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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
(AMENDMENT NO. 1)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 000-26889
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JORE CORPORATION
(Exact Name as Registrant as Specified in Its Charter)
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MONTANA 81-0465233
(State of incorporation) (I.R.S. Employer ID)
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45000 HIGHWAY 93 SOUTH
RONAN, MONTANA 59864
(Address of principal executive offices)
(406) 676-4900
(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
The aggregate market value of voting stock held by non-affiliates of the
Registrant, computed with reference to the closing price of such stock, as of
March 15, 2000: $30,119,999.
The number of shares of common stock outstanding as of March 15, 2000:
13,840,887.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held May 17, 2000, are incorporated by reference into this
report.
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JORE CORPORATION
FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
INDEX
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 14
Item 3. Legal Proceedings........................................... 14
Item 4. Submission of Matters to a Vote of Security Holders......... 15
Item 4A. Executive Officers of The Registrant........................ 15
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholders Matters...................................... 16
Item 6. Selected Consolidated Financial Data........................ 18
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 19
Item 7A. Quantitative and Qualitative Disclosure About Market Risk... 23
Item 8. Financial Statements and Supplementary Data................. 24
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................. 44
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 44
Item 11. Executive Compensation...................................... 44
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 44
Item 13. Certain Relationships and Related Transactions.............. 44
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................. 45
Signatures............................................................... 47
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PART I
"JORE" (WHICH MAY ALSO BE REFERRED TO AS "WE", "US" OR "OUR") MEANS JORE
CORPORATION AND ITS SUBSIDIARIES, AS THE CONTEXT REQUIRES.
ITEM 1. BUSINESS
OVERVIEW
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., Tru*Serv Corporation, Canadian Tire Corporation
Limited, Black & Decker Corporation and Makita Corporation. Our products also
are sold under the STANLEY-REGISTERED TRADEMARK- brand, to which we have an
exclusive license arrangement for power tool accessories, at retailers such as
The Home Depot, Inc., Menard's, Ace Hardware Corporation, Canadian Tire
Corporation Limited, Fred Meyer, The Andersons, Mid-States and others.
INDUSTRY OVERVIEW
The development and widespread availability of cordless power tools since
the early 1980s has created a growing installed base of these tools among
do-it-yourself consumers, professional craftsmen and industrial users. The
increased use of cordless power tools has led to a growing demand for new and
improved power tool accessories. According to industry sources and our market
research, we believe that the worldwide addressable market for our products is
approximately $13.0 billion per year. In the United States, our addressable
market is approximately $5.7 billion per year, consisting of $3.0 billion for
power tool accessories and a $2.7 billion for hand tools. The drilling and
driving accessories market represents approximately $1.3 billion of the domestic
power tool accessories market. The remainder of the power tool accessories
market consists of saw blades, router bits, surface preparation and related
products.
Historically, the power tool accessories industry has been comprised of a
fragmented group of manufacturers that produce traditional drilling, driving,
cutting and surface preparation accessories. The industry is consolidating as
larger manufacturers seek to broaden their product offerings and expand
production capacity. Significant investments have been made in embedded capital
equipment and production facilities which use traditional, multi-step methods of
production that have remained relatively unchanged for years. The industry
generally has been slow to introduce innovative new products and adopt advanced
manufacturing technologies.
In recent years, the retail distribution channel for power tool accessories
and hand tools has undergone substantial consolidation and change. The emergence
of "big box" home center stores has placed tremendous competitive pressure on
small, independently owned hardware stores throughout North America. The large
home center stores typically limit their purchases within a particular product
category to a few leading national brands and promote their own private label
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.
STRATEGY
Our objective is to be the leading manufacturer of innovative products for
the global power tool accessories market. Our growth and operating strategies
include the following specific elements:
GROWTH STRATEGY
EXPAND THE INSTALLED BASE AND APPLICATIONS OF OUR DRILLING AND DRIVING
SYSTEM--The base of consumers using our proprietary quick-change connectors is
rapidly expanding. We will seek to further build our user base by expanding
sales of our accessory sets, while concurrently developing new product
applications. We recently worked 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 continue to develop and introduce new and innovative accessories within our
drilling and driving system.
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BROADEN OUR PRODUCT PORTFOLIO--We are broadening our product portfolio to
include other innovative products, including select hand tools such as ratchet
wrenches and screwdrivers with proprietary features. In connection with our
license of the STANLEY-REGISTERED TRADEMARK- brand, we also plan to introduce
other power tool accessories. We are also using our proprietary manufacturing
processes to achieve cost leadership in producing traditional round-shank drill
bits. We will continue to seek opportunities to license new or existing
technologies to complement our internal product development efforts.
ENHANCE EXISTING CUSTOMER RELATIONSHIPS--We believe that there are
significant opportunities to increase sales to existing customers:
- We intend to increase the number of products that we supply to our
customers and to expand the retail shelf space dedicated to our products.
For example, from 1997 to 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 Full Line retail stores. In 2000, we will strive to
increase the number of SKUs in these stores and broaden our offering in
the off the mall stores as well.
- We intend to increase our product offering to a greater number of stores.
Our products are not yet sold in each of our customers' stores as we have
established new relationships. As a result, we believe that there are
significant opportunities to expand our presence with our current
customers.
- We intend to offer our products under different brands to enable our
customers to effectively target various price points and consumer
segments. These include brand names such as CRAFTSMAN-REGISTERED
TRADEMARK-, STANLEY-REGISTERED TRADEMARK-, BLACK & DECKER-REGISTERED
TRADEMARK-, DEWALT-REGISTERED TRADEMARK- and MAKITA-REGISTERED TRADEMARK-.
We intend to offer brands that are unique to each retail segment allowing
us to broaden our store scope.
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,
Menards, Meijer and Payless Cashways, and buying groups such as Tru*Serv and Ace
Hardware. We believe that offering our products under the STANLEY-REGISTERED
TRADEMARK- brand will further enhance our opportunities with these customers,
while concurrently enabling us to develop new customer relationships.
EXPAND INTO THE INDUSTRIAL MARKET--We believe that the rapid
interchangeability of our accessories will offer productivity enhancements to
industrial users. Consequently, we intend to introduce our drilling and driving
system to the industrial market, which we believe is roughly equal in size to
the retail market that we presently serve. Moreover, we believe our advanced
drill bit manufacturing facility will allow us to competitively supply the
industrial market with traditional round-shank drill bits. We are presently
evaluating alternative sales and distribution strategies to access the
industrial market.
EXPAND INTO FOREIGN MARKETS--We believe that we have significant
opportunities to expand into foreign markets. We continue to supply the Canadian
market through the largest Canadian hardware retailer, Canadian Tire, as well as
through Sears, Makita and The Home Depot. We are currently evaluating
distribution channels in the European market and we will continue to evaluate
opportunities to enter other foreign markets.
OPERATING STRATEGY
CONTINUALLY IMPROVE OUR MANUFACTURING PROCESSES--We continually monitor and
evaluate production techniques and benchmark our processes against other related
standards to refine and optimize our manufacturing processes. Our focus on
continuous process improvement covers all facets of operations, from inspection
of raw materials to final assembly and packaging of the end product.
CONTINUE TO VERTICALLY INTEGRATE OUR OPERATIONS--We increasingly utilize our
own innovative manufacturing capabilities to reduce our cost of goods sold,
increase our production capacity, provide better customer service, improve the
quality of our products and reduce our reliance on third parties. For example,
in addition to initiating our own round-shank drill bit production, recently we
have substantially reduced the cost of our countersinks and our plastic
injection molded and blow-molded cases, 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.
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ENHANCE INFORMATION AND CONTROL SYSTEMS TECHNOLOGY--Integrating our design,
development, manufacturing, sales and management operations is critically
important. We continue to work towards implementing our enterprise resource
planning software in order to facilitate enterprise-wide communication and
coordination among our employees. Real time communication among engineers,
product managers, quality assurance personnel, and graphic designers will enable
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 the various components of our drilling and driving
products.
In addition to our drilling and driving systems, we also manufacture and
sell traditional round-shank drill bits and innovative hand tools, including our
TORQUE DRIVER-TM- screw and nut drivers and wrench ratchets. In connection with
our licensing of the STANLEY-REGISTERED TRADEMARK- brand, we also plan to begin
offering other power tool accessories, such as saw blades, router bits, and
related products.
Our product families include the following:
QUICK CHANGE DRILLING AND DRIVING SYSTEMS
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, wire brushes
and other surface preparation applications.
REVERSIBLE DRILL AND DRIVERS
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
Our patented screw guides are magnetic bit holders with a self-retracting
guide sleeve that provide the user with an easily operated screw-driving
accessory for a power drill. The user places the screw head on the magnetized
insert bit and then pulls the self-retracting guide sleeve forward over the
screw. The guide sleeve holds the screw straight and prevents slippage during
driving. The screw guide comes in many variations to serve specific
applications.
HAND TOOLS
The TORQUE DRIVER-TM- is an ergonomically designed screw and nut driver with
a flip-out handle allowing for greater torque in turning screws and driving
nuts. The CARTRIDGE DRIVER-TM- is a screw and nut-driving tool containing a
retracting cartridge in the handle for storing a number of drilling and driving
bits. This tool also incorporates a quick connect feature allowing fast
interchangeability of screw and nut driving bits.
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DRILL BITS
Using our advanced drill bit manufacturing technology, we produce
traditional round-shank drill bits. We offer ground-from-solid drill bits in a
variety of sizes and for various surfaces. These bits have been tested and
demonstrated to meet the highest quality standards in the industry.
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, blow molding, die-casting, metal forming and
stamping. We have jointly designed and developed a proprietary drill bit
manufacturing machine that automates all aspects of drill bit production,
resulting in improved quality, lower production costs and increased production
capacity. We have entered into an agreement with the manufacturer of this
equipment that grants us an exclusive right to its output and to the machine
design for a five-year period. In order to maintain our exclusive rights, we are
required to purchase a minimum number of machines annually during the term of
the agreement. We also have entered into an agreement with the designer of the
equipment pursuant to which he will provide consulting services relating to our
future manufacturing technologies.
We also operate high speed machining centers to produce a variety of our
component parts, such as screwdriver bits and countersinks. Our injection
molding operations produce a variety of plastic components such as storage cases
and screwdriver handles. We produce hex-shank accessories using our proprietary
die-casting processes and screw driving accessories are produced 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 product and process innovation group is
comprised of 49 people, including 14 engineers, 13 industrial designers and
machinists, 9 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 drawings and manipulate these images to optimize
functionality and form.
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PROTOTYPED PRODUCTION. Once we are satisfied regarding the functional and
aesthetic objectives of a particular product, our engineering software sends the
three-dimensional computerized model to our rapid prototyping system. Our system
produces a three-dimensional plastic model that we then test for aesthetics,
functionality and general design. Once we are satisfied with the concept
prototype, we commission a fully functional prototype to be made for performance
testing and evaluation as a working prototype. In many cases, the rapid
prototype model serves this function as well.
SELECTION OF RAW MATERIAL AND PRODUCTION EQUIPMENT. In order to select the
appropriate raw material, we use the working prototype to test alternative
materials in many different conditions. After we have determined the appropriate
raw material and product specifications, we send engineering drawings, concept
prototypes and working prototypes to selected manufacturing equipment suppliers
so that they are able to submit proposals on design and fixturing of appropriate
equipment. Our equipment committee evaluates the proposals from these suppliers
and selects the best design to produce our product.
ASSEMBLY, PACKAGING AND AUTOMATION FIXTURES. We design automated work cells
to efficiently assemble and package our products. Our automation team evaluates
and selects the appropriate technology and equipment for each process. Our work
cells, comprised of several process-specific work-centers, are designed and
arranged for efficient flow of product and personnel. Our automation team
designs safe, ergonomic workstations based upon the needs of our production
team.
CUSTOMERS
We sell our products to customers which currently fall into two general
categories:
- Retailers of power tool accessories; and
- Power tool manufacturers.
Our retail customers offer our products in their own stores under their own
private label brands. We coordinate closely with these customers on promotional
and merchandising strategies and displays, and we supply these customers with
products in final packaged form. We have also begun to offer our products to
retail customers under the STANLEY-REGISTERED TRADEMARK- brand.
Our power tool manufacturer customers offer our products through their own
distribution channels under their own brands. We supply our products to these
customers either in final packaged form or as unpackaged products that the
manufacturers combine and package with related drilling and driving products.
Our customers include the industry's leading manufacturers such as Black &
Decker and Makita as well as major retailers such as Sears, Home Depot, Lowe's,
True Value, Ace Hardware, Canadian Tire, and others. In 1999, Sears, Black &
Decker/ DeWalt and Makita each accounted for 58.3%, 22.8% and 10.1%
respectively, of our revenues. In 1998, Sears, Black & Decker/ DeWalt and Makita
each accounted for 60.2%, 17.2% and 14.5%, respectively, of our revenues. In
1999, Black & Decker recognized us with its Performance Scorecard Award for
Total Cost Management. We were awarded the "Partner in Progress" designation by
Sears for the third year in a row for 1999, an award earned by approximately
only one percent (1%) of Sears' vendors. In addition, we received the Sears
Hardlines Group Innovation Award for 1997.
SALES AND MARKETING
We seek to develop long-term, mutually beneficial relationships with our
customers and to communicate with decision-makers at all levels within our
customers' organizations. Our internal sales and marketing staff closely
coordinates our activities and strategies with a sales representative
organization, Manufacturers' Sales Associates, LLC. Manufacturers' Sales
Associates, which receives a commission that is a percentage of our sales to
selected customers, consists of sales representatives who formerly were senior
sales and marketing executives with major power tool companies. These
representatives are strategically located near major customers in the industry
so they can continually coordinate product and promotional requirements to
optimize market opportunities. We believe that our relationship with
Manufacturers' Sales Associates effectively leverages their industry experience
while complementing our focus on product and process development.
Our sales and marketing team works closely with our customers to create
coordinated promotional and merchandising campaigns. Elements of a typical
promotional campaign may include television commercials, direct mail product
circulars, catalogs, newspaper and magazine advertisements and promotional
events. Campaigns may also include merchandising events, plan-o-grams, and
promotional displays, such as aisle end caps, clip strips and center aisle
merchandisers.
Most of our sales are derived from purchase orders for products to be
delivered to our customers within 30 days of receipt of the order. As is
customary in the power tools accessories market, we rely on our customers'
forecasts to anticipate future order volumes, and typically do not enter into
long-term supply agreements with our customers. As a result, we typically do not
maintain a significant backlog of purchase orders. See Risk Factors--"Our
dependence on customer forecasts to manage our business may cause us to
misallocate our production, inventory or other resources."
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We distinguish ourselves with our highly skilled, responsive in-house
graphics department that works closely with our sales and marketing department
and with Manufacturers' Sales Associates. Our graphics capabilities provide us
with a significant competitive advantage by allowing us to quickly design and
produce packaging mockups and sample promotional materials for new and existing
customers. We also produce our own point-of-sale displays and collaborate with
our customers in designing unique, customer-specific packaging. We believe that
our graphics capabilities enable us to offer our customers a "turn-key" graphics
and packaging solution that makes it easier for them to merchandise and display
our products and greatly enhances our sales and marketing efforts.
COMPETITION
The power tool accessories market and the hand tool market are highly
competitive. Many of our competitors are established companies that have
significantly greater financial, technical, manufacturing, sales and marketing,
and support resources than Jore Corporation. In addition, many of our
competitors own well-known brands, enjoy large end-user bases, and benefit from
long-standing customer relationships. As we expand into new markets, we can
expect to encounter similar competitive environments.
Competitors in power tool accessories include Vermont American Corporation,
Black & Decker, Greenfield Industries, Inc., a wholly-owned subsidiary of
Kennametal Inc., American Tool Companies, Inc., S/B Power Tools, Milwaukee,
Porter Cable, Snap-On Incorporated and others, as well as a number of
independent "job shops" that supply products under private labels to OEM and
retail customers. Competitors in the hand tools market include American Tool,
Cooper Industries, Inc., The Stanley Works and others, including some foreign
companies. Competitive factors in our markets include:
- Establishing favorable brand recognition;
- Maintaining manufacturing efficiency and expertise;
- Developing a breadth of product offerings;
- Implementing appropriate pricing;
- Providing strong marketing support;
- Manufacturing high quality products;
- Providing excellent customer service; 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 have 13 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
or license several registered trademarks and sell many products to our customers
under arrangements that allow us to maintain control of our trademarks while
granting customers exclusive use of specified marks for limited purposes. For
example, we have granted Sears the exclusive right to use the Speed-Lok
trademark in connection with Sears' sales of quick-change systems and other
products, provided that Sears purchases a minimum quantity of Jore products
annually. The primary trademarks we own or use in our business include
SPEED-LOK-REGISTERED TRADEMARK-, SPEED SHANK-REGISTERED TRADEMARK-,
QUAD-DRIVER-REGISTERED TRADEMARK-, BIT-LOK-REGISTERED TRADEMARK-, HIGH TORQUE
POWER DRIVER-REGISTERED TRADEMARK-, MONTANA TOOL CORPORATION-TM-, TORQUE
DRIVER-TM-, JORETECH-TM-, WHERE INNOVATION MEETS REALITY-TM- and AUTO JAW-TM-.
Certain of our trademarks are integral to our business and we aggressively
monitor and protect these and other marks.
In April 1999, we entered into an agreement with The Stanley Works that
grants us the exclusive license to sell power tool accessories under the
Stanley-Registered Trademark- brand in North America. The agreement provides for
the payment by us to Stanley of a percentage of our sales of our
Stanley-Registered Trademark- branded products, with certain minimum payment
obligations, during the term of the agreement. The term of the Agreement is
through December 2004, and may be renewed by us through December 2009.
In December 1999, we entered into agreements with The Norton Company, a
manufacturer of surface preparation and abrasive tool accessories, regarding the
"SPEEDLOK" and "SPEED-LOK" trademarks. In exchange for our agreement to have The
Norton Company be our preferred supplier of grinding wheels and surface
preparation products, we were granted an exclusive license to use the Speed-Lok
name in connection with the sale of power tool accessories.
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.
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These agreements also generally provide that inventions conceived by the
individual in the course of rendering services to us shall be our exclusive
property.
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. Our fully-integrated enterprise
resource planning software system allows centralized management of key
functions, including inventory, order processing, accounts receivable, accounts
payable, general ledger, shop floor control, bar-coded inventory, material
requirements planning, scheduling and electronic data interchange. This
information system enables 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 our internal processes and allows for cross-platform
information sharing among our various departments.
PERSONNEL AND HUMAN RESOURCES
As of December 31, 1999, we employed 619 full-time employees and 94
part-time employees, of whom 17 were in sales and marketing, 115 in finance and
administration, 46 in technology development and application and 535 in
operations. All but twelve of our employees are located at our facility near
Ronan, Montana, with eleven being located at our JB Tool, LLC screwdriver bit
facility in Wisconsin. 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.
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RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED IN EVALUATING OUR BUSINESS,
OPERATIONS AND PROSPECTS AND MAY AFFECT OUR FUTURE RESULTS AND FINANCIAL
CONDITION.
OUR RAPID GROWTH MAY MAKE IT DIFFICULT TO EFFECTIVELY ALLOCATE OUR RESOURCES AND
MANAGE OUR BUSINESS:
We are experiencing significant growth in the sales of our products, the
number of employees and the amount of our production and cannot assure that we
will be able to manage any future growth effectively. Continued growth could
strain our management, production, engineering, financial and other resources.
To manage our growth effectively, we must add manufacturing capacity while
maintaining high levels of quality, manufacturing efficiency and customer
service. We also must continue to enhance our operational, financial and
management systems and successfully attract, train, retain and manage our
employees. Any failure to manage our growth effectively could have a material
adverse effect on our business, financial condition and results of operations,
such as declines in revenues and profit margins.
THE LOSS OF A LARGE CUSTOMER COULD RESULT IN A SUBSTANTIAL DECREASE IN REVENUES:
Historically, most of our sales have been derived from a small number of
customers and, due to the continuing consolidation of the industry's
distribution channels, we expect a significant portion of our future sales to
remain concentrated among a limited number of customers. In 1999, sales to,
Sears, and Black & Decker/DeWalt and Makita accounted for 58.3%, 22.8%, and
10.1% respectively, of our net revenues. In 1998, sales to Sears, Black &
Decker/DeWalt and Makita accounted for 60.2%, 17.2% and 14.5%, respectively, of
our net revenues. In 1997, sales to Sears, Black & Decker/DeWalt, Makita and
Home Depot accounted for 31.9%, 21.5%, 25.6% and 17.0%, respectively, of our net
revenues. A significant decrease in sales to, or the loss of, any of our major
customers would have a material adverse effect on our business, prospects,
operating results and financial condition, such as a substantial decline in
revenues.
THE MARKETING OF OUR PRODUCTS UNDER THE STANLEY-REGISTERED TRADEMARK- BRAND MAY
BE UNSUCCESSFUL AND MAY ADVERSELY AFFECT OUR RELATIONSHIPS WITH EXISTING
CUSTOMERS:
In April 1999, we signed an agreement with The Stanley Works that grants us
the exclusive license to sell power tool accessories under the
STANLEY-REGISTERED TRADEMARK- brand and indemnifies us for damages and costs
incurred in connection with any infringement claims arising out of our use of
STANLEY-REGISTERED TRADEMARK- trademarks and trade dress. Some of our existing
customers may view our license arrangement with Stanley unfavorably, and
therefore reduce or stop purchases of our products. For example, in June 1999,
Black & Decker advised us that our proposed introduction of STANLEY-REGISTERED
TRADEMARK- branded power tool accessories in yellow and black packaging would
violate Black & Decker's trademark rights under its DEWALT brand. In response to
Black & Decker's assertions, Stanley filed a lawsuit, which we joined as a
co-plaintiff, seeking a judgment that, among other things, the use of the colors
yellow and black with the STANLEY-REGISTERED TRADEMARK- name or trademark on
power tool accessories does not infringe or dilute Black & Decker's trademark
rights. On July 7, Black & Decker asserted counterclaims against Stanley and
Jore for unfair competition and trademark and trade dress infringement. On
February 24, 2000, Black & Decker moved to dismiss the lawsuit on the grounds
that no "case or controversy" exists among the parties. Stanley and Jore have
opposed Black & Decker's motion, which is pending before the Court. This lawsuit
poses the risks that we may be required to modify the colors of the packaging
and promotional materials for our STANLEY-REGISTERED TRADEMARK--branded products
which could diminish the value of, and limit our sales and growth prospects
associated with, the STANLEY-REGISTERED TRADEMARK- brand. We could incur
significant expenses and be required to pay damages if Stanley fails to fulfill
its indemnification obligations to us; and Black & Decker could limit or
terminate its business relationship with us. The occurrence of any of these
events could have a material adverse effect on our business, operating results
and financial condition by increasing our costs, reducing our sales and
diverting management resources.
In addition, retailers may choose not to offer our products under the
STANLEY-REGISTERED TRADEMARK- brand. We cannot be certain that the time and
resources we will spend marketing our products under the STANLEY-REGISTERED
TRADEMARK- brand will lead to increased sales and profitability. Other potential
risks in connection with this licensing agreement include:
- The failure by Stanley to maintain the integrity and quality of its brand
image in the minds of its consumers; and,
- Our inability to meet the performance requirements of the licensing
agreement may cause Stanley to terminate our agreement.
OUR FAILURE TO DEVELOP NEW DISTRIBUTION CHANNELS COULD DIMINISH OUR REVENUE
GROWTH:
We cannot assure that we will be able to develop new distribution channels
or penetrate the industrial market or that this growth strategy can be
implemented profitably. Our growth depends, in part, on our ability to develop
new distribution channels,
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including penetration of the industrial market for our products. Challenges that
we face in developing new distribution channels include:
- Obtaining customer acceptance of our products;
- Managing existing customer relationships;
- Establishing relationships with new customers;
- Displacing incumbent vendor relationships; and
- Successfully introducing new products under the STANLEY-REGISTERED
TRADEMARK- brand.
Our failure to develop new distribution channels could have a material
adverse effect on our business, operating results, and financial condition,
particularly future revenue levels.
THE LOSS OF ANY OF OUR KEY PERSONNEL COULD ADVERSELY AFFECT OUR ABILITY TO
MANAGE OUR BUSINESS:
Our performance and future success depends to a significant extent on our
senior management and technical personnel, and in particular on the skills,
experience, and continued efforts of Matthew Jore, Jore Corporation's founder,
President and Chief Executive Officer. The loss of Matthew Jore or any of our
other key personnel could have a material adverse effect on our business and
prospects. We have an employment agreement with Matthew Jore, but do not have
employment agreements with any of our other employees.
OUR PRODUCTION PROCESSES COULD BE DISRUPTED AND OUR COST OF PRODUCTION COULD
INCREASE SIGNIFICANTLY IF OUR MANUFACTURING EQUIPMENT DOES NOT MEET PERFORMANCE
EXPECTATIONS OR IS NOT AVAILABLE FOR FUTURE PURCHASE:
The failure of our manufacturing equipment to perform reliably and as
designed, our inability to source such equipment from present suppliers, or the
obsolescence of our equipment could disrupt our production processes, reduce our
sales and increase production costs. Our business is dependent on the successful
implementation and operation of advanced manufacturing technologies. Our
manufacturing equipment may fail to meet our performance requirements or
continue to operate reliably because of unexpected design flaws or manufacturing
defects. Moreover, we may be unable to continue to obtain equipment and supplies
from our present suppliers if they cease producing or selling such equipment or
supplies or opt not to sell to us. In addition, we cannot be certain that our
manufacturing processes will remain competitive with new and evolving
technologies.
OUR INABILITY TO INTRODUCE NEW PRODUCTS THAT ARE ACCEPTED BY THE MARKET COULD
ADVERSELY AFFECT OUR SALES, OUR REPUTATION AS AN INNOVATIVE MANUFACTURER AND OUR
ABILITY TO OBTAIN NEW CUSTOMERS:
Our future success will depend in part on our continuous and timely
development and introduction of new products that address evolving market
requirements. We cannot assure that our new products will be introduced on a
timely basis or will achieve market acceptance. We may be unable to successfully
develop and produce new products because of a lack of market demand, production
capacity constraints or the lack of relevant technical and engineering
expertise. Factors affecting the market acceptance of our new products include:
- Functionality, quality and pricing;
- Demand from end-users;
- Favorable reviews in trade publications;
- Adequate marketing support;
- The introduction of competitive products; and
- General trends in the power and hand tool industries and the home
improvement market.
OUR GROWTH STRATEGY DEPENDS IN PART ON OUR EXPANSION INTO FOREIGN MARKETS, WHICH
MAY BE DIFFICULT OR UNPROFITABLE:
We intend to expand distribution of our products in foreign markets. Because
of the size and continued growth of the power tools accessories market outside
North America, the failure to successfully enter foreign markets could limit our
growth prospects. In our attempt to enter foreign markets, we may expend
financial and human resources without a corresponding increase in revenues and
profitability. We cannot assure that we will be able to penetrate foreign
markets or that this growth strategy can be implemented profitably. Penetrating
and conducting business in foreign markets involves challenges, including:
- Local acceptance of our products;
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- Currency controls and fluctuations in foreign exchange rates;
- Regulatory requirements such as tariffs and trade barriers;
- Longer payment cycles and increased difficulty in collecting accounts
receivable;
- Unfavorable tax consequences; and
- Transportation and logistics.
WE FACE COMPETITION IN THE POWER TOOL ACCESSORIES AND HAND TOOLS MARKETS:
The power tool accessories and hand tools markets are mature and highly
competitive. We cannot assure that we will be able to compete in our target
markets. In the power tool accessory market competitors include Vermont American
Corporation, Black & Decker Corporation, Greenfield Industries, Inc., a
wholly-owned subsidiary of Kennametal Inc., American Tool Companies, Inc., S/B
Power Tools, Milwaukee, Porter Cable, Snap-On Incorporated and others, as well
as a number of other companies that supply products under private labels to OEM
and retail customers. Some of these competitors offer products similar to ours
or different products with similar functionalities. In particular, Black &
Decker has developed a product line with similar characteristics to our
quick-change system. In the hand tool market, competitors include American Tool
Companies, Inc., Cooper Industries, Inc., The Stanley Works and others,
including foreign manufacturers such as Sandvik AB.
Many of our competitors are established companies that have significantly
greater financial, technical, manufacturing, sales and marketing, and support
resources than Jore Corporation. In addition, many of our competitors own
well-known brands, enjoy large end-user bases, and benefit from long-standing
customer relationships. We believe that consumers in our markets generally are
loyal to a particular brand. Therefore, it may be difficult to generate sales to
consumers who have purchased products from competitors. Our failure to compete
successfully against current or future competitors would have material adverse
effects on our business, operating results, and financial condition including
loss of customers, declining revenues and loss of market share.
OUR DEPENDENCE ON CUSTOMER FORECASTS TO MANAGE OUR BUSINESS MAY CAUSE US TO
MISALLOCATE OUR PRODUCTION, INVENTORY OR OTHER RESOURCES:
Significant or numerous cancellations, reductions or delays in orders by a
principal customer or a group of customers could have a material adverse effect
on our revenues, inventory levels and profit margins. We rely on our customers'
forecasts to anticipate their future volume of orders, which typically do not
become contractual obligations until approximately 30 days prior to shipment. We
rely on these forecasts when making commitments regarding the level of business
that we will seek and accept, the mix of products that we intend to manufacture,
the timing of production schedules, and our use of equipment and personnel. The
size and timing of orders placed by our customers varies due to a number of
factors, including consumer demand, inventory management by customers, our
customers' manufacturing or marketing strategies, and fluctuations in demand for
competing and complementary products. In addition, a variety of economic
conditions, both specific to individual customers and generally affecting the
markets for our products, may cause customers to cancel, reduce or delay orders
that were previously made or anticipated.
OUR BUSINESS IS SEASONAL AND OUR OPERATING RESULTS ARE SUBJECT TO QUARTERLY
FLUCTUATIONS:
Seasonality and unanticipated changes in customer demand could cause our
revenue, expenses, inventory levels and operating results to fluctuate.
Currently, the majority of our sales occur during the third and fourth fiscal
quarters and our operating results depend significantly on the holiday selling
season. In 1997, 1998, and 1999 approximately 69%, 67%, and 67% respectively, of
our net revenues were generated during the third and fourth quarters. To support
this sales peak, we anticipate demand and build inventories of finished goods
throughout the first two fiscal quarters. In addition, our customers may reduce
or delay their orders during the first two fiscal quarters to balance their
inventory between the holiday selling seasons. As a result, our levels of raw
materials and finished goods inventories tend to be at their highest, relative
to sales, during the first half of the year. These factors can cause variations
in our quarterly operating results and potentially expose us to greater adverse
effects of changes in economic and industry trends.
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.
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UNSATISFACTORY PERFORMANCE OF OUR NEW INFORMATION TECHNOLOGY SYSTEM COULD SLOW
OUR GROWTH:
The satisfactory performance and reliability of our information systems are
essential to our operations and continued growth. We have implemented a new
information technology system parts of which became operational during July of
1999. If the system fails to perform reliably or otherwise does not meet our
expectations, or if we fail to successfully complete the implementation of other
modules of the system, we could experience design, manufacturing, and shipping
delays, which in turn, could increase our costs and result in deferred or lost
sales. Failure to maintain our new information system, or unsatisfactory
performance of the system, could disrupt manufacturing operations and reporting
systems, cause delays in production and shipping of product, and adversely
affect our responsiveness to customers.
THE LOSS OR NON-PERFORMANCE OF OUR SALES REPRESENTATIVE COULD DISRUPT OUR SALES
EFFORTS:
We coordinate our sales and marketing activities with a sales
representative, Manufacturers' Sales Associates, LLC. In 1999 and 1998,
Manufacturers' Sales Associates and its affiliate received a commission on all
of our sales. The failure or inability of Manufacturers' Sales Associates to
represent us effectively, maintain relationships with our customers, attract new
customers, or satisfactorily perform marketing activities could adversely affect
our business, customer relationships, reputation and prospects for growth.
Moreover, Manufacturers' Sales Associates can terminate its relationship with us
at any time without penalty. Termination of this relationship would require us
either to conduct all of our sales and marketing activities internally or retain
another sales and marketing representative. Any such change could disrupt our
sales efforts and damage our customer relationships.
EXISTING AND POTENTIAL LITIGATION MAY DIVERT MANAGEMENT RESOURCES AND COULD
ADVERSELY AFFECT OUR OPERATING RESULTS:
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business. Such
claims, even if not meritorious, could require the expenditure of significant
financial and managerial resources. On August 16, 1999, Pete K. Block and
Paul K. Block instituted separate actions in Montana District Court against us,
Matthew Jore individually and d.b.a. Jore Enterprises, Michael Jore and Merle
Jore. In their complaints, the Blocks alleged, among other things, that they are
collectively entitled to a 25% interest in the capital stock of Jore Enterprises
and any successor corporation. Their lawsuits are based in part upon an
agreement, dated October 10, 1989, between the Blocks and Matthew, Michael and
Merle Jore. The Blocks seek dissolution of Jore Corporation and are compensatory
damages of not less than $10 million, punitive damages, attorneys' fees and
costs, and injunctive relief preventing any reorganization or sale that would
cause them to collectively own less than 25% of the equity of Jore Enterprises
and any successor corporation.
Litigation is inherently uncertain, and we cannot assure that we and/or the
Jores will prevail in the suit. To the extent that the Blocks become entitled to
shares of our common stock as a result of the suit, we may be required to
recognize an expense equal to the number of shares issued multiplied by the fair
value of the common stock on the date of issuance. Satisfaction of such
liabilities through the issuance of shares could result in the recognition of
future expenses, which could have a material adverse effect on our results of
operations.
WE SUBSTANTIALLY RELY ON CONTRACTS WITH AFFILIATES WHOSE INTERESTS MAY NOT
ALWAYS COINCIDE WITH THOSE OF OUR PUBLIC SHAREHOLDERS:
The existence of, or potential for, conflicts-of-interest between two of our
directors and us could adversely influence decisions relating to sales and
marketing and printing and packaging of our products. We rely substantially on
our sales representative, Manufacturers' Sales Associates, for sales and
marketing assistance and on Printing Press Incorporated for printing and
packaging materials. Our director William M. Steele is the managing member and
owns a significant ownership percentage and control of Manufacturers' Sales
Associates, and our director Bruce Romfo owns 30% of Printing Press
Incorporated. In 1999, Manufacturers' Sales Associates and its affiliate earned
an aggregate of $1,245,424 million in sales commissions and we purchased
$2,597,810 million printing and packaging materials from Printing Press. In
1998, Manufacturers' Sales Associates and its affiliate earned an aggregate of
$1.8 million in sales commissions and we purchased $2.0 million printing and
packaging materials from Printing Press. Because of their significant ownership
stakes in these two entities, the interests of Messrs. Steele and Romfo may
diverge from those of Jore Corporation and its public shareholders.
UNFAVORABLE CHANGES IN COSTS AND AVAILABILITY OF RAW MATERIALS MAY ADVERSELY
AFFECT OUR MANUFACTURING OPERATIONS AND ABILITY TO SATISFY OUR CUSTOMERS'
ORDERS:
We purchase raw materials, key components and certain products from third
party vendors. Although there are alternative sources for these raw materials,
components, and products, we could experience manufacturing and shipping delays
if it became necessary to change or replace current suppliers, or to produce
certain components or products internally. In addition, the prices of raw
materials supplied by certain vendors are influenced by a number of factors,
including general economic conditions, competition, labor costs, and general
supply levels. Our inability to obtain reliable and timely supplies of
out-sourced products and
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components and raw materials on a cost effective basis, or any unanticipated
change in suppliers, could have a material adverse effect on our manufacturing
operations, revenues and profitability.
WE DEPEND ON PATENT, TRADEMARK AND TRADE SECRET PROTECTION TO MAINTAIN OUR
MARKET POSITION:
Our success depends in part on our ability to obtain patent protection for
our products, maintain trade secret protection for our proprietary processes,
and operate without infringing on the proprietary rights of others. Our existing
U.S. and foreign patents expire between 2002 and 2012. We have filed, and intend
to file, applications for additional patents covering our products. We cannot be
certain that any of these patent applications will be granted, that any future
inventions that we develop will be patentable or will not infringe the patents
of others, or that any patents issued to or licensed by us will provide us with
a competitive advantage or adequate protection for our technology. In addition,
we cannot assure that any patents issued to or licensed by us will not be
challenged, invalidated or circumvented by others.
We believe that trademarks owned or licensed by us enhance our position in
the marketplace and are important to our business. Our inability to use any of
our trademarks could adversely affect our customer relationships and revenues.
We cannot be certain that we will retain full rights to use our trademarks in
the future.
THE COST OF PROTECTING AND DEFENDING OUR PATENTS, TRADEMARKS AND TRADE SECRETS
MAY BE SIGNIFICANT:
The defense and prosecution of patent claims, and litigation involving
intellectual property rights generally, is both costly and time consuming. If
any of our products are found to have infringed any patent or other third party
proprietary right, we may be unable to obtain licenses to continue to
manufacture and sell such products or may have to pay damages as a result of
such infringement. We endeavor to protect our trade secrets by entering into
confidentiality agreements with third parties, employees and consultants and
generally control access to our facilities and distribution of our proprietary
documentation and other materials. Confidentiality and non-disclosure
obligations are difficult to enforce, however, and we may lack an adequate
remedy for breach of a confidentiality agreement. Moreover, a third party could
gain access to our trade secrets through means other than by breach of a
confidentiality agreement, or could develop independently a process
substantially similar to our trade secrets. In addition, the laws of other
countries in which we market or may market our products may afford little or no
effective protection of our intellectual property.
WE COULD BECOME SUBJECT TO PRODUCT LIABILITY LAWSUITS:
We face a potential risk of product liability claims because our products
may be used in activities where injury may occur such as the building and
construction industries. Although we have product liability insurance coverage,
we cannot be certain that this insurance will adequately protect us against
product liability claims or that we will be able to maintain this insurance at
reasonable cost and on reasonable terms. To the extent that we are found liable
for damages with respect to a product liability claim and lack adequate
insurance coverage to satisfy such claim, our business, operating results, and
financial condition could be materially and adversely affected.
THE JORE FAMILY CONTROLS ALL MATTERS REQUIRING SHAREHOLDER APPROVAL POSSIBLY IN
CONFLICT WITH YOUR INTERESTS:
Matthew Jore, acting alone, or the Jore family, acting together, are able to
control all matters requiring shareholder approval. Matthew Jore, President and
Chief Executive Officer, his brother Michael Jore, Executive Vice President,
trusts controlled by Matthew and Michael Jore, and other members of the Jore
family beneficially own approximately 63.4% of our outstanding common stock. Our
Articles of Incorporation and Bylaws do not provide for cumulative voting;
therefore, the Jore family has the ability to elect all of our directors. The
Jore family also has 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.
WE MAY NEED ADDITIONAL CAPITAL WHICH COULD DILUTE YOUR INTEREST IN THE COMPANY
AND WHICH MAY NOT BE AVAILABLE WHEN NEEDED:
Depending on our rate of growth and cash requirements, we may require
additional equity or debt financing to meet future working capital needs and to
enhance our financial position for future operations. We cannot assure you that
such additional financing will be available or, if available, that such
financing can be obtained on satisfactory terms. If financing is unavailable to
us or is available only on a limited basis, we may be unable to develop or
enhance our products, take advantage of business opportunities or respond to
competitive pressures, any of which could have a material adverse effect on our
business, operating results, and financial condition.
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WE USE DEBT, WHICH CREATES FINANCIAL AND OPERATING RISK:
We have relied on debt and may seek additional debt funding in the future.
As of December 31, 1999, we had approximately $27,779,153 million of outstanding
long-term debt, net of current portion, which accounted for 38.2% of our total
capitalization. Our leverage poses the risks that:
- We may be unable to repay our debt due to a decline in revenues or
disruption in cash flow;
- We may be unable to obtain additional financing;
- We must dedicate a substantial portion of our cash flow from operations to
servicing the interest and principal payments on our debt, and any
remaining cash flow may be inadequate to fund our planned operations;
- We have pledged substantially all of our inventory and accounts receivable
as collateral; and
- We may be more vulnerable during economic downturns, less able to
withstand competitive pressures and less flexible in responding to
changing business and economic conditions.
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 or in response to the perception that
such sales could occur. Approximately 9.5 million of our shares are eligible for
immediate sale, in certain instances, subject to the volume limitations of
Rule 144.
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.
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ITEM 2. PROPERTIES
Our operations are housed in 280,590 square feet of facilities located on a
120 acre site near Ronan, Montana that we own. Our existing facilities include
three buildings from which we provide manufacturing, assembly, packaging,
warehousing and administrative functions. During 1999, we expanded our
facilities by 153,600 square feet to accommodate expanded manufacturing
activities, including our new drill bit manufacturing operation. We also lease a
facility of about 10,500 square feet in Edgerton, Wisconsin in which we
manufacture insert screwdriver bits in our J.B. Tool operations. We believe
these sites are sufficient to continue to expand our facilities to meet our
needs for the foreseeable future, although we may expand beyond our locality and
our existing site to accommodate our product distribution needs and to access
more substantial labor pools.
ITEM 3. LEGAL PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of our business, including
claims of alleged infringement of third-party trademarks and other intellectual
property rights. Such claims, even if not meritorious, could require the
expenditure of significant financial and managerial resources.
BLACK & DECKER LITIGATION. On June 9, 1999, The Stanley Works filed a
lawsuit against Black & Decker in the United States District Court for the
District of Connecticut. The lawsuit arises out of claims made by Black & Decker
that our proposed introduction of STANLEY-REGISTERED TRADEMARK--branded power
tool accessories in yellow and black packaging would violate Black & Decker's
trademark rights associated with its DEWALT-REGISTERED TRADEMARK- brand.
Stanley is seeking a declaratory judgment that the use or license by Stanley
or Jore of yellow and black on power tools or their accessories does not
infringe or dilute any of Black & Decker's federal or state trademark rights, or
constitute an unfair trade practice under federal or state law. We have joined
Stanley as a co-plaintiff in this suit. Stanley has advised us that:
- It has used yellow and black on its products since at least 1899;
- It has marketed products under its "Stanley in a notched rectangle"
trademark since at least 1902;
- It has sold power tool accessories since at least 1939;
- It has packaged its power tool accessories utilizing yellow and black
trade dress since at least 1957.
In contrast, we believe that Black & Decker first introduced the DeWalt line
of power tools dressed in yellow and black in 1992. Jore began shipping product
under the STANLEY-REGISTERED TRADEMARK- brand on June 14, 1999.
On July 7, 1999, Black & Decker filed an Amended Answer, Affirmative
Defenses, and Counterclaims to Amended Complaint, in which Black & Decker denied
most of the allegations asserted against it and raised counterclaims against
Stanley and Jore alleging, among other things, unfair competition and trademark
and trade dress infringement. In its filing, Black & Decker seeks:
- dismissal of Stanley's action;
- an injunction against Stanley and Jore that would prevent Stanley and us
from using the yellow and black color combination for marketing and
selling power tools and power tool accessories;
- damages for our use of the yellow and black color combinations; and
- attorneys' fees and costs.
On February 24, 2000, Black & Decker moved to dismiss the lawsuit on the
grounds that no "case or controversy" exists among the parties. Stanley and Jore
have opposed Black & Decker's motion, which is pending before the court.
Under the license agreement, Stanley has agreed to indemnify and hold us
harmless with respect to any alleged copyright or trademark infringement action
arising out of the approved use of Stanley's trademarks, and has the sole
responsibility for undertaking and conducting the defense of any such action.
BLOCK BROTHERS LITIGATION. On August 16, 1999, Pete K. Block and Paul K.
Block instituted separate actions in the Montana Fourth Judicial District Court
of Missoula County, Montana against us, Matthew Jore individually and dba Jore
Enterprises, Michael Jore, individually, and Merle Jore, individually. In their
complaints, the Blocks alleged, among other things, that they are collectively
entitled to a 25% interest in the capital stock of Jore Enterprises and any
successor corporation. Their lawsuits are based in part upon an agreement, dated
October 10, 1989, between the Blocks and Matthew, Michael and Merle Jore
pursuant to which the Blocks contend that Matthew, Michael and Merle Jore agreed
to issue them shares of stock of Jore Enterprises and any successor corporation
and to grant them a collective 25% interest in all patent rights, profits and
real and personal property. The
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Blocks seek dissolution of Jore Corporation and compensatory damages of not less
than $10 million, plus interest, punitive damages, attorneys' fees and costs and
injunctive relief preventing any capital reorganization or sale that would cause
them to collectively own less than 25% of the equity of Jore Enterprises and any
successor corporation.
We have answered the complaint, and we intend to vigorously defend against
the claims, assert affirmative defenses and potentially assert counterclaims.
While we believe that we have meritorious defenses and potential counterclaims
to the Blocks' claims, litigation is inherently uncertain, and we cannot assure
that we and/or the Jores will prevail in the suit. To the extent that the Blocks
become entitled to shares of our common stock as a result of the suit, we may be
required to recognize an expense equal to the number of shares issued multiplied
by the fair value of the common stock on the date of issuance. This could have a
material adverse effect on our results of operations.
In order to protect Jore Corporation from any adverse outcome in this or any
future proceeding involving the Blocks, Matthew, Michael and Merle Jore have
entered into an indemnification agreement with Jore Corporation pursuant to
which they indemnify and hold Jore Corporation harmless against these and any
other future claims, including any damages and costs resulting therefrom, that
the Blocks may assert against us, including attorneys fees and costs. In
addition, the agreement provides that if the Blocks become entitled to any
shares of our common stock pursuant to a definitive judicial or arbitral
determination or a settlement agreement with us, then the Jores will provide
such shares from their own shareholdings. We cannot be certain, however, that
the Jores will be able to perform their indemnification obligations or that such
performance will not adversely affect the market for our stock. Satisfaction of
such liabilities through the issuance of shares could result in the recognition
of future expenses, which could have a material adverse effect on our results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted for a vote of stockholders of the Company during
the fourth quarter of the year ended December 31, 1999.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers and directors of Jore Corporation, as of March 1,
2000, and their ages and positions, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Matthew B. Jore(2)........ 37 President, Chief Executive Officer and Chairman
Michael W. Jore........... 40 Executive Vice President and Director
David H. Bjornson......... 43 Chief Financial Officer, General Counsel, Secretary and
Director
Kelly D. Grove............ 33 Vice President--Controller
Nikki M. Snyder........... 40 Vice President--Human Resources
Jeffery J. Eidsmoe........ 43 Vice President--Operations
Jeffrey M. Heutmaker...... 37 Vice President--Strategic Initiatives
</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 in February 1990. He holds a B.S. degree in
Economics from the University of Montana.
MICHAEL W. JORE has served as Executive Vice President since November 1998
and Director of Jore Corporation since February 1990. From June 1990 to November
1998, he was the Vice President of Jore Corporation. Before joining Jore
Corporation, he worked for Plum Creek Timber, L.L.C. for ten years. Matthew and
Michael Jore are brothers.
DAVID H. BJORNSON has served as General Counsel since November 1998,
Executive Vice President since March 2000 and as a Director since May 1998.
Mr. Bjornson also served as Chief Financial Officer from November 1998 through
March 2000. From 1985 to 1998, he was a partner or associate attorney with law
firms in Seattle, Washington and Missoula, Montana, focusing his practice in the
area of business transactions and corporate and tax law. From 1979 to 1981 he
worked with the international accounting firm of Touche Ross & Co. in Seattle.
He holds an LL.M. degree in taxation from New York University, and a J.D. and a
B.A. degree in Business Administration with honors from the University of
Montana. Mr. Bjornson also holds a Certified Public Accountant Certificate.
KELLY D. GROVE has served as Vice President--Controller of Jore Corporation
since March 1999. From August 1995 to March 1999, she was the Controller of Jore
Corporation. From March 1994 to August 1995, she was the Executive Coordinator
of Jore
15
<PAGE>
Corporation. From November 1991 to March 1994, she was a staff accountant at
Washington Corporations, a holding company. She has a B.S. degree from Montana
State University. She holds a CPA certificate.
NIKKI M. SNYDER has served as the Vice President--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.
JEFFERY J. EIDSMOE has served as Vice President--Operations since May 1999.
From January 1988 to May 1999 he worked for Western Forge, a subsidiary of
Emerson Electric Company, serving as its Director of Product Development for the
past four years. Mr. Eidsmoe was previously employed by Cessna Aircraft Company
as an Industrial Engineer Group Leader and Production Supervisor from
March 1983 to December 1988. He has an M.B.A. degree from the University of
Colorado and a B.S. degree from Bemidji State University, Bemidji, Minnesota.
JEFFREY M. HEUTMAKER has served as Vice President--Strategic Initiatives
since June 1999. From June 1996 to June 1999 Mr. Heutmaker was an attorney with
Van Valkenberg Furber Law Group P.L.L.C, a law firm located in Seattle,
Washington, and outside securities counsel to Jore Corporation. From 1988 to
1996, Mr. Heutmaker practiced law in Seattle, Washington, including as principal
of his own law firm from May 1992 to May 1996, and as an associate in the
Corporate Finance group of Bogle & Gates from September 1988 to May 1992, where
his practice focused on securities law and mergers and acquisitions
transactions. He holds a J.D. degree from Notre Dame Law School and a B.A.
degree in Economics and English Literature from the University of Puget Sound.
Our executive officers will serve as officers of Jore Corporation until the
regular meeting of the Board of Directors in May 2000 or until their respective
successors shall have been elected. Mike Jore and Matt Jore are brothers. There
is no family relationship between any of the other executive officers listed
above.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock is traded on the Nasdaq National Stock Market ("Nasdaq")
under the symbol "JORE." The common stock commenced trading on September 23,
1999. The following table sets forth the high and low closing sale prices for
the Common Stock as reported on the Nasdaq for the period from September 23,
1999 through the end of fiscal year 1999, and the period from January 1, 2000
through March 15, 2000.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Year ended December 31, 1999
Third Quarter (from September 23)......................... $12.3125 $9.1000
Fourth Quarter............................................ $12.8750 $7.0625
January 1, 2000 through March 15, 2000...................... $ 9.9375 $5.7188
</TABLE>
HOLDERS
As of March 15, 2000, there were approximately 91 holders of record of
Common Stock.
DIVIDENDS
Except for the S corporation distribution described in Note 5 to Jore
Corporation's Consolidated Financial Statements presented herein under Item 8,
we did not declare or pay any dividends in 1999, and do not anticipate paying
cash dividends in the foreseeable future. We intend to retain future earnings
for reinvestment in the operation and expansion of our business. Any
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon our financial condition, results of
operations, capital requirements and such other factors as the Board of
Directors deems relevant.
Under certain loan covenants associated with our line of credit facility, we
are restricted from declaring or paying dividends, or from purchasing,
redeeming, retiring or otherwise acquiring for value any of our shares of stock,
or from otherwise distributing property to shareholders with some limited
exceptions.
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<PAGE>
SALES OF UNREGISTERED SECURITIES
There were no unregistered sales of equity securities made during the fourth
quarter of 1999.
USE OF PROCEEDS FROM REGISTERED SECURITIES
As of December 31, 1999, we had used the net proceeds of our initial public
offering as follows:
<TABLE>
<S> <C>
Net Proceeds from sale by Jore Corporation of 4,300,000
shares.................................................... $38.6 million
Use of Proceeds
Repayment of indebtedness and related interest.............. $12.9 million
S Corporation dividend and shareholder advances............. 4.0 million
Capital expenditures and working capital.................... 14.0 million
Investments and marketable securities....................... 7.7 million
----------------
Total....................................................... $38.6 million
================
</TABLE>
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<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," our Consolidated Financial Statements and Notes
thereto and other financial information included elsewhere in this report.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Net sales................................................. $ 53,872 $44,888 $23,656 $9,686 $9,416
Income (loss) from operations............................. 9,255 7,734 3,445 (63) 561
Net earnings (loss) before extraordinary item and taxes... 6,477 6,240 2,541 (558) 189
Provision for income taxes................................ 633 -- -- -- --
-------- ------- ------- ------ ------
Income (loss) before extraordinary item................... 5,844 6,240 2,541 (558) 189
Extraordinary item:
Loss related to early retirement of debt, net of
taxes................................................. 914
-------- ------- ------- ------ ------
Net income (loss)......................................... $ 4,930 $ 6,240 $ 2,541 $ (558) $ 189
======== ======= ======= ====== ======
Income before extraordinary item per common share:
Basic................................................... $ 0.55 $ 0.66 $ 0.27
Diluted................................................. $ 0.54 $ 0.66 $ 0.27
Effect of extraordinary item on earnings per share:
Basic................................................... $ 0.09 -- --
Diluted................................................. $ 0.09 -- --
Net income per common share:
Basic................................................... $ 0.46 $ 0.66 $ 0.27
Diluted................................................. $ 0.45 $ 0.66 $ 0.27
Shares used in calculation of income per share
Basic................................................... 10,653 9,412 9,358
Diluted................................................. 10,893 9,436 9,358
Pro forma data (unaudited):
Net income.............................................. $ 4,930 $ 6,240 $ 2,541
Pro forma provision for income taxes.................... 1,303 2,343 900
Pro forma net income.................................... $ 3,627 $ 3,897 $ 1,641
Pro forma net income per common share (unaudited):
Basic................................................... $ 0.34 $ 0.41 $ 0.18
Diluted................................................. $ 0.33 $ 0.41 $ 0.18
BALANCE SHEET DATA
Inventory................................................. $ 27,795 $ 8,072 $ 4,740 $2,974 $1,101
Current assets............................................ 58,683 25,111 11,375 5,166 1,951
Property, plant and equipment, net........................ 58,561 19,816 6,081 4,196 3,022
Total assets.............................................. 117,908 45,963 17,759 9,548 5,169
Total current liabilities................................. $ 42,605 $25,083 $10,549 $5,210 $2,875
Long-term debt, net of current portion.................... 27,779 14,589 4,689 4,189 1,541
Total liabilities......................................... 73,153 39,673 15,238 9,399 4,376
Total shareholders' equity................................ 44,754 6,289 2,521 149 763
</TABLE>
18
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANAYLISIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
JORE CORPORATION'S CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO
INCLUDED HEREIN UNDER ITEM 8. 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 WITHIN THE MEANING OF
SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. 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. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER "RISK
FACTORS" SET FORTH IN ITEM 1 ABOVE. YOU SHOULD NOT RELY ON THESE FORWARD-LOOKING
STATEMENTS, WHICH REFLECT ONLY OUR OPINION AS OF THE DATE OF THIS REPORT. WE DO
NOT ASSUME ANY OBLIGATION TO UPDATE FORWARD-LOOKING STATEMENTS.
OVERVIEW
Jore Corporation was founded to develop and produce innovative power tool
accessories to meet the increasing demand resulting from the growth in the
cordless power tool market. Our revenues have grown substantially through the
addition of new customers, increased sales to established customers and expanded
product offerings. Our business commenced in 1987, when we began selling a
limited number of drilling and driving accessories to independent local and
regional hardware stores and building supply centers. In 1990, Makita became our
first national customer and we devoted significant resources to servicing its
demand for our products. By 1996, we had expanded our product portfolio to
include our reversible drill and drivers and contractor versions of our
products. We also began to diversify our customer base by selling products to
Black & Decker/DeWalt, as well as to retail customers. In 1997 and 1998, we
continued to expand our customer base by selling to Sears, Home Depot, Canadian
Tire and TruServ and further expanded our product line by introducing our quick
change system and new drilling and driving accessories such as wood boring and
masonry bits. In 1999,we increased our revenues and margins by pursuing direct
relationships with major retailers through sales of private label and
STANLEY-REGISTERED TRADEMARK- branded products, increasing sales to existing
customers, and augmenting our existing product portfolio.
In 1999, we incurred several significant non-recurring costs in order to
position us for future growth. These costs include the direct and indirect costs
to:
- Construct and reorganize our manufacturing, engineering and administrative
facilities;
- Purchase, install and test our new drill bit manufacturing equipment;
- Install our new management information system and train our personnel to
use it;
- Assess our Year 2000 readiness and implement our compliance program;
- Perform a comprehensive three-year audit of our financial statements; and
- Prepare for and close our initial public offering of common stock.
Direct costs included the tangible, out-of-pocket costs incurred by us that
related to each activity. Indirect costs resulted from the diversion of time and
resources away from our normal operations while we administered these
activities.
In addition, to ensure an adequate supply of drill bits as we phased in our
internal production, we purchased an excess amount of drill bit inventory from
our existing suppliers. We consumed a portion of this excess inventory by the
end of the fourth quarter of 1999, but still retain a substantial supply
thereof, and we expect to fill most of our future requirements from our own
production capacity.
Net revenues are recognized at the time of shipment and sales terms are
typically net 60 or 90 days. Historically, we have experienced negligible bad
debt and do not expect bad debt to be material in the future.
Cost of goods sold consists primarily of raw materials, labor, shipping,
depreciation, 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. Sales and marketing expenses consist primarily of
selling commissions paid to Manufacturers' Sales Associates, our sales
representative, salaries and employee benefits for internal sales personnel and
costs of advertising and promotional activities. General and administrative
expenses consist
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<PAGE>
primarily of salaries and employee benefits for executive, managerial and
administrative personnel, license fees, facility leases, depreciation and
amortization of capitalized administrative equipment and building costs and
travel and business development costs. Other expense consists primarily of
interest expense associated with our borrowings, net of interest income on cash
and cash equivalents.
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,
----------------------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net revenues............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................................... 82.4 86.9 72.3 69.5 65.6
----- ----- ----- ----- -----
Gross profit............................................. 17.6 13.1 27.7 30.5 34.4
Operating expenses:
Product development...................................... 1.6 0.1 0.6 1.1 1.2
Sales and marketing...................................... 0.3 0.3 2.6 5.6 6.0
General and administrative............................... 9.8 13.4 9.9 6.6 10.1
----- ----- ----- ----- -----
Total operating expense.................................. 11.7 13.8 13.1 13.3 17.3
----- ----- ----- ----- -----
Income (loss) operations................................. 5.9 (0.7) 14.6 17.2 17.1
Other expense:
Interest expense......................................... 3.0 5.0 3.4 3.0 5.7
Other income expense..................................... 0.9 0.1 0.5 0.3 (0.5)
----- ----- ----- ----- -----
Net other expense........................................ 3.9 5.1 3.9 3.3 5.2
----- ----- ----- ----- -----
Net income (loss) reported............................... 2.0% (5.8)% 10.7% 13.9% 12.0
===== ===== ===== ===== =====
</TABLE>
1999 COMPARED TO 1998
NET REVENUES. Net revenues increased from $44.9 million in 1998 to
$53.9 million in 1999, representing a 20.0% increase. Of the $9.0 million
increase, sales to existing customers accounted for $6.2 million and sales to
new customers accounted for $2.8 million. A substantial portion of this increase
for new customers resulted from additional sales under the STANLEY-REGISTERED
TRADEMARK- brand.
COST OF GOODS SOLD. Cost of goods sold increased from $31.2 million in 1998
to $35.3 million in 1999, representing a 13.3% increase. Cost of goods sold as a
percentage of revenues decreased from 69.4% in 1998 to 65.6% in 1999. This
decrease is attributable to an increase in sales to direct retailers at better
margins, a larger sales volume over which to spread fixed overhead costs,
reductions in material costs, and savings related to the new manufacturing
processes implements in effecting technological vertical integration.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$495,000 in 1998 to $621,000 in 1999, representing a 25.4% increase.
Professional and technical labor accounted for the majority of the increase as
we hired additional engineers and machinists to develop our proprietary products
and corresponding processes. In addition to the labor expensed in 1998 and 1999,
we capitalized $211,000 and $1,276,000, respectively, of labor related to
equipment constructed in-house. These amounts are included in property, plant
and equipment on the balance sheet and depreciated over the life of the
equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$2.5 million in 1998 to $3.2 million in 1999, representing a 28.7% increase.
Advertising and promotion expenses increased by approximately $1.0 million due
to increased retail advertising, but this increase was partially offset by a
decrease in the sales commission percentage paid to our sales representative. We
increased our internal marketing and graphics staff to accommodate increased
sales and customer support activities as our customer diversification efforts
required us to produce more packaging and merchandising materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $3.0 million in 1998 to $5.5 million in 1999, representing an
82.8% increase. The increase was a result primarily of our tremendous growth,
including our initiatives to expand our executive level administrative
infrastructure. For example, during 1999, we recruited three new senior level
executives and we increased our finance and administrative staff from 67 at
December 31, 1998 to 115 at December 31, 1999. Other nonrecurring items which
impacted the increase in general and administrative costs were training and
other noncapitalizable costs associated with our new management information
system, costs associated with our Y2K or Year 2000 computer systems review and
compliance, and certain indirect costs associated with our initial public
offering, including nonrecurring increases in
20
<PAGE>
professional fees such as reorganization costs and expenses related to a
one-time three year audit of our financial statements and the consolidation and
combination of our operations.
OTHER INCOME/EXPENSE. Other net expense increased from $1.5 million in 1998
to $2.8 million in 1999, representing a 85.6% increase. This increase in other
expense is directly attributable to a larger amount of borrowings and a
corresponding increase in interest expense.
EXTRAORDINARY ITEM. We incurred an extraordinary expense of approximately
$1.0 million in August 1999 related to the early extinguishment of our former
operating line of credit. We expensed the resulting prepayment penalty and the
unamortized financing costs associated with the credit line. The proceeds to
extinguish the debt came from our new credit line with First Security Bank. This
new credit line provides lower fees, lower interest rates and greater
flexibility and collateral for our inventory.
PRO FORMA PROVISION FOR INCOME TAXES. Prior to the closing of our initial
public offering in September 1999, we were treated as an S corporation for tax
purposes. As an S corporation, we were not subject to federal and certain state
income taxes. Upon the closing of our initial public offering on September 23,
1999, our status as an S corporation was terminated and we became subject to
taxes as a C corporation. The pro forma provision for income taxes reflects the
estimated tax expense that we would have incurred had we been subject to federal
and state income taxes as a C corporation during the periods during which we
were an S corporation. The pro forma provision for 1999 reflects a pro forma tax
rate of 32.05%, which differs from the federal statutory rate due primarily to
the effects of state taxes and certain tax credits.
NET INCOME. We made no provision for income tax in 1998 as we retained our
status as an S corporation. On a pro forma basis, our net income decreased from
$3.9 million in 1998 to $3.6 million in 1999, representing a 6.9% decrease.
1998 COMPARED TO 1997
NET REVENUES. Net revenues increased from $23.7 million in 1997 to
$44.9 million in 1998, representing an 89.8% increase. Of the $21.2 million
increase, sales to existing customers accounted for $19.0 million and sales to
new customers accounted for $2.2 million. In particular, we doubled our shelf
space at most Sears stores, increased the number of products sold to them and
increased the number of Sears stores carrying our products. These factors
combined to more than triple our sales to Sears during 1998.
COST OF GOODS SOLD. Cost of goods sold increased from $17.1 million in 1997
to $31.2 million in 1998, representing an 82.3% increase. Cost of goods sold
decreased as a percentage of revenues from 72.3% in 1997 to 69.4% in 1998. This
decrease is primarily attributable to the greater absorption of manufacturing
overhead associated with increased revenues and the efficiencies gained from
manufacturing our products internally but was partially offset by the
inefficiencies associated with hiring and training more than 400 new employees
during the year. Our gross margins improved as we continued to vertically
integrate our manufacturing operations and the effects of such integration
impacted our margins in the third and fourth quarters of 1999.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased from
$151,000 in 1997 to $495,000 in 1998, representing a 228.6% increase.
Professional and technical labor accounted for the majority of the increase as
we hired additional engineers and machinists to develop our proprietary products
and corresponding processes. In addition to the labor expensed in 1997 and 1998,
we capitalized $182,000 and $211,000, respectively, of labor related to
equipment constructed in-house. These amounts are included in property, plant
and equipment on the balance sheet and depreciated over the life of the
equipment.
SALES AND MARKETING EXPENSES. Sales and marketing expenses increased from
$620,000 in 1997 to $2.5 million in 1998, representing a 305.0% increase. Sales
commissions represented $1.3 million of the increase. Advertising and promotion
expenses increased by $474,000 due to increased retail advertising. We increased
our internal marketing and graphics staff to accommodate increased sales and
customer support activities as our customer diversification efforts required us
to produce more packaging and merchandising materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased from $2.3 million in 1997 to $3.0 million in 1998, representing a
27.4% increase. The increase is a result of our growth and expansion.
Administrative salaries and related benefits increased as professional level
staff members were added, increasing the overall salary base. The total number
of administrative staff increased from 86 at the end of 1997 to 111 at the end
of 1998.
OTHER EXPENSE. Other expense increased from $904,000 in 1997 to $1.5
million in 1998. This increase in other expense is primarily attributable to a
larger amount of borrowings and a corresponding increase in interest expense.
PRO FORMA NET INCOME. As a result of all of these factors our pro forma net
income increased from $1.6 million in 1997 to $3.9 million in 1998, representing
a 137.5% increase.
21
<PAGE>
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. Our initial public offering of common stock in September 1999
yielded net proceeds to us of $38.6 million, including the exercise of the
underwriters' over-allotment option. These proceeds were used to repay debt,
distribute the accumulated but undistributed S Corporation earnings of the
company, purchase capital expenditures, and invest in marketable securities.
Cash, cash equivalents and short-term investments were $7.8 million as of
December 31, 1999, compared to $35,000 as of December 31, 1998. This increase is
attributable to our receipt of the net proceeds of our initial public offering.
Net cash used by operating activities was $1.9 million in 1997,
$1.7 million in 1998 and $13.2 million in 1999. The net cash used in operating
activities consisted primarily of increases in inventory, which was partially
offset by increased depreciation and accrued expenses.
Net cash used by investing activities was $2.7 million in 1997, $15.7
million in 1998 and $48.8 million in 1999. Cash used in investing activities
consisted primarily of property and equipment purchases and some investment
purchases.
Net cash provided by financing activities was $4.7 million in 1997,
$17.3 million in 1998 and $62.0 million in 1999. Cash provided from financing
activities was primarily from net proceeds from our initial public offering and
proceeds from term debt as well as net borrowings from our line of credit.
We have a revolving line of credit with First Security Bank, N.A., with a
maximum borrowing limit of $25.0 million. Advances on the line are limited to
85% of eligible accounts receivable and 65% of eligible inventory. Trade
accounts receivable and inventory are assigned as collateral. Interest on the
revolving credit line is at the prime rate plus one-half percent or, at our
option, LIBOR plus 3%. The term of the agreement is through August 2001. This
line is secured by receivables, inventory, real estate, equipment and general
intangibles. At December 31, 1999, we had outstanding advances of $25.0 million
on this line.
Capital expenditures and financing associated with those expenditures have
been primary factors affecting our financial condition during the last four
years. Total capital expenditures net of dispositions, including capitalized
internal labor costs, were $40.9 million in 1999 compared to $14.5 million in
1998. A significant portion of these expenditures have been related to the
acquisition of manufacturing equipment to increase production capacity. In order
to maintain an exclusive relationship with the manufacturer of some of our
equipment, we must continue to purchase approximately $6.8 million of such
equipment per year over the next four years.
On January 6, 2000, we closed a Rural Development Guaranteed Commercial Real
Estate Loan through Mountain West Bank, N.A., Missoula Branch, for $8,641,500.
The loan is collateralized by real estate and buildings owned by us and is
personally guaranteed by Matthew B. Jore, our principal shareholder and our
Chief Executive Officer. The terms include a 20-year amortization, monthly
payment of $77,734, with interest at the Wall Street Journal Prime Rate plus
.5%, adjusted every 5 years (9% at inception). This loan refinanced short-term
debt of $2,500,000 from the same lender, which is reflected in Note 7 of Notes
to our Consolidated Financial Statements.
We believe that our cash, cash equivalents and short term investments at
December 31, 1999, will be sufficient to meet our cash requirements for the next
twelve months. Depending on our rate of growth and cash requirements, however,
we may require additional equity or debt financing to meet future working
capital needs. We cannot assure you that such additional financing will be
available or, if available, that such financing can be obtained on satisfactory
terms.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and established standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. The FASB delayed implementation of this
standard, therefore, it will now be effective for the Company beginning in
fiscal 2001. The Company does not expect adoption of SFAS No. 133 to have a
material effect on the financial statements.
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
variable 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.
22
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Substantially all of our cash equivalents and marketable securities are at
fixed interest rates, and, as such, the fair value of these instruments is
affected by changes in market interest rates. However, all of our cash
equivalents and marketable securities mature within one year. As a result, we
believe that the market risk arising from our holding of these financial
instruments is minimal. In addition, all of our current customers pay in U.S.
dollars and, consequently, our foreign currency exchange rate risk is
immaterial. We do not have any derivative instruments and do not currently
engage in hedging transactions.
The Company has exposure to interest rate risk from its short-term and
long-term debt. The Company's long-term debt is both fixed rate and variable
rate. The Company had $20.2 million and $3.9 million of long-term debt with
fixed rates at December 31, 1999 and 1998, respectively. (See Note 7 of the
Notes to the Company's Financial Statements for additional information on its
short-term and long-term borrowings). Market risk for fixed-rate long-term debt
is estimated as the potential decrease in fair value resulting from a
hypothetical 100 basis points increase in interest rates and amounts to $335,329
as of December 31, 1999. The Company does not use derivative financial
instruments to manage interest rate risk.
23
<PAGE>
ITEM 8.
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, 1998 and 1999, 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, 1999. 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, 1998 and 1999, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
March 29, 2000
24
<PAGE>
JORE CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 94,283 $ 34,736
Short term investments (fair market value of $7,676,100).... 7,691,791 --
Accounts receivable, net of allowances for doubtful accounts
of $56,645 and $-0-, respectively......................... 19,031,479 14,672,275
Shareholder notes receivable................................ 1,564,219 1,350,788
Notes receivable from affiliates............................ 11,799 83,917
Inventory................................................... 27,795,284 8,071,500
Other current assets........................................ 2,494,509 898,155
------------ -----------
Total current assets.................................... 58,683,364 25,111,371
Property, plant and equipment, net.......................... 58,560,925 19,815,544
Intangibles & other long-term assets, net................... 663,268 1,035,667
------------ -----------
Total assets................................................ $117,907,557 $45,962,582
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 9,815,501 $ 7,106,060
Accrued expenses.......................................... 3,406,448 2,073,702
Operating line of credit.................................. 25,000,000 13,524,805
Shareholder note payable.................................. 81,495 256,061
Other current liabilities................................. 770,981 125,026
Current portion of long-term debt......................... 3,530,287 1,998,192
------------ -----------
Total current liabilities............................... 42,604,712 25,083,846
Long-term debt, net of current portion...................... 27,779,153 14,589,346
Deferred income tax liabilities............................. 2,769,253 --
------------ -----------
Total liabilities......................................... 73,153,118 39,673,192
Commitments and contingencies (See 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,
13,826,020 and 9,508,544, respectively.................... 40,757,891 1,694,931
Deferred compensation--stock options........................ (16,529) (4,868)
Retained earnings........................................... 4,013,077 4,599,327
------------ -----------
Total shareholders' equity.............................. 44,754,439 6,289,390
------------ -----------
Total liabilities and shareholders' equity.................. $117,907,557 $45,962,582
============ ===========
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31,
---------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues................................................ $53,871,762 $44,888,324 $23,655,966
Cost of goods sold.......................................... 35,313,825 31,167,724 17,098,184
----------- ----------- -----------
Gross profit.............................................. 18,557,937 13,720,600 6,557,782
Operating expenses:
Product development....................................... 620,950 495,235 150,691
Sales & marketing......................................... 3,227,881 2,508,818 619,520
General & administrative.................................. 5,454,268 2,983,035 2,342,165
----------- ----------- -----------
Total operating expenses................................ 9,303,099 5,987,088 3,112,376
----------- ----------- -----------
Income (loss) from operations............................... 9,254,838 7,733,512 3,445,406
Other (income) expense:
Interest expense, net..................................... 2,873,674 1,337,938 792,932
Other (income) expense.................................... (95,709) 159,059 111,424
----------- ----------- -----------
Net other expense....................................... 2,777,965 1,496,997 904,356
----------- ----------- -----------
6,476,873 6,236,515 2,541,050
----------- ----------- -----------
Minority interest........................................... 3,519
Income before extraordinary item and income taxes........... 6,476,873 6,240,034 2,541,050
Provision for income taxes.................................. 633,238
----------- ----------- -----------
Income before extraordinary item............................ 5,843,635 6,240,034 2,541,050
Extraordinary item:
Loss related to early retirement of debt, net of taxes of
$106,428................................................ 913,952 -- --
----------- ----------- -----------
Net income................................................ $ 4,929,683 $ 6,240,034 $ 2,541,050
=========== =========== ===========
Income before extraordinary item per common share:
Basic..................................................... $ 0.55 $ 0.66 $ 0.27
Diluted................................................... $ 0.54 $ 0.66 $ 0.27
Effect of extraordinary item on earnings per share:
Basic..................................................... $ 0.09 $ -- $ --
Diluted................................................... $ 0.09 $ -- $ --
Net income per common share:
Basic..................................................... $ 0.46 $ 0.66 $ 0.27
Diluted................................................... $ 0.45 $ 0.66 $ 0.27
Shares used in calculation of income per share:.............
Basic..................................................... 10,653,247 9,412,497 9,357,801
Diluted................................................... 10,893,393 9,435,777 9,357,801
Pro forma data (unaudited):
Net income................................................ $ 4,929,683 $ 6,240,034 $ 2,541,050
Proforma provision for income taxes....................... 1,303,057 2,343,193 900,200
----------- ----------- -----------
Pro forma net income...................................... $ 3,626,626 $ 3,896,841 $ 1,640,850
=========== =========== ===========
Pro forma net income per common share (unaudited):
Basic..................................................... $ 0.34 $ 0.41 $ 0.18
Diluted................................................... $ 0.33 $ 0.41 $ 0.18
</TABLE>
See notes to consolidated financial statements.
26
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------------ DEFERRED EARNINGS
SHARES AMOUNT COMPENSATION (DEFICIT) TOTAL
---------- ----------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997........................... 9,342,564 $ 586,392 $ -- $ (436,967) $ 149,425
Common stock issued.............................. 47,957 150,000 150,000
Shareholder distributions........................ (319,663) (319,663)
Net income....................................... 2,541,050 2,541,050
---------- ----------- -------- ----------- -----------
Balance, December 31, 1997......................... 9,390,521 736,392 -- 1,784,420 2,520,812
Common stock issued.............................. 63,587 757,000 757,000
Common stock issued for land..................... 54,436 195,048 195,048
Shareholder distributions........................ (3,425,127) (3,425,127)
Deferred compensation--stock options............. 6,491 (6,491) --
Noncash compensation--stock options.............. 1,623 1,623
Net income....................................... 6,240,034 6,240,034
---------- ----------- -------- ----------- -----------
Balance, December 31, 1998......................... 9,508,544 1,694,931 (4,868) 4,599,327 6,289,390
Common stock issued for land..................... 14,256 82,302 82,302
Common stock warrants............................ 311,629 311,629
Common stock, initial public offering, net....... 4,300,000 38,609,246 38,609,246
Exercise of stock options........................ 3,220 23,846 23,846
Deferred compensation--stock options............. 35,937 (35,937) --
Noncash compensation--stock options.............. 24,276 24,276
Shareholder distributions........................ (3,604,281) (3,604,281)
Deferred tax liability........................... (1,911,652) (1,911,652)
Net income....................................... 4,929,683 4,929,683
---------- ----------- -------- ----------- -----------
Balance, December 31, 1999......................... 13,826,020 $40,757,891 $(16,529) $ 4,013,077 $44,754,439
========== =========== ======== =========== ===========
</TABLE>
27
<PAGE>
JORE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEAR ENDING DECEMBER 31
------------------------------------------
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net income.................................................. $ 4,929,683 $ 6,240,034 $ 2,541,050
Adjustments to reconcile net income to net cash used by
operating activites:
Depreciation.............................................. 2,216,370 973,762 677,171
Amortization.............................................. 263,226 155,485 34,829
Compensation expense--stock options....................... 24,276 1,623 --
Bad debt expense.......................................... 62,051 -- 17,008
Extraordinary item, early retirement of debt, before
tax..................................................... 1,020,380 -- --
Provision for inventory obsolescence...................... 287,218 24,552 383,802
(Gain)/loss on disposal of fixed assets................... (13,089) 1,244 100,838
Amortization of discount.................................. (92,769) -- --
Cash provided (used) by changes in operating assets and
liabilities:
Accounts receivable................................... (4,421,255) (8,686,205) (4,254,543)
Inventory............................................. (20,011,002) (3,356,048) (2,150,004)
Prepaid expenses and other current assets............. (1,155,627) (673,712) (134,525)
Deferred income taxes................................. 416,875 -- --
Intangibles and other long-term assets................ (911,207) (862,686) (133,314)
Accounts payable...................................... 2,709,441 3,643,664 204,181
Accrued expenses...................................... 1,332,746 831,615 734,062
Other current liabilities............................. -- (24,974) 47,617
Income taxes payable.................................. 109,933 -- --
------------ ------------ ------------
Net cash used by operating activities....................... (13,232,751) (1,731,646) (1,931,828)
Investing activities:
Advances on notes receivable.............................. -- (25,000) --
Payments on notes receivable.............................. -- 560 342
Advances on shareholder notes receivable.................. (2,909,618) (1,077,893) (29,867)
Payments on shareholder notes receivable.................. 2,604,382 -- 112,520
Advances on notes receivable from affiliates.............. (1,800) (326,272) (63,136)
Payments on notes receivable from affiliates.............. 73,918 304,933 558
Payment of patent costs................................... -- (24,941) (19,279)
Purchase of investments................................... (7,599,022) -- --
Purchase of property and equipment........................ (41,018,613) (15,216,599) (2,693,302)
Proceeds from sale of fixed assets........................ 152,253 701,729 30,669
------------ ------------ ------------
Net cash used by investing activities....................... (48,698,500) (15,663,483) (2,661,495)
Financing activities:
Distributions paid to shareholders........................ (3,604,281) (3,425,127) (319,663)
Proceeds from initial public offering, net................ 38,609,246 -- --
Proceeds from options exercised........................... 23,846 -- --
Capital contributions..................................... -- 757,000 150,000
Proceeds from long-term debt.............................. 24,887,217 17,149,307 1,862,508
Payments on long-term debt................................ (10,165,315) (6,016,653) (587,085)
Proceeds from short-term debt............................. 15,120,487 -- --
Payments on short-term debt............................... (14,355,597) -- --
Proceeds from operating line of credit, net............... 11,475,195 8,851,867 3,578,751
------------ ------------ ------------
Net cash provided by financing activities................... 61,990,798 17,316,394 4,684,511
------------ ------------ ------------
Net increase (decrease) in cash............................. 59,547 (78,735) 91,188
Cash and cash equivalents:
Beginning of period....................................... 34,736 113,471 22,283
------------ ------------ ------------
End of period............................................. $ 94,283 $ 34,736 $ 113,471
============ ============ ============
Supplemental disclosures:
Cash paid:
Interest paid............................................. $ 3,981,232 $ 1,368,383 $ 782,245
Noncash financing and investing activities:
Warrants issued with debt................................... $ 311,629 $ -- $ --
Common stock issued for land................................ $ 82,302 $ 195,048 $ --
Property contributed to JB Tool, LLC........................ $ -- $ 3,519 $ --
</TABLE>
See notes to consolidated financial statements.
28
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
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 its own
licensed STANLEY-REGISTERED TRADEMARK- label and under private labels to the
industry's largest power tool retailers and manufacturers.
BASIS OF PRESENTATION AND REORGANIZATION: Prior to its initial public
offering (IPO) on September 23, 1999, the Company merged with two affiliated
companies. Because these business combinations were with companies under common
control, the mergers were accounted for in a manner similar to a
pooling-of-interests. Therefore, the assets, liabilities and shareholders'
equity of the acquired entities are combined with the Company's respective
accounts at recorded values. The consolidated financial statements reflect the
restatement of all periods presented to include the accounts of merged entities
accounted for under the pooling-of-interest method of accounting. The historical
results of the pooled entities reflect each of their actual operating cost
structures and, as a result, do not necessarily reflect the cost structure of
the newly combined entity. The historical results do not purport to be
indicative of future results. The combined entities included Montana American
Manufacturing Corporation (MAMC) and Montana American Equipment, LLC (MAE).
MAMC, a Montana corporation, was formed March 26, 1996. On October 1, 1998,
MAMC merged with Jore, and the former MAMC shareholders received 360,654 shares
of Jore common stock.
MAE, a Montana limited liability company, was formed September 9, 1996. On
January 1, 1999, Jore acquired the assets of MAE, net of outstanding
indebtedness, in exchange for 452,774 shares of Jore common stock.
NOTE 2: PRO FORMA INFORMATION
PRO FORMA CONSOLIDATED INCOME STATEMENT DATA: The unaudited pro forma
results of operations information includes a pro forma income tax provision for
each of the three years ended December 31, 1997, 1998 and 1999, assuming
effective tax rates of 35.43%, 37.56% and 34.81%, respectively (see Note 8),
comparable to what would have been reported had the Company operated as a
C corporation during the years ended December 31, 1997, and 1998, and the entire
year ended December 31, 1999. Our S corporation status terminated on
September 23, 1999.
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, JB Tool, LLC
(JB Tool), and Jore International Ltd. 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. Both MAMC
and MAE were merged with Jore Corporation in September of 1998, and January of
1999, respectively, and are shown as consolidated for the years presented.
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 $1,180,162 and
$2,710,326 are included in accounts payable at December 31, 1998 and 1999,
respectively.
SHORT TERM INVESTMENTS: Our marketable securities consist of FNMA Notes, US
Treasury Notes, and Certificates of Deposit, which mature in one year or less,
and are classified as held-to-maturity. In accordance with SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities", investments classified
as held-to-maturity are reported at amortized cost. The short-term investment or
marketable security balance at December 31, 1999 was $7,691,791.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out basis) or market. The Company provides for obsolete and unsaleable
inventories based on specific identification of inventory against current demand
and recent usage.
29
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
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:
<TABLE>
<S> <C>
Buildings................................................... 40 years
Land improvements........................................... 10-15 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. Revenues are recorded net of allowances and discounts.
RECLASSIFICATIONS: Certain prior year balances have been reclassified to
conform to the current year presentation.
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: The Company has elected to follow the accounting
provisions of Accounting Principles Board (APB) Opinion No. 25, ACCOUNTING FOR
STOCK ISSUED TO EMPLOYEES 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 PER COMMON SHARE: Basic net income per common share was
calculated by dividing net income 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.
The following table reconciles the number of shares utilized in the net
income per share calculations:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Number of shares:
Common shares--basic...................................... 9,357,801 9,412,497 10,653,247
Effect of dilutive securities stock options............... 23,280 240,146
--------- --------- ----------
Common shares--diluted.................................... 9,357,801 9,435,777 10,893,393
========= ========= ==========
</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
to reflect the split.
30
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EXTRAORDINARY ITEM: We incurred an extraordinary expense of approximately
$1.0 million on August 27, 1999 related to the termination of our operating line
of credit. We expensed the prepayment penalty and the unamortized financing
costs associated with the credit line. The proceeds to extinguish the debt came
from our new credit line with First Security Bank. This new credit line provides
lower fees, better interest rates and greater flexibility and collateral for our
inventory.
RECENT ACCOUNTING PRONOUNCEMENTS: In June 1998, the Financial Accounting
Standards Board ("FASB") issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," and established standards for derivative
instruments, including certain derivative instruments embedded in other
contracts and hedging activities. The FASB delayed implementation of this
standard, therefore, it will now be effective for the Company beginning in
fiscal 2001. The Company does not expect adoption of SFAS No. 133 to have a
material effect on the financial statements.
FINANCIAL INSTRUMENTS: Financial instruments consist of cash and cash
equivalents, accounts receivable, 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 Company
has estimated the fair value of accounts receivable discounted based on average
outstanding days and the interest rate of their credit line at December 31, 1999
to be $18,703,640 and the stated value $19,031,479. 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, 1999, the fair value and principal amount of the fixed rate
long-term debt were $20,138,032 and $20,226,109, respectively.
SIGNIFICANT CUSTOMERS: A majority of the Company's sales are concentrated
among a few major customers. Sales to customers who individually accounted for
10% of total sales for each of the years ended December 31, and receivables from
customers who individually accounted for 10% of total receivables at
December 31, are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Sales to:
Customer A................................................ 31.9% 60.2% 58.3%
Customer B................................................ 21.5 17.2 22.8
Customer C................................................ 25.6 14.5 10.0
Customer D................................................ 17.0 -- --
----- ----- -----
96.0 91.9 91.1
All other customers....................................... 4.0 8.1 8.9
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Receivables from:
Customer A................................................ 74.1% 69.5%
Customer B................................................ 11.2 18.1
----- -----
85.3 87.6
All other customers....................................... 14.7 12.4
----- -----
100.0% 100.0%
===== =====
</TABLE>
Sales are made without collateral, and the Company's bad debts have been
insignificant to date. Bad debt expense for the years ended December 31, 1999,
1998 and 1997 was $62,051, $-0- and $10,987, respectively.
INTEREST COSTS: Interest costs are capitalized for assets that are
constructed or otherwise produced for the Company including assets constructed
or produced for the Company by others for which deposits or progress payments
have been made. The total
31
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 3: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
interest costs incurred by the company for the years ended December 31, 1997,
1998 and 1999 were $792,932, $1,624,089, and $4,183,726, respectively. The total
interest capitalized for 1998 and 1999 was $265,761 and $1,118,183,
respectively.
NOTE 4: BALANCE SHEET COMPONENTS
Short-term investments at December 31, 1999 consist of the following:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAIN LOSS VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Certificates of deposit.............................. $ 558,712 $-0- $ (7,041) $ 551,671
FNMA Securities...................................... 4,143,105 -0- (1,246) 4,141,859
U.S. Treasury Notes.................................. 2,989,974 -0- (7,404) 2,982,570
---------- ---- -------- ----------
$7,691,791 $-0- $(15,691) $7,676,100
========== ==== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Inventory
Component parts/raw materials............................. $6,205,971 $13,135,170
Work-in-progress*......................................... 1,257,704 11,880,461
Finished goods............................................ 1,043,179 3,268,238
Provision for obsolescence................................ (435,354) (488,585)
---------- -----------
$8,071,500 $27,795,284
========== ===========
</TABLE>
- ------------------------
* Work-in-progress includes finished sub-assemblies, which can be sold in bulk
or added to a packaged set.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Property, Plant and Equipment
Buildings & leasehold improvements........................ $ 4,438,668 $ 7,478,959
Land and land improvements................................ 595,329 2,557,169
Plant, tooling, packaging equipment....................... 9,763,618 24,436,751
Office equipment and furniture............................ 1,340,603 2,264,524
Vehicles.................................................. 376,465 279,654
----------- -----------
16,514,683 37,017,057
Accumulated depreciation.................................. (2,349,407) (4,497,227)
----------- -----------
14,165,276 32,519,830
Construction-in-progress.................................. -- 3,828,129
Machinery-in-progress..................................... 5,650,268 22,212,966
----------- -----------
$19,815,544 $58,560,925
=========== ===========
</TABLE>
32
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 4: BALANCE SHEET COMPONENTS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Other current assets
Notes receivable.......................................... $ 53,576 $ 30,900
Other receivables......................................... 38,461 47,704
Supplies inventory........................................ 111,042 767,648
Deferred tax asset........................................ -- 440,726
Prepaid expenses and other................................ 695,076 1,207,531
----------- -----------
$ 898,155 $ 2,494,509
=========== ===========
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
Other current liabilities
Notes payable............................................. $ -- $ 660,346
Other current liabilities................................. 125,026 702
Income taxes payable...................................... -- 109,933
----------- -----------
$ 125,026 $ 770,981
=========== ===========
</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 common 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. 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.
PUBLIC OFFERING: On September 23, 1999, the Company completed an initial
public offering (the Initial Public Offering) in which it raised net proceeds of
$33.0 million. On October 21, 1999, the underwriters of the Company's Initial
Public Offering exercised their overallotment option, resulting in the receipt
of net proceeds of an additional $5.6 million. A portion of the net proceeds
from both the initial public offering and the exercise of the overallotment
option was used to repay debt, fund a distribution to shareholders representing
previously taxed but undistributed S corporation earnings and acquire capital
equipment.
1997 STOCK PLAN: On September 15, 1997, the Board of Directors approved the
implementation of the 1997 Stock Plan (the Stock Plan). The Stock 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 Stock Plan also provides for the direct award or sale of
shares to employees, outside directors, and consultants of the Company. Options
granted under the Stock Plan generally expire ten years from the date of grant
and typically vest over a period of four years such that 20% vests immediately
and an additional 20% vests after each additional year of continuous service. As
of December 31, 1999, 886,614 shares remained available out of a total of
2,400,000 shares of stock authorized as available under the Stock Plan.
33
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
Activity and price information regarding the options are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding, January 1, 1997................................ -- $ --
Granted................................................... -- --
--------- -----
Outstanding, December 31, 1997.............................. -- --
Granted................................................... 422,312 4.42
--------- -----
Outstanding, December 31, 1998.............................. 422,312 4.42
Granted................................................... 1,089,074 8.95
Exercised................................................. (3,220) 7.41
Cancelled................................................. -- --
--------- -----
Outstanding, December 31, 1999.............................. 1,508,166 7.69
========= =====
Options exercisable, December 31, 1999...................... 516,004 $7.00
========= =====
</TABLE>
Information regarding stock option grants during the year ended
December 31, 1999 is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------------------------- ----------------------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE FAIR VALUE SHARES EXERCISE PRICE FAIR VALUE
-------- ---------------- ---------------- -------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Exercise price exceeds market... 615,847 $8.86 $0.00 422,312 $4.42 $0.14
Exercise price equals market.... 473,227 $9.07 $3.08 -- -- --
Exercise price is less than
market........................ -- -- -- -- -- --
</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, 1999 have been granted at an option price at or
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, 1997, 1998 and 1999. The Company did record compensation expense of
$1,623, and $24,276 for options granted to non-employees for the years ended
December 31, 1998, and 1999 respectively.
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, 1999: risk-free interest
rate of 4.211% to 6.282%; expected dividend yield of 0%; volatility of 0% (prior
to the IPO) to 36.33%; and an expected life of two to 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 for the years
ended December 31, 1997, 1998 and 1999 would have been adjusted to the following
pro forma amounts:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net income as reported...................................... $2,541,050 $6,240,034 $4,929,683
Net income, pro forma....................................... 2,541,050 6,227,237 4,345,886
Basic net income per common share, pro forma................ $ 0.27 $ 0.66 $ 0.41
Diluted net income per common share, pro forma.............. $ 0.27 $ 0.65 $ 0.40
</TABLE>
34
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
Additional information regarding options outstanding as of December 31,
1999, is as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------ ------------------------------
WEIGHTED AVERAGE
RANGE OF NUMBER REMAINING CONTRACTUAL WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING LIFE (YRS.) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- --------------------- ---------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$ 4.42 422,312 8.75 $4.42 168,943 $ 4.42
7.06 159,050 9.96 7.06 159,050 7.06
8.41 287,547 9.00 8.41 60,150 8.41
9.10 186,633 9.47 9.10 37,332 9.10
9.26 327,480 9.11 9.26 65,498 9.26
11.62 125,144 9.82 11.62 25,031 11.62
--------- -------
1,508,166 9.18 7.69 516,004 7.00
========= =======
</TABLE>
On January 1, 1999, the Company issued 14,256 shares of stock in exchange
for land.
In February 1999, the Company granted options to purchase 311,064 shares of
common stock to certain directors. The options are fully vested. These
nonqualified options were granted outside of the Stock Plan. Because these fall
under APB 25 there is no compensation value recognized.
In February 1999, the Company granted warrants to purchase 11,881 shares of
the Company's common stock in exchange for services to be provided in connection
with the Company's IPO. No value was ascribed to the warrants as they were
granted at an exercise price substantially greater than the estimated fair value
of the company's common stock.
On April 7, 1999, the Company closed a loan for $2,000,000 from D.A.
Davidson & Co., who were the managing underwriters of the Company's IPO. The
rate was 6.5% plus warrants to purchase 71,933 shares of common stock at an
exercise price of $10.00 per share. The debt was subsequently paid at the
closing of the IPO. The warrants expire three years from the date of grant. No
amount was allocated to the warrants as they were granted at an exercise price
substantially greater than the estimated fair market value of the Company's
common stock.
From June 4 to June 11, 1999, the Company closed short-term loans with
various unrelated parties for a total of $4,045,000. Rates range from 6.5% to
7.0% plus warrants to purchase 201,800 shares of the Company's common stock at
$9.10 to $10.00 per share. All except $146,909 was paid at the closing of the
IPO. The remaining balance is due in 2000. The warrants expire three years from
the date of grant, and have an estimated fair value of $174,600. The proceeds of
the debt was allocated between the debt and the warrants based on the relative
fair value of the two securities on the date of issuance. The warrants were
valued using the Black-Scholes pricing method with the following assumptions: an
estimated life of two years; volatility of zero; expected dividend yield of
zero; and a risk-free of 5.5%. The portion allocated to the warrants is being
accreted to interest expense over the term of the debt agreement.
From July 14 to August 9, 1999, the Company closed short-term loans with
various unrelated parties for a total of $7,390,000. Rates range from 6.5% to 7%
plus warrants to purchase 325,600 shares of the Company's common stock at $9.10
to $10.00 per share. All except $513,438 was subsequently paid at the closing of
the IPO. The remaining amount is due in 2000. The warrants expire three years
from the date of the grant, and have an estimated fair value of $137,299. The
proceeds of the debt was allocated between the debt and the warrants based on
the relative fair value of the two securities on the date of issuance. The
warrants were valued using the Black-Scholes pricing method with the following
assumptions: an estimated life of two year; volatility of zero; expected divided
yield of zero; and a risk-fee of 5.5%. The portion allocated to the warrants is
being accreted to interest expense over the term of the debt agreement.
1999 EMPLOYEE STOCK PURCHASE PLAN:
On October 25, 1999, the Board of Directors approved the implementation of
the 1999 Employee Stock Purchase Plan (the ESPP). The ESPP provides employees an
opportunity to purchase shares of stock through payroll withholdings up to 15%
of
35
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 5: SHAREHOLDERS' EQUITY (CONTINUED)
compensation to a maximum of $25,000 per year, by participating in a series of
offerings at a price which is 85% of the lower of the price on the initial
offering date and the periodic purchase dates (generally each 6 months),
occurring in February and August. The purchases are made pursuant to
qualification under Section 423 of the Code. As of December 31, 1999, 1,000,000
shares of stock were available for the grant of options and the corresponding
purchase of stock under the ESPP, however, the ESPP had not yet been
implemented, and no shares had been purchased, and no wages had been withheld
towards such purchase at December 31, 1999.
S CORPORATION DIVIDEND:
The Board of Directors declared a dividend to shareholders of record on
September 22, 1999, equal to the amount of accumulated but undistributed S
corporation earnings of the Company. This dividend was distributed to such
shareholders on a pro rata basis depending on the number shares of our common
stock held by each shareholder, and the number of days in 1999 that each
shareholder held such shares. The total dividend was $3,604,281. The difference
between the S corporation Distribution and historical retained earnings consists
primarily of temporary timing differences between book and tax income, prior
year distributions in excess of accumulated adjustment account, effect of
elimination entries and retained earnings of the subsidiaries.
DIVIDEND RESTRICTIONS:
Under certain loan covenants associated with its line of credit facility,
the Company is restricted from declaring or paying dividends, or from
purchasing, redeeming, retiring or otherwise acquiring for value any of its
shares of stock, or from otherwise distributing property to shareholders with
some limited exceptions.
36
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 6: LINES OF CREDIT
REVOLVING LINES OF CREDIT: The Company has an accounts receivable and
inventory revolving line of credit with First Security Bank with a maximum
borrowing limit of $25,000,000.
Advances on the line are limited to 85% of eligible accounts receivable and
65% of inventory. The majority of trade accounts receivable are, therefore,
assigned as product is shipped. Interest on the revolving credit line advances
is at prime plus one-half of a percent or LIBOR plus 3% at our option. The term
of the agreement is through August 2001, and the agreement contains personal
guarantees by certain Company shareholders. Outstanding advances on the line at
December 31, 1999 were $25,000,000. This line is secured by receivables,
inventory, patents and general intangibles.
NOTE 7: LONG-TERM OBLIGATIONS
The Company has entered into numerous long-term borrowings with various
financial institutions, 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,
1998 1999
------------- -------------
<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 2005, interest at 8.85%........................... 771,912 677,231
Due August 2001, interest at 10%............................ 1,008,372 --
Due October 2004, interest at 8.97%......................... 726,981 627,626
Due October 2004, interest at 8.97%......................... 969,307 836,837
Due December 2004, interest at 8.97%........................ 2,050,265 1,780,531
Due December 2004, interest at 8.97%........................ 582,606 505,850
Due August 2005, interest at 9.5%........................... 844,971 741,669
Due June 2004, interest at 8.50%............................ 615,840 533,069
Due June 2004, interest at 8.85%............................ 682,502 583,688
Due October 2005, interest at 8.50%......................... 823,842 742,572
Due July 2002, interest at 9.87%............................ -- 219,172
Due December 2004, interest at 9.74%........................ -- 276,518
Due December 2004, interest at 9.87%........................ -- 93,754
Due January 2020, interest at 9.00%......................... -- 2,500,000
Due March 2003, interest at 8.90%........................... -- 869,778
Due January 2003, interest at prime plus 2% (11.00% at
December 31, 1999)........................................ 106,983 85,529
Various notes payable due November 1999 through November
2005, interest rates from 6.66% to 11.89%................. 210,864 67,959
----------- -----------
Total notes payable......................................... 15,828,005 11,141,783
</TABLE>
37
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 7: LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1999
------------- -------------
<S> <C> <C>
CAPITAL LEASE OBLIGATIONS
Various leases due July 2001 to November 2004, interest from
6.658% to 6.9%............................................ 70,709 102,106
Due November 2002, interest at 7.990%....................... 13,872 10,937
Due January 2006, interest at 8.20%......................... 496,450 447,302
Due June 2006, interest at 8.926%........................... 283,394
Due June 2006, interest at 9.495%........................... 1,772,263
Due June 2006, interest at 8.916%........................... 1,455,645
Due July 2006, interest at 8.924%........................... 477,818
Due August 2006, interest at 9.140%......................... 190,966
Due August 2006, interest at 9.140%......................... 866,460
Due September 2006, interest at 9.172%...................... 805,493
Due November 2006, interest at 9.275%....................... 3,396,419
Due June 2003, interest at 7.90%............................ 24,523 19,732
Various leases due July 2001 to December 2003, interest from
10.522% to 24.713%........................................ 153,979 173,641
Due July 2005, interest at 9.121%........................... 385,659
Due July 2005, interest at 8.447%........................... 884,356
Due October 2005, interest at 7.771%........................ 637,607
Due December 2005, interest at 7.996%....................... 342,258
Due April 2006, interest at 8.271%.......................... 333,774
Due March 2007, interest at 9.50%........................... 685,875
Due March 2007, interest at 9.50%........................... 113,685
Due February 2007, interest at 9.50%........................ 79,710
Due March 2007, interest at 9.50%........................... 1,446,623
Due March 2007, interest at 9.50%........................... 399,584
Due February 2007, interest at 9.50%........................ 114,631
Due April 2007, interest at 9.50%........................... 1,120,507
Due May 2007, interest at 9.50%............................. 1,810,000
Due February 2007, interest at 9.50%........................ 1,181,022
Due July 2007, interest at 9.50%............................ 630,000
----------- -----------
Total lease obligations..................................... 759,533 20,167,657
----------- -----------
Total long-term obligations................................. 16,587,538 31,309,440
Less current portion........................................ 1,998,192 3,530,287
----------- -----------
$14,589,346 $27,779,153
=========== ===========
</TABLE>
38
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 7: LONG-TERM OBLIGATIONS (CONTINUED)
As of December 31, 1999, future maturities of long-term obligations are as
follows:
<TABLE>
<CAPTION>
OBLIGATIONS UNDER
NOTES PAYABLE CAPITAL LEASES
------------- -----------------
<S> <C> <C>
2000........................................................ $ 1,504,113 $ 3,638,690
2001........................................................ 1,656,006 4,062,116
2002........................................................ 1,768,596 4,051,844
2003........................................................ 2,635,946 4,027,015
2004........................................................ 1,796,341 3,971,517
Thereafter.................................................. 1,780,781 7,339,735
----------- -----------
Subtotal.................................................. 11,141,783 27,090,917
----------- -----------
Less amounts representing interest.......................... -- (6,923,258)
----------- -----------
$11,141,783 $20,167,657
=========== ===========
</TABLE>
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED)
Prior to filing its IPO, the Company had elected to be an S corporation
under the Code, and therefore, its taxable income was reported on the
shareholders' individual income tax returns. The Company's consolidated
subsidiaries were also S corporations or limited liability companies. As a
result, no federal or state income taxes were imposed on the Company or its
subsidiaries until September 23, 1999.
As discussed in Note 2 and in connection with the IPO (see Note 1), the
Company's S corporation status was terminated and we became 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 for the entire year, each respective year) at effective tax
rates of 35.43%, 37.56% and 33.54% for 1997, 1998, and 1999, respectively. The
difference between the effective rate and the combined federal and state
statutory rate of 38.46% is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Statutory tax rate.......................................... 38.46% 38.46% 38.46%
Indian employment credit.................................... (1.00) (1.18) (2.94)
Research/experimentation credit............................. (2.25) 0.00 0.00
Foreign Sales Corporation................................... 0.00 0.00 (1.45)
Meals & entertainment....................................... 0.21 0.20 .22
Other....................................................... .01 .08 (0.75)
----- ----- -----
Effective rate.............................................. 35.43% 37.56% 33.54%
===== ===== =====
</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.
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, we recorded increases in net deferred tax assets and liabilities and
an accompanying one-time entry to retained earnings to reflect the differences
between the financial statement and income tax bases of the assets and
liabilities at C corporation rates.
39
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 8: PRO FORMA INCOME TAXES (UNAUDITED) (CONTINUED)
Since the S corporation status has been terminated as of September 23, 1999,
deferred tax liabilities for each temporary difference have been increased to
the following amounts at December 31, 1999:
<TABLE>
<S> <C>
Deferred tax liabilities:
Basis differential in property, plant and equipment......... $(2,769,000)
-----------
Total deferred tax liabilities.............................. $(2,769,000)
===========
Deferred tax assets:
Inventory obsolescence reserve............................ $ 268,000
Accrued vacation and wages................................ 135,000
Deferred compensation..................................... 16,000
Allowance for bad debt.................................... 22,000
-----------
Total deferred tax assets................................... $ 441,000
===========
</TABLE>
NOTE 9: RELATED PARTY TRANSACTIONS
Jore Land, LLC (Jore Land), is owned by the Company's majority shareholder
and owned certain real property leased to the Company under an agreement that
expires on September 30, 2003, with an option to renew for an additional five
year term. The lease was accounted for as a financing lease. Amounts paid under
this lease during the years ended December 31, 1997, 1998 and 1999 were $32,000,
$84,000, and $42,000, respectively. On February 1, 1999, the Company acquired an
option to purchase approximately 40 acres of land and the attached construction
improvements, including the property referred to above, at fair market value
from Jore Land, LLC. On June 28, 1999, the Company exercised the option, for
payment of $2.7 million.
At December 31, 1997, 1998 and 1999, Jore Land owed the Company the net
amounts of $17,578, $34,102 and $9,999, 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,
1997, 1998 and 1999 were $4,843, $10,151, and $20,417, respectively.
Shareholder notes receivable are due on demand notes and bear interest at
6%. The total amount of accrued interest income earned in 1999 from Shareholder
notes was $54,589.
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 1998. Beginning January 1, 1999, most Company
sales were made through Manufacturers' Sales Associates, LLC (MSA), an affiliate
of MSM. MSA receives a commission on most Company sales. The agreement
terminates upon notice by either party at least 60 days in advance of the
intended termination date. MSM was owned 100% by one non-employee director of
Jore and one other non-employee former director of Jore. MSA is owned by the
same two individuals and four other non-employee salesmen who market Jore
products. Commissions earned by MSA in 1999 were $1,245,424. As of December 31,
1999, the Company had prepaid commissions to MSA of $298,608.
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, 1997, 1998 and 1999 were $1,360,286, $2,003,062, and $2,597,810,
respectively. Related accounts payable balances at December 31, 1997, 1998 and
1999 were $75,340, $495,686 and $256,775 respectively.
The Company entered into a consulting agreement with a non-employee director
of the Company under which it incurred $16,667 in consulting fees for 1999. An
additional $83,333 will be incurred in 2000 under this agreement.
Affiliates of a non-employee director of the Company were participants in a
bridge loan facility, which was closed in June 1999 and repaid in full in
October 1999. The affiliates of the director received warrants for 20,000 shares
of Company common stock at a purchase price of $9.10, exercisable for 3 years
from their date of issuance. The warrants have an estimated fair value of
$18,698.
40
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 10: COMMITMENTS AND CONTINGENCIES
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. The majority of these
operating leases were amended to become capital leases in November of 1999.
Their maturities are reflected in the debt footnote disclosure.
Rent expense for each of the years ended December 31, 1997, 1998, and 1999,
totaled $69,036, $301,181, and $535,618, respectively. Future minimum lease
payments required under operating leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S> <C>
2000........................................................ $ 99,990
2001........................................................ 79,464
2002........................................................ 79,464
2003........................................................ 52,464
2004........................................................ 41,364
Thereafter.................................................. 27,576
--------
Total..................................................... $380,322
========
</TABLE>
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. Expenses
for the years ended December 31, 1998 and 1999 were $74,563 and $41,090,
respectively.
On April 28, 1999, the Company signed an agreement with The Stanley Works
that grants the exclusive license to the STANLEY-REGISTERED TRADEMARK-brand name
for all power tool accessories for a contracted royalty rate.
On December 27, 1999, the Company signed agreements with The Norton Company,
to purchase substantially all of the Company's grinding wheels, abrasives and
surface preparation products from Norton or its affiliates. In exchange for this
purchasing agreement, we obtained an exclusive, royalty-free license to use the
name Speed-Lok-TM- for sales of drilling and driving products in North America.
There are no minimum purchase volumes or fixed pricing agreements required. If
the supply arrangements are terminated, we will be required to pay a royalty of
3% on all Speed-Lok-TM- product sales annually to Norton, with an annual minimum
royalty of $500,000. The term of the license agreement is five years with
successive automatic one year extensions.
PURCHASE COMMITMENTS: In May 1999, the Company entered into a strategic
alliance agreement with a manufacturer of certain proprietary equipment. The
manufacturer has agreed to produce and sell to the Company this equipment for
five years on an exclusive basis provided it purchases approximately $5,250,000
in equipment each year. The installation of the machines and capitalized
interest for the period they are under construction is an additional cost of
approximately $1 million per year for the Company. In addition to the minimum
purchases, the Company must pay an additional $1,000,000 to the principal of the
manufacturer for consulting services in placing the equipment in service, of
which $400,000 was paid during 1999 and $200,000 is payable in each subsequent
year until fully paid. In exchange for these payments, the Company receives
exclusive access to the equipment and its proprietary design for the five-year
period. This equipment is being financed through capital leases under an
existing master lease agreement. Equipment under construction and related
borrowings are included in the Company's consolidated balance sheet during the
construction period.
During 1999, we entered into two agreements with a third party to accomplish
certain product research and development. The two agreements require total
payments of $500,000. The Company paid $309,566 in 1999 and the remaining is
expected to be paid in 2000.
PRODUCT WARRANTY ISSUES: In the past, we experienced minimal returns of our
manufactured products. Therefore, the financial statements do not include a
product warranty reserve at December 31, 1997, 1998 or 1999.
41
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 10: COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 our legal counsel believe the
disposition of these matters will not have a material adverse effect on the
financial position of the Company.
On August 16, 1999, Pete K. Block and Paul K. Block instituted separate
actions in Montana District Court against the Company, Matthew Jore individually
and dba Jore Enterprises, Michael Jore and Merle Jore. In their complaints, the
Blocks allege among other things, that they are collectively entitled to a 25%
interest in the capital stock of Jore Enterprises and any successor corporation.
Their lawsuits are based in part upon an agreement, dated October 10, 1989,
between the Blocks and Matthew, Michael and Merle Jore pursuant to which the
Blocks contend that Matthew, Michael and Merle Jore agreed to issue them shares
of stock of Jore Enterprises and any successor corporation and grant them a
collective 25% interest in all patent rights, profits and real and personal
property. The Blocks seek as remedies dissolution of the Company, compensatory
damages of not less than $10 million, plus interest, punitive damages,
attorneys' fees and costs, and injunctive relief preventing any capital
reorganization or sale that would cause them each not to be 12.5% owners of the
equity of Jore Enterprises and any successor corporation.
The Company has answered the complaint, and plans to vigorously defend
against the claims, assert affirmative defenses and potentially assert
counterclaims. In addition, Matt Jore, Mike Jore and Merle Jore have entered
into an agreement under which they have indemnified and held the Company
harmless from and against any damages, costs, and losses associated with the
claim, including attorneys' fees. While the Company believes that it has
meritorious defenses and potential counterclaims to the Blocks' claims,
litigation is inherently uncertain, and there can be no assurance that the
Company will prevail in the suit. To the extent the Company is required to issue
shares of common stock as a result of the suit, the Company would recognize an
expense equal to the number of shares issued multiplied by the fair value of the
common stock on the date of issuance. This could have a material adverse effect
on the Company's results of operations, and any such issuance would be dilutive
to existing stockholders. No estimate of the possible range of loss can be made
at this time.
NOTE 11: SUBSEQUENT EVENTS
SUBSEQUENT DEBT: The Company entered into the following debt agreements
subsequent to year-end:
On January 6, 2000, the Company closed a Rural Development Guaranteed
Commercial Real Estate Loan through Mountain West Bank, N.A., Missoula Branch,
for $8,641,500. The loan is collateralized by real estate and buildings owned by
the Company and is personally guaranteed by Matthew B. Jore, the principal
shareholder of the Company and its CEO. The terms include a 20-year
amortization, monthly payment of $77,734, with interest at the Wall Street
Journal Prime Rate plus .5%, adjusted every 5 years, 9% at inception. This loan
refinanced short-term debt of $2,500,000 from the same lender, which is
reflected in Note seven.
42
<PAGE>
JORE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
NOTE 12: QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial information:
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------
MAR 31, JUN 30, SEP 30, DEC 31, MAR 31, JUN 30, SEP 30, DEC 31,
1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............................. $7,579 $7,303 $10,548 $19,458 $9,798 $8,259 $14,378 $21,436
Cost of goods sold........................ 4,926 4,895 7,411 13,936 6,858 5,886 9,282 13,287
------ ------ ------- ------- ------ ------ ------- -------
Gross profit............................ 2,653 2,408 3,137 5,522 2,940 2,373 5,096 8,149
Operating expenses:
Product development..................... 54 50 102 289 117 109 268 128
Sales and marketing..................... 338 373 597 1,201 376 382 822 1,647
General and administrative.............. 538 606 630 1,209 1,150 1,167 1,618 1,519
------ ------ ------- ------- ------ ------ ------- -------
Total operating expenses.............. 930 1,029 1,329 2,699 1,643 1,658 2,708 3,294
------ ------ ------- ------- ------ ------ ------- -------
Income from operations.................... 1,723 1,379 1,808 2,823 1,297 715 2,388 4,855
Other expense............................. 352 265 387 489 457 598 1,069 654
------ ------ ------- ------- ------ ------ ------- -------
Net income as reported.................... $1,371 $1,114 $ 1,421 $ 2,331 $ 840 $ 117 $ 1,319 $ 4,201
====== ====== ======= ======= ====== ====== ======= =======
</TABLE>
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to the Directors of the Company is set forth in the
Proxy Statement relating to the Company's annual meeting of stockholders to be
held on May 17, 2000 (the "Proxy Statement") under the heading "Election of
Directors," which information is incorporated herein by reference. Information
regarding the executive officers of the Company is included as Item 4A of
Part I of this Form 10-K. Information required by Item 405 of Regulation S-K is
set forth in the Proxy Statement under the heading "Compliance with
Section 16(a) of the Securities Exchange Act of 1934," which information is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set forth under the
captions "Election of Directors" and "Executive Officer Compensation" in the
Company's Proxy Statement, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICAL OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners and
management is set forth under the caption "Security Ownership of Management and
Other Beneficial Owners" in the Company's Proxy Statement, which information is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is
set forth under the caption "Certain Relationships and Related Transactions" in
the Company's Proxy Statement, which information is incorporated herein by
reference.
44
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1 Financial Statements. The following financial statements of the
Company and the report of the independent public accountants
thereon, are included in this Form 10-K on pages 24 through 43:
Report of Independent Public Accountants
Balance Sheets as of December 31, 1999 and December 31, 1998
Statements of Operations for the years ended December 31, 1999,
1998 and 1997
Statements of Changes in Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997
Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
All other schedules have been omitted because the required information is
included in the consolidated financial statements or the notes thereto, or is
not applicable or required.
3. Exhibits
<TABLE>
<C> <S>
3.1 Amended and Restated Articles of Incorporation(1)
3.2 Bylaws(1)
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(1)
4.4 Form of Common Stock Warrant issued in pre-IPO bridge
financing
4.5 Form of Registration Rights Agreement executed in pre-IPO
financing
10.1 Amended and Restated Jore Corporation 1997 Stock Plan(1)
10.1.1 Amendment dated October 25, 1999 to the Amended and Restated
Jore Corporation 1997 Stock Plan(2)
10.2 Common Stock Purchase Option, dated February 10, 1999,
between Jore Corporation and William M. Steele, Trustee of
the Steele Family Trust(1)
10.3 Exclusive Supply Agreement, dated October 1, 1998, between
Jore Corporation and Sears, Roebuck and Co.*(1)
10.8 Master Equipment Lease Agreement, dated July 6, 1998,
between Key Corp Leasing and Jore Corporation(1)
10.9 Interim funding Loan and Security Agreement, dated March 3,
1999, between Key Corp Leasing and Jore Corporation(1)
10.11 Patent Assignment, dated January 1, 1999, between Jore
Corporation and Matthew Jore(1)
10.12 Patent Assignment, dated January 1, 1999, between Jore
Corporation and Matthew Jore(1)
10.13 Patent Assignment, dated January 1, 1999, between Jore
Corporation and Matthew Jore(1)
10.14 Form of Lock-up Agreement executed by certain of Jore
Corporation's shareholders(1)
10.15 Patent Assignment, dated April 2, 1999, between Jore
Corporation and Matthew Jore(1)
10.16 License Agreement, dated April 28, 1999, by and among
Stanley Logistics, Inc., The Stanley Works and Jore
Corporation*(1)
</TABLE>
45
<PAGE>
<TABLE>
<C> <S>
10.18 Patent Assignment, dated January 1, 1999 between Jore
Corporation and Matthew Jore(1)
10.19 Limited Craftsman-Registered Trademark- Trademark License
Agreement, dated May 3, 1999, between Sears, Roebuck and Co.
and Jore Corporation(1)
10.20 Sales and Marketing Agreement, dated January 1, 1999,
between Jore Corporation and Manufacturers' Sales
Associates, LLC*(1)
10.21 Employment Agreement, dated June 8, 1999, between
Matthew B. Jore and Jore Corporation(1)
10.22 Purchase Agreement, dated April 7, 1999, between DADCO and
Jore Corporation(1)
10.23 Guaranty, dated April 7, 1999, given by Matthew B. Jore to
DADCO(1)
10.24 Purchase Agreement, dated June 4, 1999, between Blaine
Huntsman and Jore Corporation(1)
10.25 Guaranty dated June 4, 1999, given by Matthew B. Jore to
Blaine Huntsman(1)
10.26 Registration Rights Agreement, dated June 4, 1999, between
Jore Corporation and Blaine Huntsman(1)
10.27 Independent Contractor Agreement, dated June 30, 1999,
between Thomas E. Mahoney and Jore Corporation(1)
10.27.1 First Amendment to Independent Contractor Agreement, dated
July 23, 1999, between Thomas E. Mahoney and Jore
Corporation
10.27.2 Second Amendment to Independent Contractor Agreement, dated
September 30, 1999, 1999, between Thomas E. Mahoney and Jore
Corporation
10.28 Strategic Alliance Agreement, dated May 7, 1999, between
Jore Corporation and International Tool Machines of Florida,
Inc.(1)
10.29 Business Consultant and Management Agreement, dated May 7,
1999, between Jore Corporation and Karl Giebmanns(1)
10.30 Credit Agreement, dated August 19, 1999, between First
Security Bank, N.A. and Jore Corporation(1)
10.31 Indemnity Agreement, dated September 14, 1999, between
Matthew B. Jore, Michael W. Jore, Merle B. Jore, The Michael
Jore Family Trust, the Matthew Jore Family Trust and the
Merle and Faye Jore Family Trust(1)
10.32 Jore Corporation 1999 Employee Stock Purchase Plan(3)
10.32.1 Jore Corporation 1999 Employee Stock Purchase Plan, as
amended
10.33 Supply Agreement, dated December 27, 1999, between Norton
Company and Jore Corporation
10.34 Trademark License Agreement, dated December 27, 1999,
between Norton Company and Jore Corporation
16.1 Letter, dated July 7, 1999, from Galusha, Higgins & Galusha
re change in certifying accountant(1)
21 List of Jore Corporation's Subsidiaries(1)
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
</TABLE>
- ------------------------
* Portions of this exhibit have been omitted pursuant to an order of the
Commission granting the Company's application respecting confidential
treatment thereof.
(1) Incorporated by reference to the Company's Registration Statement on
Form S-1, No. 333-78357, as amended
(2) Incorporated by reference to the Company's Registration Statement on
Form S-8, No. 333-94029(3) Incorporated by reference to the Company's
Registration Statement on Form S-8, No. 333-94043
(b) Reports on Form 8-K.
Jore Corporation filed no reports on Form 8-K during the fourth quarter of
1999.
46
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
JORE CORPORATION
/s/ MATTHEW B. JORE
-------------------------------------------------------
Matthew B. Jore
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
Date: April 6, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
DATE
----
<C> <C> <S>
/s/ MATTHEW B. JORE
4/6/00 ------------------------------------------- Chairman, President and Chief Executive Officer
Matthew B. Jore (Principal Executive Officer)
/s/ DAVID H. BJORNSON
4/6/00 ------------------------------------------- Chief Financial Officer and Director
David H. Bjornson (Principal Financial and Accounting Officer)
/s/ MICHAEL W. JORE
4/6/00 ------------------------------------------- Executive Vice President and Director
Michael W. Jore
/s/ THOMAS E. MAHONEY
4/6/00 ------------------------------------------- Director
Thomas E. Mahoney
/s/ WILLIAM M. STEELE
4/6/00 ------------------------------------------- Director
William M. Steele
</TABLE>
47
<PAGE>
SCHEDULE II
INVENTORY VALUATION ALLOWANCE
<TABLE>
<CAPTION>
BALANCE AT CHARGED/(CREDITED)
BEGINNING OF TO ALLOWANCE COSTS DISPOSED/ BALANCE AT END OF
YEAR ENDED PERIOD AND EXPENSED WRITTEN OFF PERIOD
- ----------------- -------------- ------------------ ------------------ -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31,
1999............. $435,354 $287,218 $(233,987) $488,585
December 31,
1998............. $410,802 $ 24,552 $ -- $435,354
December 31,
1997............. $ 27,000 $383,802 $ -- $410,802
December 31,
1996............. $ -- $ 27,000 $ -- $ 27,000
</TABLE>
48
<PAGE>
Exhibit 4.4
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT OR, AT THE
OPTION OF THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED, OR UNLESS SOLD PURSUANT TO AN
EXEMPTION TO SUCH ACT.
COMMON STOCK PURCHASE WARRANT
JORE CORPORATION
THIS CERTIFIES that, for value received, ___________________________,
or registered assigns, is entitled, upon the terms and subject to the
conditions hereinafter set forth, at any time or from time to time at or prior
to 11:59 p.m., Pacific time, on July 29, 2002 (the "EXPIRATION DATE"), to
acquire from Jore Corporation, a Montana corporation (the "COMPANY"),
__________________(____________) fully paid and nonassessable shares of common
stock, or its equivalent, however designated, of the Company (the "WARRANT
SHARES"), for $9.10 per share (the "EXERCISE PRICE"). The number of Warrant
Shares, type of security and Exercise Price are subject to adjustment as
provided herein.
1. EXERCISE OF WARRANT. This Warrant is exercisable by the registered holder
hereof, at any time and from time to time at or prior to the Expiration Date by
the surrender of this Warrant and delivery of a Notice of Exercise/Conversion,
the form of which is attached hereto as ANNEX A, duly executed to the principal
offices of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the registered holder hereof), and upon
payment of the Exercise Price for the shares thereby purchased (by check payable
to the order of the Company or by wire transfer the account of the Company);
whereupon the Company shall issue to the holder of this Warrant the number of
Warrant Shares so purchased and shall deliver a stock certificate in proper form
representing such number of Warrant Shares.
2. CONVERSION OF WARRANT. The registered holder hereof shall have the right (but
not the obligation) to require the Company to convert this Warrant, in whole or
in part, at any time and from time to time at or prior to the Expiration Date,
by the surrender of this Warrant and delivery of a Notice of Exercise/Conversion
duly executed to the principal offices of the Company (or such other office or
agency of the Company as it may designate by notice in writing to the registered
holder hereof), into Warrant Shares as provided in this Section 2. Upon exercise
of this conversion right (and without payment by the holder of the Exercise
Price), the holder hereof shall be entitled to receive that number of Warrant
Shares determined in accordance with the following formula:
Warrant Shares Issuable to Holder = [ (A - B)x C ] +A
where:
A = the Fair Market Value (as defined below) of one
Warrant Share on the date of conversion of this
Warrant;
B = the Exercise Price; and
1
<PAGE>
C = the number of Warrant Shares as to which this
Warrant is being converted.
"Fair Market Value" of one Warrant Share shall mean:
(a) if the conversion right is being exercised in connection with a
transaction specified in Section 9 hereof, the value of the consideration
(determined, in the case of non-cash consideration, in good faith by the Board
of Directors of the Company) to be received pursuant to such transaction by the
holder of one Warrant Share;
(b) if the conversion right is being exercised after the occurrence of
an initial public offering of common stock of the Company, the average of the
high and low trading prices of a share of Common Stock as reported by the
principal securities exchange or market on which the common stock is listed for
trading for the three trading days prior to the surrender of this Warrant for
conversion in accordance with the terms hereof; or
(c) in all other cases, the fair value as determined in good faith by
the Board of Directors of the Company.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of Warrant Shares determined in accordance herewith.
3. ISSUANCE OF SHARES; NO FRACTIONAL SHARES OR SCRIP. Certificates for shares
purchased upon exercise or issuable upon conversion hereof shall be delivered to
the holder by the Company's stock transfer agent at the Company's expense within
three business days after the date on which this Warrant shall have been
exercised or converted, as the case may be, in accordance with the terms hereof.
Each certificate so delivered shall be in such denominations as may be requested
by the holder hereof and shall be registered in the name of such holder or,
subject to applicable laws, any other name or names as shall be requested by
such holder; PROVIDED, HOWEVER, that in the event certificates for Warrant
Shares are to be issued in a name other than the name of the holder of this
Warrant, this Warrant when surrendered for exercise or conversion shall be
accompanied by an Assignment Form, the form of which is attached hereto as ANNEX
B, duly executed by the holder hereof. If, upon exercise or conversion of this
Warrant, fewer than all of the Warrant Shares evidenced by this Warrant are
purchased or issued prior to the Expiration Date, one or more new warrants of
like tenor to this Warrant will be issued for the remaining number of Warrant
Shares not purchased upon such exercise or issued upon such conversion. The
Company agrees that the shares so issued shall be deemed to be issued to such
holder as the record owner of such shares as of the close of business on the
date on which this Warrant shall have been surrendered for exercise or
conversion in accordance with the terms hereof. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise or conversion
of this Warrant. With respect to any fraction of a share otherwise issuable upon
the exercise or conversion of this Warrant, an amount equal to such fraction
multiplied by the then current price at which each share may be purchased
hereunder shall be paid in cash to the holder of this Warrant.
4. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of Warrant
Shares upon the exercise or conversion of this Warrant shall be made without
charge to the holder hereof for any issue or transfer tax or other incidental
expense in respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company.
5. NO RIGHTS AS SHAREHOLDER. This Warrant does not entitle the holder hereof to
any voting rights or other rights as a shareholder of the Company prior to the
exercise or conversion hereof.
2
<PAGE>
6. EXCHANGE AND REGISTRY OF WARRANT. This Warrant is exchangeable, upon the
surrender hereof by the registered holder at the principal above-mentioned
office or agency of the Company, for a new Warrant of like tenor and dated as of
such exchange. The Company shall maintain at its principal offices (or such
other office or agency of the Company as it may designate by notice in writing
to the registered holder hereof), a registry showing the name and address of the
registered holder of this Warrant. This Warrant may be surrendered for exchange,
transfer, exercise or conversion, in accordance with its terms, at such office
or agency of the Company, and the Company shall be entitled to rely in all
respects, prior to written notice to the contrary, upon such registry.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, and in case of loss, theft or
destruction of indemnity or security reasonably satisfactory to it, and upon
reimbursement to the Company of all reasonable expenses incidental thereto, and
upon surrender and cancellation of this Warrant, if mutilated, the Company will
make and deliver a new Warrant of like tenor and dated as of such cancellation,
in lieu of this Warrant.
8. SATURDAYS, SUNDAYS AND HOLIDAYS. If the last or appointed day for the taking
of any action or the expiration of any right required or granted herein shall be
a Saturday or a Sunday or shall be a legal holiday, then such action may be
taken or such right may be exercised on the next succeeding day not a legal
holiday.
9. MERGER, SALE OF ASSETS, ETC. If at any time the Company proposes to merge or
consolidate with or into any other corporation, effect any reorganization, or
sell or convey all or substantially all of its assets to any other entity, in a
transaction in which the shareholders of the Company immediately prior to
completion of the transaction will own immediately after completion of the
transaction less than a majority of the outstanding voting securities of the
entity (or its parent) succeeding to the business of the Company, then the
Company shall give the holder of this Warrant sixty (60) days' prior written
notice of the proposed effective date of such transaction, and if this Warrant
has not been exercised or converted by or on the effective date of such
transaction, it shall terminate.
10. SUBDIVISION, COMBINATION, RECLASSIFICATION, CONVERSION, ETC. If the Company
at any time shall, by subdivision, combination, reclassification of securities
or otherwise, change the Warrant Shares into the same or a different number of
securities of any class or classes, this Warrant shall thereafter entitle the
holder to acquire such number and kind of securities as would have been issuable
in respect of the Warrant Shares (or other securities which were subject to the
purchase rights under this Warrant immediately prior to such subdivision,
combination, reclassification or other change) as the result of such change if
this Warrant had been exercised in full for cash immediately prior to such
change. The Exercise Price hereunder shall be adjusted if and to the extent
necessary to reflect such change. If the Warrant Shares or other securities
issuable upon exercise or conversion hereof are subdivided or combined into a
greater or smaller number of shares of such security, the number of shares
issuable hereunder shall be proportionately increased or decreased, as the case
may be, and the Exercise Price shall be proportionately reduced or increased, as
the case may be, in both cases according to the ratio which the total number of
shares of such security to be outstanding immediately after such event bears to
the total number of shares of such security outstanding immediately prior to
such event. The Company shall give the holder prompt written notice of any
change in the type of securities issuable hereunder, any adjustment of the
Exercise Price for the securities issuable hereunder, and any increase or
decrease in the number of shares issuable hereunder.
3
<PAGE>
11. TRANSFERABILITY; COMPLIANCE WITH SECURITIES ACT
(a) This Warrant shall inure to the benefit of the successors to and
assigns of the holder. Prior to the Expiration Date and subject to compliance
with applicable laws, this Warrant and all rights hereunder are transferable by
the holder hereof, in whole or in part, at the principal offices of the Company
(or such other office or agency of the Company as it may designate by notice in
writing to the registered holder hereof). Any such transfer shall be made in
person or by the holder's duly authorized attorney, upon surrender of this
Warrant together with a properly endorsed Assignment Form.
(b) Each certificate representing the Warrant Shares or other
securities issued in respect of the Warrant upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall bear a
legend substantially in the following form (in addition to any legend required
under applicable state securities laws):
These securities have not been registered under the Securities Act of
1933, as amended (the "Act"), or any state securities laws. They may
not be sold, offered for sale, pledged, hypothecated or otherwise
transferred n the absence of a registration statement in effect with
respect to the securities under such act or, at the option of the
company, an opinion of counsel reasonably satisfactory to the Company
that such registration is not required, or unless sold pursuant to an
exemption to such Act.
12. COOPERATION. The Company will not, by amendment of its charter documents or
through any reorganization, recapitalization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other action, avoid or
seek to avoid the observance or performance of any of the terms to be observed
or performed hereunder by the Company, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the holder of the Warrant against impairment.
13. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend on, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other
right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any transfer of all or substantially all of the assets of
the Company to or consolidation or merger of the Company with or into
any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then and in each such event the Company will mail or cause to be mailed to the
holder hereof, at least ten days prior to such record date, a notice specifying
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, and stating the amount and character of such
dividend, distribution or right; (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable on such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up; and (iii) the amount and character of
any stock or other securities, or rights or options with respect thereto,
proposed to be issued or granted, the date of such proposed issue or grant and
the persons or class of persons to whom such proposed issue or grant is to be
offered or made.
4
<PAGE>
Such notice shall also state that the action in question or the
record date is subject to the effectiveness of a registration statement under
the Securities Act of 1933, as amended, or a favorable vote of shareholders, if
either is required. Such notice shall be mailed at least ten days prior to the
date specified in such notice on which any such action is to be taken or the
record date, whichever is earlier.
14. NOTICES, ETC. All notices and other communications from the Company to the
registered holder of this Warrant shall be mailed by first class certified mail,
postage prepaid, at such address as may have been furnished to the Company in
writing by such holder or at the address shown for such holder on the register
of Warrants referred to in Section 6.
15. GOVERNING LAW. This Warrant shall be governed by and construed in accordance
with the laws of the State of Montana.
5
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
by its duly authorized officers.
Dated: July 29, 1999 JORE CORPORATION,
a Montana corporation
By:________________________________
Matt Jore, President
6
<PAGE>
ANNEX A
NOTICE OF EXERCISE/CONVERSION
To: JORE CORPORATION
1. The undersigned Holder of the attached original, executed Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
______________ Warrant Shares, as defined in the Warrant, of Jore Corporation, a
Montana corporation (the "Company").
2. The undersigned Holder (check one):
- elects to pay the aggregate purchase price for such
Warrant Shares (i) by lawful money of the United
States or the enclosed certified or official bank
check payable in United States dollars to the order
of the Company in the amount of $___________, or
(ii) by wire transfer of United States funds to the
account of the Company in the amount of
$____________, which transfer has been made before
or simultaneously with the delivery of this Form of
Exercise/Conversion pursuant to the instructions of
the Company;
or
- elects to receive the number of Warrant Shares as
calculated in accordance with Section 2 of the
Warrant.
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3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Common Stock in the name of the undersigned or
in such other names as is specified below:
Name: _________________________
Address: ____________________________________
____________________________________
Dated:_____________________ ___________________________________
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
___________________________________
___________________________________
(Address)
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ANNEX B
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and supply required
information.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
_______________________________________________________
(Please Print)
whose address is
_______________________________________________________
(Please Print)
Dated: ______________________
Holder's Signature: ___________________
Holder's Address: _____________________
_______________________________________
Guaranteed Signature: __________________________________
NOTE: The signature to this Assignment Form must correspond with the
name as it appears on the face of the Warrant, without alteration or enlargement
or any change whatever, and must be guaranteed by a bank or trust company.
Officers of corporations and those acting in a fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
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Exhibit 4.5
REGISTRATION RIGHTS AGREEMENT
This Registration Agreement ("AGREEMENT") is entered into as of
_______________, 1999 by and among Jore Corporation, a Montana corporation (the
"COMPANY") and ________________ ("Holder").
RECITALS
A. The Company has issued to the Holder a warrant ("WARRANT") to
purchase shares of the Company's common stock, no par value ("COMMON STOCK"),
pursuant to the terms of a Purchase Agreement between the parties of even date
herewith (the "PURCHASE AGREEMENT").
B. The Company has agreed to take steps to permit the Holder to resell
the Common Stock issuable to the Holder upon exercise or conversion of the
Warrant without restriction under the Securities Act of 1933, as amended (the
"SECURITIES ACT").
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS
For purposes of this Agreement:
(a) The term "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means (i) the Common Stock
issuable or issued upon exercise of the Warrant and (ii) any Common Stock of the
Company issued as a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Common Stock issuable upon exercise of
the Warrant, excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which its rights under this Agreement are not
assigned;
(c) The term "HOLDER" means any person owning or having the right to
acquire Registrable Securities who is a party to this Agreement as of the date
hereof or who may be added as a party hereto pursuant to the terms of this
Agreement, and any assignee thereof in accordance with Section 11;
(d) The term "FORM S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the Securities and Exchange Commission (the "SEC") that similarly permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(e) The term "REGISTRATION EXPENSES" means all expenses incurred by the
Company in complying with this Agreement, including without limitation all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and including also the
costs of special audits, if any, and "cold comfort" letters, and expenses of
underwriters, excluding discounts and commissions but including the reasonable
fees and expenses of any necessary special experts; and
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(f) The term "SELLING EXPENSES" means all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities of a
holder.
2. REQUEST FOR REGISTRATION
(a) REQUEST. If the Company shall receive a written request signed by
Holders holding at least 50% of the Registrable Securities then held by all
Holders that the Company file a registration statement under the Securities Act,
then the Company shall, within five business days after receipt of such request,
give written notice to all Holders that such registration is to be effected and
subject to 2(d)(i) below, use its reasonable efforts to effect the registration
under the Securities Act of all Registrable Securities of each Holder who,
within twenty days after receiving the notice from the Company, requests
inclusion in such registration. The rights granted under this Section 2(a) may
not be exercised until six months after the closing date of an initial public
offering of Common Stock of the Company.
(b) NUMBER OF REQUESTS PERMITTED. The Company is obligated to effect up
to two such registrations pursuant to this Section 2; provided, however, that
for the purpose of calculating the number of registrations pursuant to this
Section 2, only registrations that have been declared effective shall be
counted, unless the failure to complete an offering pursuant to such
registration is solely due to factors within the Company's control.
(c) PARTICIPATION BY THE COMPANY. If a registration requested pursuant
to this Section 2 is to involve an underwritten public offering of Registrable
Securities, subject to 2(d)(ii) below the Company may include in the
registration shares of Common Stock to be sold by the Company for its own
account.
(d) LIMITATION ON THE NUMBER OF SHARES OF REGISTRABLE SECURITIES TO BE
INCLUDED IN REGISTRATION.
(i) If, in the judgment of the managing underwriter or
underwriters of the public offering, the inclusion of all of the Registrable
Securities of the Holders covered by requests for registration pursuant to
Section 2(a) above would interfere with the successful marketing of the proposed
offering, the number of shares of Registrable Securities to be included in the
underwritten public offering shall be reduced pro rata among the Holders
requesting registration and inclusion in such registration, based on the number
of Registrable Securities owned by such Holders, in accordance with the
recommendations of the underwriter or underwriters. In such event, the Company
may not include its shares in the registration.
(ii) If, in the judgment of the managing underwriter or
underwriters of the public offering, the inclusion of shares requested by the
Company to be included in the registration would interfere with the successful
marketing of the proposed offering (inclusive of the Registrable Securities of
the Holders as part of the proposed offering), such shares of the Company shall
not be included in the registration.
3. FORM S-3 REGISTRATION
(a) If, at any time after the Company is entitled to use Form S-3 to
register the Registrable Securities for resale by the Holders, the Holders of at
least 50% of the Registrable Securities then outstanding request that the
Company file a registration statement on Form S-3 covering the resale of the
Registrable Securities, then the Company shall use its reasonable best efforts
to cause such Registrable Securities to be registered for resale on such form.
Upon receipt of such a request for registration, the Company will:
(i) promptly give written notice of the proposed registration
and any related qualification or compliance to all other Holders; and
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(ii) file a registration statement of Form S-3 covering the
Registrable Securities as soon as practical after receipt of the request or
requests of the Holders, and effect all such other qualifications and
compliances as may be so required to permit or facilitate the sale and
distribution of all or such portion of such Holders' Registrable Securities as
are specified in such request, together with all or such portion of the
Registrable Securities of any other Holders joining in such request as are
specified in a written request given within 15 days after receipt of written
notice from the Company given in accordance with clause (a)(i).
4. LIMITS ON REGISTRATIONS
Notwithstanding the foregoing, the Company shall not be obliged to
register a Holder's Registrable Shares pursuant to Section 2 or 3 hereof if (i)
the Holder, together with the other Holders, propose to sell Registrable
Securities at an aggregate price to the public of less than $250,000; (ii) the
Company shall furnish to the Holder a certificate signed by the President of the
Company stating that, in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the registration
statement for a period of not more than 90 days after receipt of the request of
a Holder under Section 2 or 3, as the case may be, and provided that the Company
shall not exercise this right more than once in any 12 month period; (iii) the
Company has, within the six month period preceding the date of such request,
already effected one registration pursuant to Section 2 or 3 for the Holders; or
(iv) the Company furnishes to the Holder a written opinion of counsel that such
Holder is able to sell all the Registrable Securities that it in good faith
wishes to sell in a three month period pursuant to Rule 144 or a comparable
successor rule adopted by the SEC.
5. OBLIGATIONS OF THE COMPANY
Whenever required under this Agreement to effect the registration of
any Registrable Securities, the Company shall:
(a) DUE DILIGENCE. Provide the Holders requesting registration or
inclusion of their Registrable Securities in a registration pursuant to Sections
2 or 3 hereof a reasonable opportunity to review and inspect, at their own
expense, the financial, corporate and other documents relevant to a due
diligence review in connection with such proposed offering.
(b) FILING OF REGISTRATION STATEMENT. Prepare, provide the Holders
whose Registrable Securities will be included in the registration with an
opportunity to review, and file with the SEC, a registration statement with
respect to such Registrable Securities; and use its reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of all the Registrable Securities registered thereunder, keep such
registration statement effective for up to 9 months.
(c) FILING OF AMENDMENT. Prepare, provide the Holders whose Registrable
Securities will be included in the registration with an opportunity to review,
and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement
as may be necessary to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement.
(d) DELIVERY OF PROSPECTUS. Furnish to the Holders whose Registrable
Securities are covered by the registration statement such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of any Registrable
Securities being sold pursuant to the registration.
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(e) COMPLIANCE WITH BLUE SKY REQUIREMENTS. Use its best efforts to
register and qualify the securities covered by such registration statement under
such other securities or blue sky laws of such states or jurisdictions as shall
be reasonably requested by the Holders of the securities covered by the
registration statement; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(f) UNDERWRITING AGREEMENT. In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the underwriters of such offering.
(g) NOTIFICATION OF CERTAIN EVENTS. Notify each Holder of Registrable
Securities covered by such registration statement, at any time when a prospectus
relating thereto covered by such registration statement is required to be
delivered under the Securities Act, of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(h) DELIVERY OF OPINION LETTER, ETC. Furnish, at the request of any
Holder requesting registration or inclusion of its Registrable Securities in a
registration pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance customarily given to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration and inclusion in a registration of Registrable Securities and (ii)
a letter dated such date, from the independent certified public accountants of
the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to the Holders requesting
registration and inclusion in a registration of Registrable Securities.
(i) LISTING OF SECURITIES. List the Registrable Securities being
registered on any national securities exchange on which a class of the Company's
equity securities are listed or qualify the Registrable Securities being
registered for inclusion on the automated quotation system of the National
Association of Securities Dealers, Inc. National Market System if the Company
does not have a class of equity securities listed on a national securities
exchange.
6. OBLIGATIONS OF HOLDERS
Whenever a registration is to be effected pursuant to the terms of this
Agreement, each holder whose Registrable Securities are to be registered agrees:
(a) PERFORMANCE OF UNDERWRITING AGREEMENT. If the registration is an
underwritten public offering, such Holder shall enter into and perform its
obligations under the underwriting agreement with the Company and the managing
underwriter of such offering;
(b) NOTIFICATION OF CERTAIN EVENTS. Such Holder shall notify
the Company, at any time when a prospectus relating to such registration
statement is required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
regarding such holder of Registrable Securities or information provided by such
Holder or omits to state a material fact regarding such Holder or information
provided by such
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Holder required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing; and
(c) FURNISHING OF INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the Holders shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them, and the intended method of disposition
of such securities as shall be reasonably required to effect the registration of
their Registrable Securities.
7. EXPENSES
(a) REGISTRATION EXPENSES. All Registration Expenses incurred in
connection with a registration pursuant to Sections 2 and 3, and the reasonable
fees and expenses of counsel to the Holders whose shares are being registered
pursuant thereto, shall be borne by the Company.
(b) SELLING EXPENSES. All Selling Expenses shall be borne by the
Holders in proportion to the number of their Registrable Securities so
registered.
8. INDEMNIFICATION
In the event any Registrable Securities are included in a registration
statement as a result of the exercise by the Holders thereof of their rights
under this Agreement:
(a) INDEMNIFICATION BY THE COMPANY. The Company will indemnify and hold
harmless, to the fullest extent permitted by law, (i) each Holder whose
Registrable Securities are covered by such registration statement and its
directors and officers, if any, (ii) any underwriter (as defined in the
Securities Act), and (iii) each person, if any, who controls such Holders or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), against any losses, claims,
damages, or liabilities (joint or several) to which any of the aforementioned
persons or entities become subject under the Securities Act, the Exchange Act,
or other federal or state laws, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions, or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any applicable state securities
laws, or any rule or regulation promulgated under the Securities Act, and the
Exchange Act, or any state securities laws. Subject to Section 8(c) below, the
Company will reimburse (i) each such Holder, its officers and directors, (ii)
any underwriter, and (iii) any controlling person of any such Holders or
underwriter for any legal or other expenses reasonably incurred by them in
connection with investigating or defending such loss, claim, damage, liability,
or action; provided, however, that the indemnity agreement contained in this
Section 8(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability, or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld), nor
shall the Company be liable for any loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by any such Holders, underwriter or
controlling person.
(b) INDEMNIFICATION BY HOLDERS. Each Holder whose Registrable
Securities are included in a registration statement pursuant to this Agreement
will, severally and not jointly, indemnify and hold harmless (i) the Company,
(ii) each of the Company's directors and officers, (iii) any underwriter, (iv)
each person who controls the Company or any such underwriter within the meaning
of the Securities Act, (v) any other Holders selling securities pursuant to such
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registration statement and their directors and officers, and (vi) any person who
controls such other Holders, against any losses, claims, damages or liabilities
to which any of the aforementioned persons or entities become subject under the
Securities Act, the Exchange Act or other federal or state laws, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise out
of or are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration. Subject to Section 8(c) below, each such Holder will,
severally and not jointly, reimburse (i) the Company, (ii) each of the Company's
directors and officers, (iii) any underwriter, (iv) each person who controls the
Company or any such underwriter within the meaning of the Securities Act, (v)
any other Holders selling securities pursuant to such registration statement and
their directors and officers, and (vi) any person who controls such other
Holders for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 8(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the holder or Holders providing the indemnification, which
consent shall not be unreasonably withheld; provided further that such legal or
other expenses shall be shared pro rata among the Holders providing the
indemnification in accordance with their respective shareholdings and the
maximum liability of any such Holder under this Section 8(b) in regard to any
registration statement shall in no event exceed the amount of the proceeds
received by such Holder from the sale of securities under such registration
statement.
(c) PROCEDURES OF INDEMNIFICATION. Each party entitled to
indemnification under this Section 8 (the "Indemnified Party") will give notice
to the party required to provide indemnification hereunder (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and the Indemnifying Party shall have the
right to participate in, and, to the extent the Indemnifying Party so desires,
jointly with any other Indemnifying Party similarly notified, to assume the
defense thereof with counsel mutually satisfactory to the Indemnified Party and
the Indemnifying Party; provided, however, that the Indemnified Party shall have
the right to retain its own counsel, reasonably satisfactory to the Company, at
its own expense; provided further that the fees and expenses of such counsel
shall be paid by the Indemnifying Party if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
having knowledge of any claim, if prejudicial to its ability to defend such
action, shall relieve such Indemnifying Party of any liability to the
Indemnified Party under this Section 8, but the omission so to deliver written
notice to the Indemnifying Party will not relieve it of any liability that it
may have to any Indemnified Party otherwise than under this Section 8.
(d) CONTRIBUTION. If the indemnification provided for in Section 8(a)
and (b) above is unavailable for any reason, then each Indemnifying Party shall,
in lieu of indemnifying such Indemnified Party, contribute to the amount paid or
payable by such Indemnified Party for the losses, claims, damages, or
liabilities in such proportion as appropriate to reflect not only the relative
benefit received but also the relative fault of the Company, on the one hand,
and of the Holders whose Registrable Securities are covered by a registration
statement, on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, or liabilities, as well as any other
relevant equitable considerations, including the failure to give any notice
under Section 8(c). The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact relates to information supplied by the Company, on the one hand, or written
information supplied by the Holders on the other, specifically for inclusion in
the prospectus or registration statement relating thereto and to the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and Holders agree that it would
not be just and equitable if contributions pursuant to Section 8(d) were
determined by PRO RATA allocation (even if
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all of the Holders were treated as one entity for such purpose) or by any other
method of allocation which did not take into account the equitable
considerations referred to above. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities under this
Section 8 shall include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 8(d), a Holder shall
not be required to contribute any amount in excess of the amount of the
proceeds received by such holder from the sale of its Registrable Securities
registered pursuant to this Agreement. No person guilty of fraudulent
misrepresentations (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation.
(e) CONTENT OF JUDGMENT OR SETTLEMENT. No Indemnifying Party, in the
defense of any such claim or litigation pursuant to this Section 8, will, except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
9. CHANGES IN COMMON STOCK
In the event that there are any changes in the Common Stock by way of
stock split, stock dividend, combination or reclassification, or through merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof, as may be
required, so that the rights and privileges granted hereby to the Holders shall
continue with respect to the Common Stock as so changed.
10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Securities Act and any other rule or regulation of the SEC
that may at any time permit such holders to sell securities of the Company to
the public without registration, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144, at all times after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) Furnish to any such Holder, so long as it owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company) and the Exchange Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
in availing any such holder of any rule or regulation of the SEC which permits
the selling of any such securities without registration.
11. ASSIGNMENT OF REGISTRATION RIGHTS
The rights to cause the Company to register Registrable Securities
pursuant to this Agreement may be assigned by a Holder to a transferee or
assignee of such securities; provided (i) the Company is furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; (ii) the
transfer is made in compliance with the terms and conditions of any agreement
among any
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Holders that may restrict the transfer of the Registrable Securities, to the
extent such holders are parties thereto; and (iii) such assignment shall be
effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act.
12. "STAND-OFF" AGREEMENT
Each Holder hereby agrees that it shall not, to the extent requested by
the Company and an underwriter of Common Stock (or other securities) of the
Company, sell or otherwise transfer or dispose of (other than to transferees who
agree to be similarly bound) any Registrable Securities during the 180-day
period, or such shorter period as may be recommended by the underwriter,
following the effective date of a registration statement of the Company filed
under the Securities Act. Notwithstanding the foregoing, a Holder whose
registration rights are otherwise eliminated by virtue of Section 4 above shall
not be subject to this Section 12.
13. MISCELLANEOUS
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
and understanding of the parties and supersedes any and all prior agreements,
arrangements and understandings relating to matters provided for herein.
(b) GOVERNING LAW. The construction and performance of this Agreement
will be governed by the laws of the State of Montana (except for the choice of
law provisions thereof).
(c) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
(d) HEADINGS. The headings are for convenience only and will not
control or affect the meaning or construction of the provisions of this
Agreement.
(e) NOTICES. Any notice, demand or request required or permitted to be
given under the provisions of this Agreement (i) shall be in writing; (ii) shall
be delivered personally, including by means of facsimile or courier, or mailed
by registered or certified mail, postage prepaid and return receipt requested;
(iii) shall be deemed given on the date of personal delivery or on the date set
forth on the return receipt; and (iv) shall be delivered or mailed to the
addresses or facsimile numbers set forth below on the signature page of this
Agreement or to such other address as any party may from time to time direct.
(f) AMENDMENT, WAIVER, ETC. The provisions of this Agreement may be
amended or waived only by an instrument in writing signed by the Company and
Holders holding at least 80% of the Registrable Securities then outstanding;
provided, however, that such amendment or waiver may not have the effect of
limiting, expanding or otherwise affecting the rights and obligations of one or
more Holders unless the rights and obligations of all holders of Registrable
shall have been equally limited, expanded or otherwise affected. Any waiver of
any term or condition of this Agreement or any breach hereof shall not operate
as a waiver of any other such term, condition or breach, and no failure to
enforce any provision hereof shall operate as a waiver of such provision or of
any other provision hereof.
(g) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provisions shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provisions were so excluded and shall be enforceable in accordance with its
terms.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first above written.
COMPANY:
JORE CORPORATION
By___________________________________
Matthew B. Jore, President
45000 Highway 93 South
Ronan, Montana 59864
Facsimile: 406-676-8400
HOLDER:
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Exhibit 10.27(1)
FIRST AMENDMENT TO INDEPENDENT
CONTRACTOR AGREEMENT
This First Amendment to Independent Contractor Agreement (the
"Amendment") is entered into as of the 23rd day of July, 1999, by and between
JORE CORPORATION, a Montana corporation (the "Company") and THOMAS E. MAHONEY,
a resident of the State of Connecticut ("Contractor"), with reference to the
following facts:
RECITALS
A. The Company and Contractor entered into that certain Independent
Contractor Agreement, effective as of June 3, 1999 (the "Agreement").
B. The Company and Contractor desire to amend the Agreement by this
Amendment.
IN CONSIDERATION OF THE MUTUAL PROMISES set forth in this Amendment and
in the Agreement, the Company and Contractor hereby amend the Agreement as
follows:
1. Section 3.1 of the Agreement is hereby deleted in its entirety and
replaced with the following new Section 3.1:
3.1 The Company shall pay Contractor the sum of One Hundred
Thousand Dollars ($100,000) for his services under this Agreement. Payment of
the amount due hereunder shall be made on January 21, 2000.
2. All other terms of the Agreement shall remain in full force and
effect.
JORE CORPORATION CONTRACTOR
_____________________________ ________________________________
By: Matt Jore Thomas E. Mahoney
Its: President
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Exhibit 10.27(2)
SECOND AMENDMENT TO INDEPENDENT
CONTRACTOR AGREEMENT
This Second Amendment to Independent Contractor Agreement (the
"Amendment") is entered into as of the 30th day of September, 1999, by and
between JORE CORPORATION, a Montana corporation (the "Company") and THOMAS E.
MAHONEY, a resident of the State of Connecticut ("Contractor"), with reference
to the following facts:
RECITALS
A. The Company and Contractor entered into that certain Independent
Contractor Agreement, effective as of June 3, 1999, which was amended effective
July 23, 1999 (the "Agreement").
B. The Company and Contractor desire to amend the Agreement by this
Amendment.
IN CONSIDERATION OF THE MUTUAL PROMISES set forth in this Amendment and
in the Agreement, the Company and Contractor hereby amend the Agreement as
follows:
1. Section 5.1 of the Agreement is hereby deleted in its entirety and
replaced with the following new Section 5.1:
5.1 The term of this Agreement shall be from November 1, 1999
through October 31, 2000. Upon expiration of the term, the Company shall have
the option to renew this Agreement for additional one-year period(s).
2. All other terms of the Agreement shall remain in full force and
effect.
JORE CORPORATION CONTRACTOR
_____________________________ ________________________________
By: Matt Jore Thomas E. Mahoney
Its: President
<PAGE>
Exhibit 10.32(1)
JORE CORPORATION 1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1.
PURPOSE: The purposes of the Jore Corporation 1999 Employee Stock
Purchase Plan (the "Plan") are (a) to assist employees of Jore Corporation, a
Montana corporation (the "Company"), and its designated subsidiaries in
acquiring a stock ownership interest in the Company pursuant to a plan that is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended, and (b) to encourage employees
to remain in the employ of the Company and its subsidiaries.
SECTION 2.
DEFINITIONS: For purposes of the Plan, the following terms shall be
defined as set forth below:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means the Company's Compensation Committee.
"Common Stock" means the common stock, without par value, of the
Company.
"Company" means Jore Corporation, a Montana corporation.
"Corporate Transaction" means either of the following events: (a)
consummation of any merger or consolidation of the Company with or into another
corporation; or (b) consummation of any sale, lease, exchange or other transfer
in one transaction or a series of related transactions of all or substantially
all of the Company's assets or outstanding securities other than a transfer of
the Company's assets or securities to a majority-owned Subsidiary Corporation.
"Designated Subsidiary" has the meaning set forth under the definition
of "Eligible Employee" in this Section 2.
"Effective Date" has the meaning set forth in Section 23.
"Eligible Compensation" means all base salary and wages. Eligible
Compensation does not include overtime, cash bonuses, commissions, severance
pay, hiring and relocation bonuses, pay in lieu of vacations, sick leave, gain
from stock option exercises or any other special payments.
"Eligible Employee" means any employee of the Company or any
Subsidiary Corporation designated by the Board or the Committee (a "Designated
Subsidiary"), who is in the employ of the Company (or any Designated
Subsidiary) on one or more Offering Dates and who meets the following criteria:
(a) the employee does not, immediately after the option is granted, own stock
(as defined by the Code) possessing 5% or more of the total combined voting
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power or value of all classes of stock of the Company or of a Parent
Corporation or Subsidiary Corporation of the Company; (b) the employee's
customary employment is for 20 hours or more per week; provided, however, that
the Plan Administrator may decrease this minimum requirement for any future
Offering so long as the required number of hours does not exceed 20; (c) if
specified by the Plan Administrator for a future Offering, the employee
customarily works a minimum of 5 months per year or any lesser number of months
established by the Plan Administrator; and (d) if specified by the Plan
Administrator for a future Offering, the employee has been employed for a
certain minimum period of time prior to an Offering Date; provided, however,
that any such minimum employment period may not exceed two years. If the
Company permits any employee of a Designated Subsidiary to participate in the
Plan, then all employees of that Designated Subsidiary who meet the
requirements of this paragraph shall also be considered Eligible Employees.
"Enrollment Deadline" has the meaning set forth in Section 7.1.
"ESPP Broker" has the meaning set forth in Section 10.
"Fair Market Value" shall be as established in good faith by the Plan
Administrator, or (a) if the Common Stock is listed on the Nasdaq National
Market, the average of the high and low per share sales prices for the Common
Stock as reported by the Nasdaq National Market on the Offering Date or the
Purchase Date, as applicable, or (b) if the Common Stock is listed on the New
York Stock Exchange or the American Stock Exchange, the average of the high and
low per share sales prices for the Common Stock as such price is officially
quoted in the composite tape of transactions on such exchange on the Offering
Date or the Purchase Date, as applicable. If there is no such reported price for
the Common Stock for the date in question, then such price on the last preceding
date for which such price exists shall be determinative of Fair Market Value.
"Offering" has the meaning set forth in Section 5.1.
"Offering Date" means the first day of an Offering.
"Option" means an option granted under the Plan to an Eligible Employee
to purchase shares of Common Stock.
"Parent Corporation" means any corporation, other than the Company, in
an unbroken chain of corporations ending with the Company, if, at the time of
the granting of the Option, 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.
"Participant" means any Eligible Employee who has elected to
participate in an Offering in accordance with the procedures set forth in
Section 7.1 and who has not withdrawn from the Plan or whose participation in
the Plan is not terminated.
"Plan" means the Jore Corporation 1999 Employee Stock Purchase Plan.
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"Purchase Date" means the last day of each Purchase Period.
"Purchase Period" has the meaning set forth in Section 5.2.
"Purchase Price" has the meaning set forth in Section 6.
"Subscription" has the meaning set forth in Section 7.1.
"Subsidiary Corporation" means any corporation, other than the
Company, in an unbroken chain of corporations beginning with the Company, if,
at the time of the granting of the Option, 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.
SECTION 3.
ADMINISTRATION:
3.1 PLAN ADMINISTRATOR: The Plan shall be administered by the Board or
the Committee or, if and to the extent the Board or the Committee designates an
executive officer of the Company to administer the Plan, by such executive
officer (each, the "Plan Administrator"). Any decisions made by the Plan
Administrator shall be applicable equally to all Eligible Employees.
3.2 ADMINISTRATION AND INTERPRETATION BY THE PLAN ADMINISTRATOR:
Subject to the provisions of the Plan, the Plan Administrator shall have the
authority, in its sole discretion, to determine all matters relating to Options
granted under the Plan, including all terms, conditions, restrictions and
limitations of Options; provided, however, that all Participants granted Options
pursuant to the Plan shall have the same rights and privileges within the
meaning of Section 423 of the Code.
The Plan Administrator shall also have exclusive authority to interpret
the Plan and may from time to time adopt, and change, rules and regulations of
general application for the Plan's administration. The Plan Administrator's
interpretation of the Plan and its rules and regulations, and all actions taken
and determinations made by the Plan Administrator pursuant to the Plan, unless
reserved to the Board or the Committee, shall be conclusive and binding on all
parties involved or affected. The Plan Administrator may delegate administrative
duties to such of the Company's other officers or employees as the Plan
Administrator so determines.
SECTION 4.
STOCK SUBJECT TO PLAN: Subject to adjustment from time to time as
provided in Section 21, the maximum number of shares of Common Stock which shall
be available for issuance under the Plan shall be (a) 1,000,000 shares plus (b)
an annual increase to be added on the first day of each fiscal year beginning
January 1, 2001 equal to the least of (i) of 100,000 shares of Common Stock, or
(ii) 1.5% of the adjusted average common shares outstanding of the
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Company used to calculate fully diluted earnings per share as reported in the
Company's annual financial statements for the preceding fiscal year, or (iii) a
lesser amount determined by the Board; provided, however, that any shares from
any increases in previous years that are not actually issued shall be added to
the aggregate number of shares available for issuance under the Plan. Shares
issued under the Plan shall be drawn from authorized and unissued shares or
shares now held or subsequently acquired by the Company as treasury shares.
SECTION 5.
OFFERING DATES AND PURCHASE PERIODS:
5.1 OFFERINGS:
(a) Except as otherwise set forth below, the Plan shall be implemented
by a series of two-year Offerings (each, an "Offering"). Offerings shall
generally commence on February 15 and August 15 of each year and end on the
second February 15 and August 15, respectively, occurring thereafter; provided,
however, that the first Offering shall begin on December 31, 1999 (instead of
February 15, 2000) and shall end on February 15, 2002.
(b) The first day of each Offering shall be an "Offering Date." On each
Offering Date, each Eligible Employee is hereby granted an Option subject to the
terms and conditions of the Plan to purchase shares of Common Stock on the
Purchase Dates for the Offering for the price determined under Section 6
exclusively through payroll deductions authorized under Section 9.
(c) Notwithstanding the foregoing, the Plan Administrator may establish
(i) a different term for one or more Offerings, and (ii) different commencing
and ending dates for such Offerings; provided, however, that an Offering may not
exceed 27 months.
(d) In the event the first or the last day of an Offering is not a
regular business day, then the first or last day of the Offering shall be deemed
to be the next regular business day.
5.2 PURCHASE PERIODS:
(a) Except as otherwise set forth below, each Offering shall consist of
four consecutive purchase periods of six months' duration (each, a "Purchase
Period"). The last day of each Purchase Period shall be the Purchase Date for
such Purchase Period. Except as otherwise set forth below, a Purchase Period
shall commence on February 15 and August 15 of each year and end on the next
August 15 and February 15, respectively, occurring thereafter; provided,
however, that the first Purchase Period for the first Offering shall begin on
December 31, 1999 (instead of February 15, 2000) and shall end on August 15,
2000.
(b) Notwithstanding the foregoing, the Plan Administrator may establish
(i) a different term for one or more Purchase Periods, and (ii) different
commencing and ending dates for any such Purchase Period.
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(c) In the event the first or last day of a Purchase Period is not a
regular business day, then the first or last day of the Purchase Period shall be
deemed to be the next regular business day.
5.3 GOVERNMENTAL APPROVAL: Notwithstanding any other provision of the
Plan to the contrary, an Option granted pursuant to the Plan shall be subject to
obtaining all necessary governmental approvals and qualifications of the Plan
and of the issuance of Options and sale of Common Stock pursuant to the Plan.
SECTION 6.
PURCHASE PRICE:
6.1 "Purchase Price" at which Common Stock may be acquired on any
Purchase Date in an Offering pursuant to the exercise of all or any portion of
an Option granted under the Plan shall be 85% of the lesser of (a) the Fair
Market Value of the Common Stock on the Offering Date of such Offering, and (b)
the Fair Market Value of the Common Stock on the Purchase Date.
6.2 Notwithstanding the foregoing, if an increase in the number of
shares authorized for issuance under the Plan (other than an annual increase
pursuant to Section 4 and other than the initial authorization on the Effective
Date) is approved and all or a portion of such additional shares are to be
issued during one or more Offerings that are underway at the time of shareholder
approval of such increase (the "Additional Shares"), then, if as of the date of
such shareholder approval, the Fair Market Value of a share of Common Stock is
higher than the Fair Market Value on the Offering Date for any such Offering,
the Purchase Price for the Additional Shares shall be 85% of the lesser of (i)
the Common Stock's Fair Market Value on the date of such shareholder approval,
and (ii) the Fair Market Value of the Common Stock on the Purchase Date.
SECTION 7.
PARTICIPATION IN THE PLAN:
7.1 INITIAL PARTICIPATION: If a person is an Eligible Employee on the
Offering Date for an Offering, such person may become a Participant in the
Offering by delivering to the Company on or prior to the Enrollment Deadline for
such Offering a subscription (the "Subscription"): (a) indicating the Eligible
Employee's election to participate in the Plan; (b) authorizing payroll
deductions and stating the amount to be deducted regularly from the
Participant's pay; and (c) authorizing the purchase of Common Stock for the
Participant in each Purchase Period. Unless otherwise determined by the Plan
Administrator, the "Enrollment Deadline" for each Offering shall be 10 days
prior to the Offering Date; provided, however, that the "Enrollment Deadline"
for the first Offering shall be February 15, 2000. An Eligible Employee who does
not deliver a Subscription as provided above on or prior to the Enrollment
Deadline shall not participate in the Plan for that Offering or for any
subsequent Offering unless such Eligible Employee subsequently enrolls in the
Plan by filing a Subscription with the Company on or prior to the Enrollment
Deadline for such subsequent Offering. Except as provided in Section 7.2, an
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<PAGE>
employee who becomes eligible to participate in the Plan after an Offering has
commenced shall not be eligible to participate in such Offering but may
participate in any subsequent Offering, provided that such employee is still an
Eligible Employee as of the commencement of any such subsequent Offering.
Eligible Employees may not participate in more than one Offering at a time.
7.2 ALTERNATIVE INITIAL PARTICIPATION: Notwithstanding any other
provisions of the Plan, the Board or the Committee may provide for any future
Offering that any employee of the Company or any Designated Subsidiary who first
becomes an Eligible Employee during the course of an Offering shall, on a date
or dates specified in the Offering which coincides with the date on which such
person first meets such requirements or occurs on a specified date thereafter,
receive an Option under that Offering which Option shall thereafter be deemed to
be a part of that Offering. Such Option shall have the same characteristics as
any Options originally granted under that Offering, except that: (a) the date on
which such Option is granted shall be the "Offering Date" of such Option for all
purposes, including determining the Purchase Price of such Option; provided,
however, that if the Fair Market Value of the Common Stock on the date on which
such Option is granted is less than the Fair Market Value of Common Stock on the
first day of the Offering, then, solely for the purpose of determining the
Purchase Price of such Option, the first day of the Offering shall be the
"Offering Date" for such Option; (b) the Purchase Period(s) for such Option
shall begin on its Offering Date and end coincident with the remaining Purchase
Date(s) for such Offering; and (c) the Board or the Committee may provide that
if such employee first meets such requirements within a specified period of time
before the end of a Purchase Period for such Offering, he or she will not
receive any Option for that Purchase Period.
7.3 CONTINUED PARTICIPATION: A Participant shall automatically
participate in the next Offering until such time as such Participant withdraws
from the Plan pursuant to Section 11.2 or 11.3 or terminates employment as
provided in Section 13.
SECTION 8.
LIMITATIONS ON RIGHT TO PURCHASE SHARES:
8.1 NUMBER OF SHARES PURCHASED:
(a) No Option granted under the Plan shall permit an employee's right
to purchase Common Stock under the Plan (and all other employee stock purchase
plans of the Company, any Parent Corporations and any Subsidiary Corporations to
which Section 423 of the Code applies) to accrue at a rate that exceeds $25,000
of fair market value of shares (determined at the Offering Date) for each
calendar year in which such Option is outstanding.
(b) No Participant shall be entitled to purchase more than 4,000 shares
of Common Stock (or such other number as the Board or the Committee shall
specify for a future Offering) under the Plan in any single Purchase Period.
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(c) For a future Offering, the Board or the Committee may specify a
maximum number of shares that may be purchased by any Participant, as well as a
maximum aggregate number of shares that may be purchased by all Participants
pursuant to such Offering. In addition, for a future Offering with more than
one Purchase Date, the Board or the Committee may specify a maximum aggregate
number of shares that may be purchased by all Participants on any given
Purchase Date under the Offering.
8.2 PRO RATA ALLOCATION: In the event the number of shares of Common
Stock that might be purchased by all Participants in the Plan exceeds the number
of shares of Common Stock available in the Plan or available for any Offering or
Purchase Date, the Plan Administrator shall make a pro rata allocation of the
remaining shares of Common Stock in as uniform a manner as shall be practicable
and as the Plan Administrator shall determine to be equitable. Fractional shares
may not be issued under the Plan unless the Plan Administrator determines
otherwise for any future Offering.
SECTION 9.
PAYMENT OF PURCHASE PRICE:
9.1 GENERAL RULES SUBJECT TO SECTION 9.11: Common Stock that is
acquired pursuant to the exercise of all or any portion of an Option may be paid
for only by means of payroll deductions from the Participant's Eligible
Compensation. Except as set forth in this Section 9, the amount of compensation
to be withheld from a Participant's Eligible Compensation during each pay period
shall be determined by the Participant's Subscription.
9.2 PERCENT WITHHELD: The amount of payroll withholding for each
Participant for purchases pursuant to the Plan during any pay period shall be at
least 1% but shall not exceed 15% of the Participant's Eligible Compensation for
such pay period. Amounts shall be withheld in whole percentages only.
9.3 PAYROLL DEDUCTIONS: Payroll deductions shall commence on the first
payday following the Offering Date and shall continue through the last payday of
the Offering unless sooner altered or terminated as provided in the Plan;
provided, however, that with respect to the first Offering payroll deductions
shall commence (a) on January 24, 2000 for an Eligible Employee who delivers his
or her Subscription to the Company on or prior to January 19, 2000, (b) on
February 7, 2000 for an Eligible Employee who delivers his or her Subscription
to the Company on or prior to February 2, 2000, and (c) on February 21, 2000 for
an Eligible Employee who delivers his or her Subscription to the Company on or
prior to February 15, 2000.
9.4 MEMORANDUM ACCOUNTS: Individual accounts shall be maintained for
each Participant for memorandum purposes only. All payroll deductions from a
Participant's compensation shall be credited to such account but shall be
deposited with the general funds of the Company. All payroll deductions received
or held by the Company may be used by the Company for any corporate purpose.
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9.5 NO INTEREST: No interest shall be paid on payroll deductions
received or held by the Company.
9.6 ACQUISITION OF COMMON STOCK: On each Purchase Date of an Offering,
each Participant shall automatically acquire, pursuant to the exercise of the
Participant's Option, the number of shares of Common Stock arrived at by
dividing the total amount of the Participant's accumulated payroll deductions
for the Purchase Period by the Purchase Price; provided, however, that the
number of shares of Common Stock purchased by the Participant shall not exceed
the number of whole shares of Common Stock so determined, unless the Plan
Administrator has determined for any future Offering that fractional shares may
be issued under the Plan; and provided, further, that the number of shares of
Common Stock purchased by the Participant shall not exceed the number of shares
for which Options have been granted to the Participant pursuant to Section 8.1.
9.7 REFUND OF EXCESS AMOUNTS: Any cash balance remaining in the
Participant's account at the termination of each Purchase Period shall be
refunded to the Participant as soon as practical after the Purchase Date
without the payment of any interest; provided, however, that if the Participant
participates in the next Purchase Period, any cash balance remaining in the
Participant's account because it was less than the amount required to purchase
a whole share shall be applied to the purchase of Common Stock in the new
Purchase Period, provided such purchase complies with Section 8.1.
9.8 WITHHOLDING OBLIGATIONS: At the time the Option is exercised, in
whole or in part, or at the time some or all of the Common Stock is disposed of,
the Participant shall make adequate provision for federal and state withholding
obligations of the Company, if any, that arise upon exercise of the Option or
upon disposition of the Common Stock. The Company may withhold from the
Participant's compensation the amount necessary to meet such withholding
obligations.
9.9 TERMINATION OF PARTICIPATION: No Common Stock shall be purchased on
behalf of a Participant on a Purchase Date if his or her participation in the
Offering or the Plan has terminated on or before such Purchase Date.
9.10 PROCEDURAL MATTERS: The Company may, from time to time, establish
(a) limitations on the frequency and/or number of any permitted changes in the
amount withheld during an Offering, as set forth in Section 11.1, (b) an
exchange ratio applicable to amounts withheld in a currency other than U.S.
dollars, (c) payroll withholding in excess of the amount designated by a
Participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections and (d) such other
limitations or procedures as deemed advisable by the Company in the Company's
sole discretion that are consistent with the Plan and in accordance with the
requirements of Section 423 of the Code.
9.11 LEAVES OF ABSENCE: During leaves of absence approved by the
Company and meeting the requirements of the applicable Treasury Regulations
promulgated under the Code, a Participant may elect to continue participation in
the Plan by delivering cash payments to the Company on the Participant's normal
paydays equal to the amount of his or her payroll deduction under the Plan had
the Participant not taken a leave of absence. Currently, the
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Treasury Regulations provide that a Participant may continue participation in
the Plan only during the first 90 days of a leave of absence unless the
Participant's reemployment rights are guaranteed by statute or contract.
SECTION 10.
COMMON STOCK PURCHASED UNDER THE PLAN:
10.1 ESPP BROKER: If the Plan Administrator designates or approves a
stock brokerage or other financial services firm (the "ESPP Broker") to hold
shares purchased under the Plan for the accounts of Participants, the following
procedures shall apply. Promptly following each Purchase Date, the number of
shares of Common Stock purchased by each Participant shall be deposited into an
account established in the Participant's name with the ESPP Broker. Each
Participant shall be the beneficial owner of the Common Stock purchased under
the Plan and shall have all rights of beneficial ownership in such Common
Stock. A Participant shall be free to undertake a disposition of the shares of
Common Stock in his or her account at any time, but, in the absence of such a
disposition, the shares of Common Stock must remain in the Participant's
account at the ESPP Broker until the holding period set forth in Section 423 of
the Code has been satisfied. With respect to shares of Common Stock for which
the holding period set forth above has been satisfied, the Participant may move
those shares of Common Stock to another brokerage account of the Participant's
choosing or request that a stock certificate be issued and delivered to him or
her. Dividends paid in the form of shares of Common Stock with respect to
Common Stock in a Participant's account shall be credited to such account. A
Participant who is not subject to payment of U.S. income taxes may move his or
her shares of Common Stock to another brokerage account of his or her choosing
or request that a stock certificate be delivered to him or her at any time,
without regard to the holding period required by Section 423 of the Code.
10.2 NOTICE OF DISPOSITION: By entering the Plan, each Participant
agrees to promptly give the Company notice of any Common Stock disposed of
within the later of one year from the Purchase Date and two years from the
Offering Date for such Common Stock, showing the number of such shares disposed
of and the Purchase Date and Offering Date for such Common Stock. This notice
shall not be required if and so long as the Company has a designated ESPP
Broker.
SECTION 11.
CHANGES IN WITHHOLDING AMOUNTS AND VOLUNTARY WITHDRAWAL:
11.1 CHANGES IN WITHHOLDING AMOUNTS:
(a) Unless the Plan Administrator establishes otherwise for a future
Offering, a Participant may elect to decrease or increase the amount withheld
from his or her Eligible Compensation up to two times during any Purchase Period
by completing and filing with the Company an amended Subscription authorizing a
change in the payroll deduction rate. The
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change in rate shall be effective as of the next payday following the date of
filing the amended Subscription if the amended Subscription is filed at least
10 days prior to such payday (the "Change Notice Date") and, if not, as of the
next succeeding payday. All payroll deductions accrued by a Participant as of a
Change Notice Date shall continue to be applied toward the purchase of Common
Stock on the Purchase Date, unless a Participant withdraws from an Offering or
the Plan, pursuant to Section 11.2 or Section 11.3 below. An amended
Subscription shall remain in effect until the Participant changes such
Subscription in accordance with the terms of the Plan.
(b) Unless otherwise determined by the Plan Administrator for a future
Offering, a Participant may elect to increase or decrease the amount to be
withheld from his or her compensation for a future Offering by completing and
filing with the Company an amended Subscription on or prior to the Enrollment
Deadline for such Offering.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Code Section 423 and Section 8.1, a Participant's payroll deductions may
be decreased during any Purchase Period to 0%. Payroll deductions shall
re-commence at the rate provided in such Participant's Subscription at the
beginning of the first Purchase Period in which the Participant can participate
in compliance with Code Section 423 and Section 8.1, unless the Participant
terminates participation in the Offering or the Plan as provided in Section
11.2 or Section 11.3 below.
11.2 WITHDRAWAL FROM AN OFFERING: A Participant may withdraw from an
Offering by signing and delivering to the Company a written notice of withdrawal
on a form provided by the Company for such purpose. Such withdrawal must be
elected at least 10 days prior to the end of the Purchase Period for which such
withdrawal is to be effective or by any other date specified by the Plan
Administrator for any future Offering. Withdrawal shall not affect Common Stock
previously acquired by the Participant under the Plan. Unless otherwise
indicated, withdrawal from an Offering shall not result in a withdrawal from the
Plan or any succeeding Offering therein. A Participant is prohibited from again
participating in the same Offering at any time upon withdrawal from such
Offering. The Company may, from time to time, impose a requirement that the
notice of withdrawal be on file with the Company for a reasonable period prior
to the effectiveness of the Participant's withdrawal.
11.3 WITHDRAWAL FROM THE PLAN: A Participant may withdraw from the Plan
by signing a written notice of withdrawal on a form provided by the Company for
such purpose and delivering such notice to the Company. Such notice must be
delivered at least 10 days prior to the end of the Purchase Period for which
such withdrawal is to be effective or by any other date specified by the Plan
Administrator for any future Offering. In the event a Participant voluntarily
elects to withdraw from the Plan, the Participant may not resume participation
in the Plan during the same Offering, but may participate in any subsequent
Offering under the Plan by again satisfying the definition of Eligible Employee
and timely delivering a Subscription. The Company may impose, from time to time,
a requirement that the notice of withdrawal be on file with the Company for a
reasonable period prior to the effectiveness of the Participant's withdrawal.
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11.4 RETURN OF PAYROLL DEDUCTIONS: Upon withdrawal from an Offering
pursuant to Section 11.2 or from the Plan pursuant to Section 11.3, the
withdrawing Participant's accumulated payroll deductions that have not been
applied to the purchase of Common Stock shall be returned as soon as practical
after the withdrawal, without the payment of any interest, to the Participant
and the Participant's interest in the Offering shall terminate. Such accumulated
payroll deductions may not be applied to any other Offering under the Plan.
SECTION 12.
AUTOMATIC WITHDRAWAL: If the Fair Market Value of the Common Stock on
any Purchase Date of an Offering is less than the Fair Market Value of the
Common Stock on the Offering Date for such Offering, then every Participant
shall automatically (a) be withdrawn from such Offering after the acquisition of
the shares of Common Stock on such Purchase Period, and (b) be enrolled in the
Offering commencing on such Purchase Date, provided the Participant is eligible
to participate in the Plan and has not elected to terminate participation in the
Plan pursuant to Section 11.2 or 11.3.
SECTION 13.
TERMINATION OF EMPLOYMENT: Termination of a Participant's employment
with the Company for any reason, including retirement, death or the failure of a
Participant to remain an Eligible Employee, shall immediately terminate the
Participant's participation in the Plan. The payroll deductions credited to the
Participant's account since the last Purchase Date shall, as soon as practical,
be returned to the Participant or, in the case of a Participant's death, to the
Participant's legal representative or designated beneficiary as provided in
Section 14.2, and all of the Participant's rights under the Plan shall
terminate. Interest shall not be paid on sums returned to a Participant pursuant
to this Section 13.
SECTION 14.
RESTRICTIONS ON ASSIGNMENT:
14.1 TRANSFERABILITY: An Option granted under the Plan shall not be
transferable and such Option shall be exercisable during the Participant's
lifetime only by the Participant. The Company will not recognize, and shall be
under no duty to recognize, any assignment or purported assignment by a
Participant of the Participant's interest in the Plan, of his or her Option or
of any rights under his or her Option.
14.2 BENEFICIARY DESIGNATION: The Plan Administrator may permit a
Participant to designate a beneficiary who is to receive any shares and cash, if
any, from the Participant's account under the Plan in the event the Participant
dies after the Purchase Date for an Offering but prior to delivery to such
Participant of such shares and cash. In addition, the Plan Administrator may
permit a Participant to designate a beneficiary who is to receive any cash from
the Participant's account under the Plan in the event that the Participant dies
before the Purchase Date for an Offering. Such designation may be changed by the
Participant at any time by written notice to the Company.
11
<PAGE>
SECTION 15.
RESERVED.
SECTION 16.
NO RIGHTS AS SHAREHOLDER UNTIL SHARES ISSUED: With respect to shares
of Common Stock subject to an Option, a Participant shall not be deemed to be a
shareholder of the Company, and he or she shall not have any of the rights or
privileges of a shareholder. A Participant shall have the rights and privileges
of a shareholder of the Company when, but not until, a certificate or its
equivalent has been issued to the Participant for the shares following exercise
of the Participant's Option.
SECTION 17.
LIMITATIONS ON SALE OF COMMON STOCK PURCHASED UNDER THE PLAN: The Plan
is intended to provide Common Stock for investment and not for resale. The
Company does not, however, intend to restrict or influence any Participant in
the conduct of his or her own affairs. A Participant, therefore, may sell
Common Stock purchased under the Plan at any time he or she chooses, subject to
compliance with any applicable federal and state securities laws. A Participant
assumes the risk of any market fluctuations in the price of the Common Stock.
SECTION 18.
AMENDMENT OR TERMINATION OF THE PLAN:
18.1 The Board may amend the Plan in such respects as it shall deem
advisable; provided, however, that, to the extent required for compliance with
Section 423 of the Code or any applicable law or regulation, shareholder
approval will be required for any amendment that will (i) increase the total
number of shares as to which Options may be granted under the Plan, (ii) modify
the class of employees eligible to receive Options, or (iii) otherwise require
shareholder approval under any applicable law or regulation.
18.2 The Plan shall continue in effect indefinitely until it is
terminated or suspended by the Board. The Board may terminate or suspend the
Plan at any time and for any reason. During any period of suspension or upon
termination of the Plan, no Options shall be granted.
18.3 Except as provided in Section 21, no such termination of the Plan
may affect Options previously granted, provided that the Plan or an Offering
may be terminated by the Board on a Purchase Date or by the Board's setting a
new Purchase Date with respect to an Offering and a Purchase Period then in
progress if the Board determines that termination of the Plan and/or the
Offering is in the best interests of the Company and the shareholders or if
continuation of the Plan and/or the Offering would cause the Company to incur
adverse
12
<PAGE>
accounting charges as a result of a change after the Effective Date of the Plan
in the generally accepted accounting rules applicable to the Plan.
SECTION 19.
NO RIGHTS AS AN EMPLOYEE: Nothing in the Plan shall be construed to
give any person (including any Eligible Employee or Participant) the right to
remain in the employ of the Company or a Parent or Subsidiary Corporation or to
affect the right of the Company or a Parent or Subsidiary Corporation to
terminate the employment of any person (including any Eligible Employee or
Participant) at any time with or without cause.
SECTION 20.
EFFECT UPON OTHER PLANS: The adoption of the Plan shall not affect any
other compensation or incentive plans in effect for the Company or any Parent
or Subsidiary Corporation. Nothing in the Plan shall be construed to limit the
right of the Company, or any Parent Corporation or Subsidiary Corporation, to
(a) establish any other forms of incentives or compensation for employees of
the Company, a Parent Corporation or Subsidiary Corporation, or (b) grant or
assume options otherwise than under the Plan in connection with any proper
corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition, by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
SECTION 21.
ADJUSTMENTS:
21.1 ADJUSTMENT OF SHARES: In the event that, at any time or from time
to time, a stock dividend, stock split, spin-off, combination or exchange of
shares, recapitalization, merger, consolidation, distribution to shareholders
other than a normal cash dividend, or other change in the Company's corporate
or capital structure results in (a) the outstanding shares, or any securities
exchanged therefor or received in their place, being exchanged for a different
number or kind of securities of the Company or of any other corporation, or (b)
new, different or additional securities of the Company or of any other
corporation being received by the holders of shares of Common Stock, then
(subject to any required action by the Company's shareholders), the Board or
the Committee, in its sole discretion, shall make such equitable adjustments as
it shall deem appropriate in the circumstances in (i) the maximum number and
kind of shares of Common Stock subject to the Plan as set forth in Section 4,
(ii) the number and kind of securities that are subject to any outstanding
Option and the per share price of such securities, and (iii) the maximum number
of shares of Common Stock that may be purchased by a Participant in a Purchase
Period. The determination by the Board or the Committee as to the terms of any
of the foregoing adjustments shall be conclusive and binding. Notwithstanding
the foregoing, a Corporate Transaction, dissolution or liquidation of the
Company shall not be governed by this Section 21.1 but shall be governed by
Sections 21.2 and 21.3, respectively.
13
<PAGE>
21.2 MERGER OR ASSET SALE OF THE COMPANY: In the event of a proposed
Corporate Transaction, each outstanding Option shall be assumed or continued or
an equivalent option substituted by the surviving corporation, the successor
corporation or its parent corporation, as applicable (the "Successor
Corporation"). In the event that the Successor Corporation refuses to assume,
continue or substitute for the Option, the Offering then in progress shall be
shortened by setting a new Purchase Date. The new Purchase Date shall be a
specified date before the date of the Company's proposed sale or merger.
The Board shall notify each Participant in writing, at least 10
business days prior to the new Purchase Date, that the Purchase Date for the
Participant's Option has been changed to the new Purchase Date and that the
Participant's Option shall be exercised automatically on the new Purchase Date,
unless prior to such date the Participant has withdrawn from the Offering or
the Plan as provided in Section 11.
21.3 DISSOLUTION OR LIQUIDATION OF THE COMPANY: In the event of the
proposed dissolution or liquidation of the Company, the Offering then in
progress shall be shortened by setting a new Purchase Date and shall terminate
immediately prior to the consummation of such proposed dissolution or
liquidation, unless provided otherwise by the Board. The new Purchase Date
shall be a specified date before the date of the Company's proposed dissolution
or liquidation. The Board shall notify each Participant in writing, at least 10
business days prior to the new Purchase Date, that the Purchase Date for the
Participant's Option has been changed to the new Purchase Date and that the
Participant's Option shall be exercised automatically on the new Purchase Date,
unless prior to such date the Participant has withdrawn from the Offering or
the Plan as provided in Section 11.
21.4 LIMITATIONS: The grant of Options will in no way affect the
Company's right to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
SECTION 22.
REGISTRATION; CERTIFICATES FOR SHARES: The Company shall be under no
obligation to any Participant to register for offering or resale under the
Securities Act of 1933, as amended, or register or qualify under state
securities laws, any shares of Common Stock. The Company may issue certificates
for shares with such legends and subject to such restrictions on transfer and
stop-transfer instructions as counsel for the Company deems necessary or
desirable for compliance by the Company with federal and state securities laws.
SECTION 23.
EFFECTIVE DATE: The Plan's Effective Date is December 31, 1999.
14
<PAGE>
Exhibit 10.33
SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT ("Agreement"), dated as of the 27th day of
December 1999 (the "Effective Date"), is by and between NORTON COMPANY, a
Massachusetts corporation with a principal address of One New Bond Street,
Worcester, Massachusetts 01615 ("Seller"), and JORE CORPORATION, a Montana
corporation with a place of business at 45000 U.S. Highway 93, S., Ronan, MT
59864 ("Buyer").
Background
Seller is engaged in the manufacture and sale of abrasives products.
In connection with the marketing and sale of its products, Seller developed and
subsequently registered the trademarks SPEED-LOK and SPEEDLOK (the "Mark") for
use with abrasives disks and backup pads. Buyer is engaged in the manufacture
and sale of various tools and tooling equipment and has employed the use of the
mark SPEED-LOK in connection with the sale of its quick-change drilling and
driving products to a private label customer and retailer. Seller regards
Buyer's use of the Mark as an infringement of Seller's trademark rights and has
requested Buyer either cease and desist any further use of the Mark or obtain a
license from Seller to permit Buyer's use of the Mark under certain terms and
conditions.
In order to settle Seller's infringement claim against Buyer, Seller
and Buyer have agreed to execute a Trademark License Agreement (the "License
Agreement") concurrently with the execution of this Agreement pursuant to which
Buyer shall have the right to use the Mark royalty-free in exchange for Buyer's
agreement to purchase the Products listed on EXHIBIT A attached hereto (the
"Products") on the terms and conditions stated herein..
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, Buyer and
Seller hereby agree as follows:
1. PURCHASE REQUIREMENTS. During the term of this Agreement, Buyer
agrees to purchase substantially all of its abrasives product requirements (both
for production and resale purposes) from Seller, or any affiliate of Seller to
the extent Seller is unable to meet Buyer's requirements for product, on the
terms and conditions stated herein. Buyer shall order Products from Seller by
issuing purchase orders hereunder from time to time specifying the quantities of
Products and delivery dates. Orders shall become binding upon the issuance of
order acknowledgments by Seller. The parties may use their respective standard
purchase order and acknowledgment forms to implement and document purchases
hereunder, but none of the terms or conditions printed in any such form, other
than those specifying the quantities for delivery and any agreed to delivery
dates, shall be applicable to any of the transactions contemplated by this
Agreement.
<PAGE>
2. COMPETITIVE PRICING. In the event Buyer determines that a
competitive product or service exceeds the best value being offered by Seller,
Buyer will provide Seller with appropriate documentation to substantiate the
competitor's offer and afford Seller the right to: (a) demonstrate through
appropriate testing, documentation and pricing quotations that its products and
services are equal to or better in value than the equivalent product being
offered to Buyer by the competitor; and/or (b) develop products and/or services
that meet or exceed the value of the competitor's product or service. Any
products or services developed by Seller to meet or exceed an equivalent product
being offered by a competitor must be made available to Buyer within a
commercially reasonable time period so as to not detrimentally delay Buyer's
intended use of such products or services. At the request of Buyer and with its
full support and cooperation, Seller will provide application, engineering, R&D
and marketing assistance to assist Buyer in developing and improving its
abrasive applications. Seller will also provide product management support for
product line development of Buyer's resale products.
3. PRICING. Pricing for the Products will be determined by Seller and
Buyer from time to time. Any such pricing will be exclusive of any taxes
(including sales taxes, but excluding income taxes and other taxes levied solely
on Seller), duties or other assessments imposed or levied upon the Products
supplied hereunder by any federal, state, municipal or other governmental
authority in connection with the sales thereof to Buyer.
4. WARRANTY; LIMITATION OF LIABILITY
(a) Seller warrants the Products will be free from defects in material
and workmanship for a period of one year from the date of purchase by Buyer.
Seller's sole obligation under this warranty, and Buyer's exclusive remedy
under this warranty, is limited to the repair or replacement, at Seller's
option, of any Product determined by Seller to be defective under normal use
and service conditions. THIS WARRANTY IS EXPRESSLY IN LIEU OF ANY OTHER
GUARANTIES AND/OR WARRANTIES, EXPRESSED OR IMPLIED, ORAL OR WRITTEN, INCLUDING
THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, ALL OF
WHICH ARE EXPRESSLY DISCLAIMED.
(b) Seller shall not, in any event, be liable in contract, tort,
warranty, strict liability, or otherwise, for any special, indirect, incidental,
or consequential damages, such as, but not limited to, loss of anticipated
profits or revenue. Further, any liability of Seller arising in connection with
any Product shall not exceed the sales price of such Product received by Seller.
2
<PAGE>
5. TERM. This Agreement shall commence as of the Effective Date and,
unless terminated earlier in accordance with the provisions of Section 6 hereof,
shall remain in effect for a five (5) year period (the "Term").
6. TERMINATION. Prior to the expiration of the Term, this Agreement may
be terminated as follows:
(a) by either Seller or Buyer, immediately, if the other party
is declared insolvent or bankrupt or files a petition in bankruptcy or makes any
assignment or trust mortgage for the benefit of creditors, or if a receiver,
guardian, conservator, trustee in bankruptcy, or similar official shall be
appointed to take charge of all or any part of the other party's property by a
court of competent jurisdiction;
(b) by either Seller or Buyer, on 30 days written notice if
the other party is in default of any other material term or condition of this
Agreement and, upon receipt of such notice from the non-defaulting party, does
not cure such default within such 30-day period;
(c) by either Seller or Buyer, on ninety (90) days prior
written notice, without cause.
7. EFFECT OF TERMINATION. Upon termination of this Agreement for any
reason (including without limitation, its expiration according to the terms
hereof), neither party shall be liable to the other for compensation,
reimbursement or damages on account of the loss of prospective profits on
anticipated sales or on account of expenditures, investments, leases or
commitments made by such party in connection with this Agreement or otherwise in
connection with its business. The expiration or termination of this Agreement
shall not affect the parties' rights and obligations with respect to Product
delivered, or other actions taken, hereunder prior to termination, nor shall it,
in the case of a termination under Sections 6(b), be in lieu of or constitute a
waiver of any other rights or remedies, either at law or in equity, of the
non-defaulting party.
8. CONFIDENTIALITY. In the course of the performance of this Agreement,
a party (the "receiving party") may be given, or otherwise have access to,
certain trade secrets and other proprietary or confidential information
("Confidential Information") belonging to or in the possession of the other
party (the "disclosing party"). The receiving party shall not disclose any
Confidential Information of the disclosing party to any third party (other than
the receiving party's employees, affiliates, agents or representatives who have
a "need to know") without the disclosing party's prior written consent. The
business terms of this Agreement shall be deemed to be "Confidential
Information" belonging to both parties. "Confidential Information" shall not
include the following information:
3
<PAGE>
(i) information that is or becomes generally available to the public
other than as a result of a breach of this Agreement by the receiving party, or
its affiliates or representatives;
(ii) is known to the receiving party or any of its affiliates or
representatives at the time of disclosure and is not subject to a non-disclosure
agreement with the disclosing party of which the receiving party is aware;
(iii) was received by the receiving party or any of its affiliates or
representatives after the time of disclosure hereunder on a non-confidential
basis from a third party who the receiving party reasonably believed had a legal
right to make such disclosure;
(iv) is subsequently developed by the receiving party or any of its
affiliates without the use of such Confidential Information; or
(v) is required by law to be disclosed by the receiving party (in the
opinion of the receiving party's counsel).
The receiving party agrees to be liable for any breach of this confidentiality
obligation by its employees, affiliates, agents or representatives and agrees
further that the disclosing party shall be entitled to seek equitable relief,
including injunctive relief and specific performance, in addition to all other
remedies available to it, in the event of any breach of this provision. The
rights and obligations of the parties under this Section shall survive any
expiration or termination of this Agreement for a period of three years.
9. MISCELLANEOUS.
(a) NO AGENCY OR PARTNERSHIP. Nothing in this Agreement shall be deemed
to establish a partnership or joint venture between the parties. In addition,
nothing in, and neither party shall have the power to bind, or incur any
obligations, contractual or otherwise, or make any representations or
warranties, for or in the name of, the other party.
(b) NOTICES. All notices or communications required or permitted under
this Agreement shall be in writing and shall be hand delivered or sent by
registered or certified mail, postage prepaid, or by fax or recognized overnight
carrier, to the intended recipient at the address and attention designated on
the signature page hereof or to such other address or attention as the recipient
may have designated in a writing given pursuant to this Section. Any such notice
or communication shall be deemed delivered as follows: if hand delivered, on the
day so delivered; if mailed, three business days after the date so mailed; if by
fax, upon telephone confirmation of receipt; and if sent by recognized overnight
carrier, the next business day.
4
<PAGE>
(c) BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of, and be binding upon and enforceable by, the parties hereto and their
respective successors and permitted assigns. This Agreement shall not be
assignable by either party without the prior written consent of the other party.
Except as expressly permitted herein, any purported assignment made without such
consent shall be null and void.
(d) ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the entire
agreement between the parties and supersedes all prior agreements,
understandings and representations, whether written or oral, regarding the
subject matter hereof. This Agreement may not be amended, modified or rescinded
in any respect except by the prior written agreement of both parties. The terms
of this Agreement shall supersede the terms of any purchase order,
acknowledgment, invoice or other document used by Buyer or Seller in the
purchase or sale of the Products hereunder.
(e) GOVERNING LAW. THIS AGREEMENT, AND THE RIGHTS AND LIABILITIES OF
THE PARTIES HEREUNDER, SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT GIVING
EFFECT TO ITS PRINCIPLES OF CONFLICT OF LAWS.
IN WITNESS WHEREOF, Buyer and Seller have caused this Agreement to be
duly executed as of the date first above written.
NORTON COMPANY JORE CORPORATION
By:_______________________________ By:________________________________
Title:____________________________ Title:_____________________________
5
<PAGE>
EXHIBIT A
PRODUCTS
BONDED ABRASIVE PRODUCTS
COATED ABRASIVE PRODUCTS
NON-WOVEN ABRASIVE PRODUCTS
SUPER ABRASIVE PRODUCTS
WINTER SUPER ABRASIVE PRODUCTS
6
<PAGE>
Exhibit 10.34
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT, effective as of the 27th day of December,
1999 (the "Effective Date"), is by and between NORTON COMPANY, a corporation
organized and existing under the laws of the Commonwealth of Massachusetts, and
having its principle place of business in Worcester, MA 01606 (hereinafter
referred to as "Licensor") and JORE CORPORATION, a corporation organized and
existing under the laws of Montana, located at 45000 Highway 93 S., Ronan, MT
59864 (hereinafter referred to as "Licensee").
WHEREAS, Licensor is the owner of the Trademarks SPEED-LOK, U.S. reg.
no. 920010, SPEEDLOK, U.S. reg. no. 769352, and SPEED-LOK, Canadian
reg. no. 184913; and Licensee owns a pending application for the
trademark SPEED-LOK, serial no. 75-274214 in the USA (the
"Trademarks");
WHEREAS, Licensee is desirous of obtaining an exclusive license to use
the Trademarks in the United States of America and Canada (the
"Territory") in connection with the sale of power drill bits, bit
drivers and related accessory products (the "Products").
WHEREAS, Licensor and Licensee have entered into a Supply Agreement
(the "Supply Agreement") dated as of December 20, 1999.
NOW THEREFORE, the parties hereto do hereby agree as follows:
1. Concurrently with the execution of this Agreement, Licensee
shall execute and deliver to Licensor an assignment in the
form attached hereto as EXHIBIT A to assign all its right,
title and interest in and to the application for the trademark
SPEED-LOK to Licensor.
2. Licensor hereby grants to Licensee a non-assignable,
non-transferable, and exclusive right to use the Trademarks in
connection with the manufacture, promotion, advertisement and
sale of the Products in the Territory. Licensee shall not use
the Trademarks on or in connection with any goods other than
the Products.
3. Licensee agrees to pay Licensor an annual license fee of 3% of
net sales of Products. The fee shall be paid on an annual
basis within forty-five (45) days after the end of each
calendar year. No royalty payments shall be due during the
term of the Supply Agreement.
4. Licensor specifically reserves the right to inspect Products
sold by Licensee under the Trademarks to ensure their quality,
and, toward this end, Licensee agrees to send samples of
Products to Licensor for
<PAGE>
inspection, analysis and testing at such times and in such
reasonable quantities as Licensor may request.
5. Licensor reserves the right to use and to license others to
use said Trademarks in any country, including within the
Territory, except for power drill bits, bit drivers and their
accessories, as to which this license is exclusive.
6. The term of this Agreement shall run concurrently with the
Supply Agreement. In the event the Supply Agreement is
terminated or expires, the term of this Agreement shall be
extended automatically for a period of one (1) year from the
date of any such termination or expiration. Thereafter, this
Agreement shall be renewed automatically for successive
one-year periods, unless (a) Licensee gives notice to Licensor
of its intention not to renew this Agreement at least sixty
(60) days prior to the expiration of the then current term, or
(b) until this Agreement is terminated as set forth herein.
7. Licensor has the right to terminate this Agreement upon thirty
(30) days written notice to Licensee in the event: (i)
Licensee is in breach of any provision hereof and Licensee has
failed to cure such breach within twenty (20) days after
receiving written notice of such breach from Licensor; or (ii)
the annual license fees for any year following the termination
of the Supply Agreement is less than Five Hundred Thousand
U.S. Dollars ($500,000).
8. Upon termination, the Licensee agrees to immediately
discontinue all use of the Trademarks and any term confusingly
similar thereto; however Licensee shall have a period of six
(6) months from the date of such termination to use up its
supplies of Products, literature, packaging and other
materials to which the Trademarks have been applied on the
date of termination. Any such terminal use of the Trademarks
shall otherwise be in accordance with the provisions of this
Agreement.
10. This Agreement shall not be assignable by Licensee except with
the consent in writing of Licensor, except to a successor to
the relevant business of Licensee.
11. Licensee agrees that the ownership of the Trademarks, and the
goodwill relating thereto, shall always remain vested in
Licensor, both during the period of this Agreement and
thereafter, and Licensee further agrees neither to challenge,
contest or call in question the validity or ownership of the
Trademarks or their registrations, or the right of Licensor to
use said Trademarks in the Territory, or elsewhere, both
during the period of this Agreement and thereafter.
<PAGE>
12. Licensor represents that Licensee's use of the Trademarks for
the Products does not infringe other rights in the Territory
as of the date of the agreement.
13. Licensee shall give Licensor notice of any known or presumed
infringements of the Trademarks, and Licensee shall render
Licensor full cooperation for the protection of the
Trademarks. Licensor will make reasonable efforts to enforce
the Trademarks against an infringer and any monetary sums
recovered by Licensor by way of settlement or judgment shall,
after deducting all costs and expenses (including reasonable
attorneys' fees) incurred by Licensor, be paid over to
Licensee to the extent, and solely to the extent, any such
recovery was based on or derived from any economic loss
sustained by Licensee as a result of any such infringement.
14. It is agreed that this Agreement shall be interpreted
according to the laws of the Commonwealth of Massachusetts.
15. No right, title or interest in the Trademarks, except the
nonexclusive right to use the Trademarks in the Territory on
the goods covered by said registrations, is transferred by
this Agreement to the Licensee.
IN WITNESS WHEREOF, this Agreement has been entered into as of the day
and year first above written.
NORTON COMPANY JORE CORPORATION
Licensor Licensee
By:_________________________ By:___________________________
Title:_______________________ Title:_________________________
<PAGE>
EXHIBIT A
ASSIGNMENT
WHEREAS, Jore Corporation, 45000 Highway 93 S., Ronan, MT 59864, a
Montana corporation, used and is using the trademark SPEED-LOK and is the owner
of the U.S. trademark application serial no. 75-274214 therefor, and
WHEREAS, Norton Company, a corporation of Massachusetts with offices
at 1 New Bond Street, Worcester, MA 01606, is desirous of acquiring the
trademark and application therefor, together with the goodwill associated
therewith, along with the right to recover damages and profits for past
infringements thereof;
NOW THEREFORE, for good and valuable consideration receipt of which is
hereby acknowledged, Jore Corporation hereby assigns to Norton Company all
right, title and interest in the trademark and application therefor, together
with the goodwill symbolized by the mark, along with the right to recover for
damages and profits for past infringements thereof.
Jore Corporation
By: ________________________
Typed Name:
Title:
Date:
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement
Nos. 333-88873, 333-94029 and 333-94043 of Jore Corporation and subsidiaries on
Form S-8 of our report dated March 29, 2000, appearing in this Annual Report on
Form 10-K of Jore Corporation and subsidiaries for the year ended December 31,
1999.
/s/ DELOITTE & TOUCHE LLP
Seattle, Washington
April 5, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1998 DEC-31-1999
<PERIOD-START> OCT-01-1999 OCT-01-1998 JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1999 OCT-31-1998 DEC-31-1998 DEC-31-1999
<CASH> 0 0 34,736 94,283
<SECURITIES> 0 0 0 7,691,791
<RECEIVABLES> 0 0 14,672,275 19,031,479
<ALLOWANCES> 0 0 0 0
<INVENTORY> 0 0 8,071,500 27,795,284
<CURRENT-ASSETS> 0 0 25,111,371 58,683,364
<PP&E> 0 0 22,164,951 63,058,152
<DEPRECIATION> 0 0 (2,349,407) (4,497,227)
<TOTAL-ASSETS> 0 0 45,962,582 117,907,557
<CURRENT-LIABILITIES> 0 0 25,083,846 42,604,712
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0 0 0 0
0 0 0 0
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<OTHER-SE> 0 0 4,594,459 3,996,548
<TOTAL-LIABILITY-AND-EQUITY> 0 0 45,962,582 117,907,557
<SALES> 21,436,330 19,458,427 44,888,324 53,871,762
<TOTAL-REVENUES> 21,436,330 19,458,427 44,888,324 53,871,762
<CGS> 13,287,367 13,935,578 31,167,724 35,313,825
<TOTAL-COSTS> 16,581,510 16,634,275 37,154,812 44,616,924
<OTHER-EXPENSES> 84,473 17,619 159,059 (95,709)
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 738,252 471,197 1,337,938 2,873,674
<INCOME-PRETAX> 4,201,041 2,335,336 6,240,034 6,476,873
<INCOME-TAX> 504,924 0 0 633,238
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<NET-INCOME> 3,696,117 2,335,336 6,240,034 4,929,683
<EPS-BASIC> 0.27 0.25 0.66 0.46
<EPS-DILUTED> 0.26 0.25 0.66 0.45
</TABLE>
