<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 13, 1999.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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.
Jeffrey M. Heutmaker, Esq. Chief Executive Officer Christopher J. Voss, Esq.
Jonathan K. Wright, Esq. Jore Corporation Christina E. Balkan, Esq.
Van Valkenberg Furber Law Group P.L.L.C. 45000 Highway 93 South Stoel Rives LLP
1325 Fourth Avenue, Suite 1200 Ronan, Montana 59864 3600 One Union Square
Seattle, Washington 98101-2509 Telephone: (406) 676-4900 600 University Street
Telephone: (206) 464-0460 Facsimile: (406) 676-8400 Seattle, Washington 98101-3197
Facsimile: (206) 464-2857 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. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common stock, without par value....................................... $45,000,000 $12,510
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933.
------------------------------
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 MAY 13, 1999
Shares
JORE CORPORATION [LOGO]
Common Stock
This is the initial public offering of Jore Corporation common stock. We are
selling shares and one of our shareholders is selling 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 $ and $ 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
additional shares to cover over-allotments of shares.
--------------
Investing in the common stock involves risks.
See "Risk Factors" starting on page 7.
--------------
<TABLE>
<CAPTION>
Proceeds to
Underwriting Proceeds to Selling
Price to Public Discount Company Shareholder
<S> <C> <C> <C> <C>
Per Share..................... $ $ $ $
Total......................... $ $ $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
--------------
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT INC.
FIRST SECURITY VAN KASPER
The date of this prospectus is , 1999
<PAGE>
Photographs and other artwork of products, retail displays,
manufacturing facilities and customer logos
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary.............................. 4
Risk Factors.................................... 7
Use of Proceeds................................. 14
S Corporation Distribution...................... 14
Dividend Policy................................. 14
Capitalization.................................. 15
Dilution........................................ 16
Selected Financial Data......................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 18
Business........................................ 24
Management...................................... 33
<CAPTION>
PAGE
---------
<S> <C>
Summary Compensation Table...................... 35
Certain Transactions............................ 38
Principal and Selling Shareholders.............. 40
Description of Capital Stock.................... 41
Shares Eligible for Future Sale................. 42
Underwriting.................................... 44
Legal Matters................................... 45
Experts......................................... 46
Change in Accountants........................... 46
Additional Information.......................... 46
Index to Consolidated Financial
Statements.................................... F-1
</TABLE>
------------------------
SPEED-LOK-TM-, SPEED SHANK-TM-, QUAD-DRIVER-REGISTERED TRADEMARK-, BIT-LOK-TM-,
HIGH TORQUE POWER DRIVER-REGISTERED TRADEMARK- MONTANA TOOL CORPORATION-TM-,
TORQUE DRIVER-TM-, ULTRA CUT-TM- and AUTO JAW-TM- are trademarks of Jore
Corporation. All other trademarks or service marks appearing in this prospectus
are trademarks or service marks of their respective owners.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, IN PARTICULAR THE RISKS OF INVESTING IN THE COMMON STOCK
DISCUSSED UNDER "RISK FACTORS" ON PAGES 7 TO 13.
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
related products. 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, abrasives 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--As a result of increased demand, the base of consumers using our
proprietary quick change connectors is rapidly expanding. We believe that
we can leverage 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. In connection with our license of the
STANLEY-REGISTERED TRADEMARK- brand, we also will
4
<PAGE>
introduce other power tool accessories. 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 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 distribution of our products
into Canada and recently have entered the European market through Black &
Decker 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.....
Common stock offered by the
selling shareholder........................
Common stock to be outstanding
after the offering.........................
Use of proceeds.............................. For capital expenditures to equip and expand
our manufacturing facilities, repayment of
debt, funding the S corporation distribution,
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 May 7, 1999 and excludes:
- 840,954 shares of common stock issuable upon exercise of outstanding
options;
- 442,187 shares available for future issuance under our 1997 Stock Plan;
and
- 83,823 shares of common stock issuable upon exercise of outstanding
warrants.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The information below should be read in conjunction with our Consolidated
Financial Statements and the Notes thereto, and the sections captioned "Selected
Consolidated Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1996 1997
1994 1995 --------- ----------
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net revenues........................................................... $ 9,590 $ 9,416 $ 9,686 $ 23,656
Gross profit........................................................... 2,216 1,658 1,269 6,558
Income (loss) from operations.......................................... 886 561 (63) 3,445
Net income (loss) as reported.......................................... 625 189 (558) 2,541
Pro forma provision (benefit) for income taxes(1)...................... 205 95 (199) 900
------ ------ --------- ----------
Pro forma net income (loss)(1)......................................... $ 420 $ 94 $ (359) $ 1,641
------ ------ --------- ----------
------ ------ --------- ----------
Pro forma basic net income per common share(1).........................
Pro forma diluted net income per common share(1).......................
Pro forma weighted shares outstanding(1):
Basic................................................................
Diluted..............................................................
<CAPTION>
STATEMENT OF OPERATIONS DATA: 1998
----------
<S> <C>
Net revenues........................................................... $ 44,888
Gross profit........................................................... 13,721
Income (loss) from operations.......................................... 7,734
Net income (loss) as reported.......................................... 6,240
Pro forma provision (benefit) for income taxes(1)...................... 2,343
----------
Pro forma net income (loss)(1)......................................... $ 3,897
----------
----------
Pro forma basic net income per common share(1)......................... $ 0.40
----------
----------
Pro forma diluted net income per common share(1)....................... $ 0.40
----------
----------
Pro forma weighted shares outstanding(1):
Basic................................................................ 9,629
----------
----------
Diluted.............................................................. 9,653
----------
----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
--------------------------------------
PRO PRO FORMA
BALANCE SHEET DATA: ACTUAL FORMA(2) AS ADJUSTED(3)
--------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Working capital (deficit)................................................. $ 28 $ (2,330)
Property, plant and equipment, net........................................ 19,816 19,816
Total assets.............................................................. 45,963 43,605
Operating line of credit.................................................. 13,525 13,525
Long-term debt, net of current portion.................................... 14,589 14,589
Total shareholders' equity................................................ 6,289 2,690
</TABLE>
(1) For all periods presented, we operated as an S corporation and were not
subject to federal and state income taxes. Upon the completion of this
offering, we will become subject to federal and state income taxes. Pro
forma net income (loss) reflects federal and state income taxes as if we had
not elected S corporation status for income tax purposes. Pro forma net
income per share is based on the weighted average number of shares of common
stock outstanding during the period plus the estimated portion of the shares
being offered (217,000 shares) that would be necessary to fund the $2.6
million distribution of previously taxed but undistributed S corporation
earnings. See Note 2 of Notes to Consolidated Financial Statements.
(2) The pro forma balance sheet reflects the declaration and payment of the S
corporation distribution, which is estimated to be $2.6 million at December
31, 1998. It also reflects the deferred income tax assets and liabilities
that would have been recorded at that date.
(3) The pro forma as adjusted balance sheet reflects our sale of shares of
common stock in this offering at an assumed initial public offering price of
$ per share, after deducting underwriting discounts and our estimated
offering expenses.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION AND GIVES EFFECT TO A
216.017-FOR-ONE SPLIT OF OUR COMMON STOCK CONSUMMATED ON MAY 12, 1999.
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. IF ANY OF THE FOLLOWING RISKS
MATERIALIZE, OUR BUSINESS, OPERATING RESULTS, AND FINANCIAL CONDITION COULD BE
MATERIALLY AND ADVERSELY AFFECTED. THIS COULD CAUSE THE TRADING PRICE OF OUR
COMMON STOCK TO DECLINE, AND YOU COULD LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE KNOWN AND
UNKNOWN RISKS AND UNCERTAINTIES, SUCH AS STATEMENTS OF OUR PLANS, OBJECTIVES,
EXPECTATIONS, AND INTENTIONS. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS,
INCLUDING THOSE SET FORTH BELOW. YOU SHOULD CAREFULLY CONSIDER THE RISKS AND
UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS
BEFORE INVESTING IN OUR COMMON STOCK.
OUR FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS AND OPERATING RESULTS
We are experiencing significant growth and have expanded our operations by
hiring additional personnel, increasing production capacity and upgrading our
information systems. We cannot assure that we will be able to manage any future
growth effectively. Continued growth could strain our management, production,
engineering, financial and other resources. To manage our growth effectively, we
must add manufacturing capacity while maintaining high levels of quality,
manufacturing efficiency and customer service. We also must continue to enhance
our operational, financial and management systems and successfully attract,
train, retain and manage our employees. Any failure to manage our growth
effectively could have a material adverse effect on our business, financial
condition and results of operations, such as declines in revenues and profit
margins.
THE LOSS OF A LARGE CUSTOMER WOULD HAVE A MATERIAL ADVERSE EFFECT ON OUR
BUSINESS
Historically, most of our sales have been derived from a small number of
customers and, due to the continuing consolidation of the industry's
distribution channels, we expect a significant portion of our future sales to
remain concentrated among a limited number of customers. In 1997, sales to
Sears, Black & Decker, Makita and Home Depot accounted for approximately 96% of
our net revenues and in 1998, sales to Sears, Black & Decker and Makita
accounted for approximately 92% of our net revenues. A significant decrease in
sales to, or the loss of, any of our major customers would have a material
adverse effect on our business, prospects, operating results and financial
condition.
OUR LICENSING OF 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. Some of our existing customers may view
this arrangement unfavorably, and therefore reduce or stop purchases of our
products. In addition, retail customers that are developing their own private
label programs 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 The Stanley Works to maintain the integrity of its brand
image may dilute brand quality in the minds of consumers; and
- Our inability to meet the performance requirements of the licensing
agreement may cause The Stanley Works to terminate our agreement.
WE MAY HAVE DIFFICULTY DEVELOPING NEW DISTRIBUTION CHANNELS
Our growth depends, in part, on our ability to develop new distribution
channels, including penetration of the industrial market for our products. We
cannot assure that we will be able to develop
7
<PAGE>
new distribution channels or penetrate the industrial market or that this growth
strategy can be implemented profitably. Challenges to developing this and other
new distribution channels include:
- Obtaining customer acceptance of our products;
- Managing existing customer relationships;
- Establishing relationships with new customers;
- Displacing incumbent vendor relationships; and
- Successfully introducing new products under the STANLEY-REGISTERED
TRADEMARK- brand.
Our failure to develop new distribution channels could have a material
adverse effect on our business, operating results, and financial condition,
particularly future revenue levels.
WE MAY HAVE DIFFICULTY ENTERING FOREIGN MARKETS
We intend to expand distribution of our products in foreign markets. We
cannot assure that we will be able to penetrate foreign markets or that this
growth strategy can be implemented profitably. Penetrating and conducting
business in foreign markets involves challenges, including:
- Local acceptance of our products;
- Currency controls and fluctuations in foreign exchange rates;
- Regulatory requirements such as tariffs and trade barriers;
- Longer payment cycles and increased difficulty in collecting accounts
receivable;
- Uncertain tax consequences; and
- Transportation and logistics.
Our failure to enter and operate successfully in foreign markets could have
a material adverse effect on our business, operating results, and financial
condition, such as declines in revenues and profitability.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT 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 Mr. Jore or any of our other
key personnel could have a material adverse effect on our business and
prospects. We do not have employment agreements with any of our employees and,
consequently, our employment relationships with key employees are at will.
OUR MANUFACTURING EQUIPMENT MAY NOT MEET PERFORMANCE EXPECTATIONS OR BE
AVAILABLE FOR FUTURE PURCHASE
Our business is dependent on the successful implementation and operation of
advanced manufacturing technologies. We cannot be certain that our manufacturing
equipment, systems or technologies will meet our performance expectations or
continue to operate reliably. Moreover, we can neither assure that we will
continue to obtain equipment and supplies from our present suppliers nor be
certain that our manufacturing processes will remain competitive with new and
evolving technologies. We recently began using a drill bit manufacturing
operation that is based on proprietary equipment and technologies. In addition,
we have internally developed, co-developed or purchased, technologically
advanced machines and systems for the manufacture, assembly and packaging of our
products. The failure of our manufacturing equipment, systems or technologies to
perform reliably and
8
<PAGE>
as designed, our inability to source such equipment, systems and technologies
from present suppliers, or the obsolescence of our equipment, systems or
technologies could disrupt our production processes, reduce our sales, increase
production costs and adversely affect our customer relationships.
OUR FAILURE TO DEVELOP OR INTRODUCE NEW PRODUCTS MAY ADVERSELY AFFECT OUR
BUSINESS
Our future success will depend in part on our continuous and timely
development and introduction of new products that address evolving market
requirements. We may experience delays in the development and introduction of
products. We cannot assure that our new products will adequately meet the
requirements of the marketplace or achieve market acceptance. Factors affecting
the market acceptance of our new products include:
- Functionality, quality and pricing;
- Demand for our products by end-users;
- Favorable reviews in trade publications;
- Adequate marketing support;
- The introduction of competitive products; and
- General trends in the power and hand tool industries and the home
improvement market.
Our inability to introduce new products that are accepted by the market
could adversely affect our sales, our reputation in the industry as an innovator
and our ability to obtain new customer accounts.
WE 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. Some of our competitors offer products similar to ours or different
products with similar functionalities. In the power tool accessory market
competitors include Vermont-American Corporation, Black & Decker Corporation,
Greenfield Industries, Inc. (a wholly-owned subsidiary of Kennametal Inc.),
American Tool Companies, Inc. and others, as well as a number of other companies
that supply products under private labels to OEM and retail customers. In the
hand tool market, competitors include American Tool Companies, Inc., Cooper
Industries, Inc., The Stanley Works and others, including foreign manufacturers
such as Sandvik AB.
Many of our competitors are established companies that have significantly
greater financial, technical, manufacturing, sales and marketing, and support
resources than Jore Corporation. In addition, many of our competitors own
well-known brands, enjoy large end-user bases, and benefit from long-standing
customer relationships. We believe that consumers in our markets generally are
loyal to a particular brand. Therefore, it may be difficult to generate sales to
consumers who have purchased products from competitors. Our failure to compete
successfully against current or future competitors would have material adverse
effects on our business, operating results, and financial condition including
loss of customers, declining revenues and loss of market share.
WE DEPEND ON CUSTOMER FORECASTS TO MANAGE OUR BUSINESS
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
9
<PAGE>
products. In addition, a variety of conditions, both specific to individual
customers and generally affecting the markets for our products, may cause
customers to cancel, reduce or delay orders that were previously made or
anticipated. 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.
OUR BUSINESS IS SEASONAL AND OUR OPERATING RESULTS ARE SUBJECT TO QUARTERLY
FLUCTUATIONS
Seasonality and unanticipated changes in customer demand could cause our
revenue, expenses, inventory levels and operating results to fluctuate.
Currently, the majority of our sales occur during the third and fourth fiscal
quarters and our operating results depend significantly on the Christmas selling
season. In 1997 and 1998, approximately 70% and 65%, respectively, of our net
revenues were generated during the third and fourth quarters. To support this
sales peak, we must anticipate demand and build inventories of finished goods
throughout the first two fiscal quarters. 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 increase variations
in our quarterly operating results and potentially expose us to greater adverse
effects of changes in economic and industry trends.
In addition, a substantial portion of our sales depends upon receiving
purchase orders for products to be manufactured and shipped in the same quarter
in which these orders are received. While we monitor our customers' needs, we
typically have a small backlog relative to net revenues, and a significant
portion of our orders are placed for production and delivery within a few weeks
from receipt of the order. As a result, the timing of revenue may be affected by
changes in production volume in response to fluctuations in customer and
end-user demand, introduction of new products by customers, and balancing of
customers' inventory to their sales estimates.
UNSATISFACTORY IMPLEMENTATION OR PERFORMANCE OF OUR NEW INFORMATION TECHNOLOGY
SYSTEM COULD ADVERSELY AFFECT OUR BUSINESS
The satisfactory performance and reliability of our information systems are
essential to our operations and continued growth. We are implementing a new
information technology system that we expect to be fully operational by the
second half of 1999. If we are unable to implement our new system successfully,
or if the system fails to perform reliably or otherwise does not meet our
expectations, we could experience design, manufacturing, and shipping delays
which, in turn, could increase our costs and result in deferred or lost sales.
Failure to implement and maintain our new information system, or unsatisfactory
performance of the system, could disrupt manufacturing operations and reporting
systems, cause delays in production and shipping of product, and adversely
affect our responsiveness to customers.
THE LOSS OR NON-PERFORMANCE OF OUR INDEPENDENT SALES REPRESENTATIVE COULD
ADVERSELY AFFECT OUR BUSINESS
We coordinate our sales and marketing activities with an independent sales
representative, Manufacturers' Sales Associates, LLC (together with its
affiliates, "MSA"). In 1998, MSA received a commission on all of our sales.
MSA's failure or inability to represent us effectively, maintain relationships
with our customers, attract new customers, or satisfactorily perform marketing
activities could adversely affect our business, customer relationships,
reputation and prospects for growth. Moreover, MSA can terminate its
relationship with us at any time without penalty. Termination of the MSA
relationship would require us either to conduct all of our sales and marketing
activities internally or retain another sales and marketing representative. Any
such change could disrupt our sales efforts and damage our customer
relationships.
10
<PAGE>
UNFAVORABLE CHANGES IN COSTS AND AVAILABILITY OF RAW MATERIALS MAY ADVERSELY
AFFECT OUR BUSINESS
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 our trademarks enhance our position in the marketplace and
are important to our business. Our inability to use any of our principal
trademarks could adversely affect our customer relationships and revenues. We
recently have been advised that the SPEED-LOK-TM- trademark may infringe on the
trademark rights of a third party manufacturer of surface preparation products.
We cannot be certain that we will retain full rights to use this trademark in
the future. For further discussion of this matter, see "Business--Intellectual
Property."
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.
The defense and prosecution of patent claims, and litigation involving
intellectual property rights generally, is both costly and time consuming. If
any of our products are found to have infringed any patent or other third party
proprietary right, we cannot be certain that we will be able to obtain licenses
to continue to manufacture and sell such product or that we will not have to pay
damages as a result of such infringement.
WE COULD BECOME SUBJECT TO PRODUCT LIABILITY LAWSUITS
We face a potential risk of product liability claims. Although we have
product liability insurance coverage, we cannot be certain that this insurance
will adequately protect us against product liability claims or that we will be
able to maintain this insurance at reasonable cost and on reasonable terms. To
the extent that we are found liable for damages with respect to a product
liability claim and lack adequate insurance coverage to satisfy such claim, our
business, operating results, and financial condition could be materially and
adversely affected.
11
<PAGE>
CONTINUED CONTROL BY THE JORE FAMILY AFTER THIS OFFERING COULD PREVENT OR DELAY
EVENTS WHICH MAY BE BENEFICIAL TO SHAREHOLDERS
Upon completion of the offering, Matthew Jore, President and Chief Executive
Officer, his brother Michael Jore, Executive Vice President, their father, Merle
Jore, trusts controlled by Matthew and Michael Jore, and other members of the
Jore family will beneficially own approximately % of our outstanding
common stock (or % if the underwriters' overallotment option is exercised
in full). As a result, Matthew Jore, acting alone, or the Jore family, acting
together, will be able to control all matters requiring shareholder approval.
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."
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.
OUR INFORMATION TECHNOLOGY AND COMPUTER CONTROLLED SYSTEMS MAY NOT BE YEAR 2000
COMPLIANT
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."
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 shares sold in
this offering will be freely tradable, while the 9,522,809 other shares
outstanding after this offering, based on the number of shares outstanding on
May 12, 1999, will be "restricted securities" as defined in Rule 144 of the
Securities Act of 1933. Of these restricted securities approximately 9,236,438
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
12
<PAGE>
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."
13
<PAGE>
USE OF PROCEEDS
At an assumed initial public offering price of $ per share (the
mid-point of the estimated initial public offering price range set forth on the
cover page of this prospectus), the net proceeds from the sale of shares of
common stock to be sold by Jore Corporation are expected to be approximately
$ 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.
In general, we intend to use the net proceeds from this offering as follows:
- $ million to undertake capital expenditures, primarily to equip and
expand our manufacturing facilities;
- $ million to repay indebtedness under our revolving line of credit;
- $ million to repay indebtedness under a bridge loan;
- $ million to fund the S corporation distribution to our current
shareholders; and
- $ million for additional working capital and general corporate
purposes.
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. 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 amended. 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 the S corporation distribution, see "Certain Transactions."
We will terminate our S corporation status prior to the sale of the shares
in 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. The amount of the final distribution would have
been approximately $2.6 million at December 31, 1998, but the amount distributed
will include our actual taxable income through the S corporation termination
date. Purchasers of shares of common stock in the offering will not receive any
portion of the S corporation distribution.
DIVIDEND POLICY
Except for the S corporation distribution discussed above, we do not
anticipate paying cash dividends in the foreseeable future, but intend to retain
future earnings, if any, for reinvestment in the operation and expansion of our
business. Any determination to pay cash dividends will be at the discretion of
the Board of Directors and will be dependent upon our financial condition,
results of operations, capital requirements and such other factors as the Board
of Directors deems relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Jore Corporation as of
December 31, 1998, (i) on an actual basis, (ii) on a pro forma basis to give
effect to the S corporation distribution after December 31, 1998 and (iii) on a
pro forma as adjusted basis to give effect to the receipt and application of the
estimated net proceeds to Jore Corporation from the sale of shares
of common stock at an assumed initial public offering price of $ per share.
The information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related Notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Long-term debt, net of current portion..................................... $ 16,588 $ 16,588
Shareholders' equity:
Preferred stock, no par value per share; 30,000,000 shares authorized, no
shares issued and outstanding, actual and adjusted..................... $ -- $ --
Common stock, no par value per share; 100,000,000 shares authorized,
9,508,533 shares issued and outstanding, actual; million shares
authorized, shares issued and outstanding, as adjusted(1)........ 1,695 2,695
Deferred compensation stock options...................................... (5) (5)
Retained earnings........................................................ 4,599 --
Total shareholders' equity............................................. 6,289 2,690
--------- ----------- -----------
Total capitalization................................................. $ 22,877 $ 19,278
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Based on shares outstanding on December 31, 1998. Excludes 972,077 shares
reserved for issuance under our stock plan, of which 422,312 were issuable
upon exercise of stock options outstanding as of December 31, 1998, with a
weighted average exercise price of $4.42 per share. See
"Management--Employee Benefit Plans" and Note 5 of Notes to Consolidated
Financial Statements.
15
<PAGE>
DILUTION
As of December 31, 1998, our net tangible book value (giving effect to an S
corporation distribution of $ million expected to be declared upon completion
of the offering) was approximately $ , or $ per share of common stock.
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 December 31, 1998, after giving effect
to the sale by us of shares of common stock in the offering at an
assumed initial public offering price of $ per share, Jore Corporation's
net tangible book value as of December 31, 1998 (after deduction of estimated
underwriting discounts and offering expenses and the application of the net
proceeds as described in "Use Of Proceeds") would have been approximately
$ , or $ per share. This represents an immediate increase in net
tangible book value of $ per share to existing shareholders and an
immediate dilution of $ per share to new investors. The following table
illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.......................... $
---------
Net tangible book value per share as of December 31, 1998..............
---------
Net decrease per share attributable to S corporation and tax-related
distributions........................................................
---------
Increase per share attributable to new investors.......................
---------
Adjusted net tangible book value per share after this offering...........
---------
Dilution per share to new investors...................................... $
---------
---------
</TABLE>
The following table summarizes as of December 31, 1998, 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 shares at
an initial public offering price of $ per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............................ % $ % $
New investors....................................
----- -----
Total.......................................... 100.0% 100.0%
----- -----
----- -----
</TABLE>
The above information assumes no exercise of any outstanding options. As of
December 31, 1998, there were outstanding options to purchase an aggregate of
422,312 shares of common stock at a price of $4.42 per share. Purchasers of
shares in the offering may incur additional dilution to the extent outstanding
stock options are exercised. See "Management--Stock Option Plans" and Note 5 of
Notes to Consolidated Financial Statements.
16
<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.
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. 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,
(IN THOUSANDS, EXCEPT PER SHARE DATA)
-----------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues................................................. $ 9,590 $ 9,416 $ 9,686 $ 23,656 $ 44,888
Cost of goods sold........................................... 7,374 7,758 8,417 17,098 31,168
--------- --------- --------- --------- ---------
Gross profit............................................... 2,216 1,658 1,269 6,558 13,720
Operating expenses:
Product development........................................ 185 147 1 151 495
Sales and marketing........................................ 20 27 31 620 2,509
General and administrative................................. 1,125 923 1,300 2,342 2,983
--------- --------- --------- --------- ---------
Total operating expense.................................. 1,330 1,097 1,302 3,112 5,987
Income (loss) from operations................................ 886 561 (63) 3,445 7,733
Other expense:
Interest expense........................................... 98 284 484 793 1,358
Other expense.............................................. 163 88 11 111 139
--------- --------- --------- --------- ---------
Net other expense........................................ 261 372 495 904 1,497
Net income (loss) before minority interest................... 625 189 (558) 2,541 6,236
Minority interest............................................ -- -- -- -- 4
--------- --------- --------- --------- ---------
Net income (loss) as reported................................ 625 189 (558) 2,541 6,240
Pro forma provision (benefit) for income taxes............... 205 95 (199) 900 2,343
--------- --------- --------- --------- ---------
Pro forma net income (loss).................................. $ 420 $ 94 $ (359) $ 1,641 $ 3,897
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma basic net income per common share.................. $ 0.40
---------
---------
Pro forma diluted net income per common share................ $ 0.40
---------
---------
Pro forma weighted average shares outstanding:
Basic...................................................... 9,629
Diluted.................................................... 9,653
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
BALANCE SHEET DATA: 1994 1995 1996 1997 1998
----------- ----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Working capital (deficit).................................. $ 29 $ (765) $ (44) $ 826 $ 28
Property, plant and equipment, net......................... 1,683 3,022 4,196 6,081 19,816
Total assets............................................... 3,916 5,169 9,548 17,759 45,963
Operating line of credit................................... 302 900 1,094 4,673 13,525
Long-term debt, net of current portion..................... 1,095 1,541 4,189 4,689 14,589
Total shareholders' equity................................. 277 763 149 2,521 6,289
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND JORE CORPORATION'S CONSOLIDATED FINANCIAL
STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. ALL
STATEMENTS, TREND ANALYSIS AND OTHER INFORMATION CONTAINED IN THIS PROSPECTUS
RELATIVE TO MARKETS FOR JORE CORPORATION'S PRODUCTS AND TRENDS IN REVENUE, GROSS
MARGIN AND ANTICIPATED EXPENSE LEVELS, AS WELL AS OTHER STATEMENTS INCLUDING
WORDS SUCH AS "SEEK," "ANTICIPATE," "BELIEVE," "PLAN," "ESTIMATE," "EXPECT" AND
"INTEND" AND OTHER SIMILAR EXPRESSIONS, CONSTITUTE FORWARD-LOOKING STATEMENTS.
THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO BUSINESS AND ECONOMIC RISKS, AND
OUR ACTUAL RESULTS OF OPERATIONS MAY DIFFER MATERIALLY FROM THOSE CONTAINED IN
THE FORWARD-LOOKING STATEMENTS. FOR A MORE DETAILED DISCUSSION OF THESE AND
OTHER BUSINESS RISKS, SEE "RISK FACTORS" BEGINNING ON PAGE 7.
OVERVIEW
Jore Corporation was founded to develop and produce innovative power tool
accessories to meet the increasing demand resulting from the growth in the
cordless power tool market. Our revenues have grown substantially through the
addition of new customers, increased sales to established customers and expanded
product offerings. Our business commenced in 1987, when we began selling a
limited number of drilling and driving accessories to independent local and
regional hardware stores and building supply centers. In 1990, Makita became our
first national customer and we devoted significant resources to servicing its
demand for our products. By 1996 we had expanded our product portfolio to
include our reversible drill and drivers and industrial versions of our
products. We also began to diversify our customer base by selling products to
Black & Decker, as well as to retail customers. In 1997 and 1998 we continued to
expand our customer base by adding 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 continue increasing our revenues by pursuing direct
relationships with major retailers through sales of STANLEY-REGISTERED
TRADEMARK- and private label branded products, increasing sales to existing
customers, and augmenting our existing product portfolio. In addition, we are
continuing to reduce our unit costs while increasing our production capacity.
Revenues are recognized at the time of shipment and sales terms are
typically net 60 or 90 days. Historically, we have experienced negligible bad
debt and do not expect bad debt to be material in the future. Cost of goods sold
consists primarily of raw materials, labor, shipping and other manufacturing
expenses associated with the production and packaging of products.
Our operating expenses include product development costs, sales and
marketing expenses and general and administrative expenses. Product development
expenses consist principally of personnel costs and material associated with the
development of new products and changes to existing products, which are charged
to operations as incurred. Some expenses relating to product development are
classified in other expense categories, such as cost of goods sold and general
and administrative expenses. Sales and marketing expenses consist of salaries
and employee benefits for internal sales personnel, selling commissions paid to
MSA and costs of promotional events. General and administrative expenses consist
primarily of salaries and employee benefits for executive, managerial and
administrative personnel, license fees, facility leases, depreciation and
amortization of capitalized equipment costs and travel and business development
costs.
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.
18
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain financial
data as a percentage of net revenues:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net revenues..................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................................... 76.9 82.4 86.9 72.3 69.5
--------- --------- --------- --------- ---------
Gross profit................................................... 23.1 17.6 13.1 27.7 30.5
Operating expenses:
Product development............................................ 1.9 1.6 0.1 0.6 1.1
Sales and marketing............................................ 0.2 0.3 0.3 2.6 5.6
General and administrative..................................... 11.7 9.8 13.4 9.9 6.6
--------- --------- --------- --------- ---------
Total operating expense...................................... 13.9 11.7 15.7 13.1 13.3
Income (loss) from operations.................................... 9.2 5.9 (0.7) 14.6 17.2
Other expense:
Interest expense............................................... 1.0 3.0 5.0 3.4 3.0
Other income expense........................................... 1.7 0.9 0.1 0.5 0.0
--------- --------- --------- --------- ---------
Net other expense............................................ 2.7 3.9 5.1 3.9 3.3
--------- --------- --------- --------- ---------
Net income (loss)................................................ 6.5% 2.0% (5.8)% 10.7% 13.9%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
1998 COMPARED TO 1997
NET REVENUES. Net revenues increased from $23.7 million in 1997 to $44.9
million in 1998, representing an 89.5% increase. The increase is a result of
expansion of our proprietary drilling and driving systems, successful new
programs with existing customers, relationships with new customers, increased
sales in each of our product lines and product line diversification. In
particular, we substantially increased sales of our products to Sears.
COST OF GOODS SOLD. Cost of goods sold increased from $17.1 million in 1997
to $31.2 million in 1998, representing an 82.5% increase. This increase is
primarily attributable to substantially larger purchases of raw material and
component parts and higher labor costs associated with increased sales. Cost of
goods sold decreased as a percentage of sales from 72.3% in 1997 to 69.5% in
1998. This decrease is attributable to efficiencies gained from internally
producing formerly outsourced components. In addition, our profit margins
improved as a result of changes in our product and customer mix.
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. We
hired engineers and machinists to develop our proprietary products and
corresponding processes. In addition to the labor expensed in 1997 and 1998, we
capitalized $184,000 and $211,000, respectively, of 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 sales staff to accommodate increased sales and customer support
activities. We expanded our graphics department as our customer diversification
efforts required us to produce more packaging and merchandising materials.
19
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $2.3 million in 1997 to $3.0 million in 1998, representing a
27.1% 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 sales, engineering, and administrative staff increased from 40 at the end of
1997 to 71 at the end of 1998.
OTHER INCOME (EXPENSE). Other income (expense) consists primarily of
interest expense associated with short term borrowings and interest income on
cash and cash equivalents. Other income (expense) increased from $875,000 in
1997 to $1.5 million in 1998. This increase in other expense is primarily
attributable to a larger amount of borrowings and their corresponding interest
expense, which increased from $795,000 in 1997 to $1.4 million in 1998.
NET INCOME. As a result of all of these factors our net income increased
from $2.5 million in 1997 to $6.2 million in 1998, representing a 145.7%
increase.
1997 COMPARED TO 1996
NET REVENUES. Net revenues increased from $9.7 million in 1996 to $23.7
million in 1997, representing a 144.3% increase. The increase was a result of
our beginning to sell a significant portion of our product portfolio to Sears,
expansion of our proprietary drilling and driving systems, successful new
programs with existing customers, our development of new customers, increased
sales in each of our product lines and product line diversification.
COST OF GOODS SOLD. Cost of goods sold increased from $4.9 million in 1996
to $17.1 million in 1997, representing a 103.6% increase. This increase was
primarily attributable to substantially larger purchases of raw materials and
component parts and higher labor costs associated with increased sales. Cost of
goods sold decreased as a percentage of sales from 86.6% in 1996 to 72.2% in
1997. This decrease was primarily attributable to manufacturing efficiencies 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 $150,000 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 $184,000 in 1997. These
amounts are included in property, plant and equipment on the balance sheet and
depreciated over the life of the equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$31,000 in 1996 to $619,000 in 1997. This increase was primarily attributable to
a sharp rise in sales commissions paid on our increased sales. There was only
$17,000 in commissions paid in 1996 compared to $468,000 in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $1.3 million in 1996 to $2.3 million in 1997, representing a
76.9% increase. The primary reason for this change was an increase in
administrative personnel. Depreciation expense increased by 43.3%, along with
related insurance and property taxes. Professional services increased from 1996
to 1997 by 63.9% as accounting and tax needs grew. General and administrative
expenses as a percentage of total revenue decreased from 13.4% in 1996 to 9.9%
in 1997. This decrease is due to economies of scale for such expenses, relative
to the substantial increase in revenues.
OTHER INCOME (EXPENSE). Other income (expense) consists primarily of
interest expense associated with short term borrowings and interest income on
cash and cash equivalents. Other income (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 their corresponding interest
expense, which increased from $484,000 in 1996 to $793,000 in 1997.
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NET INCOME. As a result of all of these factors our net income increased
from a loss of $558,000 in 1996 to net income of $2.5 million in 1997.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have funded operations with short term lines of credit and
term loans for equipment purchases and, to a lesser extent, net income from
operations. Net cash used by operating activities was $1.0 million in 1996, $2.0
million in 1997 and $1.6 million in 1998. The net cash used in operations
consisted primarily of increases in accounts receivable and inventory which were
partially offset by increased accounts payable and accrued expenses. Net cash
used by investing activities was $1.8 million in 1996, $2.7 million in 1997 and
$14.0 million in 1998. Cash used in investing activities consists primarily of
property and equipment purchases. Net cash provided by financing activities was
$2.8 million in 1996, $4.8 million in 1997 and $15.6 million in 1998. Cash
provided from financing activities was primarily from net proceeds from term
debt and net borrowings on the line of credit.
Currently, we have an accounts receivable revolving line of credit with
Coast Business Credit (CBC) with a maximum borrowing limit of $25 million less
the amounts advanced on the inventory, equipment and term loan lines. Advances
on the line are limited to 85% of eligible accounts receivable. The majority of
trade accounts receivable is, therefore, assigned as product is shipped.
Interest on the revolving credit line advances is at the prime rate plus 1%, but
no less than 9%, currently 9%. The term of the agreement is through January 2003
and contains personal guarantees by certain of our shareholders. Outstanding
advances on the line at December 31, 1998 and 1997 were $10.0 million and $4.7
million, respectively. This line is secured by receivables, inventory, equipment
and general intangibles.
During February 1998, we entered into another agreement with CBC for an
inventory revolving line of credit with a maximum borrowing limit of $4.5
million, which includes a letter of credit sub-line of $500,000. Advances on the
line are limited to 65% of eligible inventory. Interest on the revolving credit
line advances is at the prime rate plus 1%, currently 9.0%. The term of the
agreement is through January 2003 and contains personal guarantees by certain of
our shareholders. Outstanding advances on the line at December 31, 1998 were
$3.5 million. This line is secured by inventory, receivables, equipment and
general intangibles.
Capital expenditures and financing associated with those expenditures have
been primary factors affecting our financial condition over the last three
years. Total capital expenditures net of dispositions were $13.5 million in 1998
compared to $2.7 million in 1997 and $1.6 million in 1996. A significant portion
of these expenditures have been related to the acquisition of manufacturing
equipment to increase production. We anticipate 1999 capital expenditures of
approximately $27.0 million. A significant portion of our 1999 capital
expenditures has been and will continue to be for additional investment in
manufacturing equipment for anticipated increases in production levels. We
anticipate spending approximately $5.0 million in 1999 to purchase specialized
drill bit production equipment. In order to maintain an exclusive relationship
with the manufacturer of such equipment we must continue to purchase
approximately $5.5 million of equipment per year over the next five years.
We believe that existing cash balances, new borrowings and cash generated
from operations, together with the net proceeds from this offering, will be
sufficient to meet our anticipated cash needs for working capital and capital
expenditures for approximately the next 12 months. There can be no assurance
that the underlying assumed levels of revenues and expenses will prove to be
accurate. We may seek additional funding through public or private financings or
other arrangements prior to such time. Adequate funds may not be available when
needed or may not be available on terms favorable to us. If additional funds are
raised by issuing equity securities, dilution to existing shareholders will
result. If funding is insufficient at any time in the future, we may be unable
to develop or enhance our products, take advantage of business opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on our business, financial condition and results of operations.
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IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
We are currently installing new billing, accounting and administrative
systems which are scheduled to be fully operational during 1999 and which have
been represented to be fully Year 2000 compliant. Failures of our internal
systems could temporarily prevent us from processing orders, issuing invoices,
manufacturing and developing products and could require us to devote significant
resources to correcting such problems.
We have tested all of our desktop computers for Year 2000 compliance with
Year 2000 compliance testing software. All of our desktop units are Year 2000
compliant. We have received written assurances from the manufacturers of the
computers used in our manufacturing facility that all of the computers are Year
2000 compliant. We are addressing our embedded systems on a prioritized
piece-by-piece basis.
We do not currently have any information concerning the Year 2000 compliance
status of our customers. If our customers are not Year 2000 compliant, they may
experience material costs to remedy problems, may face litigation costs and may
delay purchases of our products. As a result, our business, financial condition
and results of operations could be seriously harmed.
We have funded our Year 2000 plan from cash balances. As of May 12, 1999, we
have spent approximately $354,000 to address the Year 2000 problem and expect to
spend approximately $35,000 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.
We have begun to develop a contingency plan to address situations that may
result if we are unable to achieve Year 2000 readiness of our critical
operations. The cost of developing and implementing such a plan may itself be
significant. Finally, we are also subject to external forces that might
generally affect industry and commerce, such as utility or transportation
company interruptions caused by Year 2000 compliance failures.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, we adopted the provision of SFAS No. 130,
REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes the standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income as defined includes all changes in equity (net assets)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from income, include foreign currency
translation adjustments and unrealized gains/losses on available-for-sale
securities. Reclassification of financial statements for earlier periods
provided for comparative purposes is required upon adoption. SFAS No. 130 does
not address issues of recognition or measurement for comprehensive income and
its components, and therefore, it had no impact on our financial condition or
results of operation upon adoption. Currently, there are no transactions that
would give rise to reporting or disclosure differences between reported income
and comprehensive income.
Effective January 1, 1998, we adopted the provisions of SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
statement requires, among other things, that we provide financial and
descriptive information about our reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available and is regularly evaluated by the
enterprise's chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Currently, we believe that we operate in
only one reportable segment.
In June, 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 requires companies to recognize all
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<PAGE>
derivative contracts as either assets or liabilities in the balance sheet and to
measure them at fair value. If certain conditions are met, a derivative may be
used specifically as a hedge, the objective of which is to match the timing of
gain or loss recognition on the hedging derivative with the recognition of the
changes in the fair value of the hedged asset or liability that are attributable
to the hedged risk, or the earnings effect of the hedged forecasted transaction.
For a derivative not designated as a hedging instrument, the gain or loss is
recognized in income in the period of change. SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 1999. 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.
23
<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 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, abrasives 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--As a result of increased demand, 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 with proprietary
features such as ratchet wrenches and screwdrivers. 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 1998 to 1999 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 label currently are found in approximately 2,600 of the
roughly 10,000 True Value 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 the brand names of manufacturers such as Black &
Decker, the private labels of retailers such as Sears'
CRAFTSMAN-Registered Trademark-, and the STANLEY-REGISTERED TRADEMARK-
brand.
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 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. After evaluating the distribution, merchandising,
marketing and competitive issues related to supplying the European market, we
plan to enter this market through Black & Decker Europe. 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. Recently, for
example, we reduced the cost of our countersinks by 70% 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 tables provide information about each of our product families:
QUICK CHANGE DRILLING AND DRIVING SYSTEMS
<TABLE>
<S> <C> <C>
[Diagrams of Speed-Lok [Diagrams of Hex-shank [Diagrams of Masonry Drill
Quick Connectors] High Speed Steel Drill Bits]
Bits]
[Diagrams of Wood Boring [Diagrams of Hex-shank [Diagrams of Hex-shank
Spade Drill Bits] Wire Brushes] Surface Preparation Items]
[Diagrams of Hex-shank
Larger High Speed Steel
Drill Bits]
</TABLE>
The cornerstone of our power tool accessories portfolio is a patented quick
change drilling and driving system that enables single-handed interchangeability
of a full-range of hex-shank drilling, driving and surface preparation
accessories. In addition to quick interchangeability, our hex-shank accessories
provide enhanced torque transmission as compared to traditional round-shank
products. Users chuck the quick connector into their drill and then can quickly
change between accessories throughout their project without having to
continually chuck and re-chuck a particular accessory. We offer the quick change
connectors in a variety of styles and sizes to fit the needs of both
do-it-yourself consumers and professional craftsmen. The quick change connectors
are used in conjunction with a variety of hex-shank accessories including
high-speed drill bits, masonry drill bits, wood boring spade bits and wire
brushes and other surface preparation applications.
REVERSIBLE DRILL AND DRIVERS
[Diagram of Drill and Driver]
The patented reversible drill and driver speeds up the process of drilling
and driving as well as providing both functions in one tool. This product line
consists of a drilling tool on one end and a driving tool on the other. The
reversible drill and driver allows the user to drill and/or countersink a pilot
hole, then quickly release and flip the accessory to drive the screw or other
fastener. The product can be used with a number of drilling and driving tools
and is available in a variety of versions and sizes.
SCREW GUIDES
[Diagram of Screw Guide Standard]
Our patented screw guides are magnetic bit holders with a self-retracting
guide sleeve that provide the user with an easily operated screw driving
accessory for a power drill. The user places the screw head on the insert bit
and then pulls the self-retracting guide sleeve forward over the screw. The
guide sleeve holds the screw straight and prevents slippage during driving. The
screw guide comes in many variations to serve specific applications.
HAND TOOLS
[Diagram of TORQUE DRIVER-TM-][Diagram of cartridge driver]
The TORQUE DRIVER-TM- is an ergonomically designed screw and nut driver with
a flip-out handle allowing for greater torque in turning screws and driving
nuts. The cartridge driver is a screw and nut
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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.
[Diagram of Round-shank Drill Bits]
Using our advanced drill bit manufacturing technology, we recently began
producing traditional round-shank drill bits. We have begun to offer
ground-from-solid drill bits in a variety of sizes and for various surfaces. See
"Manufacturing and Process Technologies."
MANUFACTURING AND PROCESS TECHNOLOGIES
We use advanced technology to create the highest quality, most
cost-effective processes available to manufacture, assemble and package our
products. We operate based on the concept of "Kaizen," a Japanese word meaning
"never ending improvement." Our processes are based on continuing research into
materials, technology and machines from other companies and industries. Our
focus on innovation and continuous process improvement covers all facets of
operations, from inspection of raw materials to final assembly and packaging of
the end product. The application of advanced technology manufacturing allows us
to enhance product quality, lower production costs, improve customer
responsiveness, and rapidly scale and increase production capacity to support
sales growth.
Our in-house manufacturing processes include drill bit grinding, high-speed
machining, injection molding, die-casting, metal forming and stamping. We have
jointly designed and developed a proprietary drill bit manufacturing machine
that automates all aspects of drill bit production, resulting in improved
quality, lower production costs and increased production capacity. We 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 micro processing
technology that allows us to capture, analyze and manipulate data to more
effectively manage and coordinate our operations.
Our internally manufactured component parts, as well as selected outsourced
components, go from our manufacturing or receiving operations to our assembly
and packaging work centers. Finished goods, such as hex- and round-shank drill
bits, move immediately to the packaging area and become part of a multi-product
set or are packaged individually. Through a continual study and assessment of
these assembly and packaging processes, our in-house engineering and automation
staff designs, constructs, and installs equipment that reduces manual labor
requirements, increases throughput and allows us to electronically monitor and
control processes.
We constantly monitor all facets of the manufacturing process for
inefficiencies and strive to use technology or new processes that save time,
reduce costs, and improve quality. We first seek to identify and quantify any
advantages that we believe we can achieve by developing a new process. We then
seek a solution by investigating machine manufacturing companies throughout the
world that can potentially address our needs. If an appropriate machine is not
available from an outside source, we will collaborate in the design with a
manufacturer to build process-specific equipment or design and build such
equipment internally.
PRODUCT DEVELOPMENT
We focus our efforts on the design and development of product improvements
and new products based on an evaluation of the needs and demands of consumers.
We maintain an active dialogue with users of our products to ascertain the most
desirable enhancements for our current products and systems and to aid in the
development of new products. Our technology development and application
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group is comprised of 43 people, including ten engineers, 12 industrial
designers and machinists, eight graphics designers and 13 technicians.
We have a disciplined process by which we identify and develop potential new
products and bring them to market.
- CONCEPTUALIZATION AND ENGINEERING OF NEW PRODUCTS OR IMPROVEMENT TO
EXISTING PRODUCTS. Our personnel visit job sites to observe current
construction and manufacturing methods and to identify potential
opportunities to improve existing products or create new products. Once we
identify a need for a new product or an improvement to an existing product
we begin a conceptualization process involving feedback from end-users and
personnel within our manufacturing operations. Using computerized
engineering software, we develop three-dimensional computerized CAD
drawings and manipulate these images to optimize functionality and form.
- PROTOTYPED PRODUCTION. Once we are satisfied regarding the functional and
aesthetic objectives of a particular product, our engineering software
sends the three-dimensional computerized model to our rapid prototyping
system. Our system produces a three-dimensional plastic model that we then
test for aesthetics, functionality and general design. Once we are
satisfied with the concept prototype, we commission a fully functional
prototype to be made for performance testing and evaluation as a working
prototype. In many cases, the rapid prototype model serves this function
as well.
- SELECTION OF RAW MATERIAL AND PRODUCTION EQUIPMENT. In order to select the
appropriate raw material, we use the working prototype to test alternative
materials in many different conditions. After we have determined the
appropriate raw material and product specifications, we send engineering
drawings, concept prototypes and working prototypes to selected
manufacturing equipment suppliers so that they are able to submit
proposals on design and fixturing of appropriate equipment. Our equipment
committee evaluates the proposals from these suppliers and selects the
best design to produce our product.
- ASSEMBLY, PACKAGING AND AUTOMATION FIXTURES. We design automated work
cells to efficiently assemble and package our products. Our automation
team evaluates and selects the appropriate technology and equipment for
each process. Our work cells, comprised of several process-specific
work-centers, are designed and arranged for efficient flow of product and
personnel. Our automation team designs safe, ergonomic workstations based
upon the needs of our production team.
CUSTOMERS
We sell our products to customers which currently fall into two general
categories:
- Retailers of power tool accessories; and
- Power tool manufacturers.
Our retail customers offer our products in their own stores under their own
private label brands. We coordinate closely with these customers on promotional
and merchandising strategies and displays, and we supply these customers with
products in final packaged form. We will also begin to offer our products to
retail and wholesale customers under the STANLEY-REGISTERED TRADEMARK- brand.
Our power tool manufacturer customers offer our products through the
manufacturers' 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.
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Our customers include the industry's leading power tool retailers and
manufacturers such as Sears, Black & Decker and Makita. Our products are also
sold at major retailers such as Home Depot, Lowe's, True Value, Ace Hardware,
Canadian Tire, Wal-Mart and others. In 1998, Sears, Black & Decker and Makita
each accounted for more than 10% of our revenues, with sales to those three
customers accounting for approximately 91% of our revenues. We believe that our
relationships with these companies are strong. For 1997 and 1998, for example,
we were named a "Partner in Progress" by Sears, an award earned by approximately
one percent of Sears' vendors. In addition, we received the Sears Hardlines
Group Innovation Award for 1997. Recently, Black & Decker recognized us with its
Performance Scorecard Award for Total Cost Management. See "Risk Factors--The
loss of a large customer would have a material adverse effect on our business."
Selected retail customers to which Jore Corporation directly sells products
are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE REPRESENTATIVE NUMBER
NUMBER OF BRAND NAME AND 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>
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 60 Home Base, Menards, Eagle US Canada
Makita Canada 48 Hardware/Lowe's, Payless International
Makita International 18 Cashway, Ace Hardware,
Contractor Supply
Distributors, Costco
Wholesale, Independent
Retailers
Black & Decker DeWalt, Black & 41 Home Depot, Lowe's, US
Decker, Quantum Pro WalMart, Ace Hardware
and Scorpion Independent Retailers
Black & Decker Europe Piranha -- To be determined Europe
</TABLE>
SALES AND MARKETING
We seek to develop long-term, mutually beneficial relationships with our
customers and to communicate with decision-makers at all levels within our
customers' organizations. Our internal sales and marketing staff closely
coordinates our activities and strategies with a sales representative
organization, Manufacturers' Sales Associates, LLC ("MSA"). MSA consists of six
sales representatives who formerly were senior sales and marketing executives
with major power tool companies. These representatives are strategically located
near major customers in the industry so they can continually coordinate product
and promotional requirements to optimize market opportunities. We believe that
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our relationship with MSA effectively leverages their industry experience while
complementing our focus on product and process development.
Our sales and marketing team works closely with our customers to create
coordinated promotional and merchandising campaigns. Elements of a typical
promotional campaign may include television commercials, direct mail product
circulars, catalogs, newspaper and magazine advertisements and promotional
events. Campaigns may also include merchandising events, plan-o-grams, and
promotional displays, such as aisle end caps, clip strips and center aisle
merchandisers.
We distinguish ourselves with our highly skilled, responsive in-house
graphics department that works closely with our sales and marketing department
and with MSA. Our graphics capabilities provide us with a significant
competitive advantage by allowing us to quickly design and produce packaging
mockups and sample promotional materials for new and existing customers. We also
produce our own point-of-sale displays and collaborate with our customers in
designing unique, customer-specific packaging. We believe that our graphics
capabilities enable us to offer our customers a "turn-key" graphics and
packaging solution that makes it easier for them to merchandise and display our
products and greatly enhances our sales and marketing efforts.
COMPETITION
The power tool accessories market and the hand tool market are highly
competitive. Many of our competitors are established companies that have
significantly greater financial, technical, manufacturing, sales and marketing,
and support resources than Jore Corporation. In addition, many of our
competitors own well-known brands, enjoy large end-user bases, and benefit from
long-standing customer relationships. As we expand into new markets, we can
expect to encounter similar competitive environments.
Competitors in power tool accessories include Vermont American Corporation,
Black & Decker, Greenfield Industries, Inc. (a wholly-owned subsidiary of
Kennametal Inc.), American Tool Companies, Inc. and others, as well as a number
of independent "job shops" that supply products under private labels to OEM and
retail customers. Competitors in the hand tools market include American Tool,
Cooper Industries, Inc., The Stanley Works and others, including some foreign
companies. Competitive factors in our markets include:
- establishing favorable brand recognition;
- maintaining manufacturing efficiency and expertise;
- developing a breadth of product offerings;
- implementing appropriate pricing;
- providing strong marketing support;
- manufacturing high quality products; and
- obtaining access to retail outlets and sufficient shelf space.
INTELLECTUAL PROPERTY
Our ability to compete effectively depends in part on our ability to develop
and protect our proprietary technology. We own 21 United States and foreign
design and utility patents covering a variety of our products and processes.
While our patents have been important to our business, we do not believe that
our business is dependent on any single patent or group of patents. We also own
several registered trademarks and sell many products to our customers under
licensing arrangements that allow us to maintain ownership of our trademarks
while granting customers exclusive use of specified marks. Our primary
trademarks include SPEED-LOK-TM-, SPEED SHANK-TM-,
QUAD-DRIVER-Registered Trademark-, BIT-LOK-TM-, HIGH TORQUE POWER
DRIVER-REGISTERED TRADEMARK-, MONTANA TOOL CORPORATION-TM-, TORQUE DRIVER-TM-,
ULTRA CUT-TM- and AUTO JAW-TM-.
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<PAGE>
Certain of our trademarks are integral to our business and we aggressively
monitor and protect these and other marks.
Norton Company, a manufacturer of surface preparation and abrasive tool
accessories, owns the registered trademark "SPEEDLOK" for use with abrasive
disks and backup pads. We sell our quick change system to Sears under the
SPEED-LOK-TM- trademark and believe that our use of this trademark does not
infringe on Norton Company's trademark rights. We are in discussions with Norton
Company to develop a royalty-free license in exchange for a long-term supply
agreement regarding surface preparation and abrasive tool products.
We enter into confidentiality agreements with our employees and consultants
upon the commencement of an employment or consulting relationship. These
agreements generally require that all confidential information developed or made
known to the individual by us during the course of the individual's relationship
with us be kept confidential and not disclosed to third parties. These
agreements also generally provide that inventions conceived by the individual in
the course of rendering services to us shall be our exclusive property. See
"Risk Factors--We depend on patent, trademark and trade secret protection to
maintain our market position."
INFORMATION MANAGEMENT
Through our information management systems, we seek to electronically
integrate all aspects of our operations, from procurement of raw materials to
sale of our packaged products to end-users. We are currently implementing a
fully-integrated enterprise resource planning software system that will allow
centralized management of key functions, including inventory, order processing,
accounts receivable, accounts payable, general ledger, shop floor control,
engineering change management, bar-coded inventory, material requirements
planning, scheduling, electronic data interchange, and bar-coded labor input.
This information system will enable us to ship to customers on a same-day basis,
respond quickly to order changes and provide a high level of customer service.
Our new system integrates more of our internal processes and allows for
cross-platform information sharing among our various departments. We plan to
have our new enterprise resource planning system in place by the third quarter
of 1999. See "Risk Factors--Unsatisfactory implementation or performance of our
new information technology system could adversely affect our business."
PERSONNEL AND HUMAN RESOURCES
As of May 7, 1999, we employed 478 full-time employees and 166 part-time
employees, 12 in sales and marketing, 64 in finance and administration, 31 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 feet,
primarily to accommodate our new drill bit manufacturing operation. Our
facilities are located on a 120 acre site, 80 acres of which we own and 40 acres
of which we lease from a related party. 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
We are currently not a party to any material legal proceedings.
32
<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...................................... 36 President, Chief Executive Officer and Chairman
Michael W. Jore...................................... 39 Executive Vice President and Director
David H. Bjornson.................................... 42 Chief Financial Officer, General Counsel, Secretary
and Director
Daniel A. Gabig...................................... 41 Vice President--Business Development
Robert S. Warren..................................... 53 Vice President--Marketing
Kelly D. Grove....................................... 32 Vice President--Controller
Nikki Snyder......................................... 39 Vice President--Corporate Communications and Human
Resources
Gary S. Houck........................................ 42 Director
Thomas E. Mahoney.................................... 56 Director
Bruce Romfo.......................................... 61 Director
William M. Steele.................................... 66 Director
</TABLE>
MATTHEW B. JORE is the founder of Jore Corporation. He has served as our
President since June 1990, Chief Executive Officer since March 1999 and a
Director since its inception on February 1990. He holds a B.S. degree in
Economics from the University of Montana.
MICHAEL W. JORE has served as Executive Vice President since November 1998
and Director of Jore Corporation since February 1990. From June 1990 to November
1998, he was the Vice President of Jore Corporation. Before joining Jore
Corporation, he worked for Plum Creek Timber, L.L.C. for ten years. Matthew and
Michael Jore are brothers.
DAVID H. BJORNSON has served as General Counsel and Chief Financial Officer
since November 1998 and as a Director since June 1998. From 1993 to 1998, Mr.
Bjornson was a Partner at Boone, Kahlberg & Haddon, a Missoula, Montana law
firm. Mr. Bjornson was previously employed by the international accounting firm
of Touche Ross & Co. In addition, he has served as treasurer and a director for
several small and mid-sized companies. He holds an LL.M. degree in taxation from
New York University, a J.D. degree (with honors) and B.A. degree in Business
Administration (with honors) from the University of Montana.
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. from California Polytechnic State University.
ROBERT S. WARREN has served as the Vice President--Marketing of Jore
Corporation since March 1999. From October 1998 to March 1999, he was the
General Manager of Sales and Marketing of Jore Corporation. From March 1995 to
October 1998, he was the Sales Manager of Jore Corporation. Prior to joining
Jore Corporation, he was President and owner of Pri-Mark, a small business
consulting company.
KELLY D. GROVE has served as the 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
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<PAGE>
August 1995, she was the Executive Coordinator of Jore Corporation. From
November 1991 to March 1994, she was a staff accountant at the Washington
Corporations, a holding company. She has a B.S. degree from Montana State
University.
NIKKI SNYDER has served as the Vice President--Corporate Communications and
Human Resources of Jore Corporation since March 1999. From August 1996 to March
1999, she was the Personnel Manager of Jore Corporation. From August 1994 to
August 1996, she was a personnel coordinator of Jore Corporation.
GARY S. HOUCK has served as a Director of Jore Corporation since February
1999. He is a founder and a managing member of Manufacturers' Sales Associates
LLC, a sales and marketing organization that he co-founded along with William M.
Steele. From April 1994 to March 1997, he was the Corporate Vice President and
Vice President National Accounts Sales with Makita U.S.A. Inc. From August 1989
to April 1994, he was the Manager National Accounts Sales of Makita. From July
1987 to August 1989, Mr. Houck was the Key Accounts Manager of Makita.
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. from the University of Massachusetts.
BRUCE ROMFO has served as a Director of Jore Corporation since June 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.
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 October
1996. He is a founder and a managing member of Manufacturers' Sales Associates
LLC, a sales and marketing organization that he co-founded along with Gary S.
Houck. Prior to that, Mr. Steele spent 12 years with Makita USA, as Senior Vice
President and as General Manager of Makita's Outdoor Power Equipment Division.
Mr. Steele holds a B.A. from University of Connecticut.
BOARD COMMITTEES
Jore Corporation maintains two standing committees, an Audit Committee and a
Compensation Committee.
AUDIT COMMITTEE. In May 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. We intend to appoint the members within the next thirty days.
COMPENSATION COMMITTEE. In May 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. We intend to appoint the members
within the next thirty days.
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
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<PAGE>
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 May 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.
In May 1999, the Board formed the Compensation Committee, but has not yet
appointed members.
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to Matthew Jore, Chief
Executive Officer, and Michael Jore, the only other executive officer of Jore
Corporation whose salary and bonus exceeded $100,000 during fiscal year 1998
(collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------------
<S> <C> <C> <C>
ALL OTHER
NAME AND PRINCIPAL POSITION SALARY COMPENSATION
- ------------------------------------------------------------------- -------------- -------------------
Matthew B. Jore.................................................... $ 141,617 $ 18,694(1)
President and Chief Executive Officer
Michael W. Jore.................................................... $ 138,384 $ 21,823(2)
Executive Vice President
</TABLE>
- ------------------------
(1) Comprised of $2,805 in automobile allowances, $4,299 in health insurance
premiums, $4,840 in life insurance premiums and $6,750 in matching 401(k)
contributions to the Jore Corporation 401(k) Profit Sharing Plan.
(2) Comprised of $548 in automobile allowances, $6,808 in health insurance
premiums, $7,967 in life insurance premiums and $6,500 in matching 401(k)
contributions to the Jore Corporation 401(k) Profit Sharing Plan.
No stock options were granted to or exercised by, and no awards or payments
under any long term incentive plan were made to, any of our Named Executive
Officers during our last completed fiscal year.
EMPLOYEE BENEFITS PLANS
STOCK PLAN. On September 15, 1997, the Board of Directors and the
shareholders adopted the Jore Corporation 1997 Stock Plan. The purpose of the
Stock Plan is to enhance the long term shareholder value of Jore Corporation by
offering opportunities to selected employees, directors, officers, consultants,
agents, advisors, and independent contractors of Jore Corporation to participate
in our growth and success, to encourage them to remain in our service, and to
own our stock. We authorized 972,077 shares of common stock for issuance under
the Stock Plan, subject to certain adjustments. For all grants under the Stock
Plan, the date of grant or award, number of options, option price, vesting
period and other terms specific to the options or awards are to be determined by
the plan administrator.
The Stock Plan provides for the grant of both incentive stock options, or
ISOs, that qualify under Section 422 of the Internal Revenue Code, and
nonqualified stock options or NQSOs. ISOs may be granted only to our employees
or employees of a parent or subsidiary. NQSOs and all other awards
35
<PAGE>
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. 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. Generally, stock
issued pursuant to an award is restricted stock. Subject to certain
restrictions, holders of stock awarded under the Stock Plan have all the rights
of other shareholders.
All grants and awards under the plan may not be transferred other than by
will or by the laws of descent and distribution and generally must be exercised
during the lifetime of the recipient only by the recipient.
401(K) PLAN. Jore Corporation maintains a 401(k) tax-qualified employee
savings and retirement plan covering all employees who satisfy certain
eligibility requirements relating to minimum age and length of service (the
"401(k) Plan"). Pursuant to the 401(k) Plan, eligible employees may elect to
reduce their current compensation by up to the lesser of 15% of their annual
compensation or the statutorily prescribed annual limit and have the amount of
such reduction contributed to the 401(k) Plan. 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.
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
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<PAGE>
- 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 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 (i) we acquired Montana American Equipment, LLC ("MAE"), a company that
had leased manufacturing equipment to Jore Corporation (ii) we were issued an
option from Jore Land, LLC, that granted us the right to purchase approximately
40 acres of land and improvements at fair market value, and (iii) we effected a
216.017-for-one split of our common stock. In addition, we will terminate our S
corporation status upon completion of this offering and distribute to our
shareholders a final amount representing our previously taxed but undistributed
S corporation earnings through the S corporation termination date.
In connection with this offering and the termination of Jore Corporation's S
corporation tax status, Jore Corporation entered into a tax allocation and
indemnification agreement with its principal shareholders, including Matthew
Jore and Michael Jore, Merle Jore, the father of Michael and Matthew, and
certain trusts administered by Matthew and Michael. The agreement provides that
Jore Corporation and the principal shareholders will indemnify each other for
federal or state income tax liabilities resulting from certain adjustments to
Jore Corporation's income or its shareholders. The agreement also provides that
if there is a determination that we were not an S corporation prior to the
offering, the principal shareholders will reimburse us for the amount that
equals the tax liability resulting from such determination.
Prior to Jore Corporation's acquisition of MAE on January 1, 1999, MAE was
owned by twenty members including three of our directors and several members of
Matthew and Michael Jore's immediate family. The approximate consideration we
issued to these members was (i) 316,897 shares of our common stock to Matthew
Jore; (ii) 14,257 shares of our common stock to Michael Jore; (iii) 11,017
shares of our common stock to Rick Jore, the brother of Matthew and Michael
Jore; and (iv) 8,857 shares of our common stock to Bruce Romfo, a Director, and
17,763 shares issued to B&P Manufacturing, LLC of which he is a controlling
shareholder. All of MAE's members were issued aggregate consideration of 452,772
shares of common stock of Jore Corporation, with a value of approximately [$4
million]. In 1998, we paid $758,236 in lease payments to MAE for use of its
machinery.
On February 1, 1999, Jore Land, LLC, a company wholly-owned by Matthew Jore
("Jore Land"), entered into an option agreement with us under which we have an
option to acquire approximately 40 acres of land and the constructed
improvements thereon at fair market value. We guarantee approximately $1.3
million of Jore Land's debt. Jore Land owns lands and buildings that are
contiguous to the land and building owned by Jore Corporation. We built
facilities that we use for manufacturing on a portion of that land. The land and
buildings are leased to us under both operating and financing leases and, during
1998, we paid $84,000 to Jore Land. Currently, an additional building expansion
for Jore Corporation's usage is under construction by Jore Land.
RELATED PARTY SERVICE PROVIDERS
In February 1998, we entered into sales agreements with Manufacturers'
Specialty Marketing, Incorporated ("MSM") and Manufacturers' Sales Associates,
LLC ("MSA"). MSA and MSM are both owned 50% each by William M. Steele and Gary
S. Houck, both of whom serve as directors of Jore Corporation. During 1998, MSM
was the sole sales marketing arm for Jore Corporation, receiving 4% of net
revenues as a commission. MSM divided its commissions with MSA during the course
of 1998. In January 1999, we revised our agreement with MSM and MSA to provide
that MSA will be the sole sales agent for Jore Corporation through December
2003. MSA will receive a percentage of Jore's net revenues on certain items as
commissions. Commissions accrued in 1998 were $61,700 and $163,579 for MSM and
MSA, respectively. In addition, in February 1999, we granted to each of Messrs.
Steele and
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<PAGE>
Houck an option to purchase 155,532 shares of our common stock at a per share
exercise price of $9.26.
In April 1999, we entered into an agreement with Thomas E. Mahoney, one of
our directors, pursuant to which Mr. Mahoney will provide consulting services
relating to our business development activities. We have agreed to pay Mr.
Mahoney $100,000 in 1999 for such services.
Printing Press Incorporated ("PPI") is a printing and packaging company in
which Bruce Romfo, a director of Jore Corporation, has a 30% ownership interest.
Jore Corporation purchased $2,003,062 in printing and packaging material from
PPI in 1998. Jore Corporation likely will continue to purchase a substantial
volume of printed and packaging material from PPI. On September 10, 1998, we
granted Mr. Romfo an option to purchase 11,881 shares of our common stock at a
per share exercise price of $4.42.
Montana American Manufacturing Corporation ("MAMC") provided manufacturing
services to Jore Corporation totalling $826,000 and $1.2 million in 1997 and
1998, respectively. Prior to its merger into Jore Corporation on October 1,
1998, it was owned equally by six members of the Jore family. The shareholders
of MAMC, Matthew Jore, Michael Jore, Rick Jore, Roger Jore, Perry Schnieder and
Randy Cote, each received 45,364 shares of common stock of Jore Corporation as
consideration for the merger. Matthew, Michael, Rick and Roger Jore are brothers
and Perry Schneider and Randy Cote are their brothers-in-law.
MANAGEMENT AND SHAREHOLDER TRANSACTIONS
Matthew Jore is indebted to us for approximately $574,383 in connection with
shareholder and member advances related to his ownership of stock in Jore
Corporation and his membership interests in MAE. Such indebtedness is evidenced
by notes that bear interest annually at the applicable federal rate.
Michael Jore is indebted to us for approximately $271,372 in connection with
shareholder and member advances related to his ownership of stock in Jore
Corporation and his membership interests in MAE. Such indebtedness is evidenced
by notes that bear interest annually at the applicable federal rate.
Rick Jore is indebted to us for approximately $95,974 in connection with
shareholder and member advances related to his ownership of stock in Jore
Corporation and his membership interests in MAE. Such indebtedness is evidenced
by notes that bear interest annually at the applicable federal rate.
S CORPORATION DISTRIBUTIONS
For tax years 1997 and 1998 we made cash distributions in part to enable our
shareholders to pay their taxes on our net income. For 1997, we made
distributions to Matthew, Michael and Merle Jore in the amounts of approximately
$126,625, $63,565 and $60,033, respectively. For 1998, we made distributions to
Matthew, Michael, Merle, Rick and Roger Jore, and Perry Scheider and Randy Cote
in the amounts of approximately $1,351,895, $605,354, $139,496, $227,918,
$284,862, $227,918 and $243,129, respectively. In addition for 1997, we made a
cash distribution of $243,129 to the Jore family trusts.
OTHER
We employ Merle Jore and his annual salary, including perquisites, for 1998
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 Matthew, Michael, Rick and
Roger Jore's father.
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<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Jore Corporation's outstanding common stock as of May 7, 1999 by:
(i) each of the directors and Named Executive Officers; (ii) all of our
directors and executive officers as a group; (iii) each other person known by us
to own beneficially more than 5% of the common stock and (iv) the Selling
Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERING AFTER THE OFFERING
------------------------ SHARES BEING ----------------------
NAMED EXECUTIVE OFFICERS AND DIRECTORS NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)
- ------------------------------------------------------- ----------- ----------- ------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Matthew B. Jore(2)..................................... 7,994,011 61.05%
Michael W. Jore........................................ 1,940,228 20.37% 1,940,228
Gary S. Houck(3)....................................... 155,532 1.61% 155,532
David H. Bjornson(4)................................... 13,594 * 13,594 *
Thomas Mahoney......................................... -- * -- *
Bruce Romfo(5)......................................... 29,022 * 29,022 *
William M. Steele(6)................................... 155,532 1.61% 155,532
All current directors and executive officers as a group
(11 persons)(7)...................................... 10,304,829 76.66%
SELLING SHAREHOLDER
Merle Jore............................................. 707,099 7.43%
45000 Highway 93 South
Ronan, MT 59864
OTHER 5% SHAREHOLDERS
Matthew Jore Family Trust(8)........................... 536,370 5.63% 536,370
45000 Highway 93 South
Ronan, MT 59864
Michael Jore Family Trust(9)........................... 536,370 5.63% 536,370
45000 Highway 93 South
Ronan, MT 59864
</TABLE>
- --------------------------
* LESS THAN 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Commission and generally includes voting or investment power with respect to
securities. Common stock subject to options currently exercisable or
exercisable within sixty (60) days of May 7, 1999, are deemed outstanding
for purposes of computing the percentage ownership of the person holding
such option but are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Except where indicated, and
subject to community property laws where applicable, the persons in the
table above have sole voting and investment power with respect to all common
stock shown as beneficially owned by them.
(2) Includes 2,647,327 shares issuable upon exercise of options to purchase
Michael and Merle Jore's common stock holdings and 929,145 shares held
pursuant to a voting trust agreement with all five of Matthew's siblings of
which Matthew is the trustee of the voting trust.
(3) Includes 155,532 shares issuable upon exercise of options.
(4) Includes 12,529 shares issuable upon exercise of options.
(5) Includes 2,376 shares issuable upon exercise of options and 17,763 shares
owned by B&P Manufacturing, LLC of which he is a controlling shareholder.
(6) Includes 155,532 shares issuable upon exercise of options.
(7) Includes 2,647,327 shares issuable upon exercise of options to purchase
Michael and Merle Jore's common stock holdings, 341,696 shares issuable upon
options and 929,145 shares held pursuant to a voting trust agreement with
all five of Matthew's siblings of which Matthew is the trustee of the voting
trust.
(8) Michael Jore is the trustee of the Matthew Jore Family Trust. He and Matthew
Jore disclaim beneficial ownership to the shares held by the Matthew Jore
Family Trust.
(9) Matthew Jore is the trustee of the Michael Jore Family Trust. He and Michael
Jore disclaim beneficial ownership to the shares held by the Michael Jore
Family Trust.
40
<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 May 7, 1999, there were 9,522,809 shares of common stock outstanding,
held of record by 32 shareholders. Following this offering, shares of
common stock will be issued and outstanding (assuming no exercise of stock
options subsequent to May 7, 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 May 7, 1999, we had two warrants outstanding to purchase shares of
common stock. One warrant is outstanding to purchase 11,881 shares of common
stock at a purchase price of $8.41 per share. Another warrant is outstanding to
purchase 71,934 shares of common stock at a purchase price of $9.10 per share.
PREFERRED STOCK
Subject to the provisions of the Articles of Incorporation and limitations
prescribed by law, the Board of Directors has the authority to issue, without
further vote or action by the shareholders, up to 30 million shares of preferred
stock in one or more series. The Board has the power and authority to fix the
rights, preferences, privileges, and restrictions thereof, including dividend
rights, dividend rates, conversion rates, voting rights, terms of redemption,
redemption prices, liquidation preferences, and the number of shares
constituting any series or the designation of such series. Any series of
preferred stock may have rights and privileges superior to those of the common
stock. There will be no shares of preferred stock outstanding upon the
consummation of this offering, and we have no present plans to issue any
preferred stock.
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
41
<PAGE>
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, since only a limited number of shares will be available for sale
shortly 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 May 7, 1999 and assuming no exercise of outstanding options after that date,
we will have an aggregate of shares of common stock outstanding,
assuming no exercise of options after May 7, 1999. Of these shares, the
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 9,522,809 shares outstanding upon completion
of this offering will be "restricted securities" as that term is defined under
Rule 144 ("Restricted Shares"). Restricted Shares may be sold in the public
market only if registered or if they qualify for an exemption from registration
under Rules 144, 144(k) or 701 promulgated under the Securities Act, which are
summarized below.
Our officers, directors, certain of our shareholders and holders of options
to purchase our common stock have agreed, during the 180-day period after the
date of this prospectus (the "Lock-Up Period"), that they will not, without the
prior written consent of D.A. Davidson & Co., directly or indirectly offer,
sell, contract to sell or otherwise dispose of any shares of our common stock or
any securities convertible into or exercisable or exchangeable for our common
stock. We agreed that we will not, without the prior written consent of D.A.
Davidson & Co., directly or indirectly offer, sell, contract to sell or
otherwise dispose of any shares of our common stock or any securities
convertible into or exercisable or exchangeable for common stock during such
180-day period except for the sale of the shares of common stock in this
offering and the issuance of options and shares of common stock pursuant to
employee benefit plans described in this prospectus. 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: (i) approximately Restricted Shares will be eligible for
public resale immediately after the effective date of the Registration
Statement; (ii) approximately additional Restricted Shares will be
eligible for public resale beginning 90 days after the effective date of the
Registration Statement; and (iii) approximately 9,236,438 additional Restricted
Shares (as well as an additional shares issuable upon exercise of
options outstanding at December 31, 1998) will be eligible for public resale
beginning 180 days after the effective date of the
42
<PAGE>
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 (i) one percent of the
number of shares of common stock then outstanding (approximately
shares immediately after this offering) or (ii) the average weekly trading
volume of the common stock during the four calendar weeks preceding the required
filing of a Form 144 with respect to such sale. Sales under Rule 144 are
generally subject to certain 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 at any
time during the 90 days preceding a sale, and who has beneficially owned the
shares proposed to be sold for at least two years (including the holding period
of any prior owner other than an affiliate), is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144.
Under Rule 701 promulgated under the Securities Act, employees, officers or
directors of or consultants to Jore Corporation who purchased or were awarded
shares or options to purchase shares pursuant to a written compensatory plan or
contract are entitled to sell such shares 90 days after the effective date of
this offering, without having to comply with the holding period requirements of
Rule 144 and, in the case of non-affiliates, without having to comply with the
public information, volume limitation or notice provisions of Rule 144.
We intend to file a registration statement on Form S-8 under the Securities
Act covering approximately 972,077 shares of our common stock reserved for
issuance under our stock plan. Such registration statement is expected to be
filed and become effective as soon as practicable after the effective date of
this offering. Accordingly, shares registered under such registration statement
will, subject to Rule 144 volume limitations applicable to affiliates, be
available for sale in the open market 180 days after the effective date of the
offering, except to the extent that such shares are subject to vesting
restrictions. As of December 31, 1998, options to purchase 422,312 shares were
issued and outstanding under our stock plan. See "Management--Stock Plan."
43
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives, D.A.
Davidson & Co., Janney Montgomery Scott Inc. and First Security Van Kasper (the
"Representatives"), have severally agreed, subject to the terms and conditions
of the Underwriting Agreement, to purchase from Jore Corporation and the selling
shareholder the number of shares of common stock set forth opposite their
respective names below. The underwriters are committed to purchase and pay for
all such shares if any are purchased, subject to certain conditions precedent.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- ------------------------------------------------------------------------------- ---------------------
<S> <C>
D.A. Davidson & Co.............................................................
Janney Montgomery Scott Inc....................................................
First Security Van Kasper......................................................
Total..........................................................................
</TABLE>
The Representatives have advised us and the selling shareholder that the
underwriters propose to offer the shares of common stock to the public at the
initial public offering price set forth on the cover page of this prospectus and
to certain dealers at such price, less a concession of not in excess of
$ per share, of which $ may be reallowed to other dealers. After the
offering, the public offering price, concession and reallowance to dealers may
be reduced by the Representatives. No such reduction shall change the proceeds
that will be received by the selling shareholder and us as set forth on the
cover page of the prospectus. The underwriters do not intend to confirm sales to
any accounts over which they exercise discretionary authority.
We have granted to the underwriters an option, exercisable for 30 days after
the date of this prospectus, to purchase up to 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 such option, each of the underwriters
will be obligated, subject to certain conditions, 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 above table represents as a percentage
of the shares of common stock offered hereby. If purchased, the
underwriters will sell such additional shares on the same terms as those on
which the 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 us, and a 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, in this offering. In
addition, we will pay estimated offering expenses of approximately $ ,
including $25,000 payable to Janney Montgomery Scott Inc. as a non-accountable
expense allowance.
The Underwriting Agreement contains covenants of indemnity among the
underwriters, Jore Corporation and the selling shareholder against certain civil
liabilities, including liabilities under the Securities Act and liabilities
arising from breaches of representations and warranties contained in the
Underwriting Agreement.
Our shareholders and option holders, including all officers and directors,
have agreed, for a period of 180 days after the date of this prospectus (the
"Lock-Up Period"), not to offer, pledge, sell, offer to
44
<PAGE>
sell, contract to sell, sell any option or contract to purchase, purchase any
option to sell, grant any option right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any of the shares of common
stock or any securities convertible into, or exercisable or exchangeable for,
common stock, owned as of the date of this prospectus or thereafter acquired
directly by such holders or with respect to which they have or hereafter acquire
the power of disposition, without the prior written consent of D.A. Davidson &
Co. However, D.A. Davidson & Co. may, in its sole discretion and at any time
without notice, release all or any portion of the securities subject to lock-up
agreements. There are no agreements between the Representatives and any of our
shareholders providing consent by the Representatives to the sale of shares
prior to the expiration of the Lock-Up Period. In addition, we have agreed that,
during the Lock-Up Period, we will not, subject to certain exceptions, issue,
sell, contract to sell, or otherwise dispose of, any shares of common stock, any
options or warrants to purchase any shares of common stock or any securities
convertible into, exercisable for or exchangeable for shares of common stock
other than our sale of shares in this offering, the issuance of common stock
upon the exercise of outstanding options or warrants, and our issuance of
options and shares under existing employee stock option and stock purchase
plans, without the prior written consent of the Representatives.
The Representatives have advised us that pursuant to Regulation M under the
Securities Act, certain persons participating in this offering may engage in
transactions, including stabilizing bids, syndicate covering transactions and
the imposition of penalty bids, that may have the effect of stabilizing or
maintaining the market price of the common stock at a level above that which
might otherwise prevail in the open market. A "stabilizing bid" is a bid for or
the purchase of the common stock on behalf of the underwriters for the purpose
of preventing or retarding a decline in the market price of the common stock. A
"syndicate covering transaction" is the bid for or the purchase of the common
stock on behalf of the underwriters to reduce a short position incurred by the
underwriters in connection with this offering. A "penalty bid" is an arrangement
permitting the Representatives to reclaim the selling concession otherwise
accruing to an underwriter or syndicate member in connection with the offering
if the common stock originally sold by such underwriter or syndicate member is
purchased by the Representatives in a syndicate covering transaction and has
therefore not been effectively placed by such underwriter or syndicate member.
The Representatives have advised us that such transactions may be effected on
the Nasdaq National Market or otherwise and, if commenced, may be discontinued
at any time.
In April 1999, an affiliate of D.A. Davidson & Co. loaned Jore Corporation
$2.0 million under a promissory note due five calendar days following the
completion of this offering. The note bears interest at an annual rate of 6.5%.
In connection with this financing, we issued warrants to purchase 71,934 shares
of common stock with an exercise price of $9.10 to the affiliate.
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.
45
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby and certain other legal
matters will be passed upon for Jore Corporation and the selling shareholder by
Van Valkenberg Furber Law Group P.L.L.C., Seattle, Washington. Certain legal
matters with respect to Montana law will be passed upon for Jore Corporation by
Boone, Karlberg & Haddon P.C., Missoula, Montana. Certain legal matters 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. The
decision to change independent accountants was ratified by our Board of
Directors. During the periods audited by Galusha, Higgins & Galusha through
December 1997, there were no disagreements with Galusha, Higgins & Galusha
regarding any matters with respect to accounting principles or practices,
financial statement disclosure or audit scope or procedure, which disagreements,
if not resolved to the satisfaction of the former accountants, would have caused
Galusha, Higgins & Galusha to make reference to the subject matter of the
disagreement in connection with its report. The former accountants' reports for
the years audited by them are not a part of our financial statements included in
this Prospectus. Such reports did not contain an adverse opinion or disclaimer
of opinion or qualifications or modifications as to uncertainty, audit scope or
accounting principles. Prior to retaining Deloitte & Touche LLP, we had not
consulted with Deloitte & Touche LLP regarding the application of accounting
principles.
ADDITIONAL INFORMATION
Jore Corporation has filed with the Commission a registration statement on
Form S-1 under the Securities Act with respect to the common stock offered
hereby. This prospectus, which constitutes part of the registration statement,
omits certain information contained in the registration statement, together with
exhibits and schedules, on file with the Commission pursuant to the Securities
Act and the rules and regulations of the Commission. The registration statement,
including the exhibits and schedules, may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, and at the Commission's Regional Offices at 7
World Trade Center, Suite 1300, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661, and copies may be obtained at the
prescribed rates from the Public Reference Section of the Commission at its
principal office in Washington, D.C. The Commission also maintains a web site on
the Internet that contains reports, proxy and information statements, and other
information regarding registrants, including Jore Corporation, that file
electronically with the Commission at http://www.sec.gov.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement, or
other document filed as an exhibit to the registration statement, each such
statement being qualified in all respects by such reference.
We intend to furnish our shareholders with annual reports containing audited
financial statements and an opinion thereon expressed by independent auditors
and may furnish our shareholders with quarterly reports for the first three
quarters of each fiscal year containing unaudited summary financial information.
46
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
JORE CORPORATION
Independent Auditors' Report............................................................................... F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Operations...................................................................... F-4
Consolidated Statements of Changes in Shareholders' Equity................................................. F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Jore Corporation
Ronan, Montana
We have audited the accompanying consolidated balance sheets of Jore
Corporation and subsidiaries (the Company) as of December 31, 1997 and 1998, and
the related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on the consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Jore Corporation and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
Seattle, Washington
May 12, 1999
F-2
<PAGE>
JORE CORPORATION
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
<TABLE>
<CAPTION>
PRO FORMA
1998
1997 1998 -------------
------------- ------------- (UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 113,471 $ 34,736 $ --
Accounts receivable, net of allowance for doubtful accounts of
$10,987 and $-0-, respectively.................................. 5,986,070 14,672,275 13,033,011
Notes receivable.................................................. 29,136 53,576 53,576
Shareholder notes receivable...................................... 272,895 1,350,788 420,229
Notes receivable from affiliates.................................. 62,578 83,917 83,917
Other receivables................................................. 136,698 38,461 38,461
Inventory......................................................... 4,740,004 8,182,542 8,182,542
Prepaid expenses and other assets................................. 34,169 695,076 695,076
Deferred income tax assets........................................ -- -- 247,000
------------- ------------- -------------
Total current assets.......................................... 11,375,021 25,111,371 22,753,812
Property, plant and equipment, net.................................. 6,080,632 19,815,544 19,815,544
Intangibles and other long-term assets, net......................... 303,525 1,035,667 1,035,667
------------- ------------- -------------
Total............................................................... $ 17,759,178 $ 45,962,582 $ 43,605,023
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................. $ 3,462,396 $ 7,106,060 $ 7,106,060
Accrued expenses.................................................. 1,242,087 2,073,702 2,073,702
Operating line of credit.......................................... 4,672,938 13,524,805 13,524,805
Other current liabilities......................................... 150,000 125,026 125,026
Shareholder note payable.......................................... -- 256,061 256,061
Current portion of long-term debt................................. 1,021,508 1,998,192 1,998,192
------------- ------------- -------------
Total current liabilities..................................... 10,548,929 25,083,846 25,083,846
Long-term debt, net of current portion.............................. 4,689,437 14,589,346 14,589,346
Deferred income tax liabilities..................................... -- -- 1,242,000
------------- ------------- -------------
Total liabilities............................................. 15,238,366 39,673,192 40,915,192
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,
9,390,511 and 9,508,533 shares, respectively.................. 736,392 1,694,931 2,694,699
Deferred compensation--stock options.............................. -- (4,868) (4,868)
Retained earnings................................................. 1,784,420 4,599,327 --
------------- ------------- -------------
Total shareholders' equity.................................... 2,520,812 6,289,390 2,689,831
------------- ------------- -------------
Total............................................................... $ 17,759,178 $ 45,962,582 $ 43,605,023
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------- -------------
<S> <C> <C> <C>
Net revenues......................................................... $ 9,686,034 $ 23,655,966 $ 44,888,324
Cost of goods sold................................................... 8,416,594 17,098,184 31,167,724
------------ ------------- -------------
Gross profit....................................................... 1,269,440 6,557,782 13,720,600
Operating expenses:
Product development................................................ 792 150,691 495,235
Sales and marketing................................................ 31,517 619,520 2,508,818
General and administrative......................................... 1,300,278 2,342,165 2,983,035
------------ ------------- -------------
Total operating expense........................................ 1,332,587 3,112,376 5,987,088
------------ ------------- -------------
Income (loss) from operations........................................ (63,147) 3,445,406 7,733,512
Other expense:
Interest expense................................................... 484,436 792,932 1,358,328
Other expense...................................................... 10,774 111,424 138,669
------------ ------------- -------------
Net other expense.............................................. 495,210 904,356 1,496,997
------------ ------------- -------------
Net income (loss) before minority interest........................... (558,357) 2,541,050 6,236,515
Minority interest.................................................... -- -- 3,519
------------ ------------- -------------
Net income (loss).................................................... $ (558,357) $ 2,541,050 $ 6,240,034
------------ ------------- -------------
------------ ------------- -------------
Basic net income (loss) per common share............................. $ (0.06) $ 0.27 $ 0.66
Basic weighted average shares outstanding............................ 9,022,983 9,357,794 9,412,486
Diluted net income (loss) per common share........................... $ (0.06) $ 0.27 $ 0.66
Diluted weighted average shares outstanding.......................... 9,022,983 9,357,794 9,435,766
Pro forma data (unaudited):
Net income (loss).................................................. $ (558,357) $ 2,541,050 $ 6,240,034
Pro forma provision (benefit) for income taxes..................... (199,314) 900,200 2,343,193
------------ ------------- -------------
Pro forma net income (loss)........................................ $ (359,043) $ 1,640,850 $ 3,896,841
------------ ------------- -------------
------------ ------------- -------------
Pro forma basic net income per common share........................ $ 0.40
-------------
-------------
Pro forma basic weighted average shares outstanding................ 9,629,486
-------------
-------------
Pro forma diluted net income per common share...................... $ 0.40
-------------
-------------
Pro forma diluted weighted average shares outstanding.............. 9,652,766
-------------
-------------
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<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................... 701,878 147,000 147,000
Shareholder distributions............. (202,240) (202,240)
Net loss.............................. (558,357) (558,357)
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1996.............. 9,342,558 586,392 -- (436,967) 149,425
Common stock issued................... 47,953 150,000 150,000
Shareholder distributions............. (319,663) (319,663)
Net income............................ 2,541,050 2,541,050
------------ ------------ ------------- ------------- -------------
Balance, December 31, 1997.............. 9,390,511 736,392 -- 1,784,420 2,520,812
Common stock issued................... 63,586 757,000 757,000
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.............. 9,508,533 $ 1,694,931 $ (4,868) $ 4,599,327 $ 6,289,390
------------ ------------ ------------- ------------- -------------
------------ ------------ ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
<TABLE>
<CAPTION>
1996 1997 1998
------------- -------------- --------------
<S> <C> <C> <C>
Operating activities:
Net income (loss)............................................... $ (558,357) $ 2,541,050 $ 6,240,034
Adjustments to reconcile net income (loss) to net cash provided
(used) by operating activities:
Depreciation.................................................. 423,359 677,171 973,762
Amortization.................................................. (19,834) 34,829 155,485
Compensation expense--stock options........................... -- -- 1,623
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)
Other receivables........................................... 9,728 (138,570) 98,237
Inventory................................................... (1,895,620) (2,150,004) (3,467,090)
Prepaid expenses and other current assets................... (34,690) 4,045 (660,907)
Intangibles and other long-term assets...................... (116,831) (133,314) (862,686)
Accounts payable............................................ 1,715,238 204,181 3,643,664
Accrued expenses............................................ 311,491 734,062 831,615
Other current liabilities................................... 102,383 47,617 (24,974)
------------- -------------- --------------
Net cash used by operating activities..................... (1,035,089) (1,931,828) (1,731,646)
Investing activities:
Purchase of property and equipment.............................. (1,610,877) (2,693,302) (15,216,599)
Proceeds from sale of fixed assets.............................. 7,343 30,669 701,729
Advances on notes receivable.................................... (208,990) (93,003) (1,429,165)
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)
Financing activities:
Proceeds from long-term debt.................................... 4,551,319 1,862,508 17,149,307
Payments on long-term debt...................................... (1,882,550) (587,085) (6,016,653)
Proceeds from operating line, net............................... 194,554 3,578,751 8,851,867
Capital contributions........................................... 147,000 150,000 757,000
Shareholder distributions....................................... (202,240) (319,663) (3,425,127)
------------- -------------- --------------
Net cash provided by financing activities................. 2,808,083 4,684,511 17,316,394
------------- -------------- --------------
Net increase (decrease) in cash and cash equivalents.............. 5,304 91,188 (78,735)
Cash and cash equivalents:
Beginning of period............................................. 16,979 22,283 113,471
------------- -------------- --------------
End of period................................................... $ 22,283 $ 113,471 $ 34,736
------------- -------------- --------------
------------- -------------- --------------
Supplemental disclosures
Cash paid:
Interest paid................................................... $ 485,790 $ 782,245 $ 1,368,383
Noncash financing and investing activities:
Common stock issued for land.................................... $ -- $ -- $ 195,048
Property contributed to JB Tool, LLC............................ 3,519
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 1: DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION AND REORGANIZATION
DESCRIPTION OF BUSINESS: Jore Corporation (the Company or Jore) is a
Montana corporation engaged in the design, manufacture and marketing of
innovative power tool accessories and hand tools for the do-it-yourself and
professional craftsman markets. The Company sells its products under private
labels to the industry's largest power tool retailers and manufacturers.
BASIS OF PRESENTATION AND REORGANIZATION: The Company intends to file a
registration statement for an initial public offering (IPO) on Form S-1 with the
Securities and Exchange Commission. In contemplation of the IPO, Jore and
entities under common control have initiated or will initiate certain events.
These entities included Montana American Manufacturing Corporation (MAMC) and
Montana American Equipment, LLC (MAE).
MAMC, a Montana corporation, was formed March 26, 1996, to be a producer of
high volume component parts to Jore on a per piece price basis, as well as to
operate and maintain certain of the Company's manufacturing equipment. MAMC was
owned equally by six shareholders, which included shareholders of Jore and their
immediate family members. On October 1, 1998, MAMC merged with Jore, and the
former MAMC shareholders received 360,648 shares of Jore common stock. Because
MAMC was an entity under common control of the shareholders of Jore and
immediate family members, the transaction 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 452,769 shares of Jore common stock. Because MAE was an entity
under common control of certain Jore shareholders and their immediate family
members, who at the date of acquisition owned 76.93% of MAE, the transaction 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 December 31, 1998 were approximately $2,604,000.
PRO FORMA CONSOLIDATED BALANCE SHEET: The pro forma unaudited consolidated
balance sheet as of December 31, 1998 reflects the termination of the Company's
S corporation status and the payment of
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)
the S Corporation Distribution, as if it were to be paid on that date by a
reduction of certain shareholder receivables and a distribution of cash and
certain accounts receivable balances. 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.......................................... 9,412,486 9,435,766
Effect of dilutive shares - number of shares required to pay S Corporation Distribution,
estimated to be $2,604,000 at $12.00 per share........................................ 217,000 217,000
---------- ----------
Pro forma weighted average shares outstanding........................................... 9,629,486 9,652,766
---------- ----------
</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 unsaleable inventories based on
specific identification of inventory against current demand and recent usage.
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)
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. Sales returns are recorded at the time they become
known.
PRODUCT DEVELOPMENT: Product development expenses consist principally of
personnel costs and material associated with the development of new products and
changes to existing products, which are charged to operations as incurred.
ADVERTISING AND PROMOTION: Costs associated with advertising and promoting
products are expensed as incurred.
STOCK-BASED COMPENSATION: As described in Note 5, the Company has elected
to follow the accounting provisions of Accounting Principles Board (APB) Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEE for stock-based compensation and
to furnish the pro forma disclosures required under Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
LONG-LIVED ASSETS: Long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable or whenever management has committed to a plan to dispose
of the assets. Such assets are carried at the lower of book value or fair value.
An asset is considered impaired when estimated future undiscounted cash flows
are less than the carrying amount of the asset. In the event the carrying amount
of such asset is not deemed recoverable, the asset is adjusted to its estimated
fair value.
NET INCOME (LOSS) PER COMMON SHARE: Basic net income (loss) per common
share was calculated by dividing net income (loss) by the weighted average
number of common shares outstanding during the period. Diluted net income per
common share was calculated by dividing net income by the weighted average
number of shares outstanding plus all additional common shares that would have
been outstanding if potentially dilutive common share equivalents had been
issued. Both basic and diluted net income per share reflect the change in the
capital structure discussed in Note 1.
F-9
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The following table reconciles the number of shares utilized in the net
income (loss) per share calculations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Number of shares:
Common shares -- basic................................................... 9,022,983 9,357,794 9,412,486
Effect of dilutive securities -- stock options........................... -- -- 23,280
---------- ---------- ----------
Common shares -- diluted................................................... 9,022,983 9,357,794 9,435,766
---------- ---------- ----------
---------- ---------- ----------
</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.
RECENT ACCOUNTING PRONOUNCEMENTS: Effective January 1, 1998, the Company
adopted the provision of SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No.
130 establishes the standards for reporting comprehensive income and its
components in financial statements. Comprehensive income as defined includes all
changes in equity during a period from nonowner sources. Examples of items to be
included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains/losses on
available-for-sale securities. Reclassification of financial statements for
earlier periods for comparative purposes is required upon adoption. Currently,
there are no disclosure differences between reported net income and
comprehensive income.
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
statement requires, among other things, that the Company provide financial and
descriptive information about its reportable operating segments. Operating
segments are defined as components of an enterprise about which separate
financial information is available and is regularly evaluated by the
enterprise's chief operating decision-maker in deciding how to allocate
resources and in assessing performance. Currently, the Company operates in only
one reportable segment.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133 requires companies to recognize all derivative contracts as either assets or
liabilities in the balance sheet and to measure them at fair value. If certain
conditions are met, a derivative may be specifically designated as a hedging
instrument, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of the changes in the
fair value of the hedged asset or liability that are attributable to the 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 June 15, 1999. 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.
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)
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. In 1996 and 1998, three customers accounted for more than 10%
of the sales individually. In 1997, there were four customers who individually
accounted for more than 10% of sales. For the years ended December 31, the
combined percentage of total sales and of total receivables for the customers
which exceeded 10% individually is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Customers accounting for more than 10% of combined sales.............. 90% 96% 91%
All other customers................................................... 10% 4% 9%
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
<TABLE>
<CAPTION>
1997 1998
----- -----
<S> <C> <C>
Top three customers' accounts receivable....................................... 98% 92%
All other customers............................................................ 2% 8%
--- ---
100% 100%
--- ---
--- ---
</TABLE>
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.
F-11
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 4: BALANCE SHEET COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------- -------------
<S> <C> <C>
Inventory
Component parts/raw materials............................... $ 3,644,399 $ 5,770,617
Work in progress............................................ 519,664 1,257,704
Finished goods.............................................. 570,599 1,043,179
Supplies inventory.......................................... 5,342 111,042
------------- -------------
$ 4,740,004 $ 8,182,542
------------- -------------
------------- -------------
Property, Plant and Equipment
Buildings and leasehold improvements........................ $ 1,422,511 $ 4,438,668
Land and land improvements.................................. 189,721 595,329
Plant, tooling, packaging equipment......................... 4,751,812 9,763,618
Office equipment and furniture.............................. 568,088 1,340,603
Vehicles.................................................... 264,123 376,465
------------- -------------
7,196,255 16,514,683
Accumulated depreciation.................................... (1,484,475) (2,349,407)
------------- -------------
$ 5,711,780 $ 14,165,276
Construction in progress.................................... 326,841 --
Machinery in progress....................................... 42,011 5,650,268
------------- -------------
$ 6,080,632 $ 19,815,544
------------- -------------
------------- -------------
</TABLE>
NOTE 5: SHAREHOLDERS' EQUITY
AUTHORIZED SHARES: At incorporation, the Company was authorized to issue
50,000 (prior to stock split discussed below) shares of stock with no par value.
The Articles of Incorporation prior to the amendment discussed below limited the
Company to one class of stock, designated as common stock.
On May 11, 1999, the Articles of Incorporation were amended to increase the
authorized number of shares of the Company's common stock to 100,000,000 shares
of no par value common stock and to authorize 30,000,000 shares of no par value
preferred stock.
F-12
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
On May 12, 1999 the Company effected a 216.017-for-1 split of the Company's
common stock. All references in the financial statements to shares, share
prices, per share amounts and stock plans have been adjusted retroactively to
reflect the stock split.
STOCK TRANSACTIONS: On October 1, 1998, the Company exchanged 54,436 shares
of common stock to acquire 40 acres of property with a fair market value of
$195,048. In conjunction with the purchase of property, Jore entered into a
stock put option agreement, under which Jore granted the seller the right and
option to require Jore to purchase all, but not less than all, of the shares for
$240,000 or $4.42 per share. The right is exercisable only on a date which is
after September 30, 2001 and before November 1, 2001.
1997 STOCK PLAN: On September 15, 1997, the Board of Directors approved the
implementation of the 1997 Stock Plan (the Plan). The Plan provides employees an
opportunity to purchase shares of stock pursuant to options which may qualify as
incentive stock options under Section 422 of the Internal Revenue Code of 1986,
as amended (the Code), and employees, outside directors, and consultants of the
Company an opportunity to purchase shares of stock pursuant to options which are
not described in Section 422 of the Code (nonqualified stock options). The Plan
also provides for the direct award or sale of shares to employees, outside
directors, and consultants of the Company. Options granted under the Plan expire
ten years from the date of grant and typically vest over a period of four years
such that 20% vest immediately and 20% after each additional year of continuous
service. Not more than 972,077 shares of stock shall be available for the grant
of options or the issuance of stock under the Plan.
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- -----------------
<S> <C> <C>
Outstanding, January 1, 1996..................................... -- $ --
Granted........................................................ -- --
---------
Outstanding, December 31, 1996................................... -- --
Granted........................................................ -- --
---------
Outstanding, December 31, 1997................................... -- --
Granted........................................................ 422,312 4.42
---------
Outstanding, December 31, 1998................................... 422,312 4.42
---------
---------
Options exercisable, December 31, 1998........................... 84,462 4.42
---------
---------
</TABLE>
F-13
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
Information regarding stock option grants during the year ended December 31,
1998 is summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE FAIR VALUE
--------- ----------------- -----------------
<S> <C> <C> <C>
Exercise price exceeds market price................................ 422,312 $ 4.42 $ 0.14
Exercise price equals market price................................. -- -- --
Exercise price is less than market price........................... -- -- --
</TABLE>
The Company has elected to follow the measurement provisions of APB Opinion
No. 25, under which no recognition of expense is required in accounting for
stock options granted to employees for which the exercise price equals or
exceeds the fair market value of the stock at the grant date. All options
granted as of December 31, 1998 have been granted at an option price greater
than fair market value on the date of grant. Accordingly, the Company has
recognized no compensation expense for employees during the years ended December
31, 1996, 1997 and 1998. The Company did record compensation expense of $1,623
for options granted to nonemployees for the year ended December 31, 1998.
To estimate compensation expense that would be recognized under SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company uses the modified
Black-Scholes option pricing model with the following weighted average
assumptions for options granted through December 31, 1998: risk-free interest
rate of 4.2%; expected dividend yield of -0-%; no volatility; and an expected
life of six years.
Had compensation expense for the Plan been determined based on fair value at
the grant dates for awards under the Plan consistent with SFAS No. 123,
ACCOUNTING FOR STOCK-BASED COMPENSATION, the Company's net income (loss) for the
years ended December 31, 1996, 1997 and 1998 would have been adjusted to the
following pro forma amounts:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ------------ ------------
<S> <C> <C> <C>
Net income (loss) as reported............................................ $ (558,357) $ 2,541,050 $ 6,240,034
Net income (loss), pro forma............................................. (558,357) 2,541,050 6,227,237
Basic net income (loss) per common share, pro forma...................... $ (0.06) $ 0.27 $ 0.66
Diluted net income (loss) per common share, pro forma.................... $ (0.06) $ 0.27 $ 0.65
</TABLE>
Additional information regarding options outstanding as of December 31,
1998, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
EXERCISE NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
PRICE OUTSTANDING LIFE (YRS.) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- ----------- ----------- ----------------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$ 4.42 422,312 9.75 $ 4.42 84,462 $ 4.42
</TABLE>
NOTE 6: LINES OF CREDIT
REVOLVING LINES OF CREDIT: The Company has an accounts receivable revolving
line of credit with Coast Business Credit (CBC) with a maximum borrowing limit
of $25,000,000 including the amounts
F-14
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 6: LINES OF CREDIT (CONTINUED)
advanced on the inventory, equipment and term loan lines. Advances on the line
are limited to 85% of eligible accounts receivable. The majority of trade
accounts receivable is, therefore, assigned as product is shipped. Interest on
the revolving credit line advances is at the prime rate plus 1%, but no less
than 9% (currently 9%). The term of the agreement is through January 2003, and
the agreement contains personal guarantees by certain Company shareholders.
Outstanding advances on the line at December 31, 1997 and 1998 were $4,672,438
and $10,024,805, respectively. This line is secured by receivables, inventory,
equipment, patents and general intangibles.
During February 1998, the Company entered into an agreement with CBC for an
inventory revolving line of credit with a maximum borrowing limit of $4,500,000,
which includes a letter of credit sub-line of $500,000. Advances on the line are
limited to 65% of eligible inventory. Interest on the revolving credit line
advances is at the prime rate plus 1%, but no less than 9% (currently 9%). The
term of the agreement is through January 2003, and the agreement contains
personal guarantees by certain Company shareholders. Outstanding advances on the
line at December 31, 1998 were $3,500,000. This line is secured by inventory,
receivables, equipment, patents and general intangibles.
SHORT-TERM NOTE: During August 1998, the Company entered into an agreement
with a software company to purchase software and support on an installment
basis. The total amount of the agreement was for $250,053 to be repaid in 12
monthly installments of $20,838, with no stated interest rate. The outstanding
balance at December 31, 1998 was $125,026.
F-15
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 7: LONG-TERM OBLIGATIONS
The Company has entered into numerous long-term borrowings primarily to
finance the purchase of manufacturing equipment. Unless otherwise noted, the
following long-term obligations require monthly principal and interest payments,
and are secured by underlying equipment.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1998
------------ -------------
<S> <C> <C>
NOTES PAYABLE
Due January 2003, interest at the highest yield for U.S. Treasury notes (8.31% at
December 31, 1998). Secured by equipment, receivables, inventory and general
intangibles....................................................................... $ -- $ 5,691,717
Due January 2003, interest at prime plus 1% (8.75% at December 31, 1998). Secured by
equipment, receivables, inventory and general intangibles......................... -- 741,843
Due March 2011, interest at 10%..................................................... 3,546,796 --
Due March 2005, interest at 8.85%................................................... 469,787 771,912
Due August 2001, interest at 10%.................................................... -- 1,008,372
Due October 2004, interest at 8.97%................................................. -- 726,981
Due October 2004, interest at 8.97%................................................. -- 969,307
Due December 2004, interest at 8.97%................................................ -- 2,050,265
Due December 2004, interest at 8.97%................................................ -- 582,606
Due January 2006, interest at 8.20%................................................. -- 496,450
Due August 2005, interest at 9.5%................................................... -- 844,971
Due June 2004, interest at 8.50%.................................................... -- 615,840
Due June 2004, interest at 8.85%.................................................... -- 682,502
Due October 2005, interest at 8.50%................................................. -- 823,842
Due April 2002, interest at 10%..................................................... 583,369 --
Due March 1999, interest at 10%..................................................... 438,012 --
Due January 2003, interest at prime plus 2% (9.75% at 12/31/98)..................... 125,469 106,983
Various notes payable due November 1999 through November 2005, interest rates from
7.99% to 11.89%................................................................... 386,298 210,864
------------ -------------
Total notes payable............................................................... 5,549,731 16,324,455
CAPITAL LEASE OBLIGATIONS
Due November 2003, interest at 10.52%............................................... -- 123,420
Various capital lease obligations due July 2001 through November 2003, interest
rates from 6.9% ot 29.7%.......................................................... 161,214 139,663
------------ -------------
Total lease obligations............................................................. 161,214 263,083
------------ -------------
Total long-term obligations....................................................... 5,710,945 16,587,538
Less current portion.............................................................. 1,021,508 1,998,192
------------ -------------
$4,689,437 $ 14,589,346
------------ -------------
------------ -------------
</TABLE>
F-16
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 7: LONG-TERM OBLIGATIONS (CONTINUED)
As of December 31, 1998, future maturities of long-term obligations are as
follows:
<TABLE>
<CAPTION>
OBLIGATIONS
UNDER CAPITAL
NOTES PAYABLE LEASES
------------- ----------------
<S> <C> <C>
1999........................................................ $ 1,947,012 $ 89,978
2000........................................................ 2,056,213 90,082
2001........................................................ 3,146,277 87,512
2002........................................................ 2,285,068 61,650
2003........................................................ 2,388,252 40,200
Thereafter.................................................. 4,501,633 --
------------- ----------------
16,324,455 369,422
Less amounts representing interest.......................... -- (106,339)
------------- ----------------
$ 16,324,455 $ 263,083
------------- ----------------
------------- ----------------
</TABLE>
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED)
The Company has elected to be an S corporation under the Code, and
therefore, its taxable income is reported on the shareholders' individual income
tax returns. The Company's consolidated subsidiaries are also S corporations or
limited liability companies. As a result, no federal or state income taxes are
imposed on the Company or its subsidiaries.
As discussed in Note 2 and in connection with the IPO (see Note 1), the
Company's S corporation status will terminate and it will become subject to
federal and state income taxes applicable to C corporations (corporations
subject to income taxes under Subchapter C of the Code). The accompanying
consolidated statements of income reflect a pro forma provision (benefit) for
all periods for federal and state taxes (as if the consolidated group had been
subject to tax as a C corporation) at effective tax rates of (35.70%), 35.43%,
and 37.56% for 1996, 1997, and 1998, respectively.
The difference between the effective rate and the combined federal and state
statutory rate of 38.46% is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Statutory tax rate......................................... (38.46)% 38.46% 38.46%
Indian employment credit................................... (1.93)% (1.00)% (1.18)%
Research & experimentation credit.......................... 0.00% (2.25)% 0.00%
Meals & entertainment...................................... 0.32% 0.21% 0.20%
Other...................................................... 4.37% .01% .08%
--------- --------- ---------
Effective rate............................................. (35.70)% 35.43% 37.56%
--------- --------- ---------
--------- --------- ---------
</TABLE>
Because the Company plant is situated on a Native American Indian
reservation, the Company is entitled to certain tax benefits. Fixed assets are
being depreciated under accelerated tax depreciation lives for property situated
on Native American Indian reservations. In addition, the Company is receiving
the Indian employment tax credit for qualifying wages paid to tribal members and
spouses of tribal members.
F-17
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED) (CONTINUED)
Upon termination of the S corporation status, and based upon management's
determination that it is more likely than not that deferred tax assets will be
realized, the Company will record increases in net deferred tax assets and
liabilities and an accompanying one-time tax expense to reflect the differences
between the financial statement and income tax bases of the assets and
liabilities at C corporation rates.
If the S corporation status had been terminated on December 31, 1998,
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............. $(1,241,000)
Other........................................................... (1,000)
----------
Total deferred tax liabilities.................................. $(1,242,000)
----------
----------
</TABLE>
Deferred tax assets:
<TABLE>
<S> <C>
Inventory obsolescence reserve.................................... $ 168,000
Accrued vacation.................................................. 63,000
Allowance for sales returns....................................... 10,000
Deferred compensation............................................. 6,000
---------
Total deferred tax assets......................................... $ 247,000
---------
---------
</TABLE>
NOTE 9: RELATED PARTY TRANSACTIONS
Jore Land, LLC (Jore Land), is owned by the Company's majority shareholder
and owns certain real property leased by the Company under an agreement that
expires on September 30, 2003, with an option to renew for an additional five
year term. The lease is being accounted for as a financing lease. Amounts paid
under this lease during the years ended December 31, 1996, 1997 and 1998 were
$4,000, $32,000, and $84,000, respectively. Jore Corporation holds an option to
acquire this property at fair market value. The option expires on February 1,
2009. During the construction period, certain construction bills were paid by
the Company on behalf of Jore Land for which the Company will be reimbursed.
Total advances made to Jore Land during the years ended December 31, 1996, 1997,
and 1998 were $-0-, $94,586, and $170,799, respectively.
At December 31, 1997 and 1998, Jore Land owed the Company the net amounts of
$17,578 and $34,102, respectively.
Periodically, the Company's employees perform work for Jore Land in
administrative and technical areas, such as engineering and accounting. Charges
for these types of services by the Company for the years ended December 31,
1996, 1997 and 1998 were $-0-, $4,843, and $10,151, respectively.
Shareholder notes receivable are all demand notes with interest at the
applicable federal rate as published by the U.S. Treasury Department.
F-18
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 9: RELATED PARTY TRANSACTIONS (CONTINUED)
Beginning January 1, 1998, the Company's sales affiliate, Manufacturers
Specialty Marketing, Inc. (MSM), received a commission on Company sales which
amounted to $1,785,913 during the year ended December 31, 1998. Of this amount,
$225,279 was payable at year end. Beginning January 1, 1999, certain Company
sales will be made through Manufacturers' Sales Associates, LLC (MSA). It is
currently contemplated that MSA will receive a commission on certain Company
sales. The agreement terminates upon notice by either party at least 60 days in
advance of the intended termination date. MSM and MSA are partially-owned by two
non-employee directors of Jore.
At December 31, 1997, the Company held a short-term, non interest-bearing
note receivable from MSA of $45,000 representing advances made to MSA for
funding start-up costs.
Printing Press, Incorporated (PPI), a Company partially owned by a
non-employee director and shareholder of the Company, provides packaging
services to the Company. Total purchases from PPI during the years ended
December 31, 1996, 1997 and 1998 were $526,131, $1,360,286, and $2,003,062,
respectively. Related accounts payable balances at December 31, 1997 and 1998
were $75,340 and $495,686, respectively.
NOTE 10: CONTINGENCIES AND COMMITMENTS
OPERATING LEASES: The Company has noncancellable operating leases for
various property and equipment. These leases expire at various times over the
next five years. A material portion of the leases are for manufacturing
equipment. The agreements pertaining to the manufacturing equipment are five
year leases with two one-year renewal options.
Rent expense for each of the years ended December 31, 1996, 1997, and 1998,
totaled $22,276, $69,036, and $301,181, respectively. Future minimum lease
payments required under operating leases are as follows:
<TABLE>
<CAPTION>
Years ending December 31,
- ------------------------------------------------------------------
<S> <C>
1999............................................................ $ 612,578
2000............................................................ $ 609,890
2001............................................................ $ 609,890
2002............................................................ $ 609,890
2003............................................................ $ 463,494
Thereafter...................................................... $ 136,668
</TABLE>
ASSIGNMENT/LICENSE AGREEMENTS: In 1997, the Company entered into an
agreement with a third party for the assignment of the entire right, title and
interest in the invention of an improvement in a high torque handle. The Company
pays a fee equivalent to 3% of the sum of manufacturing costs and the Company's
margin related to this handle. This agreement continues until the expiration of
any valid patent obtained by the Company for this invention or, if no patent is
issued covering the invention, the term shall continue for a period of ten years
from the date of the agreement. Expense for the years ended December 31, 1997
and 1998 was $9,617 and $11,030, respectively.
F-19
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 10: CONTINGENCIES AND COMMITMENTS (CONTINUED)
In January 1998, the Company entered into an agreement with a third party
for its interest in one invention. The Company pays the party a fee based on the
manufacturing cost and the Company's margin related to this invention. Expense
for the year ended December 31, 1998 was $74,563.
PRODUCT WARRANTY ISSUES: In the past, the Company has experienced minimal
returns of its manufactured products. Therefore, the financial statements do not
include a product warranty reserve at December 31, 1997 or 1998.
LITIGATION: The Company is, from time to time, a party to various legal
actions and administrative proceedings and subject to various claims arising in
the ordinary course of business. The Company and its legal counsel believe the
disposition of these matters will not have a material adverse effect on the
financial position of the Company.
DEBT GUARANTEE: The Company is currently a guarantor of certain debt of
Jore Land, a related party, in the amount of approximately $1,295,000 at
December 31, 1998.
NOTE 11: SUBSEQUENT EVENTS
On April 28, 1999, the Company signed an agreement that grants the exclusive
license to a nationally known brand name for all power tool accessories for a
contracted royalty rate.
In May 1999, the Company entered into a strategic alliance agreement with a
manufacturer of proprietary equipment. The manufacturer has agreed to produce
and sell the Company this equipment for five years on an exclusive basis
provided it purchases approximately $5,250,000 in equipment each year. In
addition to the minimum purchases, the Company must pay an additional $1,000,000
of which $400,000 is payable during the first year and $200,000 in each
subsequent year. In exchange for the these payments, the Company will receive
exclusive access to the equipment and its proprietary design for the five year
period.
SUBSEQUENT DEBT: The Company entered into the following debt agreements
subsequent to year end:
On January 29, 1999, the Company closed a credit line for the purchase of
equipment with KeyCorp Leasing, A Division of Key Corporate Capital Inc. in
the amount of $15,000,000. Interest is based on the seven-year Treasury
Index plus 4.76%.
On March 3, 1999, the Company closed an Interim Funding Note on equipment
for $1,750,000. Interest is prime rate plus 1%.
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. The
maturity date is the earlier of January 1, 2000, or five calendar days
following the closing of an IPO.
SUBSEQUENT EQUITY TRANSACTIONS:
In February 1999 the Company granted options to purchase 311,064 shares of
common stock to certain directors. The options are fully vested.
F-20
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
NOTE 11: SUBSEQUENT EVENTS (CONTINUED)
In February 1999, the Company granted warrants to purchase 11,880 shares of
the Company's common stock in exchange for services to be provided in connection
with the Company's IPO.
On January 1, 1999 the Company issued 14,257 shares of stock in exchange for
land.
For consideration of $100, Jore Land granted an option to the Company on
February 1, 1999, to purchase approximately 40 acres of land and the attached
construction improvements at fair market value. The option expires February 1,
2001.
F-21
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
D.A. DAVIDSON & CO.
JANNEY MONTGOMERY SCOTT INC.
FIRST SECURITY VAN KASPER
, 1999
- --------------------------------------------------------------------------------
UNTIL , 1999 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SHARES OF COMMON STOCK, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM THAT CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS MAY ONLY BE USED WHERE
IT IS LEGAL TO SELL THESE SECURITIES. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE
TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated fees and expenses of this
offering (excluding underwriting discounts and commissions):
<TABLE>
<CAPTION>
AMOUNT(1)
-----------
<S> <C>
SEC Registration Fee.............................................................. $ 12,510
NASD Filing Fee................................................................... $ 5,000
Nasdaq National Market Listing Fee................................................ $ 85,000
Legal Fees and Expenses........................................................... $ 200,000
Accounting Fees and Expenses...................................................... $ 250,000
Blue Sky Qualification Fees and Expenses.......................................... $ 5,000
Transfer Agent and Registrar Fees................................................. $ 10,000
Printing Expenses................................................................. $ 100,000
Insurance Policy Premiums......................................................... $ 100,000
Miscellaneous Expenses............................................................ $ 25,000
-----------
Total......................................................................... $ 782,510
-----------
-----------
</TABLE>
- ------------------------
(1) All amounts have been estimated except the 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. As to all such securities
II-1
<PAGE>
except those issued in connection with stock splits, conversions and exchanges
(as to which there was no "sale" within the meaning of the Securities Act),
exemption was claimed under Section 4(2) of the Securities Act, Regulation D
promulgated thereunder, as transactions by an issuer not involving a public
offering or Rule 701 pursuant to compensatory benefit plans and contracts
relating to compensation as provided under Rule 701. The recipients of
securities in each such transaction represented their intentions to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the share
certificates and warrants issued in such transactions. The information below
gives effect to a 216.017-for-1 stock split effected in May 1999.
From September 30, 1998 to February 10, 1999, we granted stock options to
purchase 529,890 shares of common stock at exercise prices ranging from $4.42 to
$9.26 per share to employees, directors and consultants pursuant to our 1997
Stock Plan. We believe that the issuance of the options were exempt from the
registration by virtue of Rule 701.
On October 1, 1998, we issued to the six shareholders of Montana American
Manufacturing Corporation ("MAMC") an aggregate of 360,537 shares of common
stock valued at $ per share in exchange for all of the outstanding capital
stock of MAMC.
On October 1, 1998, we issued to one person in exchange for land an
aggregate of 54,436 shares of common stock valued at $ per share.
On January 1, 1999, we issued to the twenty members of Montana American
Equipment, LLC ("MAE") an aggregate of 452,772 shares of common stock valued at
$8.83 per share in exchange for all of the outstanding membership interests of
MAE.
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, each to purchase 155,532 shares of
common stock at a per share exercise price of $9.26 to two directors. 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.
II-2
<PAGE>
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation.
3.2 Bylaws.
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.
10.1 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.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
<C> <S>
10.18 Loan and Security Agreement, dated May 15, 1996, between Jore Corporation and Coast Business Credit.
21.1 List of Jore Corporation's Subsidiaries.
23.1* Consent of Van Valkenberg Furber Law Group P.L.L.C. (Included in Exhibit 5.1).
23.2* Consent of Boone, Karlberg & Hadden P.C.
23.3 Consent of Deloitte & Touche LLP
24.1 Power of Attorney (Included in the signature page to this Registration Statement).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
+ Portions of these exhibits have 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) 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.
II-4
<PAGE>
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 May 13, 1999.
<TABLE>
<S> <C> <C>
JORE CORPORATION
By: /s/ MATTHEW B. JORE
-----------------------------------------
Matthew B. Jore
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Matthew B. Jore and David H. Bjornson, or either
of them, such person's true and lawful attorneys-in-fact and agents, with full
power of substitution, and resubstitution, for such person and in such person's
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents full power and authority to do and perform each and
every act and thing requisite and necessary to be done as fully to all intents
and purposes as such person might or could do in person, hereby ratify and
confirming all that said attorneys-in-fact and agents, or any substitute or
substitutes of any of them, may lawfully do or cause to be done by virtue
hereof.
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
/s/ MATTHEW B. JORE Chief Executive Officer
- ------------------------------ (Principal Executive May 13, 1999
Matthew B. Jore Officer)
Chief Financial Officer
/s/ DAVID H. BJORNSON and Director (Principal
- ------------------------------ Financial and Accounting May 13, 1999
David H. Bjornson Officer)
/s/ MICHAEL W. JORE
- ------------------------------ Executive Vice President May 13, 1999
Michael W. Jore and Director
/s/ GARY HOUCK
- ------------------------------ Director May 13, 1999
Gary Houck
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<S> <C> <C>
/s/ THOMAS E. MAHONEY
- ------------------------------ Director May 13, 1999
Thomas E. Mahoney
/s/ BRUCE ROMFO
- ------------------------------ Director May 13, 1999
Bruce Romfo
/s/ WILLIAM M. STEELE
- ------------------------------ Director May 13, 1999
William M. Steele
</TABLE>
II-7
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
JORE CORPORATION
PURSUANT TO THE PROVISIONS OF THE MONTANA BUSINESS CORPORATION ACT,
THE FOLLOWING ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION ARE SUBMITTED
FOR FILING:
ARTICLE I
NAME
The name of the corporation is JORE CORPORATION (the "Corporation").
ARTICLE II
AUTHORIZED SHARES
(1) CLASSES. The Corporation shall be authorized to issue two
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock:" the authorized number of shares of Common Stock shall be One Hundred
Million (100,000,000) without par value; the authorized number of shares of
Preferred Stock shall be Thirty Million (30,000,000) without par value.
(2) PREFERRED STOCK. Shares of Preferred Stock may be issued from
time to time in one or more series. Shares of Preferred Stock which may be
redeemed, purchased or acquired by the Corporation may be reissued except as
otherwise provided by law. The Board of Directors of the Corporation is hereby
authorized to fix the designations and powers, preferences and relative,
participating, optional or other rights, if any, and qualifications, limitations
or other restrictions thereof, including, without limitation, the dividend rate
(and whether or not dividends are cumulative), conversion rights, if any, voting
rights, rights and terms of redemption (including sinking fund provisions, if
any), redemption price and liquidation preferences of any wholly unissued series
of Preferred Stock and the number of shares constituting any such series and the
designation thereof, or any of them; and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding.
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ARTICLE II
DIRECTORS
The number of directors of the Corporation and the manner in which
such directors are to be elected shall be as set forth in the bylaws. The
current directors are:
NAME ADDRESS
---- -------
Matthew B. Jore 45000 Highway 93 South
Ronan, Montana 59864
Michael W. Jore 45000 Highway 93 South
Ronan, Montana 59864
Thomas E. Mahoney 15 Hastings Turn
Avon, CT 06001
Bruce Romfo 808 Skyline Drive
Sunnyside, WA 98944
William M. Steele 133 Highland Ave.
San Carlos, CA 94070
Gary S. Houck 10 North Trail
Hawthorn Woods, IL 60047
David H. Bjornson 3400 Loraine Drive
Missoula, MT 59864
The term of the current directors shall expire at the next
shareholders' meeting at which directors are elected.
ARTICLE IV
SHAREHOLDERS' RIGHTS
1. Shareholders of the Corporation have no preemptive rights to
acquire additional shares issued by the Corporation.
2. Subject to the provisions of Article II(2) above, holders of
Common Stock and Preferred Stock shall be entitled to receive the net assets of
the Corporation upon dissolution.
ARTICLE V
VOTING RIGHTS
1. Subject to the provisions of Article II(2) above, holders of
Common Stock and Preferred Stock shall have unlimited voting rights.
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2. At each election of directors, every shareholder entitled to vote
at such election has the right to vote the number of shares of stock held by
such shareholder for each of the directors to be elected. No cumulative voting
for directors shall be permitted.
ARTICLE VI
LIMITATION ON LIABILITY OF DIRECTORS
No director of the Corporation shall be personally liable to the
Corporation or its shareholders for monetary damages for his or her conduct as a
director, which conduct takes place on or after the date this Article becomes
effective, except for (i) acts or omissions that involve intentional misconduct
or a knowing violation of law by the director, (ii) conduct violating MCA
35-1-713, or (iii) any transaction from which the director will personally
receive a benefit in money, property or services to which the director is not
legally entitled. If, after this Article becomes effective, the Montana
Corporation Act is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of the Corporation shall be deemed eliminated or limited to the fullest extent
permitted by the Montana Corporation Act, as so amended. Any amendment to or
repeal of this Article shall not adversely affect any right or protection of a
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment or repeal. This provision shall not
eliminate or limit the liability of a director for any act or omission occurring
prior to the date this Article becomes effective.
ARTICLE VII
REGISTERED OFFICE
The address of the registered office of the Corporation is 45000
Highway 93 South, Ronan, Montana 59864 and the name of the registered agent at
such address is David H. Bjornson.
ARTICLE VIII
AMENDMENT OF ARTICLES
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
shareholders and directors are subject to this reserved power.
The amendments were adopted by the shareholders on April 29, 1999.
DATED: May 4, 1999.
---------------
/s/ Matthew B. Jore
-------------------------------
Matthew B. Jore, President
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BYLAWS
OF
JORE CORPORATION
ARTICLE I
REGISTERED OFFICE AND REGISTERED AGENT
1. The registered office of the Corporation shall be located in the
State of Montana at such place as may be fixed from time to time by the Board of
Directors upon filing of such notices as may be required by law, and the
registered agent shall have a business office identical with such registered
office. A registered agent so appointed shall consent to appointment in writing
and such consent shall be filed with the Secretary of State of the State of
Montana.
2. If a registered agent changes the street address of the agent's
business office, the registered agent may change the street address of the
registered office of the Corporation by notifying the Corporation in writing of
the change and signing, either manually or in facsimile, and delivering to the
Secretary of State for filing a statement of such change, as required by law.
3. The Corporation may change its registered agent at any time upon
the filing of an appropriate notice with the Secretary of State, with the
written consent of the new registered agent either included in or attached to
such notice.
ARTICLE II
SHAREHOLDERS' MEETINGS
1. MEETING PLACE. All meetings of the shareholders shall be held,
pursuant to proper notice as set forth in Article II Section 5 of these Bylaws
(the "Bylaws"), at the principal executive office of the Corporation, or at such
other place as shall be determined from time to time by the Board of Directors.
2. ANNUAL MEETING TIME. The annual meeting of the shareholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on such date and at
such hour as may be determined by resolution of the Board of Directors from time
to time. In the absence of such determination, the annual meeting shall be held
each year on the second Tuesday of June, at the hour of 12:00 Noon, if not a
legal holiday, and if a legal holiday, then on the next business day following,
at the same hour.
3. ANNUAL MEETING - ORDER OF BUSINESS. At the annual meeting of
shareholders, the order of business shall be as follows:
(a) Call to order.
(b) Proof of notice of meeting (or filing of waiver).
(c) Reading of minutes of last annual meeting.
(d) Reports of officers.
(e) Reports of committees.
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(f) Election of directors.
(g) Other business.
4. SPECIAL MEETINGS. Special meetings of the shareholders for any
purpose may be called at any time by the President, the Board of Directors or
the holders of at least ten percent (10%) of all the votes entitled to be cast
on any issue proposed to be considered at such special meeting in accordance
with MCA 35-1-517. Special shareholders' meetings shall be held at the
Corporation's principal executive office or at such other place as shall be
identified in the notice of such meeting.
5. NOTICE.
(a) Except as provided in subsection (c) hereunder, notice of
the date, time and place of the annual meeting of shareholders shall be given by
delivering personally or by mailing a written or printed notice of the same, not
less than ten (10) days, and not more than sixty (60) days, prior to the meeting
to each shareholder of record entitled to vote at such meeting.
(b) Except as provided in subsection (c) hereunder, written or
printed notice of each special meeting of shareholders shall be given not less
than ten (10) days and not more than sixty (60) days prior to the meeting. Such
notice shall state the date, time and place of such meeting, and the purpose or
purposes for which the meeting is called, and shall be delivered personally, or
mailed to each shareholder of record entitled to vote at such meeting.
6. RECORD DATE. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders, or at any
adjournment thereof, or entitled to receive dividends or distributions, the
Board of Directors shall fix in advance a record date for any such determination
of shareholders, such date to be not more than seventy (70) days and, in case of
a meeting of shareholders, not less than ten (10) days prior to the date on
which the particular action requiring such determination of shareholders is to
be taken.
7. SHAREHOLDERS' LIST. After fixing a record date for a
shareholders' meeting, the Corporation shall prepare an alphabetical list of the
names of all its shareholders on the record date who are entitled to notice of a
shareholders' meeting. Such list shall be arranged by voting group, and within
each voting group by class or series of shares, and show the address of and
number of shares held by each shareholder. The shareholders' list shall be kept
on file at the registered office of the Corporation for a period beginning ten
days prior to such meeting and shall be kept open at the time and place of such
meeting for the inspection by any shareholder, or any shareholder's agent or
attorney.
8. QUORUM. Except as otherwise required by law, a quorum at any
annual or special meeting of shareholders shall consist of shareholders
representing, either in person or by proxy, a majority of the votes entitled to
be cast on the matter by each voting group.
9. VOTING.
(a) Except as otherwise provided in the articles of
incorporation, as they may be amended or restated from time to time (as so
amended or restated, the "Articles of Incorporation") and subject to the
provisions of the laws of the State of Montana, each outstanding share,
regardless of class, is entitled to one vote on each matter voted on at a
shareholders' meeting.
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(b) If a quorum exists, action on a matter, other than the
election of directors, is approved by a voting group if the votes cast within
the voting group favoring the action exceed the votes cast within the voting
group opposing the action, unless the question is one which by express provision
of law, of the Articles of Incorporation or of these Bylaws a greater number of
affirmative votes is required.
(c) Unless otherwise provided in the Articles of Incorporation,
in any election of directors the candidates elected are those receiving the
largest numbers of votes cast by the shares entitled to vote in the election, up
to the number of directors to be elected by such shares.
10. PROXIES. A shareholder may vote either in person or by
appointing a proxy by signing an appointment form, either personally or by the
shareholder's attorney-in-fact or agent. An appointment of a proxy is effective
when received by the person authorized to tabulate votes for the Corporation.
An appointment of a proxy is valid for eleven months unless a longer period is
expressly provided in the appointment form.
11. ACTION BY SHAREHOLDERS WITHOUT A MEETING. Any action required or
which may be taken at a meeting of shareholders of the Corporation may be taken
without a meeting if the action is taken by all the shareholders entitled to
vote on the action. The action must be signed by all the shareholders entitled
to vote on the action.
12. WAIVER OF NOTICE. A written waiver of any notice required to be
given to any shareholder, signed by the person or persons entitled to such
notice, whether before or after the time stated therein for the meeting, shall
be deemed the giving of such notice by the Corporation, provided that such
waiver has been delivered to the Corporation for inclusion in the minutes or
filing with the Corporation's records. A shareholder's attendance at a meeting
waives any notice required, unless the shareholder at the beginning of the
meeting objects to holding the meeting or transacting business at the meeting.
13. ACTION OF SHAREHOLDERS BY COMMUNICATIONS EQUIPMENT. Shareholders
may participate in any meeting of shareholders by any means of communication by
which all persons participating in the meeting can hear each other during the
meeting. A shareholder participating in a meeting by this means is deemed to be
present in person at the meeting.
ARTICLE III
SHARES OF STOCK
1. ISSUANCE OF SHARES. No shares of the Corporation shall be issued
unless authorized by the Board of Directors. Such authorization shall include
the number of shares to be issued and the consideration to be received. Shares
may but need not be represented by certificates. Unless otherwise provided by
law, the rights and obligations of shareholders are identical whether or not
their shares are represented by certificates.
2. CERTIFICATED SHARES. If shares are represented by certificates,
certificates of stock shall be issued in numerical order, and each shareholder
shall be entitled to a certificate signed, either manually or in facsimile, by
the President, or a Vice President, and the Secretary, and such certificate may
bear the seal of the Corporation or a facsimile thereof. If an officer who has
signed or whose facsimile signature has been placed upon such certificate ceases
to be such
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officer before the certificate is issued, it may be issued by the Corporation
with the same effect as if the person were an officer on the date of issue.
At a minimum each certificate of stock shall state:
(a) the name of the Corporation;
(b) that the Corporation is organized under the laws of the
State of Montana;
(c) the name of the person to whom the certificate is issued;
(d) the number and class of shares and the designation of the
series, if any, the certificate represents; and
(e) if the Corporation is authorized to issue different classes
of shares or different series within a class, the
designations, relative rights, preferences and limitations
applicable to each class and the variations in rights,
preferences and limitations determined for each series, and
the authority of the Board of Directors to determine
variations for future series, must be summarized either on
the front or back of the certificate. Alternatively, the
certificate may state conspicuously on its front or back
that the Corporation will furnish the shareholder this
information without charge on request in writing.
In case of any mutilation, loss or destruction of any certificate of
stock, another certificate may be issued in its place on proof of such
mutilation, loss or destruction. The Board of Directors may impose conditions
on such issuance and may require the giving of a satisfactory bond or indemnity
to the Corporation in such sum as it might determine or establish such other
procedures as it deems necessary or appropriate.
3. UNCERTIFICATED SHARES.
(a) Unless the Articles of Incorporation provide otherwise, the
Board of Directors may authorize the issue of any of the Corporation's classes
or series of shares without certificates. This authorization does not affect
shares already represented by certificates until they are surrendered to the
Corporation.
(b) Within a reasonable time after the issuance of shares
without certificates, the Corporation shall send the shareholder a complete
written statement of the information required on certificates as provided in
Article III, Section 2 of these Bylaws.
4. TRANSFERS.
(a) Transfers of stock shall be made only upon the stock
transfer records of the Corporation, which records shall be kept at the
registered office of the Corporation or at its principal place of business, or
at the office of its transfer agent or registrar. The Board of Directors may,
by resolution, open a share register in any state of the United States, and may
employ an agent or agents to keep such register and to record transfers of
shares therein.
(b) Shares of certificated stock shall be transferred by
delivery of the certificates therefor, accompanied either by an assignment in
writing on the back of the certificate or an assignment separate from
certificate, or by a written power of attorney to sell, assign and transfer the
same, signed by the holder of said certificate. No shares of certificated stock
shall be
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transferred on the records of the Corporation until the outstanding certificates
therefor have been surrendered to the Corporation or to its transfer agent or
registrar.
(c) Shares of uncertificated stock shall be transferred upon
receipt by the Corporation of a written request for transfer signed by the
shareholder. Within a reasonable time after the transfer of shares without
certificates, the Corporation shall provide the new shareholder a complete
written statement of the information required on certificates as provided in
Article III, Section 2 of these Bylaws.
5. FRACTIONAL SHARES OR SCRIP. The Corporation may:
(a) issue fractions of a share;
(b) arrange for the disposition of fractional interests by the
shareholders;
(c) pay in money the value of fractions of a share; and
(d) issue scrip in registered or bearer form which shall entitle
the holder to receive a certificate for a full share upon
the surrender of enough scrip to equal a full share.
6. SHARES OF ANOTHER CORPORATION. Shares owned by the Corporation
in another corporation, domestic or foreign, may be voted by such officer, agent
or proxy as the Board of Directors may determine or, in the absence of such
determination, by the President of the Corporation.
ARTICLE IV
BOARD OF DIRECTORS
1. POWERS. The management of the affairs, property and interests of
the Corporation shall be vested in a Board of Directors. In addition to the
powers and authorities expressly conferred upon it by these Bylaws and by the
Articles of Incorporation, the Board of Directors may exercise all such powers
of the Corporation and do all such lawful acts as are not prohibited by statute
or by the Articles of Incorporation or by these Bylaws or as directed or
required to be exercised or done by the shareholders.
2. GENERAL STANDARDS FOR DIRECTORS
(a) A director shall discharge the duties of a director,
including duties as a member of a committee:
(i) in good faith;
(ii) with the care an ordinary prudent person in a
similar position would exercise under similar
circumstances; and
(iii) in a manner the director reasonably believes to be
in the best interests of the Corporation.
3. NUMBER AND TERM. The Board of Directors shall consist of no less
than two (2) persons and no more than ten (10) persons or so many as may from
time to time be designated by the then-existing Board of Directors. Directors
need not be shareholders or residents of the State of Montana. The directors
shall serve for a term ending on the date of the annual meeting of shareholders
following the annual meeting at which the director was elected;
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provided, however, that each director shall serve until his or her successor is
duly elected and qualified or until his or her death, resignation or removal.
4. CHANGE OF NUMBER. The number of directors may at any time be
increased or decreased by resolution of either the shareholders or directors at
any annual, special or regular meeting; PROVIDED, that no decrease in the number
of directors shall have the effect of shortening the term of any incumbent
director, except as provided in Sections 6 and 7 of this Article IV.
5. VACANCIES. All vacancies in the Board of Directors, whether
caused by resignation, death, removal or otherwise, may be filled by the
affirmative vote of a majority of the remaining directors in office though less
than a quorum of the Board of Directors. A director elected to fill a vacancy
shall hold office until the next shareholders' meeting at which directors are
elected and until his or her successor is elected and qualified.
6. RESIGNATION. A director may resign at any time by delivering
written notice to the Board of Directors, the President or the Secretary. A
resignation is effective when the notice is delivered unless the notice
specifies a later effective date.
7. REMOVAL OF DIRECTORS. At a special meeting of shareholders
called expressly for that purpose, the entire Board of Directors, or any member
thereof, may be removed, with or without cause, by a vote of the holders of a
majority of shares then entitled to vote at an election of such directors. A
director or directors may be removed only if the number of votes cast to remove
the director exceeds the number of votes cast not to remove the director. The
notice of such special meeting must state that the purpose, or one of the
purposes, of the meeting is removal of the director or directors, as the case
may be.
8. REGULAR MEETINGS. Regular meetings of the Board of Directors or
any committee may be held without notice at the principal place of business of
the Corporation or at such other place or places, either within or without the
State of Montana, as the Board of Directors or such committee, as the case may
be, may from time to time designate. The annual meeting of the Board of
Directors shall be held without notice immediately after adjournment of the
annual meeting of shareholders.
9. SPECIAL MEETINGS.
(a) Special meetings of the Board of Directors may be called at
any time by the President or by any director, to be held at the principal place
of business of the Corporation or at such other place or places as the Board of
Directors or the person or persons calling such meeting may from time to time
designate. Notice of all special meetings of the Board of Directors, stating
the date, time and place thereof, shall be given at least three (3) days prior
to the date of the meeting, in accordance with the provisions set forth in
Article VII of these Bylaws. Such notice need not specify the business to be
transacted at, or the purpose of, the meeting.
(b) Special meetings of any committee of the Board of Directors
may be called at any time by such person or persons and with such notice as
shall be specified for such committee by the Board of Directors, or in the
absence of such specification, in the manner and with the notice required for
special meetings of the Board of Directors.
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10. WAIVER OF NOTICE. A director may waive any notice required by
law, by the Articles of Incorporation or by these Bylaws before or after the
time stated for the meeting, and such waiver shall be equivalent to the giving
of such notice. Such waiver must be in writing, signed by the director
entitled to such notice and delivered to the Corporation for inclusion in the
minutes or filing with the corporate records. A director's attendance at or
participation in a meeting shall constitute a waiver of any required notice to
the director of the meeting unless the director at the beginning of the meeting,
or promptly upon the director's arrival, objects to holding the meeting or
transacting business at the meeting and does not thereafter vote for or assent
to action taken at the meeting.
11. QUORUM. A majority of the full Board of Directors shall be
necessary at all meetings to constitute a quorum for the transaction of
business. If a quorum is present when a vote is taken, the affirmative vote of
a majority of directors present is the act of the Board of Directors.
12. REGISTERING DISSENT. A director who is present at a meeting of
the Board of Directors at which action on a corporate matter is taken is deemed
to have assented to such action unless:
(a) the director objects at the beginning of the meeting, or
promptly upon the director's arrival, to the holding of, or
transaction of business at, the meeting;
(b) the director's dissent or abstention from the action is
entered in the minutes if the meeting; or
(c) the director delivers written notice of the director's
dissent or abstention to the presiding officer of the
meeting before its adjournment or to the Corporation within
a reasonable time after adjournment of the meeting. The
right to dissent or abstain is not available to a director
who voted in favor of the action taken.
13. ACTION BY DIRECTORS WITHOUT A MEETING.
(a) Any action required or permitted to be taken at a meeting of
the Board of Directors, or of a committee thereof, may be taken without a
meeting if the action is taken by all members of the Board of Directors. The
action must be evidenced by one or more written consents setting forth the
action taken, signed by each of the directors, or by each of the members of the
committee, as the case may be, either before or after the action taken, and
delivered to the Corporation for inclusion in the minutes or filing with the
Corporation's records.
(b) Action taken under this section is effective when the last
director signs the consent, unless the consent specifies a later effective date.
14. PARTICIPATION BY MEANS OF COMMUNICATIONS EQUIPMENT. Any or all
directors may participate in a regular or special meeting of the Board of
Directors (or of a committee thereof) by, or may conduct the meeting through the
use of, any means of communication by which all directors participating can hear
each other during the meeting.
15. COMMITTEES.
(a) The Board of Directors, by resolution adopted by a majority
of the full Board of Directors, may create one or more committees of directors.
Each committee
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must have two or more members who serve at the pleasure of the Board of
Directors. To the extent specified by the Board of Directors, each committee
may exercise the authority of the Board of Directors, except that no committee
shall have the authority to:
(i) authorize or approve a distribution except
according to the general formula or method
prescribed by the Board of Directors;
(ii) approve or propose to shareholders action that
by law is required to be approved by shareholders;
(iii) fill vacancies on the Board of Directors or any of
its committees;
(iv) amend the Articles of Incorporation;
(v) adopt, amend or repeal these Bylaws;
(vi) approve a plan of merger not requiring shareholder
approval; or
(vii) authorize or approve the issuance or sale or
contract for sale of shares, or determine the
designation and relative rights, preferences and
limitations of a class or series of shares, except
that the Board of Directors may authorize a
committee (or a senior executive officer of the
Corporation) to do so within limits specifically
prescribed by the Board of Directors.
(b) The creation of, delegation of authority to or action by a
committee does not alone constitute compliance by a director with the standards
of conduct required by the Montana Business Corporation Act and these Bylaws.
16. REMUNERATION. By resolution of the Board of Directors, directors
may be remunerated in cash and/or by the grant of options,
warrants or other rights to purchase shares of the Corporation's
stock, and a fixed sum and expenses of attendance, if any, may be
allowed for attendance at each regular or special meeting of the
Board of Directors or of a committee thereof; nothing herein
contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving
compensation therefor.
17. NOTICE OF NOMINATION.
(a) Nominations for the election of directors may be made by the
Board of Directors. Notice of nominations which are proposed by the Board of
Directors shall be given by the Chairman on behalf of the Board.
(b) Nominations for the election of directors may be made by any
shareholder entitled to vote for the election of directors. Notwithstanding the
provisions of Article VII, such nominations shall be made by notice in writing,
delivered or mailed by first class United States mail, postage pre-paid, to the
Secretary of the Corporation not less than 14 days nor more than 50 days prior
to any meeting of the shareholders called for the election of directors;
PROVIDED, HOWEVER, that if less than 21 days' notice of the meeting is given to
the shareholders, such written notice shall be delivered or mailed, as
prescribed above, to the Secretary of the Corporation not later than 5:00 p.m.
on the seventh day following the day on which notice of the meeting was mailed
to the shareholders. Each notice under this subsection (b) shall set forth (i)
the name, age, business address and, if known, residence address of each nominee
proposed in such notice, (ii) the principal occupation or employment of each
such
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nominee, (iii) the number of shares of stock of the Corporation which are
beneficially owned by each such nominee, (iv) the name and address of the
shareholder giving notice and any other shareholders known by the shareholder to
be supporting such nominees, and (v) the number of shares of stock of the
Corporation which are beneficially owned by the shareholder giving notice and
any other shareholders known by the shareholder to be supporting such nominees.
(c) The Chairman of the meeting may, if the facts warrant,
determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and should he or she so determine, he
or she shall so declare to the meeting and the defective nomination shall be
disregarded.
(d) The provisions of this Section 17 of Article IV may be
amended, altered, changed or repealed only by the affirmative vote of the
holders of at least two-thirds (2/3) of the shares present and entitled to vote
at an election of directors.
ARTICLE V
OFFICERS
1. DESIGNATIONS. The officers of the Corporation shall be a
President, a Secretary and, at the discretion of the Board of Directors, one or
more Vice-Presidents and a Treasurer. The Board of Directors shall appoint all
officers. Any two or more offices may be held by the same individual.
The Board of Directors, in its discretion, may elect a Chairman from
among its members to serve as Chairman of the Board of Directors, who, when
present, shall preside at all meetings of the Board of Directors and the
shareholders, and who shall have such other powers as the Board may determine.
The Board of Directors, or a duly appointed officer to whom such
authority has been delegated by Board resolution, may appoint such other
officers and agents as it shall deem necessary or expedient, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
2. APPOINTMENT AND TERM OF OFFICE. The officers of the Corporation
shall be appointed annually by the Board of Directors at the first meeting of
the Board of Directors held after each annual meeting of the shareholders. Each
officer shall hold office until a successor shall have been appointed and
qualified, or until such officer's earlier death, resignation or removal.
3. POWERS AND DUTIES. If the Board appoints persons to fill the
following positions, such officers shall have the power and duties set forth
below:
(a) THE PRESIDENT. The President of the Corporation shall be
the chief executive officer of the Corporation and, subject to the direction and
control of the Board of Directors, shall have general control and management of
the business affairs and policies of the Corporation. The President shall act
as liaison from and as spokesperson for the Board of Directors. The President
shall participate in long-range planning for the Corporation and shall be
available to the other officers of the Corporation for consultation. The
President shall possess power to sign all certificates, contracts and other
instruments of the Corporation. Unless a Chairman of the Board of Directors has
been appointed and is present, the President shall preside
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at all meetings of the shareholders and of the Board of Directors. The
President shall perform all such other duties as are incident to the office of
President or are properly required by the Board of Directors.
(b) VICE PRESIDENTS. During the absence or disability of the
President, the Executive or Senior Vice-Presidents, if any, and the
Vice-Presidents, if any, in the order designated by the Board of Directors,
shall exercise all the functions of the President. Each Vice-President shall
have such powers and discharge such duties as may be assigned from time to time
by the Board of Directors.
(c) THE SECRETARY. The Secretary shall issue notices for all
meetings, except for notices for special meetings of the shareholders and
special meetings of the directors which are called by the requisite percentage
of shareholders or number of directors, shall keep minutes of all meetings,
shall have charge of the seal and the Corporation's books, and shall make such
reports and perform such other duties as are incident to the office of
Secretary, or are properly required of him or her by the Board of Directors.
(d) THE TREASURER. The Treasurer shall have the custody of all
moneys and securities of the Corporation and shall keep regular books of
account. The Treasurer shall disburse the funds of the Corporation in payment
of the just demands against the Corporation or as may be ordered by the Board of
Directors, taking proper vouchers or receipts for such disbursements, and shall
render to the Board of Directors from time to time as may be required an account
of all transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall perform such other duties incident to his or
her office or that are properly required of him or her by the Board of
Directors.
4. STANDARDS OF CONDUCT FOR OFFICERS.
(a) An officer with discretionary authority shall discharge such
officer's duties under that authority:
(i) in good faith;
(ii) with the care an ordinary prudent person in a like
position would exercise under similar
circumstances; and
(iii) in a manner the officer reasonably believes to be
in the best interests of the Corporation.
5. DELEGATION. In the case of absence or inability to act of any
officer of the Corporation and of any person herein authorized to act in such
officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may in its sole discretion select.
6. VACANCIES. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
7. RESIGNATION. An officer may resign at any time by delivering
notice to the Corporation. Such notice shall be effective when delivered unless
the notice specifies a later effective date. Any such resignation shall not
affect the Corporation's contract rights, if any, with the officer.
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8. REMOVAL. Any officer elected or appointed by the Board of
Directors may be removed at any time, with or without cause, by the affirmative
vote of a majority of the whole Board of Directors, but such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
9. SALARIES AND CONTRACT RIGHTS. The salaries, if any, of the
officers shall be fixed from time to time by the Board of Directors. The
appointment of an officer shall not of itself create contract rights.
10. BONDS. The Board of Directors may, by resolution, require any
and all of the officers to give bonds to the Corporation, with sufficient surety
or sureties, conditioned for the faithful performance of the duties of their
respective offices, and to comply with such other conditions as may from time to
time be required by the Board of Directors.
ARTICLE VI
DISTRIBUTIONS AND FINANCE
1. DISTRIBUTIONS. The Board of Directors may authorize and the
Corporation may make distributions to its shareholders; provided that no
distribution may be made if, after giving it effect, either:
(a) The Corporation would not be able to pay its debts as they
become due in the usual course of business; or
(b) The Corporation's total assets would be less than the sum of
its total liabilities plus, unless the articles of
incorporation permit otherwise, the amount that would be
needed, if the corporation were to be dissolved at the time
of the distribution, to satisfy the preferential rights upon
dissolution of shareholders whose preferential rights are
superior to those receiving the distribution.
The Board of Directors may authorize distributions to holders of
record at the close of business on any business day prior to the date on which
the distribution is made. If the Board of Directors does not fix a record date
for determining shareholders entitled to a distribution, the record date shall
be the date on which the Board of Directors authorizes the distribution.
2. MEASURE OF EFFECT OF A DISTRIBUTION. For purposes of determining
whether a distribution may be authorized by the Board of Directors and paid by
the Corporation under Article VI, Section 1 of these Bylaws, the effect of the
distribution is measured:
(a) In the case of a distribution of indebtedness, the terms of
which provide that payment of principal and interest are
made only if and to the extent that payment of a
distribution to shareholders could then be made under this
section, each payment of principal or interest is treated as
a distribution, the effect of which is measured on the date
the payment is actually made; or
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(b) In the case of any other distribution:
(i) if the distribution is by purchase, redemption, or
other acquisition of the Corporation's shares, the
effect of the distribution is measured as of the
earlier of the date any money or other property is
transferred or debt incurred by the Corporation,
or the date the shareholder ceases to be a
shareholder with respect to the acquired shares;
(ii) if the distribution is of an indebtedness other
than described in subsection 2(a) and (b)(i) of
this section, the effect of the distribution is
measured as of the date the indebtedness is
distributed; and
(iii) in all other cases, the effect of the distribution
is measured as of the date the distribution is
authorized if payment occurs within 120 days after
the date of authorization, or the date the payment
is made if it occurs more than 120 days after the
date of authorization.
3. DEPOSITORIES. The moneys of the Corporation shall be deposited
in the name of the Corporation in such bank or banks or trust company or trust
companies as the Board of Directors shall designate, and shall be drawn out only
by check or other order for payment of money signed by such persons and in such
manner as may be determined by resolution of the Board of Directors.
ARTICLE VII
NOTICES
Except as may otherwise be required by law, any notice to any
shareholder or director must be in writing and may be transmitted by: mail,
private carrier or personal delivery; telegraph or teletype; or telephone, wire
or wireless equipment which transmits a facsimile of the notice. Written notice
by the Corporation to its shareholders shall be deemed effective when mailed, if
mailed with first-class postage prepaid and correctly addressed to the
shareholder's address shown in the Corporation's current record of shareholders.
Except as set forth in the previous sentence, written notice shall be deemed
effective at the earliest of the following: (i) when received; (ii) five days
after its deposit in the United States mail, as evidenced by the postmark, if
mailed with first-class postage, prepaid and correctly addressed; (iii) on the
date shown on the return receipt, if sent by registered or certified mail,
return receipt requested, and receipt is signed by or on behalf of the
addressee; or (iv) if sent to a shareholder's address, telephone number, or
other number appearing on the records of the Corporation, when dispatched by
telegraph, teletype or facsimile equipment.
ARTICLE VIII
SEAL
The Corporation may adopt a corporate seal which seal shall be in such
form and bear such inscription as may be adopted by resolution of the Board of
Directors.
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ARTICLE IX
INDEMNIFICATION OF OFFICERS,
DIRECTORS, EMPLOYEES AND AGENTS
1. DEFINITIONS. For purposes of this Article:
(a) "Corporation" includes any domestic or foreign predecessor
entity of the Corporation in a merger or other transaction in which the
predecessor's existence ceased upon consummation of the transaction.
(b) "Director" means an individual who is or was a director of
the Corporation or an individual who, while a director of the Corporation, is or
was serving at the Corporation's request as a director, officer, partner,
trustee, employee, or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan, or other enterprise.
A director is considered to be serving an employee benefit plan at the
Corporation's request if the director's duties to the Corporation include duties
or services by him to the plan or to participants in or beneficiaries of the
plan. Director includes, unless the context requires otherwise, the estate or
personal representative of a director.
(c) "Expenses" include counsel fees.
(d) "Liability" means the obligation to pay a judgment,
settlement, penalty, or fine, including an excise tax assessed with respect to
an employee benefit plan, or to pay reasonable expenses incurred with respect
to a proceeding.
(e) "Official capacity" means: (i) When used with respect to a
director, the office of director in the Corporation; and (ii) when used with
respect to an individual other than a director, as contemplated in Section 6 of
this Article IX, the office in the Corporation held by the officer or the
employment or agency relationship undertaken by the employee or agent on behalf
of the Corporation. "Official capacity" does not include service for any other
foreign or domestic corporation or any partnership, joint venture, trust,
employee benefit plan, or other enterprise.
(f) "Party" includes an individual who was, is, or is threatened
to be made a named defendant or respondent in a proceeding.
(g) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative or
investigative and whether formal or informal.
2. RIGHT TO INDEMNIFICATION.
(a) The Corporation shall indemnify any person who was or is a
party to any proceeding, whether or not brought by or in the right of the
Corporation, by reason of the fact that such person is or was a director of the
Corporation, against all reasonable expenses incurred by the director in
connection with the proceeding.
(b) Except as provided in subsection (e) of this Section 2, the
Corporation shall indemnify an individual made a party to a proceeding because
the individual is or was a director against liability incurred in the proceeding
if:
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(i) The individual acted in good faith; and
(ii) The individual reasonably believed:
(A) In the case of conduct in the individual's
official capacity with the Corporation, that
the individual's conduct was in the
Corporation's best interests; and
(B) In all other cases, that the individual's
conduct was at least not opposed to the
Corporation's best interests; and
(iii) In the case of any criminal proceeding, the
individual had no reasonable cause to believe the
individual's conduct was unlawful.
(c) A director's conduct with respect to an employee benefit
plan for a purpose the director reasonably believed to be in the interests of
the participants in and beneficiaries of the plan is conduct that satisfies the
requirement of subsection (b)(ii) of this Section 2.
(d) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director did not meet the standard of
conduct described in this Section.
(e) The Corporation shall not indemnify a director under this
Section 2:
(i) In connection with a proceeding by or in the right
of the Corporation in which the director was
adjudged liable to the Corporation; or
(ii) In connection with any other proceeding charging
improper personal benefit to the director, whether
or not involving action in the director's official
capacity, in which the director was adjudged
liable on the basis that personal benefit was
improperly received by the director.
(f) Indemnification under this Article IX, Section 2 in
connection with a proceeding by or in the right of the Corporation is limited to
reasonable expenses incurred in connection with the proceeding.
3. ADVANCE FOR EXPENSES.
(a) The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding and in advance of any determination and
authorization of indemnification pursuant to Section 5 of this Article IX if:
(i) The director furnishes the Corporation a written
affirmation of the director's good faith belief
that the
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director has met the standard of conduct described
in Section 2 of this Article IX; and
(ii) The director furnishes the Corporation a written
undertaking, executed personally or on the
director's behalf, to repay the advance if it is
ultimately determined that the director did not
meet the standard of conduct.
(b) The undertaking required by subsection (a)(i) of this
Section 3 must be an unlimited general obligation of the director but need not
be secured and may be accepted without reference to financial ability to make
repayment.
4. COURT-ORDERED INDEMNIFICATION. A director of the Corporation who
is a party to a proceeding may apply for indemnification or advance of expenses
to the court conducting the proceeding or to another court of competent
jurisdiction. On receipt of an application, the court after giving any notice
the court considers necessary may order indemnification or advance of expenses
if it determines:
(a) The director is entitled to mandatory indemnification
pursuant to MCA 35-1-453, in which case the court shall also order the
Corporation to pay the director's reasonable expenses incurred to obtain
court-ordered indemnification;
(b) The director is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, whether or not the
director met the standard of conduct set forth in Section 2 of this Article IX,
or was adjudged liable as described in Section 2(e) of this Article IX, but if
the director was adjudged so liable, the director's indemnification is limited
to reasonable expenses incurred; or
(c) In the case of an advance of expenses, the director is
entitled pursuant to the Articles of Incorporation, Bylaws, or any applicable
resolution or contract, to payment or reimbursement of the director's reasonable
expenses incurred as a party to the proceeding in advance of final disposition
of the proceeding.
5. DETERMINATION AND AUTHORIZATION OF INDEMNIFICATION.
(a) The Corporation shall not indemnify a director under this
Article IX unless authorized in the specific case after a determination has been
made that indemnification of the director is permissible in the circumstances
because the director has met the standard of conduct set forth in Section 2(b)
of this Article IX.
(b) The determination shall be made:
(i) By the Board of Directors by majority vote of a
quorum consisting of directors not at the time
parties to the proceeding;
(ii) If a quorum cannot be obtained under (i) of this
subsection, by majority vote of a committee duly
designated by the Board of Directors, in which
designation directors who are parties may
participate, consisting solely of two or more
directors not at the time parties to the
proceeding;
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(iii) By special legal counsel:
(A) Selected by the Board of Directors or its
committee in the manner prescribed in (i) or
(ii) of this subsection; or
(B) If a quorum of the Board of Directors cannot
be obtained under (i) of this subsection and
a committee cannot be designated under (ii)
of this subsection, selected by majority vote
of the full Board of Directors, in which
selection directors who are parties may
participate; or
(iv) By the shareholders, but shares owned by or voted
under the control of directors who are at the time
parties to the proceeding may not be voted on the
determination.
(c) Authorization of indemnification and evaluation as to
reasonableness of expenses shall be made in the same manner as the determination
that indemnification is permissible, except that if the determination is made by
special legal counsel, authorization of indemnification and evaluation as to
reasonableness of expenses shall be made by those entitled under subsection
(b)(iii) of this Section to select counsel.
6. INDEMNIFICATION OF OFFICERS.
(a) An officer of the Corporation who is not a director shall be
indemnified pursuant to MCA 35-1-457, and is entitled to apply for court-ordered
indemnification under Section 4 of this Article IX, in each case to the same
extent as a director; and
(b) The Corporation shall indemnify and advance expenses to an
officer who is not a director to the same extent as to a director under this
Article IX.
(c) The Corporation may also indemnify and advance expenses to
an officer who is not a director to the extent, consistent with law, that may be
provided by a general or specific action of its Board of Directors, or contract.
7. INDEMNIFICATION OF EMPLOYEES AND AGENTS.
(a) The Corporation may indemnify employees and agents of the
Corporation pursuant to MCA 35-1-457, and may afford the right to such employees
or agents to apply for court-ordered indemnification under Section 4 of this
Article IX, in each case to the same extent as a director; and
(b) The Corporation may indemnify and advance expenses to an
employee or agent of the Corporation who is not a director to the same extent as
to a director under this Article IX.
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(c) The Corporation may also indemnify and advance expenses to
an employee or agent who is not a director to the extent, consistent with law,
that may be provided by a general or specific action of its Board of Directors,
or contract.
8. INSURANCE. The Corporation may purchase and maintain insurance
on behalf of an individual who is or was a director, officer, employee, or agent
of the Corporation, or who, while a director, officer, employee, or agent of the
Corporation, is or was serving at the request of the Corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise, against liability asserted against or incurred by the individual in
that capacity or arising from the individual's status as a director, officer,
employee, or agent, whether or not the Corporation would have power to indemnify
the individual against the same liability under this Article IX.
9. INDEMNIFICATION AS A WITNESS. This Article IX does not limit a
Corporation's power to pay or reimburse expenses incurred by a director in
connection with the director's appearance as a witness in a proceeding at a time
when the director has not been made a named defendant or respondent to the
proceeding.
10. REPORT TO SHAREHOLDERS. If the Corporation indemnifies or
advances expenses to a director pursuant to this Article IX in connection with a
proceeding by or in the right of the Corporation, the Corporation shall report
the indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
11. SHAREHOLDER AUTHORIZED INDEMNIFICATION.
(a) If authorized by a resolution adopted or ratified, before or
after the event, by the shareholders of the Corporation, the Corporation shall
have the power to indemnify or agree to indemnify a director made a party to a
proceeding, or obligate itself to advance or reimburse expenses incurred in a
proceeding, without regard to the limitations contained in this Article IX
(other than this Section 11); provided that no such indemnity shall indemnify
any director from or on account of:
(i) Acts or omissions of the director finally adjudged
to be intentional misconduct or a knowing
violation of law;
(ii) Conduct of the director finally adjudged to be an
unlawful distribution under MCA 35-1-713; or
(iii) Any transaction with respect to which it was
finally adjudged that such director personally
received a benefit in money, property, or services
to which the director was not legally entitled.
(b) Unless a resolution adopted or ratified by the shareholders
of the Corporation provides otherwise, any determination as to any indemnity or
advance of expenses under subsection (a) of this Section 11 shall be made in
accordance with Section 5 of this Article IX.
12. VALIDITY OF INDEMNIFICATION. A provision addressing the
Corporation's indemnification of or advance for expenses to directors that is
contained in these Bylaws, a
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resolution of its shareholders or Board of Directors, or in a contract or
otherwise, is valid only if and to the extent that provision is consistent with
MCA 35-1-451 through 35-1-457.
13. INTERPRETATION. The provisions contained in this Article IX
shall be interpreted and applied to provide indemnification to directors,
officers, employees and agents of the Corporation to the fullest extent allowed
by applicable law, as such law may be amended, interpreted and applied from time
to time.
14. SAVINGS CLAUSE. If this Article IX or any portion thereof shall
be invalidated on any ground by any court of competent jurisdiction, the
Corporation shall nevertheless indemnify each director as to reasonable expenses
and liabilities with respect to any proceeding, whether or not brought by or in
the right of the Corporation, to the full extent permitted by any applicable
portion of this Article IX that shall not have been invalidated, or by any other
applicable law.
15. NON-EXCLUSIVITY OF RIGHTS. The rights to indemnification under
this Article IX for directors, officers, employees and agents shall not be
exclusive of any other right which any person may have, or hereafter acquire,
under any statute, provision of the Articles of Incorporation, Bylaws, other
agreement, vote of shareholders or disinterested directors, insurance policy,
principles of common law or equity, or otherwise.
ARTICLE X
BOOKS AND RECORDS
The Corporation shall maintain appropriate accounting records and
shall keep as permanent records minutes of all meetings of its shareholders and
Board of Directors, a record of all actions taken by the shareholders or the
Board of Directors without a meeting and a record of all actions taken by a
committee of the Board of Directors. In addition, the Corporation shall keep at
its registered office or principal place of business, or at the office of its
transfer agent or registrar, a record of its shareholders, giving the names and
addresses of all shareholders in alphabetical order by class of shares showing
the number and class of the shares held by each. Any books, records and minutes
may be in written form or any other form capable of being converted into written
form within a reasonable time.
The Corporation shall keep a copy of the following records at its
principal office:
1. The Articles or Restated Articles of Incorporation and all
amendments thereto currently in effect;
2. The Bylaws or Restated Bylaws and all amendments thereto
currently in effect;
3. The minutes of all shareholders' meetings, and records of all
actions taken by shareholders without a meeting, for the past three years;
4. Its financial statements for the past three years, including
balance sheets showing in reasonable detail the financial condition of the
Corporation as of the close of each fiscal year, and an income statement showing
the results of its operations during each fiscal year prepared on the basis of
generally accepted accounting principles or, if not, prepared on a basis
explained therein;
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5. All written communications to shareholders generally within the
past three years;
6. A list of the names and business addresses of its current
directors and officers; and
7. Its most recent annual report delivered to the Secretary of State
of Montana.
ARTICLE XI
AMENDMENTS
1. BY SHAREHOLDERS. These Bylaws may be amended or repealed by the
shareholders in the manner set forth in Article II Section 9 of these Bylaws at
any regular or special meeting of the shareholders.
2. BY DIRECTORS. The Board of Directors shall have power to amend
or repeal the Bylaws of, or adopt new bylaws for, the Corporation. However, any
such Bylaws, or any alteration, amendment or repeal of the Bylaws, may be
subsequently changed or repealed by the holders of a majority of the stock
entitled to vote at any shareholders' meeting.
3. EMERGENCY BYLAWS. The Board of Directors may adopt emergency
Bylaws, subject to repeal or change by action of the shareholders, which shall
be operative during any emergency in the conduct of the business of the
Corporation resulting from an attack on the United States, any state of
emergency declared by the federal government or any subdivision thereof, or any
other catastrophic event.
Adopted by the Shareholders of the Corporation on April 29, 1999.
/s/ David H. Bjornson
----------------------------------
David H. Bjornson, Secretary
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COMMON STOCK COMMON STOCK
[JORE LOGO]
NUMBER SHARES
SEE REVERSE FOR
CERTAIN DEFINITIONS
AND TRANSFER RESTRICTIONS
WHERE INNOVATION MEETS REALITY-TM-
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES, WITHOUT PAR VALUE, OF THE COMMON STOCK OF
- ------------------------------ JORE CORPORATION -------------------------------
(hereinafter called the "Company") transferable on the books of the Company by
said owner in person or by duly authorized attorney, upon surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation and all amendments thereto, copies of which are
on file at the office of the Transfer Agent, and the holder hereof by
acceptance of this certificate
WITNESS, the facsimile signatures of the duly authorized officers of the
Corporation.
Dated:
/s/ illegible /s/ illegible
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
TRANSFER AGENT AND REGISTRAR
BY:
AUTHORIZED SIGNATURE
<PAGE>
JORE CORPORATION
1997 STOCK PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The purpose of the Plan is to offer selected individuals an opportunity to
acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code.
Capitalized terms are defined in Section 12.
SECTION 2. ADMINISTRATION.
(a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be administered by
one or more Committees. Each Committee shall consist of one or more members of
the Board of Directors who have been appointed by the Board of Directors. Each
Committee shall have such authority and be responsible for such functions as the
Board of Directors has assigned to it. If no Committee has been appointed, the
entire Board of Directors shall administer the Plan. Any reference to the Board
of Directors in the Plan shall be construed as a reference to the Committee (if
any) to whom the Board of Directors has assigned a particular function.
(b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions of the
Plan, the Board of Directors shall have full authority and discretion to take
any actions it deems necessary or advisable for the administration of the Plan.
All decisions, interpretations and other actions of the Board of Directors shall
be final and binding on all Purchasers, all Optionees and all persons deriving
their rights from a Purchaser or Optionee.
SECTION 3. ELIGIBILITY.
(a) GENERAL RULE. Only Employees, Outside Directors and Consultants shall
be eligible for the grant of Options or the direct award or sale of Shares. Only
Employees shall be eligible for the grant of ISOs.
(b) TEN-PERCENT SHAREHOLDERS. An individual who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for the grant of an
ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a
Share on the date of grant and (ii) such ISO by its terms is not exercisable
after the expiration of five years from the date of grant. For purposes of this
Subsection (b), in determining stock ownership, the attribution rules of Section
424(d) of the Code shall be applied.
SECTION 4. STOCK SUBJECT TO PLAN.
(a) BASIC LIMITATION. Shares offered under the Plan may be authorized but
unissued Shares. The aggregate number of Shares that may be issued under the
Plan (upon exercise of Options or other
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rights to acquire Shares) shall not exceed 4,500 Shares, subject to adjustment
pursuant to Section 8. The number of Shares that are subject to Options or other
rights outstanding at any time under the Plan shall not exceed the number of
Shares that then remain available for issuance under the Plan. The Company,
during the term of the Plan, shall at all times reserve and keep available
sufficient Shares to satisfy the requirements of the Plan.
(b) ADDITIONAL SHARES. In the event that any outstanding Option or other
right for any reason expires or is canceled or otherwise terminated, the Shares
allocable to the unexercised portion of such Option or other right shall again
be available for the purposes of the Plan. In the event that Shares issued under
the Plan are reacquired by the Company pursuant to any forfeiture provision,
right of repurchase or right of first refusal, such Shares shall again be
available for the purposes of the Plan, except that the aggregate number of
Shares which may be issued upon the exercise of ISOs shall in no event exceed
4,500 Shares (subject to adjustment pursuant to Section 8).
SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the Plan
(other than upon exercise of an Option) shall be evidenced by a Stock Purchase
Agreement between the Purchaser and the Company. Such award or sale shall be
subject to all applicable terms and conditions of the Plan and may be subject to
any other terms and conditions which are not inconsistent with the Plan and
which the Board of Directors deems appropriate for inclusion in a Stock Purchase
Agreement. The provisions of the various Stock Purchase Agreements entered into
under the Plan need not be identical.
(b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right to
acquire Shares under the Plan (other than an Option) shall automatically expire
if not exercised by the Purchaser within 30 days after the grant of such right
was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.
(c) PURCHASE PRICE. The Purchase Price shall be determined by the Board of
Directors at its sole discretion. The Purchase Price shall be payable in a form
described in Section 7.
(d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.
(e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold under
the Plan shall be subject to such special forfeiture conditions, rights of first
refusal and other transfer restrictions as the Board of Directors may determine.
Such restrictions shall be set forth in the applicable Stock Purchase Agreement
and shall apply in addition to any restrictions that may apply to holders of
Shares generally.
(f) ACCELERATED VESTING. Unless the applicable Stock Purchase Agreement
provides otherwise, and except as set forth below, any right to repurchase a
Purchaser's Shares at the original Purchase Price (if any) upon termination of
the Purchaser's Service shall lapse and all of such Shares shall become vested
if:
(i) The Company is subject to a Change in Control before the
Purchaser's Service terminates; and
(ii) Either (A) the repurchase right is not assigned to the entity
that employs the Purchaser immediately after the Change in Control or to
its parent or subsidiary or (B) the Purchaser is subject to an Involuntary
Termination within 12 months following such Change in Control.
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Notwithstanding the above, if the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be treated as
a "pooling of interests" for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of vesting shall not
occur to the extent that the Company's independent public accountants and such
other party's independent public accountants separately determine in good faith
that such acceleration would preclude the use of "pooling of interests"
accounting.
A Stock Purchase Agreement may also provide for accelerated vesting in the event
of the Optionee's death or disability or other events.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS.
(a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall be
evidenced by a Stock Option Agreement between the Optionee and the Company. Such
Option shall be subject to all applicable terms and conditions of the Plan and
may be subject to any other terms and conditions which are not inconsistent with
the Plan and which the Board of Directors deems appropriate for inclusion in a
Stock Option Agreement. The provisions of the various Stock Option Agreements
entered into under the Plan need not be identical.
(b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the number
of Shares that are subject to the Option and shall provide for the adjustment of
such number in accordance with Section 8. The Stock Option Agreement shall also
specify whether the Option is an ISO or a Nonstatutory Option.
(c) EXERCISE PRICE. Each Stock Option Agreement shall specify the Exercise
Price. The Exercise Price of an ISO shall not be less than 100% of the Fair
Market Value of a Share on the date of grant, and a higher percentage may be
required by Section 3(b). Subject to the preceding sentence, the Exercise Price
under an Option shall be determined by the Board of Directors at its sole
discretion. The Exercise Price shall be payable in a form described in Section
7.
(d) WITHHOLDING TAXES. As a condition to the exercise of an Option, the
Optionee shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.
(e) EXERCISABILITY. Each Stock Option Agreement shall specify the date when
all or any installment of the Option is to become exercisable. The
exercisability provisions of a Stock Option Agreement shall be determined by the
Board of Directors at its sole discretion.
(f) ACCELERATED EXERCISABILITY. Unless the applicable Stock Option
Agreement provides otherwise, all of an Optionee's Options shall become
exercisable in full if:
(i) The Company is subject to a Change in Control before the
Optionee's Service terminates; and
(ii) Either (A) such Options do not remain outstanding, such Options
are not assumed by the surviving corporation or its parent, and the
surviving corporation or its parent does not substitute options with
substantially the same terms for such Options or (B) the Optionee is
subject to an Involuntary Termination within 12 months following such
Change in Control.
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Notwithstanding the above, if the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be treated as
a "pooling of interests" for financial reporting purposes, and if such
transaction in fact is so treated, then the acceleration of exercisability shall
not occur to the extent that the Company's independent public accountants and
such other party's independent public accountants separately determine in good
faith that such acceleration would preclude the use of "pooling of interests"
accounting.
(g) BASIC TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and in the
case of an ISO a shorter term may be required by Section 3(b). Subject to the
preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire. A Stock Option Agreement may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee's Service or death.
(h) NONTRANSFERABILITY. No Option shall be transferable by the Optionee
other than by beneficiary designation, will or the laws of descent and
distribution. An Option may be exercised during the lifetime of the Optionee
only by the Optionee or by the Optionee's guardian or legal representative. No
Option or interest therein may be transferred, assigned, pledged or hypothecated
by the Optionee during the Optionee's lifetime, whether by operation of law or
otherwise, or be made subject to execution, attachment or similar process.
(i) NO RIGHTS AS A SHAREHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.
(j) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.
(k) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon exercise of
an Option shall be subject to such special forfeiture conditions, rights of
first refusal and other transfer restrictions as the Board of Directors may
determine. Such restrictions shall be set forth in the applicable Stock Option
Agreement and shall apply in addition to any restrictions that may apply to
holders of Shares generally.
(l) ACCELERATED VESTING. Unless the applicable Stock Option Agreement
provides otherwise, the right to repurchase an Optionee's Shares at the original
Exercise Price (if any) upon termination of the Optionee's Service shall lapse
and all of such Shares shall become vested if:
(i) The Company is subject to a Change in Control before the
Optionee's Service terminates; and
(ii) Either (A) such Options do not remain outstanding, such Options
are not assumed by the surviving corporation or its parent, and the
surviving corporation or its parent does not substitute options with
substantially the same terms for such Options or (B) the Optionee is
subject to an Involuntary Termination within 12 months following such
Change in Control.
Notwithstanding the above, if the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be treated as
a "pooling of interests" for financial reporting
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purposes, and if such transaction in fact is so treated, then the acceleration
of vesting shall not occur to the extent that the Company's independent public
accountants and such other party's independent public accountants separately
determine in good faith that such acceleration would preclude the use of
"pooling of interests" accounting.
A Stock Option Agreement may also provide for accelerated vesting in the event
of the Optionee's death or disability or other events.
SECTION 7. PAYMENT FOR SHARES.
(a) GENERAL RULE. The entire Purchase Price or Exercise Price of Shares
issued under the Plan shall be payable in cash or cash equivalents at the time
when such Shares are purchased, except as otherwise provided in this Section 7.
(b) SURRENDER OF STOCK. To the extent that a Stock Option Agreement so
provides, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Shares that are already owned by the Optionee.
Such Shares shall be surrendered to the Company in good form for transfer and
shall be valued at their Fair Market Value on the date when the Option is
exercised. The Optionee shall not surrender, or attest to the ownership of,
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
(c) SERVICES RENDERED. At the discretion of the Board of Directors, Shares
may be awarded under the Plan in consideration of services rendered to the
Company, a Parent or a Subsidiary prior to the award. At the discretion of the
Board of Directors, Shares may also be awarded under the Plan in consideration
of services to be rendered to the Company, a Parent or a Subsidiary after the
award, except that the par value of such Shares, if newly issued, shall be paid
in cash or cash equivalents.
(d) PROMISSORY NOTE. To the extent that a Stock Option Agreement or Stock
Purchase Agreement so provides, all or a portion of the Exercise Price or
Purchase Price (as the case may be) of Shares issued under the Plan may be paid
with a full-recourse promissory note. However, the par value of the Shares, if
newly issued, shall be paid in cash or cash equivalents. The Shares shall be
pledged as security for payment of the principal amount of the promissory note
and interest thereon. The interest rate payable under the terms of the
promissory note shall not be less than the minimum rate (if any) required to
avoid the imputation of additional interest under the Code. Subject to the
foregoing, the Board of Directors (at its sole discretion) shall specify the
term, interest rate, amortization requirements (if any) and other provisions of
such note.
(e) EXERCISE/SALE. To the extent that a Stock Option Agreement so provides,
and if Stock is publicly traded, payment may be made all or in part by the
delivery (on a form prescribed by the Company) of an irrevocable direction to a
securities broker approved by the Company to sell Shares and to deliver all or
part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.
(f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.
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SECTION 8. ADJUSTMENT OF SHARES.
(a) GENERAL. In the event of a subdivision of the outstanding Stock, a
declaration of a dividend payable in Shares, a declaration of an extraordinary
dividend payable in a form other than Shares in an amount that has a material
effect on the Fair Market Value of the Stock, a combination or consolidation of
the outstanding Stock into a lesser number of Shares, a recapitalization, a
spin-off, a reclassification or a similar occurrence, the Board of Directors
shall make appropriate adjustments in one or more of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option or (iii) the Exercise Price under each outstanding
Option.
(b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a party to
a merger or consolidation, outstanding Options shall be subject to the agreement
of merger or consolidation. Such agreement, without the Optionees' consent, may
provide for:
(i) The continuation of such outstanding Options by the Company (if
the Company is the surviving corporation);
(ii) The assumption of the Plan and such outstanding Options by the
surviving corporation or its parent;
(iii) The substitution by the surviving corporation or its parent of
options with substantially the same terms for such outstanding Options; or
(iv) The cancellation of each outstanding Option after payment to the
Optionee of an amount in cash or cash equivalents equal to (A) the Fair
Market Value of the Shares subject to such Option at the time of the merger
or consolidation minus (B) the Exercise Price of the Shares subject to such
Option.
(c) RESERVATION OF RIGHTS. Except as provided in this Section 8, an
Optionee or Purchaser shall have no rights by reason of (i) any subdivision or
consolidation of shares of stock of any class, (ii) the payment of any dividend
or (iii) any other increase or decrease in the number of shares of stock of any
class. Any issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall not affect, and
no adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to the Plan shall not affect in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure, to merge or consolidate or to dissolve, liquidate, sell
or transfer all or any part of its business or assets.
SECTION 9. SECURITIES LAW REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery of
such Shares comply with (or are exempt from) all applicable requirements of law,
including (without limitation) the Securities Act of 1933, as amended, the rules
and regulations promulgated thereunder, state securities laws and regulations,
and the regulations of any stock exchange or other securities market on which
the Company's securities may then be traded.
SECTION 10. NO RETENTION RIGHTS.
Nothing in the Plan or in any right or Option granted under the Plan shall
confer upon the Purchaser or Optionee any right to continue in Service for any
period of specific duration or interfere with or otherwise restrict in any way
the rights of the Company (or any Parent or Subsidiary employing or
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retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service
at any time and for any reason, with or without cause.
SECTION 11. DURATION AND AMENDMENTS.
(a) TERM OF THE PLAN. The Plan, as set forth herein, shall become effective
on the date of its adoption by the Board of Directors, subject to the approval
of the Company's shareholders. In the event that the shareholders fail to
approve the Plan within 12 months after its adoption by the Board of Directors,
any grants of Options or sales or awards of Shares that have already occurred
shall be rescinded, and no additional grants, sales or awards shall be made
thereafter under the Plan. The Plan shall terminate automatically 10 years after
its adoption by the Board of Directors and may be terminated on any earlier date
pursuant to Subsection (b) below.
(b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may amend,
suspend or terminate the Plan at any time and for any reason; provided, however,
that any amendment of the Plan which increases the number of Shares available
for issuance under the Plan (except as provided in Section 8), or which
materially changes the class of persons who are eligible for the grant of ISOs,
shall be subject to the approval of the Company's shareholders. Shareholder
approval shall not be required for any other amendment of the Plan.
(c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or sold
under the Plan after the termination thereof, except upon exercise of an Option
granted prior to such termination. The termination of the Plan, or any amendment
thereof, shall not affect any Share previously issued or any Option previously
granted under the Plan.
SECTION 12. DEFINITIONS.
(a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.
(b) "CAUSE" shall mean (i) the unauthorized use or disclosure of the
confidential information or trade secrets of the Company, which use or
disclosure causes material harm to the Company, (ii) indictment of,
conviction of, or a plea of "guilty" or "no contest" to, a felony under the
laws of the United States or any state thereof, (iii) gross negligence or
(iv) continued failure to perform assigned duties after receiving written
notification from the Board of Directors. The foregoing, however, shall not
be deemed an exclusive list of all acts or omissions that the Company (or a
Parent or Subsidiary) may consider as grounds for the discharge of an
Optionee or Purchaser.
(c) "CHANGE IN CONTROL" shall mean:
(i) The consummation of a merger or consolidation of the Company with
or into another entity or any other corporate reorganization, if more than
50% of the combined voting power of the continuing or surviving entity's
securities outstanding immediately after such merger, consolidation or
other reorganization is owned by persons who were not shareholders of the
Company immediately prior to such merger, consolidation or other
reorganization; or
(ii) The sale, transfer or other disposition of all or substantially
all of the Company's assets.
A transaction shall not constitute a Change in Control if its sole purpose is
to change the state of the Company's incorporation or to create a holding
company that will be owned in substantially the same proportions by the
persons who held the Company's securities immediately before such transaction.
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(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended.
(e) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).
(f) "COMPANY" shall mean Jore Corporation, a Montana corporation.
(g) "CONSULTANT" shall mean a person who performs bona fide services for
the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.
(h) "EMPLOYEE" shall mean any individual who is a common-law employee of
the Company, a Parent or a Subsidiary.
(i) "EXERCISE PRICE" shall mean the amount for which one Share may be
purchased upon exercise of an Option, as specified by the Board of Directors in
the applicable Stock Option Agreement.
(j) "FAIR MARKET VALUE" shall mean the fair market value of a Share, as
determined by the Board of Directors in good faith. Such determination shall be
conclusive and binding on all persons.
(k) "INVOLUNTARY TERMINATION" shall mean the termination of the Optionee's
or Purchaser's Service by reason of:
(i) The involuntary discharge of the Optionee or Purchaser by the
Company (or the Parent or Subsidiary employing him or her) for reasons
other than Cause; or
(ii) The voluntary resignation of the Optionee or Purchaser following
(A) a change in his or her position with the Company (or the Parent or
Subsidiary employing him or her) that materially reduces his or her level
of authority or responsibility or (B) a reduction in his or her
compensation (including base salary, fringe benefits and participation in
bonus or incentive programs based on corporate performance) by more than
10%.
(l) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.
(m) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.
(n) "OPTION" shall mean an ISO or Nonstatutory Option granted under the
Plan and entitling the holder to purchase Shares.
(o) "OPTIONEE" shall mean an individual who holds an Option.
(p) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors who is
not an Employee.
(q) "PARENT" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
(r) "PLAN" shall mean this Jore Corporation 1997 Stock Plan.
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(s) "PURCHASE PRICE" shall mean the consideration for which one Share may
be acquired under the Plan (other than upon exercise of an Option), as specified
by the Board of Directors.
(t) "PURCHASER" shall mean an individual to whom the Board of Directors has
offered the right to acquire Shares under the Plan (other than upon exercise of
an Option).
(u) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.
(v) "SHARE" shall mean one share of Stock, as adjusted in accordance with
Section 8 (if applicable).
(w) "STOCK" shall mean the Common Stock of the Company.
(x) "STOCK OPTION AGREEMENT" shall mean the agreement between the Company
and an Optionee which contains the terms, conditions and restrictions pertaining
to the Optionee's Option.
(y) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the Company
and a Purchaser who acquires Shares under the Plan which contains the terms,
conditions and restrictions pertaining to the acquisition of such Shares.
(z) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
SECTION 13. EXECUTION.
To record the adoption of the Plan by the Board of Directors, the Company has
caused its authorized officer to execute the same.
JORE CORPORATION,
a Montana Corporation
By: /s/ Matthew B. Jore
-------------------------------------
Title: President
----------------------------------
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JORE CORPORATION
1997 STOCK PLAN:
SUMMARY OF STOCK PURCHASE AGREEMENT
By your signature and the signature of the Company's representative below,
you and the Company agree that you are purchasing shares subject to the terms
and conditions of the 1997 Stock Plan and the Stock Purchase Agreement, both of
which are attached to and made a part of this document.
- --------------------------------------------------------------------------------
Name of Purchaser: ________________________________________
- --------------------------------------------------------------------------------
Total Number of Purchased Shares: ________________________________________
- --------------------------------------------------------------------------------
Purchase Price Per Share: $_______________________________________
- --------------------------------------------------------------------------------
Date of Purchase: ________________________________________
- --------------------------------------------------------------------------------
Vesting Commencement Date: ________________________________________
- --------------------------------------------------------------------------------
Vesting Schedule: The Right of Repurchase shall lapse with
respect to the first 33 1/3% of the
Purchased Shares when the Purchaser
completes 12 months of continuous
Service after the Vesting Commencement
Date. The Right of Repurchase shall
lapse with respect to an additional
33 1/3% of the Purchased Shares when the
Purchaser completes each year of
continuous Service thereafter.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Purchaser: JORE CORPORATION
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
_____________________________________ By: ____________________________________
- --------------------------------------------------------------------------------
Print Name:__________________________ Title:__________________________________
- --------------------------------------------------------------------------------
<PAGE>
THIS OPTION AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR, AT THE
OPTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT.
COMMON STOCK PURCHASE OPTION
JORE CORPORATION
THIS CERTIFIES that, for value received, William M. Steele, Trustee of
the Steele Family Trust, a Revocable Living Trust, or registered assigns, is
entitled, upon the terms and subject to the conditions hereinafter set forth,
at any time on or after the date hereof and at or prior to 11:59 p.m.,
Pacific time, on February 10, 2004 (the "Expiration Time"), but not
thereafter, to acquire from Jore Corporation, a Montana corporation (the
"Company"), 720 fully paid and nonassessable shares of common stock, or its
equivalent, however designated, of the Company ("Option Stock"), the Exercise
Price Per Share is $2,000.00 based on managements' valuation of all issued
and outstanding stock of the Company as of the Date of Grant, subject to
increase based on a pending valuation of the Company currently being
conducted by Brueggeman and Johnson, P.C. (The Board of Directors of the
Company approved the option grant at fair market value and authorized an
independent valuation to confirm its valuation at the Date of Grant). (the
"Exercise Price) Such number of shares of Option Stock, type of security and
the price per share of capital stock represented by the Exercise Price are
subject to adjustment as provided herein, and all references to "Option
Stock" and "Exercise Price" herein shall be deemed to include any such
adjustment.
1. EXERCISE OF OPTION. The purchase rights represented by this Option are
exercisable by the registered holder hereof, at any time and from time to
time at or prior to the Expiration Time by the surrender of this Option and
the Notice of Exercise form attached hereto duly executed to the principal
corporate offices of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company),
and upon payment of the Exercise Price for the shares thereby purchased (by
cash or by check or bank draft payable to the order of the Company or by
cancellation of indebtedness of the Company to the holder hereof, if any, at
the time of exercise in an amount equal to the purchase price of the shares
thereby purchased); whereupon the holder of this Option shall be entitled to
receive from the Company a stock certificate in proper form representing the
number of shares of Option Stock so purchased.
2. RIGHT TO CONVERT OPTION. The registered holder hereof shall have the
right (but not the obligation) to require the Company to convert this Option,
in whole or in part, at any time and from time to time at or prior to the
Expiration Time, by the surrender of this Option and the Notice of Conversion
form attached hereto duly executed to the office of the Company at the
address set forth in Section 1 hereof (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company),
into shares of Option Stock as provided in this Section 2. Upon exercise of
this conversion right (and without
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payment by the holder of the Exercise Price), the holder hereof shall be
entitled to receive that number of shares of Option Stock of the Company equal
to the quotient obtained by dividing [(A - B)(X)] by (A), where:
A = the Fair Market Value (as defined below) of one share
of Option Stock on the date of conversion of this Option;
B = the Exercise Price for one share of Option Stock under
this Option; and
X = the number of shares of Option Stock being surrendered
pursuant to the executed Notice of Conversion.
If the above calculation results in a negative number, then no shares of
Option Stock shall be issued or issuable upon conversion of this Option.
"Fair Market Value" of a share of Option Stock shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 9 hereof, the value of the consideration
(determined, in the case of non-cash consideration, in good faith by the
Board of Directors of the Company) to be received pursuant to such
transaction by the holder of one share of Option Stock;
(b) if the conversion right is being exercised after the occurrence of
an initial public offering of common stock of the Company ("Common Stock"),
the average of the high and low trading prices of a share of Common Stock as
reported by the NASDAQ National Market (or equivalent recognized source of
quotations) for the three trading days prior to the surrender of this Option
for conversion in accordance with the terms hereof; or
(c) in all other cases, the fair value as determined in good faith by
the Board of Directors of the Company.
Upon conversion of this Option in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Option Stock determined in accordance with the foregoing.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP. Certificates for
shares purchased hereunder or issuable upon conversion hereof shall be
delivered to the holder hereof by the Company's transfer agent at the
Company's expense within a reasonable time after the date on which this
Option shall have been exercised or converted in accordance with the terms
hereof. Each certificate so delivered shall be in such denominations as may
be requested by the holder hereof and shall be registered in the name of such
holder or, subject to applicable laws, other name as shall be requested by
such holder. If, upon exercise or conversion of this Option, fewer than all
of the shares of Option Stock evidenced by this Option are purchased prior to
the Expiration Time, one or more new Options substantially in the form of,
and on the terms in, this Option will be issued for the remaining number of
shares of Option Stock not purchased upon exercise or conversion of this
Option. The Company hereby represents and warrants that all shares of Option
Stock which may be issued upon the exercise or conversion of this Option
will, upon such exercise or conversion, be duly and validly authorized and
issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issuance thereof (other than liens or charges
created by or imposed upon the holder of the Option Stock). The Company
agrees that the shares so
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<PAGE>
issued shall be and be deemed to be issued to such holder as the record owner
of such shares as of the close of business on the date on which this Option
shall have been surrendered for exercise or conversion in accordance with the
terms hereof. No fractional shares or scrip representing fractional shares
shall be issued upon the exercise or conversion of this Option. With respect
to any fraction of a share called for upon the exercise or conversion of this
Option, an amount equal to such fraction multiplied by the then current price
at which each share may be purchased hereunder shall be paid in cash to the
holder of this Option.
4. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Option Stock upon the exercise or conversion of this Option shall be made
without charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the holder of this Option or in such name or
names as may be directed by the holder of this Option; PROVIDED, HOWEVER,
that in the event certificates for shares of Option Stock are to be issued in
a name other than the name of the holder of this Option, this Option when
surrendered for exercise or conversion shall be accompanied by the Assignment
Form attached hereto duly executed by the holder hereof.
5. NO RIGHTS AS SHAREHOLDERS. This Option does not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the exercise or conversion hereof.
6. EXCHANGE AND REGISTRY OF OPTION. This Option is exchangeable, upon the
surrender hereof by the registered holder at the above-mentioned office or
agency of the Company, for a new Option of like tenor and dated as of such
exchange. The Company shall maintain at the above-mentioned office or agency
a registry showing the name and address of the registered holder of this
Option. This Option may be surrendered for exchange, transfer, exercise or
conversion, in accordance with its terms, at such office or agency of the
Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF OPTION. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Option, and in case of loss, theft or
destruction of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Option, if mutilated, the Company
will make and deliver a new Option of like tenor and dated as of such
cancellation, in lieu of this Option.
8. SATURDAYS, SUNDAYS AND HOLIDAYS. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
9. MERGER, SALE OF ASSETS, ETC. If at any time the Company proposes to
merge or consolidate with or into any other corporation, effect any
reorganization, or sell or convey all or substantially all of its assets to
any other entity, in a transaction in which the shareholders of the Company
immediately before the transaction will own immediately after the transaction
less than a majority of the outstanding voting securities of the entity (or
its parent) succeeding to the business of the Company, then the Company shall
give the holder of this Option sixty (60) days' prior written notice of the
proposed effective date of such transaction, and if this Option has not been
exercised or converted by or on the effective date of such transaction, it
shall terminate.
3
<PAGE>
10. SUBDIVISION, COMBINATION, RECLASSIFICATION, CONVERSION, ETC. If the
Company at any time shall, by subdivision, combination, reclassification of
securities or otherwise, change the Option Stock into the same or a different
number of securities of any class or classes, this Option shall thereafter
entitle the holder to acquire such number and kind of securities as would
have been issuable in respect of the Option Stock (or other securities which
were subject to the purchase rights under this Option immediately prior to
such subdivision, combination, reclassification or other change) as the
result of such change if this Option had been exercised in full for cash
immediately prior to such change. The Exercise Price hereunder shall be
adjusted if and to the extent necessary to reflect such change. If the Option
Stock or other securities issuable upon exercise or conversion hereof are
subdivided or combined into a greater or smaller number of shares of such
security, the number of shares issuable hereunder shall be proportionately
increased or decreased, as the case may be, and the Exercise Price shall be
proportionately reduced or increased, as the case may be, in both cases
according to the ratio which the total number of shares of such security to
be outstanding immediately after such event bears to the total number of
shares of such security outstanding immediately prior to such event. The
Company shall give the holder prompt written notice of any change in the type
of securities issuable hereunder, any adjustment of the Exercise Price for
the securities issuable hereunder, and any increase or decrease in the number
of shares issuable hereunder.
11. TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT
(a) Prior to the Expiration Time and subject to compliance with
applicable laws, this Option and all rights hereunder are transferable by the
holder hereof, in whole or in part, at the office or agency of the Company
referred to in Section 1 hereof. Any such transfer shall be made in person or
by the holder's duty authorized attorney, upon surrender of this Option
together with the Assignment Form attached hereto properly endorsed.
(b) Each certificate representing the Securities or other securities
issued in respect of the Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
"These securities have not been registered under the securities act of
1933, as amended (the "act"), or any state securities laws. They may
not be sold, offered for sale, pledged, hypothecated or otherwise
transferred n the absence of a registration statement in effect with
respect to the securities under such act or, at the option of the
company, an opinion of counsel reasonably satisfactory to the company
that such registration is not required, or unless sold pursuant to an
exemption to such act."
12. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the holder hereof that:
(a) during the period this Option or the Option Stock issuable
hereunder is outstanding, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon conversion of the Option Stock issuable upon
exercise or conversion of this Option;
4
<PAGE>
(b) the issuance of this Option shall constitute full authority to
the Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the shares
of Option Stock issuable upon exercise or conversion of this Option;
(c) the Company has all requisite legal and corporate power to
execute and deliver this Option, to sell and issue the Option Stock
hereunder, to issue the Common Stock issuable upon conversion of the Option
Stock and to carry out and perform its obligations under the terms of this
Option; and
(d) all corporate action on the part of the Company, its directors
and shareholders necessary for the authorization, execution, delivery and
performance of this Option by the Company, the authorization, sale, issuance
and delivery of the Option Stock and the Common Stock issuable upon
conversion of the Option Stock, the grant of registration rights as provided
herein and the performance of the Company's obligations hereunder has been
taken;
(e) the Option Stock and the Common Stock issuable upon conversion
of the Option Stock, when issued in compliance with the provisions of this
Option and the Articles, will be validly issued, fully paid and
nonassessable, and free of all taxes, liens or encumbrances with respect to
the issue thereof, and will be issued in compliance with all applicable
federal and state securities laws; and
(f) the issuance of the Option Stock and the Common Stock issuable
upon conversion of the Option Stock will not be subject to any preemptive
rights, rights of first refusal or similar rights.
13. COOPERATION. The Company will not, by amendment of its Articles or
through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Option and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Option
against impairment.
14. GOVERNING LAW. This Option shall be governed by and construed in
accordance with the laws of the State of Montana.
5
<PAGE>
IN WITNESS WBEREOF, the Company has caused this Option to be executed by
its duly authorized officers.
Dated: February 10, 1999 JORE CORPORATION, a Montana corporation,
By: /s/ Matt Jore
------------------------------------
Matt Jore, President
ACCEPTED:
/s/ William M. Steele
- ------------------------------------
William M. Steele, Trustee of the
Steele Family Trust, a Revocable
Living Trust
6
<PAGE>
NOTICE OF EXERCISE
To: JORE CORPORATION
(1) The undersigned hereby elects to purchase shares of common stock
(or equivalent capital stock, however designated) of Jore Corporation
pursuant to the terms of the attached Option, and tenders herewith payment of
the purchase price in full, together with all applicable transfer taxes, if
any.
(2) Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
_____________________________
(Name)
_____________________________
(Address)
(3) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that
the undersigned has no present intention of distributing or reselling such
shares.
_____________________________ _____________________________
(Date) (Signature)
7
<PAGE>
NOTICE OF CONVERSION
To: JORE CORPORATION
(1) The undersigned hereby elects to convert the attached Option into
such number of shares of Jore Corporation as is determined pursuant to such
Option, which conversion shall be effected pursuant to the terms of the
attached Option.
(2) Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
_____________________________
(Name)
_____________________________
(Address)
(3) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that
the undersigned has no present intention of distributing or reselling such
shares.
_____________________________ _____________________________
(Date) (Signature)
8
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Option, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Option and all rights evidenced
thereby are hereby assigned to
________________________________________________________________________
(Please Print)
whose address is _______________________________________________________
(Please Print)
Dated: ________________________________________
Holder's Signature: ___________________________
Holder's Address: _____________________________
_______________________________________________
Guaranteed Signature: _______________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Option, without alteration or enlargement or
any change whatever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Option.
9
<PAGE>
THIS OPTION AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR, AT THE
OPTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT.
COMMON STOCK PURCHASE OPTION
JORE CORPORATION
THIS CERTIFIES that, for value received, Gary Houck, or registered
assigns, is entitled, upon the terms and subject to the conditions
hereinafter set forth, at any time on or after the date hereof and at or
prior to 11:59 p.m., Pacific time, on February 10, 2004 (the "Expiration
Time"), but not thereafter, to acquire from Jore Corporation, a Montana
corporation (the "Company"), 720 fully paid and nonassessable shares of
common stock, or its equivalent, however designated, of the Company ("Option
Stock"), the Exercise Price Per Share is $2,000.00 based on managements'
valuation of all issued and outstanding stock of the Company as of the Date
of Grant, subject to increase based on a pending valuation of the Company
currently being conducted by Brueggeman and Johnson, P.C. (The Board of
Directors of the Company approved the option grant at fair market value and
authorized an independent valuation to confirm its valuation at the Date of
Grant.) (the "Exercise Price") Such number of shares of Option Stock, type of
security and the price per share of capital stock represented by the Exercise
Price are subject to adjustment as provided herein, and all references to
"Option Stock" and "Exercise Price" herein shall be deemed to include any
such adjustment.
1. EXERCISE OF OPTION. The purchase rights represented by this Option are
exercisable by the registered holder hereof, at any time and from time to
time at or prior to the Expiration Time by the surrender of this Option and
the Notice of Exercise form attached hereto duly executed to the principal
corporate offices of the Company (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company),
and upon payment of the Exercise Price for the shares thereby purchased (by
cash or by check or bank draft payable to the order of the Company or by
cancellation of indebtedness of the Company to the holder hereof, if any, at
the time of exercise in an amount equal to the purchase price of the shares
thereby purchased); whereupon the holder of this Option shall be entitled to
receive from the Company a stock certificate in proper form representing the
number of shares of Option Stock so purchased.
2. RIGHT TO CONVERT OPTION. The registered holder hereof shall have the
right (but not the obligation) to require the Company to convert this Option,
in whole or in part, at any time and from time to time at or prior to the
Expiration Time, by the surrender of this Option and the Notice of Conversion
form attached hereto duly executed to the office of the Company at the
address set forth in Section 1 hereof (or such other office or agency of the
Company as it may designate by notice in writing to the registered holder
hereof at the address of such holder appearing on the books of the Company),
into shares of Option Stock as provided in this Section 2. Upon exercise of
this conversion right (and without payment by the holder of the Exercise
Price), the holder hereof shall be entitled to receive that number of
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shares of Option Stock of the Company equal to the quotient obtained by dividing
[(A - B)(X)] by (A), where:
A = the Fair Market Value (as defined below) of one share of
Option Stock on the date of conversion of this Option;
B = the Exercise Price for one share of Option Stock under this
Option; and
X = the number of shares of Option Stock being surrendered
pursuant to the executed Notice of Conversion.
If the above calculation results in a negative number, then no shares of
Option Stock shall be issued or issuable upon conversion of this Option.
"Fair Market Value" of a share of Option Stock shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 9 hereof, the value of the consideration
(determined, in the case of non-cash consideration, in good faith by the
Board of Directors of the Company) to be received pursuant to such
transaction by the holder of one share of Option Stock;
(b) if the conversion right is being exercised after the occurrence of
an initial public offering of common stock of the Company ("Common Stock"),
the average of the high and low trading prices of a share of Common Stock as
reported by the NASDAQ National Market (or equivalent recognized source of
quotations) for the three trading days prior to the surrender of this Option
for conversion in accordance with the terms hereof; or
(c) in all other cases, the fair value as determined in good faith by
the Board of Directors of the Company.
Upon conversion of this Option in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Option Stock determined in accordance with the foregoing.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP. Certificates for
shares purchased hereunder or issuable upon conversion hereof shall be
delivered to the holder hereof by the Company's transfer agent at the
Company's expense within a reasonable time after the date on which this
Option shall have been exercised or converted in accordance with the terms
hereof. Each certificate so delivered shall be in such denominations as may
be requested by the holder hereof and shall be registered in the name of such
holder or, subject to applicable laws, other name as shall be requested by
such holder. If, upon exercise or conversion of this Option, fewer than all
of the shares of Option Stock evidenced by this Option are purchased prior to
the Expiration Time, one or more new Options substantially in the form of,
and on the terms in, this Option will be issued for the remaining number of
shares of Option Stock not purchased upon exercise or conversion of this
Option. The Company hereby represents and warrants that all shares of Option
Stock which may be issued upon the exercise or conversion of this Option
will, upon such exercise or conversion, be duly and validly authorized and
issued, fully paid and nonassessable and free from all taxes, liens and
charges in respect of the issuance thereof (other than liens or charges
created by or imposed upon the holder of the Option Stock). The Company
agrees that the shares so issued shall be and be deemed to be issued to such
holder as the record owner of such shares as of the
2
<PAGE>
close of business on the date on which this Option shall have been
surrendered for exercise or conversion in accordance with the terms hereof.
No fractional shares or scrip representing fractional shares shall be issued
upon the exercise or conversion of this Option. With respect to any fraction
of a share called for upon the exercise or conversion of this Option, an
amount equal to such fraction multiplied by the then current price at which
each share may be purchased hereunder shall be paid in cash to the holder of
this Option.
4. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of
Option Stock upon the exercise or conversion of this Option shall be made
without charge to the holder hereof for any issue or transfer tax or other
incidental expense in respect of the issuance of such certificate, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued in the name of the holder of this Option or in such name or
names as may be directed by the holder of this Option; PROVIDED, HOWEVER,
that in the event certificates for shares of Option Stock are to be issued in
a name other than the name of the holder of this Option, this Option when
surrendered for exercise or conversion shall be accompanied by the Assignment
Form attached hereto duly executed by the holder hereof.
5. NO RIGHTS AS SHAREHOLDERS. This Option does not entitle the holder
hereof to any voting rights or other rights as a shareholder of the Company
prior to the exercise or conversion hereof.
6. EXCHANGE AND REGISTRY OF OPTION. This Option is exchangeable, upon the
surrender hereof by the registered holder at the above-mentioned office or
agency of the Company, for a new Option of like tenor and dated as of such
exchange. The Company shall maintain at the above-mentioned office or agency a
registry showing the name and address of the registered holder of this
Option. This Option may be surrendered for exchange, transfer, exercise or
conversion, in accordance with its terms, at such office or agency of the
Company, and the Company shall be entitled to rely in all respects, prior to
written notice to the contrary, upon such registry.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF OPTION. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Option, and in case of loss, theft or
destruction of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto,
and upon surrender and cancellation of this Option, if mutilated, the Company
will make and deliver a new Option of like tenor and dated as of such
cancellation, in lieu of this Option.
8. SATURDAYS, SUNDAYS AND HOLIDAYS. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall be a Saturday or a Sunday or shall be a legal holiday, then such
action may be taken or such right may be exercised on the next succeeding day
not a legal holiday.
9. MERGER, SALE OF ASSETS, ETC. If at any time the Company proposes to
merge or consolidate with or into any other corporation, effect any
reorganization, or sell or convey all or substantially all of its assets to
any other entity, in a transaction in which the shareholders of the Company
immediately before the transaction will own immediately after the transaction
less than a majority of the outstanding voting securities of the entity (or
its parent) succeeding to the business of the Company, then the Company shall
give the holder of this Option sixty (60) days' prior written notice of the
proposed effective date of such transaction, and if this Option has not been
exercised or converted by or on the effective date of such transaction, it
shall terminate.
3
<PAGE>
10. SUBDIVISION, COMBINATION, RECLASSIFICATION, CONVERSION, ETC. If the
Company at any time shall, by subdivision, combination, reclassification of
securities or otherwise, change the Option Stock into the same or a different
number of securities of any class or classes, this Option shall thereafter
entitle the holder to acquire such number and kind of securities as would
have been issuable in respect of the Option Stock (or other securities which
were subject to the purchase rights under this Option immediately prior to
such subdivision, combination, reclassification or other change) as the
result of such change if this Option had been exercised in full for cash
immediately prior to such change. The Exercise Price hereunder shall be
adjusted if and to the extent necessary to reflect such change. If the Option
Stock or other securities issuable upon exercise or conversion hereof are
subdivided or combined into a greater or smaller number of shares of such
security, the number of shares issuable hereunder shall be proportionately
increased or decreased, as the case may be, and the Exercise Price shall be
proportionately reduced or increased, as the case may be, in both cases
according to the ratio which the total number of shares of such security to
be outstanding immediately after such event bears to the total number of
shares of such security outstanding immediately prior to such event. The
Company shall give the holder prompt written notice of any change in the type
of securities issuable hereunder, any adjustment of the Exercise Price for
the securities issuable hereunder, and any increase or decrease in the number
of shares issuable hereunder.
11. TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT
(a) Prior to the Expiration Time and subject to compliance with
applicable laws, this Option and all rights hereunder are transferable by the
holder hereof, in whole or in part, at the office or agency of the Company
referred to in Section 1 hereof. Any such transfer shall be made in person or
by the holder's duly authorized attorney, upon surrender of this Option
together with the Assignment Form attached hereto properly endorsed.
(b) Each certificate representing the Securities or other securities
issued in respect of the Securities upon any stock split, stock dividend,
recapitalization, merger, consolidation or similar event, shall be stamped or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities laws):
"These securities have not been registered under the securities act of
1933, as amended (the "act"), or any state securities laws. They may
not be sold, offered for sale, pledged, hypothecated or otherwise
transferred n the absence of a registration statement in effect with
respect to the securities under such act or, at the option of the
company, an opinion of counsel reasonably satisfactory to the company
that such registration is not required, or unless sold pursuant to an
exemption to such act."
12. REPRESENTATIONS AND WARRANTIES
The Company hereby represents and warrants to the holder hereof that:
(a) during the period this Option or the Option Stock issuable
hereunder is outstanding, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of Common Stock upon conversion of the Option Stock issuable upon
exercise or conversion of this Option;
4
<PAGE>
(b) the issuance of this Option shall constitute full authority to
the Company's officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the shares
of Option Stock issuable upon exercise or conversion of this Option;
(c) the Company has all requisite legal and corporate power to
execute and deliver this Option, to sell and issue the Option Stock
hereunder, to issue the Common Stock issuable upon conversion of the Option
Stock and to carry out and perform its obligations under the terms of this
Option; and
(d) all corporate action on the part of the Company, its directors
and shareholders necessary for the authorization, execution, delivery and
performance of this Option by the Company, the authorization, sale, issuance
and delivery of the Option Stock and the Common Stock issuable upon
conversion of the Option Stock, the grant of registration rights as provided
herein and the performance of the Company's obligations hereunder has been
taken;
(e) the Option Stock and the Common Stock issuable upon conversion
of the Option Stock, when issued in compliance with the provisions of this
Option and the Articles, will be validly issued, fully paid and
nonassessable, and free of all taxes, liens or encumbrances with respect to
the issue thereof, and will be issued in compliance with all applicable
federal and state securities laws; and
(f) the issuance of the Option Stock and the Common Stock issuable
upon conversion of the Option Stock will not be subject to any preemptive
rights, rights of first refusal or similar rights.
13. COOPERATION. The Company will not, by amendment of its Articles or
through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Option and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of the Option
against impairment.
14. GOVERNING LAW. This Option shall be governed by and construed in
accordance with the laws of the State of Montana.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Option to be executed by
its duly authorized officers.
Dated: February 10, 1999 JORE CORPORATION, a Montana corporation,
By: /s/ Matt Jore
------------------------------------
Matt Jore, President
ACCEPTED:
/s/ Gary Houck
- ------------------------------------
Gary Houck
6
<PAGE>
NOTICE OF EXERCISE
To: JORE CORPORATION
(1) The undersigned hereby elects to purchase shares of common stock
(or equivalent capital stock, however designated) of Jore Corporation
pursuant to the terms of the attached Option, and tenders herewith payment of
the purchase price in full, together with all applicable transfer taxes, if
any.
(2) Please issue a certificate or certificates representing said shares
in the name of the undersigned or in such other name as is specified below:
----------------------------
(Name)
----------------------------
(Address)
(3) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that
the undersigned has no present intention of distributing or reselling such
shares.
- ---------------------------- ----------------------------
(Date) (Signature)
7
<PAGE>
NOTICE OF CONVERSION
To: JORE CORPORATION
(1) The undersigned hereby elects to convert the attached Option into such
number of shares of Jore Corporation as is determined pursuant to such Option,
which conversion shall be effected pursuant to the terms of the attached Option.
(2) Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
----------------------------
(Name)
----------------------------
(Address)
(3) The undersigned represents that the aforesaid shares are being
acquired for the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
- ---------------------------- ----------------------------
(Date) (Signature)
8
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Option, execute this form and supply required
information. Do not use this form to purchase shares.)
FOR VALUE RECEIVED, the foregoing Option and all rights evidenced
thereby are hereby assigned to
- ------------------------------------------------------------------------
(Please Print)
whose address is
-------------------------------------------------------
(Please Print)
Dated:
------------------------------------
Holder's Signature:
-----------------------
Holder's Address:
-------------------------
-------------------------------------------
Guaranteed Signature:
--------------------------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as
it appears on the face of the Option, without alteration or enlargement or
any change whatever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other
representative capacity should file proper evidence of authority to assign
the foregoing Option.
9
<PAGE>
LEASE AGREEMENT
THIS LEASE, made this first day of September 1, 1996, is between JORE
LAND,L.L.C, of 45000 Highway 93 South, Ronan, MT 59864 ("Landlord"), and JORE
CORPORATION, a Montana corporation, of P.O. Box 159, Ronan, MT 59864,
("Tenant"), collectively the ("Parties").
In consideration of the Parties' respective performance of the following
terms, conditions, and covenants during the term of this Lease and any
extension or renewal term, Landlord and Tenant agree as follows:
1. DESCRIPTION OF PREMISES.
Landlord shall lease to Tenant one Seven Thousand Two Hundred (7,200)
square feet building plus parking lot of the real property commonly known as
45010 HIGHWAY 93 SOUTH, RONAN, MT 59864, as outlined on Exhibit "A" attached
hereto. Said real property is more particularly described in Exhibit "B"
(attached), together with all manufacturing equipment, computers and software
installed therein which may be owned by Landlord. Tenant, its employees,
customers, and invitees, shall further have the right to use all common areas
and facilities, if any, appurtenant to said property, (collectively
"Premises") with Landlord and any other tenants and their employees,
customers, and invitees.
2. TERM.
The term of this Lease shall be five (5) years. The term shall commence
on September 1, 1996, and expire on August 31, 2001. Tenant shall have the
option to renew this lease for an additional term of five (5) years by
providing Landlord with written notice of its intent to so extend at lease
ninety (90) days prior to the expiration of the initial five (5) year term.
3. RENT.
Tenant shall pay Landlord monthly rent of Two Thousand Dollars
($2,000.00) during each month of the term. Rent is payable in advance at
Landlord's address or such other place as Landlord may designate in writing.
Rent is due the first day of each and every month throughout the term of this
Lease. However, if the Lease term commences on a day other than the first day
of a calendar month, the rental for such month shall be prorated upon a daily
basis based upon a thirty day calendar month.
Beginning January 1, 1998, the rent shall be increased each other lease
year to reflect inflation by application of the following Consumer Price
Index formula: On January 1, 1999, and every other succeeding January 1 for
the remainder of the term (the "Recalculation Date"), the annual rental for
the succeeding two calendar years shall be adjusted to an amount equal to the
annual rental for the preceding year of this Lease multiplied by a fraction,
the numerator of which is the Department of Labor's Bureau of Labor
Statistics Consumer Price Index (For All Urban Consumers - all Items -
1977=100) (Western Cities with a Population of over 1,250,000) for the
Recalculation Date and the denominator of which is the Price Index for the
January 1 two years prior. Such adjustment shall be made when the relevant
information is available, but the rental adjustment shall be retroactive to
the preceding January 1. If the Price Index shall be discontinued, there
shall be substituted the most comparable or substitute price index prepared
by the U.S. Government. In no event shall the annual rent so adjusted be less
than the annual rent for the lease year immediately preceding the
Recalculation Date. The annual rental so adjusted shall be paid in advance in
equal monthly installments in accordance with this Agreement.
PAGE 1
<PAGE>
4. USE AND OCCUPANCY.
Tenant shall use the premises a manufacturing plant or for any other lawful
purpose.
The Premises shall be open and accessible to Tenant twenty-four hours per
day, seven days per week, including holidays, Tenant shall comply with all
federal, state and municipal statues, ordinances, rules and regulations
applicable to Tenant's use of the premises. Except, Tenant shall not be
responsible for any capital improvements.
5. ALTERATIONS AND IMPROVEMENTS.
Except as permitted by this Lease, Tenant shall not alter, improve, or
change the premises without the written consent of Landlord which consent
shall not be unreasonably withheld. The locating and relocating of moveable
partitions, telephone, and electrical outlets, light fixtures, equipment, and
trade fixtures shall not be deemed alterations, improvements or changes to
the premises.
6. MAINTENANCE BY TENANT.
a. Tenant shall maintain and keep in repair and replace when necessary, the
plumbing, heating, air conditioning, ventilation and electrical fixtures,
equipment and systems and the foundation, lateral support, roof, walls,
structural parts and all exterior parts of the premises and of any building
in which the premises are located, and the floors and windows which are in
integral part of the premises. Tenant shall not be required to make any
repairs made necessary by the negligent acts of Landlord or its agents,
employees or invitees.
b. If Tenant is required to repair, alter, remove, reconstruct, or improve
any part of the premises covered by this lease, the same shall be made by
Tenant with reasonable dispatch and with minimum interference of Tenant's
business.
c. Landlord shall promptly notify Tenant of any defective condition which
Tenant is required to repair by the terms of this Lease. Within fifteen (15)
days of notice, Tenant shall start and continue the repairs with due
diligence until completed. If Tenant fails to do so, the repairs may be made
or completed by Landlord and the actual expenses shall be billed to Tenant by
Landlord. If emergency repairs are necessary for the preservation of the
premises or Landlord's property, Landlord may make such repairs and charge
their costs and expenses to Tenant. In the event of such emergency, Landlord
shall make reasonable efforts to notify Tenant before proceeding with repairs.
d. Tenant shall keep the interior of the premises in as good order and
condition as when delivered, excepting ordinary wear and tear, damage by
fire, elements, or casualty, or any damage not due to Tenant's negligence.
Tenant shall further be responsible for the repair and maintenance of all
doors and windows and for keeping the premises' sidewalks free of ice and
snow.
7. COMPLIANCE WITH CODES.
All repairs, alterations, additions or improvements made by Landlord or
Tenant shall comply with applicable building codes.
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8. TRADE FIXTURES AND SURRENDER OF PREMISES.
All trade fixtures, merchandise, supplies and equipment owned by Tenant
and installed in the premises shall remain the property of Tenant. At the end
of the term or renewal term, Tenant shall remove the same and peaceably
surrender the premises to Landlord in as good repair and condition as when
delivered to it, excepting ordinary wear and tear, damage by fire, elements,
or casualty, or any damage not due to the Tenant's negligence. Tenant shall
repair any damage to the premises caused by the removal of its property.
9. TENANT'S SIGNS.
a. Subject to applicable zoning ordinances and restrictive covenants,
Tenant may install its customary and usual display and pole-type signs on and
adjacent to the premises. All signs located on the premises shall be in good
taste so as not to detract from the general appearance of the premises. The
signs, advertisements, notices, logos, lettering, standard images, and
advertising practices of Marwyck and/or Martin Stationers, Inc. are hereby
acknowledged by Landlord to be acceptable signage meeting the requirements
hereof.
b. If Tenant erects signs for the exclusive use of Tenant, Tenant shall
repair and maintain the signs in good appearance at Tenant's expense.
10. UTILITY EQUIPMENT AND SERVICE.
a. Landlord shall furnish the premises with equipment and connections for
all utilities, including heat, air conditioning, electricity, gas, and water,
and shall replace the same at its own expense, if necessary, except as
provided in Section 6. The equipment and connections shall be of sufficient
capacity to provide for the conduct of Tenant's business and the comfortable
occupancy and use of the premises and shall be kept in good operating order
by Landlord during Tenant's business hours.
b. Tenant shall pay all charges for utility services including heat, air
condition, water, gas, electricity, and telephone used on the premises by
Tenant.
11. MECHANIC'S LIENS.
Any mechanic's lien filed against the premises for work or materials
furnished to either Landlord or Tenant shall be discharged by such respective
party responsible therefor prior to the commencement of any legal action to
perfect the mechanic's lien.
12. ACCESS BY LANDLORD.
a. Landlord, at reasonable times and frequency, shall have the right to
enter and examine the premises, to show them to prospective purchasers,
mortgagees, or lessees and to make such repairs, alterations, improvements
or additions required hereunder without the same constituting an eviction of
Tenant in whole or in part.
b. If Tenant does not exercise its option to renew this lease within the
required time, landlord may post a customary sign on the premises advertising
the property for lease or sale, but no sign shall be posted in any window or
doorway of the store portion of the premises.
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13. PAYMENT OF PROPERTY TAXES.
a. Tenant shall promptly pay when due all real property taxes and
special assessments lawfully levied against the premises.
b. Tenant shall respectively pay promptly all personal property taxes
lawfully levied against personal property of any kind owned by Tenant and
located on the premises.
14. PERSONAL INJURY AND PROPERTY DAMAGE INSURANCE.
Tenant shall indemnify and hold Landlord harmless from any and all
claims, liabilities, and expenses for damages to any person or property in,
on, or about the premises arising out of the acts or neglect of Tenant.
Tenant shall obtain public liability and property damage insurance in which
the limits of public liability shall be One Million Dollars ($1,000,000.00)
combined single limit coverage, Landlord shall be named as an insured party
under the policy to the extent of its interest. Tenant shall keep its
insurance in effect during the entire term of this lease and during any
renewal term.
15. PREMISES INSURANCE.
Tenant shall carry fire and extended coverage insurance on all of the
building and improvements on the premises in an amount equal to their
reasonable replacement value. This insurance coverage shall be adjusted every
two (2) years to reflect current replacement values. This insurance shall
insure against such hazards as are included in a standard extended coverage
endorsement. Tenant may also carry, at its option, additional special
extended coverage endorsements. Tenant's insurance coverage may include
Tenant's merchandise, trade fixtures, furnishings, equipment and all other
personal property of Tenant. However, Landlord shall be named as an insured
with respect to the buildings and improvements.
16. DAMAGE TO PREMISES.
a. If fire or other casualty damages, and renders untenable, the premises
or any portion of the premises, Landlord shall promptly restore the premises
to their previous condition. Landlord shall also abate that part of the rent
which is proportionate to the portion of the premises rendered untenable. If
the premises cannot be made tenable within one hundred twenty (120) days of
the damage, Tenant may terminate this lease by giving Landlord written notice
of termination not less than thirty (30) days from the date of damage. Rent
paid in advance of such termination by Tenant shall be refunded. If any
governmental authority determines that the premises should be demolished
because of the damage, this lease shall terminate at the option of the
Tenant. Any rent paid in advance of such termination by Tenant shall be
refunded.
b. Landlord and Tenant mutually release and discharge each other, their
respective employees, agents and representatives from any liability arising
from loss, damage, or injury caused by fire or other casualty for which
insurance is required to be carried hereunder by the injured party at the
time of such loss, damage or injury, to the extent of any recovery of the
injured party under such insurance, provided such insurance permits a waiver
of liability and subrogation rights.
17. EMINENT DOMAIN.
If the premises, in whole or in part, or more than twenty-five percent
(25%) of the premises' parking area is taken by or conveyed to any public
authority under the power of eminent domain or by private
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purchase in lieu thereof, Tenant may, at its option, terminate this Lease as
of the date possession of such premises shall be delivered to such condemnor
or purchaser. Any rent paid in advance, as of such delivery date, shall be
refunded to Tenant. If Tenant does not exercise its termination option,
Landlord shall immediately make all repairs and improvements necessary to
restore the premises to a complete architectural unit. Tenant shall have the
alternative right to continue in possession of any part of the premises not
taken under power of eminent domain, under the terms and conditions of this
lease. However, the rent reserved herein shall be reduced in direct
proportion to the part of the premises taken by eminent domain. Both the
Landlord and Tenant shall be entitled to proceeds arising from condemnation
or the threat thereof, in accordance with their respective interests in the
premises, and nothing contained herein shall be deemed or construed to
prevent Landlord or Tenant from enforcing and prosecuting a claim for the
value of their respective interests in a condemnation proceeding brought
against either under a power of eminent domain.
18. BANKRUPTCY.
In the event the premises or any rights therein shall be levied upon by
execution or other process of law by a creditor of either party, or if either
party shall be adjudged bankrupt or insolvent, or if any receiver shall be
appointed for the business and property of either party, or if any assignment
shall be made of either party's property for the benefit of creditors,
thereby diminishing any right or privilege granted by this Lease to the other
party, then the other party may terminate this Lease immediately upon written
notice to such party.
19. FORCE MAJEURE.
Neither party is required to perform any term, condition, or covenant of
this Lease during such time performance after the exercise of due diligence
to perform, is delayed or prevented by force majeure, including but not
limited to, acts of God, civil riots, organized labor disputes, or
governmental restrictions. Neither party is excused from performing any term,
condition, or covenant of this Lease because of any act or omission of such
party.
20. WARRANTIES AND REPRESENTATIONS BY LANDLORD.
In addition to any other warranties and representations by Landlord
contained herein, Landlord expressly warrants and represents to Tenant:
a. That the premises are properly zoned and improved to permit the Tenant
to use the premises for the purposes stated in this Lease; and
b. That Landlord has not covenanted or agreed with anyone to restrict the
use of the premises for Tenant's purposes and Landlord knows of no covenants,
agreements, or restrictions affecting the premises which would prohibit or
restrict such use by Tenant; and
c. That Landlord owns the premises and any building of which the premises
are a part and has the right to lease the premises to Tenant.
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<PAGE>
21. BROKERAGE COMMISSIONS.
Landlord shall defend, indemnify, and hold Tenant harmless against any and
all claims of or liability for any brokerage commissions or finder's fees
related in any way to Tenant's lease of the premises or any part thereof.
22. QUIET ENJOYMENT BY TENANT.
Landlord covenants that if Tenant performs all the terms, conditions, and
covenants of this Lease to be performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the premises for Tenant's purposes for the lease term
without hindrance or interruption.
23. SUBORDINATION TO LANDLORD'S MORTGAGE AND ATTORNMENT.
a. Tenant, at Landlord's request, shall subordinate Tenant's interest
hereunder in writing to any lien or mortgage now or hereafter placed on the
premises and to all advances made or hereafter to be made upon the security
thereof, provided that such lienee or mortgagee shall agree in wring that
Tenant's rights hereunder shall not be diminished in any way because of such
lien or mortgage.
b. If the premises are sold by foreclosure or power of sale under any lien
or mortgage of Landlord, Tenant, at the option and request of the purchaser,
shall attorn to the purchaser and recognize such purchaser as the Landlord
under this Lease provided that Tenant's rights hereunder shall be
acknowledged and agreed to in writing by such purchaser.
24. ASSIGNMENT AND SUBLEASING BY TENANT.
Tenant may not assign this Lease nor sublet the premises, in whole or in
part, without the prior written consent of the Landlord. Landlord's consent
shall not be unreasonably withheld.
25. DEFAULT OF TENANT.
If Tenant fails to pay any rent or other charge due under this lease
within fifteen (15) days of written notice of default being received by
Tenant, or if Tenant fails to perform any other term, condition, or covenant
of this Lease for more than thirty (30) days after written notice of such
failure is received by Tenant, unless the cure of such failure requires more
than thirty (30) days and Tenant is diligently pursuing such cure, Landlord
has the right to pursue any right or remedy to which Landlord is entitled,
under the laws of the State of Montana.
26. NON-WAIVER OF DEFAULT.
Waiver of any breach of the terms, conditions, or covenants of this
Lease or the non-performance of the same for any particular time shall not be
construed as a waiver of any succeeding breach of the same or another term,
condition, or covenant hereof, and the consent, approval, or acquiescence by
Landlord or Tenant to any breach shall not waive or render unnecessary such
consent or approval of any subsequent similar breach.
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<PAGE>
27. HOLDING OVER.
If Tenant fails to renew this lease at the end of its term, and holds
over after termination of this Lease, the tenancy shall be from
month-to-month, subject to all terms, conditions, and covenants of this Lease.
28. RECORDING OF LEASE.
Tenant shall not record this lease without written consent of Landlord.
Upon the request of either party hereto, the other party shall join in the
execution of a memorandum or so called "short form" of this lease for the
purposes of recordation in such form as required for recordation.
29. ENTIRE AGREEMENT.
This Lease shall constitute the entire agreement of the parties. Any
prior agreement between the parties relating to the premises, whether written
or oral, is merged herein and shall be of no separate force and effect and
this Lease shall only be changed, modified, or discharged by agreement in
writing signed by both parties hereto.
30. EXERCISE OF RIGHTS AND NOTICE.
The exercise of any right or privilege by a party hereunder shall be made
effective by the personal delivery or by the mailing of a written notice of
such exercise to the other party unless a specific provision of this Lease
provides otherwise. The mailing of any notice required or permitted under
this Lease shall be made by registered or certified United States mail,
postage prepaid, addressed to the other party at its address set forth below
or such other address of which notice has been given in writing.
Landlord: Jore Land, L.L.C.
45000 Highway 93 South
Ronan, MT 59864
Tenant: Jore Corporation
P.O. Box 159
Ronan, MT 59864
31. APPLICABLE LAW.
This lease shall be governed by and construed in accordance with the laws
of the State of Montana. If any provision of this Lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby and
each provision of the lease shall be valid and enforceable to the fullest
extent permitted by law.
32. BENEFIT OF AGREEMENT.
The terms, conditions and covenants contained in this Lease shall inure
to the benefit of and be binding upon the parties hereto, their respective
heirs, administrators, executors, representatives successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this
Lease as the day and year first above written.
LANDLORD: TENANT:
JORE LAND, L.L.C. JORE CORPORATION:
By: /s/ Matt Jore By: /s/ Matt Jore
----------------------------- -----------------------------
Matt Jore, Its Sole Member President
PAGE 8
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EXHIBIT "A"
DESCRIPTION OF PROPERTY
The premises consist of one building, consisting of approximately 7,200
square feet, a 20-foot boundary surrounding the building, all located at
45010 Highway 93 South, Ronan, MT 59864.
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EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
The premises consist of one building, consisting of approximately 7,200
square feet, a 20-foot boundary surrounding the building, all located within
the following legal description for ten acres of land:
Tract B- 1
A tract of land located in the SE 1/4 of the SW 1/4 of Section 12, T. 20
N., R. 20 W., P.M.M., Lake County, Montana and described as follows:
Commencing at the South 1/4 corner of Section 12; thence on the South
boundary of said Section S. 89 DEG. 43'06" W., 657.01' to the point of
beginning; thence continuing on said South boundary S.89 DEG. 43'06" W.,
660.00'; thence N.00 DEG. 05'03" E., 660.00'; thence N.89 DEG. 43'06" E.,
660.00 feet; thence S.00 DEG. 05'03" E. 660.00 feet back to the point of
beginning.
Tract B- 1 on Certificate of Survey 5197 M.E.
Common areas including the parking lot adjacent and to the west, and the
roadway to the south of said premises.
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LEASE AGREEMENT
THIS LEASE, made this first day of January, 1997, is between JORE LAND,
L.L.C, of 45000 Highway 93 South, Ronan, MT 59864 ("Landlord"), and JORE
CORPORATION, a Montana corporation, of P.O. Box 159, Ronan, MT 59864,
("Tenant"), collectively the ("Parties").
In consideration of the Parties' respective performance of the following
terms, conditions, and covenants during the term of this Lease and any
extension or renewal term, Landlord and Tenant agree as follows:
1. DESCRIPTION OF PREMISES.
Landlord shall lease to Tenant one Seven Thousand Two Hundred (7,200)
square feet building plus parking lot of the real property commonly known as
45010 HIGHWAY 93 SOUTH, RONAN, MT 59864, as outlined on Exhibit "A" attached
hereto. Said real property is more particularly described in Exhibit "B"
(attached), together with all manufacturing equipment, computers and software
installed therein which may be owned by Landlord. Tenant, its employees,
customers, and invitees, shall further have the right to use all common areas
and facilities, if any, appurtenant to said property, (collectively
"Premises") with Landlord and any other tenants and their employees,
customers, and invitees.
2. TERM.
The term of this Lease shall be five (5) years. The term shall commence on
January 1, 1997, and expire on December 31, 2002. Tenant shall have the
option to renew this lease for an additional term of five (5) years by
providing Landlord with written notice of its intent to so extend at lease
ninety (90) days prior to the expiration of the initial five (5) year term.
3. RENT.
Tenant shall pay Landlord monthly rent of Two Thousand Dollars ($2,000.00)
during each month of the term. Rent is payable in advance at Landlord's
address or such other place as Landlord may designate in writing. Rent is due
the first day of each and every month throughout the term of this Lease.
However, if the Lease term commences on a day other than the first day of a
calendar month, the rental for such month shall be prorated upon a daily
basis based upon a thirty day calendar month.
Beginning January 1, 1998, the rent shall be increased each other lease
year to reflect inflation by application of the following Consumer Price
Index formula: On January 1, 1999, and every other succeeding January 1 for
the remainder of the term (the "Recalculation Date"), the annual rental for
the succeeding two calendar years shall be adjusted to an amount equal to the
annual rental for the preceding year of this Lease multiplied by a fraction,
the numerator of which is the Department of Labor's Bureau of Labor
Statistics Consumer Price Index (For All Urban Consumers - all Items -
1977=100) (Western Cities with a Population of over 1,250,000) for the
Recalculation Date and the denominator of which is the Price Index for the
January 1 two years prior. Such adjustment shall be made when the relevant
information is available, but the rental adjustment shall be retroactive to
the preceding January 1. If the Price Index shall be discontinued, there
shall be substituted the most comparable or substitute price index prepared
by the U.S. Government. In no event shall the annual rent so adjusted be less
than the annual rent for the lease year immediately preceding the
Recalculation Date. The annual rental so adjusted shall be paid in advance in
equal monthly installments in accordance with this Agreement.
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4. USE AND OCCUPANCY.
Tenant shall use the premises a manufacturing plant or for any other
lawful purpose.
The Premises shall be open and accessible to Tenant twenty-four hours per
day, seven days per week, including holidays, Tenant shall comply with all
federal, state and municipal statutes, ordinances, rules and regulations
applicable to Tenant's use of the premises. Except, Tenant shall not be
responsible for any capital improvements.
5. ALTERATIONS AND IMPROVEMENTS.
Except as permitted by this Lease, Tenant shall not alter, improve, or
change the premises without the written consent of Landlord which consent
shall not be unreasonably withheld. The locating and relocating of moveable
partitions, telephone, and electrical outlets, light fixtures, equipment, and
trade fixtures shall not be deemed alterations, improvements or changes to
the premises.
6. MAINTENANCE BY TENANT.
a. Tenant shall maintain and keep in repair and replace when necessary,
the plumbing, heating, air conditioning, ventilation and electrical fixtures,
equipment and systems and the foundation, lateral support, roof, walls,
structural parts and all exterior parts of the premises and of any building
in which the premises are located, and the floors and windows which are in
integral part of the premises. Tenant shall not be required to make any
repairs made necessary by the negligent acts of Landlord or its agents,
employees or invitees.
b. If Tenant is required to repair, alter, remove, reconstruct, or improve
any part of the premises covered by this lease, the same shall be made by
Tenant with reasonable dispatch and with minimum interference of Tenant's
business.
c. Landlord shall promptly notify Tenant of any defective condition which
Tenant is required to repair by the terms of this Lease. Within fifteen (15)
days of notice, Tenant shall start and continue the repairs with due
diligence until completed. If Tenant fails to do so, the repairs may be made
or completed by Landlord and the actual expenses shall be billed to Tenant by
Landlord. If emergency repairs are necessary for the preservation of the
premises or Landlord's property, Landlord may make such repairs and charge
their costs and expenses to Tenant. In the event of such emergency, Landlord
shall make reasonable efforts to notify Tenant before proceeding with repairs.
d. Tenant shall keep the interior of the premises in as good order and
condition as when delivered, excepting ordinary wear and tear, damage by
fire, elements, or casualty, or any damage not due to Tenant's negligence.
Tenant shall further be responsible for the repair and maintenance of all
doors and windows and for keeping the premises' sidewalks free of ice and
snow.
7. COMPLIANCE WITH CODES.
All repairs, alterations, additions or improvements made by Landlord or
Tenant shall comply with applicable building codes.
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<PAGE>
8. TRADE FIXTURES AND SURRENDER OF PREMISES.
All trade fixtures, merchandise, supplies and equipment owned by Tenant
and installed in the premises shall remain the property of Tenant. At the end
of the term or renewal term, Tenant shall remove the same and peaceably
surrender the premises to Landlord in as good repair and condition as when
delivered to it, excepting ordinary wear and tear, damage by fire, elements,
or casualty, or any damage not due to the Tenant's negligence. Tenant shall
repair any damage to the premises caused by the removal of its property.
9. TENANT'S SIGNS.
a. Subject to applicable zoning ordinances and restrictive covenants,
Tenant may install its customary and usual display and pole-type signs on and
adjacent to the premises. All signs located on the premises shall be in good
taste so as not to detract from the general appearance of the premises. The
signs, advertisements, notices, logos, lettering, standard images, and
advertising practices of Marwyck and/or Martin Stationers, Inc. are hereby
acknowledged by Landlord to be acceptable signage meeting the requirements
hereof.
b. If Tenant erects signs for the exclusive use of Tenant, Tenant shall
repair and maintain the signs in good appearance at Tenant's expense.
10. UTILITY EQUIPMENT AND SERVICE.
a. Landlord shall furnish the premises with equipment and connections for
all utilities, including heat, air conditioning, electricity, gas, and water,
and shall replace the same at its own expense, if necessary, except as
provided in Section 6. The equipment and connections shall be of sufficient
capacity to provide for the conduct of Tenant's business and the comfortable
occupancy and use of the premises and shall be kept in good operating order
by Landlord during Tenant's business hours.
b. Tenant shall pay all charges for utility services including heat, air
condition, water, gas, electricity, and telephone used on the premises by
Tenant.
11. MECHANIC'S LIENS.
Any mechanic's lien filed against the premises for work or materials
furnished to either Landlord or Tenant shall be discharged by such respective
party responsible therefor prior to the commencement of any legal action to
perfect the mechanic's lien.
12. ACCESS BY LANDLORD.
a. Landlord, at reasonable times and frequency, shall have the right to
enter and examine the premises, to show them to prospective purchasers,
mortgagees, or lessees and to make such repairs, alterations, improvements or
additions required hereunder without the same constituting an eviction of
Tenant in whole or in part.
b. If Tenant does not exercise its option to renew this lease within the
required time, landlord may post a customary sign on the premises advertising
the property for lease or sale, but no sign shall be posted in any window or
doorway of the store portion of the premises.
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<PAGE>
13. PAYMENT OF PROPERTY TAXES.
a. Tenant shall promptly pay when due all real property taxes and special
assessments lawfully levied against the premises.
b. Tenant shall respectively pay promptly all personal property taxes
lawfully levied against personal property of any kind owned by Tenant and
located on the premises.
14. PERSONAL INJURY AND PROPERTY DAMAGE INSURANCE.
Tenant shall indemnify and hold Landlord harmless from any and all claims,
liabilities, and expenses for damages to any person or property in, on, or
about the premises arising out of the acts or neglect of Tenant. Tenant shall
obtain public liability and property damage insurance in which the limits of
public liability shall be One Million Dollars ($1,000,000.00) combined single
limit coverage, Landlord shall be named as an insured party under the policy
to the extent of its interest. Tenant shall keep its insurance in effect
during the entire term of this lease and during any renewal term.
15. PREMISES INSURANCE.
Tenant shall carry fire and extended coverage insurance on all of the
building and improvements on the premises in an amount equal to their
reasonable replacement value. This insurance coverage shall be adjusted every
two (2) years to reflect current replacement values. This insurance shall
insure against such hazards as are included in a standard extended coverage
endorsement. Tenant may also carry, at its option, additional special
extended coverage endorsements. Tenant's insurance coverage may include
Tenant's merchandise, trade fixtures, furnishings, equipment and all other
personal property of Tenant. However, Landlord shall be named as an insured
with respect to the buildings and improvements.
16. DAMAGE TO PREMISES.
a. If fire or other casualty damages, and renders untenable, the premises
or any portion of the premises, Landlord shall promptly restore the premises
to their previous condition. Landlord shall also abate that part of the rent
which is proportionate to the portion of the premises rendered untenable. If
the premises cannot be made tenable within one hundred twenty (120) days of
the damage, Tenant may terminate this lease by giving Landlord written notice
of termination not less than thirty (30) days from the date of damage. Rent
paid in advance of such termination by Tenant shall be refunded. If any
governmental authority determines that the premises should be demolished
because of the damage, this lease shall terminate at the option of the
Tenant. Any rent paid in advance of such termination by Tenant shall be
refunded.
b. Landlord and Tenant mutually release and discharge each other, their
respective employees, agents and representatives from any liability arising
from loss, damage, or injury caused by fire or other casualty for which
insurance is required to be carried hereunder by the injured party at the
time of such loss, damage or injury, to the extent of any recovery of the
injured party under such insurance, provided such insurance permits a waiver
of liability and subrogation rights.
17. EMINENT DOMAIN.
If the premises, in whole or in part, or more than twenty-five percent
(25%) of the premises' parking area is taken by or conveyed to any public
authority under the power of eminent domain or by private
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<PAGE>
purchase in lieu thereof, Tenant may, at its option, terminate this Lease as
of the date possession of such premises shall be delivered to such condemnor
or purchaser. Any rent paid in advance, as of such delivery date, shall be
refunded to Tenant. If Tenant does not exercise its termination option,
Landlord shall immediately make all repairs and improvements necessary to
restore the premises to a complete architectural unit. Tenant shall have the
alternative right to continue in possession of any part of the premises not
taken under power of eminent domain, under the terms and conditions of this
lease. However, the rent reserved herein shall be reduced in direct
proportion to the part of the premises taken by eminent domain. Both the
Landlord and Tenant shall be entitled to proceeds arising from condemnation
or the threat thereof, in accordance with their respective interests in the
premises, and nothing contained herein shall be deemed or construed to
prevent Landlord or Tenant from enforcing and prosecuting a claim for the
value of their respective interests in a condemnation proceeding brought
against either under a power of eminent domain.
18. BANKRUPTCY.
In the event the premises or any rights therein shall be levied upon by
execution or other process of law by a creditor of either party, or if either
party shall be adjudged bankrupt or insolvent, or if any receiver shall be
appointed for the business and property of either party, or if any assignment
shall be made of either party's property for the benefit of creditors,
thereby diminishing any right or privilege granted by this Lease to the other
party, then the other party may terminate this Lease immediately upon written
notice to such party.
19. FORCE MAJEURE.
Neither party is required to perform any term, condition, or covenant of
this Lease during such time performance after the exercise of due diligence
to perform, is delayed or prevented by force majeure, including but not
limited to, acts of God, civil riots, organized labor disputes, or
governmental restrictions. Neither party is excused from performing any term,
condition, or covenant of this Lease because of any act or omission of such
party.
20. WARRANTIES AND REPRESENTATIONS BY LANDLORD.
In addition to any other warranties and representations by Landlord
contained herein, Landlord expressly warrants and represents to Tenant:
a. That the premises are properly zoned and improved to permit the Tenant
to use the premises for the purposes stated in this Lease; and
b. That Landlord has not covenanted or agreed with anyone to restrict the
use of the premises for Tenant's purposes and Landlord knows of no covenants,
agreements, or restrictions affecting the premises which would prohibit or
restrict such use by Tenant; and
c. That Landlord owns the premises and any building of which the premises
are a part and has the right to lease the premises to Tenant.
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<PAGE>
21. BROKERAGE COMMISSIONS.
Landlord shall defend, indemnify, and hold Tenant harmless against any and
all claims of or liability for any brokerage commissions or finder's fees
related in any way to Tenant's lease of the premises or any part thereof.
22. QUIET ENJOYMENT BY TENANT.
Landlord covenants that if Tenant performs all the terms, conditions, and
covenants of this Lease to be performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the premises for Tenant's purposes for the lease term
without hindrance or interruption.
23. SUBORDINATION TO LANDLORD'S MORTGAGE AND ATTORNMENT.
a. Tenant, at Landlord's request, shall subordinate Tenant's interest
hereunder in writing to any lien or mortgage now or hereafter placed on the
premises and to all advances made or hereafter to be made upon the security
thereof, provided that such lienee or mortgagee shall agree in wring that
Tenant's rights hereunder shall not be diminished in any way because of such
lien or mortgage.
b. If the premises are sold by foreclosure or power of sale under any lien
or mortgage of Landlord, Tenant, at the option and request of the purchaser,
shall attorn to the purchaser and recognize such purchaser as the Landlord
under this Lease provided that Tenant's rights hereunder shall be
acknowledged and agreed to in writing by such purchaser.
24. ASSIGNMENT AND SUBLEASING BY TENANT.
Tenant may not assign this Lease nor sublet the premises, in whole or in
part, without the prior written consent of the Landlord. Landlord's consent
shall not be unreasonably withheld.
25. DEFAULT OF TENANT.
If Tenant fails to pay any rent or other charge due under this lease
within fifteen (15) days of written notice of default being received by
Tenant, or if Tenant fails to perform any other term, condition, or covenant
of this Lease for more than thirty (30) days after written notice of such
failure is received by Tenant, unless the cure of such failure requires more
than thirty (30) days and Tenant is diligently pursuing such cure, Landlord
has the right to pursue any right or remedy to which Landlord is entitled,
under the laws of the State of Montana.
26. NON-WAIVER OF DEFAULT.
Waiver of any breach of the terms, conditions, or covenants of this Lease
or the non-performance of the same for any particular time shall not be
construed as a waiver of any succeeding breach of the same or another term,
condition, or covenant hereof, and the consent, approval, or acquiescence by
Landlord or Tenant to any breach shall not waive or render unnecessary such
consent or approval of any subsequent similar breach.
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<PAGE>
27. HOLDING OVER.
If Tenant fails to renew this lease at the end of its term, and holds over
after termination of this Lease, the tenancy shall be from month-to-month,
subject to all terms, conditions, and covenants of this Lease.
28. RECORDING OF LEASE.
Tenant shall not record this lease without written consent of Landlord.
Upon the request of either party hereto, the other party shall join in the
execution of a memorandum or so called "short form" of this lease for the
purposes of recordation in such form as required for recordation.
29. ENTIRE AGREEMENT.
This Lease shall constitute the entire agreement of the parties. Any prior
agreement between the parties relating to the premises, whether written or
oral, is merged herein and shall be of no separate force and effect and this
Lease shall only be changed, modified, or discharged by agreement in writing
signed by both parties hereto.
30. EXERCISE OF RIGHTS AND NOTICE.
The exercise of any right or privilege by a party hereunder shall be made
effective by the personal delivery or by the mailing of a written notice of
such exercise to the other party unless a specific provision of this Lease
provides otherwise. The mailing of any notice required or permitted under
this Lease shall be made by registered or certified United States mail,
postage prepaid, addressed to the other party at its address set forth below
or such other address of which notice has been given in writing.
Landlord: Jore Land, L.L.C.
45000 Highway 93 South
Ronan, MT 59864
Tenant: Jore Corporation
P.O. Box 159
Ronan, MT 59864
31. APPLICABLE LAW.
This lease shall be governed by and construed in accordance with the laws
of the State of Montana. If any provision of this Lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby and
each provision of the lease shall be valid and enforceable to the fullest
extent permitted by law.
32. BENEFIT OF AGREEMENT.
The terms, conditions and covenants contained in this Lease shall inure to
the benefit of and be binding upon the parties hereto, their respective
heirs, administrators, executors, representatives successors and assigns.
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<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease
as the day and year first above written.
LANDLORD: TENANT:
JORE LAND, L.L.C. JORE CORPORATION:
By: /s/ Matt Jore By: /s/ Matt Jore
------------------------------ ------------------------------
Matt Jore, Its Sole Member President
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<PAGE>
EXHIBIT "A"
DESCRIPTION OF PROPERTY
The premises consist of one building, consisting of approximately 7,200
square feet, a 20-foot boundary surrounding the building, all located at
45010 Highway 93 South, Ronan, MT 59864.
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<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
The premises consist of one building, consisting of approximately 7,200
square feet, a 20-foot boundary surrounding the building, all located within
the following legal description for ten acres of land:
Tract B-1
A tract of land located in the SE 1/4 of the SW 1/4 of Section 12, T.
20 N., R. 20.W., P.M.M., Lake County, Montana and described as
follows:
Commencing at the South 1/4 corner of Section 12; thence on the
South boundary of said Section S. 89 DEG. 43'06" W., 657.01' to the
point of beginning; thence continuing on said South boundary S.89
DEG. 43'06" W., 660.00'; thence N.00 DEG. 05'03" E., 660.00';
thence N.89 DEG 43'06" E., 660.00 feet; thence S.00 DEG. 05'03" E.
660.00 feet back to the point of beginning.
Tract B-1 on Certificate of Survey 5197 M.E.
Common areas including the parking lot adjacent and to the west, and the roadway
to the south of said premises.
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LEASE PAGE 10
<PAGE>
LEASE AGREEMENT
THIS LEASE, made this first day of September, 1997, is between JORE LAND,
L.L.C., of 45000 Highway 93 South, Ronan, MT 59864 ("Landlord"), and JORE
CORPORATION, a Montana corporation, of 45000 Highway 93 South Ronan, MT 59864,
("Tenant"), collectively the ("Parties").
In consideration of the Parties' respective performance of the following
terms, conditions, and covenants during the term of this Lease and any extension
or renewal term, Landlord and Tenant agree as follows:
1. DESCRIPTION OF PREMISES.
Landlord shall lease to Tenant one Seven Thousand Two Hundred (7,200)
square feet building plus parking lot of the real property commonly known as
45020 HIGHWAY 93 SOUTH, RONAN, MT 59864, as outlined on Exhibit "A" attached
hereto. Said real property is more particularly described in Exhibit "B"
(attached), together with all manufacturing equipment, computers and software
installed therein which may be owned by Landlord. Tenant, its employees,
customers, and invitees, shall further have the right to use all common areas
and facilities, if any, appurtenant to said property, (collectively
"Premises") with Landlord and any other tenants and their employees,
customers, and invitees.
2. TERM.
The term of this Lease shall be five (5) years. The term shall commence on
September 1, 1997, and expire on August 31, 2003. Tenant shall have the
option to renew this lease for an additional term of five (5) years by
providing Landlord with written notice of its intent to so extend at lease
ninety (90) days prior to the expiration of the initial five (5) year term.
3. RENT.
Tenant shall pay Landlord monthly rent of Two Thousand Dollars ($2,000.00)
during each month of the term. Rent is payable in advance at Landlord's
address or such other place as Landlord may designate in writing. Rent is due
the first day of each and every month throughout the term of this Lease.
However, if the Lease term commences on a day other than the first day of a
calendar month, the rental for such month shall be prorated upon a daily
basis based upon a thirty day calendar month.
Beginning January 1, 1998, the rent shall be increased each other lease
year to reflect inflation by application of the following Consumer Price
Index formula: On January 1, 1999, and every other succeeding January 1 for
the remainder of the term (the "Recalculation Date"), the annual rental for
the succeeding two calendar years shall be adjusted to an amount equal to the
annual rental for the preceding year of this Lease multiplied by a fraction,
the numerator of which is the Department of Labor's Bureau of Labor
Statistics Consumer Price Index (For All Urban Consumers - all Items -
1977=100) (Western Cities with a Population of over 1,250,000) for the
Recalculation Date and the denominator of which is the Price Index for the
January 1 two years prior. Such adjustment shall be made when the relevant
information is available, but the rental adjustment shall be retroactive to
the preceding January 1. If the Price Index shall be discontinued, there
shall be substituted the most comparable or substitute price index prepared
by the U.S. Government. In no event shall the annual rent so adjusted be
less than the annual rent for the lease year immediately preceding the
Recalculation Date. The annual rental so adjusted shall be paid in advance in
equal monthly installments in accordance with this Agreement.
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<PAGE>
4. USE AND OCCUPANCY.
Tenant shall use the premises a manufacturing plant or for any other lawful
purpose.
The Premises shall be open and accessible to Tenant twenty-four hours per
day, seven days per week, including holidays, Tenant shall comply with all
federal, state and municipal statues, ordinances, rules and regulations
applicable to Tenant's use of the premises. Except, Tenant shall not be
responsible for any capital improvements.
5. ALTERATIONS AND IMPROVEMENTS.
Except as permitted by this Lease, Tenant shall not alter, improve, or
change the premises without the written consent of Landlord which consent
shall not be unreasonably withheld. The locating and relocating of moveable
partitions, telephone, and electrical outlets, light fixtures, equipment, and
trade fixtures shall not be deemed alterations, improvements or changes to
the premises.
6. MAINTENANCE BY TENANT.
a. Tenant shall maintain and keep in repair and replace when necessary,
the plumbing, heating, air conditioning, ventilation and electrical fixtures,
equipment and systems and the foundation, lateral support, roof, walls,
structural parts and all exterior parts of the premises and of any building
in which the premises are located, and the floors and windows which are in
integral part of the premises. Tenant shall not be required to make any
repairs made necessary by the negligent acts of Landlord or its agents,
employees or invitees.
b. If Tenant is required to repair, alter, remove, reconstruct, or improve
any part of the premises covered by this lease, the same shall be made by
Tenant with reasonable dispatch and with minimum interference of Tenant's
business.
c. Landlord shall promptly notify Tenant of any defective condition which
Tenant is required to repair by the terms of this Lease. Within fifteen (15)
days of notice, Tenant shall start and continue the repairs with due
diligence until completed. If Tenant fails to do so, the repairs may be made
or completed by Landlord and the actual expenses shall be billed to Tenant by
Landlord. If emergency repairs are necessary for the preservation of the
premises or Landlord's property, Landlord may make such repairs and charge
their costs and expenses to Tenant. In the event of such emergency, Landlord
shall make reasonable efforts to notify Tenant before proceeding with repairs.
d. Tenant shall keep the interior of the premises in as good order and
condition as when delivered, excepting ordinary wear and tear, damage by
fire, elements, or casualty, or any damage not due to Tenant's negligence.
Tenant shall further be responsible for the repair and maintenance of all
doors and windows and for keeping the premises' sidewalks free of ice and
snow.
7. COMPLIANCE WITH CODES.
All repairs, alterations, additions or improvements made by Landlord or
Tenant shall comply with applicable building codes.
PAGE 2
<PAGE>
8. TRADE FIXTURES AND SURRENDER OF PREMISES.
All trade fixtures, merchandise, supplies and equipment owned by Tenant
and installed in the premises shall remain the property of Tenant. At the end
of the term or renewal term, Tenant shall remove the same and peaceably
surrender the premises to Landlord in as good repair and condition as when
delivered to it, excepting ordinary wear and tear, damage by fire, elements,
or casualty, or any damage not due to the Tenant's negligence. Tenant shall
repair any damage to the premises caused by the removal of its property.
9. TENANT'S SIGNS.
a. Subject to applicable zoning ordinances and restrictive covenants,
Tenant may install its customary and usual display and pole-type signs on and
adjacent to the premises. All signs located on the premises shall be in good
taste so as not to detract from the general appearance of the premises. The
signs, advertisements, notices, logos, lettering, standard images, and
advertising practices of Marwyck and/or Martin Stationers, Inc. are hereby
acknowledged by Landlord to be acceptable signage meeting the requirements
hereof.
b. If Tenant erects signs for the exclusive use of Tenant, Tenant shall
repair and maintain the signs in good appearance at Tenant's expense.
10. UTILITY EQUIPMENT AND SERVICE.
a. Landlord shall furnish the premises with equipment and connections for
all utilities, including heat, air conditioning, electricity, gas, and water,
and shall replace the same at its own expense, if necessary, except as
provided in Section 6. The equipment and connections shall be of sufficient
capacity to provide for the conduct of Tenant's business and the comfortable
occupancy and use of the premises and shall be kept in good operating order
by Landlord during Tenant's business hours.
b. Tenant shall pay all charges for utility services including heat, air
condition, water, gas, electricity, and telephone used on the premises by
Tenant.
11. MECHANIC'S LIENS.
Any mechanic's lien filed against the premises for work or materials
furnished to either Landlord or Tenant shall be discharged by such respective
party responsible therefor prior to the commencement of any legal action to
perfect the mechanic's lien.
12. ACCESS BY LANDLORD.
a. Landlord, at reasonable times and frequency, shall have the right to
enter and examine the premises, to show them to prospective purchasers,
mortgagees, or lessees and to make such repairs, alterations, improvements or
additions required hereunder without the same constituting an eviction of
Tenant in whole or in part.
b. If Tenant does not exercise its option to renew this lease within the
required time, landlord may post a customary sign on the premises advertising
the property for lease or sale, but no sign shall be posted in any window or
doorway of the store portion of the premises.
PAGE 3
<PAGE>
13. PAYMENT OF PROPERTY TAXES.
a. Tenant shall promptly pay when due all real property taxes and special
assessments lawfully levied against the premises.
b. Tenant shall respectively pay promptly all personal property taxes
lawfully levied against personal property of any kind owned by Tenant and
located on the premises.
14. PERSONAL INJURY AND PROPERTY DAMAGE INSURANCE.
Tenant shall indemnify and hold Landlord harmless from any and all claims,
liabilities, and expenses for damages to any person or property in, on, or
about the premises arising out of the acts or neglect of Tenant. Tenant shall
obtain public liability and property damage insurance in which the limits of
public liability shall be One Million Dollars ($1,000,000.00) combined single
limit coverage, Landlord shall be named as an insured party under the policy
to the extent of its interest. Tenant shall keep its insurance in effect
during the entire term of this lease and during any renewal term.
15. PREMISES INSURANCE.
Tenant shall carry fire and extended coverage insurance on all of the
building and improvements on the premises in an amount equal to their
reasonable replacement value. This insurance coverage shall be adjusted every
two (2) years to reflect current replacement values. This insurance shall
insure against such hazards as are included in a standard extended coverage
endorsement. Tenant may also carry, at its option, additional special
extended coverage endorsements. Tenant's insurance coverage may include
Tenant's merchandise, trade fixtures, furnishings, equipment and all other
personal property of Tenant. However, Landlord shall be named as an insured
with respect to the buildings and improvements.
16. DAMAGE TO PREMISES.
a. If fire or other casualty damages, and renders untenable, the premises
or any portion of the premises, Landlord shall promptly restore the premises
to their previous condition. Landlord shall also abate that part of the rent
which is proportionate to the portion of the premises rendered untenable. If
the premises cannot be made tenable within one hundred twenty (120) days of
the damage, Tenant may terminate this lease by giving Landlord written notice
of termination not less than thirty (30) days from the date of damage. Rent
paid in advance of such termination by Tenant shall be refunded. If any
governmental authority determines that the premises should be demolished
because of the damage, this lease shall terminate at the option of the
Tenant. Any rent paid in advance of such termination by Tenant shall be
refunded.
b. Landlord and Tenant mutually release and discharge each other, their
respective employees, agents and representatives from any liability arising
from loss, damage, or injury caused by fire or other casualty for which
insurance is required to be carried hereunder by the injured party at the
time of such loss, damage or injury, to the extent of any recovery of the
injured party under such insurance, provided such insurance permits a waiver
of liability and subrogation rights.
17. EMINENT DOMAIN.
If the premises, in whole or in part, or more than twenty-five percent
(25%) of the premises' parking area is taken by or conveyed to any public
authority under the power of eminent domain or by private
PAGE 4
<PAGE>
purchase in lieu thereof, Tenant may, at its option, terminate this Lease as
of the date possession of such premises shall be delivered to such condemnor
or purchaser. Any rent paid in advance, as of such delivery date, shall be
refunded to Tenant. If Tenant does not exercise its termination option,
Landlord shall immediately make all repairs and improvements necessary to
restore the premises to a complete architectural unit. Tenant shall have the
alternative right to continue in possession of any part of the premises not
taken under power of eminent domain, under the terms and conditions of this
lease. However, the rent reserved herein shall be reduced in direct
proportion to the part of the premises taken by eminent domain. Both the
Landlord and Tenant shall be entitled to proceeds arising from condemnation
or the threat thereof, in accordance with their respective interests in the
premises, and nothing contained herein shall be deemed or construed to
prevent Landlord or Tenant from enforcing and prosecuting a claim for the
value of their respective interests in a condemnation proceeding brought
against either under a power of eminent domain.
18. BANKRUPTCY.
In the event the premises or any rights therein shall be levied upon by
execution or other process of law by a creditor of either party, or if either
party shall be adjudged bankrupt or insolvent, or if any receiver shall be
appointed for the business and property of either party, or if any assignment
shall be made of either party's property for the benefit of creditors,
thereby diminishing any right or privilege granted by this Lease to the other
party, then the other party may terminate this Lease immediately upon written
notice to such party.
19. FORCE MAJEURE.
Neither party is required to perform any term, condition, or covenant of
this Lease during such time performance after the exercise of due diligence
to perform, is delayed or prevented by force majeure, including but not
limited to, acts of God, civil riots, organized labor disputes, or
governmental restrictions. Neither party is excused from performing any term,
condition, or covenant of this Lease because of any act or omission of such
party.
20. WARRANTIES AND REPRESENTATIONS BY LANDLORD.
In addition to any other warranties and representations by Landlord
contained herein, Landlord expressly warrants and represents to Tenant:
a. That the premises are properly zoned and improved to permit the Tenant
to use the premises for the purposes stated in this Lease; and
b. That Landlord has not covenanted or agreed with anyone to restrict the
use of the premises for Tenant's purposes and Landlord knows of no covenants,
agreements, or restrictions affecting the premises which would prohibit or
restrict such use by Tenant; and
c. That Landlord owns the premises and any building of which the premises
are a part and has the right to lease the premises to Tenant.
PAGE 5
<PAGE>
21. BROKERAGE COMMISSIONS.
Landlord shall defend, indemnify, and hold Tenant harmless against any
and all claims of or liability for any brokerage commissions or finder's fees
related in any way to Tenant's lease of the premises or any part thereof.
22. QUIET ENJOYMENT BY TENANT.
Landlord covenants that if Tenant performs all the terms, conditions, and
covenants of this Lease to be performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the premises for Tenant's purposes for the lease term
without hindrance or interruption.
23. SUBORDINATION TO LANDLORD'S MORTGAGE AND ATTORNMENT.
a. Tenant, at Landlord's request, shall subordinate Tenant's interest
hereunder in writing to any lien or mortgage now or hereafter placed on the
premises and to all advances made or hereafter to be made upon the security
thereof, provided that such lienee or mortgagee shall agree in wring that
Tenant's rights hereunder shall not be diminished in any way because of such
lien or mortgage.
b. If the premises are sold by foreclosure or power of sale under any
lien or mortgage of Landlord, Tenant, at the option and request of the
purchaser, shall attorn to the purchaser and recognize such purchaser as the
Landlord under this Lease provided that Tenant's rights hereunder shall be
acknowledged and agreed to in writing by such purchaser.
24. ASSIGNMENT AND SUBLEASING BY TENANT.
Tenant may not assign this Lease nor sublet the premises, in whole or in
part, without the prior written consent of the Landlord. Landlord's consent
shall not be unreasonably withheld.
25. DEFAULT OF TENANT.
If Tenant fails to pay any rent or other charge due under this lease
within fifteen (15) days of written notice of default being received by
Tenant, or if Tenant fails to perform any other term, condition, or covenant
of this Lease for more than thirty (30) days after written notice of such
failure is received by Tenant, unless the cure of such failure requires more
than thirty (30) days and Tenant is diligently pursuing such cure, Landlord
has the right to pursue any right or remedy to which Landlord is entitled,
under the laws of the State of Montana.
26. NON-WAIVER OF DEFAULT.
Waiver of any breach of the terms, conditions, or covenants of this Lease
or the non-performance of the same for any particular time shall not be
construed as a waiver of any succeeding breach of the same or another term,
condition, or covenant hereof, and the consent, approval, or acquiescence by
Landlord or Tenant to any breach shall not waive or render unnecessary such
consent or approval of any subsequent similar breach.
PAGE 6
<PAGE>
27. HOLDING OVER.
If Tenant fails to renew this lease at the end of its term, and holds
over after termination of this Lease, the tenancy shall be from
month-to-month, subject to all terms, conditions, and covenants of this Lease.
28. RECORDING OF LEASE.
Tenant shall not record this lease without written consent of Landlord.
Upon the request of either party hereto, the other party shall join in the
execution of a memorandum or so called "short form" of this lease for the
purposes of recordation in such form as required for recordation.
29. ENTIRE AGREEMENT.
This Lease shall constitute the entire agreement of the parties. Any
prior agreement between the parties relating to the premises, whether written
or oral, is merged herein and shall be of no separate force and effect and
this Lease shall only be changed, modified, or discharged by agreement in
writing signed by both parties hereto.
30. EXERCISE OF RIGHTS AND NOTICE.
The exercise of any right or privilege by a party hereunder shall be made
effective by the personal delivery or by the mailing of a written notice of
such exercise to the other party unless a specific provision of this Lease
provides otherwise. The mailing of any notice required or permitted under
this Lease shall be made by registered or certified United States mail,
postage prepaid, addressed to the other party at its address set forth below
or such other address of which notice has been given in writing.
Landlord: Jore Land, L.L.C.
45000 Highway 93 South
Ronan, MT 59864
Tenant: Jore Corporation
P.O. Box 159
Ronan, MT 59864
31. APPLICABLE LAW.
This lease shall be governed by and construed in accordance with the laws
of the State of Montana. If any provision of this Lease or the application
thereof to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby and
each provision of the lease shall be valid and enforceable to the fullest
extent permitted by law.
32. BENEFIT OF AGREEMENT.
The terms, conditions and covenants contained in this Lease shall inure
to the benefit of and be binding upon the parties hereto, their respective
heirs, administrators, executors, representative's successors and assigns.
PAGE 7
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease as
the day and year first above written.
LANDLORD: TENANT:
JORE LAND, L.L.C. JORE CORPORATION:
By: /s/ Matt Jore By: /s/ [illegible]
------------------------------ ------------------------------
Matt Jore, Its Sole Member President
PAGE 8
<PAGE>
EXHIBIT "A"
DESCRIPTION OF PROPERTY
The premises consist of one building, consisting of approximately 7,200 square
feet, a 20-foot boundary surrounding the building, all located at 45020 Highway
93 South, Ronan, MT 59864.
PAGE 9
<PAGE>
EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
The premises consist of one building, consisting of approximately 7,200 square
feet, a 20-foot boundary surrounding the building, all located within the
following legal description for ten acres of land:
Tract B-1
A tract of land located in the SE 1/4 of the SW 1/4 of Section 12,
T. 20 N., R. 20 W., P.M.M., Lake County, Montana and described as
follows:
Commencing at the South 1/4 corner of Section 12; thence on the
South boundary of said Section S. 89 DEG. 43'06" W., 657.01' to the
point of beginning; thence continuing on said South boundary
S.89 DEG. 43'06" W., 660.00'; thence N.OO DEG. 05'03" E., 660.00';
thence N.89 DEG. 43'06" E., 660.00 feet; thence S.00 DEG.
E. 660.00' feet back to the point of beginning.
Tract B-1 on Certificate of Survey 5197 M.E.
Common areas including the parking lot adjacent and to the west, and the
roadway to the south of said premises.
PAGE 10
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LEASE AGREEMENT
THIS LEASE, made this first day of October, 1998, is between JORE LAND,
L.L.C., of 45000 Highway 93 South, Ronan, MT 59864 ("Landlord"), and JORE
CORPORATION, a Montana corporation, of 45000 Highway 93 South Ronan, MT
59864, ("Tenant"), collectively the ("Parties").
In consideration of the Parties' respective performance of the following
terms, conditions, and covenants during the term of this Lease and any
extension or renewal term, Landlord and Tenant agree as follows:
1. DESCRIPTION OF PREMISES.
Landlord shall lease to Tenant two Seven Thousand Two Hundred (7,200)
square feet buildings and one Nineteen Thousand Two Hundred (19,200) square
foot building plus two-ten acre tracts of land of the real property commonly
known as 45020 HIGHWAY 93 SOUTH, RONAN, MT 59864, as outlined on Exhibit "A"
attached hereto. Said real property is more particularly described in Exhibit
"B" (attached), together with all manufacturing equipment, computers and
software installed therein which may be owned by Landlord. Tenant, its
employees, customers, and invitees, shall further have the right to use all
common areas and facilities, if any, appurtenant to said property,
(collectively "Premises") with Landlord and any other tenants and their
employees, customers, and invitees.
2. TERM.
The term of this Lease shall be five (5) years. The term shall commence on
October 1, 1998, and expire on September 30, 2003. Tenant shall have the
option to renew this lease for an additional term of five (5) years by
providing Landlord with written notice of its intent to so extend at lease
ninety (90) days prior to the expiration of the initial five (5) year term.
3. RENT.
Tenant shall pay Landlord monthly rent of Sixteen Thousand Dollars
($16,000.00) during each month of the term. Rent is payable in advance at
Landlord's address or such other place as Landlord may designate in writing.
Rent is due the first day of each and every month throughout the term of this
Lease. However, if the Lease term commences on a day other than the first day
of a calendar month, the rental for such month shall be prorated upon a daily
basis based upon a thirty day calendar month.
Beginning January 1, 1999, the rent shall be increased each other lease
year to reflect inflation by application of the following Consumer Price
Index formula: On January 1, 2000, and every other succeeding January 1 for
the remainder of the term (the "Recalculation Date"), the annual rental for
the succeeding two calendar years shall be adjusted to an amount equal to the
annual rental for the preceding year of this Lease multiplied by a fraction,
the numerator of which is the Department of Labor's Bureau of Labor
Statistics Consumer Price Index (For All Urban Consumers - all Items -
1977=100) (Western Cities with a Population of over 1,250,000) for the
Recalculation Date and the denominator of which is the Price Index for the
January 1 two years prior. Such adjustment shall be made when the relevant
information is available, but the rental adjustment shall be retroactive to
the preceding January 1. If the Price Index shall be discontinued, there
shall be substituted the most comparable or substitute price index prepared
by the U.S. Government. In no event shall the annual rent so adjusted be less
than the annual rent for the lease year immediately preceding the
Recalculation Date. The annual rental so adjusted shall be paid in advance in
equal monthly installments in accordance with this Agreement.
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4. USE AND OCCUPANCY.
Tenant shall use the premises a manufacturing plant or for any other lawful
purpose.
The Premises shall be open and accessible to Tenant twenty-four hours
per day, seven days per week, including holidays. Tenant shall comply with
all federal, state and municipal statues, ordinances, rules and regulations
applicable to Tenant's use of the premises. Except, Tenant shall not be
responsible for any capital improvements.
5. ALTERATIONS AND IMPROVEMENTS.
Except as permitted by this Lease, Tenant shall not alter, improve, or
change the premises without the written consent of Landlord which consent
shall not be unreasonably withheld. The locating and relocating of moveable
partitions, telephone, and electrical outlets, light fixtures, equipment, and
trade fixtures shall not be deemed alterations, improvements or changes to
the premises.
6. MAINTENANCE BY TENANT.
a. Tenant shall maintain and keep in repair and replace when necessary,
the plumbing, heating, air conditioning, ventilation and electrical fixtures,
equipment and systems and the foundation, lateral support, roof, walls,
structural parts and all exterior parts of the premises and of any building
in which the premises are located, and the floors and windows which are in
integral part of the premises. Tenant shall not be required to make any
repairs made necessary by the negligent acts of Landlord or its agents,
employees or invitees.
b. If Tenant is required to repair, alter, remove, reconstruct, or
improve any part of the premises covered by this lease, the same shall be
made by Tenant with reasonable dispatch and with minimum interference of
Tenant's business.
c. Landlord shall promptly notify Tenant of any defective condition,
which Tenant is required to repair by the terms of this Lease. Within fifteen
(15) days of notice, Tenant shall start and continue the repairs with due
diligence until completed. If, Tenant fails to do so, the repairs may be made
or completed by Landlord and the actual expenses shall be billed to Tenant by
Landlord. If emergency repairs are necessary for the preservation of the
premises or Landlord's property, Landlord may make such repairs and charge
their costs and expenses to Tenant. In the event of such emergency, Landlord
shall make reasonable efforts to notify Tenant before proceeding with repairs.
d. Tenant shall keep the interior of the premises in as good order and
condition as when delivered, excepting ordinary wear and tear, damage by
fire, elements, or casualty, or any damage not due to Tenant's negligence.
Tenant shall further be responsible for the repair and maintenance of all
doors and windows and for keeping the premises' sidewalks free of ice and
snow.
7. COMPLIANCE WITH CODES.
All repairs, alterations, additions or improvements made by Landlord or
Tenant shall comply with applicable building codes.
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8. TRADE FIXTURES AND SURRENDER OF PREMISES.
All trade fixtures, merchandise, supplies and equipment owned by Tenant
and installed in the premises shall remain the property of Tenant. At the end
of the term or renewal term, Tenant shall remove the same and peaceably
surrender the premises to Landlord in as good repair and condition as when
delivered to it, excepting ordinary wear and tear, damage by fire, elements,
or casualty, or any damage not due to the Tenant's negligence. Tenant shall
repair any damage to the premises caused by the removal of its property.
9. TENANT'S SIGNS.
a. Subject to applicable zoning ordinances and restrictive covenants,
Tenant may install its customary and usual display and pole-type signs on and
adjacent to the premises. All signs located on the premises shall be in good
taste so as not to detract from the general appearance of the premises. The
signs, advertisements, notices, logos, lettering, standard images, and
advertising practices of Marwyck and/or Martin Stationers, Inc. are hereby
acknowledged by Landlord to be acceptable signage meeting the requirements
hereof.
b. If Tenant erects signs for the exclusive use of Tenant, Tenant shall
repair and maintain the signs in good appearance at Tenant's expense.
10. UTILITY EQUIPMENT AND SERVICE.
a. Landlord shall furnish the premises with equipment and connections for
all utilities, including heat, air conditioning, electricity, gas, and water,
and shall replace the same at its own expense, if necessary, except as
provided in Section 6. The equipment and connections shall be of sufficient
capacity to provide for the conduct of Tenants business and the comfortable
occupancy and use of the premises and shall be kept in good operating order
by Landlord during Tenant's business hours.
b. Tenant shall pay all charges for utility services including heat, air
condition, water, gas, electricity, and telephone used on the premises by
Tenant.
11. MECHANIC'S LIENS.
Any mechanic's lien filed against the premises for work or materials
furnished to either Landlord or Tenant shall be discharged by such respective
party responsible therefor prior to the commencement of any legal action to
perfect the mechanic's lien.
12. ACCESS BY LANDLORD.
a. Landlord, at reasonable times and frequency, shall have the right to
enter and examine the premises, to show them to prospective purchasers,
mortgagees, or lessees and to make such repairs, alterations, improvements or
additions required hereunder without the same constituting an eviction of
Tenant in whole or in part.
b. If Tenant does not exercise its option to renew this lease within the
required time, landlord may post a customary sign on the premises advertising
the property for lease or sale, but no sign shall be posted in any window or
doorway of the store portion of the premises.
13. PAYMENT OF PROPERTY TAXES.
a. Tenant shall promptly pay when due all real property taxes and special
assessments lawfully levied against the premises.
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b. Tenant shall respectively pay promptly all personal property taxes
lawfully levied against personal property of any kind owned by Tenant and
located on the premises.
14. PERSONAL INJURY AND PROPERTY DAMAGE INSURANCE.
Tenant shall indemnify and hold Landlord harmless from any and all
claims, liabilities, and expenses for damages to any person or property in,
on, or about the premises arising out of the acts or neglect of Tenant.
Tenant shall obtain public liability and property damage insurance in which
the limits of public liability shall be One Million Dollars ($1,000,000.00)
combined single limit coverage, Landlord shall be named as an insured party
under the policy to the extent of its interest. Tenant shall keep its
insurance in effect during the entire term of this lease and during any
renewal term.
15. PREMISES INSURANCE.
Tenant shall carry fire and extended coverage insurance on all of the
building and improvements on the premises in an amount equal to their
reasonable replacement value. This insurance coverage shall be adjusted every
two (2) years to reflect current replacement values. This insurance shall
insure against such hazards as are included in a standard extended coverage
endorsement. Tenant may also carry, at its option, additional special
extended coverage endorsements. Tenant's insurance coverage may include
Tenants merchandise, trade fixtures, furnishings, equipment and all other
personal property of Tenant. However, Landlord shall be named as an insured
with respect to the buildings and improvements.
16. DAMAGE TO PREMISES.
a. If fire or other casualty damages, and renders untenable, the premises
or any portion of the premises, Landlord shall promptly restore the premises
to their previous condition. Landlord shall also abate that part of the rent
which is proportionate to the portion of the premises rendered untenable. If
the premises cannot be made tenable within one hundred twenty (120) days of
the damage, Tenant may terminate this lease by giving Landlord written notice
of termination not less than thirty (30) days from the date of damage. Rent
paid in advance of such termination by Tenant shall be refunded. If any
governmental authority determines that the premises should be demolished
because of the damage, this lease shall terminate at the option of the
Tenant. Any rent paid in advance of such termination by Tenant shall be
refunded.
b. Landlord and Tenant mutually release and discharge each other, their
respective employees, agents and representatives from any liability arising
from loss, damage, or injury caused by fire or other casualty for which
insurance is required to be carried hereunder by the injured party at the time
of such loss, damage or injury, to the extent of any recovery of the injured
party under such insurance, provided such insurance permits a waiver of
liability and subrogation rights.
17. EMINENT DOMAIN.
If the premises, in whole or in part, or more than twenty-five percent
(25%) of the premises' parking area is taken by or conveyed to any public
authority under the power of eminent domain or by private purchase in lieu
thereof, Tenant may, at its option, terminate this Lease as of the date
possession of such premises shall be delivered to such condemnor or
purchaser. Any rent paid in advance, as of such delivery date, shall be
refunded to Tenant. If Tenant does not exercise its termination option,
Landlord shall immediately make all repairs and improvements necessary to
restore the premises to a complete architectural unit. Tenant shall have the
alternative right to continue in possession of any part of the premises not
taken under power of eminent domain, under the terms and conditions of this
lease. However, the rent reserved herein shall be reduced in direct
proportion to the part of the premises taken by eminent domain. Both the
Landlord and Tenant shall be entitled to proceeds arising from condemnation
or the threat thereof, in accordance with their respective interests in the
premises, and nothing contained herein shall be deemed or
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construed to prevent Landlord or Tenant from enforcing and prosecuting a
claim for the value of their respective interests in a condemnation
proceeding brought against either under a power of eminent domain.
18. BANKRUPTCY.
In the event the premises or any rights therein shall be levied upon by
execution or other process of law by a creditor of either party, or if either
party shall be adjudged bankrupt or insolvent, or if any receiver shall be
appointed for the business and property of either party, or if any assignment
shall be made of either party's property for the benefit of creditors,
thereby diminishing any right or privilege granted by this Lease to the other
party, then the other party may terminate this Lease immediately upon written
notice to such party.
19. FORCE MAJEURE.
Neither party is required to perform any term, condition, or covenant of
this Lease during such time performance after the exercise of due diligence
to perform, is delayed or prevented by force majeure, including but not
limited to, acts of God, civil riots, organized labor disputes, or
governmental restrictions. Neither party is excused from performing any term,
condition, or covenant of this Lease because of any act or omission of such
party.
20. WARRANTIES AND REPRESENTATIONS BY LANDLORD.
In addition to any other warranties and representations by Landlord
contained herein, Landlord expressly warrants and represents to Tenant:
a. That the premises are properly zoned and improved to permit the Tenant
to use the premises for the purposes stated in this Lease; and
b. That Landlord has not covenanted or agreed with anyone to restrict the
use of the premises for Tenant's purposes and Landlord knows of no covenants,
agreements, or restrictions affecting the premises which would prohibit or
restrict such use by Tenant; and
c. That Landlord owns the premises and any building of which the premises
are a part and has the right to lease the premises to Tenant.
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21. BROKERAGE COMMISSIONS.
Landlord shall defend, indemnify, and hold Tenant harmless against any
and all claims of or liability for any brokerage commissions or finder's fees
related in any way to Tenant's lease of the premises or any part thereof.
22. QUIET ENJOYMENT BY TENANT.
Landlord covenants that if Tenant performs all the terms, conditions, and
covenants of this Lease to be performed by Tenant, Tenant shall peaceably and
quietly hold and enjoy the premises for Tenant's purposes for the lease term
without hindrance or interruption.
23. SUBORDINATION TO LANDLORD'S MORTGAGE AND ATTORNMENT.
a. Tenant, at Landlord's request, shall subordinate Tenant's interest
hereunder in writing to any lien or mortgage now or hereafter placed on the
premises and to all advances made or hereafter to be made upon the security
thereof, provided that such lienee or mortgagee shall agree in wring that
Tenant's rights hereunder shall not be diminished in any way because of such
lien or mortgage.
b. If the premises are sold by foreclosure or power of sale under any
lien or mortgage of Landlord, Tenant, at the option and request of the
purchaser, shall attorn to the purchaser and recognize such purchaser as the
Landlord under this Lease provided that Tenant's rights hereunder shall be
acknowledged and agreed to in writing by such purchaser.
24. ASSIGNMENT AND SUBLEASING BY TENANT.
Tenant may not assign this Lease nor sublet the premises, in whole or in
part, without the prior written consent of the Landlord. Landlord's consent
shall not be unreasonably withheld.
25. DEFAULT OF TENANT.
If Tenant fails to pay any rent or other charge due under this lease
within fifteen (15) days of written notice of default being received by
Tenant, or if Tenant fails to perform any other term, condition, or covenant
of this Lease for more than thirty (30) days after written notice of such
failure is received by Tenant, unless the cure of such failure requires more
than thirty (30) days and Tenant is diligently pursuing such cure, Landlord
has the right to pursue any right or remedy to which Landlord is entitled,
under the laws of the State of Montana.
26. NON-WAIVER OF DEFAULT.
Waiver of any breach of the terms, conditions, or covenants of this Lease
or the non-performance of the same for any particular time shall not be
construed as a waiver of any succeeding breach of the same or another term,
condition, or covenant hereof, and the consent, approval, or acquiescence by
Landlord or Tenant to any breach shall not waive or render unnecessary such
consent or approval of any subsequent similar breach.
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27. HOLDING OVER.
If Tenant fails to renew this lease at the end of its term, and holds
over after termination of this Lease, the tenancy shall be from
month-to-month, subject to all terms, conditions, and covenants of this Lease.
28. RECORDING OF LEASE.
Tenant shall not record this lease without written consent of Landlord.
Upon the request of either party hereto, the other party shall join in the
execution of a memorandum or so called "short form" of this lease for the
purposes of recordation in such form as required for recordation.
29. ENTIRE AGREEMENT.
This Lease shall constitute the entire agreement of the parties. Any
prior agreement between the parties relating to the premises, whether written
or oral, is merged herein and shall be of no separate force and effect and
this Lease shall only be changed, modified, or discharged by agreement in
writing signed by both parties hereto.
30. EXERCISE OF RIGHTS AND NOTICE.
The exercise of any right or privilege by a party hereunder shall be made
effective by the personal delivery or by the mailing of a written notice of
such exercise to the other party unless a specific provision of this Lease
provides otherwise. The mailing of any notice required or permitted under
this Lease shall be made by registered or certified United States mail,
postage prepaid, addressed to the other party at its address set forth below
or such other address of which notice has been given in writing.
Landlord: Jore Land, L.L.C.
45000 Highway 93 South
Ronan, MT 59864
Tenant: Jore Corporation
45000 Highway 93 South
Ronan, MT 59864
31. APPLICABLE LAW.
This lease shall be governed by and construed in accordance with the laws of
the State of Montana. If any provision of this Lease or the application thereof
to any person or circumstances shall, to any extent, be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby and
each provision of the lease shall be valid and enforceable to the fullest extent
permitted by law.
32. BENEFIT OF AGREEMENT.
The terms, conditions and covenants contained in this Lease shall inure to
the benefit of and be binding upon the parties hereto, their respective heirs,
administrators, executors, representative's successors and assigns.
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IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this Lease
as the day and year first above written.
LANDLORD: TENANT:
JORE LAND, L.L.C. JORE CORPORATION:
By: /s/ Matt Jore By: /s/ Matt Jore
------------------------------- -------------------------------
Matt Jore, Its Sole Member President
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EXHIBIT "A"
DESCRIPTION OF PROPERTY
The premises consist of three buildings consisting of two buildings
approximately 7,200 square feet, and one building approximately 19,200 square
feet, located at 45020 Highway 93 South, Ronan, MT 59864.
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EXHIBIT "B"
DESCRIPTION OF REAL PROPERTY
The premises consist of two buildings, consisting of approximately 7,200
square feet per building and one 19,200 square foot building, all located
within the following legal description for two-ten acre tracts of land:
Tract B-1
A tract of land located in the SE1/4 of the SW1/4 of Section 12, T. 20 N.,
R. 20 W., P.M.M., Lake County, Montana and described as follows:
Commencing at the South 1/4 corner of Section 12; thence on the South
boundary of said Section S. 89 DEG. 43'06" W., 657.01' to the point of
beginning; thence continuing on said South boundary S.89 DEG. 43'06" W.,
660.00'; thence N.00 DEG. 05'03" E., 660.00'; thence N.89 DEG. 43'06" E.,
660.00 feet; thence S.00 DEG. E. 660.00' feet back to the point of
beginning.
Tract B-1 on Certificate of Survey 5197 M.E.
Tract B-2
A tract of land located in a portion of the SE1/4 SW1/4 of Section 12,
Township 20 North, Range 20 West, P.M.M., Lake County, Montana, described
as follows:
Commencing at the Southeast corner of said Section 12; thence along the
South boundary line of said Section 12 S. 89 DEG. 41'46" W. a distance of
2635.26 feet to the point of beginning; thence continuing along said
Section boundary S. 89 DEG. 43'06" W. a distance of 811.36 feet; thence
leaving said Section boundary N. 01 DEG. 28'36" W. 660.13 feet; thence
N. 89 DEG. 43'06" E. 172.33 feet; thence S. 68 DEG. 39'23" E. 705.15
feet to a point which lies on the North/South Mid-Section line of said
Section 12; thence along said Mid-Section line S. 00 DEG. 06'30" W.
400.12 feet to the point of beginning.
Further identified as being Tract B-3 on Certificate of Survey No. 5466, on
file in the office of the Clerk and Recorder of Lake County, Montana.
Common areas including the parking lot adjacent and to the west, and the
roadway to the south of said premises.
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MASTER EQUIPMENT LEASE AGREEMENT
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THIS MASTER EQUIPMENT LEASE AGREEMENT dated as of July 8, 1998 is made by
and between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC., having an
address at 54 State Street, Albany, New York 12207 ("Lessor"), and JORE
CORPORATION, a Montana corporation with its principal place of business at 45000
Highway 93 South, Ronan, Montana 59864 ("Lessee").
TERMS AND CONDITIONS OF LEASE
1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Equipment, subject to and upon the terms and conditions set forth
herein. Each Equipment Schedule shall constitute a separate and enforceable
lease incorporating all the terms and conditions of this Master Equipment Lease
Agreement as if such terms and conditions were set forth in full in such
Equipment Schedule. In the event that any term or condition of any Equipment
Schedule conflicts with or is inconsistent with any term or condition of this
Master Equipment Lease Agreement, the terms and conditions of the Equipment
Schedule shall govern.
2. DISCLAIMER OF WARRANTIES. LESSOR MAKES NO (AND SHALL NOT BE DEEMED
TO HAVE MADE ANY) WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING, WITHOUT LIMITATION, THE DESIGN, OPERATION OR CONDITION
OF, OR THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP IN, THE
EQUIPMENT, ITS MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, THE
STATE OF TITLE THERETO OR ANY COMPONENT THERETO, THE ABSENCE OF LATENT OR
OTHER DEFECTS (WHETHER OR NOT DISCOVERABLE), AND LESSOR HEREBY DISCLAIMS THE
SAME; IT BEING UNDERSTOOD THAT THE EQUIPMENT IS LEASED TO LESSEE "AS IS" AND
ALL SUCH RISKS, IF ANY, ARE TO BE BORNE BY LESSEE. NO DEFECT IN, OR
UNFITNESS OF, THE EQUIPMENT, OR ANY OF THE OTHER FOREGOING MATTERS, SHALL
RELIEVE LESSEE OF THE OBLIGATION TO PAY RENT OR OF ANY OTHER OBLIGATION
HEREUNDER. LESSEE HAS MADE THE SELECTION OF THE EQUIPMENT FROM THE SUPPLIER
BASED ON ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS ANY RELIANCE UPON ANY
STATEMENTS OR REPRESENTATIONS MADE BY LESSOR. LESSOR IS NOT RESPONSIBLE FOR
ANY REPAIRS, SERVICE, MAINTENANCE OR DEFECT IN THE EQUIPMENT OR THE OPERATION
THEREOF. IN NO EVENT SHALL LESSOR BE LIABLE FOR ANY INDIRECT, SPECIAL OR
CONSEQUENTIAL DAMAGES (WHETHER UNDER THE UCC OR OTHERWISE), INCLUDING,
WITHOUT LIMITATION, ANY LOSS, COST OR DAMAGE TO LESSEE OR OTHERS ARISING FROM
ANY OF THE FOREGOING MATTERS, INCLUDING, WITHOUT LIMITATION, DEFECTS,
NEGLIGENCE, DELAYS, FAILURE OF DELIVERY OR NON-PERFORMANCE OF THE EQUIPMENT.
ANY WARRANTY BY THE SUPPLIER IS HEREBY ASSIGNED TO LESSEE BY LESSOR WITHOUT
RECOURSE. SUCH WARRANTY SHALL NOT RELEASE LESSEE FROM ITS OBLIGATION TO
LESSOR TO PAY RENT, TO PERFORM ALL OTHER OBLIGATIONS HEREUNDER AND TO KEEP,
MAINTAIN AND SURRENDER THE EQUIPMENT IN THE CONDITION REQUIRED BY SECTIONS 12
AND 13 HEREOF. Lessee's execution and delivery of a Certificate of
Acceptance shall be conclusive evidence as between Lessor and Lessee that the
Items of Equipment described therein are in all of the foregoing respects
satisfactory to Lessee, and Lessee shall not assert and claim of any nature
whatsoever against Lessor based on any of the foregoing matters; PROVIDED,
HOWEVER, that nothing contained herein shall in any way bar, reduce or defeat
any claim that Lessee may have against the Supplier or any other person
(other than Lessor).
3. NON-CANCELABLE LEASE. THIS LEASE IS A NET LEASE AND LESSEE'S
OBLIGATION TO PAY RENT AND PERFORM ITS OBLIGATIONS HEREUNDER ARE ABSOLUTE,
IRREVOCABLE AND UNCONDITIONAL UNDER ANY AND ALL CIRCUMSTANCES WHATSOEVER AND
SHALL NOT BE SUBJECT TO ANY RIGHT OF SET OFF, COUNTERCLAIM, DEDUCTION, DEFENSE
OR OTHER RIGHT WHICH LESSEE MAY HAVE AGAINST THE SUPPLIER, LESSOR OR ANY OTHER
PARTY. LESSEE SHALL HAVE NO RIGHT TO TERMINATE (EXCEPT AS EXPRESSLY PROVIDED
HEREIN) OR CANCEL THIS LEASE OR TO BE RELEASED OR DISCHARGED FROM ITS OBLIGATION
HEREUNDER FOR ANY REASON WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DEFECTS IN,
DESTRUCTION OF, DAMAGE TO OR
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INTERFERENCE WITH ANY USE OF THE EQUIPMENT (FOR ANY REASON WHATSOEVER,
INCLUDING, WITHOUT LIMITATION, WAR, ACT OF GOD, STRIKE OR GOVERNMENTAL
REGULATION), THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY (OR ANY ALLEGATION
THEREOF) OF THIS LEASE OR ANY PROVISION HEREOF, OR ANY OTHER OCCURRENCE
WHATSOEVER, WHETHER SIMILAR OR DISSIMILAR TO THE FOREGOING, WHETHER FORESEEN OR
UNFORESEEN.
4. DEFINITIONS. Unless the context otherwise requires, as used in this
Lease, the following terms shall have the respective meanings indicated below
and shall be equally applicable to both the singular and the plural forms
thereof:
(a) "APPLICABLE LAW" shall mean all applicable Federal, state,
local and foreign laws (including, without limitation, any Environmental Law,
industrial hygiene and occupational safety or similar laws), ordinances,
judgments, decrees, injunctions, writs and orders of any Governmental Authority
and rules, regulations, orders, licenses and permits of any Governmental
Authority.
(b) "APPRAISAL PROCEDURE" shall mean the following procedure for
obtaining an appraisal of the Fair Market Sales Value or the Fair Market Rental
Value. Lessor shall provide Lessee with the names of three independent
Appraisers. Within ten (10) business days thereafter, Lessee shall select one
of such Appraisers to perform the appraisal. The selected Appraiser shall be
instructed to perform its appraisal based upon the assumptions specified in the
definition of Fair Market Sales Value or Fair Market Rental Value, as
applicable, and shall complete its appraisal within twenty (20) business days
after such selection. Any such appraisal shall be final, binding and conclusive
on Lessee and Lessor and shall have the legal effect of an arbitration award.
Lessee shall pay the fees and expenses of the selected Appraiser.
(c) "APPRAISER" shall mean a person engaged in the business of
appraising property who has at least ten years' experience in appraising
property similar to the Equipment.
(d) "AUTHORIZED SIGNER" shall mean those officers of Lessee, set
forth on an incumbency certificate (in form and substance satisfactory to
Lessor) delivered by Lessee to Lessor, who are authorized and empowered to
execute this Lease, the Equipment Schedules and all other documents the
execution of which is contemplated hereby.
(e) "CERTIFICATE OF ACCEPTANCE" shall mean a certificate of
acceptance, in form and substance satisfactory to Lessor, executed and delivered
by Lessee in accordance with Section 7 hereof indicating, among other things,
that the Equipment described therein has been accepted by Lessee for all
purposes of this Lease.
(f) "DEFAULT" shall mean any event or condition which, with the
passage of time or the giving of notice, or both, would constitute an Event of
Default.
(g) "ENVIRONMENTAL LAW" shall mean any federal, state, or local
statute, law, ordinance, code, rule, regulation, or order or decree regulating,
relating to or imposing liability upon a person in connection with the use,
release or disposal of any hazardous, toxic or dangerous substance, waste, or
material as same may relate to the Equipment or its operation.
(h) "EQUIPMENT" shall mean an item or items of personal property
designated from time to time by Lessee which are described on an Equipment
Schedule and which are being or will be leased by Lessee pursuant to this Lease,
together with all replacement parts, additions and accessories incorporated
therein or affixed thereto.
(i) "EQUIPMENT GROUP" shall consist of all Items of Equipment
listed on a particular Equipment Schedule.
(j) "EQUIPMENT LOCATION" shall mean the location of the Equipment,
as set forth on an Equipment Schedule, or such other location (approved by
Lessor) as Lessee shall from time to time specify in writing.
(k) "EQUIPMENT SCHEDULE" shall mean each equipment lease schedule
from time to time executed by Lessor and Lessee with respect to an Equipment
Group, pursuant to and incorporating by reference all of the terms and
conditions of this Master Equipment Lease Agreement.
(l) "EVENT OF DEFAULT" shall have the meaning specified in Section
22 hereof.
(m) "FAIR MARKET RENTAL VALUE" or "FAIR MARKET SALE VALUE" shall
mean the value of each Item of Equipment for lease or sale, unless otherwise
specified herein as determined between Lessor and Lessee, or, if Lessor and
Lessee are unable to agree, pursuant to the Appraisal Procedure, which would be
obtained in an arms-length transaction between an informed and willing lessor or
seller (under no compulsion to lease or sell) and an informed and willing lessee
or buyer (under no compulsion to lease or purchase). In determining the Fair
Market
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Rental Value or Fair Market Sale, Value of the Equipment, (a) such Fair
Market Rental Value or Fair Market Sale Value shall be calculated on the
assumption that the Equipment is in the condition and repair required by
Sections 12 and 13 hereof, and (b) there shall be excluded from the
calculation thereof the value of any upgrades and attachments made pursuant
to Section 14 hereof in which the Lessor does not own an interest; PROVIDED,
HOWEVER, that, unless otherwise provided in such Section 22, for purposes of
Section 22 of the Lease, Fair Market Sale Value of the Equipment shall be
determined based upon the actual facts and circumstances then prevailing
without regard to the assumptions in clause (a) above.
(n) "GOVERNMENTAL ACTION" shall mean all authorizations,
consents, approvals, waivers, filings and declarations of any Govenmental
Authority, including, without limitation, those environmental and operating
permits required for the ownership, lease, use and operation of the Equipment.
(o) "GOVERNMENTAL AUTHORITY" shall mean any foreign, Federal,
state, county, municipal or other governmental authority, agency, board or
court.
(p) "GUARANTOR" shall mean any guarantor of Lessee's obligations
hereunder.
(q) "ITEM OF EQUIPMENT" shall mean each item of the Equipment.
(r) "LATE PAYMENT RATE" shall mean an annual interest rate
equal to the lesser of 18% or the maximum interest rate permitted by
Applicable Law.
(s) "LEASE", "HEREOF", "HEREIN" and "HEREUNDER" shall mean,
with respect to an Equipment Group, this Master Equipment Lease Agreement and
the Equipment Schedule on which such Equipment Group is described, including
all addenda attached thereto and made a part thereof.
(t) "LIEN" shall mean all mortgages, pledges, security
interests, liens, encumbrances, claims or other charges of any kind whatsoever.
(u) "PURCHASE AGREEMENT" shall mean any purchase agreement or
other contract entered into between the Supplier and Lessee for the
acquisition of the Equipment to be leased hereunder.
(v) "RELATED EQUIPMENT SCHEDULE" shall have the meaning set
forth in Section 27 hereof.
(w) RESERVED.
(x) RESERVED.
(y) "RENT" shall mean the periodic rental payments due hereunder
for the leasing of the Equipment, as set forth on the Equipment Schedules,
and, where the context hereof requires, all such additional amounts as may
from time to time be payable under any provision of this Lease.
(z) "RENT COMMENCEMENT DATE" shall mean, with respect to an
Equipment Group, the date on which Lessor disburses funds for the purchase of
such Equipment Group, as determined by Lessor in its sole discretion.
(aa) "RENT PAYMENT DATE" with respect to an Equipment Group,
shall have the meaning set forth in the Equipment Schedule associated
therewith.
(ab) "STIPULATED LOSS VALUE" shall mean, as of any Rent Payment
Date and with respect to an Item of Equipment, the amount determined by
multiplying the Total Cost for such Item of Equipment by the percentage
specified in the applicable Stipulated Loss Value Supplement opposite such
Rent Payment Date.
(ac) "STIPULATED LOSS VALUE SUPPLEMENT" with respect to an
Equipment Group shall have the meaning set forth in the Equipment Schedule
associated therewith.
(ad) "SUPPLIER" shall mean the manufacturer or the vendor of the
Equipment, as set forth on each Equipment Schedule.
(ae) "TERM" shall mean the Initial Term, as defined in Section 8
hereof, and any Renewal Term, as defined in Section 8 hereof.
(af) "TOTAL COST" shall mean, with respect to an Item of
Equipment, (1) the acquisition cost of such Item of Equipment (including
Lessor's capitalized costs), as set forth on the Equipment Schedule on which
such Item of Equipment is described, or (2) if no such acquisistion cost is
specified, the Supplier's invoice price for such Item of Equipment plus
Lessor's capitalized costs, or (3) if no such acquisition cost is specified
and no such invoice price is obtainable, an allocated price for such Item of
Equipment based on the Total Cost of all Items of Equipment set forth on the
Equipment Schedule on which such Item of Equipment is described, as
determined by Lessor in its sole discretion.
5. SUPPLIER NOT AN AGENT. LESSEE UNDERSTANDS AND AGREES THAT (i)
NEITHER THE SUPPLIER, NOR ANY SALES REPRESENTATIVE OR OTHER AGENT OF THE
SUPPLIER, IS (1) AN AGENT OF LESSOR OR (2) AUTHORIZED TO MAKE OR ALTER ANY
TERM OR CONDITION OF THIS LEASE, AND
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(ii) NO SUCH WAIVER OR ALTERATION SHALL VARY THE TERMS OF THIS LEASE UNLESS
EXPRESSLY SET FORTH HEREIN.
6. ORDERING EQUIPMENT. Lessee has selected and ordered the Equipment
from the Supplier and, if appropriate, has entered into a Purchase Agreement
with respect thereto. Lessor shall accept an assignment from Lessee of
Lessee's rights, but none of Lessee's obligations, under any such Purchase
Agreement. Lessee shall arrange for delivery of the Equipment so that it can
be accepted in accordance with Section 7 hereof. If an Item of Equipment is
subject to an existing Purchase Agreement between Lessee and the
Supplier, Lessee warrants that such Item of Equipment has not been delivered
to Lessee as of the date of the Equipment Schedule applicable thereto. If
Lessee causes the Equipment to be modified or altered, or requests any
additions thereto prior to the Rent Commencement Date, Lessee (i)
acknowledges that any such modification, alteration or addition to an Item of
Equipment may affect the Total Cost, taxes, purchase and renewal options, if
any, Stipulated Loss Value and Rent with respect to such Item of Equipment,
and (ii) hereby authorizes Lessor to adjust such Total Cost, taxes, purchase
and renewal options, if any, Stipulated Loss Value and Rent as appropriate.
Lessee hereby authorizes Lessor to complete each Equipment Schedule with the
serial numbers and other identification data of the Equipment Group
associated therewith, as such data is received by Lessor.
7. DELIVERY AND ACCEPTANCE. Upon acceptance for lease by Lessee of any
Equipment delivered to Lessee and described in any Equipment Schedule, Lessee
shall execute and deliver to Lessor a Certificate of Acceptance. LESSOR SHALL
HAVE NO OBLIGATION TO ADVANCE FUNDS FOR THE PURCHASE OF THE EQUIPMENT UNLESS
AND UNTIL LESSOR SHALL HAVE RECEIVED A CERTIFICATE OF ACCEPTANCE RELATING
THERETO EXECUTED BY LESSEE. Such Certificate of Acceptance shall constitute
Lessee's acknowledgment that such Equipment (a) was received by Lessee, (b)
is satisfactory to Lessee in all respects and is acceptable to Lessee for
lease hereunder, (c) is suitable for Lessee's purposes, (d) is in good order,
repair and condition, (e) has been installed and operates properly, and (f)
is subject to all of the terms and conditions of this Lease (including,
without limitation, Section 2 hereof).
8. TERM; SURVIVAL. With respect to any Item of Equipment, unless
otherwise specified thereon, the initial term of this Lease (the "Initial
Term") shall commence on the date on which such Item of Equipment is
delivered to Lessee, and, unless earlier terminated as provided herein, shall
expire on the final Rent Payment Date for such Item of Equipment. With
respect to an Item of Equipment, any renewal term of this Lease
(individually, a "Renewal Term"), as contemplated hereby, shall commence
immediately upon the expiration of the Initial Term or any prior Renewal
Term, as the case may be, and, unless earlier terminated as provided herein,
shall expire on the date on which the final payment of Rent is due and paid
hereunder. All obligations of Lessee hereunder shall survive the expiration,
cancellation or other termination of the Term hereof.
9. RENT. With respect to Each Item of Equipment, Lessee shall pay the
Rent set forth on the Equipment Schedule applicable to such Item of Equipment,
commencing on the Rent Commencement Date, and, unless otherwise set forth on
such Equipment Schedule, on the same day of each payment period thereafter
for the balance of the Term. Rent shall be due whether or not Lessee has
received any notice that such payments are due. All Rent shall be paid to
Lessor at its address set forth on the Equipment Schedule, or as otherwise
directed by Lessor in writing.
10. LOCATION; INSPECTION; LABELS. The Equipment shall be delivered to
the Equipment Location and shall not be removed therefrom without Lessor's
prior written consent. Lessor shall have the right to enter upon the
Equipment Location and inspect the Equipment at any reasonable time. Lessor
may, without notice to Lessee, remove the Equipment if the Equipment is, in
the opinion of Lessor, being used beyond its capacity or is in any manner
improperly cared for, abused or misused. At Lessor's request, Lessee shall
affix labels stating that the Equipment is owned by Lessor permanently in a
prominent place on the Equipment and shall keep such labels in good repair
and condition.
11. USE; ALTERATIONS. Lessee shall use the Equipment lawfully and only
in the manner for which it was designed and intended and so as to subject it
only to ordinary wear and tear. Lessee shall comply with all Applicable Law.
Lessee shall immediately notify Lessor in writing of any existing, pending or
threatened
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investigation, inquiry, claim or action by any Governmental Authority in
connection with any Applicable Law or Governmental Action which could adversely
affect the Equipment or this Lease. Lessee, at its own expense, shall make such
alterations, additions or modifications or improvements to the Equipment as may
be required from time to time to meet the requirements of Applicable Law or
Governmental Action. Except as otherwise permitted herein, Lessee shall not make
any alterations, additions, modifications or improvements to the Equipment
without Lessor's prior written consent.
12. REPAIRS AND MAINTENANCE. Lessee, at Lessee's own cost and expense,
shall (a) keep the Equipment in good repair, good operating condition and
working order and in compliance with the manufacturer's specifications, and (b)
enter into and keep in full force and effect during the Term hereof a
maintenance agreement with the manufacturer of the Equipment, or a
manufacturer-approved maintenance organization, to maintain, service and repair
the Equipment so as to keep the Equipment in as good operating condition and
working order as it was when it first became subject to this Lease and in
compliance with the manufacturer's specifications. Upon Lessor's request, Lessee
shall furnish Lessor with an executed copy of any such maintenance agreement. An
alternate source of maintenance may be used by Lessee with Lessor's prior
written consent. Lessee, at its own cost and expense and within a reasonable
period of time, shall replace any part of any Item of Equipment that becomes
worn out, lost, stolen, destroyed or otherwise rendered permanently unfit or
unavailable for use (whether or not such replacement is covered by the aforesaid
maintenance agreement), with a replacement part of the same manufacture, value,
remaining useful life and utility as the replaced part immediately preceding the
replacement (assuming that such replaced part is in the condition required by
this Lease). Such replacement part shall be free and clear of all Liens.
Notwithstanding the foregoing, this paragraph shall not apply to any Loss or
Damage (as defined in Section 16 hereof) of any Item of Equipment.
13. RETURN OF EQUIPMENT. Upon the expiration (subject to Section 32
hereof and except as otherwise provided in an Equipment Schedule) or earlier
termination of this Lease, Lessee, at its sole expense, shall return the
Equipment to Lessor by delivering such Equipment F.A.S. or F.O.B. to such
location or such carrier (packed for shipping) as Lessor shall specify. Lessee
agrees that the Equipment, when returned, shall be in the condition required by
Section 12 hereof. All components of the Equipment shall have been properly
serviced, following the manufacturer's written operating and servicing
procedures, such that the Equipment is eligible for a manufacturer's standard,
full service maintenance contract without Lessor's incurring any expense to
repair or rehabilitate the Equipment. If, in the opinion of Lessor, any Item of
Equipment fails to meet the standards set forth above, Lessee agrees to pay on
demand all costs and expenses incurred in connection with repairing such Item of
Equipment and restoring it so as to meet such standards, assembling and
delivering such Item of Equipment. If Lessee fails to return any Item of
Equipment as required hereunder, then, all of Lessee's obligations under this
Lease (including, without limitation, Lessee's obligation to pay Rent for such
Item of Equipment at the rental then applicable under this Lease) shall continue
in full force and effect until such Item of Equipment shall have been returned
in the condition required hereunder.
14. EQUIPMENT UPGRADES/ATTACHMENTS. In addition to the requirements of
Section 11 hereof, Lessee, at its own expense, may from time to time add or
install upgrades or attachments to the Equipment during the Term; PROVIDED, that
such upgrades or attachments (a) are readily removable without causing material
damage to the Equipment, (b) do not materially adversely affect the Fair Market
Sale Value, the Fair Market Rental Value, residual value, productive capacity,
utility or remaining useful life of the Equipment, and (c) do not cause such
Equipment to become "limited use property" within the meaning of Revenue
Procedure 76-30, 1976-2 C.B. 647 (or such other successor tax provision), as of
the applicable delivery date or the time of such upgrade or attachment. Any such
upgrades or attachments which are not required by Section 11 hereof and which
can be removed without causing damage to or adversely affecting the condition of
the Equipment, or reducing the Fair Market Sale Value, the Fair Market Rental
Value, residual value, productive capacity, utility or remaining useful life of
the Equipment shall remain the property of Lessee; and upon the expiration or
earlier termination of this Lease and provided that no Event of Default exists,
Lessee may, at its option, remove any such upgrades or attachments and, upon
such removal, shall restore the Equipment to the condition required hereunder.
15. SUBLEASE AND ASSIGNMENT (a) WITHOUT LESSOR'S PRIOR WRITTEN CONSENT,
LESSEE SHALL NOT (i) ASSIGN, TRANSFER, PLEDGE, HYPOTHECATE OR OTHERWISE DISPOSE
OF THIS
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LEASE, THE EQUIPMENT OR ANY INTEREST THEREIN, OR (ii) SUBLET OR LEND THE
EQUIPMENT TO, OR PERMIT THE EQUIPMENT TO BE USED BY, ANYONE OTHER THAN LESSEE OR
LESSEE'S QUALIFIED EMPLOYEES.
(b) Lessor, at any time with or without notice to Lessee, may sell,
transfer, assign and/or grant a security interest in this Lease, any Equipment
Schedule or any Item of Equipment. In any such event, any such purchaser,
transferee, assignee or secured party shall have and may exercise all of
Lessor's rights hereunder with respect to the items to which any such sale,
transfer, assignment and/or security interest relates, and LESSEE SHALL NOT
ASSERT AGAINST ANY SUCH PURCHASER, TRANSFEREE, ASSIGNEE OR SECURED PARTY ANY
DEFENSE, COUNTERCLAIM OR OFFSET THAT LESSEE MAY HAVE AGAINST LESSOR. Lessee
acknowledges that no such sale, transfer, assignment and/or security interest
will materially change Lessee's duties hereunder or materially increase its
burdens or risks hereunder. Lessee agrees that upon written notice to Lessee of
any such sale, transfer, assignment and/or security interest, Lessee shall
acknowledge receipt thereof in writing and shall comply with the directions and
demands of Lessor's successor or assign.
16. LOSS OF OR DAMAGE TO EQUIPMENT. (a) Lessee shall bear the entire risk
of loss, theft, destruction, disappearance of or damage to any and all Items of
Equipment ("Loss or Damage") from any cause whatsoever during the Term hereof
until the Equipment is returned to Lessor in accordance with Section 13 hereof.
No Loss or Damage shall relieve Lessee of the obligation to any Rent or of any
other obligation under this Lease.
(b) In the event of Loss or Damage to any Item of Equipment, Lessee,
at the option of Lessor, shall within thirty (30) days following such Loss or
Damage: (1) place such Item of Equipment in good condition and repair, in
accordance with the terms hereof; (2) replace such Item of Equipment with
replacement equipment (acceptable to Lessor) in as good condition and repair,
and with the same value, remaining useful economic life and utility, as such
replaced Item of Equipment immediately preceding the Loss or Damage (assuming
that such replaced Item of Equipment is the condition required by this Lease),
which replacement equipment shall be free and clear of all Liens; or (3) pay to
Lessor the sum of (i) all Rent due and owing hereunder with respect to such Item
of Equipment (at the time of such payment) plus (ii) the Stipulated Loss Value
as of the Rent Payment Date next following the date of such Loss or Damage with
respect to such Item of Equipment, as set forth on the Schedule applicable
thereto. Upon Lessor's receipt of the payment required under subsection (3)
above, Lessee shall be entitled to Lessor's interest in such Item of Equipment,
in its then condition and location, "as is" and "where is", without any
warranties, express or implied. If Lessee replaces the Item of Equipment
pursuant to subsection (b) above, title to such replacement equipment shall
immediately (and without further act) vest in Lessor and thereupon shall be
deemed to constitute Items of Equipment and be fully subject to this Lease as if
originally leased hereunder. If Lessee fails to either restore or replace the
Item of Equipment pursuant to subsection (1) or (2) above, respectively, Lessee
shall make the payment under subsection (3) above.
17. INSURANCE. (a) Lessee, at all times during the Term hereof (until the
Equipment shall have been returned to Lessor) and at Lessee's own cost and
expense, shall maintain (1) insurance against all risks of physical loss or
damage to the Equipment (including theft and collision for Equipment consisting
of motor vehicles) in an amount not less than the full replacement value thereof
or the Stipulated Loss Value thereof, whichever is greater, and (2) commercial
general liability insurance (including blanket contractual liability coverage
and products liability coverage) for personal and bodily injury and property
damage in an amount satisfactory to Lessor.
(b) All insurance policies required hereunder shall (1) require 30
days' prior written notice of cancellation or material change in coverage to
Lessor (any such cancellation or change, as applicable, not being effective
until the thirtieth (30th) day after the giving of such notice); (2) name
"KeyCorp and its subsidiaries and affiliated companies, including Key Corporate
Capital Inc." as an additional insured under the public liability policies and
name Lessor as sole loss payee under the property insurance policies; (3) not
require contributions from other policies held by Lessor; (4) waive any right of
subrogation against Lessor; (5) in respect of any liability of any of Lessor,
except for the insurers' salvage rights in the event of a Loss or Damage, waive
the right of such insurers to set-off, to counterclaim or to any other
deduction, whether by attachment or otherwise, to the extent of any monies due
Lessor under such policies; (6) not require that Lessor pay or be liable for any
premiums with respect to such insurance covered thereby; (7) be in full force
and effect throughout any geographical areas at any time traversed by an Item of
Equipment; and (8) contain breach of warranty provisions providing that, in
respect of the interests of Lessor in such policies, the insurance shall not be
invalidated by any action or inaction of Lessee or any other person (other than
Lessor) and shall insure Lessor regardless of any breach or violation of any
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warranty, declaration or condition contained in such policies by Lessee or by
any other person (other than Lessor). Prior to the first date of delivery of
any Item of Equipment hereunder, and thereafter not less than 15 days prior to
the expiration dates of the expiring policies theretofore delivered pursuant to
this Section, Lessee shall deliver to Lessor a duplicate original of all
policies (or in the case of blanket policies, certificates thereof issued by the
insurers thereunder) for the insurance maintained pursuant to this Section.
18. GENERAL TAX INDEMNIFICATION. Lessee shall pay when due and shall
indemnify and hold Lessor harmless from and against (on an after-tax basis) any
and all taxes, fees, withholdings, levies, imposts, duties, assessments and
charges of any kind and nature (together with interest and penalties
thereon)(including, without limitation, sales, use, gross receipts, personal
property, ad valorem, business and occupational, franchise, value added,
leasing, leasing use, documentary, stamp or other taxes) imposed upon or against
Lessor, Lessor's assigns, Lessee or any Item of Equipment by any Governmental
Authority with respect to any Item of Equipment or the manufacturing, ordering,
sale, purchase, shipment, delivery, acceptance or rejection, ownership, titling,
registration, leasing, subleasing, possession, use, operation, removal, return
or other dispossession thereof or upon the rents, receipts or earnings arising
therefrom or upon or with respect to this Lease, exception only all Federal,
state and local taxes on or measured by Lessor's net income (other than income
tax resulting from making any alterations, improvements, modifications,
additions, upgrades, attachments, replacements or substitutions by Lessee).
Whenever this Lease terminates as to any Item of Equipment, Lessee shall, upon
written request by Lessor, advance to Lessor the amount determined by Lessor to
be the personal property or other taxes on said item which are not yet payable,
but for which Lessee is responsible, provided Lessor provides Lessee with copies
of tax bills supporting Lessor's request.
19. LESSOR'S RIGHT TO PERFORM FOR LESSEE. If Lessee fails to perform or
comply with any of its obligations contained herein, Lessor may (but shall
not be obligated to do so) itself perform or comply with such obligations,
and the amount of the reasonable costs and expenses of Lessor incurred in
connection with such performance or compliance, together with interest on
such amount at the Late Payment Rate, shall be payable by Lessee to Lessor
upon demand. No such performance or compliance by Lessor shall be deemed a
waiver of the rights and remedies of Lessor or any assignee of Lessor against
Lessee hereunder or be deemed to cure the default of Lessee hereunder.
20. DELINQUENT PAYMENTS; INTEREST. If Lessee fails to pay any Rent or
other sums under this Lease when the same becomes due, Lessee shall pay to
Lessor a late charge equal to five percent (5%) of such delinquent amount. Such
late charge shall be payable by Lessee upon demand by Lessor and shall be deemed
Rent hereunder. In no event shall such late charge exceed the maximum amounts
permitted under Applicable Law.
21. PERSONAL PROPERTY; LIENS. Lessor and Lessee hereby agree that the
Equipment is, and shall at all times remain, personal property notwithstanding
the fact that any Item of Equipment may now be, or hereafter become, in any
manner affixed or attached to real property or any improvements thereon. Lessee
shall at all times keep the Equipment free and clear from all Liens. Lessee
shall (i) give Lessor immediate written notice of any such Lien, (ii) promptly,
at Lessee's sole cost and expense, take such action as may be necessary to
discharge any such Lien, and (iii) indemnify and hold Lessor, on an after-tax
basis, harmless from and against any loss or damage caused by any such Lien.
22. EVENTS OF DEFAULT; REMEDIES. (a) As used herein, the term "Event of
Default" shall mean any of the following events: (1) Lessee fails to pay any
Rent within ten (10) days after the same shall have become due; (2) Lessee or
any Guarantor becomes insolvent or makes an assignment for the benefit of its
creditors; (3) a receiver, trustee, conservator or liquidator of Lessee or any
Guarantor or of all or a substantial part of Lessee's or such Guarantor's assets
is appointed with or without the application or consent of Lessee or such
Guarantor, respectively; (4) a petition is filed by or against Lessee or any
Guarantor under any bankruptcy, insolvency or similar legislation; (5) Lessee or
any Guarantor violates or fails to perform any provision of either this Lease or
any other loan, lease or credit agreement or any acquisition or purchase
agreement with Lessor or any other party; (6) Lessee violates or fails to
perform any covenant or representation made by Lessee herein; (7) any
representation or warranty made herein or in any Lease, certificate, financial
statement or other statement furnished to Lessor shall prove to be false or
misleading in any material respect as of the date on which the same
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was made; (8) Lessee makes a bulk transfer of furniture, furnishings, fixtures
or other equipment or inventory; or (9) there is a material adverse change in
Lessee's or any Guarantor's financial condition since the first Rent
Commencement Date of any Equipment Schedule executed in connection herewith. An
Event of Default with respect to any Equipment Schedule hereunder shall, at
Lessor's option, constitute an Event of Default for all Equipment Schedules
hereunder and any other agreements between Lessor and Lessee.
(b) Upon the occurrence of an Event of Default, Lessor may do one or
more of the following as Lessor in its sole discretion shall elect: (1) proceed
by appropriate court action or actions, either at law or in equity, to enforce
performance by Lessee of the applicable covenants of this Lease or to recover
damages for the breach thereof; (2) sell any Item of Equipment at public or
private sale; (3) hold, keep idle or lease to others any Item of Equipment as
Lessor in its sole discretion may determine; (4) by notice in writing to Lessee,
terminate this Lease, without prejudice to any other remedies hereunder; (5)
demand that Lessee, and Lessee shall, upon written demand of Lessor and at
Lessee's expense forthwith return all Items of Equipment to Lessor or its order
in the manner and condition required by, and otherwise in accordance with all of
the provisions of this Lease, except those provisions relating to periods of
notice; (6) enter upon the premises of Lessee or other premises where any Item
of Equipment may be located and, without notice to Lessee and with or without
legal process, take possession of and remove all or any such Items of Equipment
without liability to Lessor by reason of such entry or taking possession, and
without such action constituting a termination of this Lease unless Lessor
notifies Lessee in writing to such effect; (7) by written notice to Lessee
specifying a payment date, demand that Lessee pay to Lessor, and Lessee shall
pay to Lessor, on the payment date specified in such notice, as liquidated
damages for loss of a bargain and not as a penalty, any unpaid Rent due prior to
the payment date specified in such notice plus whichever of the following
amounts Lessor, in its sole discretion, shall specify in such notice (together
with interest on such amount at the Late Payment Rate from the payment date
specified in such notice to the date of actual payment): (i) an amount, with
respect to an Item of Equipment, equal to the Rent payable for such Item of
Equipment for the remainder of the then current Term thereof, after discounting
such Rent to present worth as of the payment date specified in such notice on
the basis of a per annum rate of discount equal to five percent (5%) from the
respective dates upon which such Rent would have been paid had this Lease not
been terminated; or (ii) the Stipulated Loss Value, computed as of the payment
date specified in such notice or, if such payment date is not a Rent Payment
Date, the Rent Payment Date next following the payment date specified in such
notice (provided, however, that, with respect to any Item of Equipment returned
to or repossessed by Lessor, the amount recoverable under this clause (ii) shall
be reduced (but not below zero) by an amount equal to the Fair Market Sales
Value (taking into account its actual condition) of such Item of Equipment; (8)
cause Lessee, at its expense, to promptly assemble any and all Items of
Equipment and return the same to Lessor at such place as Lessor may designate
in writing; and (9) exercise any other right or remedy available to Lessor
under applicable law or proceed by appropriate court action to enforce the
terms hereof or to recover damages for the breach hereof or to rescind this
Lease. In addition, Lessee shall be liable, except as otherwise provided
above, for any and all unpaid Rent due hereunder before or during the
exercise of any of the foregoing remedies, and for legal fees and other costs
and expenses incurred by reason of the occurrence of any Event of Default or
the exercise of Lessor's remedies with respect thereto, including without
limitation the repayment in full of any costs and expenses necessary to be
expended in repairing any Item of Equipment in order to cause it to be in
compliance with all maintenance and regulatory standards imposed by this
Lease. If an Event of Default occurs, to the fullest extent permitted by
law, Lessee hereby waives any right to notice of sale and further waives any
defenses, rights, offsets or claims against Lessor because of the manner or
method of sale or disposition of any Items of Equipment. None of Lessor's
rights or remedies hereunder are intended to be exclusive of, but each shall
be cumulative and in addition to any other right or remedy referred to
hereunder or otherwise available to Lessor or its assigns at law or in
equity. No express or implied waiver by Lessor of any Event of Default shall
constitute a waiver of any other Event of Default or a waiver of any of
Lessor's rights.
23. NOTICES. All notices and other communications hereunder shall be in
writing and shall be transmitted by hand, overnight courier or certified mail
(return receipt requested), postage prepaid. Such notices and other
communications shall be addressed to the respective party at the address set
forth above or at such other address as any party may from time to time
designate by notice duly given in accordance with this Section. Such notices
and other communications shall be effective upon receipt.
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24. GENERAL INDEMNIFICATION. Lessee shall pay, and shall indemnify and
hold Lessor harmless on an after-tax basis from and against, any and all
liabilities, causes of action, claims, suits, penalties, damages, losses, costs
or expenses (including attorneys' fees), obligations, liabilities, demands and
judgments, and Liens, of any nature whatsoever (collectively, a "Liability")
arising out of or in any way related to: (a) this Lease or any other written
agreement entered into in connection with the transactions contemplated hereby
and thereby (including, without limitation, a Purchase Agreement, if any) or any
amendment, waiver or modification of any of the foregoing or the enforcement of
any of the terms hereof or any of the foregoing, (b) the manufacture, purchase,
ownership, selection, acceptance, rejection, possession, lease, sublease,
operation, use, maintenance, documenting, inspection, control, loss, damage,
destruction, removal, storage, surrender, sale, use, condition, delivery,
nondelivery, return or other disposition of or any other matter relating to any
Item of Equipment or any part or portion thereof (including, in each case and
without limitation, latent or other defects, whether or not discoverable, any
claim for patent, trademark or copyright infringement and any and all
Liabilities in any way relating to or arising out of injury to persons,
properties or the environment or any and all Liabilities based on strict
liability in tort, negligence, breach of warranties or violations of any
regulatory law or requirement, (c) a failure to comply fully with any
Environmental Law with respect to the Equipment or its operation or use, and (d)
Lessee's failure to perform any covenant, or breach of any representation or
warranty, hereunder; PROVIDED, that the foregoing indemnity shall not extend to
the Liabilities to the extent resulting solely from the gross negligence or
willful misconduct of Lessor. Lessee shall deliver promptly to Lessor (i)
copies of any documents received from the United States Environmental Protection
Agency or any state, county or municipal environmental or health agency and (ii)
copies of any documents submitted by Lessee or any of its subsidiaries to the
United States Environmental Protection Agency or any state, county or municipal
environmental or health agency concerning the Equipment or its operation.
25. SEVERABILITY; CAPTIONS. Any provision of this Lease or any Equipment
Schedule which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and
any such prohibition or unenforceability shall not invalidate or render
unenforceable such provision in any other jurisdiction. Captions are intended
for convenience or reference only, and shall not be construed to define,
limit or describe the scope or intent of any provisions hereof.
26. LESSOR'S EXPENSE. Lessee shall pay all costs and expenses of Lessor,
including attorneys' fees and the fees of any collection agencies, incurred by
Lessor in enforcing any of the terms, conditions or provisions hereof or in
protecting Lessor's rights hereunder.
27. RELATED EQUIPMENT SCHEDULES. In the event that any Item of Equipment
covered under any Equipment Schedule hereunder may become attached or affixed
to, or used in connection with, Equipment covered under another Equipment
Schedule hereunder (a "Related Equipment Schedule"), Lessee agrees that, if
Lessee elects to exercise a purchase or renewal option under any such
Equipment Schedule, or if Lessee elects to return the Equipment under any
such Equipment Schedule pursuant to Section 13 hereof, then Lessor, in its
sole discretion, may require that all Equipment leased under all Related
Equipment Schedules be similarly disposed of.
28. FINANCIAL AND OTHER DATA. During the Term hereof, Lessee shall
furnish Lessor, as soon as available and in any event within 60 days after
the end of each quarterly period (except the last) of each fiscal year, and,
as soon as available and in any event within 120 days after the last day of
each fiscal year, financial statements of Lessee and each Guarantor, in each
case certified by an independent public accountant if customarily available
or requested. Lessee shall also furnish such other financial reports,
information or data as Lessor may reasonably request from time to time.
29. COMMITMENT FEE REQUIREMENT. An amount equal to the first periodic
payment of Rent must accompany each Lessee proposal for an Equipment Schedule
hereunder. THIS COMMITMENT FEE IS NONREFUNDABLE; provided, however, that, upon
Lessor's acceptance of Lessee's proposal to enter into such Equipment Schedule,
such commitment fee shall be applied to the first periodic payment of Rent
thereunder.
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<PAGE>
30. NO AFFILIATION WITH THE SUPPLIER. Lessee hereby represents and
warrants to Lessor that, except as previously disclosed in writing to Lessor,
neither Lessee nor any of its officers or directors (if a corporation) or
partners (if a partnership) has, directly or indirectly, any financial interest
in the Supplier.
31. REPRESENTATIONS AND WARRANTIES OF LESSEE. Lessee represents and
warrants that: (a) Lessee is a corporation duly organized and validly existing
in good standing under the laws of the state of its incorporation; (b) the
execution, delivery and performance of this Lease and all related instruments
and documents: (1) have been duly authorized by all necessary corporate action
on the part of Lessee, (2) do not require the approval of any stockholder,
partner, trustee, or holder of any obligations of Lessee except such as have
been duly obtained, and (3) do not and will not contravene any law, governmental
rule, regulation or order now binding on Lessee, or the charter or by-laws of
Lessee, or contravene the provisions of, or constitute a default under, or
result in the creation of any lien or encumbrance upon the property of Lessee
under, any indenture, mortgage, contract or other agreement to which Lessee is a
party or by which it or its property is bound; (c) this Lease and all related
instruments and documents, when entered into, will constitute legal, valid and
binding obligations of Lessee enforceable against Lessee in accordance with the
terms thereof; (d) there are no pending actions or proceedings to which Lessee
is a party, and there are no other pending or threatened actions or proceedings
of which Lessee has knowledge, before any court, arbitrator or administrative
agency, which, either individually or in the aggregate, would adversely affect
the financial condition of Lessee, or the ability of Lessee to perform its
obligations hereunder; (e) Lessee is not in default under any obligation for the
payment of borrowed money, for the deferred purchase price of property or for
the payment of any rent under any lease agreement which, either individually or
in the aggregate, would have the same such effect; (f) under the laws of the
state(s) in which the Equipment is to be located, the Equipment consists solely
of personal property and not fixtures; (g) the financial statements of Lessee
(copies of which have been furnished to Lessor) have been prepared in accordance
with generally acceptable accounting principles consistently applied ("GAAP"),
and fairly present Lessee's financial condition and the results of its
operations as of the date of and for the period covered by such statements, and
since the date of such statements there has been no material adverse change in
such conditions or operations; (h) the address stated above is the chief place
of business and chief executive office, or in the case of individuals, the
primary residence, of Lessee; (i) Lessee does not conduct business under a
trade, assumed or fictitious name; and (j) the Equipment is being leased
hereunder solely for business purposes and that no item of Equipment will be
used for personal, family or household purposes.
32. RENEWAL AND PURCHASE OPTIONS. With respect to an Equipment Schedule
and the Equipment Group set forth thereon, Lessee shall have the purchase and
renewal options set forth in such Equipment Schedule.
33. LESSEE'S WAIVERS. To the extent permitted by Applicable Law, Lessee
hereby waives (a) any and all rights and remedies which it may now have or which
at any time hereafter may be conferred upon it by statute (including, without
limitation, Article 2A of the Uniform Commercial Code, as applicable) or
otherwise, (1) which may limit or modify Lessor's rights or remedies hereunder,
(2) to terminate, cancel, quit, repudiate or surrender this Lease, except as
expressly provided herein; (3) to reject, revoke acceptance or accept partial
delivery of the Equipment; (4) to recover damages from Lessor for any breach of
warranty or for any other reason PROVIDED, HOWEVER, that no such waiver shall
preclude Lessee from asserting any such claim against Lessor in a separate cause
of action; or (5) to setoff or deduct all or any part of any claimed damages
resulting from Lessor's default, if any, under this Lease.
34. UCC FILINGS. LESSEE HEREBY APPOINTS LESSOR OR ITS ASSIGNEE AS ITS
TRUE AND LAWFUL ATTORNEY IN FACT, IRREVOCABLY AND COUPLED WITH AN INTEREST, TO
EXECUTE AND FILE ON BEHALF OF LESSEE ALL UCC FINANCING STATEMENTS WHICH IN
LESSOR'S SOLE DISCRETION ARE NECESSARY OR PROPER TO SECURE LESSOR'S INTEREST IN
THE EQUIPMENT IN ALL APPLICABLE JURISDICTIONS.
35. MISCELLANEOUS. Time is of the essence with respect to this Lease. Any
failure of Lessor to require strict performance by Lessee or any waiver by
Lessor of any provision herein shall not be construed as a consent or waiver of
any provision of this Lease. Neither this Lease nor any Equipment Schedule may
be
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<PAGE>
amended except by a writing signed by Lessor and Lessee. This Lease and each
Equipment Schedule shall be binding upon, and inure to the benefit of, the
parties hereto, their permitted successors and assigns. This Lease will be
binding upon Lessor only if executed by a duly authorized officer or
representative of Lessor at Lessor's address set forth above. This Lease, and
all other documents (the execution and delivery of which by Lessee is
contemplated hereunder), shall be executed on Lessee's behalf by Authorized
Signers of Lessee. THIS LEASE IS BEING DELIVERED IN THE STATE OF NEW YORK AND
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.
36. JURY TRIAL WAIVER. LESSOR AND LESSEE HEREBY WAIVE TRIAL BY JURY IN
ANY ACTION OR PROCEEDING TO WHICH LESSOR OR LESSEE MAY BE PARTIES ARISING OUT OF
OR IN ANY WAY PERTAINING TO THIS LEASE. THIS WAIVER IS MADE KNOWINGLY,
WILLINGLY AND VOLUNTARILY BY THE LESSOR AND THE LESSEE WHO EACH ACKNOWLEDGE THAT
NO REPRESENTATIONS HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF
TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.
37. MORE THAN ONE LESSEE. If more than one person or entity executes this
Lease, each Equipment Schedule, and all addenda or other documents executed in
connection herewith or therewith, as "Lessee," the obligations of "Lessee"
contained herein and therein shall be deemed joint and several and all
references to "Lessee" shall apply both individually and jointly.
38. QUIET ENJOYMENT. So long as no Event of Default has occurred and is
continuing, Lessee shall peaceably hold and quietly enjoy the Equipment without
interruption by Lessor or any person or entity claiming through Lessor.
39. ENTIRE AGREEMENT. This Lease, together with all Equipment Schedules,
riders and addenda executed by Lessor and Lessee collectively constitute the
entire understanding or agreement between Lessor and Lessee with respect to the
leasing of the Equipment, and there is no understanding or agreement, oral or
written, which is not set forth herein or therein. By initialing below, Lessee
hereby further acknowledges the conditions of this Section 39.
LESSEE'S INITIALS: MJ
---
40. EXECUTION IN COUNTERPARTS. This Master Equipment Lease Agreement may
be executed in several counterparts, each of which shall be an original and all
of which shall constitute but one and the same instrument.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
day and year first above written.
LESSOR: LESSEE:
KEYCORP LEASING, JORE CORPORATION
A DIVISION OF KEY CORPORATE CAPITAL INC.
By: /s/ Kelly M. Reale By: /s/ Matt Jore
------------------------------------- --------------------------------
Name: KELLY M. REALE Name: MATT JORE
Title: ASSISTANT TEAM LEADER Title: PRESIDENT
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<PAGE>
EQUIPMENT SCHEDULE NO. 01
Annual Renewable
- --------------------------------------------------------------------------------
EQUIPMENT SCHEDULE NO. 01 dated as of July 8, 1998 (this "Schedule")
between KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC. ("Lessor"),
and JORE CORPORATION, a Montana corporation ("Lessee").
INTRODUCTION:
Lessor and Lessee have heretofore entered into that certain Master
Equipment Lease Agreement dated as of July 8, 1998 (the "Master Lease"; the
Master Lease and this Equipment Schedule hereinafter collectively referred to
as, this "Lease"). Unless otherwise defined herein, capitalized terms used
herein shall have the meanings specified in the Master Lease. The Master Lease
provides for the execution and delivery of an Equipment Schedule substantially
in the form hereof for the purpose of confirming the acceptance and lease of the
Equipment under this Lease as and when delivered by Lessor to Lessee in
accordance with the terms thereof and hereof.
NOW, THEREFORE, in consideration of the premises and other good and
sufficient consideration, Lessor and Lessee hereby agree as follows:
1. EQUIPMENT. Pursuant to the terms and conditions of this Lease, Lessor
hereby leases to Lessee, and Lessee hereby leases from Lessor, the equipment
listed on EXHIBIT A attached hereto (the "Equipment"). The aggregate Total Cost
of such Equipment is $450,000.00.
2. TERM. The Initial Term of this Lease with respect to the Equipment
described on this Schedule shall commence on the date on which such Equipment is
delivered to Lessee, and, unless earlier terminated as provided herein, shall
expire on a date which is sixty (60) months after the Rent Commencement Date
(the "Initial Term Expiration Date").
3. RENT PAYMENT DATES; RENT. Lessee hereby agrees to pay Rent for the
Equipment throughout the Initial Term in sixty (60) consecutive monthly
installments payable in arrears on the date which is one (1) month after the
Rent Commencement Date and on the same day of each month thereafter (each, a
"Rent Payment Date"). Each such installment of Rent shall be in an amount equal
to $6,929.20.
4. EQUIPMENT LOCATION; BILLING ADDRESS. The Equipment described on this
Schedule shall be located at, and except as otherwise provided in this Lease,
shall not be removed from, the following address: 45000 Highway 93 South, Ronan,
MT 59864. The billing address of Lessee is as follows: JORE CORPORATION, 45000
Highway 93 South, Ronan, MT 59864.
5. NATURE OF TRANSACTION. Despite any other provision of this Lease, for all
purposes other than financial accounting purposes, this Lease is a financing
arrangement and is intended as security and not as a true lease. Lessee shall
be deemed to have hereby granted Lessor a security interest in the Equipment and
all accessions, substitutions and replacements thereto and therefor, and
proceeds (cash and non-cash), including, without limitation, insurance proceeds
thereof (but without power of sale), to secure the prompt payment and
performance as and when due of all obligations and indebtedness of Lessee, now
existing or hereafter created, to Lessor pursuant to this Lease or otherwise.
In furtherance of the foregoing, Lessee shall execute and deliver to Lessor, to
be recorded at Lessee's expense, Uniform Commercial Code financing statements,
statements of amendment and statements of continuation as reasonably may be
required by Lessor to perfect and maintain perfected such security interest.
6. LESSEE'S PURCHASE AND RENEWAL OPTIONS. With respect to the Equipment
described on this Schedule, Section 32 of the Master Lease ("Renewal and
Purchase Options") is hereby deleted in its entirety and the following is
substituted in its place:
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<PAGE>
(a) RIGHTS ONLY IF NO DEFAULT. Lessee shall have the options described in
this Section 6 only if at the time such right would otherwise inure to Lessee's
benefit, or such option would be exercisable by Lessee, no Default or Event of
Default shall have occurred or be continuing under the Lease. In all events,
Lessor's rights and Lessee's obligations upon a Default or Event of Default are
as provided in Section 22 of the Lease.
(b) LIMITATIONS ON RENEWALS AND EXERCISE OF OPTIONS. Each of the options
granted to Lessee hereunder shall be available to Lessee at the expiration of
the Initial Term and any Renewal Term provided that (i) Lessee shall not have
the right to renew or extend the Term of the Lease for any period beyond
eighty-four (84) months from the Rental Commencement Date of the Initial Term
(the "Total Term"), (ii) the Lessee may not exercise more than one option to
be effective at the expiration of the Initial Term or any Renewal Term and
(iii) Lessee has given Lessor written notice of Lessee's exercise of an
option (the "Option Notice") not less than one hundred eighty (180) days nor
more than two hundred seventy (270) days prior to the Initial Term Expiration
Date in the case of both (a) an option exercised during the Initial Term of
this Lease or (b) any option exercised during the last day of the then
current Renewal Term in the case of an option exercised during a Renewal
Term, a "Renewal Term Termination Date"). In the event Lessee fails to give
Lessor the Option Notice, Lessee will be deemed to have elected the Renewal
Option set forth below unless electing the Renewal Option would cause the
Renewal Term that would result from exercising the Renewal Option, when added
to the Initial Term and all previous Renewal Terms, to exceed the Total Term,
in which case Lessee shall be deemed to have elected the Purchase Option.
(c) PURCHASE OPTION. Lessee shall have the option (the "Purchase Option")
and, if Lessee is deemed to have elected this Purchase Option, Lessee shall have
the obligation, to purchase all, but not less than all, Items of Equipment on
the Initial Term Expiration Date or the Renewal Term Expiration Date, as the
case may be, at a price (the "Purchase Option Price") equal to the amount shown
in the following table for the Purchase Option Price corresponding to the
applicable Initial Term Expiration Date or Renewal Term Expiration Date, as the
case may be, and in each case plus applicable sales taxes:
<TABLE>
<CAPTION>
Initial Term Expiration Date or Corresponding Purchase Option Price
Renewal Term Expiration Date
---------------------------------------------------------------------------------
<S> <C>
Initial Term Expiration Date $192,375.00
First Renewal Term Expiration Date $122,535.00
Second Renewal Term Expiration Date $45,000.00
</TABLE>
Payment of the Purchase Option Price, applicable sales taxes and all other
amounts due and owing by Lessee under the Lease (including, without limitation,
Rent) on or before the Initial Term Expiration Date or the Renewal Term
Expiration Date, as the case may be, shall be made on such date in immediately
available funds against delivery of a bill of sale transferring to Lessee all
right, title and interest of Lessor in and to the Equipment ON AN "AS IS" "WHERE
IS" BASIS, WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE. LESSOR HEREBY
SPECIFICALLY DISCLAIMS ANY SUCH REPRESENTATIONS AND WARRANTIES AND MAY INCLUDE
THESE AND OTHER DISCLAIMERS IN ANY SALE DOCUMENTATION.
(d) RENEWAL OPTION. Lessee shall have the option (the "Renewal Option") to
extend the Term of the Lease for an additional non-cancelable period of twelve
(12) months as to all but not less than all of the Equipment so long as (i)
Lessee is entitled to elect the Renewal Option, (ii) Lessee has not elected the
Purchase Option or been deemed to have elected the Purchase Option or otherwise
exercised or consummated the Purchase Option and (iii) exercising the Renewal
Option is permitted in Section B above. If Lessee has elected the Renewal
Option, or is deemed to have elected the Renewal Option, Lessee agrees to pay
Rent throughout the Renewal Term in twelve (12) consecutive monthly installments
payable in arrears commencing on the Initial Term Expiration Date or the Renewal
Term Expiration Date, as the case may be, and on the same day of each month
thereafter. Each installment of Rent during the Renewal Term shall be in an
amount equal to the Rent set forth in Section 3 of this Lease.
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<PAGE>
(e) SALE OPTION. Lessee shall have the option (the "Sale Option") to sell
(or cause to be sold) all but not less than all of the Equipment under and in
accordance with this Section E, and to pay or receive an adjustment to Rent as
provided in this Section E. If Lessee fails to exercise either the Purchase
Option or the Renewal Option, and Lessee is not deemed to have exercised either
the Purchase Option or the Renewal Option, Lessee shall be deemed to have
elected this Sale Option and to pay or receive the adjustment to Rent as
provided in this Section E. If Lessee elects, or is deemed to have elected,
this Sale Option, Lessee shall (1) sell the Equipment to a third party on or
before the Initial Term Expiration Date or the Renewal Term Expiration Date, as
the case may be, (2) at Lessor's election exercised in Lessor's sole discretion,
deliver the Equipment to an Equipment broker or seller designated by Lessor, who
shall sell the Equipment to a third party at such time as Lessor may determine
in its sole discretion, and Lessee shall be responsible for all costs of
delivery and, if applicable, storage (either of them a "Third Party Sale") and
(3) whether proceeding under clause (1) or (2) of this Section E, pay, or in the
proper case, receive, the adjustment to Rent provided in paragraph (i) of this
Section E. Any Third Party Sale shall be (a) subject to Lessor's approval and
(b) in the case of a Third Party Sale by Lessee, for cash payable upon closing
of such sale. IT IS EXPRESSLY UNDERSTOOD THAT SUCH THIRD PARTY SALE IS "AS IS,
WHERE IS", WITHOUT ANY WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY MATTER
WHATSOEVER, INCLUDING WITHOUT LIMITATION, THE CONDITION OF THE EQUIPMENT, ITS
MERCHANTABILITY OR ITS FITNESS FOR ANY PARTICULAR PURPOSE, AND LESSOR EXPRESSLY
DISCLAIMS THE SAME.
(i) If the Net Proceeds (as hereinafter defined) of a sale of the
Equipment to a third party (in connection with a Third Party Sale) are less
than the Purchase Option Price, Lessee shall, on the Initial Term
Expiration Date or Renewal Term Expiration Date, as the case may be, in the
case of a Sale by Lessee or upon demand after any other sale of the
Equipment under this Section E, pay to Lessor, in immediately available
funds as an adjustment to Rent, an amount equal to such difference, except
that the amount of such difference that Lessee must pay shall not exceed
the percentage of the Total Cost shown in the following table for the
applicable Initial Term Expiration Date or Renewal Term Expiration Date, as
the case may be:
<TABLE>
<CAPTION>
Initial Term Expiration Date or Corresponding Percentage of Total Cost
Renewal Term Expiration Date
--------------------------------------------------------------------------------------------------
<S> <C>
Initial Term Expiration Date 25.98%
First Renewal Term Expiration Date 22.91%
Second Renewal Term Expiration Date 7.59%
</TABLE>
If, however, such Net Proceeds (as hereinafter defined) as are actually
received by Lessor exceed the Purchase Option Price, Lessor shall remit to
Lessee an amount equal to such excess as an adjustment to the Rent payable
under the Lease.
(ii) As used herein, the term "Net Proceeds" shall mean, with respect to
the Equipment sold, the gross proceeds of such sale less (a) all sales
taxes and other taxes (excluding taxes on or measured by Lessor's income)
as may be applicable to the sale of the Equipment, (b) all fees, expenses
of sale, reconditioning expenses and any other expenses in connection with
storage, handling of the Equipment or its preparation for sale as well as
any legal or other professional fees incurred by Lessor, and (c) any other
amounts for which, if not paid, Lessor would be liable for payment or
which, if not paid, would constitute a lien on the Equipment.
7. MODIFICATIONS TO MASTER LEASE. With respect to the Equipment described on
this Equipment Schedule, the Master Lease shall be modified as follows:
(a) The following shall be inserted as the penultimate sentence of Section
11 of the Master Lease ("Use; Alterations"):
Title to all such alterations, additions, modifications or
improvements shall immediately, and without further act, vest in
Lessee and thereupon shall be deemed to constitute Items of
Equipment and be fully subject to this Lease as if originally leased
hereunder.
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<PAGE>
(b) The following shall be inserted as the penultimate sentence of Section
12 of the Master Lease ("Repairs and Maintenance"):
Title to such replacement part shall immediately (and without
further act) vest in Lessee upon installation, attachment or
incorporation of the same in, on or into such Item of Equipment and
thereupon shall be deemed to constitute an Item of Equipment and be
fully subject to this Lease as if originally leased hereunder.
(c) As used in Section 22(a) of the Master Lease ("Events of Default"),
the term "Event of Default" shall also mean any of the following events: (1) a
change in control occurs in Lessee or any Guarantor; or (2) the death or
dissolution of Lessee or any Guarantor.
(d) Section 22(b) of the Master Lease ("Events of Default") is hereby
amended as follows: (1) with respect to Section 22(b)(4), the word "terminate"
is hereby deleted and the words "cancel or terminate" are hereby substituted in
its place; (2) with respect to Section 22(b)(6), the word "termination" is
hereby deleted and the words "cancellation or termination" are hereby
substituted in its place; and (3) with respect to Section 22(b)(7), the word
"terminated" is hereby deleted and the words "canceled or terminated" are hereby
substituted in its place.
8. PERSONAL PROPERTY TAX, DISCLAIMER OF INCOME TAX TREATMENT. (a) Lessee
recognizes that, pursuant to Section 18 of the Master Lease, it is Lessee's
responsibility to include, if required by Applicable Law, all equipment financed
under this Lease in Lessee's personal property tax returns and, if necessary, to
pay any resulting property tax bills. Except in those jurisdictions in which
Lessor is required to list itself as owner of all such Items of Equipment, upon
receipt by Lessee of any property tax bill pertaining to such Items of Equipment
from the appropriate taxing authority, Lessee will promptly pay all such taxes
when due. In those jurisdictions in which Lessor is required to list itself as
owner of all such Items of Equipment, upon receipt by Lessee of any property tax
bill pertaining to such Items of Equipment, Lessee will promptly forward to
Lessor such property tax bill and related payment. Upon receipt by Lessor of
any such property tax bill and related payment, Lessor will pay such tax.
Lessor and Lessee acknowledge that personal property tax policies vary from
state to state and that, where uncertainty exists as to a particular state's
policies, Lessee shall contact its attorneys or financial advisors (who may be
familiar with such state's personal property tax policy) for advice.
(b) Lessor and Lessee agree that this Lease is not a "true lease" for
federal or state income tax purposes. Lessor agrees that it shall not seek to
obtain any tax benefits arising out of or related to the ownership of the
Equipment including without limitation any MACRS depreciation that may be
available with respect to the Equipment. It is expressly acknowledged by
Lessee, however, that LESSOR HAS MADE NO WARRANTIES, STATEMENTS OR
REPRESENTATIONS AS TO ANY TAX MATTERS, AND LESSEE HEREBY DISCLAIMS ANY RELIANCE
ON ANY SUCH WARRANTIES, STATEMENTS OR REPRESENTATIONS MADE BY LESSOR WITH
RESPECT THERETO. Lessor agrees that it shall not report this Lease, or any
aspect of this Lease, as a "true lease" for federal or any state income tax
purposes, or seek to obtain any tax benefits arising out of or in connection
with any lease to Lessee of the Equipment.
9. STIPULATED LOSS VALUE. The Stipulated Loss Values applicable to the
Equipment and this Lease are as set forth on a supplement (the "Stipulated Loss
Value Supplement") prepared by Lessor.
10. ADDITIONAL MAINTENANCE REQUIREMENTS. See the Return/Maintenance Addendum
executed in connection herewith and made a part hereof.
11. OTHER ADDITIONAL TERMS. See the Joint Exercise of Options Addendum
executed in connection herewith and made a part hereof.
12. GOVERNING LAW. This Schedule is being delivered in the State of New York
and shall in all respects be governed by, and construed in accordance with, the
laws of the State of New York, including all matters of construction, validity
and performance without regard to conflict of laws principles.
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<PAGE>
13. MORE THAN ONE LESSEE. If more than one person or entity executes this
Schedule, and all addenda or other documents executed in connection herewith, as
"Lessee," the obligations of "Lessee" contained herein and therein shall be
deemed joint and several and all references to "Lessee" shall apply both
individually and jointly.
14. RELATIONSHIP TO MASTER LEASE; FURTHER ASSURANCES. This Schedule shall be
construed in connection with and as part of the Lease, and all terms and
conditions contained in the Master Lease are hereby incorporated herein by
reference with the same force and effect as if such terms and conditions were
fully stated herein. By execution of this Schedule, Lessee and Lessor reaffirm
all terms and conditions of the Master Lease except as they may be modified
hereby. To the extent that any of the terms and conditions of this Schedule are
contrary to or inconsistent with any terms and conditions of the Master Lease,
the terms and conditions of this Schedule shall govern. LESSEE HEREBY CERTIFIES
TO LESSOR THAT THE REPRESENTATIONS AND WARRANTIES MADE BY LESSEE IN THE MASTER
LEASE (INCLUDING, WITHOUT LIMITATION, SECTION 31 THEREOF) ARE TRUE AND CORRECT
IN ALL MATERIAL RESPECTS AS OF THE DATE OF THIS SCHEDULE WITH THE SAME EFFECT AS
THOUGH MADE ON AND AS OF SUCH DATE. Lessee shall take such additional actions
and execute and deliver such additional documents as Lessor shall deem necessary
from time to time to effectuate the terms of the Lease.
IN WITNESS WHEREOF, Lessor and Lessee have caused this Equipment Schedule
to be duly executed and delivered on the day and year first above written.
LESSOR: LESSEE:
KEYCORP LEASING, JORE CORPORATION
A DIVISION OF KEY CORPORATE CAPITAL INC.
By: /s/ Kelly M. Reale By: /s/ Matt Jore
------------------------------------- --------------------------------
Name: KELLY M. REALE Name: MATT JORE
Title: ASSISTANT TEAM LEADER Title: PRES.
COUNTERPART NO. 1 OF 1 SERIALLY NUMBERED MANUALLY EXECUTED COUNTERPARTS. TO THE
EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL
CODE, NO SECURITY INTEREST MAY BE CREATED THROUGH THE TRANSFER AND POSSESSION OF
ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
- --------------------------------------------------------------------------------
Page 5 of 5
<PAGE>
AMENDMENT TO MASTER EQUIPMENT LEASE AGREEMENT
- --------------------------------------------------------------------------------
THIS AMENDMENT dated as of July 8, 1998 amends that certain Master
Equipment Lease Agreement dated as of July 8, between KEYCORP LEASING, A
DIVISION OF KEY CORPORATE CAPITAL INC., as Lessor, and JORE CORPORATION, as
Lessee (the "Master Lease"). Unless otherwise specified herein, all capitalized
terms shall have the meanings ascribed to them in the Master Lease.
Lessor and Lessee hereby agree that the Master Lease will be amended, with
respect to each Equipment Schedule executed in connection therewith, to add the
following section:
LESSEE'S FINANCIAL COVENANTS. Lessee hereby covenants with Lessor as follows:
1. On a continuing basis, from the date of the Master Lease until the date
on which Lessee's obligations thereunder are fully paid and performed, Lessee
hereby covenants and agrees that:
I. TANGIBLE NET WORTH: its Tangible Net Worth shall not be less than
$2,300,000, increasing to $4,000,000 as of December 31, 1998, and then
increasing to $5,200,000 as of December 31, 1999, as measured on a fiscal
basis.
II. LEVERAGE RATIO: its Leverage Ratio shall not exceed 6.0 to 1.0, as
measured on a fiscal basis.
III. DEBT COVERAGE RATIO: its Debt Coverage Ratio shall not be less than 2.0
to 1.0, as measured on a fiscal basis. This ratio shall be increased to
2.75 to 1.0, as of December 31, 1999 and shall be maintained thereafter.
IV. EXCESS CASH FLOW COVERAGE: its Excess Cash Flow Coverage shall not be
less than $1,000,000, as measured on a fiscal basis.
V. DEFINITIONS.
a) "TANGIBLE NET WORTH" shall mean (1) the gross book value of all
assets, excluding goodwill, patents, trademarks, licenses, trade
names, organizational expenses, treasury stock, unamortized debt
discount and expense, deferred research and developmental costs, and
other like intangibles, less (2) Total Liabilities.
b) "TOTAL LIABILITIES" shall mean all debt and other obligations,
including, without limitation, Current Liabilities and long term debt
(including, without limitation, term loans, bond issuances, debentures
or notes, capital leases and deferred credit).
c) "LEVERAGE RATIO" shall mean the ratio of Total Liabilities to Tangible
Net Worth.
d) "DEBT COVERAGE RATIO" shall mean the ratio of (1) the sum of net
income before taxes, interest expense, depreciation, amortization and
other non-cash expenses, excluding any extraordinary gains or losses,
to (2) the sum current maturities of long term debt and capital lease
obligations.
e) "EXCESS CASH FLOW COVERAGE" shall mean Lessee's net profit for the
applicable fiscal year exclusive of extraordinary gains, plus non-cash
outlay expenses of depreciation and amortization, less dividends and
distributions to shareholders, minus all current maturities of
Lessee's long term debt, including capital leases, as shown on
Lessee's financial statements.
- --------------------------------------------------------------------------------
Page 1 of 2
<PAGE>
Except as modified hereby, all of the terms, covenants and conditions of
the Master Lease shall remain in full force and effect and are in all respects
hereby ratified and affirmed.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Amendment as of
the date first above written.
LESSOR: LESSEE:
KEYCORP LEASING, JORE CORPORATION
A DIVISION OF KEY CORPORATE CAPITAL INC.
By: /s/ Kelly M. Reale By: /s/ Matt Jore
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Name: Kelly M. Reale Name: Matt Jore
Title: Assistant Team Leader Title: President
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Page 2 of 2
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INTERIM FUNDING PROMISSORY NOTE
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U.S. $1,750,000.00 Date: March 3, 1999
FOR VALUE RECEIVED, JORE CORPORATION, a Montana corporation, with its principal
place of business at 45000 Highway 93 South, Ronan, MT 59864 ("Maker"), promises
to pay to the order of KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC,
("Holder"), the sum of ONE MILLION SEVEN HUNDRED FIFTY THOUSAND AND 00 CENTS
($1,750,000.00) in lawful money of the United States of America or so much
thereof as from time to time shall have been advanced hereunder (the
"Principal"), with interest thereon as hereafter provided ("Interest"), to be
paid in the manner set forth herein. This Interim Funding Promissory Note is
hereinafter referred to as, this "Promissory Note."
1. INTEREST RATE; PLACE OF PAYMENT. Interest on the balance of the
Principal outstanding on this Promissory Note shall accrue with respect to
each advance hereunder (each, an "Advance") from the date of such Advance and
shall be due and payable at a floating rate per annum (the "Interest Rate")
equal to the Prime Rate (as hereinafter defined) in effect from time to time
plus one percent (1%). The Interest Rate shall be immediately and
correspondingly adjusted with each change in the Prime Rate. Interest shall
be calculated on the basis of a 360-day year consisting of twelve 30-day
months. Interest shall accrue until the date of receipt of payment. As used
herein, the term "Prime Rate" shall mean the prime rate announced from time
to time in THE WALL STREET JOURNAL. If the Prime Rate is no longer available,
Holder will choose a new index which is based upon comparable information and
will give Maker notice of such new "Prime Rate." Payment of the Principal and
Interest hereunder shall be made to Holder at P.O. Box 1865, Albany, New York
12201-1865, or at such other place as Holder may designate from time to time
in writing.
2. REPAYMENT TERMS. Interest on the Principal at the rates aforesaid
shall be due and payable monthly in arrears on the last day of each month
beginning with the month in which Holder funds the first Advance hereunder to
and including the earlier of the following dates (the "Outside Maturity Date"):
(a) June 27, 1999; or (b) the date on which a prepayment is required under
Section 4(b) hereof; or (c) the final Rent Commencement Date for the final
Schedule under, and as defined in, the Master Equipment Lease Agreement dated as
of July 8, 1998 between the Maker, as lessee, and the Holder, as lessor (such
Master Equipment Lease Agreement, together with Equipment Schedules from time to
time executed in connection therewith, are hereinafter collectively referred to
as, the "Lease"). NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN, THE
ENTIRE UNPAID BALANCE OF THE PRINCIPAL ADVANCED HEREUNDER, TOGETHER WITH
ACCRUED AND UNPAID INTEREST THEREON AT THE APPLICABLE RATE AFORESAID, SHALL BE
DUE AND PAYABLE ON THE OUTSIDE MATURITY DATE. In addition, Maker will pay a late
payment charge of five percent (5%) of any payment due hereunder that is more
than ten days late, for each month or part thereof that the same remains unpaid,
computed from the due date thereof through the date of receipt thereof. Holder
reserves the right to require any payment on this Promissory Note, whether such
payment represents a regular installment or a prepayment to be payable by wired
federal funds or other immediately available funds.
3. LOAN AGREEMENT. This Promissory Note hereby incorporates by reference
all of the terms and conditions of an Interim Funding Loan And Security
Agreement (the "Loan Agreement) dated as of February 12, 1999 between Maker and
Holder to the same extent, and with the same force and effect, as if such terms
and conditions were fully set forth herein and Maker hereby covenants and
agrees to observe and perform such terms and conditions strictly in accordance
with the Loan Agreement. Requisitions and advances under this Promissory Note
shall be made only on the terms and conditions set forth in the Loan Agreement.
Advances hereunder shall be requested by a drawdown request in the form attached
hereto as EXHIBIT A (the "Drawdown Request") and shall be evidenced by a
drawdown certificate in the form attached hereto as EXHIBIT B (the "Drawdown
Certificate").
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Form No. 96-602898 Page 1 of 4
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4. PREPAYMENT TERMS. (a) VOLUNTARY PREPAYMENT. Maker may prepay, in
connection with any Rent Commencement Date under an Equipment Schedule, the
Principal outstanding hereunder at any time without premium or penalty.
(b) REQUIRED PREPAYMENT. In the event that (1) more than $100,000 of
the Equipment to which Advance Payments relate is deemed first placed in service
during a calendar quarter, or (2) any Equipment to which Advance Payments relate
is deemed first placed in service during a calendar year, then, on the final day
of each such calendar quarter or calendar year, as the case may be, Maker shall
prepay an amount of Principal, together with accrued and unpaid interest thereon
at the applicable rate aforesaid, which equals the cost of such Equipment.
Holder shall apply, and Maker directs Holder to apply, the proceeds of the Lease
to such prepayment, February 12,1999.
5. SECURITY . Payment of the Principal and Interest hereunder, and the
performance and observance by Maker of all agreements, covenants and provisions
contained herein, is secured by the grant by Maker to Holder of a first priority
security interest in the Collateral (as defined in the Loan Agreement).
6. TRANSFER OR ASSIGNMENT. Holder may at any time assign or otherwise
transfer or negotiate this Promissory Note in whole or in part, without any
notice to Maker.
7. APPLICATION OF PAYMENTS. Each payment received on this Promissory Note
shall be applied first to unpaid late payment charges (if any) hereunder, then
to Interest as of the payment due date and the balance, if any, to the
outstanding Principal as of the date received.
8. EVENTS OF DEFAULT. (a) The occurrence of any of the "Events of
Default" set forth in the Loan Agreement shall constitute and be an event of
default hereunder (an "Event of Default").
(b) Notwithstanding anything to the contrary contained herein, upon
the occurrence of an Event of Default (i) Holder shall have the right to cause
the entire outstanding balance of the Principal, together with all accrued and
unpaid Interest thereon, to become immediately due and payable without notice or
demand, (ii) Maker shall pay on demand all costs and expenses of Holder with
respect to the enforcement of its rights and remedies hereunder and under the
Loan Agreement, including, without limitation, reasonable attorneys' fees, and
(iii) Holder shall have the right to exercise any and all remedies available to
it hereunder and under the Loan Agreement.
(c) The remedies of Holder provided herein and in the Loan Agreement
shall be cumulative and concurrent and may be pursued singly, successively or
concurrently at the sole discretion of Holder and may be exercised as often as
occasion therefor shall occur. The failure to exercise, or any delay in the
exercise of, any right or remedy shall in no event be construed as a waiver,
release or exhaustion of any such remedies.
9. COLLECTION COSTS. In addition to the Principal, Interest, and any late
payment charges (if any), Holder shall be entitled to collect all costs and
expenses of collection, including, without limitation, reasonable attorneys'
fees, incurred in connection with the protection or realization of the
Collateral or in connection with Holder's collection efforts, whether or not
suit on this Promissory Note or any foreclosure proceeding is filed. All such
costs and expenses shall be payable on demand and, until paid, shall be secured
by the security interest evidenced by the Loan Agreement and all other
collateral, if any, held by Holder as security for Maker's obligations under
this Promissory Note.
10. BINDING AGREEMENT; GOVERNING LAW. THIS AGREEMENT IS BEING DELIVERED IN
THE STATE OF NEW YORK AND SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION,
VALIDITY AND PERFORMANCE. The provisions of this Promissory Note shall be
binding upon, and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
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Form No. 96-602898 Page 2 of 4
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11. MORE THAN ONE SIGNER. If more than one person or entity signs this
Promissory Note as a Maker, the obligations contained herein shall be deemed
joint and several and all references to "Maker" shall apply both individually
and jointly.
12. GENERAL. Maker represents and warrants that this Promissory Note
evidences a loan for business or commercial purposes. By signing this Promissory
Note, Maker agrees to be legally bound to all terms and conditions contained
herein.
13. WAIVER. MAKER AND ALL ENDORSERS, SURETIES, AND GUARANTORS HEREOF
HEREBY JOINTLY AND SEVERALLY WAIVE PRESENTMENT FOR PAYMENT, DEMAND, NOTICE OF
NONPAYMENT OR DISHONOR, NOTICE OF PROTEST AND PROTEST OF THIS PROMISSORY NOTE.
MAKER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY LITIGATION IN ANY COURT
WITH RESPECT TO, IN CONNECTION WITH OR ARISING OUT OF, THIS PROMISSORY NOTE OR
ANY DOCUMENT DELIVERED IN CONNECTION WITH THIS PROMISSORY NOTE.
14. USURY; PARTIAL INVALIDITY. . (a) At no time shall the Interest Rate
(or any other late charges or other amounts paid or collected hereunder) exceed
the highest rate allowed by applicable law for this type of loan. Should Holder
ever collect interest at a rate that exceeds the such applicable legal limit,
such excess will be credited to the Principal. If the amount of the credit
exceeds the balance of the Principal then outstanding on this Promissory Note,
such excess will be returned to Maker; and the effective rate of interest
automatically shall be reduced to the maximum lawful contract rate allowed under
Applicable Law as now or hereafter construed by the courts having jurisdiction
thereof. Notwithstanding the foregoing, if any applicable state law is amended
or the law of the United States of America preempts any applicable state law, so
that it becomes lawful for Holder to receive a greater per annum interest rate
than is presently allowed by law, the Maker agrees that on the effective date of
such amendment or preemption, as the case may be, the lawful maximum hereunder
shall be increased to the maximum interest rate per annum allowed by the amended
state law or the law of the United States of America (but not in excess of the
Interest Rate provided for herein). All calculations of the rate of interest
contracted for, charged or received under this Note or the Loan Agreement which
are made for the purpose of determining whether such rate exceeds the maximum
lawful contract rate, shall be made, to the extent permitted by applicable law,
by amortizing, prorating, allocating and spreading in equal parts during the
period of the full stated term of the indebtedness evidenced hereby, all
interest at any time contracted for, charged or received from the Maker or
otherwise by Holder in connection with the Secured Obligations (as defined in
the Loan Agreement).
(b) Whenever possible, each provision of this Promissory Note shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Promissory Note shall be prohibited by or invalid
under the laws of any jurisdiction, such provision, as to such jurisdiction,
shall be ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Promissory Note in any other jurisdiction.
15. NOTICES. All notices and other communications hereunder shall be in
writing and shall be transmitted by hand, overnight courier or certified mail
(return receipt requested), postage prepaid. Such notices and other
communications shall be addressed to the respective party at the address set
forth above or at such other address as any party may from time to time
designate by notice duly given in accordance with this Section. Such notices and
other communications shall be effective upon receipt.
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Form No. 96-602898 Page 3 of 4
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IN WITNESS WHEREOF, Maker, intending to be legally bound, has caused this
Promissory Note to be duly executed under seal on the day and year first above
written.
Maker:
JORE CORPORATION
By: /s/Matt Jore
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Name: Matt Jore
Title: President
STATE OF Montana )
------- ) ss.:
COUNTY OF Lake )
-------
On this 2nd day of March, 1999, before me the subscriber personally
appeared Matt Jore, who being by me duly sworn, did depose and say: that
(s)he resides at Ronan, MT 59864, that (s)he is the President of JORE
CORPORATION, the corporation described in and which executed the foregoing
instrument; and that (s)he signed his/her name thereto by order of the Board
of Directors of said corporation.
/s/ Brenda S. Dennis
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NOTARY PUBLIC Brenda S. Dennis
My Commission expires: 12-1-2001
<PAGE>
EXHIBIT A
FORM OF DRAWDOWN REQUEST
[TO BE PREPARED ON BORROWER'S LETTERHEAD]
[Date]
KeyCorp Leasing
A Division of Key Corporate Capital Inc.
54 State Street, 9th Floor
Albany, New York 12207
Attn: Account Manager
Dear Account Manager:
In accordance with the terms and conditions of Master Equipment Lease
Agreement dated as of July 8, 1998 (the "Lease"), an Interim Funding Loan and
Security Agreement dated as of February 12,1999 and an Interim Funding
Promissory Note dated as of February 12 1999, each either by and between
KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC., ("KCL"), and JORE
CORPORATION (collectively, the "Agreements") or in favor of KCL, Lessee
certifies as follows:
1. KCL is hereby authorized to advance $ _________ under the Agreements
and to forward payment of the proceeds of such advance directly to
________________ for payment of the following attached invoices in the
amounts shown:
VENDOR EQUIPMENT DESCRIPTION AMOUNT (minimum $50,000)
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2. This advance shall apply to Equipment Schedule < EQUIP_SCHED_NO > to
the Lease. The following documentation is enclosed for your review in support
of this drawdown request:
a. Check for $50.00 for drawdown request.
b. Invoices described above.
c. Other (specify):
Please make this advance effective as of____________, 199__.
Sincerely,
Maker:
JORE CORPORATION
By: /s/ [ILLEGIBLE]
-----------------------------
Name:
---------------------
Title:
---------------------
<PAGE>
EXHIBIT B
Drawdown Certificate under
Interim Funding Promissory Note Dated as of FEBRUARY 12,1999
by JORE CORPORATION in favor of KEYCORP LEASING, A DIVISION OF KEY CORPORATE
CAPITAL INC.,
The above-referenced Promissory Note and this Drawdown Certificate are in
connection with the Master Equipment lease Agreement dated as of July 8, 1998
between the Maker, as lessee, and the Holder, as lessor, and the Equipment
Schedule Number (to be determined) thereto. Pursuant to a Drawdown Request dated
________________ from JORE CORPORATION, the following Advance Payment was made
by KEYCORP LEASING, A DIVISION OF KEY CORPORATE CAPITAL INC.:
Date of Drawdown: , 199
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Drawdown Amount: $
-----------------------
Initial Interest Rate on Drawdown Amount 8.75%
(the Interest Rate floats as set forth in the
above-referenced Promissory Note):
Equipment Schedule to which Equipment Schedule (to be
Drawdown Applies: determined)
KEYCORP LEASING,
A DIVISION OF KEY CORPORATE CAPITAL INC.
By:
---------------------------------------
Name:
Title:
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Form No. 96-602898
<PAGE>
OPTION AGREEMENT
THIS OPTION AGREEMENT entered into this 1st day of February, 1999, by and
between JORE CORPORATION, a Montana corporation, of Ronan, Montana (the
"Optionee") and MATTHEW JORE and JORE LAND, LLC, a Montana limited liability
company, of Ronan, Montana, (jointly and severally, the "Optionor");
1. For and in consideration of the sum of One Hundred Dollars ($100.00) paid
by the Optionee and received and acknowledged by the Optionor, the Optionor
hereby grants to the Optionee the option to purchase the real property and
any improvements thereon described on Exhibit "A" attached hereto (the
"premises") at the time, for the consideration, and upon the terms and
conditions hereinafter set forth.
2. The Optionee may purchase the premises only during the period beginning
February 1, 1999 and ending 10 years thereafter on February 1, 2009. If
this option is not exercised on or before February 1, 2009 and the sale and
transfer of the premises is not completed on or prior to 60 days following
the exercise date (except for any delays which are not due to the acts of
Optionee, in which event the time to complete the sale and transfer shall
be extended for a reasonable time), this option shall expire and shall
thereafter be of no force or effect.
3. The election of the Optionee to exercise the option to purchase the
premises must be evidenced by a notice in writing addressed to the
Optionor, sent by certified mail, return receipt requested, to the address
of the Optionor as follows:
Matthew Jore
Jore Land, LLC
45000 Highway 93 South
Ronan, Montana 59804
4. The price to be paid by the Optionee to the Optionor for the premises if
the option is exercised, shall be the fair market value of the premises at
the date of exercise, as determined by the parties, which is intended to be
the cost of such premises to the Optionor, or, if the parties are unable to
reach an agreement within 30 days of the notice of exercise, then such
amount shall be determined by appraiser Ed McGreevy, with the costs of the
appraisal to be shared by the parties.
5. The option price to be paid to the Optionor, as hereinabove provided, shall
except as to income taxes be a net amount to the Optionor, and all expenses
in connection with the transfer of the premises, including, but not limited
to, title insurance, recording fees, documentary stamps, conveyance tax,
and all other closing costs, shall be paid by the Optionee. The option
price shall be paid by the Optionee in cash, assumption of debt, or a
combination thereof, to the Optionor currently with the conveyance of the
premises by the Optionor to the Optionee. The premises shall be conveyed by
the Optionor to the Optionee free and clear of liens and encumbrances
excepting municipal and zoning ordinances, recorded easements and recorded
restriction of record as of the commencement of this lease, and any other
recorded easements and recorded restrictions recorded thereafter and prior
to purchase which shall have been consented to in writing by Optionee, all
taxes or assessments, general or special, and any other defects, liens, or
encumbrances caused, created or suffered by the Optionee. Optionee shall
obtain and pay for any title evidence which Optionee may feel necessary
prior to conveyance, and the Optionor agrees to cooperate in connection
therewith by delivering to Optionee at least thirty (30) days before the
option date, any
<PAGE>
existing title evidence with respect to the premises.
6. This option may be exercised by Optionee by written notice given to
Optionor not less than sixty (60) days prior to the expiration of the
option term (the "purchase date").
7. Optionor shall at least fifteen (15) days prior to the purchase date
furnish Optionee with a commitment by a title insurance company licensed to
do business in the State of Montana to issue a policy of title insurance in
the full amount of the purchase price and guaranteeing Optionor's title to
the premises to be in the condition hereinafter required.
8. Conveyance shall be by Optionor's good and sufficient warranty deed free
and clear of any and all liens and encumbrances except (1) easements for
public utilities; (2) municipal, and zoning ordinances; (3) current taxes
and assessments not then due and payable and which are not the obligation
of Optionor; (4) liens, encumbrances and easements of record as of the date
of this Option Agreement; (5) debts assumed by Optionee as part of the
purchase price; and (6) any liens and encumbrances created by, through or
under Optionee. Upon Optionor's delivery of said warranty deed, the
purchase price shall be payable in full on the purchase date to Optionor.
In the event the title evidence furnished by Optionor discloses a defect
which cannot be cured and the curing of which Optionee is unwilling to
waives Optionee may withdraw his exercise of his option to purchase. If,
despite tender to Optionee the warranty deed and title evidence called for
above, Optionee shall not make payment of the purchase price on the
purchase date, all right and option of Optionee to purchase the premises
shall forever cease and determine subject to Optionor's right to require
specific performance of Optionee's exercise of his option to purchase and
to the Optionor's right to exercise any and all other remedies available to
it by reason of Optionee's failure or purchase.
WHEREFORE, the parties have set their hands this 1st day of February, 1999.
OPTIONEE: OPTIONOR:
JORE CORPORATION JORE LAND, LLC
By: /s/ Matthew Jore By: /s/ Matthew Jore
------------------------------------ -----------------------------
Matthew Jore, President Matthew Jore, Managing Member
/s/ Matthew Jore
-----------------------------
Matthew Jore
<PAGE>
STATE OF MONTANA )
:ss
COUNTY OF LAKE )
On this 1st day of February, in the year 1999, before me, the undersigned
Notary Public for the State of Montana, personally appeared Matthew Jore, known
to me to be the President of Jore Corporation, the corporation that executed the
within instrument, and acknowledged to me that such corporation executed the
same.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ Stephanie A. McClure
(Notarial Seal) ---------------------------------------
Notary Public for the State of Montana
Residing at Ronan, Montana
My Commission expires: September 2002
STATE OF MONTANA )
:ss
COUNTY OF LAKE )
On this 1st day of February, in the year 1999, before me, the undersigned
Notary Public for the State of Montana, personally appeared Matthew Jore, known
to me to be the Managing Member of Jore Land, LLC, the limited liability company
that executed the within instrument, and acknowledged to me that such limited
liability company executed the same.
IN WITNESS HEREOF, I have hereunto set my hand and affixed my official seal
the day and year first above written.
/s/ Stephanie A. McClure
(Notarial Seal) ---------------------------------------
Notary Public for the State of Montana
Residing at Ronan, Montana
My Commission expires: September 2002
STATE OF MONTANA )
:ss
COUNTY OF LAKE )
This instrument was acknowledged before me this 1st day of February, in the
year 1999, by Matthew Jore.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ Stephanie A. McClure
(Notarial Seal) ---------------------------------------
Notary Public for the State of Montana
Residing at Ronan, Montana
My Commission expires: September 2002
<PAGE>
ASSIGNMENT
WHEREAS, I, Matthew B. Jore a citizen of the United States of America, and
residing at Ronan, Montana, hereinafter referred to as the Inventor, have
invented certain new and useful improvements in a
"TWO-WAY QUICK CONNECTOR"
for which an application for Letters Patent of the United States was executed on
April 2, 1999.
NOW, THEREFORE, to all whom it may concern, be it known that the Inventor,
for and in consideration of the sum of $1.00 (one dollar) and other valuable
considerations in hand paid to the Inventor by Jore Corporation, a corporation
organized under the laws of the State of Montana, having a place of business at
45000 Highway 93 South, Ronan, Montana 59864, hereinafter referred to as the
Assignee, the receipt of all of which considerations is hereby acknowledged,
hereby sells, assigns and transfers unto the Assignee, its successors and
assigns, the entire right, title and interest in and to said application, all
the claimable subject matter thereof, any United States letters patent granted
thereon or for said subject matter or any part of it, and any division,
continuation, continuation-in-part, extension or re-issue of said application or
of any such letters patent, together with all rights to obtain letters patent
for said subject matter or any part of it in countries foreign to the United
States and the entire interest in such foreign letters patent.
AND, the Inventor hereby covenants with the Assignee, its successors and
assigns:
<PAGE>
(1) That the Inventor will communicate to it or them all facts known
to the Inventor pertaining to said subject matter and will, whenever requested
by it or them, give any and all lawful testimony and execute any and all patent
applications, assignments or other documents that may be deemed by it or them
necessary or desirable in order to obtain, maintain or enforce letters patent
for said subject matter or any part of it in the United States or in any country
foreign to the United States, or in order to vest title to any such application
or letters patent in the Assignee or its successors, assigns or nominees; and
(2) That the Inventor has the full right to convey the rights and
property herein assigned and has made no subsisting license, assignment or other
conveyance of right in or of the same to any person or party other than
Assignee.
Signed at Ronan, MT
-------------------
this 2nd day of April, 1999.
---- -------
/s/ Matthew B. Jore
---------------------------
Matthew B. Jore
STATE OF MONTANA )
)
COUNTY OF PARK )
On this 2nd day of April, 1999, before me personally appeared to me known
and known to me to be the person described in and who executed the foregoing
instrument, who duly acknowledged the same to be his free act and deed.
SEAL /s/ Stephanie A. McClure
-----------------------------------
Notary Public or U.S. Vice-Consul
<PAGE>
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COAST
LOAN AND SECURITY AGREEMENT
BORROWER: JORE, INC.
ADDRESS: 45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
DATE: MAY 15, 1996
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
COAST BUSINESS CREDIT, a division of Southern Pacific Thrift & Loan
Association ("Coast"), a California corporation, with offices at 12121
Wilshire Boulevard, Suite 1111, Los Angeles, California 90025, and the
borrower(s) named above (jointly and severally, the "Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed
to be a part of this Agreement, and the same is an integral part of this
Agreement. (Definitions of certain terms used in this Agreement are set
forth in Section 8 below.)
1. LOANS.
1.1 LOANS. Coast will make loans to Borrower (the "Loans"), in amounts
determined by Coast in its sole discretion, up to the amounts (the "Credit
Limit") shown on the Schedule, provided no Default or Event of Default has
occurred and is continuing.
1.2 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth
to the contrary in this Agreement. Interest shall be payable monthly, on the
last day of the month. Interest may, in Coast's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the
same rate as the other Loans. Regardless of the amount of Obligations that
may be outstanding from time to time, Borrower shall pay Coast minimum
monthly interest during the term of this Agreement with respect to the
Receivable Loans in the amount set forth on the Schedule (the "Minimum
Monthly Interest").
1.3 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Coast and are
not refundable.
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to Coast a security interest
in all of Borrower's interest in the following, whether now owned or
hereafter acquired, and wherever located: All Receivables, Inventory,
Equipment, and General Intangibles, including, without limitation, all of
Borrower's Deposit Accounts, and all money, and all property now or at any
time in the future in Coast's possession (including claims and credit
balances), and all proceeds of any of the foregoing (including proceeds of
any insurance policies, proceeds of proceeds, and claims against third
parties), all products of any of the foregoing, and all books and records
related to any of the foregoing (all of the foregoing, together with all
other property in which Coast may now or in the future be granted a lien or
security interest, is referred to herein, collectively, as the "Collateral").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will continue to be
-1-
<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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true, and that Borrower will at all times comply with all of the following
covenants:
3.1 CORPORATE EXISTENCE AND AUTHORITY. Borrower, if a corporation, is
and will continue to be, duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Borrower is
and will continue to be qualified and licensed to do business in all
jurisdictions in which any failure to do so would have a material adverse
effect on Borrower. The execution, delivery and performance by Borrower of
this Agreement, and all other documents contemplated hereby (i) have been
duly and validly authorized, (ii) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by
equitable principles and by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to creditors' rights generally), and
(iii) do not violate Borrower's articles or certificate of incorporation, or
Borrower's by-laws, or any law or any material agreement or instrument which
is binding upon Borrower or its property, and (iv) do not constitute grounds
for acceleration of any material indebtedness or obligation under any
material agreement or instrument which is binding upon Borrower or its
property.
3.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in
the heading to this Agreement is its correct name. Listed on the Schedule are
all prior names of Borrower and all of Borrower's present and prior trade
names. Borrower shall give Coast 30 days' prior written notice before
changing its name or doing business under any other name. Borrower has
complied, and will in the future comply, with all laws relating to the
conduct of business under a fictitious business name.
3.3 PLACE OF BUSINESS, LOCATION OF COLLATERAL. The address set forth
in the heading to this Agreement is Borrower's chief executive office. In
addition, Borrower has places of business and Collateral is located only at
the locations set forth on the Schedule. Borrower will give Coast at least 30
days prior written notice before opening any additional place of business,
changing its chief executive office, or moving any of the Collateral to a
location other than Borrower's Address or one of the locations set forth on
the Schedule.
3.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at
all times in the future be, the sole owner of all the Collateral, except for
items of Equipment which are leased by Borrower. The Collateral now is and
will remain free and clear of any and all liens, charges, security interests,
encumbrances and adverse claims, except for Permitted Liens. Coast now has,
and will continue to have, a first-priority perfected and enforceable
security interest in all of the Collateral, subject only to the Permitted
Liens, and Borrower will at all times defend Coast and the Collateral against
all claims of others. None of the Collateral now is or will be affixed to any
real property in such a manner, or with such intent, as to become a fixture.
Borrower is not and will not become a lessee under any real property lease
pursuant to which the lessor may obtain any rights in any of the Collateral
and no such lease now prohibits, restrains, impairs or will prohibit,
restrain or impair Borrower's right to remove any Collateral from the leased
premises. Whenever any Collateral is located upon premises in which any third
party has an interest (whether as owner, mortgagee, beneficiary under a deed
of trust, lien or otherwise), Borrower shall, whenever requested by Coast,
use its best efforts to cause such third party to execute and deliver to
Coast, in form acceptable to Coast, such waivers and subordinations as Coast
shall specify, so as to ensure that Coast's rights in the Collateral are, and
will continue to be, superior to the rights of any such third party. Borrower
will keep in full force and effect, and will comply with all the terms of,
any lease of real property where any of the Collateral now or in the future
may be located.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral
in good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records, comprising an
accounting system in accordance with generally accepted accounting principles.
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial
statements now or in the future delivered to Coast have been, and will be,
prepared in conformity with generally accepted accounting principles (except,
in the case of unaudited financial statements, for the absence of footnotes
and subject to normal year-end adjustments) and now and in the future will
fairly reflect the financial condition of Borrower, at the times and for the
periods therein stated. Between the last date covered by any such statement
provided to Coast and the date hereof, there has been no material adverse
change in the
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financial condition or business of Borrower. Borrower is now and will
continue to be solvent.
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has
timely filed, and will timely file, all tax returns and reports required by
foreign, federal, state and local law, and Borrower has timely paid, and will
timely pay, all foreign, federal, state and local taxes, assessments,
deposits and contributions now or in the future owed by Borrower. Borrower
may, however, defer payment of any contested taxes, provided that Borrower
(i) in good faith contests Borrower's obligation to pay the taxes by
appropriate proceedings promptly and diligently instituted and conducted,
(ii) notifies Coast in writing of the commencement of, and any material
development in, the proceedings, and (iii) posts bonds or takes any other
steps required to keep the contested taxes from becoming a lien upon any of
the Collateral. As of the date hereof, Borrower is unaware of any claims or
adjustments proposed for any of Borrower's prior tax years which could result
in additional taxes becoming due and payable by Borrower. Borrower has paid,
and shall continue to pay all amounts necessary to fund all present and
future pension, profit sharing and deferred compensation plans in accordance
with their terms, and Borrower has not and will not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could
result in any liability of Borrower, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other governmental
agency.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in
all material respects, with all provisions of all material foreign, federal,
state and local laws and regulations relating to Borrower, including, but not
limited to, those relating to Borrower's ownership of real or personal
property, the conduct and licensing of Borrower's business, and environmental
matters.
3.10 LITIGATION. Except as disclosed in the Schedule, there is no
claim, suit, litigation, proceeding or investigation pending or (to best of
Borrower's knowledge) threatened by or against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which may result, either separately or in the aggregate, in any
material adverse change in the financial condition or business of Borrower,
or in any material impairment in the ability of Borrower to carry on its
business in substantially the same manner as it is now being conducted.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or
against Borrower involving any single claim of $50,000 or more, or involving
$100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely
for lawful business purposes. Borrower is not purchasing or carrying any
"margin stock" (as defined in Regulation G of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used
to purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
4. Receivables.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made,
represent an undisputed bona fide existing unconditional obligation of the
Account Debtor created by the sale, delivery, and acceptance of goods or the
rendition of services in the ordinary course of Borrower's business.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE.
Borrower represents and warrants to Coast as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other
documents evidencing the Receivables are and shall be true and correct and
all such invoices, instruments and other documents and all of Borrower's
books and records are and shall be genuine and in all respects what they
purport to be. All sales and other transactions underlying or giving rise to
each Receivable shall fully comply with all applicable laws and governmental
rules and regulations. All signatures and endorsements on all documents,
instruments, and agreements relating to all Receivables are and shall be
genuine, and all such documents, instruments and agreements are and shall be
legally enforceable in accordance with their terms.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Coast transaction reports and loan requests, schedules of
Receivables, and schedules of collections, all on Coast's standard forms;
provided, however, that Borrower's failure to execute and deliver the same
shall not affect or limit Coast's security interest and other rights in all
of Borrower's Receivables,
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nor shall Coast's failure to advance or lend against a specific Receivable
affect or limit Coast's security interest and other rights therein. Loan
requests received after 10:30 AM will not be considered by Coast until the
next Business Day. Together with each such schedule, or later if requested by
Coast, Borrower shall furnish Coast with copies (or, at Coast's request,
originals) of all contracts, orders, invoices, and other similar documents,
and all original shipping instructions, delivery receipts, bills of lading,
and other evidence of delivery, for any goods the sale or disposition of
which gave rise to such Receivables, and Borrower warrants the genuineness of
all of the foregoing. Borrower shall also furnish to Coast an aged accounts
receivable trial balance in such form and at such intervals as Coast shall
request. In addition, Borrower shall deliver to Coast the originals of all
instruments, chattel paper, security agreements, guarantees and other
documents and property evidencing or securing any Receivables, upon receipt
thereof and in the same form as received, with all necessary endorsements,
all of which shall be with recourse. Borrower shall also provide Coast with
copies of all credit memos as and when requested by Coast.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to
collect all Receivables, unless and until an Event of Default has occurred.
Borrower shall hold all payments on, and proceeds of, Receivables in trust
for Coast, and Borrower shall deliver all such payments and proceeds to Coast
within one Business Day after receipt by Borrower, in their original form,
duly endorsed to Coast, to be applied to the Obligations in such order as
Coast shall determine. Coast may, in its discretion, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or
such other "blocked account" as Coast may specify, pursuant to a blocked
account agreement in such form as Coast may specify. Coast or its designee
may, at any time, notify Account Debtors that Coast has been granted a
security interest in the Receivables.
4.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition
of any Collateral shall be delivered to Coast within one Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of
Borrower's other funds or property, but will hold such proceeds separate and
apart from such other funds and property and in an express trust for Coast.
Noting in this Section limits the restrictions on disposition of Collateral
set forth elsewhere in this Agreement.
4.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise or settle any Receivable for less than payment in
full, or agree to do any of the foregoing, except that Borrower may do so,
provided that: (i) Borrower does so in good faith, in a commercially
reasonable manner, in the ordinary course of business, and in arm's length
transactions, which are reported to Coast on the regular reports provided to
Coast; (ii) no Default or Event of Default has occurred and is continuing;
and (iii) taking into account all such discounts settlements and forgiveness,
the total outstanding Loans will not exceed the Credit Limit. Coast may, at
any time after the occurrence of an Event of Default, settle or adjust
disputes or claims directly with Account Debtors for amounts and upon terms
which Coast considers advisable in its reasonable credit judgment and, in all
cases, Coast shall credit Borrower's Loan account with only the net amounts
received by Coast in payment of any Receivables.
4.7 RETURNS. Provided no Event of Default has occurred and is
continuing, if any Account Debtor returns any Inventory to Borrower in the
ordinary course of its business, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor
in the appropriate amount. In the event any attempted return occurs after the
occurrence of any Event of Default, Borrower shall (i) hold the returned
Inventory in trust for Coast, (ii) segregate all returned Inventory from all
of Borrower's other property, (iii) conspicuously label the returned
Inventory as subject to Coast's security interest, and (iv) immediately
notify Coast of the return of any Inventory, specifying the reason for such
return, the location and condition of the returned Inventory, and on Coast's
request deliver such returned Inventory to Coast.
4.8 VERIFICATION. Coast may, from time to time, verify directly with
the respective Account Debtors the validity, amount and other matters
relating to the Receivables, by means of mail, telephone or otherwise, either
in the name of Borrower or Coast or such other name as Coast may choose.
4.9 NO LIABILITY. Coast shall not under any circumstances be
responsible or liable for any shortage or discrepancy in, damage to, or loss
or destruction of, any goods, the sale or other disposition of which gives
rise to a Receivable, or for any error, act, omission, or delay of any kind
occurring in the settlement, failure to settle, collection or failure to
collect any Receivable, or for
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settling any Receivable in good faith for less than the full amount thereof,
nor shall Coast be deemed to be responsible for any of Borrower's obligations
under any contract or agreement giving rise to a Receivable. Nothing herein
shall, however, relieve Coast from liability for its own gross negligence or
willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Coast, in such form and amounts as Coast
may reasonably require, and Borrower shall provide evidence of such insurance
to Coast, so that Coast is satisfied that such insurance is, at all times, in
full force and effect. All liability insurance policies of Borrower shall
name Coast as an additional insured, and all property casualty and related
insurance policies of Borrower shall name Coast as a loss payee thereon and
Borrower shall cause a lenders loss payee endorsement in form reasonably
acceptable to Coast. Upon receipt of the proceeds of any such insurance,
Coast shall apply such proceeds in reduction of the Obligations as Coast
shall determine in its sole discretion, except that, provided no Default or
Event of Default has occurred and is continuing, Coast shall release to
Borrower insurance proceeds with respect to Equipment totaling less than
$50,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Coast may
require reasonable assurance that the insurance proceeds so released will be
so used. If Borrower fails to provide or pay for any insurance, Coast may,
but is not obligated to, obtain the same at Borrower's expense. Borrower
shall promptly deliver to Coast copies of all reports made to insurance
companies.
5.3 REPORTS. Borrower, at its expense, shall provide Coast with the
written reports set forth in the Schedule, and such other written reports
with respect to Borrower (including budgets, sales projections, operating
plans and other financial documentation), as Coast shall from time to time
reasonably specify.
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and
on one Business Day's notice, Coast, or its agents, shall have the right to
inspect, audit and copy Borrowers' books and records and the Collateral (the
"Audits"). Coast shall take reasonable steps to keep confidential all
confidential information obtained in any Audit, but Coast shall have the
right to disclose any such information to its auditors, regulatory agencies,
and attorneys, and pursuant to any subpoena or other legal process. The
Audits shall be conducted every 90 days at Borrower's expense and the charge
for the Audits shall be $550 per person per day (or such higher amount as
shall represent Coast's then current standard charge for the same), plus
reasonable out of pocket expenses. Borrower will not enter into any agreement
with any accounting firm, service bureau or third party to store Borrower's
books or records at any location other than Borrower's Address, without first
notifying Coast of the same and obtaining the written agreement from such
accounting firm, service bureau or other third party to give Coast the same
rights with respect to access to books and records and related rights as
Coast has under this Loan Agreement.
5.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior
written consent, do any of the following:
(i) merger or consolidate with another corporation or entity, except in
a transaction in which (A) the shareholders of the Borrower hold at least 50%
of the common stock and all other capital stock of the surviving corporation
immediately after such merger or consolidation, and (B) the Borrower is the
surviving corporation;
(ii) acquire any assets, except (A) in the ordinary course of business,
or (B) in a transaction or a series of transactions not involving the payment
of an aggregate amount in excess of $200,000;
(iii) enter into any other transaction outside the ordinary course of
business;
(iv) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the
sale of obsolete or unneeded Equipment in the ordinary course of business;
(v) store any Inventory or other Collateral with any warehouseman or
other third party;
(vi) sell any Inventory on a sale-or-return guaranteed sale,
consignment, or other contingent basis;
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(vii) make any loans of any money or other assets, except (A) advances
to customers or suppliers in the ordinary course of business, (B) travel
advances, employee relocation loans and other employee loans and advances in
the ordinary course of business, and (C) loans to employees, officers and
directors for the purpose of purchasing equity securities of the Borrower;
(viii) incur any debts, outside the ordinary course of business, which
would have a material, adverse effect on Borrower or on the prospect of
repayment of the Obligations;
(ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(x) except for "S Corporation Tax Distributions", declare or pay any
dividends, either in cash or property, on any shares of its capital stock of
any class (except dividends or other distributions payable solely in shares
of capital stock of the company) without first obtaining Coast's consent,
such consent shall not be unreasonably withheld;
(xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower's stock, except that Borrower may repurchase
stock owned by employees, directors and consultants of Borrower pursuant to
terms of employment, consulting or other stock restruction agreements at such
time as any such employee, director or consultant terminates his or her
affiliation with the Borrower, for an aggregate purchase price not to exceed
$100,000 in any fiscal year;
(xii) make any change in Borrower's capital structure which would have
a material adverse effect on Borrower or on the prospect of repayment of the
Obligations; or
(xiii) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding
be instituted by or against Coast with respect to any Collateral or relating
to Borrower, Borrower shall, without expense to Coast, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent that Coast may, deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.
5.7 INDEMNITY. Borrower hereby agrees to indemnify Coast and hold
Coast harmless from and against any and all claims, debts, liabilities,
demands, obligations, actions, causes of action, penalties, reasonable costs
and expenses (including reasonable attorneys' fees), of every nature,
character and description, which Coast may sustain or incur based upon or
arising out of any of the Obligations, any actual or alleged failure to
collect and pay over any withholding or other tax relating to Borrower or its
employees, any relationship or agreement between Coast and Borrower, any
actual or alleged failure of Coast to comply with any writ of attachment or
other legal process relating to Borrower or any of its property, or any other
matter, cause or thing whatsoever occurred, done, omitted or suffered to be
done by Coast relating to Borrower or the Obligations (except any such
amounts sustained or incurred as the result of the gross negligence or willful
misconduct of Coast). Notwithstanding any provision in this Agreement to the
contrary, the indemnity agreement set forth in this Section shall survive any
termination of this Agreement and shall for all purposes continue in full
force and effect.
5.8 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully
consummate the transactions contemplated by this Agreement.
6. TERM.
6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date"); provided that
the Maturity date shall automatically be extended, and this Agreement shall
automatically and continuously renew, for successive additional terms of one
year each, unless one party gives written notice to the other, not less than
sixty days prior to the next Maturity Date, that such party elects to
terminate this Agreement effective on the next Maturity Date.
6.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (i) by Borrower, effective three Business Days
after written notice of termination is given to Coast; or (ii) by Coast at
any time after the occurrence of an Event of Default, without notice,
effective immediately. If this Agreement is terminated by Borrower or by Coast
under this Section 6.2, Borrower shall pay to Coast a termination fee (the
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"Early Termination Fee") in the amount shown on the Schedule. The Early
Termination Fee shall be due and payable on the effective date of termination
and thereafter shall bear interest at a rate equal to the rate applicable to
the Receivable Loans.
6.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether
or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if on the
Maturity Date, or on any earlier effective date of termination, there are any
outstanding Letters of Credit issued by Coast or issued by another
institution based upon an application, guarantee, indemnity or similar
agreement on the part of Coast, then on such date Borrower shall provide to
Coast cash collateral in an amount equal to the face amount of all such
Letters of Credit plus all interest, fees and cost due or to become due in
connection therewith, to secure all of the Obligations relating to said
Letters of Credit, pursuant to Coast's then standard form cash pledge
agreement. Notwithstanding any termination of this Agreement, all of Coast's
security interests in all of the Collateral and all of the terms and
provisions of this Agreement shall continue in full force and effect until
all Obligations have been paid and performed in full; provided that, without
limiting the fact that Loans are subject to the discretion of Coast, Coast
may, in its sole discretion, refuse to make any further Loans after
termination. No termination shall in any way affect or impair any right or
remedy of Coast, nor shall any such termination relieve Borrower of any
Obligation to Coast, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the
Obligations and termination of this Agreement, Coast shall promptly deliver
to Borrower termination statements, requests for reconveyances and such other
documents as may be required to fully terminate Coast's security interests.
7. EVENTS OF DEFAULT AND REMEDIES.
7.1 EVENTS OF DEFAULT. The occurrence of any of the following events
shall constitute an "Event of Default" under this Agreement, and Borrower
shall give Coast immediate written notice thereof: (a) Any material warranty,
representation, statement, report or certificate made or delivered to Coast
by Borrower or any of Borrower's officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect; or (b) Borrower
shall fail after five (5) days notice, to pay when due any Loan or any
interest thereon or any other monetary Obligation; or (c) the total Loans and
other Obligations outstanding at any time shall exceed the Credit Limit; or
(d) Borrower shall fail after five (5) days notice, to deliver the proceeds
of Collateral to Coast as provided in Section 4.5 above, or shall fail to
give Coast access to its books and records or Collateral as provided in
Section 5.4 above, or shall breach any negative covenant set forth in Section
5.5 above; or (e) Borrower shall fail to comply with the financial covenants
(if any) set forth in the Schedule or shall fail to perform any other
non-monetary Obligation, which by its nature cannot be cured; or (f) Borrower
shall fail to perform any other non-monetary Obligation, which failure is not
cured within 5 Business Days after the date due; or (g) Any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is
made on all or any part of the Collateral which is not cured within 10 days
after the occurrence of the same; or (h) any default or event of default
occurs under any obligation secured by a Permitted Lien, which is not cured
within any applicable cure period or waived in writing by the holder of the
Permitted Lien; or (i) Borrower breaches any material contract or obligation,
which has nor may reasonably be expected to have a material adverse effect on
Borrower's business or financial condition; or (j) Dissolution, termination
of existence, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute
of any jurisdiction, now or in the future in effect; or (k) the commencement
of any proceeding against Borrower or any guarantor of any of the Obligations
under any reorganization, bankruptcy, insolvency, arrangement, readjustment
of debt, dissolution or liquidation law or statute of any jurisdiction, now
or in the future in effect, which is not cured by the dismissal thereof
within 30 days after the date commenced; or (l) revocation or termination of,
or limitation or denial of liability upon, any guaranty of the Obligations or
any attempt to do any of the foregoing, or commencement of proceedings by any
guarantor of any of the Obligations under any bankruptcy of insolvency law;
or (m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property
or asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any
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bankruptcy or insolvency law; or (n) Borrower makes any payment on account of
any indebtedness or obligation which has been subordinated to the
Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) there shall be a change in the record or beneficial ownership of an
aggregate of more than 20% of the outstanding shares of stock of Borrower, in
one or more transactions, compared to the ownership of outstanding shares of
stock of Borrower in effect on the date hereof, without the prior written
consent of Coast; or (p) Borrower shall generally not pay its debts as they
become due, or Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (q) there shall be a
material adverse change in Borrower's business or financial condition; or (r)
Coast, after five (5) days notice, acting in good faith and in a commercially
reasonable manner, deems itself insecure because of the occurrence of an
event prior to the effective date hereof of which Coast had no knowledge on
the effective date or because of the occurrence of an event on or subsequent
to the effective date. Coast may cease making any Loans hereunder during any
of the above cure periods, and thereafter if an Event of Default has occurred.
7.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one
or more of the following: (a) Cease making Loans or otherwise extending
credit to Borrower under this Agreement or any other document or agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it
may be found, and for that purpose Borrower hereby authorizes Coast without
judicial process to enter onto any of Borrower's premises without
interference to search for, take possession of, keep, store, or remove any of
the Collateral, and remain on the premises or cause a custodian to remain on
the premises in exclusive control thereof, without charge for so long as
Coast deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however,
that should Coast seek to take possession of any of the Collateral by Court
process, Borrower hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as
an incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii)
any requirement that Coast retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (d) Require Borrower to
assemble any or all of the Collateral and make it available to Coast at
places designated by Coast which are reasonably convenient to Coast and
Borrower, and to remove the Collateral to such locations as Coast may deem
advisable; (e) Complete the processing, manufacturing or repair of any
Collateral prior to a disposition thereof and, for such purpose and for the
purpose of removal, Coast shall have the right to use Borrower's premises,
vehicles, hoists, lifts, cranes, equipment and all other property without
charge; (f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private
sales, in lots or in bulk, for cash, exchange or other property, or on
credit, and to adjourn any such sale from time to time without notice other
than oral announcement at the time scheduled for sale. Coast shall have the
right to conduct such disposition on Borrower's premises without charge, for
such time or times as Coast deems reasonable, or on Coast's premises, or
elsewhere and the Collateral need not be located at the place of disposition.
Coast may directly or through any affiliated company purchase or lease any
Collateral at any such public disposition, and if permissible under
applicable law, at any private disposition. Any sale or other disposition of
Collateral shall not relieve Borrower of any liability Borrower may have if
any Collateral is defective as to title or physical condition or otherwise at
the time of sale; (g) Demand payment of, and collect any Receivables and
General Intangibles comprising Collateral and, in connection therewith,
Borrower irrevocably authorizes Coast to endorse or sign Borrower's name on
all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to Borrower and remove therefrom
payments made with respect to any item of the Collateral or proceeds thereof,
and, in Coast's sole discretion, to grant extensions of time to pay,
compromise claims and settle Receivables and the like for less than face
value; (h) offset against any sums in any of Borrower's general, special or
other Deposit Accounts with Coast; and (i) Demand and receive possession of
any of Borrower's federal and state income tax returns and the books and
records utilized in the preparation thereof or referring thereto. All
reasonable
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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attorneys' fees, expenses, costs, liabilities aNd obligations incurred by
Coast with respect to the foregoing shall be due from the Borrower to Coast
on demand. Coast may charge the same to Borrower's loan account, and the same
shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans. Without limiting any of Coast's rights and remedies, from
and after the occurrence of any Event of Default, the interest rate
applicable to the Obligations shall be increased by an additional three
percent per annum.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable: (i) Notice of the sale is given to
Borrower at least seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven days before the sale in
a newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Coast, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 p.m.; (v) Payment of the purchase
price in cash or by cashier's check or wire transfer is required; (Vi) With
respect to any sale of any of the Collateral, Coast may (but is not obligated
to) direct any prospective purchaser to ascertain directly from Borrower any
and all information concerning the same. Coast shall be free to employ other
methods of noticing and selling the Collateral, in its discretion, if they
are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence, and during the
continuance, of any Event of Default, without limiting Coast's other rights
and remedies, Borrower grants to Coast an irrevocable power of attorney
coupled with an interest, authorizing and permitting Coast (acting through
any of its employees, attorneys or agents) at any time, at its option, but
without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise,
but Coast agrees to exercise the following powers in a commercially
reasonable manner: (a) Execute on behalf of Borrower any documents that Coast
may, in its sole discretion, deem advisable in order to perfect and maintain
COast's security interest in the Collateral, or in order to exercise a right
of Borrower or Coast, or in order to fully consummate all the transactions
contemplated under this Agreement, and all other present and future
agreements; (b) Execute on behalf of Borrower any document exercising,
transferring or assigning any option to purchase, sell or otherwise dispose
of or to lease (as lessor or lessee) any real of personal property which is
part of Coast's Collateral or in which Coast has in an interest; (c) Execute
on behalf of Borrower, any invoices relating to any Receivable, any draft
against any Account Debtor and any notice to any Account Debtor, any proof of
claim in bankruptcy, any Notice of Lien, claim of mechanic's, materialman's
or other lien, or assignment or satisfaction of mechanic's, materialman's or
other lien; (d) Take control in any manner of any cash or non-cash items of
payment or proceeds of Collateral; endorse the name of Borrower upon any
instruments, or documents, evidence of payment or Collateral that may come
into Coast's possession; (e) Endorse all checks and other forms of
remittances received by Coast; (f) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the
Collateral, or any judgment based thereon, or otherwise take any action to
terminate or discharge the same; (g) Grant extensions of time to pay,
compromise claims and settle Receivables and General Intangibles for less
than face value and execute all releases and other documents in connection
therewith; (h) Pay any sums required on account of Borrower's taxes or to
secure the release of any liens therefor, or both; (i) Settle and adjust, and
give releases of, any insurance claim that relates to any of the Collateral
and obtain payment therefor; (j) Instruct any third party having custody or
control of any books or records belonging to, or relating to, Borrower to
give Coast the same rights of access and other rights with respect thereto as
Coast has under this Agreement; and (k) Take any action or pay any sum
required of Borrower pursuant to this Agreement and any other present or
future agreements. Any and all reasonable sums paid and any and all
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Coast with respect to the foregoing shall be added to and become
part of the Obligations, and shall be payable on demand. Coast may charge the
foregoing to Borrower's loan account and the foregoing shall thereafter bear
interest at the same rate applicable to the Receivable Loans. In no event
shall Coast's rights under the foregoing power of attorney or any of Coast's
other rights under this Agreement be deemed to indicate that Coast is in
control of the business, management or properties of Borrower.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of
any sale of the Collateral shall be applied by Coast first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Coast in the exercise of its rights under this Agreement,
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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second to the interest due upon any of the Obligations, and third to the
principal of the Obligations, in such order as Coast shall determine in its
sole discretion. Any surplus shall be paid to Borrower or other persons
legally entitled thereto; Borrower shall remain liable to Coast for any
deficiency. If, Coast, in its sole discretion, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Coast shall have the option, exercisable at any time, in
its sole discretion, of either reducing the Obligations by the principal
amount of purchase price or deferring the reduction of the Obligations until
the actual receipt by Coast of the cash therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set
forth in this Agreement, Coast shall have all the other rights and remedies
accorded a secured party under the California Uniform Commercial Code and
under all other applicable laws, and under any other instrument or agreement
now or in the future entered into between Coast and Borrower, and all of such
rights and remedies are cumulative and none is exclusive. Exercise or partial
exercise by Coast of one or more of its rights or remedies shall not be
deemed an election, nor bar Coast from subsequent exercise or partial
exercise of any other rights or remedies. The failure or delay of Coast to
exercise any rights or remedies shall not operate as a waiver thereof, but
all rights and remedies shall continue in full force and effect until all of
the Obligations have been fully paid and performed.
8. DEFINITIONS. AS USED IN THIS AGREEMENT, THE FOLLOWING TERMS HAVE THE
FOLLOWING MEANINGS:
"ACCOUNT DEBTOR" means the obligor on a Receivable.
"AFFILIATE" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"BUSINESS DAY" means a day on which Coast is open for business.
"CODE" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"COLLATERAL" has the meaning set forth in Section 2.1 above.
"DEFAULT" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"DEPOSIT ACCOUNT" has the meaning set forth in Section 9105 of the Code.
"ELIGIBLE INVENTORY" means inventory which Coast, in its sole judgment,
deems eligible for borrowing, based on such considerations as Coast may from
time to time deem appropriate. Without limiting the fact that the
determination of which Inventory is eligible for borrowing is a matter of
Coast's discretion, Inventory which does not meet the following requirements
will not be deemed to be Eligible Inventory: Inventory which (i) consists of
finished goods, in good, new and salable condition which is not perishable,
not obsolete or unmerchantable, and is not comprised of raw materials, work
in process, packaging materials or supplies; (ii) meets all applicable
government standards; (iii) has been manufactured in compliance with the Fair
Labor Standards Act; (iv) conforms in all respects to the warranties and
representations set forth in this Agreement; (v) is at all times subject to
Coast's duly perfected, first priority security interest; and (vi) is
situated at a one of the locations set forth on the Schedule.
"ELIGIBLE RECEIVABLES" means Receivables arising in the ordinary course
of Borrower's business from the sale of goods or rendition of services, which
Coast, in its good faith business judgment, shall deem eligible for
borrowing, based on such considerations as Coast may from time to time deem
appropriate.
"EQUIPMENT" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods and
other tangible personal property (other than Inventory), of every kind and
description used in Borrower's operations or owned by Borrower and any
interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to any of
the foregoing, wherever located.
"EVENT OF DEFAULT" means any of the events set forth in Section 7.1 of
this Agreement.
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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"GENERAL INTANGIBLES" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other
business records, Deposit Accounts, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for
any cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, all claims of Borrower against
Coast, rights to purchase or sell real or personal property, rights as a
licensor or licensee of any kind, royalties, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims
(including without limitation life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims
under guaranties, security interests or other security held by or granted to
Borrower, all rights to indemnification and all other intangible property of
every kind and nature (other than Receivables).
"INVENTORY" means all of Borrower's now owned and hereafter acquired
goods, merchandise or other personal property, wherever located, to be
furnished under any contract of service or held for sale or lease (including
without limitation all raw materials, work in process, finished goods and
goods in transit, and including without limitation all farm products), and
all materials and supplies of every kind, nature and description which are or
might be used or consumed in Borrower's business or used in connection with
the manufacture, packing, shipping, advertising, selling or finishing of such
goods, merchandise or other personal property, and all warehouse receipts,
documents of title and other documents representing any of the foregoing.
"MAXIMUM DOLLAR AMOUNT" has the meaning set forth in Section 1 of the
Schedule.
"OBLIGATIONS" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at
any time owing by Borrower to Coast, whether evidenced by this Agreement or
any note or other instrument or document, whether arising from an extension
of credit, opening of a letter of credit, banker's acceptance, loan,
guaranty, indemnification or otherwise, whether direct or indirect
(including, without limitation, those acquired by assignment and any
participation by Coast in Borrower's debts owing to others), absolute or
contingent, due or to become due, including, without limitation, all
interest, charges, expenses, fees, attorney's fees, expert witness fees,
audit fees, letter of credit fees, collateral monitoring fees, closing fees,
facility fees, termination fees, minimum interest charges and any other sums
chargeable to Borrower under this Agreement or under any other present or
future instrument or agreement between Borrower and Coast.
"PERMITTED LIENS" means the following: (i) purchase money security
interests in specific items of Equipment; (ii) leases of specific items of
Equipment; (iii) liens for taxes not yet payable; (iv) additional security
interests and liens consented to in writing by Coast, which consent shall not
be unreasonably withheld; (v) security interests being terminated
substantially concurrently with this Agreement; (vi) liens of materialmen,
mechanics, warehousemen, carriers, or other similar liens arising in the
ordinary course of business and securing obligations which are not
delinquent; (vii) liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by liens of the type described
above in clauses (i) or (ii) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien
and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase; (viii) liens in favor of customs and revenue
authorities which secure payment of customs duties in connection with the
importation of goods. Coast will have the right to require, as a condition
to its consent under subparagraph (iv) above, that the holder of the
additional security interest or lien sign an intercreditor agreement on
Coast's then standard form, acknowledge that the security interest is
subordinate to the security interest in favor of Coast, and agree not to take
any action to enforce its subordinate security interest so long as any
Obligations remain outstanding, and that Borrower agree that any uncured
default in any obligation secured by the subordinate security interest shall
also constitute an Event of Default under this Agreement.
"PERSON" means any individuals, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"RECEIVABLES" means all of Borrower's now owned and hereafter acquired
accounts (whether or not
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<PAGE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
earned by performance), letters of credit, contract rights, chattel paper,
instruments, securities, documents and all other forms of obligations at any
time owing to Borrower, all guaranties and other security therefor, all
merchandise returned to or repossessed by Borrower, and all rights of
stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.
"S CORPORATION TAX DISTRIBUTIONS" shall mean for any period after
December 31, 1993 during which the Company is an S corporation (as defined in
Section 1361 of the Code) the aggregate amount of distributions made by the
Company to all of the holders of the Company's capital stock (each such
holder being a "Shareholder") to pay federal and state income taxes on each
such Shareholder's pro rata share (a "Pro Rata Share") of the items of income
and gain, if any, less the items of losses and deductions, if any, of the
company for such period ("Net Income") required to be reported on the
individual income tax returns of the Shareholder, which taxes shall be
calculated as follows: (ii) in computing federal income taxes, the maximum
marginal federal income tax rate for an individual taxpayer for such period
shall be used, provided, that this definition shall also include any federal
and state income taxes of the Shareholder for any calendar year prior to 1994
which become due subsequent to the Closing Date.
OTHER TERMS: All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in
accordance with generally accepted accounting principles, consistently
applied. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
9. GENERAL PROVISIONS.
9.1 INTEREST COMPUTATION. In computing interest on the Obligations,
all checks, wire transfers and other items of payment received by Coast
(including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by Coast on account of the Obligations three Business
Days after receipt by Coast of immediately available funds, and, for purposes
of the foregoing, any such funds received after 11:00AM on any day shall be
deemed received on the next Business Day. Coast shall not, however, be
required to credit Borrower's account for the amount of any item of payment
which is unsatisfactory to Coast in its sole discretion, and Coast may charge
Borrower's loan account for the amount of any item of payment which is
returned to Coast unpaid.
9.2 APPLICATION OF PAYMENTS. All payments with respect to the
Obligations may be applied, and in Coast's sole discretion reversed and
re-applied, to the Obligations, in such order and manner as Coast shall
determine in its sole discretion.
9.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to
Borrower's Loan account, in which event they will bear interest at the same
rate applicable to the Loans. Coast may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Coast.
9.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall be deemed correct, accurate and binding on
Borrower and an account stated (except for reverses and reapplications of
payments made and corrections of errors discovered by Coast), unless Borrower
notifies Coast in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or
omissions.
9.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, or certified mail return receipt
requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by
one party to the other party. Notices to Coast shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices shall be deemed to have been given upon
delivery in the case of notices personally delivered, or at the expiration of
one Business Day following delivery to the private delivery service, or two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
9.6 SEVERABILITY. Should any provision of this Agreement be held by
any court of competent jurisdiction to be void or unenforceable, such defect
shall not affect the remainder of this Agreement, which shall continue in
full force and effect.
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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9.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. THERE
ARE NO ORAL UNDERSTANDINGS, REPRESENTATIONS OR AGREEMENTS BETWEEN THE PARTIES
WHICH RE NOT SET FORTH IN THIS AGREEMENT OR IN OTHER WRITTEN AGREEMENTS
SIGNED BY THE PARTIES IN CONNECTION HEREWITH.
9.8 WAIVERS. The failure of Coast at any time or times to require
Borrower to strictly comply with any of the provisions of this Agreement or
any other present or future agreement between Borrower and Coast shall not
waive or diminish any right of Coast later to demand and receive strict
compliance therewith. Any waiver of any default shall not waive or affect any
other default, whether prior or subsequent, and whether or not similar. None
of the provisions of this Agreement or any other agreement now or in the
future executed by Borrower and delivered to Coast shall be deemed to have
been waived by any act or knowledge of Coast or its agents or employees, but
only by a specific written waiver signed by an authorized officer of Coast
and delivered to Borrower. Borrower waives demand, protest, notice of
protest and notice of default or dishonor, notice of payment and nonpayment,
release, compromise, settlement, extension or renewal of any commercial
paper, instrument, account, General Intangible, document or guaranty at any
time held by Coast on which Borrower is or may in any way be liable, and
notice of any action taken by Coast, unless expressly required by this
Agreement.
9.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of
its directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Coast shall be liable for any claims,
demands, losses or damages, of any kind whatsoever, made, claimed, incurred
or suffered by Borrower or any other party through the ordinary negligence of
Coast, or any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing Coast, but nothing herein shall
relieve Coast from liability for its own gross negligence or willful
misconduct.
9.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast
for all reasonable attorneys' fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Coast,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys' fees and costs Coast incurs in order to do the following: prepare
and negotiate this Agreement and the documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower; enforce,
or seek to enforce, any of its rights; prosecute actions against, or defend
actions by, Account Debtors; commence, intervene in, or defend any action or
proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim,
third-party claim, or other claim; examine, audit, copy, and inspect any of
the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Coast's security
interest in, the Collateral; and otherwise represent Coast in any litigation
relating to Borrower. If either Coast or Borrower files any lawsuit against
the other predicated on a breach of this Agreement, the prevailing party in
such action shall be entitled to recover its reasonable costs and attorneys'
fees, including (but not limited to) reasonable attorneys' fees and costs
incurred in the enforcement of, execution upon or defense of any order,
decree, award or judgment. Borrower shall also pay Coast's standard charges
for returned checks and for wire transfers, in effect from time to time. All
attorneys' fees, costs and charges to which Coast may be entitled pursuant to
this Paragraph may be charged by Coast to Borrower's loan account and shall
thereafter bear interest at the same rate as the Receivable Loans.
9.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under
this Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall
release Borrower from its liability for the Obligations.
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<PAGE>
9.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published
announcing the consummation of this transaction and the aggregate amount
thereof.
9.15 JOINT AND SEVERAL LIABILITY. If Borrower consists of more than
one Person, their liability shall be joint and several, and the compromise of
any claim with, or the release of, any Borrower, shall not constitute a
compromise with, or a release of, any other Borrower.
9.16 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Coast, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan Agreement, or
any other present or future document or agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, occurred, done, omitted or suffered to be
done by Coast, its directors, officers, employees, agents, accountants or
attorneys, shall be barred unless asserted by Borrower by the commencement of
an action or proceeding in a court of competent jurisdiction by the filing of
a complaint within one year after the first act, occurrence or omission upon
which such claim or cause of action, or any part thereof, is based, and the
service of a summons and complaint on an officer of Coast, or on any other
person authorized to accept service on behalf of Coast within thirty (30)
days thereafter. Borrower agrees that such one-year period is a reasonable
and sufficient time for Borrower to investigate and act upon any such claim
or cause of action. The one-year period provided herein shall not be waived,
tolled, or extended except by the written consent of Coast in its sole
discretion. This provision shall survive any termination of this Loan
Agreement or any other present or future agreement.
9.17 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only
used in this Agreement for convenience. Borrower and Coast acknowledge that
the headings may not describe completely the subject matter of the
applicable paragraph, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
The term "including", whenever used in this Agreement, shall mean "including
(but not limited to)". This Agreement has been fully reviewed and negotiated
between the parties and no uncertainty or ambiguity in any term or provision
of this Agreement shall be construed strictly against Coast or Borrower under
any rule of construction or otherwise.
9.18 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts
and transactions hereunder and all rights and obligations of Coast and
Borrower shall be governed by the laws of the State of California. As a
material part of the consideration to Coast to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at Coast's option, be litigated in courts
located within California, and that the exclusive venue therefor shall be Los
Angeles County; (ii) consents to the jurisdiction and venue of any such court
and consents to service of process in any such action or proceeding by
personal delivery or any other method permitted by law, and (iii) waives any
and all rights Borrower may have to object to the jurisdiction of any such
court, or to transfer or change the venue of any such action or proceeding.
9.19 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE
THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING
OUT OF, OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR
FUTURE INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT,
ACTS OR OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR
BORROWER, IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
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<PAGE>
Borrower:
JORE, INC.
By /s/ Matthew Jore
-----------------------------------
Matthew Jore
Title: President
By /s/ Michael Jore
------------------------------------
Michael Jore
Title: Secretary
Coast:
COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association
By /s/ Barbara Nitkin
--------------------------------------
Barbara Nitkin
Title: Vice President
By /s/ Ralph X. Stone
--------------------------------------
Ralph X. Stone
Title: Vice President and Regional
Marketing Manager, Eastern
Region
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<PAGE>
COAST
AMENDMENT TO LOAN AND SECURITY AGREEMENT
On May 15, 1996, Jore, Inc. ("Borrower") and Coast Business Credit, a
division of Southern Pacific Thrift & Loan Association ("Coast") entered into
a credit facility and executed a Loan and Security Agreement ("Agreement").
The parties now desire to amend the Loan and Security Agreement and Schedule
thereto as follows:
1. LETTERS OF CREDIT (Section 1.4):
At the request of Borrower, Coast may, in its sole discretion, arrange for
the issuance of letters of credit for the account of Borrower (collectively,
"Letters of Credit"), by issuing guarantees to the issuer of the letter of
credit or by other means. All Letters of Credit shall be in form and
substance satisfactory to Coast in its sole discretion. The aggregate face
amount of all outstanding Letters of Credit from time to time shall not
exceed the amount shown on the Schedule (the "Letter of Credit Sublimit"),
and shall be reserved against Loans which would otherwise be available
hereunder. Borrower shall pay all bank charges for the issuance of Letters of
Credit. Any payment by Coast under or in connection with a Letter of Credit
shall constitute a Loan hereunder on the date such payment is made. Each
Letter of Credit shall have an expiry date no later than thirty days prior to
the Maturity Date. Borrower hereby agrees to indemnify, save, and hold Coast
harmless from any loss, cost, expense, or liability, including payments made
by Coast, expenses, and reasonable attorneys' fees incurred by Coast arising
out of or in connection with any Letters of Credit. Borrower agrees to be
bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Coast and opened for Borrower's account or by Coast's
interpretations of any Letter of Credit issued by Coast for Borrower's
account, and Borrower understands and agrees that Coast shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower's instructions or those contained in the Letters of Credit
or any modifications, amendments, or supplements thereto. Borrower
understands that Letters of Credit may require Coast to indemnify the issuing
bank for certain costs or liabilities arising out of claims by Borrower
against such issuing bank. Borrower hereby agrees to indemnify and hold Coast
harmless with respect to any loss, cost, expense, or liability incurred by
Coast under any Letter of Credit as a result of Coast's indemnification of
any such issuing bank. The provisions of this Loan Agreement, as it pertains
to Letters of Credit, and any other present or future documents or agreements
between Borrower and Coast relating to Letters of Credit are cumulative.
2. DEFINITIONS (Section 8):
"DILUTION" means all non-cash reductions, including, but not limited to,
credit memos, discounts and journal entries, in the total amount of
Receivables, expressed as a percentage of Receivables.
"TANGIBLE NET WORTH" means stockholders' equity plus debt subordinated to
Coast, less goodwill, patents, trademarks, copyrights, franchises, formulas,
leasehold interests and leasehold improvements, non-compete agreements,
engineering plans, deferred tax benefits, organization costs, start-up costs
and any other intangibles as defined by generally accepted accounting
principles.
3. CREDIT LIMIT (Section 1.1): Loans in a total amount at any time
outstanding not to exceed the lesser of a total of $5,000,000 at any one time
outstanding (the "Maximum Dollar Amount"), or the sum of (a) and (b) below:
1
<PAGE>
(a) Loans (the "Receivable Loans") in an amount not to exceed 80%
of the amount of Borrower's Eligible Receivables, no more than 90
days past invoice date and an amount not to exceed 85% of Eligible
Receivables if Dilution is less than 5%, plus
(b) A Letter of Credit Sublimit not to exceed $500,000 with 100%
against availability on standby Letters of Credit.
4. INTEREST (Section 1.2):
INTEREST RATE: A rate equal to the "Prime Rate" plus 2.0% per annum;
the Interest Rate will be reduced to Prime Rate plus
1.5% per annum upon Borrower's achieving and
maintaining Tangible Net Worth of $2,500,000 for two
consecutive quarters.
MINIMUM MONTHLY
INTEREST: Shall be based on a minimum monthly average loan
outstanding of $1,600,000 through March 31, 1999.
5. FEES (Section 1.3):
LINE INCREASE FEE: $10,000 due upon execution of this Amendment.
LETTER OF CREDIT FEE: 1/4% per month plus bank charges and fees.
The Loan and Security Agreement and the Schedule attached thereto are
incorporated herein by this reference; further, all other terms and
conditions contained in the Agreement shall remain the same.
Executed this 19th day of September, 1997.
Borrower: Coast:
JORE, INC. COAST BUSINESS CREDIT, a division of
Southern Pacific Thrift & Loan Association
By By
------------------------------- ----------------------------------
Matthew Jore Edit Kondorosi
Title: President Title: Senior Vice President
2
<PAGE>
Exhibit 21.1
List of Subsidiaries
JB Tool, LLC
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Jore Corporation
Ronan, Montana
We consent to the use in this Registration Statement of Jore Corporation on
Form S-1 of our report dated May 12, 1999, on the financial statements of
Jore Corporation, appearing in the Prospectus, which is a part of this
Registration Statement, and to the references to us under the headings
"Selected Consolidated Financial Data" and "Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
Seattle, Washington
May 12, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JORE
CORPORATION CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, 1997 AND 1998,
RESPECTIVELY, AND THE RELATED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE
YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 113,471 34,736
<SECURITIES> 0 0
<RECEIVABLES> 6,498,364 16,199,017
<ALLOWANCES> 10,987 0
<INVENTORY> 4,740,004 8,182,542
<CURRENT-ASSETS> 11,375,021 25,111,371
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 17,759,178 45,962,582
<CURRENT-LIABILITIES> 10,548,929 25,083,846
<BONDS> 4,689,437 14,589,346
0 0
0 0
<COMMON> 736,392 1,694,931
<OTHER-SE> 1,784,420 4,594,459
<TOTAL-LIABILITY-AND-EQUITY> 17,759,178 45,962,582
<SALES> 23,655,966 44,888,324
<TOTAL-REVENUES> 23,655,966 44,888,324
<CGS> 17,098,184 31,167,724
<TOTAL-COSTS> 17,098,184 31,167,724
<OTHER-EXPENSES> 3,223,800 3,121,704
<LOSS-PROVISION> 10,987 0
<INTEREST-EXPENSE> 792,932 1,358,328
<INCOME-PRETAX> 2,541,050 6,236,515
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 2,541,050 6,236,515
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,541,050 6,236,515
<EPS-PRIMARY> .27 .66
<EPS-DILUTED> .27 .66
</TABLE>
