUMED BUSINESS NAME..................................................17
4.1.11 LETTER TO ACCOUNTANTS..................................................................17
4.1.12 PUBLIC RECORD SEARCHES.................................................................17
4.1.13 EVIDENCE OF TERMINATION OF LIENS.......................................................18
- 2 -
<PAGE>
4.1.14 PAYMENT OF DOCUMENTATION FEE...........................................................18
4.1.15 ADDITIONAL DOCUMENTS...................................................................18
4.2 ALL ADVANCES...................................................................................18
4.3 MORTGAGEE CONDITIONS PRECEDENT. ...............................................................18
4.3.1 MORTGAGE...............................................................................19
4.3.2 TITLE INSURANCE POLICY.................................................................19
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES.......................................................................19
5.1 INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION............................................19
5.2 CORPORATE POWER AND AUTHORITY..................................................................19
5.3 LEGALLY ENFORCEABLE AGREEMENT..................................................................20
5.4 OTHER AGREEMENTS...............................................................................20
5.5 NO LITIGATION..................................................................................20
5.6 NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS.................................................20
5.7 FINANCIAL STATEMENTS...........................................................................20
5.8 EMPLOYEE BENEFITS..............................................................................21
5.9 LABOR DISPUTES AND CASUALTIES..................................................................21
5.10 OPERATION OF BUSINESS..........................................................................21
5.11 ENVIRONMENTAL MATTERS..........................................................................21
5.12 OWNERSHIP AND LIENS............................................................................22
5.13 TAXES..........................................................................................22
5.14 INVESTMENT COMPANY ACT.........................................................................22
5.15 ACCURACY OF REPRESENTATIONS....................................................................22
5.16 YEAR 2000 COMPLIANCE...........................................................................23
5.17 PERFECTION OF SECURITY INTEREST................................................................23
5.18 CONTINUING WARRANTIES, REPRESENTATIONS AND COVENANTS...........................................23
ARTICLE 6 - AFFIRMATIVE COVENANTS................................................................................23
6.1 MAINTENANCE OF EXISTENCE.......................................................................24
6.2 MAINTENANCE OF RECORDS.........................................................................24
6.3 MAINTENANCE OF PROPERTIES......................................................................24
6.4 CONDUCT OF BUSINESS............................................................................24
6.5 MAINTENANCE OF INSURANCE.......................................................................24
6.6 COMPLIANCE WITH LAWS...........................................................................25
6.7 RIGHT OF INSPECTION............................................................................25
6.8 ACCOUNTING.....................................................................................25
6.9 REIMBURSEMENT OF BANK EXPENSES.................................................................25
6.10 LOCATION OF CHIEF EXECUTIVE OFFICE.............................................................25
6.11 REPORTING REQUIREMENTS.........................................................................26
6.11.1 MONTHLY FINANCIAL STATEMENTS...........................................................26
6.11.2 ANNUAL FINANCIAL STATEMENTS............................................................26
- 3 -
<PAGE>
6.11.3 BORROWING BASE CERTIFICATE............................................................26
6.11.4 MANAGEMENT LETTERS....................................................................26
6.11.5 NOTICE OF LITIGATION..................................................................26
6.11.6 NOTICE OF DEFAULTS AND EVENTS OF DEFAULT..............................................26
6.11.7 ERISA REPORTS.........................................................................26
6.11.8 COMPLIANCE CERTIFICATE................................................................27
6.11.9 ANNUAL FORECASTS......................................................................27
6.11.10 GENERAL INFORMATION...................................................................27
6.12 ENVIRONMENT....................................................................................27
6.13 BANK ACCOUNTS..................................................................................28
6.14 YEAR 2000 COMPLIANCE...........................................................................28
ARTICLE 7 - NEGATIVE COVENANTS...................................................................................28
7.1 CHANGE OF NAME.................................................................................28
7.2 MERGERS........................................................................................28
7.3 DEBT...........................................................................................28
7.4 DIVIDENDS......................................................................................29
7.5 SALE OF ASSETS.................................................................................29
7.6 INVESTMENTS....................................................................................29
7.7 GUARANTIES.....................................................................................30
7.8 SUSPENSION OF BUSINESS.........................................................................30
7.9 LIENS..........................................................................................30
7.10 PENSION PLANS..................................................................................30
7.11 CHANGE IN MANAGEMENT...........................................................................30
ARTICLE 8 - FINANCIAL COVENANTS..................................................................................30
8.1 CAPITAL EXPENDITURE............................................................................31
8.2 CURRENT RATIO..................................................................................31
8.3 LEVERAGE RATIO.................................................................................31
8.4 EBITDA COVERAGE RATIO..........................................................................31
ARTICLE 9 - EVENTS OF DEFAULT....................................................................................32
ARTICLE 10 - BANK'S RIGHTS AND REMEDIES..........................................................................34
10.1 SPECIFIC REMEDIES..............................................................................34
10.2 SET OFF........................................................................................35
10.3 NO LIMITATION ON REMEDIES......................................................................35
10.4 BANK EXPENSES..................................................................................35
ARTICLE 11 - WAIVERS.............................................................................................35
11.1 APPLICATION OF PAYMENTS........................................................................35
- 4 -
<PAGE>
11.2 DEMAND AND NOTICES.............................................................................36
ARTICLE 12 - NOTICES.............................................................................................36
ARTICLE 13 - DESTRUCTION OF BORROWER'S DOCUMENTS.................................................................37
ARTICLE 14 - CHOICE OF LAW AND VENUE.............................................................................37
ARTICLE 15 - GENERAL PROVISIONS..................................................................................37
15.1 EFFECTIVE DATE.................................................................................37
15.2 AMENDMENTS.....................................................................................37
15.3 NO WAIVER......................................................................................38
15.4 SUCCESSORS AND ASSIGNS.........................................................................38
15.5 PARTICIPATIONS.................................................................................38
15.6 HEADINGS.......................................................................................39
15.7 CONSTRUCTION...................................................................................39
15.8 SEVERABILITY...................................................................................39
15.9 INTEGRATION....................................................................................39
15.10 INDEMNITY......................................................................................39
15.11 NONLIABILITY OF BANK...........................................................................40
15.12 COUNTERPARTS...................................................................................40
</TABLE>
EXHIBITS TO LOAN AGREEMENT
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT DESCRIPTION
- ----------- -------------------
<S> <C>
1.9 FORM OF BORROWING BASE CERTIFICATE
1.26 FORM OF JB TOOL SECURITY AGREEMENT
1.37 PERMITTED LIENS
1.43 DESCRIPTION OF THE REAL PROPERTY
1.46 FORM OF REVOLVING NOTE
1.47 FORM OF SECURITY AGREEMENT
2.1.1 AUTHORIZED PERSONS
2.1.1.2 LIBOR LOAN REQUEST FORM
4.1.3 FORM OF GUARANTY
4.1.5 FORM OF OPINION OF COUNSEL FOR BORROWER AND GUARANTORS
4.1.11 FORM OF LETTER TO ACCOUNTANTS
5.5 LITIGATION
- 5 -
<PAGE>
7.10 EMPLOYEE BENEFIT PLANS
</TABLE>
- 6 -
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of August 19,
1999, between FIRST SECURITY BANK, N.A. ("Bank") and JORE CORPORATION, a
Montana corporation ("Borrower").
The parties agree as follows:
AGREEMENT
ARTICLE 1 - DEFINITIONS
As used in this Agreement, the following terms shall have
the following definitions:
1.1 "ACCOUNT" means a trade account, account
receivable, or other right to payment for goods sold or leased or for
services rendered (whether or not it has been earned by performance) owing to
Borrower.
1.2 "ACCOUNT DEBTOR" means the person or entity
obligated on an Account.
1.3 "ADJUSTED LIBOR INTEREST RATE" means the rate per
annum equal to the quotient of (i) the London Interbank Offered Rate divided
by (ii) one (1) minus the Eurocurrency Reserve Requirement for the applicable
Interest Period, rounded upward, if necessary, to the nearest one-sixteenth
of one percent. "Eurocurrency Reserve Requirement" means, for any LIBOR Loan
for any Interest Period therefor, the daily average of the stated maximum
rate (expressed as a decimal) at which reserves (including any marginal,
supplemental, or emergency reserves) are required to be maintained by Bank
during such Interest Period under Regulation D of the Board of Governors of
the Federal Reserve System, as amended or supplemented from time to time,
against "Eurocurrency Liabilities" (as such term is used in Regulation D) but
without benefit or credit of proration, exemptions, or offsets that might
otherwise be available to Bank from time to time under Regulation D. Without
limiting the effect of the foregoing, the Eurocurrency Reserve Requirement
shall reflect any other reserves required to be maintained by Bank against
(1) any category of liabilities that includes deposits by reference to which
the Adjusted LIBOR Interest Rate for LIBOR Loans is to be determined; or
(2) any category of extension of credit or other assets that include LIBOR
Loans.
1.4 "AGREEMENT" means this Credit Agreement, as
amended, supplemented, or modified from time to time.
CREDIT AGREEMENT - 7
<PAGE>
1.5 "BANK" means First Security Bank, N.A., its
successors and assigns.
1.6 "BANK EXPENSES" means all costs and expenses
incurred by Bank in connection with the preparation, negotiation, execution,
delivery, filing, and administration of the Loan Documents, and of any
amendment, modification, extension, renewal or supplement to the Loan
Documents, including, without limitation, the fees and out-of-pocket expenses
of counsel for Bank, incurred in connection with advising Bank as to its
rights and responsibilities hereunder and structuring, drafting, reviewing,
amending, or otherwise involving the Loan Documents (not to exceed $_________
through the initial closing of this Agreement), and all costs and expenses,
including court costs, incurred in connection with enforcement of the Loan
Documents, or any amendment, modification, or supplement thereto, whether by
negotiation, legal proceedings, or otherwise.
1.7 "BORROWER" means Jore Corporation, a Montana
corporation.
1.8 "BORROWING BASE" means the amount of the Standard
Borrowing Base, except that upon satisfaction of the Mortgagee Conditions
Precedent in Section 4.3, the amount of the Borrowing Base shall be
temporarily increased by Eight Million Eighty-one Thousand Six Hundred
Eighty-six Dollars ($8,081,686) until February 1, 2000, when the amount of
the Borrowing Base shall be the amount of the Standard Borrowing Base.
1.9 "BORROWING BASE CERTIFICATE" means the certificate
that Borrower is to deliver to Bank twice each month setting forth
information with respect to the Borrowing Base, executed and certified as
accurate by an authorized officer of Borrower. The certificate shall be in
substantially the form attached as EXHIBIT 1.9 or such other form as Borrower
and Bank may agree upon in writing.
1.10 "BUSINESS DAY" means a day other than Saturday or
Sunday and a day on which commercial banks are required to be open for
business in Boise, Idaho, under the laws of the state of Idaho, and, if the
applicable day relates to a LIBOR Loan, Interest Period, or notice with
respect to a LIBOR Loan, a day on which dealings in Dollar deposits are also
carried on in the London Interbank market and banks are open for business in
London.
1.11 "CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations and published interpretations
thereof.
1.12 "COLLATERAL" means and includes, without
limitation, all property and assets granted as collateral security for an
Obligation, whether real or personal property, whether granted directly or
indirectly, whether granted now or in the future, and whether granted in the
form of a security interest, mortgage, deed of trust, assignment, pledge,
chattel mortgage, chattel
CREDIT AGREEMENT - 8
<PAGE>
trust, factor's lien, equipment trust, conditional sale, trust receipt, lien,
charge, lien or title retention contract, lease or consignment intended as a
security device, or any other security or lien interest whatsoever, whether
created by law, contract, or otherwise. The Collateral includes, without
limitation, all of Borrower's now owned or hereafter acquired Accounts,
Inventory, chattel paper, equipment, patents, trademarks, and general
intangibles.
1.13 "COMMITMENT AMOUNT" means Twenty Five Million
Dollars ($25,000,000).
1.14 "COMMONLY CONTROLLED ENTITY" means an entity,
whether or not incorporated, that is under common control with a Borrower
within the meaning of Section 414(b) or 414(c) of the Code.
1.15 "DOLLAR" and the symbol "$" means lawful money of
the United States of America.
1.16 "ELIGIBLE ACCOUNT" means an Account, excluding the
following:
a. Accounts that remain uncollected more than ninety
(90) days from the invoice date ("Delinquent
Accounts");
b. Accounts due from an Account Debtor that has suffered
a business failure or the termination of its
existence, or as to which a dissolution, insolvency
or bankruptcy proceeding has been commenced, any
assignment for the benefit of creditors has been
made, or a trustee, receiver or conservator has been
appointed for all or any part of the property of such
Account Debtor;
c. Accounts due from an Account Debtor affiliated with
Borrower in any manner, including, without
limitation, as stockholder, owner, officer, director,
agent or employee;
d. Accounts with respect to which payment is or may be
conditional;
e. Accounts due from an Account Debtor who is not a
resident or citizen of, located in, or subject to
service of process in, the United States of America,
except to the extent such Accounts are supported by
insurance, bonds or other assurances satisfactory to
Bank or such Accounts are otherwise approved by Bank
in writing at Bank's sole discretion;
f. Accounts with respect to which goods are placed on
consignment, guaranteed sale, or other terms by
reason of which the payment by the Account Debtor may
be conditional;
g. Accounts due from an Account Debtor that is any
national, federal or state government, including,
without limitation, any instrumentality, division,
agency, body or department thereof, except where such
Account Debtor has agreed to make payment directly to
the Bank;
CREDIT AGREEMENT - 9
<PAGE>
h. Accounts commonly known as "bill and hold" or similar
arrangement;
i. Accounts due from an Account Debtor as to which
twenty-five percent (25%) or more of the aggregate
dollar amount of all outstanding accounts owing from
such Account Debtor are Delinquent Accounts;
j. That portion of Accounts due from an Account Debtor
(other than Sears or Home Depot) that is in excess of
fifty percent of Borrower's aggregate dollar amount
of all outstanding accounts;
k. Accounts as to which Borrower is or may become liable
to the Account Debtor for any reason, except if the
amount of the Accounts exceeds the known amount of
Borrower's liability to the Account Debtor, then the
amount of the excess shall be an Eligible Account;
l. Accounts that are not free of all liens,
encumbrances, charges, rights and interest of any
kind, except in favor of Lender;
m. Accounts that are supported or represented by chattel
paper or an instrument, unless such instrument or
chattel paper is endorsed and actually delivered to
Bank and Bank shall have specifically agreed to
include the current payment due under the instrument
or chattel paper as an Eligible Account;
n. Accounts with respect to which the Account Debtor is
located in New Jersey, Minnesota, or any other state
denying creditors access to its courts in the absence
of a Notice of Business Activities Report or other
similar filing, unless Borrower has either qualified
as a foreign corporation authorized to transact
business in such state or has filed a Notice of
Business Activities Report or similar filing with the
applicable state agency for the then current year;
and
o. Accounts for which the Account Debtor is JB Tool.
1.17 "ELIGIBLE INVENTORY" means Inventory held by Borrower
or JB Tool for sale or lease in the ordinary course of Borrower's or JB
Tool's business that is:
a. new and unused finished goods ready for sale;
b. Inventory in which Bank has a first, perfected
security interest;
c. not subject to a security interest, lien, or other
encumbrance in favor of any other person;
d. of good and merchantable quality free from defects;
e. not owned by Borrower or JB Tool for more than 180
days;
f. acceptable to Bank in its reasonable sole discretion;
and
g. if stored with a bailee, warehouseman or similar
party, such party has issued and delivered to Bank,
in form and substance acceptable to Bank, warehouse
receipts therefor in Bank's name.
CREDIT AGREEMENT - 10
<PAGE>
1.18 "ENVIRONMENTAL LAWS" shall include, but shall not
be limited to the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), 42 U.S.C. Sections 9601, ET SEQ.; the Resource
Conservation and Recovery Act ("RCRA"), 42 U.S.C. Sections 6901, ET SEQ.; the
Hazardous Materials Transportation Authorization Act of 1994, 49 U.S.C.
Sections 5101, ET SEQ.; the Federal Water Pollution Control Act, 33 U.S.C.
Sections 1251, ET SEQ.; and all rules and regulations thereunder, and any
other local, state and/or federal laws, rules, regulations and ordinances,
whether currently in existence or hereafter enacted, that govern, to the
extent applicable to Borrower's businesses, properties and assets: (a) the
existence, cleanup and/or remedy of contamination on property; (b) the
protection of the environment from soil, air or water pollution, or from
spilled, deposited or otherwise emplaced contamination; (c) the emission or
discharge of Hazardous Substances into the environment; (d) the control of
Hazardous Substances; or (e) the use, generation, transport, treatment,
removal or recovery of Hazardous Substances.
1.19 "ERISA" means the Employment Retirement Income
Security Act of 1974, as the same may be amended or supplemented from time to
time, including any regulations issued in connection therewith.
1.20 "EVENT OF DEFAULT" means the occurrence of any of
the events set forth in Article 9 of this Agreement.
1.21 "GAAP" means the generally accepted accounting
principles set forth in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and the statements and pronouncements of the Financial Accounting Standards
Board that are applicable to the circumstances as of the date of
determination consistently applied. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all financial
data submitted pursuant to this Agreement shall be prepared in accordance
with GAAP.
1.22 "HAZARDOUS SUBSTANCE" means (a) any oil, petroleum
products, flammable substance, explosives, radioactive materials, hazardous
wastes or substances, toxic wastes or substances or any other wastes,
materials or pollutants that (i) pose a hazard to Borrower's owned or leased
real property or to persons on or about such real property or (ii) cause
Borrower's owned or leased real property to be in violation of any
Environmental Laws; (b) asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, or
radon gas; (c) any chemical, material or substance defined as or included in
the definition of "waste," "hazardous substances," "hazardous wastes,"
"hazardous
CREDIT AGREEMENT - 11
<PAGE>
materials," "extremely hazardous waste," "restricted hazardous waste," or
"toxic substances" or words of similar import under any Environmental Laws;
(d) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority or agency or
may or could pose a hazard to the health and safety of the occupants of
Borrower's owned or leased real property or the owners and/or occupants of
property adjacent to or surrounding such real property or any other person
coming upon such real property or adjacent property; and (e) any other
chemical, materials or substance that may or could pose a hazard to the
environment and are or become subject to regulation by any Environmental Laws.
1.23 "INTEREST PERIOD" means with respect to any LIBOR
Loan, the period commencing on the date such loan is made and ending, as the
Borrower may select, pursuant to this Agreement, on the numerically
corresponding day in the first, second, or third, calendar month thereafter,
except that each such Interest Period that commences on the last Business Day
of a calendar month (or on any day for which there is no numerically
corresponding day in the appropriate subsequent calendar month) shall end on
the last Business Day of the appropriate subsequent calendar month; provided
that if an Interest Period would end on a day that is not a Business Day,
such Interest Period shall be extended to the next Business Day unless such
Business Day would fall in the next calendar month, in which event such
Interest Period shall end on the immediately preceding Business Day.
1.24 "INVENTORY" means all of Borrower's and JB Tool's
raw materials, work in process, packaging, finished goods, merchandise, parts
and supplies, of every kind and description, and goods held for sale or lease
or furnished under contracts of service in which Borrower or JB Tool now has
or hereafter acquires any right, whether held by Borrower or JB Tool or
others, and all documents of title, warehouse receipts, bills of lading, and
all other documents of every type covering all or any part of the foregoing.
Inventory includes Inventory temporarily out of Borrower's or JB Tool's
custody or possession and all returns on Accounts.
1.25 "JB TOOL" means JB Tool, LLC, a Montana limited
liability company.
1.26 "JB TOOL SECURITY AGREEMENT" means the security
agreement in the form attached as EXHIBIT 1.26 to be executed by JB Tool and
delivered to Bank by the Borrower under the terms of this Agreement.
1.27 "LIBOR LOAN" means any loan under this Agreement
bearing interest at a rate based upon Adjusted LIBOR Interest Rate.
1.28 "LIEN" means any mortgage, deed of trust, pledge,
security interest, hypothecation, assignment, deposit arrangement,
encumbrance, lien (statutory or other), or preference, priority, or other
security agreement or preferential arrangement, charge, or encumbrance of any
kind or nature whatsoever (including, without limitation, any conditional
CREDIT AGREEMENT - 12
<PAGE>
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction to evidence any of the foregoing).
1.29 "LOAN" means a loan under the Revolving Line of
Credit.
1.30 "LOAN DOCUMENTS" means collectively this
Agreement, any note executed by Borrower to the order of Bank and any other
agreements or documents, whether now or hereafter existing, executed or
delivered in connection with this Agreement or any amendment thereto, and any
amendments, supplements, modifications, renewals, extensions, or refundings
of any of the foregoing documents.
1.31 "LONDON INTERBANK OFFERED RATE" means for any
Interest Period for a LIBOR Loan the lowest rate per annum quoted by
Barclays, Tokyo/Mitsubishi, Banker's Trust, and National Westminster at
approximately 11:00 a.m. London time appearing on the Reuters LIBOR page
screen two Business Days prior to the first day of such Interest Period for
the offering to leading banks in the London interbank market of dollar
deposits for a period and an amount comparable to the Interest Period and
principal amount of the LIBOR Loan that shall be made by Bank and outstanding
during the Interest Period.
1.32 "MATURITY DATE" means July 31, 2001, or such other
date as Bank and Borrower may agree upon in writing from time to time.
1.33 "MORTGAGE" means the Mortgage to be delivered to
Bank by the Borrower under the terms of Section 4.3 of this Agreement.
1.34 "MULTIEMPLOYER PLAN" means a Plan described in
Section 4001(a)(3) of ERISA.
1.35 "OBLIGATIONS" means any and all loans, lines of
credit, advances, debts, overdrafts, liabilities, indebtedness, lease
payments, guaranties, covenants, and duties owing by Borrower to Bank of any
kind and description (whether advanced pursuant to or evidenced by the Loan
Documents or any other instrument or agreement between Bank and Borrower),
any debt, liability, or obligation owing by Borrower to others that Bank may
have obtained by assignment or otherwise, any interest not paid when due, all
Bank Expenses, and all renewals, extensions, and modifications of the
foregoing, or any part thereof, whether direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising.
1.36 "PBGC" means the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its functions under
ERISA.
CREDIT AGREEMENT - 13
<PAGE>
1.37 "PERMITTED LIENS" means: (i) Liens (if any)
granted to Bank to secure the Obligations, (ii) Liens described on
EXHIBIT 1.37 attached hereto, (iii) pledges or deposits made to secure
payment of worker's compensation insurance (or to participate in any fund in
connection with worker's compensation insurance), unemployment insurance,
pensions, or social security programs, (iv) Liens imposed by mandatory
provisions of law such as for materialmen, mechanics, warehousemen, and other
like Liens arising in the ordinary course of business, securing indebtedness
whose payment is not yet due, or that is being contested by Borrower in good
faith and for which adequate reserves have been provided, (v) Liens for
taxes, assessments, and governmental charges or levies imposed upon a person
or upon such person's income or profits or property, if the same are not yet
due and payable or if the same are being contested in good faith and as to
which adequate cash reserves have been provided, (vi) Liens arising from good
faith deposits in connection with tenders, leases, real estate bids, or
contracts (other than contracts involving the borrowing of money), pledges or
deposits to secure public or statutory obligations and deposits to secure (or
in lieu of) surety, stay, appeal, or customs bonds and deposits to secure the
payment of taxes, assessments, customs duties, or other similar charges,
(vii) encumbrances consisting of zoning restrictions, easements, or other
restrictions on the use of real property, provided that such items do not
impair the use of such property for the purposes intended, and none of which
is violated by existing or proposed structures or land use, or
(viii) purchase-money Liens on any property hereafter acquired or the
assumption of any Lien on property existing at the time of such acquisition
(and not created in contemplation of such acquisition), or a Lien incurred in
connection with any conditional sale or other title retention agreement or a
capital lease, provided that (a) any property subject to any of the foregoing
is acquired by the Borrower in the ordinary course of its business and the
Lien on any such property attaches to such asset concurrently or within
ninety (90) days after the acquisition thereof; (b) the obligation secured by
any Lien so created, assumed, or existing shall not exceed the lesser of the
cost or the fair market value as of the time of acquisition of the property
covered thereby to the Borrower, (c) each such Lien shall attach only to the
property so acquired, (d) the debt secured by all such Liens shall not exceed
One Hundred Thousand Dollars ($100,000) at any time outstanding in the
aggregate, and (e) the debt secured by such Lien is permitted by the
provisions of Section 7.3, and the related expenditure is permitted under
Section 8.1.
1.38 "PERSON" means an individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, governmental authority, or other entity of
whatever nature.
1.39 "PLAN" means any pension plan that is covered by
Title IV of ERISA and in respect of which any Borrower or a Commonly
Controlled Entity is an "employer" as defined in Section 3(5) of ERISA.
CREDIT AGREEMENT - 14
<PAGE>
1.40 "PRIME LOAN" means any loan under this Agreement
bearing interest at a rate based upon the Prime Rate.
1.41 "PRIME RATE" means the Bank's announced rate of
interest referred to as its prime rate used as a reference point from which
the cost of credit to customers may be calculated. The Prime Rate is subject
to change from time to time. The Prime Rate is not intended to be the lowest
rate of interest charge by the Bank to its borrowers, and Bank may make loans
to other Persons bearing interest at, above, or below the Prime Rate.
1.42 "PROHIBITED TRANSACTION" means any transaction set
forth in Section 406 of ERISA or Section 4975 of the Code.
1.43 "REAL PROPERTY" means the real property in Lake
County, Montana, more particularly described in the attached EXHIBIT 1.43.
1.44 "REPORTABLE EVENT" means any of the events set
forth in Section 4043 of ERISA.
1.45 "REVOLVING LINE OF CREDIT" means Bank's commitment
to make loans to Borrower from time to time in accordance with Section 2.1 of
this Agreement.
1.46 "REVOLVING NOTE" means the promissory note
evidencing the Revolving Line of Credit in the stated principal amount of the
Commitment Amount executed by Borrower substantially in the form attached as
EXHIBIT 1.46.
1.47 "SECURITY AGREEMENT" means the Security Agreement
in the form attached as EXHIBIT 1.47 to be delivered to Bank by the Borrower
under the terms of this Agreement.
1.48 "STANDARD BORROWING BASE" means the sum of
eighty-five percent (85%) of the aggregate amount of Eligible Accounts plus
the lesser of (i) sixty-five percent (65%) of the aggregate amount of
Eligible Inventory, or (ii) the amount of Eligible Inventory equal to
sixty-five percent (65%) of the total Borrowing Base.
1.49 "SUBORDINATED DEBT" means indebtedness and
liabilities of Borrower that have been subordinated to the Obligations by
written agreement in form and substance acceptable to Bank.
ARTICLE 2 - LOANS AND TERMS OF PAYMENT
CREDIT AGREEMENT - 15
<PAGE>
2.1 REVOLVING LINE OF CREDIT.
Upon the request of Borrower, made at any time and from
time to time from the date hereof until the Maturity Date, and so long as no
Event of Default has occurred, Bank shall make loans to Borrower in an
aggregate principal amount not to exceed at any time outstanding the lesser
of (i) the Borrowing Base and (ii) the Commitment Amount. Subject to the
terms of this Agreement, loans made by Bank may be repaid and reborrowed, up
to and including the Maturity Date. If at any time and for any reason the
amount of advances made pursuant to this Section exceed the above dollar
limitation, then Borrower, upon Bank's election and demand, shall immediately
pay to Bank in cash the amount of such excess.
2.1.1 MANNER OF REQUESTING.
2.1.1.1 PRIME LOANS.
Bank is authorized to make Revolving Line
of Credit Prime Loans upon written or, at the discretion of Bank, telephonic
instructions received from any person purporting to be a person identified on
EXHIBIT 2.1.1.1 attached hereto or such other persons as Borrower may from
time to time designate in writing to Bank. If no Event of Default has
occurred and is continuing, Bank shall make the Prime Loans to Borrower by
crediting the amount thereof to the Borrower's account with Bank. Bank, at
its sole and absolute discretion, and subject to the terms hereof, may make
Prime Loans to Borrower in an amount equal to the amount of any overdraft
that may from time to time exist with respect to any bank account that
Borrower may now or hereafter have with Bank. The existence of such overdraft
shall be deemed to be a request by Borrower for any such Prime Loan.
2.1.1.2 LIBOR LOANS.
For any Revolving Line of Credit Loan
that is to be a LIBOR Loan, the Borrower shall request such a Loan by
delivering a LIBOR Loan Request to Bank no later than 11:00 a.m. (Boise,
Idaho time) at least two (2) Business days prior to the requested date of the
Loan. A LIBOR Loan Request shall specify (a) the date of the requested Loan,
(b) the amount of such Loan, and (c) the requested duration of the Interest
Period for the Loan, and shall be in substantially the form of the attached
EXHIBIT 2.1.1.2 executed by any person purporting to be a person identified
in Exhibit 2.1.1.1 or such other persons as Borrower may from time to time
designate in writing to Bank. If Bank determines that the requested Loan is
available and will comply with this Agreement, and if no Event of Default has
occurred and is continuing, Bank shall make the LIBOR Loan to Borrower by
crediting the amount thereof to the Borrower's account with Bank.
CREDIT AGREEMENT - 16
<PAGE>
2.1.1.3 MINIMUM LIBOR LOAN REQUIREMENTS.
Each LIBOR Loan shall be in a minimum
amount of One Million Dollars ($1,000,000). No part of the Revolving Line of
Credit shall be made as, extended as, or converted into, a LIBOR Loan with an
Interest Period that ends after the Maturity Date. No more than six (6) LIBOR
Loans shall be outstanding at one time.
2.2 INTEREST ON THE REVOLVING LINE OF CREDIT.
Each Loan shall be a Prime Loan or a LIBOR Loan, as
selected by Borrower in accordance with the terms of this Agreement.
2.2.1 That portion of the Revolving Line of
Credit that is a Prime Loan shall bear interest at a fluctuating per annum
rate equal to the Prime Rate increased by the applicable Prime Margin set
forth below. Agent's Prime Rate may change from time to time, and the
interest payable will continue to fluctuate at the rate as stated herein. Any
changes to the Prime Rate shall become effective without prior notice to
Borrower on the date on which the Prime Rate changes.
2.2.2 That portion of the Revolving Line of
Credit that is a LIBOR Loan shall bear interest at a fluctuating per annum
rate equal to the Adjusted LIBOR Interest Rate for the applicable Interest
Period, as quotes are available, increased by the applicable LIBOR Margin set
forth below. Any changes to the LIBOR Margin shall not apply to LIBOR Loans
outstanding or requested on the date the LIBOR Margin is adjusted.
2.2.3 The actual interest to be charged on the
Revolving Line of Credit shall be calculated daily on the outstanding balance
for the actual number of days elapsed on the basis of a year consisting of
360 days for LIBOR Loans and 365/366 days for Prime Loans. Should the rate of
interest exceed that allowed by law, the applicable rate of interest will be
the maximum rate of interest lawfully allowed. The principal amount
outstanding on which the interest rate(s) shall be charged shall be
determined from the Bank's records, which shall at all times be conclusive,
absent manifest error.
2.2.4 The Prime Margin shall be one percent
(1%) per annum and the LIBOR Margin shall be three percent (3%) per annum
until Borrower closes an initial public offering of its stock with net
proceeds of at least Twenty Five Million Dollars ($25,000,000) received by
Borrower in immediately available funds. After close of such initial public
offering, the Prime Margin shall be reduced to one-half percent (0.5%) per
annum and the LIBOR Margin shall be reduced to two and one-half percent
(2.5%) per annum. Notwithstanding the preceding provisions of this
subsection, that portion of the outstanding principle balance of the
Revolving
CREDIT AGREEMENT - 17
<PAGE>
Line of Credit that exceeds the amount of the Standard Borrowing Base shall
bear interest at a fluctuating per annum rate that is one percent (1%) per
annum greater than the otherwise applicable rate.
2.3 REVOLVING NOTE.
The Borrower's obligation to repay the Revolving Line of
Credit shall be evidenced by the Revolving Note executed by the Borrower and
dated the date of this Agreement.
2.4 REPAYMENT OF REVOLVING LINE OF CREDIT.
Interest accrued on that portion of the outstanding
principal balance of the Revolving Line of Credit that is a Prime Loan shall
be paid on or before the tenth day of each month in an amount equal to the
interest accrued as of the last day of the immediately preceding month.
Interest accrued on that portion of the outstanding principal balance of the
Revolving Line of Credit that is a LIBOR Loan shall be paid on the last day
of the Interest Period with respect thereto. All outstanding principal and
accrued interest of the Revolving Line of Credit shall be paid in full on the
Maturity Date.
2.4.1 METHOD OF PAYMENT.
All payments on the Revolving Line of
Credit shall be made to Bank at its Corporate Banking Division office in
Boise, Idaho in Dollars and in immediately available funds. No checks,
drafts, or other instruments received by Bank purportedly in satisfaction of
any of the Obligations shall constitute payment thereof unless and until such
instruments have actually been collected. All payments received after
11:00 a.m. Boise, Idaho time shall be considered to have been received the
next Business Day. In case the due date of any payment falls on a day that is
not a Business Day, such payment shall instead be due the next succeeding
Business Day, and interest shall continue to accrue. Borrower requests and
authorizes Bank to pay all amounts due to Bank under the Loan Documents by
debiting deposit amounts maintained by Borrower with Bank. Borrower shall
maintain sufficient collected balances in its demand deposit account with
Bank in order that each payment will be available when due under the Loan
Documents. Bank may note the date, amount and interest rate (and Interest
Period with respect to LIBOR Loans) of each Loan and each payment of
principal and interest with respect hereto in Bank's books and records
(either manually or by electronic entry), which notation shall be conclusive
evidence of the information noted, absent manifest error. Borrower shall hold
all proceeds of collections on Borrower's Accounts and of any other
Collateral in trust for Bank and such proceeds shall be deposited into a
depository account with Bank, either through a lockbox or electronically
(ACH/wire transfer), and all such collected
CREDIT AGREEMENT - 18
<PAGE>
funds from such proceeds in the account shall be applied to the outstanding
principal balance of the Revolving Line of Credit on a daily basis, subject
to the prepayment restriction on LIBOR Loans.
2.4.2 LATE CHARGES AND DEFAULT INTEREST.
If Bank has not received the full amount
of any payment by the end of fifteen (15) calender days after the date due,
including the balance due at maturity, Borrower shall pay a late charge to
Bank in the amount of five percent (5%) of the overdue payment of principal
and interest. Borrower shall pay the late charge promptly, but only once on
each late payment. In addition to any late charges that may be assessed as
herein provided, the outstanding balance of the Revolving Line of Credit
after the occurrence of an Event of Default shall accrue interest from the
date of the Event of Default at the rate equal to four (4) percentage points
per annum in excess of the interest rate that would otherwise be charged if
no Event of Default existed. If Bank shall waive in writing or Borrower shall
cure such Event of Default, the interest rate shall revert to the non-default
rate from and after such waiver or completion of such cure, until another
such Event of Default.
2.4.3 PREPAYMENTS.
The Borrower may prepay any or all of the
Revolving Line of Credit that is a Prime Loan without penalty or premium. A
LIBOR Loan may be prepaid in whole or in part only on the last day of the
Interest Period for such Loan, unless Borrower pays to Bank the prepayment
funding loss indemnification pursuant to subsection 2.8.
2.5 COMMITMENT FEE.
The Borrower shall pay to the Bank a commitment fee on the
average daily unused portion of the Commitment Amount from the date of this
Agreement until the Maturity Date at the per annum rate of one quarter
percent (0.25%), payable in arrears on the first Business Day of each fiscal
quarter during the term of such Bank's Commitment and on the Maturity Date,
commencing October 1, 1999, and ending on the Maturity Date. The commitment
fee shall be calculated for the actual number of days elapsed on the basis of
a year consisting of 365 days.
2.6 DOCUMENTATION FEE.
Borrower shall pay Bank a documentation fee for the
Revolving Line of Credit in the amount of Five Hundred Dollars ($500). The
documentation fee shall be paid on the date of this Agreement and shall
represent an unconditional payment to Bank in consideration of Bank's
CREDIT AGREEMENT - 19
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agreement to extend financial accommodations to Borrower pursuant to this
Agreement.
2.7 USE OF PROCEEDS OF REVOLVING LINE OF CREDIT.
The proceeds of the Revolving Line of Credit shall be used
by the Borrower for working capital. The Borrower shall not, directly or
indirectly, use any part of such proceeds for the purpose of purchasing or
carrying any margin stock within the meaning of Regulation U of the Board of
Governors of the Federal Reserve System or to extend credit to any person for
the purpose of purchasing or carrying any such margin stock, or for any
purpose that violates, or is inconsistent with, Regulation X of such Board of
Governors.
2.8 ADDITIONAL INTEREST RATE PROVISIONS.
2.8.1 If Bank shall have determined (which
determination shall be conclusive and binding) that for any reason adequate
and reasonable means do not exist for ascertaining the Adjusted LIBOR
Interest Rate for any or all Interest Periods, Bank shall give notice of such
determination to the Borrower. If such notice is given, and until such notice
has been withdrawn by Bank, no additional LIBOR Loans for such Interest
Periods shall be made and no additional conversions of Loans to LIBOR Loans
for such Interest Periods shall be permitted, and at the end of the Interest
Period relating to any outstanding LIBOR Loans such Loans shall become Prime
Loans.
2.8.2 Notwithstanding any other provisions
herein, if any law, treaty, rule or regulation, or determination of a court
or other governmental authority, or any change therein or in the
interpretation or application thereof, shall make it unlawful for Bank to
make or maintain LIBOR Loans as contemplated by this Agreement, the
obligation of Bank hereunder to make LIBOR Loans shall forthwith be canceled,
and, if required, each LIBOR Loan then outstanding shall immediately become a
Prime Loan.
2.8.3 In the event that any adoption or
modification of any law, treaty, rule, or regulation, or determination of a
court or other governmental authority, or that any change in the
interpretation or application thereof, which adoption, modification or change
becomes effective after the date hereof, or in the event that compliance by
Bank with and request or directive issued after the date hereof (whether or
not having the force of law) from any governmental authority:
(A) does or shall subject Bank or
any of its foreign offices to any tax of any kind whatsoever with respect to
the Loan Documents, or changes the basis of taxation of payments to Bank of
principal, interest, fees, or any other amount payable hereunder (except for
changes in the rate of tax on the overall net income of Bank); or
CREDIT AGREEMENT - 20
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(B) does or shall impose, modify, or
hold applicable any reserve, special deposit, compulsory loan, FDIC
insurance, or similar requirement against assets held by, deposits or other
liabilities in or for the account of, advances or loans by, other credit
extended by or any other acquisition of funds by any office of Bank (other
than to the extent previously taken into account in determining the Prime
Rate or statutory reserves); or
(C) does or shall impose on Bank any
other condition; and the result of any of the foregoing is to increase the
cost to Bank of making, renewing, or maintaining the loans hereunder, or to
reduce any amount receivable thereunder or under any of the Loan Documents;
then, in any such case, the Borrower shall promptly pay to Bank, upon demand,
such amount or amounts as may be necessary to compensate Bank for any
additional cost or reduced amount received. Bank shall deliver to the
Borrower a written statement of the losses or expenses sustained or incurred,
and any reasonable allocation made by Bank of such losses and expenses shall
be conclusive, absent manifest error. Bank shall promptly notify the Borrower
of any event of which it has knowledge, occurring after the Closing Date,
which event will entitle Bank to compensation under this Section.
2.9 LIBOR LOAN EXTENSIONS AND CONVERSIONS.
So long as no Event of Default has occurred and is
continuing and subject to the terms and conditions hereof, the Borrower may
extend a LIBOR Loan beyond its current Interest Period by giving Bank a LIBOR
Loan Request for the extension. The Borrower may also convert any Prime Loan
into a LIBOR Loan by giving Bank a LIBOR Loan Request for the conversion.
Unless Bank receives notice of a proposed extension or conversion as and when
required hereunder, then at the end of an Interest Period for a LIBOR Loan
such Loan shall automatically convert to a Prime Loan.
2.10 FUNDING LOSS INDEMNIFICATION.
The Borrower shall indemnify and hold Bank free and
harmless from any loss or expense (including without limitation any loss or
expense incurred by reason of the liquidation or redeployment of deposits or
other funds acquired by Bank to fund or maintain any LIBOR Loan) that Bank
may incur as a result of (i) the Borrower's failure to make a borrowing,
conversion, or extension with respect to a LIBOR Loan after making a request
therefor; (ii) a prepayment (whether optional or mandatory) of a LIBOR Loan
prior to the expiration of a related Interest Period, and (iii) the
conversion of a LIBOR Loan as a result of any of the events indicated in
paragraph 2.7.2. At the election of Bank such losses shall be conclusively
deemed to consist of an amount equal to:
CREDIT AGREEMENT - 21
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(i) The interest that would have been
received from the Borrower on the amounts during the Interest Period (or
remaining portion thereof in question) had the Borrower not prepaid, repaid,
or failed to borrow, convert, or extend, such funds, as the case may be, minus
(ii) The return that Bank could have obtained
had it placed such funds on deposit in the interbank dollar market selected
by Bank in its sole discretion on the date of such prepayment, repayment or
failure to borrow, convert, or extend as the case may be, and such funds had
remained on deposit until the end of the applicable Interest period.
2.11 TAXES ON PAYMENTS.
All payments made by Borrower under this Agreement and the
other Loan Documents shall be made free and clear of, and without deduction
or withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("Taxes"), now or hereafter imposed, levied, collected, withheld
or assessed by any governmental authority (except net income taxes and
franchise taxes in lieu of net income taxes imposed on Agent or Bank as a
result of a present or former connection between the jurisdiction of the
governmental authority imposing such tax on Agent or such Bank, excluding a
connection arising solely from Agent or such Bank having executed, delivered,
or performed its obligations or received a payment under, or enforced, this
Agreement or the other Loan Documents). If any Taxes are required to be
withheld from any amounts payable to Agent or any Bank or Issuing Bank under
any Loan Document, the amounts so payable to Agent or such Bank shall be
increased to the extent necessary to yield to Agent or such Bank (after
payment of all Taxes) interest or any such other amounts payable hereunder at
the rates or in the amounts specified in this Agreement and the other Loan
Documents.
ARTICLE 3 - SECURITY INTEREST
3.1 GRANT OF SECURITY INTEREST.
Borrower grants to Bank a continuing security interest in
the Collateral, including all proceeds and products thereof, in order to
secure prompt repayment of the Obligations and prompt performance by Borrower
of each and all of its covenants and obligations under this Agreement and the
other Loan Documents. Bank's security interest in the Collateral shall be
further evidenced by the Security Agreement and such other security documents
as Bank may at any time require.
3.2 FINANCING STATEMENTS.
CREDIT AGREEMENT - 22
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The Borrower shall from time to time, at the expense of
Borrower, promptly execute and deliver all further instruments and documents,
and take all further action, that may be necessary or desirable, or that Bank
may reasonably request, in order to perfect and protect any pledge, assignment
or security interest granted or purported to be granted by any Loan Document or
to enable Bank to exercise and enforce its rights and remedies under any Loan
Document with respect to any Collateral. Without limiting the generality of the
foregoing, the Borrower shall execute and file such financing or continuation
statements, or amendments thereto, and such other instruments or notices, as may
be necessary or desirable, or as Bank may request, in order to perfect and
preserve the pledge assignment, and security interest granted or purported to be
granted by any Loan Document. Borrower irrevocably makes, constitutes, and
appoints Bank (and any of Bank's officers, employees, or agents designated by
Bank) as Borrower's true and lawful attorney with power, upon Borrower's failure
or refusal to comply with their undertakings contained in this paragraph, to
sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, and/or filed in
order to perfect or continue Bank's perfected security interest in the
Collateral.
ARTICLE 4 - CONDITIONS PRECEDENT
4.1 INITIAL ADVANCE.
The obligation of Bank to make the initial Loan to the
Borrower under this Agreement is subject to the conditions precedent that Bank
shall have received on or before the day of such loan each of the following, in
form and substance satisfactory to Bank and its legal counsel:
4.1.1 REVOLVING NOTE.
The Revolving Note executed by the Borrower.
4.1.2 SECURITY AGREEMENTS.
The Security Agreement executed by Borrower and the
JB Tool Security Agreement executed by JB Tool, together with all UCC-1
financing statements desirable in the opinion of Bank to perfect the security
interest created by these security agreements.
4.1.3 GUARANTY.
A guaranty of the Obligations in substantially the
form of EXHIBIT 4.1.3 executed by Guarantor and secured by the JB Tool Security
Agreement.
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4.1.4 EVIDENCE OF INSURANCE.
Evidence of the insurance Borrower and JB Tool must
maintain in accordance with the Loan Documents.
4.1.5 OPINION OF COUNSEL FOR BORROWER AND JB TOOL.
A favorable opinion of counsel for Borrower and JB
Tool, in substantially the form of EXHIBIT 4.1.5 and as to such other matters as
Bank may reasonably request.
4.1.6 EVIDENCE OF ALL CORPORATE ACTION BY BORROWER
AND JB TOOL.
Certified copies of all corporate action taken by
each of Borrower and JB Tool authorizing its execution and delivery of the Loan
Documents and each other document to be delivered pursuant to this Agreement and
its performance of its agreements thereunder.
4.1.7 CERTIFICATES OF EXISTENCE FOR BORROWER AND
JB TOOL.
Certificates of existence or good standing dated a
reasonable date before the effective date of this Agreement showing that each of
the Borrower and JB Tool is in good standing under the laws of the state of its
incorporation and all other states in which it is doing business.
4.1.8 ARTICLES OF INCORPORATION AND BYLAWS OF
BORROWER.
Copies of the articles of incorporation and bylaws of
Borrower certified by an officer of Borrower to be true and correct.
4.1.9 ARTICLES OF ORGANIZATION AND OPERATING
AGREEMENT OF JB TOOL.
Copies of the articles of Organization and operating
agreement of JB Tool certified by a member of JB Tool to be true and correct.
4.1.10 CERTIFICATES OF ASSUMED BUSINESS NAME.
Copies of all certificates of assumed business name,
if any, filed by Borrower.
4.1.11 LETTER TO ACCOUNTANTS.
CREDIT AGREEMENT - 24
<PAGE>
A letter in the form of EXHIBIT 4.1.11 to Borrower's
outside auditors (which letter Borrower shall also deliver to any subsequent
outside auditors hired by Borrower, all of which shall be independent certified
public accountants acceptable to Bank): (1) instructing such auditors to send to
Bank copies of all financial statements (whether preliminary or final) and
reports that are prepared as a result of any audit or other review of Borrower's
operations, finances, or internal controls, including any reports dealing with
improper accounting practices, defalcations, financial reporting errors, or
misstatements or fraud; (2) instructing such auditors to, upon Bank's request,
meet with Bank to discuss said financial statements and any questions regarding
same; and (3) advising such auditors that one of the principal purposes of the
audited financial statements which they may be asked to prepare is to provide
Bank with information regarding Borrower's financial condition.
4.1.12 PUBLIC RECORD SEARCHES.
Uniform Commercial Code financing statement searches,
federal and state income tax lien searches, judgment searches, or other similar
searches on Borrower and JB Tool and any other Persons that Bank may require and
in such form as Bank may require.
4.1.13 EVIDENCE OF TERMINATION OF LIENS.
Evidence that all Liens against the Collateral other
than Permitted Liens have been satisfied or otherwise terminated.
4.1.14 PAYMENT OF DOCUMENTATION FEE.
Payment of the documentation fee as required by
Section 2.6 of this Agreement.
4.1.15 ADDITIONAL DOCUMENTS.
Such additional approvals, opinions, or documents as
Bank may reasonably request.
4.2 ALL ADVANCES.
The obligation of Bank to make each Loan under this Agreement
shall be subject to the following conditions precedent:
4.2.1 The following statements shall be true on
the date of each loan,
CREDIT AGREEMENT - 25
<PAGE>
and, if requested by Bank, Borrower shall have delivered to Bank a
certificate signed by a duly authorized officer of the Borrower, certifying
to Bank the truth of the following statements:
(a) The representations and warranties
contained in this Agreement and in the Loan Documents are correct on and as of
the date of such loan as though made on and as of such date.
(b) No Event of Default has occurred
and is continuing, or would result from such loan.
4.2.2 Bank shall have received such other
approvals, opinions, or documents as Bank may reasonably request.
4.3 MORTGAGEE CONDITIONS PRECEDENT.
The Borrowing Base shall not be temporarily increased in
accordance with section 1.8 until Bank shall have received each of the
following, in form and substance satisfactory to Bank and its legal counsel:
4.3.1 MORTGAGE.
A mortgage executed by Borrower and recorded in the
official records of Lake County, Montana, granting Bank a first priority lien
against the Real Property.
4.3.2 TITLE INSURANCE POLICY.
A loan policy of title insurance in the amount of
Eleven Million Five Hundred Forty-five Thousand Two Hundred Sixty-six Dollars
($11,545,266), insuring the validity and first priority lien of the mortgage
against the Real Property, subject only to such exceptions as are acceptable to
Bank and including such endorsements as required by Bank.
ARTICLE 5 - REPRESENTATIONS AND WARRANTIES
In order to induce the Bank to enter into this Agreement and
to make the loans as provided in this Agreement, the Borrower makes the
following representations and warranties to the Bank, which shall survive
execution of this Agreement:
5.1 INCORPORATION, GOOD STANDING, AND DUE QUALIFICATION.
Borrower was incorporated under the Montana Business
Corporation Act and
CREDIT AGREEMENT - 26
<PAGE>
exists in good standing under the laws of the jurisdiction of its
incorporation with power under the Montana Business Corporation Act to own or
lease its assets and to transact the business in which it is now engaged or
proposed to be engaged. Borrower is qualified to transact business as a
foreign corporation in good standing under the laws of each other
jurisdiction in which such qualification is required.
5.2 CORPORATE POWER AND AUTHORITY.
Borrower has authorized the execution and delivery of the Loan
Documents and the performance of its agreements thereunder by all necessary
corporate action under the Montana Business Corporation Act. The execution and
delivery of the Loan Documents by Borrower and the performance of its
obligations thereunder will not (1) require any consent or approval of the
shareholders of Borrower that has not been obtained; (2) contravene Borrower's
articles of incorporation or bylaws; (3) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree, determination, or award
presently in effect having applicability to Borrower; (4) result in a breach of
or constitute a default under any indenture or loan or credit agreement or any
other agreement, lease, or instrument to which Borrower is a party or by which
it or its properties may be bound or affected; or (5) cause Borrower to violate
any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination, or award or be in default under any such indenture, agreement,
lease, or instrument.
5.3 LEGALLY ENFORCEABLE AGREEMENT.
This Agreement is, and each of the other Loan Documents when
delivered under this Agreement will be, legal, valid, and binding obligations of
the Borrower, enforceable against the Borrower, in accordance with their
respective terms, except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency, and other similar laws affecting creditors'
rights generally.
5.4 OTHER AGREEMENTS.
No event has occurred and is continuing that constitutes or
that, with the giving of notice or the lapse of time or both, could constitute,
an event of default or a default under any agreement or guaranty to which the
Borrower is a party, and no such event will occur upon the making of the loans
hereunder.
5.5 NO LITIGATION.
Except as described in the attached Exhibit 5.5, there is no
pending or threatened action or proceeding against or affecting Borrower before
any court, governmental agency, or
CREDIT AGREEMENT - 27
<PAGE>
arbitrator, that may, in any one case or in the aggregate, materially
adversely affect the financial condition, operations, properties, or business
of the Borrower or the ability of the Borrower to perform its obligations
under the Loan Documents.
5.6 NO DEFAULTS ON OUTSTANDING JUDGMENTS OR ORDERS.
The Borrower has satisfied all judgments against it, and the
Borrower is not in violation of any judgment, writ, injunction, decree, rule, or
regulation of any court, arbitrator, or federal, state, municipal, or other
governmental authority, commission, board, bureau, agency, or instrumentality,
domestic or foreign.
5.7 FINANCIAL STATEMENTS.
All financial statements and information relating to Borrower
that have been delivered by Borrower to Bank are complete and correct and fairly
present the financial condition of the Borrower as of the date of such
statements and information and the results of the operations of the Borrower for
the periods covered by such statements, all in accordance with GAAP consistently
applied (subject to year-end adjustments in the case of the interim financial
statements). There has been no material adverse change in the financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Bank. There are no liabilities of Borrower, fixed or
contingent, that are material but are not reflected in the financial statements
or in the notes thereto, other than liabilities arising in the ordinary course
of business since the date of the most recent of such financial statements
submitted to Bank.
5.8 EMPLOYEE BENEFITS.
The Borrower is in compliance in all material respects with
all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan; no notice
of intent to terminate a Plan has been filed nor has any Plan been terminated;
no circumstances exist that constitute grounds entitling the PBGC to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither Borrower nor any Commonly
Controlled Entity has completely or partially withdrawn from a Multiemployer
Plan; the Borrower and each Commonly Controlled Entity have met their minimum
funding requirements under ERISA with respect to all of their Plans and the
present value of all vested benefits under each Plan does not exceed the fair
market value of all Plan assets allocable to such benefits, as determined on the
most recent valuation date of the Plan and in accordance with the provisions of
ERISA; and neither the Borrower nor any Commonly Controlled Entity has incurred
any liability to the PBGC under ERISA.
CREDIT AGREEMENT - 28
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5.9 LABOR DISPUTES AND CASUALTIES.
Neither the businesses nor the properties of the Borrower are
affected by any fire, explosion, accident, strike, lockout, or other labor
dispute, drought, storm, hail, earthquake, embargo, act of God, or other
casualty (whether or not covered by insurance), materially and adversely
affecting such businesses or properties or the operation of the Borrower.
5.10 OPERATION OF BUSINESS.
Borrower possesses all material licenses, permits, franchises,
patents, copyrights, trademarks, and trade names, or rights thereto, to conduct
its businesses substantially as now conducted and as presently proposed to be
conducted, and the Borrower is not in violation of any valid rights of others
with respect to any of the foregoing. Borrower has filed, and will file in the
future, with the appropriate governmental entities all assumed business name
certificates necessary or required to conduct its businesses.
5.11 ENVIRONMENTAL MATTERS.
To the best of its knowledge, the Borrower has complied
with, and its businesses, operations, assets, equipment, property, leaseholds
or other facilities are in compliance with, the provisions of the
Environmental Laws and all other federal, state, and local environmental,
health and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder. The Borrower has been issued and will maintain all
required federal, state, and local permits, licenses, certificates, and
approvals relating to (1) air emissions; (2) discharges to surface water or
groundwater; (3) noise emissions; (4) solid or liquid waste disposal; (5) the
use, generation, storage, transportation, or disposal of Hazardous
Substances; or (6) other environmental, health, or safety matters. Borrower
has not received notice of, nor knows of, or suspects facts that might
constitute any violations of an Environmental Law or any other federal,
state, or local environmental, health, or safety laws, codes, or ordinances
and any rules or regulations promulgated thereunder with respect to its
businesses, operations, assets, equipment, property, leaseholds, or other
facilities. To the best of Borrower's knowledge, except in accordance with a
valid governmental permit, license, certificate, or approval, there has been
no emission, spill, release, or discharge into or upon (1) the air; (2) soils,
or any improvements located thereon; (3) surface water or groundwater; or (4)
the sewer, septic system or waste treatment, storage, or disposal system
servicing the premises of any Hazardous Substances or from the premises; and
accordingly, except for inventory of raw materials, supplies, work in
progress, and finished goods that are to be used or sold in the ordinary
course of business, the premises of Borrower is free of all such Hazardous
Substances. To the best of Borrower's knowledge, there has been no complaint,
order, directive, claim, citation, or notice by any governmental authority or
any person or entity with respect to (1) air emissions; (2) spills, releases,
or discharges to soils or
CREDIT AGREEMENT - 29
<PAGE>
improvements located thereon, surface water, groundwater or the sewer, septic
system, or waste treatment, storage or disposal systems servicing the
premises; (3) noise emissions; (4) solid or liquid waste disposal; (5) the
use, generation, storage, transportation, or disposal of Hazardous
Substances; or (6) other environmental, health, or safety matters affecting
the Borrower or its businesses, operations, assets, equipment, property,
leaseholds, or other facilities. Borrower has no indebtedness, obligation, or
liability, absolute or contingent, matured or not matured, with respect to
the storage, treatment, cleanup, or disposal of any Hazardous Substances.
5.12 OWNERSHIP AND LIENS.
The Borrower has title to, or valid leasehold interests in,
all of its properties and assets, real and personal, including, without
limitation, the Collateral, and none of such properties and assets owned by the
Borrower and none of its leasehold interests are subject to any Lien, except
Permitted Liens.
5.13 TAXES.
The Borrower has filed all tax returns (federal, state, and
local) required to be filed and has paid all taxes, assessments, and
governmental charges and levies thereon to be due, including interest and
penalties, except those presently being or to be contested by Borrower in good
faith in the ordinary course of business and for which adequate reserves have
been provided.
5.14 INVESTMENT COMPANY ACT.
Borrower is not an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
5.15 ACCURACY OF REPRESENTATIONS.
No information, document, exhibit, or report furnished by
Borrower to Bank in connection with the negotiation and execution of this
Agreement contains any material misstatement of fact, or fails to state a
material fact or any fact necessary to make the statement contained therein
not materially misleading.
5.16 YEAR 2000 COMPLIANCE.
Borrower has developed a detailed plan to ensure that
Borrower, its affiliates, and all customers, suppliers and vendors that are
material to the Borrower's business, become Year 2000 Compliant on or before
October 1, 1999. The plan (a) effectively prioritizes
CREDIT AGREEMENT - 30
<PAGE>
mission-critical systems, (b) has the involvement of executive management,
(c) includes assessment of key customer, supplier, and vendor Year 2000
compliance, (d) includes contingency planning to mitigate risk from Year 2000
business interruptions affecting key vendors, suppliers, or customers, and
(e) has been allocated adequate resources within Borrower's abilities. As
used in this Agreement, "Year 2000 Compliant" shall mean, in regard to any
entity, that all software, hardware, firmware, equipment, goods or systems
used by or material to the business operations or financial condition of such
entity, will properly perform date sensitive functions before, during and
after January 1, 2000. Such date sensitive functions shall include, without
limitation, (a) interpretation of years greater than 1999, (b) process date
data from, into, and between dates before January 1, 2000, and dates on or
after January 1, 2000, (c) recognizing numbers such as "99" as an actual date
rather than indefinite or unknown information, (d) recognizing that the year
2000 is a leap year, and (e) transferring data between systems that used
different methods to make the system Year 2000 Compliant.
5.17 PERFECTION OF SECURITY INTEREST.
The Security Agreement and the pledge of the Collateral
pursuant thereto creates a valid and perfected first priority security interest
in the Collateral (except for Permitted Liens), securing the payment of the
obligations, and all filings and other actions necessary or desirable to perfect
and protect such security interest have been taken.
5.18 CONTINUING WARRANTIES, REPRESENTATIONS AND COVENANTS.
Each warranty, representation, and covenant contained in this
Agreement shall continue until the Agreement is terminated and all Obligations
have been paid or satisfied in full and shall be conclusively presumed to have
been relied upon by Bank regardless of any investigation made or information
possessed by Bank. The warranties, representations, and covenants set forth
herein shall be cumulative and in addition to any and all other warranties,
representations, and covenants that Borrower shall give or cause to be given to
Bank, either now or hereafter.
ARTICLE 6 - AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that so long as any
Obligation is outstanding it will comply with the following provisions:
6.1 MAINTENANCE OF EXISTENCE.
Borrower shall preserve and maintain its corporate existence
and good standing in the jurisdiction of its incorporation, and qualify and
remain qualified, as a foreign corporation in
CREDIT AGREEMENT - 31
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each jurisdiction in which such qualification is required.
6.2 MAINTENANCE OF RECORDS.
Borrower shall keep adequate records and books of account, in
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions of the Borrower.
6.3 MAINTENANCE OF PROPERTIES.
Borrower shall maintain, keep, and preserve all of its
properties (tangible and intangible) necessary or useful in the proper conduct
of its business in good working order and condition, ordinary wear and tear
excepted.
6.4 CONDUCT OF BUSINESS.
Borrower shall continue to engage in an efficient and
economical manner in businesses of the same general type as conducted by it on
the date of this Agreement.
6.5 MAINTENANCE OF INSURANCE.
Borrower shall, at its expense, maintain insurance with
financially sound and reputable insurance companies or associations in such
amounts, covering such risks, and in such form as shall be consistent with the
industry practices and satisfactory to Bank. Without limiting the forgoing
sentence, Borrower shall procure and maintain all risks insurance, including
without limitation fire, theft, and liability coverage together with such other
insurance as Bank may require with respect to the Collateral, in form, amounts
coverages and basis consistent with industry practices and reasonably acceptable
to Bank and issued by a company or companies reasonably acceptable to Bank.
Borrower, upon request of Bank, shall deliver to Bank from time to time the
policies or certificates of insurance in form satisfactory to Bank, including
stipulations that coverages will not be canceled or diminished without at least
thirty (30) days' prior written notice to Bank and not including any disclaimer
of the insurer's liability for failure to give such a notice. In connection with
all policies covering the Collateral, Borrower shall provide Bank with such
lender loss payable or other endorsements as Bank may require. If Borrower at
any time fails to obtain or maintain any insurance required under the Loan
Documents, Bank may, but shall not be obligated to, obtain such insurance as
Bank deems appropriate, including if it so chooses, "single interest insurance"
that will cover only Bank's interest in the Collateral.
6.6 COMPLIANCE WITH LAWS.
CREDIT AGREEMENT - 32
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Borrower shall comply in all material respects with all
applicable laws, rules, regulations, and orders, such compliance to include,
without limitation, paying before the same become delinquent all taxes,
assessments, and governmental charges imposed upon it or upon its property,
except for such taxes, assessments or charges that are contested by Borrower in
good faith in the ordinary course of business and for which adequate reserves
have been provided.
6.7 RIGHT OF INSPECTION.
Borrower shall, at any reasonable time and from time to time,
permit the Bank or any agent or representative thereof to inspect the
Collateral, examine and make copies of and abstracts from the records and books
of account of, and visit the properties of, the Borrower, and to discuss the
affairs, finances, and accounts of the Borrower with any of its employees,
officers, and directors and the Borrower's independent accountants. Without
limiting the foregoing, at least once every year, and more often if Bank
reasonably deems it necessary, Bank's auditors may audit and examine Borrower's
books and records. Borrower shall reimburse Bank for no more than two auditors
at the rate of Three Hundred Fifty Dollars ($350) per day for each auditor plus
travel expenses.
6.8 ACCOUNTING.
Borrower at all times hereafter shall maintain a standard and
modern system of accounting in accordance with GAAP. Borrower shall not (i)
modify or change its method of accounting without advising Bank of such change,
or (ii) enter into, modify, or terminate any agreement presently existing or at
any time hereafter entered into with any third party accounting firm and/or
service bureau for the preparation and/or storage of Borrower's accounting
records without Borrower instructing said accounting firm and/or service bureau
to provide to Bank information regarding the Collateral and Borrower's financial
condition.
6.9 REIMBURSEMENT OF BANK EXPENSES.
Borrower shall promptly on demand reimburse Bank for sums
expended by Bank that constitute Bank Expenses, and Borrower authorizes and
approves all advances and payments by Bank for items constituting Bank Expenses.
This provision shall survive termination of this Agreement.
6.10 LOCATION OF CHIEF EXECUTIVE OFFICE.
The chief executive office of Borrower is located at Ronan,
Montana, and Borrower shall not relocate such chief executive office without
thirty (30) days prior written
CREDIT AGREEMENT - 33
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notice to Bank.
6.11 REPORTING REQUIREMENTS.
6.11.1 MONTHLY FINANCIAL STATEMENTS. Borrower shall
furnish to Bank as soon as available and in any event within thirty (30) days
after the end of each month, balance sheets of the Borrower as of the end of
such month, statements of income and retained earnings of the Borrower for the
period commencing at the end of the previous fiscal year and ending with the end
of such month, statements of cash flows of the Borrower for the portion of the
fiscal year ended with the last day of such month, and statements of inventory
summary and accounts receivable aging, all in reasonable detail and stating in
comparative form the respective figures for the corresponding date and period in
the previous fiscal year and all prepared in accordance with GAAP consistently
applied and certified by the Borrower's chief financial officer (subject to
year-end adjustments).
6.11.2 ANNUAL FINANCIAL STATEMENTS. Borrower shall
furnish to Bank within one hundred twenty (120) days after the end of each
fiscal year of the Borrower, balance sheets of the Borrower as of the end of
such fiscal year, and statements of income and retained earnings of the Borrower
for such fiscal year, and statements of cash flows of the Borrower for such
fiscal year, all in reasonable detail and stating in comparative form the
respective figures for the corresponding date and period in the prior fiscal
year and all prepared in accordance with GAAP consistently applied and audited
by independent certified public accountants selected by the Borrower and
acceptable to the Bank.
6.11.3 BORROWING BASE CERTIFICATE. Borrower shall
furnish to Bank a Borrowing Base Certificate within five (5) days of the first
and fifteenth day of each month reporting as of the first and fifteenth day of
each month, respectively.
6.11.4 MANAGEMENT LETTERS. Borrower shall furnish
to Bank promptly upon receipt thereof, copies of any reports submitted to the
Borrower by independent certified public accountants in connection with
examination of the financial statements of the Borrower made by such
accountants.
6.11.5 NOTICE OF LITIGATION. Borrower shall furnish
to Bank promptly after the commencement thereof, notice of all actions, suits,
and proceedings before any court or governmental department, commission, board,
bureau, agency, or instrumentality, domestic or foreign, affecting the Borrower
that, if determined adversely to the Borrower, could have a material adverse
effect on the financial condition, properties, or operations of the Borrower.
6.11.6 NOTICE OF DEFAULTS AND EVENTS OF DEFAULT.
Borrower shall furnish
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to Bank as soon as possible and in any event within five (5) Business Days
after the occurrence of each Event of Default, a written notice setting forth
the details of such Event of Default and the action that is proposed to be
taken by the Borrower with respect thereto.
6.11.7 ERISA REPORTS. Borrower shall furnish to
Bank as soon as possible, and in any event within thirty (30) days after the
Borrower knows or has reason to know that any circumstances exist that
constitute grounds entitling the PBGC to institute proceedings to terminate a
Plan subject to ERISA with respect to the Borrower or any Commonly Controlled
Entity, and promptly but in any event within ten (10) Business Days of
receipt by the Borrower or any Commonly Controlled Entity of notice that the
PBGC intends to terminate a Plan or appoint a trustee to administer the same,
and promptly but in any event within ten (10) Business Days of the receipt of
notice concerning the imposition of withdrawal liability with respect to the
Borrower or any Commonly Controlled Entity, a certificate of an authorized
officer of the Borrower setting forth all relevant details and the action
that the Borrower proposes to take with respect thereto.
6.11.8 COMPLIANCE CERTIFICATE. Borrower shall
furnish Bank with each monthly and year-end financial report a certificate of
the chief executive officer or the chief financial officer or other officer
approved by Bank in writing stating that he or she has individually reviewed the
provisions of this Agreement and that review of the activities of Borrower
during such monthly and yearly period, as the case may be, has been made by him
or her or under his or her supervision, with a view to determining whether
Borrower had fulfilled all its obligations under this Agreement, and that
Borrower has observed and performed each undertaking contained in the loan
documents and is not in default in the observance or performance of any of the
provisions of the loan documents or, if Borrower shall be so in default,
specifying all such defaults and events of which he or she may have knowledge.
6.11.9 ANNUAL FORECASTS. No later than fifteen (15)
days before the beginning of each fiscal year, Borrower shall furnish to Bank
financial forecasts for the next three (3) fiscal years prepared by Borrower's
management in form and substance acceptable to Bank.
6.11.10 GENERAL INFORMATION. Borrower shall furnish
to Bank such other information respecting the condition or operations, financial
or otherwise, of the Borrower and JB Tool as the Bank may from time to time
reasonably request.
6.12 ENVIRONMENT.
Borrower shall (i) be and remain in compliance with
Environmental Laws and with the provisions of all other federal, state, and
local environmental, health, and safety laws,
CREDIT AGREEMENT - 35
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codes, and ordinances, and all rules and regulations issued thereunder;
(ii) notify the Bank immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or other party;
(iii) notify the Bank immediately of any hazardous discharge from or
affecting its premises; (iv) immediately contain and remove the same, in
compliance with all applicable laws; (v) promptly pay any fine or penalty
assessed in connection therewith; (vi) permit the Bank to inspect the
premises, to conduct tests thereon, and to inspect all books, correspondence,
and records pertaining thereto; and (vii) at the Bank's request, and at the
Borrower's expense, provide a report of a qualified environmental engineer,
satisfactory in scope, form, and content to the Bank, and such other and
further assurances reasonably satisfactory to the Bank that the condition has
been corrected.
6.13 BANK ACCOUNTS.
Borrower shall use Bank as Borrower's primary depository and
transaction bank.
6.14 YEAR 2000 COMPLIANCE.
Borrower shall take all action that may be necessary or
desirable, or that Bank may reasonably request, in order to ensure that the
Borrower, its affiliates, and all customers, suppliers and vendors that are
material to the Borrower's business, become Year 2000 Compliant on or before
October 1, 1999. Such acts shall include, without limitation, (i) performing a
comprehensive inventory, review and assessment of all of the Borrower's systems
and adopting a detailed plan, with itemized budget and timetable, for the
remediation, monitoring and testing of such systems, and (ii) making a detailed
inquiry of all material customers, suppliers and vendors to ascertain whether
such entities are aware of the need to be Year 2000 Compliant and are taking all
appropriate steps to become Year 2000 Compliant on a timely basis. Borrower
shall, promptly upon request, provide to Bank such certifications or other
evidence of Borrower's compliance with the terms of this section as Bank may
from time to time reasonably require.
ARTICLE 7 - NEGATIVE COVENANTS
The Borrower covenants and agrees that so long as any
Obligation is outstanding it will comply with the following provisions:
7.1 CHANGE OF NAME.
Borrower shall not, without Bank's prior written consent,
change the Borrower's name, business structure, or identity, or add any new
assumed business name.
7.2 MERGERS.
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Borrower shall not, without Bank's prior written consent,
which consent shall not be unreasonably withheld, wind up, liquidate or dissolve
itself, reorganize, merge or consolidate with or into, or convey, sell, assign,
transfer, lease, or otherwise dispose of (whether in one transactions or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired) to any Person, or acquire all or substantially all
of the assets or the business of any Person.
7.3 DEBT.
Without Bank's prior written consent, Borrower shall not
incur, assume, or suffer to exist, any debt other than (i) the Obligations;
(ii) indebtedness and liabilities of Borrower that have been subordinated to
the Obligations by written agreement in form and substance acceptable to
Bank; (iii) accounts payable to trade creditors for goods or services that
are not aged more than ninety (90) days from the billing date and current
operating liabilities (other than for borrowed money) that are not more than
ninety (90) days past due, in each case incurred in the ordinary course of
business, as presently conducted, and paid within the specified time, unless
contested in good faith and by appropriate proceedings; and (iv) debt of the
Borrower secured by purchase-money liens that are Permitted Liens.
7.4 DIVIDENDS.
Without Bank's Prior written consent, Borrower shall not
declare or pay any dividends; or purchase, redeem, retire, or otherwise acquire
for value any of its capital stock now or hereafter outstanding; or make any
distribution of assets to its shareholders as such whether in cash, assets, or
in obligations of the Borrower; or allocate or otherwise set apart any sum for
the payment of any dividend or distribution on, or for the purchase, redemption,
or retirement of any shares of its capital stock; or make any other distribution
by reduction of capital or otherwise in respect of any shares of its capital
stock, except that the Borrower (1) may declare and deliver dividends and make
distributions payable solely in common stock of the Borrower; (2) may purchase
or otherwise acquire shares of its capital stock by exchange for or out of the
proceeds received from a substantially concurrent issue of new shares of its
capital stock; (3) may declare and deliver dividends or make distributions to
Borrower's shareholders to permit the shareholders to pay federal and, as
applicable, state and local income taxes then due and owing to the extent
attributable to the shareholders' ownership of Borrower's stock.; and (4) may
distribute up to $5,000,000 representing the cumulative Adjustment Accounts as
defined by the Internal Revenue Service upon the closing of Borrower's initial
public offering.
7.5 SALE OF ASSETS.
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Without Bank's prior written consent, Borrower shall not sell,
lease, assign, transfer, or otherwise dispose of any of its now owned or
hereafter acquired assets (including, without limitation, receivables and
leasehold interests), except: (1) inventory disposed of in the ordinary course
of business; (2) the sale or other disposition of assets no longer used or
useful in the conduct of its business; and (3) assets with an aggregate value
not in excess of $500,000 during any fiscal year.
7.6 INVESTMENTS.
Borrower shall not make any loan or advance to any Person,
or purchase or otherwise acquire any capital stock, assets, obligations, or
other securities of, make any capital contribution to, or otherwise invest in
or acquire any interest in any Person, or participate as a partner or joint
venturer with any other Person, except: (1) direct obligations of the United
States or any agency thereof with maturities of one year or less from the
date of acquisition; (2) commercial paper of a domestic issuer rated at least
"A-1" by Standard & Poor's Corporation or "P-1" by Moody's Investors Service,
Inc.; (3) certificates of deposit with maturities of one year or less from
the date of acquisition; (4) stock, obligations, or securities received in
settlement of debts (created in the ordinary course of business) owing to the
Borrower; (5) investments made through Bank or one of its affiliates; and
(6) investments of a strategic nature with an aggregate investment value not
in excess of $500,000 at any time.
7.7 GUARANTIES.
Without Bank's prior written consent, Borrower shall not
assume, guarantee, endorse, or otherwise be or become directly or contingently
responsible or liable (including, but not limited to, an agreement to purchase
any obligation, stock, assets, goods, or services, or to supply or advance any
funds, assets, goods, or services, or an agreement to maintain or cause such
Person to maintain a minimum working capital or net worth, or to otherwise
assure the creditors of any Person against loss) for obligations of any Person,
except guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
7.8 SUSPENSION OF BUSINESS.
Borrower shall not, without Bank's prior written consent,
suspend or go out of business.
7.9 LIENS.
Without Bank's prior written consent, Borrower shall not
create, incur, assume, or
CREDIT AGREEMENT - 38
<PAGE>
suffer to exist any Lien upon any of its property or assets, now owned or
hereafter acquired, except for Permitted Liens.
7.10 PENSION PLANS.
Borrower shall not, without the Bank's prior written consent,
enter into, contribute to, or become a party to any Plan, other than those Plans
listed in EXHIBIT 7.10.
7.11 CHANGE IN MANAGEMENT.
Borrower shall not materially and adversely alter its senior
management without giving Bank written notice of such alteration at least sixty
(60) days prior to the date of such alteration in management.
ARTICLE 8 - FINANCIAL COVENANTS
So long as any Obligation is outstanding or the Bank shall
have any commitment under this Agreement, Borrower shall maintain the following
financial covenants:
8.1 CAPITAL EXPENDITURES.
Borrower shall not make any expenditures for fixed or capital
assets if, after giving effect thereto, the aggregate of all such expenditures
made by Borrower would exceed Twenty-three Million Dollars ($23,000,000) during
the fiscal year of Borrower ending December 31, 1999, and Fifteen Million
Dollars ($15,000,000) during any fiscal year of Borrower thereafter.
8.2 CURRENT RATIO.
Borrower shall maintain a ratio of current assets to current
liabilities of not less than 0.40 to 1.00 until Borrower closes an initial
public offering of its stock with net proceeds of at least Twenty Five Million
Dollars ($25,000,000) received by Borrower, and not less than 1.00 to 1.00 at
all times thereafter, except that the ratio shall be not less than 0.95 to 1.00
during the period from the later of the closing of the initial public offering
or February 29, 2000, through August 31, 2000.
8.3 LEVERAGE RATIO.
Borrower shall maintain a ratio of Borrower's total
liabilities to Borrower's total stockholder equity of not greater than 13.0 to
1.0 at all times until Borrower closes an initial
CREDIT AGREEMENT - 39
<PAGE>
public offering of its stock with net proceeds of at least Twenty Five
Million Dollars ($25,000,000) received by Borrower, and 2.5 to 1.00 at all
times thereafter.
8.4 EBITDA COVERAGE RATIO.
Borrower shall maintain, on a rolling four-quarters basis as
measured at the end of each fiscal quarter of Borrower, a ratio of EBITDA to
Debt Service of not less than 1.00 to 1.00 until Borrower closes an initial
public offering of its stock with net proceeds of at least Twenty Five Million
Dollars ($25,000,000) received by Borrower, and not less than 1.25 to 1.00
thereafter, except for the fiscal quarter ending September 30 of each year when
the ratio shall be not less than 1.00 to 1.00.
8.4.1 "EBITDA" shall mean, for any period, as
applied to Borrower, the sum of Borrower's net income plus, to the extent
deducted in computing net income, (a) interest expense, consisting of (i) the
aggregate amount of all interest accrued during such period on Borrower's debt,
(ii) amortization of debt discount and expense during such period, and (iii) all
fees and commissions payable with respect to any letters of credit during such
period, (b) taxes, (c) depreciation, (d) amortization, and (e) other non-cash
charges.
8.4.2 "Debt Service" shall mean, for any period,
as applied to Borrower, the sum of Borrower's scheduled and other payments of
principal and interest on any Funded Debt and any payments with respect to any
stock of Borrower and any taxes.
8.4.3 "Funded Debt" shall mean, as of the date of
determination as applied to Borrower, the sum of (i) all indebtedness of
Borrower owing to third parties for money borrowed, including capitalized leases
of Borrower having a final maturity of one (1) year or more from the date of
creation (including that portion of the principal of such indebtedness due
within one (1) year from the date of such determination), (ii) any indebtedness
of the Borrower having a final maturity within one (1) year from such date which
may be renewed or extended at the option of the Borrower for more than one (1)
year from such date, and (iii) the outstanding balance of the Revolving Line of
Credit, less the amount of Borrower's cash as of the date of determination.
ARTICLE 9 - EVENTS OF DEFAULT
If any of the following events shall occur (each an "Event of
Default"), Bank may exercise any of its rights and remedies under Article 10:
9.1 The Borrower shall fail to pay the principal of, or
interest on, the Revolving Note, or any Obligation within fifteen (15) days of
when due and payable.
CREDIT AGREEMENT - 40
<PAGE>
9.2 Any representation or warranty made or deemed made by
Borrower in this Agreement, the Security Agreements, or other Loan Document or
that is contained in any certificate, document, opinion, or financial or other
statement furnished at any time under or in connection with any Loan Document
shall prove to have been incorrect, incomplete, or misleading in any material
respect on or as of the date made or deemed made.
9.3 Borrower shall fail to perform or observe any term,
covenant, or agreement contained in this Agreement or other Loan Document, or
Borrower shall be in default under any other agreement with Bank.
9.4 Borrower shall (a) fail to pay any indebtedness for
borrowed money (other than the Revolving Note) of the Borrower, or any interest
or premium thereon, when due (whether by scheduled maturity, required
prepayment, acceleration, demand, or otherwise); or (b) fail to perform or
observe any term, covenant, or condition on its part to be performed or observed
under any agreement or instrument relating to any such indebtedness, when
required to be performed or observed, if the effect of such failure to perform
or observe is to accelerate, or to permit the acceleration of after the giving
of notice or passage of time, or both, the maturity of such indebtedness,
whether or not such failure to perform or observe shall be waived by the holder
of such indebtedness, or any such indebtedness shall be declared to be due and
payable, or required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof.
9.5 Borrower (a) shall generally not pay, or shall be
unable to pay, or shall admit in writing its inability to pay its debts as
such debts become due; or (b) shall make an assignment for the benefit of
creditors, or petition or apply to any tribunal for the appointment of a
custodian, receiver, or trustee for it or a substantial part of its assets;
or (c) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution, or liquidation law or statute
of any jurisdiction, whether now or hereafter in effect; or (d) shall have
had any such petition or application filed or any such proceeding commenced
against it in which an order for relief is entered or an adjudication or
appointment is made, and that remains undismissed for a period of sixty (60)
days or more; or (e) shall take any corporate action indicating its consent
to, approval of, or acquiescence in any such petition, application,
proceeding, or order for relief or the appointment of a custodian, receiver,
or trustee for all or any substantial part of its properties; or (f) shall
suffer any such custodianship, receivership, or trusteeship to continue
undischarged for a period of sixty (60) days or more.
9.6 One or more judgments, decrees, or orders for the
payment of money in excess of One Hundred Thousand Dollars ($100,000) in the
aggregate shall be rendered against the Borrower, and such judgments, decrees,
or orders shall continue unsatisfied and in effect for
CREDIT AGREEMENT - 41
<PAGE>
a period of sixty (60) consecutive days without being vacated, discharged,
satisfied, or stayed or bonded pending appeal.
9.7 The Security Agreement shall at any time after its
execution and delivery and for any reason cease (a) to create a valid and
perfected first priority security interest in and to the property purported to
be subject to such Security Agreement; or (b) to be in full force and effect or
shall be declared null and void, or the validity or enforceability thereof shall
be contested by the Borrower, or the Borrower shall deny it has any further
liability or obligation under the Security Agreement, or the Borrower shall fail
to perform any of its obligations under the Security Agreement.
9.8 Any guaranty of the Obligations executed by JB Tool
shall at any time after its execution and delivery and for any reason cease to
be in full force and effect or shall be declared null and void, or the validity
or enforceability thereof shall be contested by JB Tool, or JB Tool shall deny
it has any further liability under, or shall fail to perform its obligations
under, the Guaranty, or the Guarantor, if a natural person, shall die.
9.9 Any of the following events shall occur or exist with
respect to Borrower and any Commonly Controlled Entity under ERISA: any
Reportable Event shall occur; complete or partial withdrawal from any
Multiemployer Plan shall take place; any Prohibited transaction shall occur; a
notice of intent to terminate a Plan shall be filed, or a Plan shall be
terminated; or circumstances shall exist that constitute grounds entitling the
PBGC to institute proceedings to terminate a Plan, or the PBGC shall institute
such proceedings; and in each case above, such event or condition, together with
all other events or conditions, if any, could subject the Borrower to any tax,
penalty, or other liability that in the aggregate may exceed One Hundred
Thousand Dollars.
9.10 If any federal, state, or local agency asserts or
creates a Lien upon any or all of the assets, equipment, property,
leaseholds, or other facilities of Borrower by reason of the occurrence of a
hazardous discharge or an environmental complaint; or if any federal, state,
or local agency asserts a claim against the Borrower and/or its assets,
equipment, property, leaseholds or other facilities for damages or cleanup
costs relating to a hazardous discharge or an environmental complaint;
provided, however, that such claim shall not constitute a default if, within
ten (10) Business Days of the occurrence giving rise to the claim, (a) the
Borrower can prove to the Bank's satisfaction that the Borrower has commenced
and is diligently pursuing an investigation of the claim to be followed
promptly by either: (i) a cure or correction of the event that constitutes
the basis for the claim, and continues diligently to pursue such cure or
correction to completion, or (ii) proceedings for an injunction, a
restraining order, or other appropriate emergent relief preventing such
agency or agencies from asserting such claim, that relief is granted within
ten (10) Business Days of the occurrence giving rise to the claim and the
CREDIT AGREEMENT - 42
<PAGE>
injunction, order, or emergent relief is not thereafter resolved or reversed
on appeal; and (b) in either of the foregoing events, the Borrower has posted
a bond, letter of credit, or other security satisfactory in form, substance
and amount to both the Bank and the agency or entity asserting the claim to
secure the proper and complete cure or correction of the event that
constitutes the basis for the claim.
9.11 Any material misrepresentation exists now or
hereafter in any warranty or representation made to Bank by any officer or
director of Borrower, or if any such warranty or representation is withdrawn by
any officer or director.
9.12 This Agreement shall at any time after its execution
and delivery and for any reason cease to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall be
contested by Borrower, or Borrower shall deny it has any further liability or
obligation under this Agreement.
If any default, other than a payment default, is curable and if Borrower has not
been given a notice of a similar default within the preceding twelve (12)
months, it may be cured (and no Event of Default will have occurred) if
Borrower, after receiving written notice from Bank demanding cure of such
default: (a) cures the default within fifteen (15) days; or (b) if the cure
requires more than fifteen (15) days, immediately initiates steps that Bank
deems in Bank's sole discretion to be sufficient to cure the default and
thereafter continues and completes all reasonable and necessary steps sufficient
to produce compliance as soon as reasonably practical.
ARTICLE 10 - BANK'S RIGHTS AND REMEDIES
10.1 SPECIFIC REMEDIES.
Upon the occurrence of an Event of Default by Borrower under
this Agreement, Bank may, at its election and without notice of its election and
without demand, do any one or more of the following, all of which are authorized
by Borrower:
10.1.1 Declare all Obligations, whether evidenced
by this Agreement or the Loan Documents, due and payable immediately.
10.1.2 Terminate this Agreement and any of the
other Loan Documents as to any future liability or obligation of Bank, but
without affecting Bank's rights and security interest in the Collateral and
without affecting the Obligations.
10.2 SET OFF.
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Upon the occurrence and during the continuance of any Event of
Default the Bank is hereby authorized at any time and from time to time, without
notice to the Borrower (any such notice being expressly waived by the Borrower),
to set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Bank to or for the credit or the account of Borrower against any and all
of the obligations of the Borrower now or hereafter existing under this
Agreement or the Revolving Note or any other Loan Document, irrespective of
whether or not the Bank shall have made any demand under this Agreement or the
Revolving Note or such other Loan Document and although such obligations may be
unmatured. The Bank agrees promptly to notify the Borrower after any such setoff
and application, provided that the failure to give such notice shall not affect
the validity of such setoff and application. The rights of the Bank under this
Section are in addition to other rights and remedies (including, without
limitation, other rights of setoff) that the Bank may have.
10.3 NO LIMITATION ON REMEDIES.
Bank's rights and remedies under this Agreement and the Loan
Documents shall be cumulative. Bank shall have all other rights and remedies not
inconsistent herewith as provided by law or in equity. No exercise by Bank of
one right or remedy shall be deemed an election, and no waiver by Bank of any
default on Borrower's part shall be deemed a continuing waiver. No delay by Bank
shall constitute a waiver, election, or acquiescence by it.
10.4 BANK EXPENSES.
Borrower shall pay all Bank Expenses incurred in connection
with Bank's enforcement and exercise of any of its rights and remedies as herein
provided, whether or not suit is commenced by Bank, together with interest on
such Bank Expenses at the rate on the Revolving Line of Credit from the date of
expenditure until repaid.
ARTICLE 11 - WAIVERS
11.1 APPLICATION OF PAYMENTS.
Borrower waives the right to direct the application of any and
all payments at any time or times hereafter received by Bank on account of the
Obligations, and Borrower agrees that Bank shall have the continuing exclusive
right to apply and reapply such payments in any manner as Bank may deem
advisable, notwithstanding any entry by Bank upon its books.
11.2 DEMAND AND NOTICES.
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<PAGE>
Borrower waives demand, protest, notice of protest, notice of
default or dishonor, notice of payment and nonpayment, notice of any default,
nonpayment at maturity, release, compromise, settlement, extension or renewal of
any or all commercial paper, accounts, documents, instruments, chattel paper,
and guarantees at any time held by Bank for which Borrower may in any way be
liable.
ARTICLE 12 - NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by either party relating to the Loan Documents shall be in writing and
either personally served or sent by facsimile transmission, overnight delivery
service, or regular United States mail, postage prepaid, to Borrower or to Bank
as the case may be at the addresses set forth below:
If to Borrower: Jore Corporation
45000 Highway 93 South
Ronan, Montana 59864
Attention: Matthew Jore, President
Fax: 406/676-4901
With a copy to: David H. Bjornson
Chief Financial Officer/General Counsel
Jore Corporation
45000 Highway 93 South
Ronan, Montana 59864
Fax: 406/676-4901
If to Bank: First Security Bank, N.A.
Post Office Box 7069
Boise, Idaho 83730
Attention: Corporate Banking
Fax: 208/393-2472
With a copy to: Moffatt, Thomas, Barrett, Rock &
Fields, Chartered
101 S. Capitol Blvd., 10th Floor
P.O. Box 829
Boise, Idaho 83701-0829
Attention: David S. Jensen
Fax: 208/385-5384
CREDIT AGREEMENT - 45
<PAGE>
The parties may change the address at which they are to receive notices
hereunder by notice in writing in the foregoing manner given to the other. All
notices or demands sent in accordance with this Section shall be deemed received
on the earlier of the date of confirmed actual receipt or three (3) Business
Days after the deposit thereof in the mail.
ARTICLE 13 - DESTRUCTION OF BORROWER'S DOCUMENTS
After notice to Borrower, any documents, schedules, invoices,
or other papers delivered to Bank may be destroyed or otherwise disposed of by
Bank at any time six (6) months after they are delivered to or received by Bank,
unless Borrower requests in writing the return of the said documents, schedules,
invoices, or other papers and makes arrangements at Borrower's expense for their
return.
ARTICLE 14 - CHOICE OF LAW AND VENUE
This Agreement is made in the state of Idaho, which state the
parties agree has a substantial relationship to the parties and to the
underlying transaction embodied hereby. Accordingly, in all respects, this
Agreement and the Loan Documents and the obligations arising hereunder and
thereunder shall be governed by, and construed in accordance with, the laws of
the state of Idaho applicable to contracts made and performed in such state and
any applicable law of the United States of America. Each party hereby
unconditionally and irrevocably waives, to the fullest extent permitted by law,
any claim to assert that the law of any jurisdiction other than the state of
Idaho governs this Agreement. All disputes, controversies, or claims arising out
of, or in connection with, this Agreement or any Loan Document shall be
litigated in any court of competent jurisdiction within the state of Idaho. Each
party hereby accepts jurisdiction of such state and agrees to accept service of
process as if it were personally served within such state. Each party
irrevocably waives, to the fullest extent permitted by law, any objection that
the party may now or hereafter have to the jurisdiction of the courts of such
state and any claim that any such litigation brought in any such court has been
brought in an inconvenient forum.
ARTICLE 15 - GENERAL PROVISIONS
15.1 EFFECTIVE DATE.
This Agreement shall be binding and deemed effective as of the
date first written above when executed by Borrower and accepted and executed by
Bank.
15.2 AMENDMENTS.
No amendment, modification, termination, or waiver of any
provision of any
CREDIT AGREEMENT - 46
<PAGE>
Loan Document, nor consent to any departure by the Borrower from any Loan
Document, shall in any event be effective unless the same shall be in writing
and signed by Bank, and then such waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given.
15.3 NO WAIVER.
No failure or delay on the part of the Bank in exercising any
right, power, or remedy hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any such right, power, or remedy preclude any
other or further exercise thereof or the exercise of any other right, power, or
remedy hereunder. The rights and remedies provided herein are cumulative and are
not exclusive of any other rights, powers, privileges or remedies, now or
hereafter existing, at law or in equity or otherwise.
15.4 SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon and inure to the benefit
of the Borrower and Bank and their respective successors and assigns, except
that the Borrower may not assign or transfer any of their rights under any Loan
Document to which Borrower is a party without the prior written consent of Bank.
15.5 PARTICIPATIONS.
Bank may, at any time, sell to one or more banks, financial
institutions or other Persons (each a "Participant") participating interests in
the Loans or any other interest of Bank under the Loan Documents. In the event
of any such sale by Bank, Bank's obligations to Borrower under this Agreement
shall remain unchanged, Bank shall remain solely responsible for the performance
thereof, Bank shall remain the holder of the Loans for all purposes under the
Loan Documents, and Borrower shall continue to deal solely and directly with
Bank in connection with the Bank's rights and obligations under the Loan
Documents. If Obligations are due or unpaid, or shall have been declared or
shall have become due or unpaid, upon the occurrence of an Event of Default,
each Participant shall, to the maximum extent permitted by applicable law, be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under the Loan Documents to the same extent as if the amount of
its participating interest were owing directly to it as Bank under this
Agreement.
15.5.1 The consent of Borrower shall not be
required for any sole of a participating interest in the Loan or any other
interest of Bank under the Loan Documents.
15.5.2 Borrower authorizes Bank to disclose to any
actual or prospective Participant and/or assignee, any and all financial
information in Bank's possession or known to
CREDIT AGREEMENT - 47
<PAGE>
Bank concerning Borrower, its affiliates, and the Collateral that has been
delivered to Bank by or on behalf of Borrower pursuant to the Loan Documents
or in connection with Bank's credit evaluation of Borrower.
15.5.3 Notwithstanding any contrary provision of
this Section 15.5, Bank shall at all times be the lead lender (i.e., the sole
party with whom Borrower needs to communicate) with respect to the Loans, and
Borrower shall only be required to communicate with Bank. Each Participant
that receives confidential information regarding Borrower or the Collateral
must agree to use reasonable efforts to keep all information acquired by it
in connection with the Loans or Loan Documents and relating to Borrower
and/or the collateral confidential; provided, however, that such information
may be distributed by any Participant (i) pursuant to a court order or a
demand made by any governmental agency or authority, or otherwise in
connection with litigation or as otherwise required by law, (ii) after the
occurrence of an Event of Default, but only with respect to the Collateral,
(iii) to such person's consultants or professionals, as necessary, (iv) in
connection with a sale or participation of such person's interest in the
Loans, and (v) to regulators in connection with audits.
15.6 HEADINGS.
Article and Section headings in the Loan Documents are
included in such Loan Documents for the convenience of reference only and shall
not constitute a part of the applicable Loan Documents for any other purpose.
15.7 CONSTRUCTION.
Neither this Agreement nor any uncertainty or ambiguity herein
shall be construed or resolved against Bank or Borrower, whether under any rule
of construction or otherwise. On the contrary, this Agreement has been reviewed
by all parties and shall be construed and interpreted according to the ordinary
meaning of the words used so as to fairly accomplish the purposes and intentions
of all parties hereto.
15.8 SEVERABILITY.
Any provisions of any Loan Document that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition of unenforceability without invalidating the
remaining provisions of such Loan Document or affecting the validity or
enforceability of such provision in any other jurisdiction.
15.9 INTEGRATION.
CREDIT AGREEMENT - 48
<PAGE>
This Agreement and the other Loan Documents contain the entire
agreement between the parties relating to the subject matter hereof and
supersede all oral statements and prior writings with respect thereto.
15.10 INDEMNITY.
Borrower shall defend, indemnify, and hold Bank harmless
from and against any and all claims, damages, judgments, penalties, costs and
expenses (including attorney fees and court costs now or hereafter arising
from the enforcement of this provision) arising directly or indirectly from
the activities of the Borrower, their predecessors in interest, or third
parties with whom they have a contractual relationship, or arising directly
or indirectly from the violation of any Environmental Law, whether such
claims are asserted by any governmental agency or any other Person. This
indemnity shall survive termination of this Agreement.
15.11 NONLIABILITY OF BANK.
Bank shall not be liable for any claims, demands, losses or
damages made, claimed or suffered by Borrower, except such as may arise through
or could be caused by Bank's gross negligence or willful misconduct. Bank shall
not be responsible for any lost profits of Borrower arising from any breach of
contract, tort (excluding the Bank's gross negligence or willful misconduct), or
any other wrong arising from the establishment, administration or collection of
the Obligations.
15.12 COUNTERPARTS.
This Agreement may be executed in any number of counterparts
and delivered by facsimile transmission. Each counterpart when so executed shall
be deemed to be an original and all of which taken together shall constitute one
and the same Agreement.
IN WITNESS WHEREOF, Borrower has executed this Agreement.
Borrower: JORE CORPORATION
By
Its
ACCEPTED AND EFFECTIVE as of the 19th day of August, 1999,
in the state of Idaho.
CREDIT AGREEMENT - 49
<PAGE>
Bank: FIRST SECURITY BANK, N.A.
By
Mary G. Monroe, Vice President
CREDIT AGREEMENT - 50
<PAGE>
EXHIBIT 1.9
FORM OF BORROWING BASE CERTIFICATE
See attached.
EXHIBIT 1.9
<PAGE>
BORROWING BASE CERTIFICATE
JORE CORPORATION
<TABLE>
<S> <C> <C> <C>
I. CALCULATION OF ELIGIBLE ACCOUNTS AS OF _______________.
Open Accounts: _______
Less Ineligible Accounts Reported in Schedule 1: _______
Total Eligible Accounts: _______
85 Percent of Eligible Accounts: _______
II. CALCULATION OF ELIGIBLE INVENTORY AS OF _____________
Total Inventory: _______
Less Ineligible Inventory: _______
Total Eligible Inventory: _______
65 Percent of Eligible Inventory: _______
III. BORROWING BASE TEMPORARY INCREASE UNTIL FEBRUARY 1, 2000: $8,081,686
IV. TOTAL BORROWING BASE (I + II + III): ______
V. LESS OUTSTANDING PRINCIPAL BALANCE UNDER REVOLVING LINE OF CREDIT: ______
VI. TOTAL AVAILABILITY: ______
</TABLE>
CERTIFICATION
Pursuant to the Credit Agreement dated as of August 19, 1999,
between Jore Corporation ("Borrower") and First Security Bank, N.A. ("Bank"),
Borrower certifies to Bank that the information in this Borrowing Base
Certificate is correct and accurate in all material respects, and that the
principal amount outstanding under the Revolving Line of Credit under the Credit
Agreement is not in excess of the Commitment Amount (as defined in the Credit
BORROWING BASE CERTIFICATE - 52
<PAGE>
Agreement). Borrower represents and warrants to Bank that Bank has been
granted a security interest in the above accounts and inventory and the
Eligible Accounts and Eligible Inventory conform to the requirements therefor
under the Credit Agreement. Borrower further represents and warrants to Bank,
to the best of Borrower's knowledge, that Borrower is in compliance with the
Credit Agreement and no Event of Default has occurred and is continuing
thereunder.
Dated:
------------------
Jore Corporation
By
-----------------------------------------
Name
----------------------------------
Title
--------------------------------
BORROWING BASE CERTIFICATE - 53
<PAGE>
SCHEDULE 1 TO BORROWING BASE CERTIFICATE
Ineligible Accounts:
90 days past due:
Bankruptcy/Collection:
Affiliated Parties:
Conditional Payment:
Foreign Accounts:
Consignments:
Government Accounts:
Bill and Hold Arrangements:
Account Debtors with over 25% Delinquent Accounts:
Over 50% of Total Accounts:
Accounts for which Borrower liable to Account Debtor:
Encumbered Accounts:
Chattel Paper or Instrument Accounts:
Account Debtors in Unqualified States:
Total Exclusions:
BORROWING BASE CERTIFICATE - 54
<PAGE>
EXHIBIT 1.26
FORM OF JB TOOL SECURITY AGREEMENT
See attached.
EXHIBIT 1.26
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of August 19, 1999, by JB
TOOL, LLC, a Montana limited liability company (the "Grantor"), to FIRST
SECURITY BANK, N.A., (the "Bank").
R E C I T A L S :
A. Jore Corporation, a Montana limited liability company (the
"Borrower") and the Bank have entered into a Credit Agreement dated as of August
19, 1999 (the "Credit Agreement").
B. Pursuant to a Continuing and Unconditional Guaranty (the
"Guaranty"), Grantor has guaranteed the payment to Bank of Borrower's
obligations under the Credit Agreement.
C. It is a condition precedent to the making of financial
accommodations to Borrower by the Bank under the Credit Agreement that Grantor
shall have granted the security interest contemplated by this Agreement.
NOW, THEREFORE, in order to induce the Bank to make the loans
under the Credit Agreement, the Grantor agrees with the Bank as follows:
1. ASSIGNMENT AND GRANT OF SECURITY INTEREST. The
Grantor hereby assigns and grants to the Bank a security interest in all of the
Grantor's right, title and interest in and to the following, whether now owned
or hereafter acquired (the "Collateral"):
1.1 All inventory in all of its forms, wherever
located, now or hereafter existing, including, but not limited to, (a) all raw
materials and work in process therefor, finished goods thereof, and materials
used or consumed in the manufacture or production thereof; (b) goods in which
the Grantor has an interest in mass or a joint or other interest or right of any
kind (including, without limitation, goods in which the Grantor has an interest
or right as consignee); and (c) goods which are returned to or repossessed by
the Grantor, and all accessions thereto and products thereof and documents
therefor (any and all such inventory, accessions, products, and documents being
the "Inventory").
SECURITY AGREEMENT - 56
<PAGE>
1.2 All accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles, and other
obligations of any kind, now or hereafter existing, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services, and all rights, now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, chattel paper, instruments, deposit accounts,
general intangibles, and obligations (any and all such accounts, contract
rights, chattel paper, instruments, deposit accounts, general intangibles,
and obligations being the "Receivables," and any and all such leases,
security agreements, and other contracts being the "Related Contracts").
1.3 All proceeds of any and all of the foregoing
Collateral (including, without limitation, proceeds that constitute property of
the types described in clauses 1.1-1.2 of this Section 1), and, to the extent
not otherwise included, all (a) payments under insurance (whether or not the
Bank is the loss payee thereof), or any indemnity, warranty, or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral, and (b) cash.
1.8 All records and data relating to any of the
foregoing Collateral, whether in the form of a writing, photograph, microfilm,
microfiche, or electronic media together with all of Grantor's right, title, and
interest in and to all computer software required to use, create, maintain, and
process any such records or data on electronic media.
2. SECURITY FOR OBLIGATIONS. The assignment and security
interest granted by this Agreement is granted to secure the payment of all
obligations of the Grantor now or hereafter existing under the Guaranty whether
for principal, interest, fees, expenses, or otherwise, and all obligations of
the Grantor now or hereafter existing under this Agreement (all such obligations
of the Grantor being the "Obligations"). In addition, the "Obligations" includes
all other obligations, debts and liabilities, plus interest thereon, of Grantor,
or any one or more of them, to Bank, as well as all claims by Bank against
Grantor, or any one or more of them, whether existing now or later; whether they
are voluntary or involuntary, due or not due, direct or indirect, absolute or
contingent, liquidated or unliquidated; whether Grantor may be liable
individually or jointly with others; whether Grantor may be obligated as
guarantor, surety, accommodation party or otherwise. Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
that constitute part of the Obligations and would be owed by the Grantor to the
Bank under the Credit Agreement but for the fact that they are unenforceable or
not allowable owing to the existence of bankruptcy, reorganization, or similar
proceedings involving the Grantor.
SECURITY AGREEMENT - 57
<PAGE>
3. GRANTOR REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (1) the Grantor shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed; (2) the exercise by the Bank
of any rights hereunder shall not release the Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral; and
(3) the Bank shall not have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Bank be obligated to perform any of the obligations or duties of the Grantor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
4. REPRESENTATIONS AND WARRANTIES. The Grantor
represents and warrants to Bank as follows:
4.1 All of the Inventory is located at the
places specified in SCHEDULE 1 hereto. The chief place of business and chief
executive office of the Grantor and the office where the Grantor keeps its
records concerning the Receivables and other Collateral, and the originals of
all chattel paper that evidence Receivables, are located at its address
specified in Section 16. None of the Receivables is evidenced by a promissory
note or other instrument.
4.2 The Grantor is the legal and beneficial
owner of the Collateral free and clear of any lien except for the security
interest created by this Agreement. No effective financing statement or other
document similar in effect covering all or any part of the Collateral is on file
in any recording office, except such as may have been filed in favor of the
Bank. The Grantor has no assumed business names.
4.3 The Grantor has exclusive possession and
control of the Equipment and Inventory.
4.4 This Agreement creates a valid security
interest in the Collateral, securing the payment of the Obligations, and all
filings and other actions necessary or desirable to perfect and protect such
security interest in a first priority position have been taken.
4.5 No consent of any other person or entity and
no authorization, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required (a) for the grant by
the Grantor of the assignment and security interest granted hereby or for the
execution and delivery of this Agreement and the performance by the Grantor of
its obligations thereunder; (b) for
SECURITY AGREEMENT - 58
<PAGE>
the perfection or maintenance of the assignment and security interest created
hereby (including the first priority nature of such assignment and security
interest); or (c) for the exercise by the Bank of the voting or other rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement (except as may be required in connection with the
disposition of any portion of the Security Collateral by laws affecting the
offering and sale of securities generally).
4.6 The Inventory produced by Grantor has been
produced by the Grantor in compliance with all requirements of the Fair Labor
Standards Act.
4.7 All of the Accounts are and will be bona
fide existing obligations created by the sale and actual delivery of Inventory
or other property, the rendition of services, or the furnishing of other good
and sufficient consideration to Account Debtors in the regular course of
business.
5. FURTHER ASSURANCES.
5.1 The Grantor shall from time to time, at the
expense of the Grantor, promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or desirable, or
that the Bank may reasonably request, in order to perfect and protect any
assignment or security interest granted or purported to be granted hereby or to
enable the Bank to exercise and enforce its rights and remedies hereunder with
respect to any Collateral. Without limiting the generality of the foregoing, the
Grantor will: (a) mark conspicuously each document included in the Inventory and
each chattel paper included in the Receivables, each Related Contract, and, at
the request of the Bank, each of its records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Bank, indicating that such
document, chattel paper, Related Contract, or Collateral is subject to the
assignment, and security interest granted hereby; (b) if any Collateral shall be
evidenced by a promissory note or other instrument or chattel paper, deliver and
pledge to the Bank hereunder such note or instrument or chattel paper duly
endorsed and accompanied by duly executed instruments of transfer or assignment,
all in form and substance satisfactory to the Bank; (c) execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as the Bank may
request, in order to perfect and preserve the pledge, assignment, and security
interest granted or purported to be granted hereby; and (d) deliver to Bank any
certificate of title now or hereafter existing on any of the Collateral and take
all steps necessary for the title to recite the interest of Bank.
5.2 The Grantor authorizes the Bank to file one
or more financing or continuation statements, and amendments thereto, relating
to all or any part
SECURITY AGREEMENT - 59
<PAGE>
of the Collateral without the signature of the Grantor where permitted by
law. A photocopy or other reproduction of this Agreement or any financing
statement covering the Collateral or any part thereof shall be sufficient as
a financing statement where permitted by law.
5.3 The Grantor will furnish to the Bank from
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as the Bank
may reasonably request, all in reasonable detail.
6. EQUIPMENT AND INVENTORY COVENANTS.
6.1 The Grantor shall keep the Inventory (other
than Inventory sold in the ordinary course of business) at the places therefor
specified in SCHEDULE 1 or, upon 30 days' prior written notice to the Bank, at
such other places in a jurisdiction where all action required by Section 5.l
shall have been taken with respect to the Equipment and Inventory.
6.2 The Grantor shall pay promptly when due all
property and other taxes, assessments, and governmental charges or levies
imposed upon, and all claims (including claims for labor, materials, and
supplies) against, the Inventory. In producing the Inventory, the Grantor shall
comply with all requirements of the Fair Labor Standards Act.
7. INSURANCE.
7.1 The Grantor shall, at its own expense,
maintain insurance with respect to the Collateral in such amounts, against such
risks, in such form and with such insurers, as shall be satisfactory to the Bank
from time to time. Each policy for liability insurance shall provide for all
losses to be paid on behalf of the Bank and the Grantor as their respective
interests may appear and each policy for property damage insurance shall provide
for all losses (except for losses of less than $50,000 per occurrence) to be
paid directly to the Bank. Each such policy shall in addition (a) name the
Grantor and the Bank as insured parties thereunder (without any representation
or warranty by or obligation upon the Bank) as their interests may appear; (b)
contain the agreement by the insurer that any loss thereunder shall be payable
to the Bank notwithstanding any action, inaction, or breach of representation or
warranty by the Grantor; (c) provide that there shall be no recourse against the
Bank for payment of premiums or other amounts with respect thereto; and (d)
provide that at least thirty days' prior written notice of cancellation or of
lapse shall be given to the Bank by the insurer.
SECURITY AGREEMENT - 60
<PAGE>
The Grantor shall, if so requested by the Bank, deliver to the Bank original
or duplicate policies of such insurance and, as often as the Bank may
reasonably request, a report of a reputable insurance broker with respect to
such insurance. Further, the Grantor shall, at the request of the Bank, duly
execute and deliver instruments of assignment of such insurance policies to
comply with the requirements of Section 5.1 and cause the insurers to
acknowledge notice of such assignment.
7.2 Grantor shall promptly notify Bank of any
loss or damage to the Collateral. Bank may make proof of loss if Grantor fails
to do so within fifteen (15) days of the casualty. All proceeds of any insurance
on the Collateral, including accrued proceeds thereon, shall be held by Bank as
part of the Collateral. If Bank consents to repair or replacement of the damaged
or destroyed Collateral, Bank shall, upon satisfactory proof of expenditure, pay
or reimburse Grantor from the proceeds for the reasonable cost of repair or
restoration. If Bank does not consent to repair or replacement of the
Collateral, Bank shall retain a sufficient amount of the proceeds to pay all of
the Obligations, and shall pay the balance to Grantor. Any proceeds that have
not been disbursed within six (6) months after their receipt and that Grantor
has not committed to the repair or restoration of the Collateral shall be used
to prepay the Obligations.
8. PLACE OF PERFECTION; RECORDS; COLLECTION OF
RECEIVABLES.
8.1 The Grantor shall keep its chief place of
business and chief executive office and the office where it keeps its records
concerning the Receivables, and the originals of all chattel paper that
evidence Receivables, at the location therefor specified in Section 4.1 or,
upon 30 days' prior written notice to the Bank, at any other locations in a
jurisdiction where all actions required by Section 5 shall have been taken
with respect to the Receivables. The Grantor will hold and preserve such
records and chattel paper and will permit representatives of the Bank at any
time during normal business hours to inspect and make abstracts from such
records and chattel paper.
8.2 Except as otherwise provided in this
subsection, the Grantor shall continue to collect, at its own expense, all
amounts due or to become due the Grantor under the Receivables. In connection
with such collections, the Grantor may take (and, at the Bank's direction, shall
take) such action as the Grantor or the Bank may deem necessary or advisable to
enforce collection of the Receivables; provided, however, that the Bank shall
have the right upon the occurrence and during the continuance of an Event of
Default or an event that, with the giving of notice or the lapse of time, or
both, would become an Event of Default and upon written notice to the Grantor of
its intention to do so, to notify the account debtors or obligors under any
Receivables of the
SECURITY AGREEMENT - 61
<PAGE>
assignment of such Receivables to the Bank and to direct such account debtors
or obligors to make payment of all amounts due or to become due to the
Grantor thereunder directly to the Bank and, upon such notification and at
the expense of the Grantor, to enforce collection of any such Receivables,
and to adjust, settle, or compromise the amount or payment thereof, in the
same manner and to the same extent as the Grantor might have done. After
receipt by the Grantor of the notice from the Bank referred to in the proviso
to the preceding sentence, (a) all amounts and proceeds (including
instruments) received by the Grantor in respect of the Receivables shall be
received in trust for the benefit of the Bank hereunder, shall be segregated
from other funds of the Grantor, and shall be forthwith paid over to the Bank
in the same form as so received (with any necessary endorsement) to be held
as cash collateral and either (i) released to the Grantor so long as no Event
of Default shall have occurred and be continuing or (ii) if any Event of
Default shall have occurred and be continuing, applied as provided by Section
13.2, and (b) the Grantor shall not adjust, settle, or compromise the amount
or payment of any Receivable, release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon.
9. TRANSFERS AND OTHER LIENS. The Grantor shall not (a)
sell, assign (by operation of law or otherwise), or otherwise dispose of, or
grant any option with respect to, any of the Collateral, except Inventory in the
ordinary course of business, or (b) create or permit to exist any lien upon or
with respect to any of the Collateral, except for the security interest under
this Agreement.
10. BANK APPOINTED ATTORNEY-IN-FACT. The Grantor
irrevocably appoints the Bank the Grantor's attorney-in-fact, with full
authority in the place and stead of the Grantor and in the name of the
Grantor or otherwise, from time to time in the Bank's discretion, to take any
action and to execute any instrument that the Bank may deem necessary or
advisable to accomplish the purposes of this Agreement (subject to the rights
of the Grantor under Section 8), including, without limitation:
10.1 To obtain and adjust insurance required to
be paid to the Bank pursuant to the Section captioned "Insurance;"
10.2 To ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for moneys due and to
become due under or in connection with the Collateral;
10.3 To receive, endorse, and collect any drafts
or other instruments, documents, and chattel paper, in connection therewith; and
SECURITY AGREEMENT - 62
<PAGE>
10.4 To file any claims or take any action or
institute any proceedings that the Bank may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of the
Bank with respect to any of the Collateral.
11. BANK MAY PERFORM. If the Grantor fails to perform any
agreement contained herein, the Bank may itself perform, or cause performance
of, such agreement, and the expenses of the Bank incurred in connection
therewith shall be payable by the Grantor under Subsection 14.2.
12. THE BANK'S DUTIES. The powers conferred on the Bank
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Bank shall have no duty as to any Collateral, or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral. The Bank shall be deemed to
have exercised reasonable care in the custody and preservation of any Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which it accords its own property.
13. REMEDIES. If any Event of Default shall have occurred
and be continuing:
13.1 The Bank may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the State of Idaho at
that time (whether or not such code applies to the affected Collateral), and
also may (a) require the Grantor to, and the Grantor agrees that it will at
its expense and upon request of the Bank forthwith, assemble all or part of
the Collateral as directed by the Bank and make it available to the Bank at a
place to be designated by the Bank that is reasonably convenient to both
parties and (b) without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any
of the Bank's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Bank may deem commercially
reasonable. The Grantor agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to the Grantor of the time and
place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Bank shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Bank may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and
SECURITY AGREEMENT - 63
<PAGE>
such sale may, without further notice, be made at the time and place to which
it was so adjourned.
13.2 Any cash held by the Bank as Collateral and
all cash proceeds received by the Bank in respect of any sale of, collection
from, or other realization upon all or any part of the Collateral may, in the
discretion of the Bank, be held by the Bank as Collateral for, and/or then or
any time thereafter be applied (after payment of any amounts payable to the Bank
pursuant to Section 14) in whole or in part by the Bank against, all or any part
of the Obligations in such order as the Bank shall elect. Any surplus of such
cash or cash proceeds held by the Bank and remaining after payment in full of
all the Obligations shall be paid over to the Grantor or to whomsoever may be
lawfully entitled to receive such surplus.
14. INDEMNITY AND EXPENSES.
14.1 The Grantor shall indemnify the Bank from
and against any and all claims, losses, and liabilities (including reasonable
attorney fees) growing out of or resulting from this Agreement (including,
without limitation, enforcement of this Agreement), except claims, losses, or
liabilities resulting from the Bank's gross negligence or willful misconduct.
14.2 The Grantor shall upon demand pay to the
Bank the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the Bank
may incur in connection with (a) the administration of this Agreement; (b) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral; (c) the exercise or enforcement
of any of the rights of the Bank hereunder; or (d) the failure by the Grantor to
perform or observe any of the provisions hereof.
15. AMENDMENTS. No amendment, modification, termination,
or waiver of any provision of this Agreement, and no consent to any departure by
the Grantor herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
16. NOTICES. Unless otherwise provided in this Agreement,
all notices or demands by either party relating to this Agreement shall be in
writing and either personally served or sent by facsimile transmission,
overnight delivery service, or regular United States mail, postage prepaid, to
Grantor or to Bank as the case may be at the addresses set forth below:
SECURITY AGREEMENT - 64
<PAGE>
If to Grantor: JB Tool, LLC
45000 Highway 93 South
Ronan, Montana 59864
Attention: Matthew Jore
Fax: 406/676-4901
With a copy to: David H. Bjornson
Chief Financial Officer/General Counsel
Jore Corporation
45000 Highway 93 South
Fax: 406/676-4901
If to Bank: First Security Bank
P.O. Box 7069
Boise, Idaho 83709
Attention: Corporate Banking
Fax: 208/393-2472
With a copy to: Moffatt, Thomas, Barrett, Rock &
Fields, Chartered
101 S. Capitol Blvd., 10th Floor (83702)
P.O. Box 829
Boise, Idaho 83701-0829
Attention: David S. Jensen
Fax: 208/385-5384
The parties may change the address at which they are to receive notices
hereunder by notice in writing in the foregoing manner given to the other. All
notices or demands sent in accordance with this Section shall be deemed received
on the earlier of the date of confirmed actual receipt or two (2) business days
after the deposit thereof in the mail.
17. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER
GUARANTY. This Agreement shall create a continuing security interest in the
Collateral and shall (1) remain in full force and effect until the later of
the payment in full of the Obligations and all other amounts payable under
this Agreement; (2) be binding upon the Grantor, its successors and assigns;
and (3) inure to the benefit of, and be enforceable by, the Bank and its
successors, transferees, and assigns. Without limiting the generality of the
foregoing clause (3), the Bank may assign or otherwise transfer all or any
portion of its rights and obligations under the Guaranty to any other person
or entity, and such other
SECURITY AGREEMENT - 65
<PAGE>
person or entity shall thereupon become vested with all the benefits in
respect thereof granted to the Bank herein or otherwise. Upon the later of
the payment in full of the Obligations and all other amounts payable under
this Agreement, the security interest granted hereby shall terminate and all
rights to the Collateral shall revert to the Grantor. Upon any such
termination, the Bank will, at the Grantor's expense, execute and deliver to
the Grantor such documents as the Grantor shall reasonably request to
evidence such termination.
18. GOVERNING LAW. This Agreement is made in the state of
Idaho, which state the parties agree has a substantial relationship to the
parties and to the underlying transaction embodied hereby. Accordingly, in all
respects, including, without limiting the generality of the foregoing, matters
of construction, validity, enforceability and performance, this Agreement and
the obligations arising hereunder and thereunder shall be governed by, and
construed in accordance with, the laws of the state of Idaho applicable to
contracts made and performed in such state and any applicable law of the United
States of America. Each party hereby unconditionally and irrevocably waives, to
the fullest extent permitted by law, any claim to assert that the law of any
jurisdiction other than the state of Idaho governs this Agreement. All disputes,
controversies, or claims arising out of, or in connection with, this Agreement
shall be litigated in any court of competent jurisdiction within the state of
Idaho. Each party hereby accepts jurisdiction of such state and agrees to accept
service of process as if it were personally served within such state. Each party
irrevocably waives, to the fullest extent permitted by law, any objection that
the party may now or hereafter have to the jurisdiction of the courts of such
state and any claim that any such litigation brought in any such court has been
brought in an inconvenient forum.
21. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided therefor in
the Credit Agreement.
22. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed an original and all of which taken together shall be deemed to be one and
the same Agreement.
IN WITNESS WHEREOF, the Grantor has caused this Agreement to
be executed as of the date first written above.
JB TOOL, LLC
By
SECURITY AGREEMENT - 66
<PAGE>
William J. Powers, Managing Member
By
Jeffrey Swartwout, Managing Member
SECURITY AGREEMENT - 67
<PAGE>
SCHEDULE 1
LOCATION OF EQUIPMENT AND INVENTORY
1. 45000 Highway 93 South
Ronan, Montana 59864
2. 332 High Street
Edgerton, Wisconsin 53534
SECURITY AGREEMENT - 68
<PAGE>
EXHIBIT 1.37
PERMITTED LIENS
<TABLE>
<CAPTION>
SECURED PARTY MONTANA FINANCING STATEMENT NO.
<S> <C>
Hoogovens Aluminum Corp. USA 517171
Charter Financial, Inc./Wentworth Capital 542862
International Software Finance Corp. 544162
The CIT Group/Equipment Financing, 545818
Inc.
NBD Equipment Finance, Inc. 548102
NBD Equipment Finance, Inc. 548103
KeyCorp Leasing 548891
KeyCorp Leasing 551169
KeyCorp Leasing 551175
KeyCorp Leasing 559959
KeyCorp Leasing 560504
KeyCorp Leasing 562689
KeyCorp Leasing 562690
KeyCorp Leasing 562691
KeyCorp Leasing 563296
Milacron Marketing Company 563488
KeyCorp Leasing 565776
Big Sky Lift Truck, Inc. 518910
Big Sky Lift Truck, Inc. 537121
Big Sky Lift Truck, Inc. 552351
Charter Financial, Inc./Wentworth Capital 537013
Charter Financial, Inc./Wentworth Capital 537014
Charter Financial, Inc./Wentworth Capital 537015
Charter Financial, Inc./Wentworth Capital 537016
Phoenixcor, Inc. 550894
International Software Finance Corp. 554699
The CIT Group/Equipment Financing Inc. 437927
Phoenixcor, Inc. 484156
Phoenixcor, Inc. 484157
Rogers Machinery Co. 488035
Phoenixcor, Inc. 535085
</TABLE>
EXHIBIT 1.37 - 69
<PAGE>
EXHIBIT 1.43
DESCRIPTION OF THE REAL PROPERTY
Parcel 1:
The SE1/4SW1/4 of Section 12, Township 20 North, Range 20 West, P.M.M., Lake
County, Montana.
Parcel 2:
A tract of land located in the NW1/4NW1/4 of Section 13, Township 20 North,
Range 20 West, P.M.M., Lake County, Montana, further shown and described as
being Tract A on Certificate of Survey No. 5509, on file in the office of the
Clerk and Recorder of Lake County, Montana.
Parcel 3:
A tract of land located in the NE1/4NW1/4 of Section 13, Township 20 North,
Range 20 West, P.M.M., Lake County, Montana, further shown and described as
being Tract 1 on Certificate of Survey No. 5564, on file in the office of the
Clerk and Recorder of Lake County, Montana.
EXHIBIT 1.43
<PAGE>
EXHIBIT 1.46
FORM OF REVOLVING NOTE
See attached.
EXHIBIT 1.46
<PAGE>
REVOLVING NOTE
BORROWER: JORE CORPORATION AUGUST 19, 1999
BOISE, IDAHO
ADDRESS: 45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
PRINCIPAL AMOUNT: TWENTY FIVE MILLION DOLLARS ($25,000,000)
FOR VALUE RECEIVED, JORE CORPORATION, a Montana corporation
("Borrower"), promises to pay to the order of FIRST SECURITY BANK, N.A. ("Bank")
the total principal amount outstanding on this note (the "Note") together with
interest thereon as stated below, in lawful money of the United States of
America.
This Note is executed pursuant to and is the Revolving Note
referred to in that certain Credit Agreement, dated August 19, 1999, between
Borrower and Bank (as amended, modified, or supplemented from time to time, the
"Credit Agreement"). Capitalized terms used but not defined in this Note shall
have the same definitions as are ascribed to such terms in the Credit Agreement.
This Note is governed by the provisions of the Credit Agreement.
This Note is a revolving promissory note and evidences a revolving line
of credit not to exceed the maximum principal amount stated above at any one
time. The amount outstanding on this Note at any specific time shall be the
total amount advanced by Bank less the amount of principal payments made from
time to time, plus any interest due and payable.
Borrower agrees that any and all advances made hereunder shall be for
Borrower's benefit, whether or not said advances are deposited to Borrower's
account. Advances may be made at the request of those persons so identified in
the Credit Agreement and such persons are hereby authorized to request advances
and to direct the disposition of any such advances in the manner provided in the
Credit Agreement until written notice of revocation of this authority is
received by Bank from Borrower.
The outstanding unpaid balance of this Note shall bear interest at a
fluctuating per annum rate as set forth in the Credit Agreement. This Note shall
be repaid in the manner set forth in the Credit Agreement.
This Note is secured by a Mortgage and by a Security Agreement covering
REVOLVING NOTE - 72
<PAGE>
equipment, inventory, accounts, general intangibles and other collateral as
provided therein and in the Credit Agreement.
This Note is made in the state of Idaho, which state the parties agree
has a substantial relationship to the parties and to the underlying transaction
embodied hereby. Accordingly, in all respects, this Note and the obligations
arising hereunder shall be governed by, and construed in accordance with, the
laws of the state of Idaho applicable to contracts made and performed in such
state and any applicable law of the United States of America. Each party hereby
unconditionally and irrevocably waives, to the fullest extent permitted by law,
any claim to assert that the law of any jurisdiction other than the state of
Idaho governs this Note. All disputes, controversies, or claims arising out of,
or in connection with, this Note shall be litigated in any court of competent
jurisdiction within the state of Idaho. Each party hereby accepts jurisdiction
of such state and agrees to accept service of process as if it were personally
served within such state. Each party irrevocably waives, to the fullest extent
permitted by law, any objection that the party may now or hereafter have to the
jurisdiction of the courts of such state and any claim that any such litigation
brought in any such court has been brought in an inconvenient forum.
Except as expressly provided in the Credit Agreement, the makers,
sureties, guarantors and endorsers of this Note jointly and severally waive
presentment for payment, protest, notice of protest and notice of nonpayment of
this Note, and consent that this Note or any payment due under this Note may be
extended or renewed without demand or notice, and further consent to the release
of any collateral or part thereof, with or without substitution.
JORE CORPORATION
By
Matthew Jore, President
REVOLVING NOTE - 73
<PAGE>
EXHIBIT 1.47
FORM OF SECURITY AGREEMENT
See attached.
EXHIBIT 1.47
<PAGE>
SECURITY AGREEMENT
This SECURITY AGREEMENT is made as of August 19, 1999, by JORE
CORPORATION, a Montana corporation (the "Borrower"), to FIRST SECURITY BANK,
N.A., (the "Bank").
R E C I T A L S :
A. The Borrower and the Bank have entered into a Credit Agreement
dated as of August 19, 1999 (the "Credit Agreement").
B. It is a condition precedent to the making of financial
accommodations to Borrower by the Bank under the Credit Agreement that the
Borrower shall have granted the security interest contemplated by this
Agreement.
NOW, THEREFORE, in order to induce the Bank to make the loans
under the Credit Agreement, the Borrower agrees with the Bank as follows:
1. ASSIGNMENT AND GRANT OF SECURITY INTEREST. The
Borrower hereby assigns and grants to the Bank a security interest in all of the
Borrower's right, title and interest in and to the following, whether now owned
or hereafter acquired (the "Collateral"):
1.1 All equipment in all of its forms, wherever
located, now or hereafter existing, all fixtures, and all parts thereof and all
accessions thereto (any and all such equipment, fixtures, parts, and accessions
being the "Equipment"). The fixtures are and will be located on the real
property described in the attached EXHIBIT A, and the Borrower is the record
owner of such real property.
1.2 All inventory in all of its forms, wherever
located, now or hereafter existing, including, but not limited to, (a) all raw
materials and work in process therefor, finished goods thereof, and materials
used or consumed in the manufacture or production thereof; (b) goods in which
the Borrower has an interest in mass or a joint or other interest or right of
any kind (including, without limitation, goods in which the Borrower has an
interest or right as consignee); and (c) goods which are returned to or
repossessed by the Borrower, and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions, products, and
documents being the "Inventory").
SECURITY AGREEMENT - 75
<PAGE>
1.3 All accounts, contract rights, chattel
paper, instruments, deposit accounts, general intangibles, and other
obligations of any kind, now or hereafter existing, whether or not arising
out of or in connection with the sale or lease of goods or the rendering of
services, and all rights, now or hereafter existing in and to all security
agreements, leases, and other contracts securing or otherwise relating to any
such accounts, contract rights, chattel paper, instruments, deposit accounts,
general intangibles, and obligations (any and all such accounts, contract
rights, chattel paper, instruments, deposit accounts, general intangibles,
and obligations being the "Receivables," and any and all such leases,
security agreements, and other contracts being the "Related Contracts").
1.4 All of the following (the "Agreement
Collateral"): Each of the agreements related to the operation of Borrower's
Business and all of Borrower's right, title, and interest thereto as such
agreements may be amended or otherwise modified from time to time (collectively,
the "Assigned Agreements"), including, without limitation, (a) all rights of the
Borrower to receive moneys due and to become due under or pursuant to the
Assigned Agreements; (b) all rights of the Borrower to receive proceeds of any
insurance, indemnity, warranty, or guaranty with respect to the Assigned
Agreements; (c) claims of the Borrower for damages arising out of or for breach
of or default under the Assigned Agreements; and (d) the right of the Borrower
to terminate the Assigned Agreements, to perform thereunder and to compel
performance and otherwise exercise all remedies thereunder.
1.5 All of Borrower's membership interest in JB
Tool, LLC, a Montana limited liability company, and all cash, instruments, and
other property from time to time received, receivable, or otherwise distributed
in respect of or in exchange for any or all of the membership interest (the
"Membership Interest").
1.6 All trademarks, service marks, trademark and
service mark registrations, trademark and service mark registration
applications, copyrights, patents, patent applications, and inventions, now or
hereafter existing.
1.7 All proceeds of any and all of the foregoing
Collateral (including, without limitation, proceeds that constitute property of
the types described in clauses l.1-1.6 of this Section 1), and, to the extent
not otherwise included, all (a) payments under insurance (whether or not the
Bank is the loss payee thereof), or any indemnity, warranty, or guaranty,
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing Collateral, and (b) cash.
1.8 All records and data relating to any of the
foregoing
SECURITY AGREEMENT - 76
<PAGE>
Collateral, whether in the form of a writing, photograph, microfilm,
microfiche, or electronic media together with all of Borrower's right, title,
and interest in and to all computer software required to use, create,
maintain, and process any such records or data on electronic media.
2. SECURITY FOR OBLIGATIONS. The assignment and
security interest granted by this Agreement is granted to secure the payment
of all obligations of the Borrower now or hereafter existing under the Credit
Agreement, whether for principal, interest, fees, expenses, or otherwise, and
all obligations of the Borrower now or hereafter existing under this
Agreement (all such obligations of the Borrower being the "Obligations"). In
addition, the "Obligations" includes all other obligations, debts and
liabilities, plus interest thereon, of Borrower, or any one or more of them,
to Bank, as well as all claims by Bank against Borrower, or any one or more
of them, whether existing now or later; whether they are voluntary or
involuntary, due or not due, direct or indirect, absolute or contingent,
liquidated or unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as guarantor, surety,
accommodation party or otherwise. Without limiting the generality of the
foregoing, this Agreement secures the payment of all amounts that constitute
part of the Obligations and would be owed by the Borrower to the Bank under
the Credit Agreement but for the fact that they are unenforceable or not
allowable owing to the existence of bankruptcy, reorganization, or similar
proceedings involving the Borrower.
3. BORROWER REMAINS LIABLE. Anything herein to the
contrary notwithstanding, (1) the Borrower shall remain liable under the
contracts and agreements included in the Collateral to the extent set forth
therein to perform all of its duties and obligations thereunder to the same
extent as if this Agreement had not been executed; (2) the exercise by the Bank
of any rights hereunder shall not release the Borrower from any of its duties or
obligations under the contracts and agreements included in the Collateral; and
(3) the Bank shall not have any obligation or liability under the contracts and
agreements included in the Collateral by reason of this Agreement, nor shall the
Bank be obligated to perform any of the obligations or duties of the Borrower
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.
4. REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants to Bank as follows:
4.1 All of the Equipment and Inventory are
located at the places specified in SCHEDULE62 hereto. The chief place of
business and chief executive office of the Borrower and the office where the
Borrower keeps its records concerning the Receivables and other Collateral, and
the originals of all chattel paper that evidence
SECURITY AGREEMENT - 77
<PAGE>
Receivables, and the original copies of the Assigned Agreements, are located
at its address specified in Section 18. None of the Receivables is evidenced
by a promissory note or other instrument.
4.2 The Borrower is the legal and beneficial
owner of the Collateral free and clear of any lien except for the security
interest created by this Agreement. No effective financing statement or other
document similar in effect covering all or any part of the Collateral is on file
in any recording office, except such as may have been filed in favor of the
Bank. The Borrower has no assumed business names.
4.3 The Borrower has exclusive possession and
control of the Equipment and Inventory.
4.4 The Assigned Agreements, have been
authorized, executed, and delivered by all parties thereto, have not been
amended or otherwise modified except as permitted by Section 9, are in full
force and effect and are binding upon and enforceable against all parties
thereto in accordance with their respective terms. There exists no default under
any Assigned Agreement by any party thereto. Upon reasonable request of Bank
from time to time, Borrower shall in good faith try to obtain a consent to the
assignment of an Assigned Agreement to the Bank pursuant to this Agreement,
executed and delivered by each party to the Assigned Agreement.
4.5 This Agreement creates a valid security
interest in the Collateral, securing the payment of the Obligations, and all
filings and other actions necessary or desirable to perfect and protect such
security interest in a first priority position have been taken.
4.6 No consent of any other person or entity and
no authorization, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required (a) for the grant by
the Borrower of the assignment and security interest granted hereby or for the
execution and delivery of this Agreement and the performance by the Borrower of
its obligations thereunder; (b) for the perfection or maintenance of the
assignment and security interest created hereby (including the first priority
nature of such assignment and security interest); or (c) for the exercise by the
Bank of the voting or other rights provided for in this Agreement or the
remedies in respect of the Collateral pursuant to this Agreement (except as may
be required in connection with the disposition of any portion of the Security
Collateral by laws affecting the offering and sale of securities generally).
4.7 The Inventory produced by Borrower has been
produced by
SECURITY AGREEMENT - 78
<PAGE>
the Borrower in compliance with all requirements of the Fair Labor Standards
Act.
4.8 All of the Accounts are and will be bona
fide existing obligations created by the sale and actual delivery of Inventory
or other property, the rendition of services, or the furnishing of other good
and sufficient consideration to Account Debtors in the regular course of
business.
5. FURTHER ASSURANCES.
5.1 The Borrower shall from time to time, at
the expense of the Borrower, promptly execute and deliver all further
instruments and documents, and take all further action, that may be necessary
or desirable, or that the Bank may reasonably request, in order to perfect
and protect any assignment or security interest granted or purported to be
granted hereby or to enable the Bank to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. Without limiting the
generality of the foregoing, the Borrower will: (a) mark conspicuously each
document included in the Inventory and each chattel paper included in the
Receivables, each Related Contract, each Assigned Agreement and, at the
request of the Bank, each of its records pertaining to the Collateral with a
legend, in form and substance satisfactory to the Bank, indicating that such
document, chattel paper, Related Contract, Assigned Agreement, or Collateral
is subject to the assignment, and security interest granted hereby; (b) if
any Collateral shall be evidenced by a promissory note or other instrument or
chattel paper, deliver and pledge to the Bank hereunder such note or
instrument or chattel paper duly endorsed and accompanied by duly executed
instruments of transfer or assignment, all in form and substance satisfactory
to the Bank; (c) execute and file such financing or continuation statements,
or amendments thereto, and such other instruments or notices, as may be
necessary or desirable, or as the Bank may request, in order to perfect and
preserve the pledge, assignment, and security interest granted or purported
to be granted hereby; and (d) deliver to Bank any certificate of title now or
hereafter existing on any of the Collateral and take all steps necessary for
the title to recite the interest of Bank.
5.2 The Borrower authorizes the Bank to file one
or more financing or continuation statements, and amendments thereto, relating
to all or any part of the Collateral without the signature of the Borrower where
permitted by law. A photocopy or other reproduction of this Agreement or any
financing statement covering the Collateral or any part thereof shall be
sufficient as a financing statement where permitted by law.
5.3 The Borrower will furnish to the Bank from
time to time statements and schedules further identifying and describing the
Collateral and such other
SECURITY AGREEMENT - 79
<PAGE>
reports in connection with the Collateral as the Bank may reasonably request,
all in reasonable detail.
5.4 All certificates or instruments representing
or evidencing the Membership Interest, if any, shall be delivered to and held by
or on behalf of the Bank and shall be suitable in form for transfer by delivery,
or shall be accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to the Bank. The Bank shall
have the right, at any time in its discretion and without notice to the
Borrower, to transfer to the Bank or any of its nominees any or all of the
Membership Interest.
6. EQUIPMENT AND INVENTORY COVENANTS.
6.1 The Borrower shall keep the Equipment and
Inventory (other than Inventory sold in the ordinary course of business) at the
places therefor specified in SCHEDULE 1 or, upon 30 days' prior written notice
to the Bank, at such other places in a jurisdiction where all action required by
Section 5.l shall have been taken with respect to the Equipment and Inventory.
6.2 The Borrower shall cause the Equipment to
be maintained and preserved in good condition, repair, and working order as
when new, ordinary wear and tear excepted, and in accordance with any
manufacturer's manual, and shall forthwith, or in the case of any loss or
damage to any of the Equipment as quickly as practicable after the occurrence
thereof, make or cause to be made all repairs, replacements, and other
improvements in connection therewith that are necessary or desirable to such
end. The Borrower shall promptly notify the Bank about any loss or damage to
any of the Equipment.
6.3 The Borrower shall pay promptly when due all
property and other taxes, assessments, and governmental charges or levies
imposed upon, and all claims (including claims for labor, materials, and
supplies) against, the Equipment and Inventory. In producing the Inventory, the
Borrower shall comply with all requirements of the Fair Labor Standards Act.
7. INSURANCE.
7.1 The Borrower shall, at its own expense,
maintain insurance with respect to the Collateral in such amounts, against such
risks, in such form and with such insurers, as shall be satisfactory to the Bank
from time to time. Each policy for liability insurance shall provide for all
losses to be paid on behalf of the Bank and the
SECURITY AGREEMENT - 80
<PAGE>
Borrower as their respective interests may appear and each policy for
property damage insurance shall provide for all losses (except for losses of
less than $50,000 per occurrence) to be paid directly to the Bank. Each such
policy shall in addition (a) name the Borrower and the Bank as insured
parties thereunder (without any representation or warranty by or obligation
upon the Bank) as their interests may appear; (b) contain the agreement by
the insurer that any loss thereunder shall be payable to the Bank
notwithstanding any action, inaction, or breach of representation or warranty
by the Borrower; (c) provide that there shall be no recourse against the Bank
for payment of premiums or other amounts with respect thereto; and (d)
provide that at least thirty days' prior written notice of cancellation or of
lapse shall be given to the Bank by the insurer. The Borrower shall, if so
requested by the Bank, deliver to the Bank original or duplicate policies of
such insurance and, as often as the Bank may reasonably request, a report of
a reputable insurance broker with respect to such insurance. Further, the
Borrower shall, at the request of the Bank, duly execute and deliver
instruments of assignment of such insurance policies to comply with the
requirements of Section 5.1 and cause the insurers to acknowledge notice of
such assignment.
7.2 Borrower shall promptly notify Bank of
any loss or damage to the Collateral. Bank may make proof of loss if Borrower
fails to do so within fifteen (15) days of the casualty. All proceeds of any
insurance on the Collateral, including accrued proceeds thereon, shall be
held by Bank as part of the Collateral. If Bank consents to repair or
replacement of the damaged or destroyed Collateral, Bank shall, upon
satisfactory proof of expenditure, pay or reimburse Borrower from the
proceeds for the reasonable cost of repair or restoration. If Bank does not
consent to repair or replacement of the Collateral, Bank shall retain a
sufficient amount of the proceeds to pay all of the Obligations, and shall
pay the balance to Borrower. Any proceeds that have not been disbursed within
six (6) months after their receipt and that Borrower has not committed to the
repair or restoration of the Collateral shall be used to prepay the
Obligations.
8. PLACE OF PERFECTION; RECORDS; COLLECTION OF
RECEIVABLES.
8.1 The Borrower shall keep its chief place of
business and chief executive office and the office where it keeps its records
concerning the Receivables, and the original copies of the Assigned Agreements
and the originals of all chattel paper that evidence Receivables, at the
location therefor specified in Section 4.1 or, upon 30 days' prior written
notice to the Bank, at any other locations in a jurisdiction where all actions
required by Section 5 shall have been taken with respect to the Receivables. The
Borrower will hold and preserve such records, Assigned Agreements, and chattel
paper and will permit representatives of the Bank at any time during normal
SECURITY AGREEMENT - 81
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business hours to inspect and make abstracts from such records and chattel
paper.
8.2 Except as otherwise provided in this
subsection, the Borrower shall continue to collect, at its own expense, all
amounts due or to become due the Borrower under the Receivables. In connection
with such collections, the Borrower may take (and, at the Bank's direction,
shall take) such action as the Borrower or the Bank may deem necessary or
advisable to enforce collection of the Receivables; provided, however, that the
Bank shall have the right upon the occurrence and during the continuance of an
Event of Default or an event that, with the giving of notice or the lapse of
time, or both, would become an Event of Default and upon written notice to the
Borrower of its intention to do so, to notify the account debtors or obligors
under any Receivables of the assignment of such Receivables to the Bank and to
direct such account debtors or obligors to make payment of all amounts due or to
become due to the Borrower thereunder directly to the Bank and, upon such
notification and at the expense of the Borrower, to enforce collection of any
such Receivables, and to adjust, settle, or compromise the amount or payment
thereof, in the same manner and to the same extent as the Borrower might have
done. After receipt by the Borrower of the notice from the Bank referred to in
the proviso to the preceding sentence, (a) all amounts and proceeds (including
instruments) received by the Borrower in respect of the Receivables shall be
received in trust for the benefit of the Bank hereunder, shall be segregated
from other funds of the Borrower, and shall be forthwith paid over to the Bank
in the same form as so received (with any necessary endorsement) to be held as
cash collateral and either (i) released to the Borrower so long as no Event of
Default shall have occurred and be continuing or (ii) if any Event of Default
shall have occurred and be continuing, applied as provided by Section 15.2, and
(b) the Borrower shall not adjust, settle, or compromise the amount or payment
of any Receivable, release wholly or partly any account debtor or obligor
thereof, or allow any credit or discount thereon.
9. AGREEMENT COLLATERAL COVENANTS.
9.1 The Borrower shall at its expense:
(a) Perform and observe all the terms
and provisions of the Assigned Agreements to be performed or observed by it,
maintain the Assigned Agreements in full force and effect, enforce the Assigned
Agreements in accordance with their respective terms, and take all such action
to such end as may be from time to time reasonably requested by the Bank.
(b) Furnish to the Bank promptly upon
receipt thereof copies of all notices, requests, and other documents received by
the Borrower under or
SECURITY AGREEMENT - 82
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pursuant to the Assigned Agreements, and from time to time (i) furnish to the
Bank such information and reports regarding the Assigned Agreements as the
Bank may reasonably request and (ii) upon request of the Bank make to any
other party to any Assigned Agreement such demands and requests for
information and reports or for action as the Borrower is entitled to make
thereunder.
9.2 The Borrower shall not, without the Bank's
written consent,
(a) Cancel or terminate any Assigned
Agreement or consent to or accept any cancellation or termination thereof;
(b) Amend or otherwise modify any
Assigned Agreement or give any consent, waiver, or approval thereunder;
(c) Waive any default under or breach
of any Assigned Agreement; or
(d) Take any other action in connection
with any Assigned Agreement that would impair the value of the interest or
rights of the Borrower thereunder or that would impair the interest or rights of
the Bank.
10. PAYMENTS UNDER THE ASSIGNED AGREEMENTS. The Borrower
shall, upon Bank's written request from time to time, instruct each other party
to each Assigned Agreement, that all payments due or to become due under or in
connection with such Assigned Agreement shall be made directly to the Bank at
its address set forth in the Section captioned "Notices."
11. TRANSFERS AND OTHER LIENS. The Borrower shall not
(a) sell, assign (by operation of law or otherwise), or otherwise dispose of,
or grant any option with respect to, any of the Collateral, except Inventory
in the ordinary course of business, or (b) create or permit to exist any lien
upon or with respect to any of the Collateral, except for the security
interest under this Agreement.
12. BANK APPOINTED ATTORNEY-IN-FACT. The Borrower
irrevocably appoints the Bank the Borrower's attorney-in-fact, with full
authority in the place and stead of the Borrower and in the name of the Borrower
or otherwise, from time to time in the Bank's discretion, to take any action and
to execute any instrument that the Bank may deem necessary or advisable to
accomplish the purposes of this Agreement (subject to the rights of the Borrower
under Section 8), including, without limitation:
SECURITY AGREEMENT - 83
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12.1 To obtain and adjust insurance required to
be paid to the Bank pursuant to the Section captioned "Insurance;"
12.2 To ask, demand, collect, sue for, recover,
compromise, receive and give acquittance and receipts for moneys due and to
become due under or in connection with the Collateral;
12.3 To receive, endorse, and collect any drafts
or other instruments, documents, and chattel paper, in connection therewith; and
12.4 To file any claims or take any action or
institute any proceedings that the Bank may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce compliance with the
terms and conditions of any Assigned Agreement or the rights of the Bank with
respect to any of the Collateral.
13. BANK MAY PERFORM. If the Borrower fails to perform
any agreement contained herein, the Bank may itself perform, or cause
performance of, such agreement, and the expenses of the Bank incurred in
connection therewith shall be payable by the Borrower under Subsection 16.2.
14. THE BANK'S DUTIES. The powers conferred on the Bank
hereunder are solely to protect its interest in the Collateral and shall not
impose any duty upon it to exercise any such powers. Except for the safe custody
of any Collateral in its possession and the accounting for moneys actually
received by it hereunder, the Bank shall have no duty as to any Collateral, or
as to the taking of any necessary steps to preserve rights against prior parties
or any other rights pertaining to any Collateral. The Bank shall be deemed to
have exercised reasonable care in the custody and preservation of any Collateral
in its possession if such Collateral is accorded treatment substantially equal
to that which it accords its own property.
15. REMEDIES. If any Event of Default shall have occurred
and be continuing:
15.1 The Bank may exercise in respect of the
Collateral, in addition to other rights and remedies provided for herein or
otherwise available to it, all the rights and remedies of a secured party on
default under the Uniform Commercial Code in effect in the State of Idaho at
that time (whether or not such code applies to the affected Collateral), and
also may (a) require the Borrower to, and the Borrower agrees that it will at
its expense and upon request of the Bank forthwith, assemble all or part of
SECURITY AGREEMENT - 84
<PAGE>
the Collateral as directed by the Bank and make it available to the Bank at a
place to be designated by the Bank that is reasonably convenient to both
parties and (b) without notice except as specified below, sell the Collateral
or any part thereof in one or more parcels at public or private sale, at any
of the Bank's offices or elsewhere, for cash, on credit or for future
delivery, and upon such other terms as the Bank may deem commercially
reasonable. The Borrower agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to the Borrower of the time and
place of any public sale or the time after which any private sale is to be
made shall constitute reasonable notification. The Bank shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Bank may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may,
without further notice, be made at the time and place to which it was so
adjourned.
15.2 Any cash held by the Bank as Collateral and
all cash proceeds received by the Bank in respect of any sale of, collection
from, or other realization upon all or any part of the Collateral may, in the
discretion of the Bank, be held by the Bank as Collateral for, and/or then or
any time thereafter be applied (after payment of any amounts payable to the Bank
pursuant to Section 16) in whole or in part by the Bank against, all or any part
of the Obligations in such order as the Bank shall elect. Any surplus of such
cash or cash proceeds held by the Bank and remaining after payment in full of
all the Obligations shall be paid over to the Borrower or to whomsoever may be
lawfully entitled to receive such surplus.
15.3 The Bank may exercise any and all rights and
remedies of the Borrower under or in connection with the Assigned Agreements or
otherwise in respect of the Collateral, including, without limitation, any and
all rights of the Borrower to demand or otherwise require payment of any amount
under, or performance of any provision of, any Assigned Agreement.
15.4 All payments received by the Borrower under
or in connection with any Assigned Agreement or otherwise in respect of the
Collateral shall be received in trust for the benefit of the Bank, shall be
segregated from other funds of the Borrower and shall be forthwith paid over to
the Bank in the same form as so received (with any necessary endorsement).
16. INDEMNITY AND EXPENSES.
16.1 The Borrower shall indemnify the Bank from
and against any and all claims, losses, and liabilities (including reasonable
attorney fees) growing out
SECURITY AGREEMENT - 85
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of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), except claims, losses, or liabilities
resulting from the Bank's gross negligence or willful misconduct.
16.2 The Borrower shall upon demand pay to the
Bank the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, that the Bank
may incur in connection with (a) the administration of this Agreement; (b) the
custody, preservation, use or operation of, or the sale of, collection from, or
other realization upon, any of the Collateral; (c) the exercise or enforcement
of any of the rights of the Bank hereunder; or (d) the failure by the Borrower
to perform or observe any of the provisions hereof.
17. AMENDMENTS. No amendment, modification, termination,
or waiver of any provision of this Agreement, and no consent to any departure by
the Borrower herefrom, shall in any event be effective unless the same shall be
in writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
18. NOTICES. Unless otherwise provided in this Agreement,
all notices or demands by either party relating to this Agreement shall be in
writing and either personally served or sent by facsimile transmission,
overnight delivery service, or regular United States mail, postage prepaid, to
Borrower or to Bank as the case may be at the addresses set forth below:
If to Borrower: Jore Corporation
45000 Highway 93 South
Ronan, Montana 59864
Attention: Matthew Jore, President
Fax: 406/676-4901
With a copy to: David H. Bjornson
Chief Financial Officer/General Counsel
Jore Corporation
45000 Highway 93 South
Fax: 406/676-4901
If to Bank: First Security Bank
P.O. Box 7069
Boise, Idaho 83709
Attention: Corporate Banking
SECURITY AGREEMENT - 86
<PAGE>
Fax: 208/393-2472
With a copy to: Moffatt, Thomas, Barrett, Rock &
Fields, Chartered
101 S. Capitol Blvd., 10th Floor (83702)
P.O. Box 829
Boise, Idaho 83701-0829
Attention: David S. Jensen
Fax: 208/385-5384
The parties may change the address at which they are to receive notices
hereunder by notice in writing in the foregoing manner given to the other. All
notices or demands sent in accordance with this Section shall be deemed received
on the earlier of the date of confirmed actual receipt or two (2) business days
after the deposit thereof in the mail.
19. CONTINUING SECURITY INTEREST; ASSIGNMENTS UNDER
CREDIT AGREEMENT. This Agreement shall create a continuing security interest in
the Collateral and shall (1) remain in full force and effect until the later of
the payment in full of the Obligations and all other amounts payable under this
Agreement; (2) be binding upon the Borrower, its successors and assigns; and (3)
inure to the benefit of, and be enforceable by, the Bank and its successors,
transferees, and assigns. Without limiting the generality of the foregoing
clause (3), the Bank may assign or otherwise transfer all or any portion of its
rights and obligations under the Credit Agreement to any other person or entity,
and such other person or entity shall thereupon become vested with all the
benefits in respect thereof granted to the Bank herein or otherwise. Upon the
later of the payment in full of the Obligations and all other amounts payable
under this Agreement, the security interest granted hereby shall terminate and
all rights to the Collateral shall revert to the Borrower. Upon any such
termination, the Bank will, at the Borrower's expense, execute and deliver to
the Borrower such documents as the Borrower shall reasonably request to evidence
such termination.
20. GOVERNING LAW. This Agreement is made in the state
of Idaho, which state the parties agree has a substantial relationship to the
parties and to the underlying transaction embodied hereby. Accordingly, in
all respects, including, without limiting the generality of the foregoing,
matters of construction, validity, enforceability and performance, this
Agreement and the obligations arising hereunder and thereunder shall be
governed by, and construed in accordance with, the laws of the state of Idaho
applicable to contracts made and performed in such state and any applicable
law of the United States of America. Each party hereby unconditionally and
irrevocably waives, to the fullest extent permitted by law, any claim to
assert that the law of any jurisdiction
SECURITY AGREEMENT - 87
<PAGE>
other than the state of Idaho governs this Agreement. All disputes,
controversies, or claims arising out of, or in connection with, this
Agreement shall be litigated in any court of competent jurisdiction within
the state of Idaho. Each party hereby accepts jurisdiction of such state and
agrees to accept service of process as if it were personally served within
such state. Each party irrevocably waives, to the fullest extent permitted by
law, any objection that the party may now or hereafter have to the
jurisdiction of the courts of such state and any claim that any such
litigation brought in any such court has been brought in an inconvenient
forum.
21. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings provided therefor in
the Credit Agreement.
22. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed an original and all of which taken together shall be deemed to be one and
the same Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Agreement to
be executed as of the date first written above.
JORE CORPORATION
By
Its
SECURITY AGREEMENT - 88
<PAGE>
SCHEDULE 1
LOCATION OF EQUIPMENT AND INVENTORY
1. 45000 Highway 93 South
Ronan, Montana 59864
2. 332 High Street
Edgerton, Wisconsin 53534
3. 1420 E. Third Ave.
Post Falls, ID 83854-7580
4. 333-C Dietz Ave.
DeKalb, Illinois 60115
SECURITY AGREEMENT - 89
<PAGE>
EXHIBIT A
DESCRIPTION OF THE REAL PROPERTY ON WHICH THE FIXTURES ARE LOCATED
Parcel 1:
The SE1/4SW1/4 of Section 12, Township 20 North, Range 20 West, P.M.M., Lake
CounTY, Montana.
Parcel 2:
A tract of land located in the NW1/4NW1/4 of Section 13, Township 20 North,
Range 20 West, P.M.M., Lake County, Montana, further shown and described as
being Tract A on Certificate of Survey No. 5509, on file in the office of the
Clerk and Recorder of Lake County, Montana.
Parcel 3:
A tract of land located in the NE1/4NW1/4 of Section 13, Township 20 North,
Range 20 West, P.M.M., Lake County, Montana, further shown and described as
being Tract 1 on Certificate of Survey No. 5564, on file in the office of the
Clerk and Recorder of Lake County, Montana.
SECURITY AGREEMENT - 90
<PAGE>
EXHIBIT 2.1.1
AUTHORIZED PERSONS
Bank shall make the Loans under the Revolving Line of Credit upon written or, at
the discretion of Bank, telephonic instructions received from the following:
Matthew Jore
Michael Jore
David Bjornson
Kelly Grove
EXHIBIT 2.1.1
<PAGE>
EXHIBIT 2.1.1.2
LIBOR LOAN REQUEST FORM
[DATE]
First Security Bank, N.A.
P.O. Box 7069
Boise, ID 83830
Attention: Commercial Banking Division
Ladies & Gentlemen:
We refer to the Credit Agreement (the "Agreement"), dated August 19, 1999,
between First Security Bank, N.A. ("Bank") and Jore Corporation ("Borrower").
Borrower requests that Bank make a LIBOR Loan pursuant to the Agreement and
specifies as follows:
1. The date of the requested Loan is to be __________________________.
2. The amount of the requested Loan is to be $______________________.
3. The requested Interest Period for the Loan is ___________________.
Borrower certifies to Bank, as of the date of this letter, that the warranties
and representations set forth in the Agreement and the other Loan Documents are
true and correct, and that no Event of Default, as defined in the Agreement, has
occurred and is continuing or would result from the requested Loan.
Very truly yours,
JORE CORPORATION
By
Title
EXHIBIT 2.1.1.2
<PAGE>
EXHIBIT 4.1.3
FORM OF CONTINUING AND UNCONDITIONAL GUARANTY
See attached.
EXHIBIT 4.1.3
<PAGE>
CONTINUING AND UNCONDITIONAL GUARANTY - 94
<PAGE>
CONTINUING AND UNCONDITIONAL GUARANTY
For good and valuable consideration, JB TOOL, LLC, a Montana
limited liability company ("Guarantor") absolutely and unconditionally
guarantees and promises to pay to FIRST SECURITY BANK, N.A. ("Bank") or its
order, in legal tender of the United States of America, the Indebtedness (as
that term is defined below) of JORE CORPORATION, a Montana corporation (the
"Borrower") to Bank on the terms and conditions set forth in this Guaranty.
Under this Guaranty, the liability of Guarantor is unlimited and the obligations
of Guarantor are continuing.
1. AMOUNT OF GUARANTY. The amount of this Guaranty
is Unlimited.
2. DEFINITIONS. The following words shall have the
following meanings when used in this Guaranty:
BANK. The word "Bank" means First Security Bank, N.A.,
its successors and assigns.
BORROWER. The word "Borrower" means Jore Corporation, a
Montana corporation.
GUARANTOR. The word "Guarantor" means JB Tool, LLC, a
Montana limited liability company.
GUARANTY. The word "Guaranty" means this Guaranty made by
Guarantor for the benefit of Bank.
INDEBTEDNESS. The word "Indebtedness" is used in its most
comprehensive sense and means and includes any and all of Borrower's
liabilities, obligations, debts, and indebtedness to Bank, now existing or
hereinafter incurred or created, including, without limitation, all loans,
advances, interest, costs, debts, overdraft indebtedness, credit card
indebtedness, lease obligations, other obligations, and liabilities of
Borrower, or any of them, and any present or future judgments against
Borrower, or any of them; and whether any such Indebtedness is voluntarily or
involuntarily incurred, due or not due, absolute or contingent, liquidated or
unliquidated, determined or undetermined; whether Borrower may be liable
individually or jointly with others, or primarily or secondarily, or as
guarantor or surety; whether recovery on the Indebtedness may be or may
become barred or unenforceable against Borrower for any reason
CONTINUING AND UNCONDITIONAL GUARANTY - 95
<PAGE>
whatsoever; and whether the Indebtedness arises from transactions which may
be voidable on account of infancy, insanity, ultra vires, or otherwise.
RELATED DOCUMENTS. The words "Related Documents" mean and
include without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security agreements,
mortgages, deeds of trust, and all other instruments, agreements and documents,
whether now or hereafter existing, executed in connection with the Indebtedness.
3. NATURE OF GUARANTY. Guarantor's liability under this
Guaranty shall be open and continuous for so long as this Guaranty remains in
force. Guarantor intends to guarantee at all times the performance and prompt
payment when due, whether at maturity or earlier by reason of acceleration or
otherwise, of all Indebtedness. Accordingly, no payments made upon the
Indebtedness will discharge or diminish the continuing liability of Guarantor in
connection with any remaining portions of the Indebtedness or any of the
Indebtedness which subsequently arises or is thereafter incurred or contracted.
4. DURATION OF GUARANTY. This Guaranty will take effect
when received by Bank without the necessity of any acceptance by Bank, or any
notice to Guarantor or to Borrower, and will continue in full force until all
Indebtedness incurred or contracted before receipt by Bank of any notice of
revocation shall have been fully and finally paid and satisfied and all other
obligations of Guarantor under this Guaranty shall have been performed in full.
If Guarantor elects to revoke this Guaranty, Guarantor may only do so in
writing. Written revocation of this Guaranty will apply only to advances or new
Indebtedness created after actual receipt by Bank of Guarantor's written
revocation. For this purpose and without limitation, the term "new Indebtedness"
does not include Indebtedness which at the time of notice of revocation is
contingent, unliquidated, undetermined or not due and which later becomes
absolute, liquidated, determined or due. This Guaranty will continue to bind
Guarantor for all Indebtedness incurred by Borrower or committed by Bank prior
to receipt of Guarantor's written notice of revocation, including any
extensions, renewals, substitutions or modifications of the Indebtedness. All
renewals, extensions, substitutions, and modifications of the Indebtedness
granted after Guarantor's revocation, are contemplated under this Guaranty and,
specifically will not be considered to be new Indebtedness. Release of any other
guarantor or termination of any other guaranty of the Indebtedness shall not
affect the liability of Guarantor under this Guaranty. A revocation received by
Bank from any one or more Guarantors shall not affect the liability of any
remaining Guarantors under this Guaranty. It is anticipated that fluctuations
may occur in the aggregate amount of Indebtedness covered by this Guaranty, and
it is specifically acknowledged and agreed by
CONTINUING AND UNCONDITIONAL GUARANTY - 96
<PAGE>
Guarantor that reductions in the amount of Indebtedness, even to zero dollars
($0.00), prior to written revocation of this Guaranty by Guarantor shall not
constitute a termination of this Guaranty. This Guaranty is binding upon
Guarantor and Guarantor's heirs, successors and assigns so long as any of the
guaranteed Indebtedness remains unpaid and even though the Indebtedness
guaranteed may from time to time be zero dollars ($0.00).
5. GUARANTOR'S AUTHORIZATION TO BANK. Guarantor
authorizes Bank, either before or after any revocation hereof, without notice or
demand and without lessening Guarantor's liability under this Guaranty, from
time to time: (a) prior to revocation as set forth above, to make one or more
additional secured or unsecured loans to Borrower, to lease equipment or other
goods to Borrower, or otherwise to extend additional credit to Borrower; (b) to
alter, compromise, renew, extend, accelerate, or otherwise change one or more
times the time for payment or other terms of the Indebtedness or any part of the
Indebtedness, including increases and decreases of the rate of interest on the
Indebtedness; extensions may be repeated and may be for longer than the original
loan term; (c) to take and hold security for the payment of this Guaranty or the
Indebtedness, and exchange, enforce, waive, subordinate, fail or decide not to
perfect, and release any such security, with or without the substitution of new
collateral; (d) to release, substitute, agree not to sue, or deal with any one
or more of Borrower's sureties, endorsers, or other guarantors on any terms or
in any manner Bank may choose; (e) to determine how, when and what application
of payments and credits shall be made on the Indebtedness; (f) to apply such
security and direct the order or manner of sale thereof, including without
limitation, any nonjudicial sale permitted by the terms of the controlling
security agreement or deed of trust, as Bank in its discretion may determine;
(g) to sell, transfer, assign, or grant participations in all or any part of the
Indebtedness; and (h) to assign or transfer this Guaranty in whole or in part.
6. GUARANTY ABSOLUTE. Guarantor guarantees that the
payment of Indebtedness shall be paid strictly in accordance with the terms of
the Related Documents regardless of any law, regulation, or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Bank with respect thereto. The liability of the Guarantor under
this Guaranty is absolute and unconditional irrespective of: (a) any release or
amendment or waiver of, or consent to departure from, any other guaranty or
support document, or any exchange, release or nonperfection of any collateral,
for all or any of the Related Documents or Indebtedness; (b) any present or
future law, regulation or order of any jurisdiction (whether of right or in
fact) or of any agency thereof purporting to reduce, amend, restructure or
otherwise affect any term of any Related Document or Indebtedness; (c) without
being limited by the foregoing, any lack of validity or enforceability of any
Related Document or Indebtedness or any failure
CONTINUING AND UNCONDITIONAL GUARANTY - 97
<PAGE>
to receive any governmental approval relating thereto; or (d) any other
defense whatsoever that might constitute a defense available to, or discharge
of, the Guarantor (including without limitation, the bankruptcy or
reorganization of the Guarantor).
7. GUARANTOR'S REPRESENTATIONS AND WARRANTIES.
Guarantor represents and warrants to Bank that (a) no representations or
agreements of any kind have been made to Guarantor which would limit or
qualify in any way the terms of this Guaranty; (b) this Guaranty is executed
at Borrower's request and not at the request of Bank; (c) Guarantor has full
power, right and authority to enter into this Guaranty; (d) the provisions of
this Guaranty do not conflict with or result in a default under any agreement
or other instrument binding upon Guarantor and do not result in a violation
of any law, regulation, court decree or order applicable to Guarantor;
(e) Guarantor has not and will not, without the prior written consent of
Bank, sell, lease, assign, encumber, hypothecate, transfer, or otherwise
dispose of all or substantially all of Guarantor's assets, or any interest
therein; (f) upon Bank's request, Guarantor will provide to Bank financial
and credit information in form acceptable to Bank, and all such financial
information which currently has been, and all future financial information
which will be provided to Bank is and will be true and correct in all
material respects and fairly present the financial condition of Guarantor as
of the dates the financial information is provided; (g) no material adverse
change has occurred in Guarantor's financial condition since the date of the
most recent financial statements provided to Bank and no event has occurred
which may materially adversely affect Guarantor's financial condition; (h) no
litigation, claim, investigation, administrative proceeding or similar action
(including those for unpaid taxes) against Guarantor is pending or
threatened; (i) Bank has made no representation to Guarantor as to the
creditworthiness of Borrower; and (j) Guarantor has established adequate
means of obtaining from Borrower on a continuing basis information regarding
Borrower's financial condition. Guarantor agrees to keep adequately informed
from such means of any facts, events, or circumstances which might in any way
affect Guarantor's risks under this Guaranty, and Guarantor further agrees
that, absent a request for information, Bank shall have no obligation to
disclose to Guarantor any information or documents acquired by Bank in the
course of its relationship with Borrower.
8. GUARANTOR'S WAIVERS.
8.1 Except as prohibited by applicable law,
Guarantor waives any right to require Bank (a) to continue lending money or to
extend other credit to Borrower; (b) to make any presentment, protest, demand,
or notice of any kind, including notice of any nonpayment of the Indebtedness or
of any nonpayment related to any collateral, or notice of any action or
nonaction on the part of Borrower, Bank, any surety,
CONTINUING AND UNCONDITIONAL GUARANTY - 98
<PAGE>
endorser, or other guarantor in connection with the Indebtedness or in
connection with the creation of new or additional loans or obligations;
(c) to resort for payment or to proceed directly or at once against any
person, including Borrower or any other guarantor; (d) to proceed directly
against or exhaust any collateral held by Bank from Borrower, any other
guarantor, or any other person; (e) to give notice of the terms, time, and
place of any public or private sale of personal property security held by
Bank from Borrower or to comply with any other applicable provisions of the
Uniform Commercial Code; (f) to pursue any other remedy within Bank's power;
or (g) to commit any act or omission of any kind, or at any time, with
respect to any matter whatsoever.
8.2 Guarantor also waives any and all rights
or defenses arising by reason of (a) any "one action" or "anti-deficiency"
law or any other law which may prevent Bank from bringing any action,
including a claim for deficiency, against Guarantor, before or after Bank's
commencement or completion of any foreclosure action, either judicially or by
exercise of a power of sale; (b) any election of remedies by Bank which
destroys or otherwise adversely affects Guarantor's subrogation rights or
Guarantor's rights to proceed against Borrower for reimbursement, including
without limitation, any loss of rights Guarantor may suffer by reason of any
law limiting, qualifying, or discharging the Indebtedness; (c) any disability
or other defense of Borrower, of any other guarantor, or of any other person,
or by reason of the cessation of Borrower's liability from any cause
whatsoever, other than payment in full in legal tender, of the Indebtedness;
(d) any right to claim discharge of the Indebtedness on the basis of
unjustified impairment of any collateral for the Indebtedness; (e) any
statute of limitations, if at any time any action or suit brought by Bank
against Guarantor is commenced there is outstanding Indebtedness of Borrower
to Bank which is not barred by any applicable statute of limitations; or
(f) any defenses given to guarantors at law or in equity other than actual
payment and performance of the Indebtedness. If payment is made by Borrower,
whether voluntarily or otherwise, or by any third party, on the Indebtedness
and thereafter Bank is forced to remit the amount of that payment to
Borrower's trustee in bankruptcy or to any similar person under any federal
or state bankruptcy law or law for the relief of debtors, the Indebtedness
shall be considered unpaid for the purpose of enforcement of this Guaranty.
8.3 Guarantor further waives and agrees not to
assert or claim at any time any deductions to the amount guaranteed under this
Guaranty for any claim of setoff, counterclaim, counter demand, recoupment or
similar right, whether such claim, demand or right may be asserted by the
Borrower, the Guarantor, or both.
9. GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS.
Guarantor warrants and agrees that each of the waivers set forth above is
CONTINUING AND UNCONDITIONAL GUARANTY - 99
<PAGE>
made with Guarantor's full knowledge of its significance and consequences and
that, under the circumstances, the waivers are reasonable and not contrary to
public policy or law. If any such waiver is determined to be contrary to any
applicable law or public policy, such waiver shall be effective only to the
extent permitted by law or public policy.
10. BANK'S RIGHT OF SETOFF. In addition to all liens
upon and rights of setoff against the moneys, securities or other property of
Guarantor given to Bank by law, Bank shall have, with respect to Guarantor's
obligations to Bank under this Guaranty and to the extent permitted by law, a
contractual security interest in and a right of setoff against, and Guarantor
hereby assigns, conveys, delivers, pledges, and transfers to Bank all of
Guarantor's right, title and interest in and to, all deposits, moneys,
securities and other property of Guarantor now or hereafter in the possession
of or on deposit with Bank, whether held in a general or special account or
deposit, whether held jointly with someone else, or whether held for
safekeeping or otherwise, excluding however all IRA, Keogh, and trust
accounts. Every such security interest and right of setoff may be exercised
without demand upon or notice to Guarantor. No security interest or right of
setoff shall be deemed to have been waived by any act or conduct on the part
of Bank or by any neglect to exercise such right of setoff or to enforce such
security interest or by any delay in so doing. Every right of setoff and
security interest shall continue in full force and effect until such right of
setoff or security interest is specifically waived or released by an
instrument in writing executed by Bank.
11. SUBORDINATION OF BORROWER'S DEBTS TO GUARANTOR.
Guarantor agrees that the Indebtedness of Borrower to Bank, whether now existing
or hereafter created, shall be prior to any claim that Guarantor may now have or
hereafter acquire against Borrower, whether or not Borrower becomes insolvent.
Guarantor hereby expressly subordinates any claim Guarantor may have against
Borrower, upon any account whatsoever, to any claim that Bank may now or
hereafter have against Borrower. In the event of insolvency and consequent
liquidation of the assets of Borrower, through bankruptcy, by an assignment for
the benefit of creditors, by voluntary liquidation, or otherwise, the assets of
Borrower applicable to the payment of the claims of both Bank and Guarantor
shall be paid to Bank and shall be first applied by Bank to the Indebtedness of
Borrower to Bank. Guarantor does hereby assign to Bank all claims which it may
have or acquire against Borrower or against any assignee or trustee in
bankruptcy of Borrower; provided however, that such assignment shall be
effective only for the purpose of assuring to Bank full payment in legal tender
of the Indebtedness. If Bank so requests, any notes or credit agreements now or
hereafter evidencing any debts or obligations of Borrower to Guarantor shall be
marked with a legend that the same are subject to this Guaranty and shall be
delivered to Bank. Guarantor agrees, and Bank hereby is authorized, in the name
of Guarantor, from time to time to execute and file
CONTINUING AND UNCONDITIONAL GUARANTY - 100
<PAGE>
financing statements and continuation statements and to execute such other
documents and to take such other actions as Bank deems necessary or
appropriate to perfect, preserve and enforce its rights under this Guaranty.
12. REINSTATEMENT. This Guaranty shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Indebtedness is rescinded or must otherwise be returned by the Bank
on the insolvency, bankruptcy or reorganization of the Borrower, all as though
the payment had not been made.
13. SECURITY INTEREST.
13.1 GRANT OF SECURITY INTEREST. In order to
secure prompt repayment of the Indebtedness and prompt performance by Guarantor
of each and all of its covenants and obligations under this Agreement and the
Related Documents, Guarantor grants to Bank a continuing security interest in
property and assets of Guarantor as further evidenced by a Security Agreement of
even date and such other security documents as Bank may at any time require.
13.2 FINANCING STATEMENTS. The Guarantor shall
from time to time, at the expense of Guarantor, promptly execute and deliver
all further instruments and documents, and take all further action, that may
be necessary or desirable, or that Bank may reasonably request, in order to
perfect and protect any pledge, assignment or security interest granted or
purported to be granted by the Security Agreement or other document or to
enable Bank to exercise and enforce its rights and remedies with respect to
any Collateral (as defined in the Security Agreement). Without limiting the
generality of the foregoing, the Guarantor shall execute and file such
financing or continuation statements, or amendments thereto, and such other
instruments or notices, as may be necessary or desirable, or as Bank may
request, in order to perfect and preserve the pledge assignment, and security
interest granted or purported to be granted by the Security Agreement or
other document. Guarantor hereby irrevocably makes, constitutes, and appoints
Bank (and any of Bank's officers, employees, or agents designated by Bank) as
Guarantor's true and lawful attorney with power, upon Guarantor's failure or
refusal to comply with their undertakings contained in this paragraph, to
sign the name of Borrower on any of the above-described documents or on any
other similar documents that need to be executed, recorded, and/or filed in
order to perfect or continue Bank's perfected security interest in the
Collateral.
14. MISCELLANEOUS PROVISIONS.
CONTINUING AND UNCONDITIONAL GUARANTY - 101
<PAGE>
14.1 AMENDMENTS. This Guaranty, together with any
Related Documents, constitutes the entire understanding and agreement of the
parties as to the matters set forth in this Guaranty. No alteration of or
amendment to this Guaranty shall be effective unless given in writing and signed
by the party or parties sought to be charged or bound by the alteration or
amendment.
14.2 APPLICABLE LAW. This Guaranty is made in the
state of Idaho, which state the parties agree has a substantial relationship to
the parties and to the underlying transaction embodied hereby. Accordingly, in
all respects, including, without limiting the generality of the foregoing,
matters of construction, validity, enforceability and performance, this Guaranty
and the obligations arising hereunder and thereunder shall be governed by, and
construed in accordance with, the laws of the state of Idaho applicable to
contracts made and performed in such state and any applicable law of the United
States of America. Each party hereby unconditionally and irrevocably waives, to
the fullest extent permitted by law, any claim to assert that the law of any
jurisdiction other than the state of Idaho governs this Guaranty. All disputes,
controversies, or claims arising out of, or in connection with this Guaranty
shall be litigated in any court of competent jurisdiction within the state of
Idaho. Each party hereby accepts jurisdiction of such state and agrees to accept
service of process as if it were personally served within such state. Each party
irrevocably waives, to the fullest extent permitted by law, any objection that
the party may now or hereafter have to the jurisdiction of the courts of such
state and any claim that any such litigation brought in any such court has been
brought in an inconvenient forum.
14.3 ATTORNEYS' FEES; EXPENSES. Guarantor
agrees to pay upon demand all of Bank's costs and expenses, including
reasonable attorneys' fees and Bank's legal expenses, incurred in connection
with the enforcement of this Guaranty. Bank may pay someone else to help
enforce this Guaranty, and Guarantor shall pay the costs and expenses of such
enforcement. Costs and expenses include Bank's reasonable attorneys' fees and
legal expenses whether or not there is a lawsuit, including reasonable
attorneys' fees and legal expenses for bankruptcy proceedings (and including
efforts to modify or vacate any automatic stay or injunction), appeals, and
any anticipated post-judgment collection services. Guarantor also shall pay
all court costs and such additional fees as may be directed by the court.
14.4 NOTICES. Unless otherwise provided in this
Guaranty, all notices or demands by either party relating to this Guaranty shall
be in writing and either personally served or sent by facsimile transmission,
recognized overnight delivery service, or regular United States mail, postage
prepaid, to Borrower or to Bank as the case may be at the addresses set forth
below:
CONTINUING AND UNCONDITIONAL GUARANTY - 102
<PAGE>
If to Guarantor: JB Tool, LLC
45000 Highway 93 South
Ronan, Montana 59864
Attention: Matthew Jore
Fax: 406/676-4901
With a copy to: David H. Bjornson
Jore Corporation
45000 Highway 93 South
Ronan, Montana 59864
Fax: 406/676-4901
If to Bank: First Security Bank, N.A.
Post Office Box 7069
Boise, ID 83730
Attention: Corporate Banking
Fax: 208/393-2472
With a copy to: Moffatt, Thomas, Barrett, Rock &
Fields, Chartered
101 S. Capitol Blvd., 10th Floor
Post Office Box 829
Boise, Idaho 83701-0829
Attention: David S. Jensen
Fax: 208/385-5384
The parties may change the address at which they are to receive notices
hereunder by notice in writing in the foregoing manner given to the other.
All notices or demands sent in accordance with this Section shall be deemed
given on the earlier of the date of confirmed actual receipt or if sent by
personal delivery, on delivery, if sent by facsimile, on transmission, if
sent by overnight delivery service, on the next business day, otherwise three
(3) business days after the deposit thereof in the mail. All revocation
notices by Guarantor shall be in writing and shall be effective only upon
delivery to Bank as provided above in the section titled "Duration of
Guaranty."
14.5 INTERPRETATION. In all cases where there is
more than one Borrower or Guarantor, then all words used in this Guaranty in the
singular shall be deemed to have been used in the plural where the context and
construction so require; and where there is more than one Borrower named in this
Guaranty or when this Guaranty is executed by more than one Guarantor, the words
"Borrower" and "Guarantor"
CONTINUING AND UNCONDITIONAL GUARANTY - 103
<PAGE>
respectively shall mean all and any one or more of them. The words
"Guarantor," "Borrower," and "Bank" include the heirs, successors, assigns,
and transferees of each of them. Caption headings in this Guaranty are for
convenience purposes only and are not to be used to interpret or define the
provisions of this Guaranty. If a court of competent jurisdiction finds any
provision of this Guaranty to be invalid or unenforceable as to any person or
circumstance, such finding shall not render that provision invalid or
unenforceable as to any other persons or circumstances, and all provisions of
this Guaranty in all other respects shall remain valid and enforceable. If
any one or more of Borrower or Guarantor are corporations or partnerships, it
is not necessary for Bank to inquire into the powers of Borrower or Guarantor
or of the officers, directors, partners, or agents acting or purporting to
act on their behalf, and any Indebtedness made or created in reliance upon
the professed exercise of such powers shall be guaranteed under this Guaranty.
14.6 WAIVER. Bank shall not be deemed to have
waived any rights under this Guaranty unless such waiver is given in writing and
signed by Bank. No delay or omission on the part of Bank in exercising any right
shall operate as a waiver of such right or any other right. A waiver by Bank of
a provision of this Guaranty shall not prejudice or constitute a waiver of
Bank's right otherwise to demand strict compliance with that provision or any
other provision of this Guaranty. No prior waiver by Bank, nor any course of
dealing between Bank and Guarantor, shall constitute a waiver of any of Bank's
rights or of any of Guarantor's obligations as to any future transactions.
Whenever the consent of Bank is required under this Guaranty, the granting of
such consent by Bank in any instance shall not constitute continuing consent to
subsequent instances where such consent is required and in all cases such
consent may be granted or withheld in the sole discretion of Bank.
EACH UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL THE
PROVISIONS OF THIS GUARANTY AND AGREES TO ITS TERMS. IN ADDITION, EACH
GUARANTOR UNDERSTANDS THAT THIS GUARANTY IS EFFECTIVE UPON GUARANTOR'S
EXECUTION AND DELIVERY OF THIS GUARANTY TO BANK AND THAT THE GUARANTY WILL
CONTINUE UNTIL TERMINATED IN THE MANNER SET FORTH IN THE SECTION TITLED
"DURATION OF GUARANTY." NO FORMAL ACCEPTANCE BY BANK IS NECESSARY TO MAKE
THIS GUARANTY EFFECTIVE.
THIS GUARANTY IS DATED as of August 19, 1999.
GUARANTOR:
CONTINUING AND UNCONDITIONAL GUARANTY - 104
<PAGE>
JB TOOL, LLC
By
William J. Powers, Managing Member
By
Jeffrey Swartwout, Managing Member
CONTINUING AND UNCONDITIONAL GUARANTY - 105
<PAGE>
EXHIBIT 4.1.5
FORM OF OPINION OF COUNSEL FOR BORROWER AND GUARANTORS
August ___, 1999
First Security Bank, N.A.
Post Office Box 7069
Boise, Idaho 83730
RE: LOAN BY FIRST SECURITY BANK, N.A. TO JORE CORPORATION
Ladies and Gentlemen:
We are counsel to Jore Corporation, a Montana corporation, (the "Borrower") and
__________________, a ___________________ ("JB Tool"). The opinion expressed
below is furnished to you in connection with the Credit Agreement (the "Credit
Agreement") dated as of August ____, 1999, between the Borrower and First
Security Bank, N.A. ("Bank"). This opinion is being delivered pursuant to
Section 4.1.4 of the Credit Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the respective meanings set forth in
the Credit Agreement.
In rendering the opinions set forth below, we have examined and relied upon such
documents and instruments as we have deemed appropriate, including the following
documents and instruments (the "Loan Documents"):
1. The Credit Agreement;
2. The Revolving Note;
3. The Security Agreement;
4. The JB Tool Security Agreement; and
5. The Mortgage (the "Mortgage") made by Borrower for the benefit
of Bank as security for the Revolving Note and describing
therein certain real property located at Ronan, Montana (the
"Real Property").
We have also reviewed the UCC-1 Financing Statement by the Borrower in favor
of the
EXHIBIT 4.1.5
<PAGE>
Bank for filing with the Montana Secretary of State (the "Montana Financing
Statement"), the UCC-1 Financing Statement by the Borrower in favor of the
Bank for recording in the official records of Lake County, Montana (the
"Fixture Financing Statement"); the UCC-1 Financing Statement by the JB Tool
in favor of the Bank for filing with the Wisconsin Secretary of State (the
"Wisconsin Financing Statement"), and the UCC-1 Financing Statement by the
Borrower in favor of the Bank for filing with the __________ Secretary of
State (the " ______________ Financing Statement" and together with the
Montana and Wisconsin Financing Statements and the Fixture Financing
Statement, the "Financing Statements").
Based on the foregoing, I am of the opinion that:
1. The Borrower was incorporated under the Montana Business
Corporation Act and exists in good standing under the laws of the State of
Montana.
2. The Borrower is authorized or qualified to do business in
Montana, __________, and all other jurisdictions in which the nature of the
business conducted by it makes such qualification necessary.
3. The Borrower has power and authority under the Montana
Business Corporation Act and all necessary material licenses, permits, and
authorizations to own its properties and to conduct its business in the manner
and at the locations as represented to Bank by Borrower.
4. The Borrower has power and authority under the Montana
Business Corporation Act to execute and deliver the Loan Documents and the
Financing Statements and perform its obligations thereunder.
5. The Borrower has authorized the execution and delivery of the
Loan Documents and the Financing Statements and the performance of its
obligations thereunder by all requisite action under the Montana Business
Corporation Act.
6. Each Loan Document constitutes a valid and legally binding
obligation of the Borrower enforceable against Borrower in accordance with its
terms.
7. Neither the execution and delivery of the Loan Documents by
the Borrower nor the performance of its obligations thereunder (i) violates the
Borrower's articles of incorporation or bylaws or any applicable provisions of
statutory law or regulation, or (ii) results in the material breach of or
constitutes a material default under any existing indenture or loan, credit, or
other agreement or instrument to which the
EXHIBIT 4.1.5
<PAGE>
Borrower is a party or by which it or its property is bound or affected.
8. The Security Agreement is in a form sufficient to create a
valid security interest under Article 9 of the Uniform Commercial Code as
adopted in the state of Montana (the "Montana UCC") in those items and types
of Collateral (as such term is defined in the Security Agreement) that are
subject to the provisions of Article 9 of the __________ UCC and under
Article 9 of the Uniform Commercial Code as adopted in the state of
__________ (the "__________ UCC") in those items and types of Collateral that
are subject to the provisions of Article 9 of the __________ UCC (the "UCC
Collateral") as security for the payment of the Obligations.
9. The Montana Financing Statement is in proper form for filing
in the state of Montana. The __________ Financing Statement and the Fixture
Financing Statement are in proper form for filing in the state of __________.
The due filing and indexing of the Financing Statements among the financing
statements records of the office of the Secretary of State of Montana, the
Office of the __________________ of Lake County, Montana, and the Secretary of
State of the State of __________ (the "Filing Offices") will be sufficient to
perfect the security interest created by the Security Agreement in those items
and types of the UCC Collateral in which a security interest may be perfected by
the filing of a financing statement in the state of Montana under the Montana
UCC or the state of __________ under the __________ UCC. No further filing or
refiling or any other action is necessary under the UCC to perfect or maintain
such perfection, except that a continuation statement must be filed within the
period of six months prior to the expiration of five years from the date of each
original filing and within the period of six months prior to the expiration of
each succeeding period of five years from the date of such original filing to
maintain the effectiveness of the filings referred to in this paragraph.
10. The Mortgage is in a form sufficient to create a valid
Mortgage lien on the Real Property under Montana law. The recording of the
Mortgage in the official records of Lake County, Montana, is the only filing or
recording necessary to give constructive notice of the lien created by the
Mortgage to subsequent purchasers and mortgagees of the Real Property. No other
recordation, filing, re-recording or refiling is necessary in order to maintain
the validity or priority of the lien created by the Mortgage.
11. JB Tool was incorporated under the Wisconsin Business
Corporation Act and exists in good standing under the laws of the State of
Wisconsin.
12. JB Tool is authorized or qualified to do business in
Wisconsin, __________, and all other jurisdictions in which the nature of the
business conducted by
EXHIBIT 4.1.5
<PAGE>
it makes such qualification necessary.
13. JB Tool has power and authority under the Wisconsin Business
Corporation Act and all necessary material licenses, permits, and authorizations
to own its properties and to conduct its business in the manner and at the
locations as represented to Bank by JB Tool.
14. JB Tool has power and authority under the Wisconsin Business
Corporation Act to execute and deliver the Loan Documents and the Financing
Statements and perform its obligations thereunder.
15. JB Tool has authorized the execution and delivery of the Loan
Documents and the Financing Statements and the performance of its obligations
thereunder by all requisite action under the Wisconsin Business Corporation Act.
16. The JB Tool Security Agreement constitutes a valid and legally
binding obligation of JB Tool enforceable against JB Tool in accordance with its
terms.
17. Neither the execution and delivery of the JB Tool Security
Agreement by JB Tool nor the performance of its obligations thereunder (i)
violates JB Tool's articles of incorporation or bylaws or any applicable
provisions of statutory law or regulation, or (ii) results in the material
breach of or constitutes a material default under any existing indenture or
loan, credit, or other agreement or instrument to which JB Tool is a party or by
which it or its property is bound or affected.
18. The JB Tool Security Agreement is in a form sufficient to
create a valid security interest under Article 9 of the Uniform Commercial Code
as adopted in the state of Wisconsin (the "Wisconsin UCC") in those items and
types of Collateral (as such term is defined in the Security Agreement) that are
subject to the provisions of Article 9 of the Wisconsin UCC and under Article 9
of the Uniform Commercial Code as adopted in the state of __________ (the
"__________ UCC") in those items and types of Collateral that are subject to the
provisions of Article 9 of the __________ UCC (the "UCC Collateral") as security
for the payment of the Obligations.
19. The Wisconsin Financing Statement is in proper form for filing
in the state of Wisconsin. The due filing and indexing of the Wisconsin
Financing Statement among the financing statements records of the office of the
Secretary of State of Wisconsin, the Office of the __________________ of
__________ County, Wisconsin, and the Secretary of State of the State of
__________ (the "Filing Offices") will be sufficient to perfect the security
interest created by the JB Tool Security Agreement in those items and
EXHIBIT 4.1.5
<PAGE>
types of the UCC Collateral in which a security interest may be perfected by
the filing of a financing statement in the state of Wisconsin under the
Wisconsin UCC or the state of __________ under the __________ UCC. No further
filing or refiling or any other action is necessary under the UCC to perfect
or maintain such perfection, except that a continuation statement must be
filed within the period of six months prior to the expiration of five years
from the date of each original filing and within the period of six months
prior to the expiration of each succeeding period of five years from the date
of such original filing to maintain the effectiveness of the filings referred
to in this paragraph.
I confirm that there are no legal or arbitral proceedings or any proceedings by
or before any governmental or regulatory authority or agency, now pending or
threatened against the Borrower or against any of its properties or revenues
that, if adversely determined, could be reasonably expected to have a material
adverse effect on the business operations, property, or financial condition of
the Borrower taken as a whole.
EXHIBIT 4.1.5
<PAGE>
EXHIBIT 4.1.11
FORM OF LETTER TO ACCOUNTANTS
[LETTERHEAD OF BORROWER]
[name and address of accountants]
Ladies and Gentlemen:
We instruct you to send to First Security Bank, N.A. ("Bank") all
financial statements (whether preliminary or final), and all reports that are
prepared as a result of any audit or other review of our operations, finances or
internal controls, specifically including any reports dealing with improper
accounting practices, defalcations, financial reporting errors or misstatements
or fraud perpetrated on us or by any of our employees or agents. We further
instruct you to meet with Bank, upon Bank's request, to discuss such financial
statements and any questions regarding the same.
All of the foregoing must be sent to Bank prior to or contemporaneously
with such reports being sent to us.
One of the principal purposes of the audited financial statements that
you may be asked to prepare is to provide Bank with information regarding our
financial condition.
These instructions may only be revoked by a writing signed by an
officer of Bank.
Thank you.
JORE CORPORATION
By
Its
EXHIBIT 4.1.11
<PAGE>
EXHIBIT 5.5
LITIGATION
1. THE STANLEY WORKS AND JORE CORPORATION V. BLACK & DECKER -- please see
a complete description of this litigation in the Amended Form S-1.
2. RASBERRY, ET AL. V. JORE CORPORATION -- John Rasberry and various of
his business entities have brought an action against Jore Corporation
for the payment of certain fees due under a settlement agreement in
substance relating to printing services performed by Mr. Rasberry and
his affiliated companies. Jore Corporation terminated the settlement
agreement, asserting a breach by Mr. Rasberry in several regards, the
most important of which was the poor quality of the printing products
produced by Mr. Rasberry. Jore Corporation takes quality very seriously
and its customers insist on the best quality for its packaging. Mr.
Rasberry did not maintain equipment of sufficient technological
advancement or quality to produce the type of quality required. Jore
Corporation believes that it will ultimately prevail completely in this
litigation and, accordingly, the litigation is not disclosed in
financial statements of the Company or in the Form S-1. Mr. Rasberry's
claims approximate $200,000 to $300,000, although he has been quoted by
third parties as claiming to have a $15 million to $18 million dollar
claim. Although this litigation does not satisfy the standard of
section 5.5 of the Credit Agreement, in that neither the Company nor
its counsel believes that such litigation will "materially adversely
affect the financial condition, operations, properties, or business of
the [company] or the ability of the [company] to perform its
obligations under the Loan Documents," the Company wishes to disclose
the litigation to First Security Bank in connection with the closing of
the new loan facility. There is no other current litigation.
EXHIBIT 7.10
EMPLOYEE BENEFIT PLANS
Jore Corporation 401K Plan
Jore Corporation Flexible Benefits
Plan Jore Corporation Cafeteria Plan that includes:
Health Insurance
Dental Insurance
Voluntary Life Insurance
Short-Term and Long-Term Disability Insurance
EXHIBIT 7.10
<PAGE>
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT (this "AGREEMENT") is entered into as of August
__, 1999, by Matthew B. Jore, Michael W. Jore, Merle B. Jore, the Michael Jore
Family Trust, the Matthew Jore Family Trust and the Merle and Faye Jore Family
Trust (collectively the, "INDEMNITORS"), in favor of Jore Corporation, a
Montana corporation (the "COMPANY"), with reference to the following facts:
A. The Company is undertaking an initial public offering (the "OFFERING")
of its common stock (the "COMMON STOCK") pursuant to which the Company expects
to enter into an underwriting agreement with D.A. Davidson & Co., Janney
Montgomery Scott LLC, and First Security Van Kasper as representatives of the
several underwriters of the Offering (the "Underwriters").
B. The Company is undertaking the Offering to, among other things,
provide liquidity to the current shareholders of the Company, including the
Indemnitors.
C. On August 16, 1999 Pete K. Block and Paul K. Block each filed a
complaint and demand for jury trial in the Fourth Judicial District Court in
Missoula County, Montana (the "COMPLAINTS") against the Company, Matthew B. Jore
individually and d/b/a Jore Enterprises, Michael W. Jore and Merle B. Jore.
D. In order to induce the Company to undertake the Offering and enter
into the proposed underwriting agreement, the Indemnitors have agreed to
indemnify and hold the Company and the Underwriters harmless from any claim,
demand, action, cause of action, suit, loss, cost, damage, fine, expense,
liability, judgment, settlement, proceeding or any injury that in any way may
arise out of, be connected with, or relate to any actions brought by or on
behalf of Pete K. Block and Paul K. Block against the Company.
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained herein, the parties agree as follows:
1. INDEMNIFICATION; REIMBURSEMENT OF EXPENSES.
(a) The Indemnitors, severally, in proportion to their relative ownership
of the Company's Common Stock at the time of this Agreement, as set forth in
SCHEDULE A hereto, shall defend, indemnify, and hold the Company, each
Underwriter, the officers, directors, agents, and affiliates of the Company and
each Underwriter, and the successors and assigns of the foregoing persons (all
such persons being referred to herein individually as an "INDEMNITEE" and
collectively as "INDEMNITEES") harmless against any claim, demand, action, cause
of action, suit, loss, cost, damage, fine, expense, liability, judgment,
settlement,
<PAGE>
proceeding or any injury which in any way arise out of, are connected with or
relate to any actions brought by or on behalf of Pete K. Block and Paul K.
Block, or either of them, against an Indemnitee ("CLAIMS"), including but not
limited to those asserted in the Complaints. Notwithstanding the foregoing,
however, the Company shall pay all court costs, investigation costs and
attorneys' fees of the Indemnitors in connection with the Claims until final
resolution of the Claims pursuant to a definitive judgment rendered by a court
of competent jurisdiction, a binding arbitral determination or award, or a
definitive agreement of settlement or compromise (a "Final Determination").
Within sixty (60) days of a Final Determination, Indemnitors shall reimburse the
Company for all of such costs and expenses.
(b) If, upon motion by or on behalf of Pete K. Block and Paul K. Block, or
either of them, a court of competent jurisdiction orders the Offering to be
enjoined prior to its completion, and such order is not immediately vacated upon
appeal, then within sixty (60) days of such order Indemnitors shall reimburse
the Underwriters for all documented expenses, including without limitation legal
fees and expenses of their counsel, travel and road show expenses, and other
out-of-pocket expenses, reasonably incurred thereby in connection with the
Offering. Notwithstanding the foregoing, however, if the Company undertakes the
Offering within one (1) year of any such injunction, with the Underwriters, all
of such documented expenses shall be repaid to the Indemnitors by the
representatives of the Underwriters, with the exception of expenses associated
with the road show, which shall be reimbursed only if the Company undertakes the
Offering within ninety (90) days of such injunction.
2. ISSUANCES OF COMMON STOCK.
(a) If Pete K. Block or Paul K. Block, or either of them, becomes entitled
to any shares of Common Stock from the Company pursuant to a Final
Determination, then the Indemnitors shall deliver to the Company, in accordance
with its instructions, stock certificates (duly endorsed for transfer or with
separate stock powers attached) evidencing that number of shares of Common Stock
to which Pete K. Block or Paul K. Block, or either of them, has become entitled.
The relative number of shares of Common Stock delivered to the Company by each
Indemnitor shall be in proportion to the number of shares of Common Stock owned
by each such Indemnitor as of the date of this Agreement. In such circumstances,
the Indemnitors shall take such further action and execute such other
instruments as the Company may request to effect the transfer, assignment, and
conveyance of all of their right, title, and interest in and to such shares of
Common Stock to Pete K. Block or Paul K. Block, or either of them.
(b) Except for the 300,000 shares of Common Stock to be sold by Merle Jore
in the Offering, until the earlier of the entry of a definitive order from a
court of competent jurisdiction, the issuance of a binding and non-appealable
arbitral award, or the effective date of a final agreement of settlement or
compromise pursuant to which order, award or agreement the Claims are determined
and the Complaints are dismissed, Indemnitors will not, directly or indirectly,
without the prior written consent of a committee consisting of independent
directors
<PAGE>
of the Company (the "BOARD COMMITTEE"), offer or contract to sell, sell, grant
any option for the sale or purchase of, grant a security interest in, pledge,
hypothecate, or otherwise dispose of that number of shares of Common Stock that
would cause the aggregate number of shares of Common Stock beneficially owned by
Indemnitors to be less than 25% of the sum of (x) the total number of shares of
Common Stock issued and outstanding and (y) the total number of shares issuable
upon exercise or conversion of outstanding options, warrants, and other
derivative securities. For purposes of this Agreement, an "independent
director" means any director who is a "non-employee director" in accordance with
Rule 16b-3 under the Securities Exchange Act, as amended, and an "outside
director" in accordance with Section 162(m) of the Internal Revenue Code, as
amended.
(c) Notwithstanding the foregoing, Matthew, Michael, or Merle Jore may
make any bona fide gift or transfer to his immediate family or to a trust for
the benefit of such Indemnitor, his immediate family, or both, PROVIDED,
HOWEVER, that, as a condition of any such transfer, the transferor shall provide
the Board Committee 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 Board Committee.
(d) The Indemnitors agree and consent to the entry of stop transfer
instructions with the Company's registrar and transfer agent and to the
placement of a restrictive legend on the stock certificates representing their
shares of Common Stock to prevent the transfer of shares of Common Stock
beneficially owned by the Indemnitors except in compliance with this Agreement.
3. NOTICE OF ACTIONS.
(a) The Indemnitors shall give prompt written notice to the Company if any
Indemnitor receives notice or otherwise becomes aware of any proceeding,
inquiry, notice, or other communication regarding any Claim which is or may
become subject to this Agreement.
(b) Promptly upon receipt of the same, the Indemnitors shall deliver to
the Company copies of any and all Claims, and any and all orders, notices,
applications, reports, and other communications, documents, and instruments
pertaining to the Claims.
(c) The Company shall, at its own expense, have the right to join and
participate in, as a party if it so elects, any legal proceedings or actions in
connection with any Claims.
4. PROCEDURES RELATING TO INDEMNIFICATION.
(a) Any losses, claims, damages, costs, expenses, fines or liabilities for
which an Indemnitee is entitled to indemnification hereunder shall be paid by
the Indemnitor as such
<PAGE>
losses, claims, damages, costs, expenses, fines or liabilities are incurred,
except as otherwise provided in Sections 1(a), 1(b), 3(c), and 4(d).
(b) All amounts required to be paid or reimbursed to any Indemnitee
hereunder shall bear interest from the later of the date of payment by such
Indemnitee or the date of written demand to the Indemnitors hereunder, until
paid to such Indemnitee, at a rate of 8% per annum.
(c) In any circumstance in which the Indemnitors, individually or
collectively, are not performing his, its or their obligations hereunder to the
Company's reasonable satisfaction, the Company may, but shall not be obligated
to, employ its own legal counsel and consultants to investigate, prosecute,
negotiate, or defend any Claims against the Company and the Company shall have
the right to compromise or settle the same without the necessity of showing
actual liability therefor, and without the consent of Indemnitors. Indemnitors
shall reimburse the Company monthly, upon demand, for all fees and costs
incurred by the Company in investigating, prosecuting, negotiating, or defending
any such Claims.
(d) The Indemnitors shall not, without the prior written consent of the
Company, (i) settle or compromise any action, suit, proceeding, or claim or
consent to the entry of any judgment that does not include as an unconditional
term thereof the delivery by the claimant to the Company of (x) a full and
complete written release of the Company (in form, scope and substance
satisfactory to the Company in its sole discretion) from all liability in
respect of such action, suit or proceeding and (y) a dismissal with prejudice of
such suit, action or proceeding; or (ii) settle or compromise any action, suit,
proceeding, or claim in any manner that may adversely affect the Company as
determined by the Company in its sole discretion.
5. SEVERAL OBLIGATIONS; BINDING EFFECT.
The obligations of the Indemnitors under this Agreement shall be several.
This Agreement shall be binding upon the Indemnitors, their successors and
permitted assigns and shall inure to the benefit of the Indemnitees and their
successors and assigns. The obligations of the Indemnitors under this Agreement
shall not be assigned without the prior written consent of the Board Committee,
which consent may be given or withheld in the sole discretion thereof.
6. SUCCESSIVE ACTIONS.
A separate right of action hereunder shall arise upon each occurrence of
any matter indemnifiable by the Indemnitors under this Agreement. Separate and
successive actions may be brought hereunder to enforce any of the provisions
hereof at any time and from time to time. No action hereunder shall preclude
any subsequent action, and the Indemnitors hereby
<PAGE>
waive and covenant not to assert any defense in the nature of splitting of
causes of action or merger of judgments.
7. SEVERABILITY.
If any provision of this Agreement shall be determined to be unenforceable
in any circumstances by a court of competent jurisdiction, then the balance of
this Agreement shall be enforceable nonetheless, and the subject provision shall
be enforceable in all other circumstances. If such unenforceable provision is
material to the purpose of this Agreement, the parties shall promptly negotiate
in good faith an enforceable provision addressing the applicable subject matter
of the unenforceable provision and amend this Agreement to reflect the terms of
such enforceable provision.
8. WAIVER.
The failure of any party hereto at any time to require performance of the
other party or parties, or to enforce any terms of this Agreement, shall in no
way affect that party's right to require such performance or enforce such terms,
nor shall the waiver by any party of any breach of any term of this Agreement be
taken or held to be a waiver of any further breach of the same term. No waiver
will be effective unless in writing signed by the party against whom the waiver
is asserted.
9. NOTICES.
All notices, consents, approvals, elections and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by personal service, by registered or certified mail, return receipt
requested and postage prepaid, or by United States Express Mail or commercial
courier service, to the parties at the addresses set forth below (or at such
other addresses as shall be given in writing by any party to the others pursuant
to this Section 9) and shall be deemed complete upon receipt or refusal to
accept delivery.
IF TO THE COMPANY:
Jore Corporation
45000 Highway 93 South
Ronan, MT 59864
Attention: David H. Bjornson
IF TO THE INDEMNITORS:
Matthew B. Jore Michael W. Jore
<PAGE>
c/o Jore Corporation c/o Jore Corporation
45000 Highway 93 South 45000 Highway 93 South
Ronan, MT 59864 Ronan, MT 59864
Merle B. Jore The Michael Jore Family Trust
c/o Jore Corporation The Matthew Jore Family Trust
45000 Highway 93 South The Merle and Faye Jore Family Trust
Ronan, MT 59864 c/o Jore Corporation
45000 Highway 93 South
Ronan, MT 59864
10. ATTORNEYS' FEES.
In the event that any Indemnitee brings or otherwise becomes a party to any
suit or other proceeding (including, without limitation, any administrative
proceedings) with respect to the subject matter or enforcement of this
Agreement, such Indemnitee shall, in addition to such other relief as may be
awarded, be entitled to recover from the Indemnitors the Indemnitees' reasonable
attorneys' fees, expenses and costs of investigation as are actually incurred
(including, without limitation, attorneys' fees, expenses and costs of
investigation incurred in any appellate or bankruptcy proceeding or costs
incurred in establishing the right to indemnification).
11. GOVERNING LAW.
This Agreement and the rights and obligations of the parties hereunder
shall in all respects be governed by, and construed and enforced in accordance
with, the laws of the State of Montana.
12. ENTIRE AGREEMENT; AMENDMENTS.
This Agreement represents the entire agreement between the Company and the
Indemnitors relating to the subject matter hereof and supersedes all prior
representations, discussions, negotiations and agreements, whether written or
oral. No amendment to this Agreement shall be effective unless it is in
writing, refers to this Agreement, and is signed on behalf of the Company and
the Indemnitors.
13. COUNTERPARTS.
This Agreement may be executed in multiple counterparts and any counterpart
may be executed by one or more of the parties hereto with the same effect as if
all parties had executed the same counterpart.
<PAGE>
14. THIRD-PARTY BENEFICIARIES.
The parties to this agreement agree and acknowledge that the Underwriters
and the individual members of the Board of Directors of the Company are intended
third party beneficiaries of the representations, warranties, covenants and
other agreements of the Indemnitors set forth in this Agreement, and, as such
shall have the right to assert any and all claims or other causes of action
against Indemnitors, including, those arising out of a breach by Indemnitors of
any provision of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
THE COMPANY:
/s/ David H. Bjornson
- --------------------------------
By: David H. Bjornson
Title: Chief Financial Officer
and General Counsel
INDEMNITORS:
/s/ Matthew B. Jore /s/ Michael W. Jore
- --------------------------------- ---------------------------------
MATTHEW B. JORE MICHAEL W. JORE
/s/ Merle B. Jore
- ---------------------------------
MERLE B. JORE
THE MATTHEW JORE FAMILY TRUST THE MICHAEL JORE FAMILY TRUST
/s/ Matthew B. Jore /s/ Michael W. Jore
- --------------------------------- ---------------------------------
By: Matthew B. Jore, Trustee By: Michael W. Jore, Trustee
THE MERLE AND FAYE JORE FAMILY TRUST
/s/ Matthew B. Jore
- ---------------------------------
By: Matthew B. Jore, Trustee
