SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
POST-EFFECTIVE
AMENDMENT NO. 1 TO
FORM 10SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS UNDER
Section 12(b) or 12(g) of the
Securities Exchange Act of 1934
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Bullhide Corporation
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(Exact name of Registrant as specified in its charter)
Washington 91-1605108
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
10 Fairway Drive, Suite 211
Deerfield Beach, Florida 33441
- ------------------------ -----
(Address of Principal Executive Officer) Zip Code
(954) 571-2400
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Registrant's Telephone Number and Area Code
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SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
TO BE REGISTERED ON WHICH EACH CLASS IS TO
---------------- BE REGISTERED
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None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, .002 par value per share
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(Title of Class)
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TABLE OF CONTENTS
ITEM 1. DESCRIPTION OF BUSINESS........................................1
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
PLAN OF OPERATIONS AND FINANCIAL CONDITION.....................6
ITEM 3. DESCRIPTION OF PROPERTIES.....................................10
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT.........................................10
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS.................................11
ITEM 6. EXECUTIVE COMPENSATION........................................13
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS..................................................14
ITEM 8. DESCRIPTION OF SECURITIES TO BE REGISTERED....................15
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE
REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS..................................16
ITEM 2. LEGAL PROCEEDINGS.............................................17
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS...................................................17
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.......................18
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................19
FINANCIAL STATEMENTS AND EXHIBITS.............................19
PART III
ITEM 1. INDEX TO EXHIBITS.............................................20
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ITEM 1. DESCRIPTION OF BUSINESS
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Registration Statement on Form
10-SB constitute "forward-looking statements" within the meaning of Section 27A
of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E
of the Exchange Act. Such statements include management's expectations and
objectives regarding the future financial position, operating results and
business strategy of the Bullhide Corporation ("Bullhide"). These statements are
subject to risks, uncertainties and other factors that may cause the actual
results, performance or achievements of Bullhide to be materially different from
any future results, performance or achievements expressed or implied by such
for-ward-looking statements. Such risks and uncertainties include
OVERVIEW
Bullhide was established in 1993 to take advantage of the multiple uses
and markets for a patent pending high performance polyurethane material with
superior protective coating properties. Bullhide(R) products protect metal,
wood, fiberglass and concrete from wear and deterioration. The target markets
for the Bullhide products are the pickup truck protective bedliner market and
the industrial flooring market.
Bullhide has established a licensed dealership program. Under its
dealership program, dealers buy Bullhide's equipment and marketing materials as
a system and do not pay a franchise fee. As of July 15, 1999, Bullhide had 56
dealerships and 3 franchises in 25 states and 2 countries. Bullhide also has a
prototype store in Spokane, Washington where it conducts many proprietary
training classes for its dealers.
HISTORY
In 1990, Ronald Grossman started the PolyChem Corporation, a Washington
corporation, ("PolyChem") to research and develop new polyurethane technology.
Mr. Grossman discovered a method of making high performance polyurethane
elastomers out of a unique combination of materials so that the material was
affordable to many previously untapped markets. Elastomers are synthetic
materials made with elasticity so that they can expand and contract without
losing their essential properties. As Mr. Grossman looked for applications for
this new technology, the automotive/truck accessory industry expressed a need
for the "next generation" pickup truck bedliner to improve on the shortcomings
of drop-in liners.
In January 1992, a prototype shop was established in Spokane,
Washington to enable the
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development and refinement of the product, application equipment and marketing
methods. On April 2, 1993, Bullhide was incorporated in the state of Washington
as "The Bullhide Corporation and changed its name to "The Bullhide Liner
Corporation" on June 8, 1994. Subsequently, on July 6 1999, Bullhide changed its
name to "Bullhide Corporation." After the initial success of marketing the spray
molded bedliner concept locally, it was decided to expand the concept and the
business nationally.
Bullhide initially granted franchises for spray on liner application
shops, but discontinued that practice in July 1996 and now sells dealerships
under licensing agreements. In addition to individual dealerships, Bullhide has
recently switched its marketing emphasis to sales of master distributorships.
Under a master distributorship agreement, the master distributor obtains the
exclusive right to open a specified number of stores within a specified
geographic area. As a result, Bullhide is able to obtain a greater return on the
costs associated with expanding its dealer network.
During its initial four years of operations from April 1993 until June
1997, Bullhide purchased all of its products under an exclusive arrangement with
PolyChem. However, on June 30, 1997, Bullhide obtained an exclusive license from
PolyChem for the use of the technology and production of the materials used in
the pickup bed liner process. Under the terms of the On license agreement,
Bullhide will pay PolyChem a royalty based on five percent of total gross
revenues of Bullhide up to a maximum of $200,000. See "Certain Relationships and
Related Transactions."
On June 22, 1999, Bullhide entered into negotiations with Scorpion
Truck Bedlinings, Inc. However, after completing its due diligence investigation
of Scorpion, Bullhide determined that the profitability of an acquisition with
Scorpion would not be as expected. Therefore, Bullhide has not proceeded any
further.
In October 1998, Bullhide created the QUARRA(R) Coating Division to
market industrial applications of its polyurethane based coatings. Three new
products designed specifically to meet industrial user demand will be marketed
under the registered trademark QUARRA(R).
OPERATIONS AND PRODUCTS
Bullhide has established a licensed dealership program. Bullhide offers
its licensees and customers a turn-key operation that is complete with superior
products and application processes, full training and support, and on-going
research and development. Under its dealership program, dealers buy Bullhide's
equipment and marketing materials as a system and do not pay a franchise fee. As
of July 15, 1999, Bullhide had 56 dealerships and 3 franchises in 25 states and
2 countries. Bullhide also has a prototype store in Spokane, Washington where it
conducts many proprietary training classes for its dealers.
Bullhide markets its dealerships predominately through trade shows and
magazine
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advertising. When a dealer is signed, it must attend a week of training at the
corporate training center, or designated training facility, and purchase certain
equipment and materials from Bullhide. Bullhide's marketing material has been
designed to be a turn-key program for each new licensed dealership. It includes
point-of-purchase displays, finished product samples, color brochures,
nationally-syndicated advertising jingles and other commercially produced
advertising materials for print, radio and TV media. Although offered,
Bullhide's dealers are not required to purchase these marketing materials.
Bullhide developed and conducts its own proprietary training classes
for its dealers, which are designed to enable each shop crew to learn the many
aspects of running its business. The program provides hands-on experience in the
areas of: masking and preparation, spray molding, machine maintenance,
marketing, advertising, shop location, shop layout and design and office support
systems. Advanced training is available for licensees interested in going mobile
or expanding to other applications of the Bullhide(R) family of products.
Advanced training involves learning the basic elements of estimating and
contracting, as well as the legal aspects of getting bonded and complying with
the regulations involved in a particular state, county or city.
The key people within Bullhide have years of experience handling
situations that their licensees and dealers may encounter. Answers to most
operating questions are routinely provided over the phone. Specific product
recommendations for an unusual job can be dealt with quickly by experienced
personnel. More in-depth questions about the equipment or the material can be
referred to in-house equipment engineering and product development departments.
Technical bulletins are sent regularly to all dealers concerning new
product applications, equipment developments, production techniques and unique
marketing ideas.
PRODUCTS AND MANUFACTURING
Products
The Bullhide(R) system consists of a patent pending proprietary
polyurethane material and certain technologies for the manufacturing and
application of the product. Bullhide's primary products are Bullhide 2000 and
QUARRA 2000.
Bullhide 2000 is the primary product used in the Bullhide(R) system. It
is a two- component fast reacting polyurethane elastomer that is 100% solid,
surpassing all other known 100% solid linings in the "combined toughness index
(PSI tensile strength and elongation). The product is (i) resistant to water,
fuels, oils and most chemicals, (ii) available in a variety of colors, (iii)
available with either a smooth or non-slip surface, (iii) permanently flexible
to -40F, (iv) adheres to virtually anything and (v) retains toughness up to
+250F. Other products include Bullhide 1500 and certain primers used to prepare
the surface for the Bullhide(R) product.
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QUARRA 2000 is the primary product in the QUARRA(R) product line, which
markets industrial formulations of the well-established bed liner products.
QUARRA 2000 is a rubbery tough coating (up to 1/4") with extreme abrasion and
impact resistance, stretchability and non- slip properties. Applications include
parking decks, warehouse floors, shipping docks, rail ore cars, secondary
chemical and waste water containment and waterproofing. Other products in the
QUARRA(R) line include QUARRA 1500 and QUARRA 2400.
The heart and the brains of the Bullhide(R) system is the Spray Master
3030. This is a plural component, high volume low pressure spray molding
machine. The electronically controlled metering system assures a perfectly
"on-ratio" application every time. In conjunction with the new Quarra(R)
products, Bullhide developed a high output application machine to shorten the
industrial job times. The Spraymaster 3050 is a high-output application machine
with four times the output of the 3030 machine and the capacity to coat 10,000
square feet per day of QUARRA coatings.
Manufacturing and Raw Materials
The manufacturing of the products is carried out by utilizing strict
secrecy and non- disclosure, non-compete agreements with a select number of
manufacturers. The manufacturers are involved in producing and marketing other
polyurethane products, such as polyurethane foam, not in competition with the
end use markets of Bullhide's customers. Multiple manufacturers give Bullhide
production capability in various locations and also serve to keep transportation
costs as low as possible
The primary raw materials used in the manufacture of Bullhide's
products are Polyol, which is a resin, and Diisocyanate, which is a hardening
agent. When combined, these materials form polyurethanes. The raw materials
required by Bullhide are obtained from regular commercial sources of supply and,
in most cases, multiple sources. The capacity, supply and demand for raw
materials are subject to cyclical and other market factors. Under normal
conditions, there is no difficulty in obtaining requirements at competitive
price. In addition, no shortages have been experienced by Bullhide in obtaining
its required raw materials.
PROPRIETARY RIGHTS
Bullhide and PolyChem have registered their Bullhide(R) and QUARRA(R)
trademarks, respectively, with the United States Patent and Trademark Office. In
addition, Bullhide has applied for a patent on its application process.
MARKET AND CUSTOMERS
Bullhide seeks to penetrate its markets primarily through advertising
and participation in trade shows. Through these efforts, Bullhide enters into
distribution agreements with dealers and with master distributors, who agree to
develop multiple outlets for Bullhide products within a
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specified geographic area. The specific industries and markets served by
Bullhide are primarily determined by the industries and markets in which its
dealers and master distributors have expertise, including the following.
Pickup Truck Bedliner Market
One of Bullhide's primary target markets is the pickup truck protective
bedliner market. Accordingly to Automotive Week, more than 3 million pickup
trucks were sold in the U.S. in 1997. The market has been growing at an average
of 10% a year since 1991 and estimates indicate that there are an additional 11
million trucks on the U.S. highways today that are less than five years old.
Since initializing its development in 1992, Bullhide has installed more than
4,000 liners in pickup trucks.
The primary wholesale customers for Bullhide's pick-up bed liners are
the are pickup truck/auto dealers. The auto-truck dealers sell the liner as part
of the accessory package at the point of sale of the truck, and can thereby
include it as part of the financing package. It is then installed by the local
Bullhide shop. Bullhide has developed a sales video which is utilized as part of
a point of purchase display. The display contains a photo album, product samples
and brochures as well as a video. Other wholesale customers include leasing
companies that supply the leasing needs of large fleet customers and local
accessory installers. Potential fleet customers include government, businesses
with delivery services such as soft drink distributors, construction companies,
and lawn care services.
Flooring Market
In January 1999, Bullhide announced that it had established a firm
marketing plan for its QUARRA 2000 products which are primarily sold in the
commercial and industrial flooring markets. The potential market is large, being
in the tens of millions of square feet. Applications include warehouse floors,
shipping docks, secondary chemical and waste water containment as well as
waterproofing and more.
Examples of some of the industrial applications are as follows. In
January 1999, one of Bullhide's distributors in Florida completed the spraying
of a beverage cooler room at Pro Player Stadium in preparation for Super Bowl
XXXIII. Bullhide's QUARRA 2000 was sprayed onto the steel floor and walls of the
room creating a containment barrier which eliminated the problem of liquid
leaking through the floor and onto the seats in the Club Level of the stadium.
The flooring also provided some "give" so that the 160 pound kegs no longer
buckled the floor when dropped. Another completed job in the industrial flooring
arena was the $17,000 slip-resistance kitchen flooring job at a restaurant. This
provided a safer working environment as an anti-fatigue work area for employees.
The City of Spokane, Washington approved the use of Bullhide's Quarra
2000 on pedestrian sidewalks. The approval was based on the anti-skid properties
and positive test results
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over a 3,800 square foot test area. This was followed by a recent government
coefficient of Friction Test which was performed according to ASTM (American
Standard Testing Method) D 1894. The results show that Bullhide's QUARRA 2000
meets and exceeds these specifications in both the static and kinetic state, as
well as wet and dry conditions. Through the American with Disabilities Act, the
government stated that flooring materials with a coefficient of Friction
measurement above .60 meet the requirements of "non-slip" flooring. Bullhide's
Quarra 2000 grades out in the mid .90's and above.
Original Equipment Manufacturers
OEM or Original Equipment Manufacturers, represent a unique market
separate from the bedliner market. At least three potential markets for OEM
applications are manufacturers of prefabricated staircase covers, manufacturers
of trailers for animal transport and metal boat manufacturers.
Manufacturers of Prefabricated Staircase Covers. Bullhide is currently
being used by Mountain States Home Improvement, Inc., a manufacturer who
produces Tread-Ex(TM) , a prefabricated staircase cover, designed as a low cost,
permanent solution to concrete and wood stairs that are worn and in disrepair.
Tread Ex(TM) , which consists of a steel base formed to match existing stairs
and landings covered with Bullhide 2000, is applied to existing stairs in
multi-family housing condominiums and apartment complexes.
Horse Trailer and Other Trailer Manufacturers. Bullhide's market
research shows that the best way to achieve penetration into this market is by
selling the Bullhide(R) system directly to those trailer manufacturers or their
largest distributors. There are over 120 trailer manufacturers, excluding
semi-truck trailers, in the United States. As in many industries, the top 20
manufacturers control about 80% of the market.
Cargo trailers and horse trailers can be protected with Bullhide both
inside and out. Bullhide's rock guard protection shields the outside of the
horse trailers while giving anti-slip coating protection to the wheel covers and
fenders. Bullhide has also been used on the trailers' floors to give horses and
livestock padding which prevents injuries during transport. Bullhide has
demonstrated this application in more than 50 trailers. On the inside, the floor
can be totally sealed, so that it is easier to keep clean.
Boat Manufacturers. Bullhide's market research shows that there are
about 55 metal boat manufacturers in the United States. Bullhide(R) has
tremendous adhesion to aluminum. It functions as a sound deadener as well as an
easily cleanable, anti-slip covering. Since it is decorative as well as
functional, Bullhide can be installed on the deck, floor and interior of boats.
Bullhide has successfully installed in excess of 30 linings on aluminum boats.
COMPETITION
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Competition in the spray on truck bedliner market is highly
concentrated among a small number of suppliers. Management believes that there
are four primary competitors - Rhino Linings, Linex, Perma-Tech and Arma
Coating. The rest of the market is fragmented among several start-up companies,
who in the opinion of management have either an inferior product, application
equipment and/or technique. All spray application competitors combined have
captured no more than 10% of the new truck market and 5% of the used truck
market. Management does not believe that there are direct competitors for
industrial uses of its product. Although, there are apoxy paint manufacturers
and other coating manufacturers, these do not compete directly with the use of
Bullhide as an industrial product.
EMPLOYEES
As of November 24,1999, Bullhide had approximately five (5) full-time
personnel and one (1) part-time employee. Of the full-time personnel, there are
two in management, one in research and development, one in sales and one in
purchasing/shipping. The part-time employee is in technical assistance and
training.
ENVIRONMENTAL REGULATION
Bullhide's operations are subject to federal, state and local
environmental laws and regulations that impose limitations on the discharge of
pollutants into the environment and establish standards for the handling,
generation, emission, release, discharge, treatment, storage and disposal of
certain materials, substances and wastes. To Bullhide's knowledge, Bullhide's
operations are in substantial compliance with the terms of all applicable
environmental laws and regulations as currently interpreted. In addition to
Bullhide's knowledge, there are no existing or potential environmental claims
against Bullhide, nor has Bullhide received any notification or knowledge of any
allegation of any actual, or potential responsibility for, or for any inquiry or
investigation regarding, any disposal, release, or threatened release at any
location of any hazardous substances generated or transported by Bullhide.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following analysis of Bullhide's results of operation and financial
condition should be read in conjunction with Bullhide's financial statements and
notes thereto included elsewhere in this Form 10-SB.
Results of Operations
Six Months ended September 30, 1999 ("first six months of 1999") compared with
Six months ended September 30, 1998 ("first six months of 1998")
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Total revenues were $794,692 in the first six months of 1999 compared
with $1,037,021 in the first six months of 1998, a decrease of 23.4%. This
decrease in revenue is attributable to two factors: less equipment sales to new
dealers, $155,061 in 1999 compared to $435,956 in 1998, and sale of the Company
owned shop in Spokane, Washington on May 1, 1999, when the Company moved its
corporate office from Spokane to South Florida. Sales from application of
product in the Company owned shop were $136,333 for the six months ended
September 30, 1998 and $11,891 for the six months ended September 30, 1999,
which consisted of one month of activity. However, revenue from chemical sales
to dealers was $459,251 for the six months ended September 30, 1999 compared to
$385,451 for the same period in 1998. Revenue from sales of master dealerships
was $162,899 for the six months ended September 30, 1999 and $45,000 for the
same period in 1998. Management expects the trend of increased chemical sales
and sales of master dealership to continue as the dealer base gets larger and
the master dealership program continues.
Costs of sales was $474,201 in the first six months of 1999 compared
with $803,417 in the first six months of 1998, 59.7% and 77.5% of sales,
respectively. This decrease in cost of sales is due to the decreased application
of Bullhide's products by the Company owned shop during the first six months of
1999, more efficient operations and more advantageous chemical pricing from a
new supplier. Gross profit as a percentage of sales increased from 22.5% in the
first six months of 1998 to 40.3% in the first six months of 1999.
General and administrative expenses were $474,813 in the first six
months of 1999 compared with $669,108 in the first six months of 1998, a
decrease of 29.0%. All general and administrative line item expenses decreased,
except legal and professional fees and bad debt expense. Legal and professional
fees increased from $26,469 in the first six months of 1998 to $58,026 in the
first six months of 1999 as a result of legal and accounting fees incurred in
connection with the preparation and filing of a Form 10SB with the Securities
and Exchange Commission, and outsourcing of bookkeeping and accounting tasks
which were performed by employees during 1998. Management decided to increase
the allowance for bad debts by $15,000 in the second quarter of 1999, while no
allowance was deemed necessary in the first six months of 1998. All other
expenses decreased as a result of a reorganization of Bullhide's operating
structure, including moving its corporate headquarters from Spokane, Washington
to South Florida in May 1999.
Thus, Bullhide's loss from operations was $154,322 in the first six
months of 1999 compared with a loss of $435,504 in the first six months of 1998.
Other income and expenses in the first six months of 1999 consisted of a $7,312
gain on the sale of certain assets from the Bullhide shop in Spokane and a
$47,681 loss on the abandonment of the Spokane facility.
As a result of the forgoing, Bullhide's net loss in the first six
months of 1999 was $201,555 compared with a net loss of $437,930 in the first
six months of 1998.
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Fiscal Year ended March 31, 1999 ("fiscal 1999") Compared to Fiscal Year Ended
March 31, 1998 ("fiscal 1998")
Total revenues were $1,686,702 in fiscal 1999 compared with $656,471 in
fiscal 1998, an increase of 157%. This increase in revenue is attributable to
increased sales of Bullhide's products to an increased number of dealers, 55 at
March 31, 1999 versus 25 at March 31, 1998. The Company's sale of its QUARRA
product line accounted for only a small portion of the increase in revenues.
Cost of sales was $1,237,756 in fiscal 1999 compared to $427,954, an
increase of 189%. This increase is primarily attributable to the increased sales
and the costs involved in signing up new dealers. Gross profit as a percentage
of sales decreased to 28.9% in fiscal 1999 from 34.8% in fiscal 1998.
General and administrative expenses were $1,400,857 in fiscal 1999
compared to $779,099 in fiscal 1998. Operating expenses consisted mainly of
payroll, advertising, professional fees and royalty payments. The royalty
payments are those due to PolyChem for the purchase of technology rights.
Thus, Bullhide's loss from operations was $951,911 in fiscal 1999
compared with $546,082 in fiscal 1998. Other income in fiscal 1999 consisted of
a $5,000 gain on disposal of certain assets. Other expenses in fiscal 1999
consisted of interest expenses of $30,822.
As a result of the foregoing, Bullhide's net loss in fiscal 1999 was
$977,643 compared with $653,361 in fiscal 1998.
Liquidity and Capital Resources
Bullhide has financed it working capital requirements primarily with
sales of its common stock and by receiving loans from officers, directors and
shareholders. Bullhide had negative working capital of $615,159 at March 31,
1999, compared to negative working capital of $203,232 at March 31, 1998.
Bullhide's working capital deficit increased greatly during fiscal 1999 as a
result of a significant increase in the above-mentioned loans, payroll taxes and
payables and accrued stock compensation due to officers, directors and
shareholders.
During fiscal 1999 and 1998, Bullhide raised approximately $1,000,000
of net proceeds in private offerings. Bullhide has also received financing in
the form of loans from Ronald Grossman, Bullhide's founder, in the amount of
$285,989 in fiscal 1999 and $373,600 in fiscal 1998.
Net cash used in operating activities increased from $610,033 in fiscal
1998 to $762,743 in fiscal 1999. This increase was primarily due to increased
losses and rapid growth. Net cash used in investing activities decreased from
$27,477 in fiscal 1998 to $7,269 in fiscal 1999. In
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fiscal 1998, Bullhide repurchased a franchise for $10,000 and purchased
securities for $5,000. Net cash provided by financing activities increased from
$643,359 in fiscal 1998 to $765,282 in fiscal 1999.
As of September 30, 1999, Bullhide had cash on hand of $4,610 and a
working capital deficit of $224,154. Net cash used in operating activities
during the first six months of 1999 was $342,857. Net cash used by investing
activities during the first six months of 1999 was $9,460, which resulted from
Bullhide's payment of $15,930 of checks in excess of its bank balance offset by
proceeds of $6,470 received from the sale of property and equipment. Net cash
provided from financing activities during the first six months of 1999 was
$354,052, of which $348,831 came from the sale of common stock and $7,253 from
the borrowings on long term debt.
Although Bullhide has relied on the sale of common stock to fund
operations, operating costs have been substantially decreased by moving the
corporate headquarters to South Florida. Current cost savings and additional
planned cost cuts during the third fiscal quarter are projected to bring
Bullhide to break-even, or a slightly profitable position, by the end of the
calendar year. Additional funds received from payment of the promissory note
received by Bullhide from a sale of stock should allow Bullhide to achieve some
growth in sales and accounts receivable. Bullhide is seeking additional capital
from private sources to resume its previous rapid growth plans.
Going Concern Qualification
Bullhide's financial statements have been prepared on a going concern
basis which contemplates the realization of assets and the satisfaction of
liabilities and commitments in the normal course of business. Bullhide reported
net operating losses of $977,643 and $653,361 in fiscal 1999 and fiscal 1998,
respectively. Bullhide has taken several actions to keep itself viable and in
existence as a going concern. On June 30, 1997, the original founders of
Bullhide converted their long term debt into common stock. Additionally, in June
1997, Bullhide hired W. Gordon Freeman, as executive vice president of sales and
marketing. Mr. Freeman's job was to hire and train a team of independent sale
representatives and develop a national marketing plan. On January 27, 1998, Mr.
Freeman was promoted to President and on October 14, 1998 to Chief Executive
Officer.
In July 1997, Bullhide completed a private placement of its common
stock, which resulted in the issuance of 10,000 units at $5.00 per unit.
Bullhide received its symbol to trade on the OTC Bulletin Board on December 17,
1997.
The expanded marketing efforts of Bullhide resulted in the signing of
55 dealers as of the year ended March 31, 1999, an increase of 30 from March 31,
1998. On July 1, 1999, Bullhide entered into a master distributor agreement with
Performance Surfacing, Inc. pursuant to which this distributor has agreed to
open eight Bullhide stores in the Chicago metropolitan area by December 15,
2002. On August 9, 1999, Bullhide entered into another master distributor
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agreement with New England Polycote pursuant to which this distributor has
agreed to open seven Bullhide stores in Suffolk and Middlesex Counties,
Massachusetts by September 15, 2002. In addition, recent marketing efforts in
the industrial flooring and chemical containment markets have resulted in
positive sales. Generally, jobs in the flooring and chemical containment markets
are much larger than the truck bed liner market and may result in a higher sales
volume of Bullhide materials per order and per dealer.
In order to decrease its short term capital needs, during April 1999,
Bullhide began the process of restructuring its operations and administration by
moving its corporate office from Spokane, Washington to South Florida. A fifth
master distributorship, serving the Northwest region, has been established in
Spokane by Mr. Grossman, Bullhide's founder. This restructuring will save the
Company in excess of $250,000 in annualized costs. Additionally, on October 31,
1999 in order to save operating expenses, Mr. Freeman resigned from his position
as Chief Executive Officer of Bullhide. However, Mr. Freeman continues to be
involved in the day to day operations of Bullhide.
On April 1, 1999, Bullhide sold 2,000,000 shares of common stock to
Southern Financial Services, Inc., under Rule 504 of Regulation D in return for
a promissory note in the amount of $1,000,000. As of September 30, 1999,
Bullhide has received $348,832 in payments against that promissory note.
Bullhide is currently seeking additional capital from private sources.
Safe Harbor Statements and Risk Factors
Forward-looking statements in this Form 10-SB including, without
limitation, statements relating to Bullhide's plans, strategies, objectives,
expectations, intentions and adequacy of resources, are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements involve known and unknown risks, uncertainties
and other factors that may cause actual results, performance or achievements to
be materially different from any future results, performance or achievements
expressed or implied by the forward-looking statements. The following factors,
among others, could cause actual results to differ materially from those set
forth in the forward-looking statements: (1) Bullhide's ability to sells its
dealerships and master dealership agreements to dealers and masters
distributors, respectively, (2) Bullhide's dependence on its dealers and master
distributors, which could cause Bullhide's revenues to be adversely affected if
its dealers or master distributors experience business or operational
difficulties, (3) the ability of Bullhide's products and services to compete
effectively with other competitive products and services and (4) Bullhide's
ability to conserve costs and implement its restructuring plan described in
"Management's Discussions & Analysis of Results of Operations and Financial
Condition - Going Concern Qualification." . Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date thereof. Bullhide undertakes no obligation to publicly release the results
of any events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
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Factors That May Affect Future Results and Market Price of Stock
Bullhide operates in a rapidly changing environment that involves
numerous risks, some of which are beyond Bullhide's control. The following
discussion highlights some of these risks.
History of Losses and Going Concern Qualification. Bullhide has
incurred substantial losses since its inception, and may continue to incur
substantial losses in the future. In particular, Bullhide incurred losses of
$154,322 in the first six months of fiscal 1999, $951,911 in fiscal 1999 and
$546,082 in fiscal 1998. The footnotes to our financial statements for the
fiscal 1999 and fiscal 1998, include an explanatory paragraph relating to the
uncertainty of Bullhide's ability to continue as a going concern. There is no
assurance that we will ever be profitable.
Capital Requirements and Dilution. Bullhide will need to raise
additional funds for operations to execute its business strategy. There can be
no assurances that any such additional financing will be available to Bullhide
on commercial reasonable terms, or at all. In light of Bullhide's limited
resources, its anticipated expenses and the competitive environment in which it
operates, any inability to obtaining additional financing, if required would
have a material adverse effect on Bullhide. The sale of additional equity,
convertible preferred securities or convertible debt securities will result in
additional dilution to Bullhide's shareholders. If additional funds are raised
through the issuance of debt securities, these securities could have certain
rights senior to holders of Bullhide's common stock, and could contain covenants
that restrict Bullhide's operations.
No Assurances of Future Profitability. Bullhide's ability to become
profitable largely depends on (1) its ability to sell its master distribution
agreements and dealerships, (2) the ability of its distributors to sell
Bullhide's products to end-users and (3) Bullhide's ability to cut costs.
However, there can be no assurances that Bullhide will be able to identify
persons who want to purchase master distribution and dealership agreements and
that Bullhide's distributors will be able sell Bullhide's products to end-users.
Moreover, there are no assurances that Bullhide will be able to cut its
operating expenses. The problems and expenses frequently encountered in
developing a business and the competitive industry in which Bullhide operates
will impact whether it is successful. Furthermore, Bullhide may encounter
substantial delays and unexpected expenses related to production, marketing,
regulatory matters or other unforeseen difficulties.
Competitive Environment. Competition in the spray on truck bedliner
market is highly concentrated among a small number of suppliers. Bullhide's
management does not believe that there are any direct competitors for industrial
uses of its products. However, there are not many barriers to enter the
spray-on-truck liner market or the industrial product market. If new companies
enter these markets and introduce new competitive products, it can have a
material adverse effect on the Company's business, results of operations or
financial position.
Concentration of Stock Ownership. Bullhide's present officers and
directors
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beneficially own approximately 57.1% of the outstanding common stock and 100% of
the Bullhide's issued and outstanding preferred stock. The common stock and
preferred stock have one vote on each matter. As a result, current management
will be substantially able to exercise significant influence over all matters
requiring shareholder approval, including the election of directors and approval
of significant corporate transactions.
Dependence on Key Management. Bullhide's success largely depends on a
number of key employees. The loss of services or one or more of these employees
could have a material adverse effect on Bullhide's business. Bullhide is
especially dependent upon the efforts and abilities of certain of our senior
management, particular Ronald Grossman, our Chairman and Chief Technology
Officer. The loss of Mr. Grossman or any of our key executives could have a
material adverse effect on Bullhide and its operations and prospects. We have no
key man insurance on Mr. Grossman. We believe that our future success will also
depend, in part, upon our ability to attract, retain and motivate qualified
personnel. There is no assurance, however, that we will be successful in
attracting and retaining such personnel. See "Management."
No Dividends. The Company expects that it will retain all available
earnings generated by our operations for the development and growth of our
business. Accordingly, the Company do not anticipated paying any cash dividends
on its common stock
Dilution. Bullhide's Articles of Incorporation authorizes the issuance
of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. As
of July 15, 1999, Bullhide has 10,612,051 shares of its common stock issued and
outstanding and 60,000 shares of preferred stock issued and outstanding.
Bullhide's Board has the ability, without further shareholder approval, to issue
up to 39,387,949 additional shares of common stock and up to 4,940,000 shares of
preferred stock, with preferences designed by the Board of Directors. Any such
issuance may result in a reduction of the book value or market price, if any of
the outstanding common or preferred shares. Issuance of the additional common
stock will reduce the proportionate ownership and voting power of the then
existing shareholders. In addition, Bullhide's preferred stock is issuable in
series which may vary as to voting power, preferential dividend rate, redemption
terms and policies, liquidation preferences, conversion rights and sinking fund
requirements. Issuance of additional preferred shares may have an adverse effect
on the value of Bullhide's outstanding common stock. See "Description of
Securities."
Anti-Takeover Provisions. The foregoing provision in Bullhide's
Articles of Incorporation (namely the ability, without further shareholder
approval) to issue additional shares of common stock and/or preferred stock with
rights and preferences determined by the Board of Directors could be used as
anti-takeover measures. These provisions could prevent or discourage or delay a
non-negotiated change in control and result in shareholders receiving less for
their common stock than they otherwise might in the event of a takeover attempt.
See "Description of Securities."
Trading Activity (if any) may be reduced if "penny stock" rules apply.
Bullhide's common stock is considered a low priced security under rules
promulgated under Securities Exchange Act of 1934 (the "Exchange Act"). Under
these rules, broker-dealers participating in transactions in low priced
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securities must first deliver a risk disclosure document which describes risks
associated with such stocks, the broker-dealer's duties, the customer's rights
and remedies, certain market and other information, and make a suitability
determination approving the customer for low priced stock transactions based on
financial situation, investment experience and objectives. Broker-dealers must
also disclose these restrictions in writing, provide monthly account statements
to the customer, and obtain specific written consent of the customer. With these
restrictions, the likely effect of designation as a low priced stock is to
decrease the willingness of broker-dealers to make a market for the stock, to
decrease the liquidity of the stock and increase the transaction cost of sales
and purchases of such stocks compared to other securities.
No Assurance of a Liquid Public Market for the Shares. Bullhide's
common stock is quoted on the National Quotation Bureau Pink Sheets (the "Pink
Sheets"). The Pink Sheets are a highly limited market and are subject to
substantial restrictions and limitations. To date, there has not been an active
market in Bullhide's stock. Bullhide cannot predict the extent to which investor
interest in Bullhide will lead to the development of a trading market or how
liquid that trading market might become. If a trading market does not develop or
is not sustained, it may be difficult for investors to sell shares of Bullhide's
common stock at a price that is attractive. As a result, an investment in
Bullhide's common stock may be totally illiquid and investors may not be able to
liquidate their investment readily or at all when he/she desires to sell.
Forward Looking Statements and Projections made in this Prospectus
should not be read as factual statements regarding Future Performance. To the
extent that the information presented in this Form 10-SB discusses financial
projections, information or expectations about our products or markets or
otherwise make statements about future events, such statements are
forward-looking. Although Bullhide believes that the expectations reflected in
these forward-looking statements are based on reasonable assumptions, there are
a number of risks and uncertainties that could cause actual results to differ
materially from forward-looking statements. Bullhide's revenues in any period
can vary due to factors such as sales of master development licenses,
distribution agreements, Bullhide's ability to cut overhead expenses,
competition in the industry and other factors.
Year 2000 Readiness
Bullhide has completed an assessment of whether its systems and those
of third parties which could have a material impact on its business will
function properly with respect to dates in 2000 and thereafter. Bullhide has
determined that none of its systems require modification. Bullhide believes the
only third parties (which includes its customers and vendors) that could have a
material impact on its business are the major financial institutions that
process its collections of accounts receivables and monthly dues by the
electronic payment methods. Bullhide believes these financial institutions are
currently working on modifications to their internal systems to insure these
systems will function properly with respect to dates in 2000 and thereafter and
expects these modifications will be completed in 1999. Bullhide does not
anticipate that noncompliance, if any, with Year 2000 of any non-information
technology systems, such as embedded micro controllers, will materially or
adversely affect its business. Bullhide is currently undertaking an analysis of
worst-case scenarios and developing contingency plans to deal with these
scenarios.
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ITEM 3. DESCRIPTION OF PROPERTY
Bullhide's corporate offices and conference centers are located in
Deerfield Beach, Florida. Bullhide leases the building facilities from an
unrelated third party at a monthly rental rate of approximately $570 per month.
The lease is a month-to-month lease, and Bullhide can terminate by giving thirty
(30) days written notice.
Bullhide moved its corporate office from Spokane, Washington to
Deerfield Beach, Florida in April 1999. Bullhide is still obligated to make
monthly rental payments in the amount of $4,240.50 per month under its corporate
lease in Spokane, Washington, which expires on November 30, 2000. Bullhide is in
the process of trying to sublease this space.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information with respect to the number
of shares of Common Stock beneficially owned by (i) each director of Bullhide,
(ii) the executive officers named in the Summary Compensation Table, (iii) all
directors and officers of Bullhide as a group and (iv) each shareholder known by
Bullhide to be a beneficial owner of more than 5% of any class of Bullhide's
voting securities as of November 24, 1999. Except as otherwise indicated, each
of the shareholders listed below has voting and investment power over the shares
beneficially owned and the address of each beneficial owner is c/o Bullhide, 10
Fairway Drive, Suite 211, Deerfield Beach, Florida 33441. As of November 24,
1999, Bullhide had 10,612,051 shares of its common stock issued and outstanding.
An asterisk indicates beneficial ownership of less than 1% of the outstanding
Bullhide common stock. As of November 24 1999, Bullhide had 60,000 shares of its
Series A Preferred Stock outstanding, all of which is held by Ronald Grossman.
<TABLE>
<CAPTION>
Name of Individuals or Number Amount and Nature of
of Persons in Group Beneficial Ownership Percentage of Class
- ------------------- -------------------- -------------------
<S> <C> <C>
Ronald Grossman 3,898,294(1) 36.7
W. Gordon Freeman 653,190 5.9
Jeffrey Dale Welsh 638,574(2) 9.3
H. Logan Pierson 555,000 7.7
Danny E. Robertson 300,000 2.8
Cecil C. and Judith F. Ram 625,800 5.9
All Officers and Directors
As a Group (6 persons) 6,056,758 57.1
</TABLE>
(1) Includes 3,684,580 shares held jointly by Ronald Grossman and Cheryle Hart
Grossman, his wife, and 163,714 shares held by PolyChem, a corporation
controlled by Mr. Grossman.
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(2) Includes 205,000 shares held by The Southern Companies and 433,574 shares
held by Southern Financial Services, Inc., companies that are controlled by Mr.
Welsh.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Bullhide are:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Ronald Grossman 42 Chairman, Chief Technology Officer
Ronald R. Sanders 30 Acting President
Charles Tokarz 53 Chief Financial Officer,Treasurer
W. Gordon Freeman 55 Director
Jeffrey Welsh 48 Director
Danny E. Robertson 54 Director
</TABLE>
Ronald Grossman, has served as Chairman of Bullhide since its formation
in April 1993 and as its Chief Technology Officer since October 1998. He also
served as President from April 1993 until January 23, 1998 and as Chief
Executive Officer from April 1993 until October 1998. He has worked in the high
performance coatings field since 1978. Mr. Grossman has developed the current
line of Bullhide's products and is responsible for research and development of
future products. Mr. Grossman has a Master of Science degree in Polymer Science
and Engineering from the University of Massachusetts and a Bachelor of Science
degree in Business Management from Arizona State University.
Ronald R. Sanders, General Manager has worked for Bullhide since 1997,
and has been Acting President since October, 1999. Mr. Sanders began work for
Bullhide shortly after receiving his AA degree in Applied Science/Chemistry from
Phoenix College in the spring of 1997. Throughout his college career, Mr.
Sanders managed an oil analysis laboratory in Phoenix, Arizona, where he was
responsible for an increase in testing capacity and production of over 300% in
just over six months. This has given him a thorough background in preventive
maintenance, quality control, safety, training and management. Mr. Sanders
served in the United States Navy from 1987 to 1990. During this time, he
attended Naval Nuclear Power School and Electrician's Mate 'A' School in
Orlando, Florida.
Charles Tokarz has served as the Chief Financial Officer and Treasurer
of Bullhide since October 1998. He is a CPA and has over twenty years of
business, financial and financial planning experience. His prior professional
experience includes responsibilities as Chief Financial Officer and Treasurer
for a publicly traded wholesale distributor, Vice President of Finance for a
developer and manager of elderly housing and nursing home facilities, Vice
President and Controller for two developers of luxury condominiums and office
buildings, Controller of a country club owned by a NYSE company, and as
President of a small NASD broker/dealer specializing in equity funding for real
estate projects. Having served four years as a United States Navy air crewman,
Mr. Tokarz has a BS Degree and an MBA from the University of Massachusetts.
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W. Gordon Freeman has served as a Director since July 1997. He also
served as Bullhide's Chief Operating Officer from January 1998 to October 1998,
and as Bullhide's Chief Executive Officer from October 1998 to October 1999,
when he resigned as part of Bullhide's efforts to reduce operating expenses. Mr.
Freeman continues to be involved in the day to day operation of Bullhide. Mr.
Freeman started his career in the automotive industry in 1968 with General
Motors. After fifteen years and eight progressive promotions he was the National
Director of Sales for GM's insurance division, Motors Insurance Corporation. He
left GM in 1984 to develop his own consulting firm. In 1992, he became Vice
President of Sales for Jim Moran and Associates, a subsidiary of Southeast
Toyota, where he recruited and developed a sales staff that increased their
customer base from 450 to 1,023 active dealers in five years.
Jeffrey Dale Welsh has served as a Director of Bullhide since January
1998. Mr. Welsh is the founder and President of Southern Financial Services,
Inc., which facilitates equity financing for small and medium sized companies.
He practiced law in New York for approximately thirteen years, with an emphasis
on securities law. Mr. Welsh is a graduate of the U.S. Naval Academy, having
served in the U.S. Navy for five years. He is also a graduate of the University
of Pittsburgh School of Law.
Danny E. Robertson has served as a director since June 15, 1999. Mr.
Robertson was the co-founder, director, officer and business advisor of Access
Conference Call Service ("Access"). He is responsible for growing Access from
one employee in 1987 to 120 employees in 1997, with gross sales of $13 million.
Having qualified for Inc.'s list of 500 fastest growing companies, with a growth
rate of 1025% over five (5) years, Access was positioned for the next level of
growth. Recently, Access was sold as part of a roll-up. A certified public
accountant, Mr. Robertson has, from 1971 through 1999, served as Chief Financial
Officers and/or Senior Vice President, Finance & Administration, for the
National Machine Tool Builders' Association, the National Association of Retail
Druggists, the Aluminum Association, Inc. and most recently, the Printing
Industries of American, Inc. At Bullhide, we will use his expertise in the areas
of financial forecasts and the management of liquid and fixed assets. he will
also head Bullhide's Finance and Audit Committee.
Directors serve until the next annual meeting of shareholders or until
their successors are elected and qualified. Officers serve at the discretion of
the Board of Directors. Bullhide intends to institute a program whereby it grant
each Board Member 50,000 shares of Bullhide's common stock and 50,000 shares on
the anniversary date of each year of service.
ITEM 6. EXECUTIVE COMPENSATION
The Summary Compensation Table sets forth compensation paid by Bullhide
for the three fiscal years ended March 31 for services in all capacities for its
CEO and President. No other principal executive officer received a total annual
salary and bonus from Bullhide which exceeded $100,000.
<TABLE>
<CAPTION>
Other
Name and Position Year Salary Bonus Compensation
- ----------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Ronald Grossman, 1999 $86,500(1) 0 84,265(2)
Chairman and Chief 1998 $60,000(1) 0 27,863(2)
Technology Officer 1997 $ 0 0 0
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W. Gordon Freeman 1999 $170,500(4) $45,050(5) 0
Chief Executive Officer 1998 $144,000 0 0
and Chief Operating 1997 $144,000 0 0
Officer(3)
</TABLE>
(1) Includes stock awarded to Mr. Grossman his service as a director of Bullhide
during fiscal 1999. Mr. Grossman received 50,000 shares of Bullhide's common
stock on February 24, 1999 and the fair market value of Bullhide's stock on the
date of the grant was $ 0.53 per share.
(2) Represents royalty payments that Mr. Grossman received in fiscal 1999 and
fiscal 1998 under a royalty agreement between Bullhide and PolyChem, a company
which is solely owned by Mr. Grossman and his wife.
(3) Mr. Freeman served as the Chief Operating Officer of Bullhide from January
1998 to October 12, 1998, and as Bullhide's Chief Executive Officer from October
1998 to October 12, 1999.
(4) Includes stock awarded to Mr. Freeman for his service as a director of
Bullhide during fiscal 1999. Mr. Freeman received 50,000 shares of Bullhide's
common stock on February 24, 1999 and the fair market value of Bullhide's stock
on such date was $0.53 per share.
(5) Includes 85,000 shares awarded to Mr. Freeman as a bonus on February 24,
1999 and the fair market value of Bullhide's stock on such date was $0.53 per
share.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In May 1999, Bullhide sold a master distributorship for the
northwestern United States and Western Canada to Ronald Grossman, Bullhide's
Chairman and Chief Technology Officer, in exchange for $75,000 in promissory
notes payable from June 30, 2000, to March 31, 2001.
On June 30, 1997, Bullhide purchased certain technology rights for the
materials used in the pickup truck bedliner process from PolyChem, a company
owned solely owned by Ronald Grossman, Bullhide's Chairman and Chief Technology
Officer. Under the terms of the license agreement, Bullhide will pay PolyChem a
royalty based on five percent of total gross revenues of the Company to a
maximum of $200,000. Under the terms of the purchase agreement, Bullhide is
scheduled to make a royalty payments of $166,500 in fiscal 2000.
In June 1997, Bullhide planned to raise capital in a private offering.
Prior to commencing the private offering, Bullhide wanted to covert certain
debts into equity in order to reflect the true financial status of Bullhide.
Between October 20, 1993 and July 31, 1997, Ronald Grossman and Cheryle Hart
Grossman advanced $352,961 to Bullhide. The Grossman's converted this debt into
restricted common stock at the rate of $1.00 per share, reflecting a discount
over its issue price to reflect the current risk of collection associated with
the debt.
Bullhide was also indebted to various credit card companies in the
total amount of $51,690. Ronald Grossman and Cheryle Grossman assumed the credit
card debt personally in return for Bullhide issuing them 147,686 shares of
restricted common stock valued at $.35 per share.
Bullhide was also indebted to PolyChem, a company solely owned by Mr.
Grossman, in the amount of $54,270 for previous product purchases. PolyChem
converted this debt into restricted stock at the rate of $.35 per share and was
issued 155,914 shares of Bullhide's restricted common stock.
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<PAGE>
During December 1998, PolyChem sold 78,000 shares of Bullhide's common
stock and lent the net proceeds of $37,744 to Bullhide. As repayment to
PolyChem, Bullhide issued 85,800 shares of its common stock to PolyChem on
February 24, 1999.
Since July 31, 1997, Ron Grossman has advanced an aggregate of $157,405
dollars to Bullhide. These loans are evidenced in a $118,276 promissory note
dated March 31, 1998 bearing interest at the rate of eight (8%) per annum and a
$39,129 promissory note dated December 31, 1998 bearing interest at the rate of
twelve (12%) per annum. The $118,276 promissory note is a demand note and
interest is payable annually on March 31. As of September 30, 1999, Bullhide had
repaid Mr. Grossman $15,871 on the $118,276 note. The principal and interest
under the $39,129 promissory note are due on June 30, 2000.
On April 1, 1999, Bullhide's Board of Directors approved the sale of
2,000,000 shares of Bullhide's common stock to Southern Financial Services, Inc.
under Rule 504 of Regulation D at a price of $0.50 per share in return for a
promissory note in the amount of $1,000,000. Jeff Welsh is a director of
Bullhide and a director of SFS.
ITEM 8. DESCRIPTION OF SECURITIES
Bullhide's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.001 par value and 5,000,000 shares of Preferred Stock, $1.00 par
value. As of November 24, 1999, 10,612,051 shares of Common Stock and 60,000 of
Preferred Stock were issued and outstanding.
COMMON STOCK
The holders of the Common Stock are entitled to one vote per each share
and have the right to vote on all matters on which a vote of stockholders is
taken. Voting rights are non-cumulative. The holders of shares of Common Stock
are entitled to receive dividends when, as and if declared by the Board of
Directors, out of funds legally available therefore and to share pro rata in any
distribution to stockholders. Upon liquidation, dissolution, or winding up of
Bullhide, the holders of the Common Stock are entitled to receive the net assets
of Bullhide in proportion to the respective number of shares held by them after
payment of liabilities which may be outstanding. The holders of Common Stock do
not have any preemptive right to subscribe for or to purchase any shares of any
class of stock. The outstanding shares of Common Stock and the shares offered
hereby will not be subject to further call or redemption and will be fully paid
and non-assessable.
PREFERRED STOCK
Bullhide's Board of Directors has the authority to issue up to
5,000,000 shares of Preferred Stock in one or more series, and to fix by
resolutions, conditional, full, limited or no voting powers and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including the number of shares in such series (which the Board may increase
or decrease as permitted by Washington law), liquidation preferences, dividends
rates, conversion or exchange rights, redemption provisions of the shares
constituting any series, and such other special rights and protective provisions
with respect to any class or series as the Board may deem advisable without any
further vote or action by the shareholders. Any shares of Preferred Stock so
issued would have priority over the Common Stock with respect to dividend or
liquidation rights or both and could have voting and other rights of
shareholders. Bullhide has no present plans to issue shares of
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<PAGE>
Preferred Stock.
Bullhide has issued one class of Series A Preferred Stock. Holders of
the Series A Preferred Stock have equal voting rights with common stockholders.
The Series A Preferred Stock is redeemable at the option of Bullhide at $1 per
share. As of July 15, 1999, Bullhide has not exercised the option to redeem any
of the Preferred Stock. Upon liquidation, the holders of the Series A Preferred
Stock are entitled to receive, as a preferential distribution, the par value of
the preferred stock before any assets are distributed to the common
shareholders.
CERTAIN WASHINGTON LEGISLATION
Washington has enacted legislation that may deter or frustrate
takeovers of Washington corporations. The Washington Business Corporation Act
imposes restrictions on certain transactions between a corporation and certain
"Interested Shareholders." First, subject to certain exceptions, a merger, share
exchange, sale of assets other than in the regular course of business or
dissolution of a corporation involving an Interested Shareholder owning
beneficially 20% or more of the corporation's voting securities must be approved
by the holders of two-thirds of the corporation's outstanding voting securities,
other than those of the Interested Shareholder. This restriction does not apply
if the consideration received as a result of the transaction by the
noninterested shareholders is not less than the highest consideration by the
Interested Shareholders for shares of the corporation's stock during the
preceding two years or if the transaction is approved by a majority of directors
who are not affiliated with the Interested Shareholder. A Washington
corporation, may, in its articles of incorporation, exempt itself from coverage
of this provision; however, Bullhide has not done so.
Washington law prohibits a "target corporation," with certain
exceptions, from engaging in certain "significant business transactions" with a
person or group of persons who beneficially own 10% or more of the voting
securities of a target corporation (an "Acquiring Person") for a period of five
years after the acquisition of such securities, unless the transaction or
acquisition of shares is approved by a majority of the members of the target
corporation's board of directors prior to the date of the acquisition.
Significant business transactions include, among others, merger or consolidation
with, disposition of assets to or with, or issuance or redemption of stock to or
from, the Acquiring Person, termination of 5% or more of the employees of the
target corporation employed in Washington State as a result of the Acquiring
Person's acquisition of 10% or more of the shares or allowing the Acquiring
Person to receive any disproportionate benefit as a stockholder. Target
corporations include domestic corporations with their principal executive
offices in Washington, and either a majority or over 1,000 of their employees
resident in Washington. Bullhide does not meet these standards, and is not
subject to this statute. A corporation may not "opt out" of this statute. This
statue exempts shares acquired prior to March 23, 1988.
TRANSFER AGENT
Bullhide's Transfer Agent is Florida Atlantic Stock Transfer, 7130 Nob
Hill Road, Tamarac, Florida 33321.
PART II
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ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRATION'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
Bullhide's common stock is traded in the National Quotation Bureau Pink
Sheet under the symbol "BULH". The following table set forth the high and low
bid prices, as reported by the National Quotation Bureau, Inc. for Bullhide's
Common Stock for the calendar periods indicated. These quotations reflect
intermediate prices, without retail mark-ups, mark-downs or commissions, and may
not represent actual transactions. Bullhide's common stock began trading in the
OTC Bulletin Board on December 11, 1997, so information is provided beginning in
the first quarter of 1998. Bullhide's common stock was delisted from the OTC
Bulletin Board on October 7, 1999. After Bullhide clears all SEC comments on its
Form 10- SB, it will apply submit an application to have its stock relisted on
the OTC Bulletin Board.
Quarter Ended High Bid Low Bid
- ------------- -------- -------
March 31, 1998 1.625 1.0625
June 30, 1998 1.59375 1.0625
September 30, 1998 1.4375 1.01
December 31, 1998 1.25 0.40625
March 31, 1999 0.7813 0.3750
June 30, 1999 0.7900 0.2813
Prior to December 11, 1997, Bullhide's common stock was traded
privately and there was not active trading market for its common stock.
The approximate number of common stockholders of record of Bullhide's
common stock as of July 15, 1999 was 55.
DIVIDEND POLICY
Bullhide has never paid cash dividends on its Common Stock. Payment of
dividends will be within the sole discretion of Bullhide's Board of Directors
and will depend, among other factors, upon earnings, capital requirements and
the operating and financial condition of Bullhide. At the present time,
Bullhide's anticipated financial capital requirements are such that it intends
to follow a policy of retaining earnings in order to finance the development of
its business.
ITEM 2. LEGAL PROCEEDINGS
Bullhide is involved in a legal proceeding with a former franchisee
regarding an agreement for Bullhide to repurchase the franchise. Bullhide
stopped making payments under the agreement based upon an alleged breach of the
agreement by the former franchisee. When mediation of the dispute failed, the
former franchisee filed suit for payment and for certain consequential damages.
Bullhide is defending the suit and believes that, while Bullhide may be
ultimately liable for the payments required under the agreement, the claims for
damages are without merit.
Bullhide is involved in another legal proceeding with a former dealer
whose business failed. The former dealer has brought suit against Bullhide
alleging breach of contract, fraud and violation of the Tennessee Consumer
Protection Act. Bullhide believes the allegations to be without merit and is
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<PAGE>
vigorously defending the lawsuit.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
During the last two fiscal years, Bullhide has not had any changes in
or disagreements with its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
The following sets forth the Company's sale of securities during the
last three years, which securities were not registered under the Securities Act
of 1933, as amended (the "Securities Act"). No underwriters were employed with
respect to the sale of any of the securities listed below. All shares were
issued in reliance on Section 4(2) and/or Section 3(b) of the Securities Act.
1. Prior to commencing a private offering of its common stock in 1997,
on June 30, 1997, Bullhide converted certain debts into equity. The Grossmans
converted a loan in the amount of $352,961 into 352,961 shares of Bullhide's
common stock. The conversion rate of $1.00 per share reflected a discount over
Bullhide's issue price to reflect the current risk of collection associated with
the debt. Bullhide also has a debt to certain credit card companies in the total
amount of $51,690. The Grossmans were willing to assume the credit card debt
personally in exchange for 147,686 shares of restricted common stock valued at
$.35 per share. Bullhide was also indebted to PolyChem in the amount of $54,270.
PolyChem agreed to convert this debt into restricted stock at the rate of $.35
per share and issued 155,914 shares of its restricted common stock to PolyChem.
Inasmuch as the Grossmans were knowledgeable, sophisticated and have
access to comprehensive information about Bullhide, the shares of common stock
were issued to the Grossmans and PolyChem in reliance upon Section 4(2) of the
Securities Act. A legend was placed on the certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
2. The Company completed a private placement of its common stock during
July 1997 which resulted in the issuance of 10,000 units at $5.00 per unit. Each
unit consisted of 50 shares of common stock and 95 redeemable stock purchase
warrants. As of July 10, 1998, all warrants were exercised and the Company
received net proceeds of $783,629. The offering and sale of the units was made
in reliance on Regulation D - Rule 504 of the Securities Act of 1933, as
amended. The Units were only offered and sold to accredited investors or persons
who represented that they had no need for liquidity in their investment and have
adequate financial resources to withstand a total loss on their investment.
3. On April 1, 1999, Bullhide sold 2,000,000 shares of common stock to
Southern Financial Services, Inc., under Rule 504 of Regulation D in return for
a promissory note in the amount of $1,000,000. To date, Bullhide has received
$348,832 in payments against that promissory note. The promissory note, as
amended, is due and payable on June 30, 2000, and is secured by the 2,000,000
shares sold
4. On April 13, 1999, Bullhide issued 736,000 shares of its common
stock to its officers, directors, consultants, employees and lenders as
consideration for services rendered to Bullhide. The shares were issued to:
22
<PAGE>
Number of
Name of Recipient Shares Received
----------------- ---------------
Donald M. Whaley 7,500
Ronald R. Sanders 8,000
Ronald Grossman 50,000
H. Logan Pierson 100,000
Jack Bertoglio 50,000
The Southern Companies, Inc. 205,000
W. Gordon Freeman 135,800
Charles Tokarz 8,700
PolyChem Corporation 85,800
Cecil C. Ram and
Judith F. Ram, joint tenants 85,800
Inasmuch as the officers, directors, consultants, employee and lenders
were knowledgeable, sophisticated or had access to comprehensive information
about Bullhide, such transactions were issued in reliance upon Section 4(2) of
the Securities Act. A legend was placed on the certificates stating that the
securities were not registered under the Securities Act and set forth the
restrictions on their transferability and sale.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Bullhide's Bylaws provide that Bullhide shall indemnify any person who
was or is a party or is threatened to be made a party to any civil, criminal,
administrative or investigation action, suit or proceeding by reason of the fact
that he is or was a director, or acted in any other capacity as an agent of the
Bullhide, against expenses, judgements, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding, to the full extent permitted by the Washington Business Corporation
Act.. The general effect of the Bylaws provision is to indemnify any officer,
director, employee or agent against any liability arising from any action or
suit to the fullest extent permitted by the Washington Business Corporation Act.
The WBCA provides that a corporation's articles of incorporation may
include a provision that eliminates or limits the personal liability of a
director to the corporation or its shareholders for monetary damages for conduct
as a director. However, the provision may not eliminate or limit liability of a
director for acts or omissions that involve intentional misconduct by a
director, a knowing violation of law by a director for, unlawful distributions
or for any transaction from which the director will personally receive a benefit
in money, property or services to which the director is not legally entitled.
The WBCA also provides that if authorized by the articles of incorporation, a
bylaw adopted or ratified by shareholders, or a resolution adopted or ratified,
before or after the event, by the shareholders, a corporation has the power to
indemnify a director or officer made party to a proceeding, or advance or
reimburse expenses incurred in a proceeding, under any circumstances, except
that no such indemnification shall be allowed on account of: (a) acts or
omissions of the directors finally adjusted to be intentionally misconduct or a
knowing violation of the law; (b) conduct of the directors finally adjusted to
be an unlawful distribution; or (c) any transactions with respect to which it
was finally adjusted that such director personally received a benefit in money,
property, or services to which the director was not legally entitled. Written
commentary by the drafters of the WBCA, which as the status of legislative
history, specifically indicates that a corporation may indemnify its directors
and officers for amounts paid in settlement of derivative actions, provided that
the director's or officer's conduct does not fall within one of the categories
set forth above. Bullhide's Articles of Incorporation do not contain any
provisions relating to indemnification; however its Bylaws contain provisions
relating to indemnification.
23
<PAGE>
FINANCIAL STATEMENTS AND EXHIBITS
AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 1999 AND 1998
Independent Auditors' Report F-2
Balance Sheet F-3
Statement of Operations F-5
Statements of Change in Stockholders' Equity F-6
Statements of Cash Flows F-7
Notes to Financial Statements F-8
UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1999
AND SEPTEMBER 30, 1998
Balance Sheet F-20, F-21
Statement of Operations F-22
Statements of Change in Stockholders' Equity F-24
Statements of Cash Flows F-23
Notes to Financial Statements F-25
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Articles of Incorporation of Bullhide filed with the
Washington Secretary of State on April 2, 1993*
2.2 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on January 24, 1994*
2.3 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on June 8, 1994*
2.4 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on December 26, 1996*
2.5 Amendment to Articles of Incorporation of Bullhide filed with
the Washington Secretary of State on June 8, 1999*
2.6 Bylaws, as amended+
10.1 Manufacturing/Licensing Agreement dated January 1, 1994, by
and between PolyChem Corporation and The Bullhide Liner
Corporation*
10.2 Lease for the office and conference center in Spokane,
Washington*
10.3 Lease for the East Coast sales office in Boca Raton, Florida
10.4 Development and Distribution Agreement between Bullhide and
Performance Surfacing, Inc. dated July 1, 1999+
10.5 Standard Unit License Agreement between Bullhide and
Performance Surfacing, Inc. dated July 1, 1999+
10.6 Development and Distribution Agreement between Bullhide and
New England Polycote dated August 9, 1999+
10.7 Standard Unit License Agreement between Bullhide and New
England Polycote dated August 17, 1999+
27.1 Financial Data Schedule for the fiscal year ended March 31,
1999*
24
<PAGE>
27.2 Financial Data Schedule for the second quarter ended September
30, 1999+
* Incorporated by reference to the Bullhide's Registration Statement on Form
10-SB filed with the SEC on October 1, 1999.
+Filed herewith.
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
Bullhide caused this Post-Effective Amendment No. 1 to its Registration
Statement on Form 10-SB to be signed on its behalf by the undersigned thereunto
duly authorized on this 1st day of December, 1999.
THE BULLHIDE CORPORATION.
/s/ Ronald Grossman
-------------------
Ronald Grossman, Chairman and Chief Technology Officer
25
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Contents
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS MARCH 31, 1999 AND 1998
Page
----
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3 - 4
Statements of operations F-5 - 6
Statements of stockholders' equity (deficit) F-7 - 8
Statements of cash flows F-9 - 10
Notes to financial statements F-11 - 23
UNAUDITED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 AND 1998
Internal preparers letter F-24
Balance sheets F-25 - 26
Statement of operations F-27
Statement of change in stockholders' equity F-28
Statement of cash flows F-29
Notes to financials F-30 - 40
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
The Bullhide Liner Corporation
Spokane, Washington
We have audited the accompanying balance sheets of The Bullhide Liner
Corporation as of March 31, 1999 and 1998, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Bullhide Liner Corporation
as of March 31, 1999 and 1998, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 13 to the
financial statements, the Company's recurring losses from operations and limited
capital resources raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in note 13. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ LeMaster & Daniels PLLC
- ---------------------------
Spokane, Washington
May 28, 1999
- --------------------------------------------------------------------------------
F-2
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Balance Sheets
- --------------------------------------------------------------------------------
March 31,
-------------------
1999 1998
---- ----
Assets
CURRENT ASSETS:
Cash $ 2,875 $ 7,595
Accounts receivable, net of allowance for doubtful
accounts of $20,000 and $25,000, respectively 111,461 44,116
Inventory 49,219 72,810
Investments - 5,000
Prepaid expenses and deposits - 522
-------- --------
Total current assets 163,555 130,043
-------- --------
FURNITURE AND EQUIPMENT:
Cost 147,483 128,517
Less accumulated depreciation 78,177 58,476
-------- --------
69,306 70,041
-------- --------
OTHER ASSETS:
Mississippi franchise repurchase 10,000 10,000
Systems development 46,830 46,830
Trademark 1,450 1,450
-------- --------
58,280 58,280
Less accumulated amortization 25,954 21,235
-------- --------
32,326 37,045
-------- --------
$265,187 $237,129
======== ========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-3
<PAGE>
- --------------------------------------------------------------------------------
Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
---------------------------
1999 1998
---- ----
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
CURRENT LIABILITIES:
Accounts payable $ 195,582 $ 136,749
Checks issued in excess of bank balance 15,930 14,233
Accrued taxes 72,487 14,667
Accrued payroll and employee benefits 4,144 8,560
Accrued expenses 95,960 -
Accrued interest 31,825 7,891
Royalty payable 73,628 22,863
Customer deposits 22,650 66,834
Current obligations under capital lease 7,508 -
Current maturities of long-term debt 259,000 61,478
----------- -----------
Total current liabilities 778,714 333,275
OBLIGATIONS UNDER CAPITAL LEASE 12,119 -
LONG-TERM DEBT, less current maturities 172,921 130,968
----------- -----------
Total liabilities 963,754 464,243
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock--50,000,000 shares, $.002 par value, authorized;
7,875,451 and 7,171,451 shares issued and outstanding, respectively 15,751 14,343
Preferred stock--1,000,000 shares, $1.00 par value, authorized;
60,000 shares issued and outstanding 60,000 60,000
Additional paid-in capital 1,552,872 1,048,090
Retained earnings (deficit) (2,327,190) (1,349,547)
----------- -----------
Total stockholders' equity (deficit) (698,567) (227,114)
----------- -----------
$ 265,187 $ 237,129
=========== ===========
</TABLE>
- --------------------------------------------------------------------------------
F-4
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Operations
- --------------------------------------------------------------------------------
Years Ended
March 31,
--------------------------
1999 1998
---- ----
SALES $1,686,702 $656,471
COST OF SALES 1,237,756 427,954
---------- --------
GROSS PROFIT 448,946 228,517
CONSULTING FEE REVENUE FROM RELATED PARTY - 4,500
---------- --------
448,946 233,017
---------- --------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Advertising 85,001 65,869
Trade shows and exhibits 13,477 16,113
Marketing 36,615 13,601
Travel, lodging and auto 40,099 31,235
Travel, meals 7,831 -
Postage and shipping 86,436 21,417
Salaries and wages 492,407 320,915
Payroll taxes 41,737 27,326
Temporary labor 6,158 -
Employee benefits 37,005 18,249
Consulting fees 17,658 -
Taxes and licenses 11,747 647
Vehicle expense 6,328 4,135
Directors' fees 36,000 -
Dues and subscriptions 1,480 1,782
Fines and penalties 14,429 -
Legal and professional fees 99,814 36,353
Dealer training 1,531 -
Office supplies 14,571 11,696
Shop supplies 34,493 23,312
Research and development 55,583 -
Rent 58,844 38,702
Repairs and maintenance 1,703 -
Utilities 51,528 35,717
Insurance 21,869 -
Depreciation 19,701 17,352
Amortization 4,719 4,717
Bad debts 8,172 41,278
Bank fees 8,963 -
Royalties 84,265 27,863
Equipment rental 2,329 -
Other (1,636) 20,820
---------- --------
1,400,857 779,099
---------- --------
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-5
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Operations (Continued)
- --------------------------------------------------------------------------------
Years Ended
March 31,
------------------------
1999 1998
---- ----
LOSS FROM OPERATIONS $ (951,911) $(546,082)
---------- ---------
OTHER INCOME (EXPENSE):
Interest income 90 -
Gain (loss) on disposal of assets 5,000 (957)
Loss on franchise repurchase - (76,203)
Interest expense (30,822) (30,119)
---------- ---------
(25,732) (107,279)
---------- ---------
NET LOSS $ (977,643) $(653,361)
========== =========
BASIC AND DILUTED LOSS PER SHARE $ (.1273) $ (.1031)
========== =========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-6
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Stockholders' Equity (Deficit)
- --------------------------------------------------------------------------------
Common Stock
-----------------------
Shares
Issued and
Outstanding Amount
----------- ------
BALANCES (DEFICIT), MARCH 31, 1997 5,618,000 $ 11,236
ADD (DEDUCT):
Issuance of common stock 896,890 1,794
Stock offering costs - -
Issuance of common stock on conversion of debt 656,561 1,313
Contributed capital - -
Net loss - -
--------- ---------
BALANCES (DEFICIT), MARCH 31, 1998 7,171,451 14,343
ADD (DEDUCT):
Issuance of common stock 704,000 1,408
Net loss - -
--------- ---------
BALANCES (DEFICIT), MARCH 31, 1999 7,875,451 $ 15,751
========= =========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-7
<PAGE>
- --------------------------------------------------------------------------------
Years Ended March 31, 1999 and 1998
- --------------------------------------------------------------------------------
Preferred Stock
- ----------------------
Shares Additional Retained
Issued and Paid-in Earnings
Outstanding Amount Capital (Deficit) Total
- ----------- ------ ------- --------- -----
60,000 $ 60,000 $ 172,803 $ (696,186) $ (452,147)
- - 478,932 - 480,726
- - (126,254) - (126,254)
- - 457,609 - 458,922
- - 65,000 - 65,000
- - - (653,361) (653,361)
- ---------- ---------- ---------- ---------- ----------
60,000 60,000 1,048,090 (1,349,547) (227,114)
- - 504,782 - 506,190
- - - (977,643) (977,643)
- ---------- ---------- ---------- ---------- ----------
60,000 $ 60,000 $1,552,872 $(2,327,190) $ (698,567)
========== ========== ========== =========== ==========
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-8
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
March 31,
------------------------
1999 1998
---- ----
<S> <C> <C>
Increase (Decrease) in Cash
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(977,643) $(653,361)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on sale of investment (5,000) -
Bad debts 8,276 41,278
Loss on disposal of assets - 957
Depreciation and amortization 24,421 22,069
(Increase) decrease in assets:
Receivables (75,621) (1,096)
Inventory 23,591 (69,280)
Prepaid expenses and deposits 522 1,059
Franchise fee receivable - 4,780
Increase (decrease) in liabilities:
Accounts payable 58,833 72,406
Payable to related party - (96,467)
Accrued taxes 57,819 6,317
Accrued expenses 95,960 -
Customer deposits (44,184) 44,984
Royalty payable 50,765 22,863
Accrued payroll and employee benefits (4,416) 7,223
Accrued interest 23,934 (13,765)
--------- ---------
Net cash used in operating activities (762,743) (610,033)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of available-for-sale securities 10,000 -
Checks issued in excess of bank balance 1,697 14,233
Repurchase of franchise - (10,000)
Purchase of available-for-sale securities - (5,000)
Purchases of property and equipment (2,066) (26,710)
--------- ---------
Net cash provided by (used in) investing activities 9,631 (27,477)
--------- ---------
</TABLE>
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
F-9
<PAGE>
- --------------------------------------------------------------------------------
Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Years Ended
March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock $ 506,190 $ 480,726
Stock offering costs paid - (120,266)
Stockholder contributed capital - 65,000
Stockholders' loan 279,415 291,200
Borrowings on long-term debt 6,574 82,400
Principal payments to stockholders - (65,169)
Principal payments on long-term debt and lease obligations (43,787) (90,533)
--------- ---------
Net cash provided by financing activities 748,392 643,358
--------- ---------
NET INCREASE (DECREASE) IN CASH (4,720) 5,848
CASH, BEGINNING OF YEAR 7,595 1,747
--------- ---------
CASH, END OF YEAR $ 2,875 $ 7,595
========= =========
Supplemental Disclosures:
Cash paid for interest $ 6,888 $ 43,884
Cash paid for income taxes - -
Schedule of Noncash Investing and Financing Activity:
Related-party debt and accrued interest converted to common stock - 458,922
Fixed assets acquired through long-term capital lease 16,900 -
</TABLE>
- --------------------------------------------------------------------------------
F-10
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- --------------------------------------------------------------------------------
Organization:
The Company has granted franchises for the operation of pickup truck bed liner
spray application shops initially targeted for the pickup truck bed liner
market. In July 1996, the Company discontinued the sale of franchises for the
operation of pickup truck bed liner spray application shops. Subsequent to July
1996, the Company commenced selling dealerships under exclusive licensing
agreements and expanded into the industrial flooring market. As of March 31,
1999, the Company has sold fifty-five dealerships and has three operating
franchises. The Company grants credit to customers for sales of equipment and
materials throughout the United States. In addition, the Company operates a
pickup truck bed liner spray application shop in Spokane, Washington.
Summary of Significant Accounting Policies:
a. Method of accounting -- The Company prepares its financial statements on
the accrual method of accounting, recognizing income when earned and
expenses when incurred.
b. Accounts receivable -- The Company provides an allowance for doubtful
accounts based upon historical experience and a review of current
receivables.
c. Inventory -- Inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market.
d. Furniture and equipment -- Furniture and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial
reporting purposes. For federal income tax purposes, accelerated methods
are used.
e. Intangible assets -- Intangible assets subject to amortization include
system development costs and logo/trademark development costs. System
costs are being amortized using the straight-line method over the
estimated life of 10 years. Logo/trademark costs are being amortized on a
straight-line basis over 40 years.
f. 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
those estimates.
g. Sales -- Spray application equipment is manufactured by a third-party
manufacturer to customer specifications and is recorded as a sale when
the equipment is shipped and customer acceptance is received.
h. Advertising costs -- Advertising (marketing) costs are expensed as
incurred. Advertising expense was $85,001 and $65,869 for the years ended
March 31, 1999 and 1998, respectively.
i. Loss per share -- Loss per share is calculated based on the weighted
average of common shares outstand ing. Diluted loss per share, based on
potential common stock such as warrants, operations, or contingent stock
agreements, is not presented as such items are antidilutive.
- --------------------------------------------------------------------------------
F-11
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 1 -- ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued):
- --------------------------------------------------------------------------------
Summary of Significant Accounting Policies (continued):
j. Research and development -- Research and development costs are expensed as
incurred.
k. Royalty expenses -- Royalty expenses are recognized concurrently with the
recognition of the related revenue.
l. Training and support -- The Company provides training in the field and
ongoing support to licensed dealers. Costs are expensed and/or billed as
incurred.
NOTE 2 -- INVENTORIES:
- --------------------------------------------------------------------------------
Inventories consisted of the following:
March 31,
-----------------
1999 1998
---- ----
Raw materials $37,991 $50,196
Machine parts 6,398 7,667
Dealer marketing materials 4,830 14,947
------- -------
$49,219 $72,810
======= =======
The Company's raw materials consist of polyurethane resins. There was no work in
process production of materials at year end. Production of spray application
equipment was outsourced during the fiscal year ended March 31, 1999.
NOTE 3 -- FRANCHISING OPERATIONS:
- --------------------------------------------------------------------------------
a. Significant commitments and obligations -- The Company is obligated in
accordance with the terms of each franchisee's respective franchise
agreement to provide the following supervision assistance and services:
site location, spray application training, operations manual, and
advertising literature. In addition, franchisees are required to purchase
inventory from the Company.
b. Franchise activity -- The number of franchises sold and in operation
during each of the years ended March 31, 1999 and 1998, was three. Current
active franchises are located in Colorado, Canada, and Saudi Arabia.
c. Franchise fees -- Initial franchise fees were recorded as revenue when all
the significant services relating to the franchise sale had been performed
by the Company.
d. Royalty -- Each franchisee is required to pay a monthly royalty based on
sales, commencing one year after the franchise opens for business. The
Company has waived its right to receive royalties from franchisees through
March 31, 1999.
- --------------------------------------------------------------------------------
F-12
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 4 -- FURNITURE AND EQUIPMENT:
- --------------------------------------------------------------------------------
A summary of furniture and equipment follows:
March 31,
------------------
1999 1998
---- ----
Leasehold improvements $ 20,231 $ 20,231
Office furniture 11,194 11,194
Computer 10,171 8,105
Vehicles 28,200 28,200
Equipment 77,687 60,787
-------- --------
147,483 128,517
Less accumulated depreciation 78,177 58,476
-------- --------
Totals $ 69,306 $ 70,041
======== ========
NOTE 5 -- LONG-TERM DEBT:
- --------------------------------------------------------------------------------
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
March 31,
--------------------
1999 1998
---- ----
<S> <C> <C>
Note payable to bank, due in monthly installments of $817 including variable
interest; collateralized by substantially all assets and personally
guaranteed by a stockholder* $ 25,303 $ 30,504
Note payable to bank, due in monthly installments of $367 including interest
at 10%, maturing June 20, 1999; collateralized by vehicle and
personally guaranteed by a stockholder 1,128 5,216
Note payable to ex-franchisee, due in monthly installments of $1,350
including interest at 8.5%, maturing July 31, 1999, including a $13,000
remaining balance of the down payment on the franchise repurchase, with no
stated interest rate, and which was due and payable October 15, 1997 (see
notes 9 and 15) 33,450 38,450
</TABLE>
- --------------------------------------------------------------------------------
F-13
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 -- LONG-TERM DEBT (continued):
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31,
----------------------
1999 1998
---- ----
<S> <C> <C>
Note payable to stockholders, interest at 8% and 10% of
the principal balance annually on March 31; unsecured $118,276 $118,276
Note payable to stockholders, interest at 12% of the
principal balance. Principal and interest due on
June 30, 2000; unsecured 39,129 -
Note payable to stockholders, interest at 12% of the
principal balance. Principal and interest due on
July 28, 2000; unsecured 20,000 -
Note payable to related party (see notes 7 and 9). Principal and interest are
to be repaid with 85,500 shares of the Company's common stock on or before
February 28, 1999, for the 78,000 shares previously received; unsecured.
Balance was paid in full
on April 13, 1999 37,744 -
Note payable to stockholders. Principal and interest are to be
repaid with 85,500 shares of the Company's common stock for
the 78,000 shares received. Balance was paid in full on
April 13, 1999 36,158 -
Note payable to stockholder. Principal and interest are to be
repaid by 47,850 shares of the Company's common stock for
the 43,500 shares received. Balance was paid in full on
April 13, 1999 14,387 -
Note payable to an unrelated party. Principal and interest are to
be repaid by 211,428 shares of the Company's common stock
for the 192,207 shares received. Balance was paid in full
on April 13, 1999 106,346 -
-------- --------
431,921 192,446
Less current maturities 259,000 61,478
-------- --------
Totals $172,921 $130,968
======== ========
</TABLE>
* The Small Business Administration has guaranteed 90 percent of the original
amount ($50,000) of the note payable.
- --------------------------------------------------------------------------------
F-14
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 5 -- LONG-TERM DEBT (continued):
- --------------------------------------------------------------------------------
Total interest expense for the notes payable to stockholders was $22,525 and
$21,141 for the years ended March 31, 1999 and 1998, respectively.
Maturities of long-term debt are as follows:
Years Ending
March 31, Amount
--------- ------
2000 $259,000
2001 163,000
2002 8,800
2003 1,121
--------
$431,921
========
NOTE 6 -- OBLIGATIONS UNDER CAPITAL LEASE:
- --------------------------------------------------------------------------------
Future minimum lease payments under leases capitalized at March 31, 1999,
together with the present value of the minimum lease payments, are as follows:
Years Ending
March 31, Amount
--------- ------
2000 $10,186
2001 10,186
2002 3,396
-------
Total minimum payments 23,768
Less amount representing interest (4,141)
-------
Present value minimum lease payments 19,627
Less current portion (7,508)
-------
Long-term obligation $12,119
=======
At March 31, 1999, assets under capital lease had a cost of $16,900 and
accumulated depreciation of $1,408.
- --------------------------------------------------------------------------------
F-15
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 7 -- TRANSACTIONS WITH RELATED PARTIES:
- --------------------------------------------------------------------------------
The Company purchases materials used in the pickup bed liner and floor coating
processes from Poly Chem Corporation. Total purchases for the years ended March
31, 1999 and 1998, were $-0- and $38,809, respectively. Purchases of materials
were discontinued June 30, 1997, per the agreement as identified in note 9.
During December 1998, the Company borrowed 78,000 shares of the Company's common
stock from Poly Chem Corporation which is 100 percent owned by a majority
stockholder of the Company. The Company sold the stock and received net proceeds
of $37,744 (see note 5). The Company has agreed to issue 85,800 shares of common
stock as repayment to Poly Chem Corporation no later than February 28, 1999.
Balance was paid April 13, 1999.
NOTE 8 -- PREFERRED STOCK:
- --------------------------------------------------------------------------------
Holders of the preferred stock have equal voting rights with the common
stockholders. The preferred stock is redeemable at the option of the Company at
$1 per share. As of the reporting date, the Company has not exercised the option
to redeem any of the preferred stock. Upon liquidation, the holders of the
preferred stock are entitled to receive, as a preferential distribution, the par
value of the preferred stock before any assets are distributed to the common
stockholders.
NOTE 9 -- COMMITMENTS:
- --------------------------------------------------------------------------------
On June 30, 1997, the Company purchased the technology rights from Poly Chem
Corporation for the materials used in the pickup bed liner and floor coating
processes as well as other polyurathene technology. Under the terms of the
purchase agreement, the Company will pay Poly Chem Corporation a royalty based
on 5 percent of total gross revenues of the Company to a maximum of $200,000. As
of March 31, 1999, $107,128 of royalties had been accrued, of which $33,500 had
been paid. Upon payment of the full $200,000 in royalties, Poly Chem Corporation
will transfer all of its interests in the formulation and technology including,
but not limited to, all patent rights therein, including the current patent
application 08/493858, and any and all future patent rights to Bullhide, and
shall have no further rights therein. The Company is in the process of obtaining
a patent for the materials used in the pickup bed liner process.
Future minimum royalty payments are as follows:
Year Ending
March 31, Amount
--------- ------
2000 $ 166,500
==========
- --------------------------------------------------------------------------------
F-16
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 9 -- COMMITMENTS (continued):
- --------------------------------------------------------------------------------
On July 31, 1997, the Company repurchased the franchise rights together with
certain assets of an existing franchisee. Under the terms of the repurchase
agreement, the Company was obligated to pay the franchisee $88,700 under the
following terms:
Downpayment $ 2,500
Inventory 6,300
Monthly payments of $5,000 commencing October 15, 1997,
with no stated interest rate 38,200
Consulting services provided by the franchisee payable
at $1,000 per month commencing August 30, 1997 12,000
Remaining balance to be paid in monthly payments
of $1,350 including interest at 8.5%,
commencing August 30, 1997 29,700
-------
$88,700
=======
To date, $55,250 has been paid (see note 5).
NOTE 10 -- INCOME TAXES:
- --------------------------------------------------------------------------------
The Company's deferred tax asset was as follows:
<TABLE>
<CAPTION>
March 31,
-----------------------
1999 1998
---- ----
<S> <C> <C>
Deferred tax asset arising from net operating loss carryforwards $ 782,000 $ 458,000
Valuation allowance (782,000) (458,000)
--------- ---------
Net deferred income tax asset $ - $ -
========= =========
</TABLE>
At March 31, 1999, the Company had approximately $2,300,000 in net operating
loss carryforwards which is available to reduce future taxable income. The
carryforwards begin to expire in 2011.
For the years presented, the income tax provision (benefit) differs from the
amount expected using statutory tax rates because of the effects of the deferred
tax asset valuation allowance.
- --------------------------------------------------------------------------------
F-17
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 11 -- RECAPITALIZATION:
- --------------------------------------------------------------------------------
During the year ended March 31, 1997, the Company recapitalized its common and
preferred stock. Under the terms of the recapitalization, the par values of the
common and preferred stock were changed to $.002 and $1.00, respectively. The
number of authorized shares of common and preferred stock was increased to
50,000,000 and 1,000,000, respectively.
NOTE 12 -- PRIVATE PLACEMENT:
- --------------------------------------------------------------------------------
On December 17, 1996, the Company was authorized to issue a private placement of
common stock. The Company is authorized to issue 10,000 units at $5.00 per unit.
As of July 10, 1998, all warrants were exercised (see note 13, paragraph 3).
Each unit consists of 50 shares of common stock and 95 redeemable stock purchase
warrants. The common stock purchase warrants are exercisable for one share of
common stock at $1.00 per share until December 17, 1998. The Company may redeem
the warrants at $.01 per warrant with 30-day prior written notice if the common
stock bid price equals or exceeds $2.50 per share for ten consecutive trading
days ending on the third day prior to or the date on which such notice was
given.
During the fiscal year ended March 31, 1998, all 10,000 units were sold, and
950,000 and 316,000 stock purchase warrants were exercised as of March 31, 1999
and 1998, respectively.
NOTE 13 -- GOING CONCERN:
- --------------------------------------------------------------------------------
As shown in the Company's financial statements, the Company incurred net losses
of $977,643. In addition, the Company has negative working capital of $615,159
and stockholders' deficit of $698,567. These conditions raise substantial doubt
about the Company's ability to continue as a going concern.
Management is committed to the future of the Company and has taken the following
actions to keep the Company viable and in existence as a going concern:
1. The Company has utilized long-term debt from the original stockholders to
fund the development of several key aspects of the national dealership
system including advertising for both the local and national promotion,
legal aspects such as state registrations, and improvements in application
equipment, as well as the employment and training of the needed personnel.
These developments are expected to benefit the organization in the future.
In addition, on June 30, 1997, the original stockholders of the Company
converted long-term debt plus accrued interest to common stock.
2. On July 6, 1997, the Company hired an executive vice president of sales
and marketing. The vice president's responsibilities included hiring and
training a team of independent sales representatives and developing a
national marketing plan. On January 27, 1998, he was promoted to president
and on October 14, 1998, to chief executive officer.
- --------------------------------------------------------------------------------
F-18
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 13 -- GOING CONCERN (continued):
- --------------------------------------------------------------------------------
3. The Company completed a private placement of common stock during July 1997
which resulted in the issuance of 10,000 units at $5.00 per unit. Each
unit consisted of 50 shares of common stock and 95 redeemable stock
purchase warrants. The Company received its symbol to trade on the NASD
Bulletin Board on December 17, 1997. A secondary market for the stock was
established. As of July 10, 1998, all warrants were exercised and the
Company received a net total of $783,629. The Company has utilized this
investment capital to expand national advertising and exhibits at national
and regional trade shows. Research and engineering activities have also
been expanded to produce the next generation of application equipment and
coating and lining products.
4. The expanded marketing efforts of the Company have resulted in the signing
of 55 dealers as of the year ended March 31, 1999, an increase of 30 from
March 31, 1998. The costs relating to the signing and setting up the new
dealers significantly contributed to the operating loss for the year ended
March 31, 1999. However, once the Bullhide dealerships are fully
operational, it is expected that sales to the dealers and to new
additional dealers will result in increased revenues for the Company.
5. Recent marketing efforts in the industrial flooring and chemical
containment markets have resulted in positive sales. Generally, jobs in
the flooring and chemical containment markets are much larger than the
truck bed liner market and may result in a higher sales volume of Bullhide
materials per order and per dealer. During August 1998, the Company's
northern Alabama dealer was contracted to spray wood treatment plants in
Alabama and other states. In September 1998, after the successful
completion of three test locations, Jiffy Lube awarded the Company up to
10 additional locations for flooring applications. In May 1999, the
Company's southern Colorado dealer completed a 2,000 square foot area at
the Pueblo Zoo. During May 1999, the Florida master distributor started
coating several seating areas in a major league baseball park.
6. During November 1998, the Company signed a contract with Sears, Roebuck &
Co. to operate Bullhide truck liner facilities in a two-store test market.
This is anticipated to develop into a national arrangement.
7. On May 6, 1999, the Company engaged a law firm to prepare a Registration
Statement on Form 10-SB for the registration of its securities with the
SEC. Beginning in January 1999, the NASD has required all prospective new
listing companies to become registered with the SEC in order to qualify
for listing on the OTC Bulletin Board exchange. Companies already on the
exchange were given deadlines to file a registration statement with the
SEC. The Company's deadline to complete its registration process with the
SEC is October 1999.
8. During April 1999, the Company began the process of restructuring the
Company's operations and administration by moving its corporate office
from Spokane, Washington, to south Florida. A fifth master
distributorship, serving the Northwest region, has been established in
Spokane by the Company's founder. This restructuring will save the Company
in excess of $250,000 in annualized costs.
9. During April 1999, the Company was approved to sell up to 2,000,000 common
shares on the OTC Bulletin Board exchange under its second Regulation D
Rule 504 offering. Management expects to raise $850,000 net proceeds
during the fiscal year ending March 31, 2000.
- --------------------------------------------------------------------------------
F-19
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 14 -- ISSUANCE OF COMMON STOCK ON CONVERSION OF DEBT:
- --------------------------------------------------------------------------------
On June 30, 1997, the following liabilities and long-term debt were converted to
common stock:
Notes payable to stockholders $378,096
Accrued interest payable to stockholders 26,555
Account payable to Poly Chem Corporation (a related party) 54,271
--------
$458,922
========
NOTE 15 -- PENDING LITIGATION:
- --------------------------------------------------------------------------------
On June 17, 1998, the holders of the note payable to ex-franchisee initiated
legal action to collect the remaining balance per the agreement. In addition,
the plaintiff has made a formal claim for compensation and lost opportunity to
pursue a successful business venture. The Company agrees to the note payable
liability and intends to vigorously defend the additional claims which the
Company considers groundless. The ultimate resolution of these matters is not
ascertainable at this time. No provision has been made in the financial
statements related to this claim.
On January 21, 1999, a Bullhide dealer initiated legal action for breach of
contract, fraud, and violation of the Tennessee Consumer Protection Act.
Plaintiff is seeking damages incurred. The Company intends to vigorously defend
the substantive claims in this case and is unable to estimate the success or the
amount or range of potential loss, if any.
NOTE 16 -- LEASE COMMITMENT:
- --------------------------------------------------------------------------------
The Company leases the building facilities from an unrelated third party. Rent
expense for the years ended March 31, 1999 and 1998, was $58,844 and $38,702,
respectively. Future minimum lease payments under the noncancellable operating
lease, with an option to renew, are as follows:
Years Ending
March 31, Amount
------------ ------
2000 $50,886
2001 33,924
-------
Total future minimum lease payments $84,810
=======
- --------------------------------------------------------------------------------
F-20
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 17 -- EARNINGS (LOSS) PER SHARE:
- --------------------------------------------------------------------------------
Basic earnings (loss) per share are calculated by dividing earnings (loss) by
the weighted average number of common shares outstanding during the period.
<TABLE>
<CAPTION>
Year Ended
March 31, 1999
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Income (loss) from continuing operations $(977,643) 7,681,951
Less preferred stock dividends - -
--------- ---------
Income (loss) available to common stockholders -
basic earnings (loss) per share $(977,643) 7,681,951 $(.1273)
========= ========= =======
</TABLE>
There were no dilutive securities, options, or warrants at March 31, 1999.
<TABLE>
<CAPTION>
Year Ended
March 31, 1998
-------------------------------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
<S> <C> <C> <C>
Income (loss) from continuing operations $(653,361) 6,334,643
Less preferred stock dividends - -
--------- ---------
Income (loss) available to common stockholders -
basic earnings (loss) per share $(653,361) 6,334,643 $(.1031)
========= ========= =======
</TABLE>
For the year ended March 31, 1998, the Company had warrants outstanding for
634,000 shares of common stock. Because the effect of the outstanding warrants
is antidilutive, the potential common stock shares have not been included in the
loss per share calculation.
- --------------------------------------------------------------------------------
F-21
<PAGE>
The Bullhide Liner Corporation
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
NOTE 18 -- REVENUES FROM CUSTOMERS:
- --------------------------------------------------------------------------------
Following is a summary of revenues from external customers for the Company's
product groups:
<TABLE>
<CAPTION>
Years Ended
March 31,
---------------------------------------------------
1999 1998
---------------------- ------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Product application sales $ 179,792 10.7% $172,076 26.2%
Chemical sales to dealers 701,961 41.6 207,284 31.6
Machine and machine parts 691,611 41.0 190,982 29.1
Dealer supply 58,274 3.5 77,691 11.8
Area development fees 55,000 3.2 - -
Other 64 - 8,438 1.3
---------- ----- -------- -----
Totals $1,686,702 100.0% $656,471 100.0%
========== ===== ======== =====
</TABLE>
- --------------------------------------------------------------------------------
F-23
<PAGE>
INTERNAL PREPARER'S LETTER
--------------------------
F-24
<PAGE>
The Bullhide Liner Corporation
Balance Sheets
(Unaudited)
September 30, 1999 and 1998
1999 1998
-------- --------
Assets
CURRENT ASSETS:
Cash $ 4,610 $ 42,212
Accounts receivable, Net of allowance for doubtful
accounts of $34,746 and $25,000, respectively 262,917 202,198
Inventory 21,680 49,193
Investments -- --
Prepaid expenses and deposits 9,227 --
-------- --------
Total current assets 298,434 293,603
-------- --------
FURNITURE AND EQUIPMENT:
Cost 24,805 128,519
Less accumulated depreciation 19,877 67,476
-------- --------
4,928 61,043
-------- --------
OTHER ASSETS:
Mississippi Franchise 10,000 10,000
Deposits 7,217 --
Systems development 46,830 46,830
Trademark 1,450 1,450
-------- --------
65,497 58,280
Less accumulated amortization 28,354 23,635
-------- --------
37,143 34,645
-------- --------
$340,505 $389,291
======== ========
See accompanying notes to financial statements.
F-25
<PAGE>
The Bullhide Liner Corporation
Balance Sheets
(Unaudited)
September 30, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity (Deficit)
CURRENT LIABILITIES:
Accounts payable $ 253,897 $ 168,802
Accrued taxes 29,637 38,429
Accrued payroll and employee benefits -- 10,032
Accrued expenses 41,521 --
Accrued interest 26,352 11,659
Royalty payable 113,362 47,876
Customer deposits 17,767 11,547
Current obligations under capital lease -- 6,917
Current maturities of long-term debt 40,052 60,988
----------- -----------
Total current liabilities 522,588 356,250
OBLIGATIONS UNDER CAPITAL LEASE -- 16,035
LONG-TERM DEBT, less current maturities 100,803 127,688
----------- -----------
Total liabilities 623,391 499,973
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock - 50,000,000 shares,$.002 par value, authorized;
9,985,218 and 7,808,451 shares issued and outstanding,respectively 19,970 15,617
Preferred stock - 1,000,000 shares, $1.00 par value,
authorized; 60,000 shares issued and outstanding 60,000 60,000
Additional paid-in capital 2,165,887 1,601,177
Retained earnings (deficit) (2,528,743) (1,787,477)
----------- -----------
Total stockholders' equity (deficit) (282,886) (110,683)
----------- -----------
$ 340,505 $ 389,291
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
The Bullhide Liner Corporation
Statement of Operations
(Unaudited)
For The Six Months Ended September 30, 1999 and 1998
1999 1998
----------- -----------
SALES $ 794,692 $ 1,037,021
COST OF SALES 474,201 803,417
----------- -----------
----------- -----------
GROSS PROFIT 320,491 233,604
----------- -----------
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES:
Advertising 33,043 33,082
Trade shows and exhibits -- 5,381
Marketing -- 33,834
Travel 2,050 34,992
Postage and shipping 5,772 13,854
Salaries and wages 222,895 294,794
Payroll taxes 16,150 21,614
Employee benefits 12,994 14,250
Taxes and Licenes (134) 7,390
Vehicle expense 744 2,051
Dues and subscriptions 348 1,319
Legal and professional fees 58,026 26,469
Office supplies 2,719 8,316
Shop supplies 2,316 20,202
Rent 24,740 42,801
Utilities 14,159 27,872
Depreciation 3,000 9,000
Amortization 2,400 2,400
Royalties 39,734 50,014
Other 18,857 19,473
Bad Debts 15,000 --
----------- -----------
474,813 669,108
----------- -----------
LOSS FROM OPERATIONS (154,322) (435,504)
GAIN ON THE SALE OF INVESTMENTS -- 5,000
GAIN ON THE SALE OF SPOKANE SHOP ASSETS 7,312 --
LOSS ON ABANDONMENT OF SPOKANE FACILITY (47,681) --
OTHER EXPENSE, interest (6,864) (7,426)
----------- -----------
NET LOSS $ (201,555) $ (437,930)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.0214) $ (0.0580)
=========== ===========
See accompanying notes to financial statements.
F-27
<PAGE>
The Bullhide Liner Corporation
Statement of Stockholders' Equity (Deficit)
(Unaudited)
For the Six Months Ended September 30, 1999 amd 1998
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------ ----------------------
Shares Shares Additional Retained
Issued and Issued and Paid-in Earnings
Outstanding Amount Outstanding Amount Capital (Deficit) Total
------------------------ ----------------------- ---------- ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances (Deficit), March 31, 1999 7,875,451 $15,751 60,000 $ 60,000 $1,552,872 $(2,327,190) $(698,567)
ADD (DEDUCT):
Issuance of common stock 1,773,573 3,547 -- -- 667,375 -- 670,922
Stock offering costs -- -- -- -- (104,068) -- (104,068)
Issuance of common stock
on conversion of debt 483,827 968 207,540 -- 208,508
Officer and director stock awards 479,200 958 -- -- 59,450 -- 60,408
Stock subscription receivable (626,833) (1,254) (217,282) (218,536)
Net loss -- -- -- -- -- (201,555) (201,555)
----------- ------- -------- --------- ---------- ----------- ---------
Balances (Deficit), September 30, 1999 9,985,218 $19,970 60,000 $ 60,000 $2,165,887 $(2,528,743) $(282,886)
=========== ======= ======== ========= ========== =========== =========
</TABLE>
<TABLE>
<CAPTION>
Common Stock Preferred Stock
---------------------- -----------------------
Shares Shares Additional Retained
Issued and Issued and Paid-in Earnings
Outstanding Amount Outstanding Amount Capital (Deficit) Total
--------------------- ----------------------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances (Deficit), March 31, 1998 7,171,451 $14,343 60,000 $60,000 $1,048,090 $(1,349,547) $(227,114)
ADD (DEDUCT):
Issuance of common stock 637,000 1,274 -- -- 553,087 554,361
Net loss -- -- -- -- -- (437,930) (437,930)
--------- ------- ------ ------- ---------- ----------- ---------
Balances (Deficit), September 30, 1998 7,808,451 $15,617 60,000 $60,000 $1,601,177 $(1,787,477) $(110,683)
========= ======= ====== ======= ========== =========== =========
</TABLE>
See accompanying notes to financial statements.
F-28
<PAGE>
The Bullhide Liner Corporation
Statement of Cash Flows
(Unaudited)
For the Six Months Ended September 30, 1999 amd 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(201,555) $(437,930)
Adjustments to reconcile net loss to net cash
used in operating activities:
Net loss on sale and disposition of fixed assets 40,369 --
Depreciation and amortization 5,400 11,400
Sale of master distributorship for debt reduction (75,000)
(Increase) decrease in assets:
Receivables (151,456) (158,082)
Inventory 27,539 23,617
Prepaid expenses and deposits (9,227) 522
Security deposits (7,217) --
Increase (decrease) in liabilities:
Accounts payable 28,315 32,053
Accrued taxes (42,850) 23,763
Accrued payroll and employee benefits (4,144) 1,472
Accrued expenses 5,971 --
Accrued interest 6,147 3,768
Royalty payable 39,734 25,013
Customer deposits (4,883) (55,289)
--------- ---------
Net cash used in operating activities (342,857) (529,693)
--------- ---------
Cash Flows From Investing Activities:
Purchase of property and equipment -- --
Checks issued in excess of bank balance (15,930) (14,233)
Sale of property and equipment 6,470 --
Abandonment of leasehold improvements -- --
Proceeds from sale of investment -- 5,000
--------- ---------
Net cash used by investing acrtivities (9,460) (9,233)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from issuance of common stock 348,831 554,361
Stock offering costs paid (513) --
Borrowings on long term debt and lease obligations 7,253 24,322
Principal payments on long-term debt and lease obligations (1,519) (5,140)
--------- ---------
Net cash provided by financing activities 354,052 573,543
--------- ---------
Net Increase in Cash 1,735 34,617
Cash at the Beginning of the Period 2,875 7,595
--------- ---------
Cash at the End of the Period $ 4,610 $ 42,212
========= =========
Supplemental Disclosures:
Cash paid for interest $ 714 $ 2,754
Cash paid for income taxes -- --
Schedule of Noncash Investing and Financing Activity:
Debt converted to common stock 196,888 --
Accrued expenses and interest converted to common stock 72,028 --
Shop assets sold for assumption of notes payable 44,539 --
</TABLE>
See accompanying notes to financial statements.
F-29
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements
(Unaudited)
Six Months Ended September 30, 1999 and 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
The Company has granted franchises for the operation of pickup truck bed liner
spray application shops initially targeted for the pickup truck bed liner
market. In July 1996, the Company discontinued the sale of franchises for the
operation of pickup truck bed liner spray application shops. Subsequent to July
1996, the Company commenced selling dealerships under exclusive licensing
agreements and expanded into the industrial flooring market. As of September 30,
1999, the Company has sold fifty-eight dealerships and has three operating
franchises. The Company grants credit to customers for sales of equipment and
materials throughout the United States. In addition, the Company operates a
pickup truck bed liner spray application shop in Spokane, Washington.
Summary of Significant Accounting Policies:
a. Method of accounting - The Company prepares its financial statements on
the accrual method of accounting, recognizing income when earned and
expenses when incurred.
b. Accounts receivable - The Company provides an allowance for doubtful
accounts based upon historical experience and a review of current
receivables.
c. Inventory - Inventory is stated at the lower of cost (determined on the
first-in, first-out method) or market.
d. Furniture and equipment - Furniture and equipment are stated at cost.
Depreciation is computed using the straight-line method for financial
reporting purposes. For federal income tax purposes, accelerated
methods are used.
e. Intangible assets - Intangible assets subject to amortization include
system development costs and logo/trademark development costs. System
costs are being amortized using the straight-line method over the
estimated life of 10 years. Logo/trademark costs are being amortized on
a straight-line basis over 40 years.
f. 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 those estimates.
g. Sales - Spray application equipment is manufactured to customer
specifications and is recorded as a sale when the equipment is shipped
and customer acceptance is received.
(continued)
F-30
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(continued)
h. Advertising costs - Advertising (marketing) costs are expensed as
incurred. Advertising Expense was $33,043 and $33,082 for the six
months ended September 30, 1999 and 1998, respectively.
g. Loss per share - Loss per share is calculated based on the weighted
average of common shares outstanding. Diluted loss per share, based on
potential common stock such as warrants, options or contingent stock
agreements is not presented as such items are antidilutive.
h. Research and development - Research and development costs are expensed
as incurred.
i. Royalty expense - Royalty expenses are recognized concurrently with the
recognition of the related revenue.
j. Training and support - The Company provides training in the field and
ongoing support to licensed dealers. Costs are expensed and/or billed
as incurred.
NOTE 2 - INVENTORIES:
September 30,
----------------------
1999 1998
---- ----
Inventories consisted of the following:
Raw materials $ 16,899 $ 37,991
Machine parts 1,180 6,398
Dealer marketing materials 3,601 4,830
-------- --------
$ 21,680 $ 49,219
======== ========
The Company's raw materials consist of polyurethane resins. There was no work in
process production of materials at September 30, 1999. Production of spray
application equipment was outsourced during the six months ended September 30,
1999.
NOTE 3 - FRANCHISING OPERATIONS:
a. Significant commitments and obligations - The Company is obligated in
accordance with the terms of each franchisee's respective franchise
agreement to provide the following supervision assistance and services:
site location, spray application training, operations manual, and
advertising literature. In addition, franchisees are required to
purchase inventory from the Company.
b. Franchise activity - The number of franchises sold and in operation
during the six months ended September 30, 1999 and 1998 was three.
Current active franchises are located in Colorado, Canada, and Saudi
Arabia.
(continued)
F-31
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 3 - FRANCHISING OPERATIONS: (continued)
c. Franchise fees - Initial franchise fees were recorded as revenue when
all the significant services relating to the franchise sale had been
performed by the Company.
d. Royalty - Each franchisee is required to pay a monthly royalty based on
sales, commencing one year after the franchise opens for business. The
Company has waived its right to receive royalties from franchisees
through September 30, 1999.
NOTE 4 - FURNITURE AND EOUIPMENT:
A summary of furniture and equipment follows:
September 30,
--------------------------
1999 1998
---- ----
Leasehold improvements $ - $ 20,231
Office furniture - 11,194
Computer 2,064 8,105
Vehicles - 28,200
Equipment 22,741 60,789
------- --------
24,805 128,519
Less accumulated depreciation 19,877 67,476
------- --------
Total $ 4,928 $ 61,043
======= ========
NOTE 5 - LONG-TERM DEBT:
Long-term debt consisted of the following:
September 30,
-------------
1999 1998
---- ----
Notepayable to bank, due in monthly installments of $817 including variable
interest; collateralized by substantially all assets and personally
guaranteed by a stockholder* $ - $ 28,740
Notepayable to bank, due in monthly installments of $367 including interest at
10%, maturing June 20, 1999; collateralized by vehicle and personally
guaranteed by a stockholder - 3,210
Notepayable to ex-franchisee, due in monthly installments of $1,350 including
interest at 8.5%, maturing July 31, 1999, including a $13,000 remaining
balance of the down payment on the franchise repurchase, with no stated
interest rate, and which was due and payable October 15, 1997 (see notes 8
and 15) 38,450 38,450
(continued)
F-32
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 5 - LONG-TERM DEBT: (continued)
September 30,
-------------
1999 1998
---- ----
Note payable to stockholders, interest at 8% and 10%
of the principal balance annually on March 31;
unsecured $102,405 $118,276
-------- --------
140,855 188,676
Less current maturities
Total 40,052 60,988
-------- --------
$100,803 $127,688
======== ========
* The Small Business Administration has guaranteed 90 percent of the original
amount ($50,000) of the note payable.
Total interest expense for the notes payable to stockholders was $6,147 and
$4,672 for the six months ended September 30, 1999 and 1998, respectively.
Maturities of long-term debt are as follows:
Six months ending
September 30, Amount
------------- ------
2000 $ 60,923
2001 79,932
2002 --
--------
$140,855
========
NOTE 6 - TRANSACTIONS WITH RELATED PARTIES:
During December the Company borrowed 78,000 shares of the Company's common stock
from Poly Chem Corporation which is 100% owned by a majority stockholder of the
Company. The Company sold the stock and received net proceeds of $37,744 (see
note 5). The Company agreed to issue 85,800 shares of common stock as repayment
to Poly Chem Corporation no later than February 28, 1999. The shares were issued
April 13, 1999.
During May 1999, the Company sold a master dealership for the northwestern
United States and Western Canada to its' chairman (a majority stockholder) in
exchange for $75,000 of notes payable to him:
Note payable due June 30, 2000 $39,129
Note payable due July 28, 2000 20,000
A portion of note payable due March 31, 2001 15,871
-------
$75,000
=======
(continued)
F-33
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 7 - PREFERRED STOCK:
Holders of the preferred stock have equal voting rights with the common
stockholders. The preferred stock is redeemable at the option of the Company at
$1 per share. As of the reporting date, the Company has not exercised the option
to redeem any of the preferred stock. Upon liquidation, the holders of the
preferred stock are entitled to receive, as a preferential distribution, the par
value of the preferred stock before any assets are distributed to the common
stockholders.
NOTE 8 - COMMITMENTS:
On June 30, 1997, the Company purchased the technology rights from Poly Chem
Corporation for the materials used in the pickup bed liner and floor coating
processes as well as other polyurethane technology. Under the terms of the
purchase agreement, the Company will pay Poly Chem Corporation a royalty based
on five percent of total gross revenues of the Company to a maximum of $200,000.
As of September 30, 1999, $146,862 of royalties had been accrued, of which
$33,500 had been paid. Upon payment of the full $200,000 in royalties, Poly Chem
Corporation will transfer all of its interests in the formulation and technology
including, but not limited to, all patent rights therein, including the current
patent application 08/493858, and any and all future patent rights to Bullhide,
and shall have no further rights therein. The Company is in the process of
obtaining a patent for the materials used in the pickup bed liner process.
Future minimum royalty payments are as follows:
Year ending
September 30, Amount
------------- ------
2000 $166,500
========
On July 31, 1997, the Company repurchased the franchise rights together with
certain assets of an existing franchisee. Under the terms of the repurchase
agreement, the Company was obligated to pay the franchisee $88,700 under the
following terms:
Downpayment $ 2,500
Inventory 6,300
Monthly payments of $5,000 commencing October 15, 1997,
with no stated interest rate 38,200
Consulting services provided by the franchisee payable
at $1,000 per month commencing August 30, 1997 12,000
Remaining balance to be paid in monthly payments
of $1,350 including interest at 8.5%,
commencing August 30, 1997
29,700
--------
$ 88,700
========
To date, $45,250 has been paid (see note 5).
(continued)
F-34
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 9 - INCOME TAXES:
The Company's deferred tax asset was as follows:
September 30,
------------------
1999 1998
---- ----
Deferred tax asset arising from net
operating loss carryforwards $850,000 $607,000
Valuation allowance (850,000) (607,000)
-------- --------
Net deferred income tax asset $ - $ -
======== ========
At September 30, 1999, the Company had approximately $2,500,000 in net operating
loss carryforwards which are available to reduce future taxable income. The
carryforwards begin to expire in 2011.
For the years presented, the income tax provision (benefit) differs from the
amount expected using statutory tax rates because of the effects of the deferred
tax asset valuation allowance.
NOTE 10 - RECAPITALIZATION:
During the year ended March 31, 1997, the Company recapitalized its common and
preferred stock. Under the terms of the recapitalization, the par value of the
common and preferred stock were changed to $.002 and $1.00, respectively. The
number of authorized shares of common and preferred stock was increased to
50,000,000 and 1,000,000, respectively.
NOTE 11 - PRIVATE PLACEMENT:
On December 17, 1996, the Company was authorized to issue a private placement of
common stock. The Company is authorized to issue 10,000 units at $5.00 per unit.
As of July 10, 1998, all warrants were exercised (see note 12, paragraph 3).
Each unit consists of 50 shares of common stock and 95 redeemable stock purchase
warrants. The common stock purchase warrants are exercisable for one share of
common stock at $1.00 per share until December 17, 1998. The Company may redeem
the warrants at $.01 per warrant with 30-day prior written notice if the common
stock bid price equals or exceeds $2.50 per share for ten consecutive trading
days ending on the third day prior to or the date on which such notice was
given.
During the fiscal year ended March 31, 1998, all 10,000 units were sold, and
950,000 stock purchase warrants were exercised as of September 30, 1999 and
September 30, 1998.
(continued)
F-35
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 12 - SUBSCRIBED STOCK:
On April 1, 1999 an entity entered into an agreement with the Company to acquire
2,000,000 shares of free trading common stock at the stated price of $.50 per
share. The offering was completed on April 5, 1999 when the purchaser executed a
$1,000,000 promissory note payable to the Company with the stated interest rate
of twelve percent, and the unpaid principal and any earned interest due and
payable June 29, 1999. Subsequently, as the market price of the common stock
decreased, the agreement was periodically modified to amounts less than $.50 per
share. The remaining balance of the note was renegotiated for $412,000 as of
June 29,1999 and extended until June 30, 2000.
Under Emerging Issues Task Force (EITF) Issue 85-1, notes receivable for
subscribed stock may not be recorded as an asset. If such notes were recorded as
of September 30, 1999, assets and stockholders' equity would be increased by
$218,536.
Sales of the subscribed stock have been recorded as the proceeds were received
through September 30, 1999.
NOTE 13 - GOING CONCERN:
As shown in the Company's financial statements, the Company incurred net losses
of $201,555 for the six months ended September 30, 1999. In addition, the
Company has negative working capital of $224,154 and stockholders' deficit of
$282,886. These conditions raise substantial doubt about the Company's ability
to continue as a going concern.
Management is committed to the future of the Company and has taken the following
actions to keep the Company viable and in existence as a going concern:
1. The Company has utilized long-term debt from the original stockholders
to fund the development of several key aspects of the national
dealership system including advertising for both the local and national
promotion, legal aspects such as state registrations, and improvements
in application equipment, as well as the employment and training of the
needed personnel. These developments are expected to benefit the
organization in the future. In addition, on June 30, 1997, the original
stockholders of the Company converted long-term debt plus accrued
interest to common stock.
2. On July 6, 1997 the Company hired an executive vice president of sales
and marketing. The vice president's responsibilities included hiring
and training a team of independent sales representatives and developing
a national marketing plan. On January 27, 1998 he was promoted to
president and on October 14, 1998 to chief executive officer.
(continued)
F-36
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 13 - GOING CONCERN (continued):
3. The Company completed a private placement of common stock during July
1997 which resulted in the issuance of 10,000 units at $5.00 per unit.
Each unit consisted of 50 shares of common stock and 95 redeemable
stock purchase warrants. The Company received its symbol to trade on
the NASDAQ Bulletin Board on December 17, 1997. A secondary market for
the stock was established. As of July 10, 1998 all warrants were
exercised and the company received a net total of $783,629. The Company
has utilized this investment capital to expand national advertising and
exhibits at national and regional trade shows. Research and engineering
activities have also been expanded to produce the next generation of
application equipment and coating and lining products.
4. Recent marketing efforts in the industrial flooring and chemical
containment markets have resulted in positive sales. Generally, jobs in
the flooring and chemical containment markets are much larger than the
truck bed liner market and may result in a higher sales volume of
Bullhide materials per order and per dealer.
5. During April 1999, the Company began the process of restructuring the
Company's operations and administration by moving its corporate office
from Spokane, Washington, to south Florida. A fifth master
distributorship, serving the Northwest region, has been established in
Spokane by the Company's founder. This restructuring will save the
Company in excess of $250,000 in annualized costs.
6. On May 6, 1999, the Company engaged a law firm to prepare a
Registration Statement on Form 10-SB for the registration of its
securities with the SEC. Beginning in January 1999, the NASD has
required all prospective new listing companies to become registered
with the SEC in order to qualify for listing on the OTC Bulletin Board
exchange. Companies already on the exchange were given deadlines to
file a registration statement with the SEC. The Company's deadline to
complete its registration process with the SEC is October 1999.
NOTE 14 - ISSUANCE OF COMMON STOCK ON CONVERSION OF DEBT:
On April 13, 1999, the following liabilities were converted to common stock:
Notes payable to stockholders and officers $122,986
(related parties)
Note payable to stockholders 36,158
Note payable to Poly Chem Corporation 37,744
(a related party) --------
$196,888
========
(continued)
F-37
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 15 - PENDING LITIGATION:
On June 17, 1998, the holders of the note payable to ex-franchisee initiated
legal action to collect the remaining balance per the agreement. In addition,
the plaintiff has made a formal claim for compensation and lost opportunity to
pursue a successful business venture. The Company agrees to the note payable
liability and intends to vigorously defend the additional claims which the
Company considers groundless. The ultimate resolution of these matters is not
ascertainable at this time. No provision has been made in the financial
statements related to this claim.
On January 21, 1999, a Bullhide dealer initiated legal action for breach of
contract, fraud, and violation of the Tennessee Consumer Protection Act.
Plaintiff is seeking damages incurred. The Company intends to vigorously defend
the substantive claims in this case and is unable to estimate the success or the
amount or range of potential loss, if any.
NOTE 16 - LEASE COMMITMENT:
The Company leases the building facilities in Spokane, Washington from an
unrelated third party. During May, 1999, the Company moved its administrative
and accounting offices from the leased facilities to South Florida. The third
party lessor, the Company's Spokane dealer and the Company's officer remaining
in Spokane are exerting their best efforts to locate a suitable replacement
lessee or sub-lease. The Company has accrued an expense, which management
believes is adequate to cover future payments related to this lease, during the
six months ended September 30, 1999 as part of the loss on the abandonment of
the Spokane facility. Future minimum lease payments under the noncancellable
operating lease, with an option to renew, are as follows:
Year ended September 30, 2000 50,886
Year ended September 30, 2001 8,480
-------
Total future minimum lease payments $59,366
=======
(continued)
F-38
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 17 - EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share are calculated by dividing earnings (loss) per
share by the weighted average number of common shares outstanding during the
period.
Six Months Ended
September 30, 1999
------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
Income (loss) from continuing
operations $ (161,186) 9,401,649
Loss from sale/abandonment of
Spokane facility $ (40,369) 9,401,649
Less preferred stock dividends - -
---------- ---------
Income (loss) available to common
shareholders - Basic
earnings (loss) per share $ (201,555) 9,401,649 $(.0214)
========== ========= =======
There were no dilutive securities, options or warrants at September 30, 1999.
Six Months Ended
September 30, 1998
------------------
Income Shares Per-share
(Numerator) (Denominator) Amount
----------- ------------- ------
Income (loss) from continuing
operations $(437,930) 7,547,380
Less preferred stock dividends - -
---------- ---------
Income (loss) available to common
shareholders - Basic
earnings (loss) per share $ (437,930) 7,547,380 $(.0580)
========== ========= =======
There were no dilutive securities, options or warrants at September 30, 1998
(continued)
F-39
<PAGE>
The Bullhide Liner Corporation
Notes to Financial Statements - Continued
(Unaudited)
NOTE 18 - REVENUES FROM CUSTOMERS:
Following is a summary of revenues from external customers for the Company's
product groups:
Six Months Ended
September 30,
-------------
1999 1998
---- ----
Amount Percent Amount Percent
------ ------- ------ -------
Product application sales $ 11,891 1.5% $136,333 13.1%
Chemical sales to dealers 459,251 57.8 385,451 37.2
Machines and machine parts 155,061 19.5 435,956 42.0
Dealer supply 5,590 0.7 34,191 3.3
Area development fees 162,899 20.5 45,000 4.3
Other - - 90 0.0
-------- ----- ---------- -----
Totals $794,692 100.0% $1,037,021 100.0%
======== ===== ========== =====
NOTE 19 - SUBSEQUENT EVENTS
The Company did not meet its October 6, 1999 deadline for registration with the
Securities and Exchange Commission (see NOTE 13). However, the Form 10-SB
Registration Statement was filed on October 1, 1999 and the Company's law firm
estimates a completed registration, with satisfactory response to Security and
Exchange Commission comments, during the period from November 30, 1999 to
January 31, 2000. As a result of the delayed registration, the Company's stock
trading has been transferred from the NASD O-T-C Bulletin Board to the O-T-C
"pink sheets." The NASD will probably return trading of the Company's stock to
the Bulletin Board as soon as the Securities and Exchange Commission
registration is completed.
F-40
EXHIBIT 10.4
BULLHIDE
DEVELOPMENT and Distribution AGREEMENT
THIS AGREEMENT. made at Spokane, Washington, as of the date set forth
below, by and between THE BULLHIDE LINER CORPORATION,. a Washington corporation.
d/b/a Bullhide Liner (hereinafter "Bullhide") and PROTECTIVE SURFACING, INC.,
(hereinafter referred to as "Licensee").
WHEREAS, Bullhide is engaged in the business of operating and licensing
Installation Centers under the name of "Bullhide Liner" which offers to sell to
the pubic a custom spray- molded permanent polyurethane lining that protects and
preserves the beds of trucks, vans trailers and boats; and
WHEREAS, Bullhide has developed a business plan and method in
connection with the operation of Bullhide Liner Installation Centers for
providing products and services utilizing certain standards, specifications,
methods, procedures, techniques, management systems, identification schemes,
recipes and proprietary marks and information (hereinafter "Bullhide Liner
System"), all of which may be changed, improved and further developed from time
to time by Bullhide; and
WHEREAS, the distinguishing characteristics of the Bullhide Liner
System include, without limitation, the name and mark "Bullhide," together with
such other trade names, service marks, trademarks and trade symbols, emblems,
signs, slogans, insignia and copyrights as Bullhide has adopted and designated
for use in connection with the Bullhide Liner System and as Bullhide may
hereafter acquire or develop and designate for use in connection with the
Bullhide Liner System (hereinafter "Licensed Rights"), and
WHEREAS, Bullhide has established an excellent reputation and goodwill
with the public with respect to the quality of products and services available
at Bullhide Liner Installation Centers, which reputation and goodwill have been
and continue to be of major benefit to Bullhide; and
WHEREAS, Licensee recognizes the benefits to be derived from being
identified with and licensed by Bullhide and being able to utilize the Bullhide
Liner System and the Licensed Rights which Bullhide makes available to its
Licensees and through the Unit License Agreements relating to specific
Installation Center sites selected by Licensee and Accepted by Bullhide, and
WHEREAS, Licensee desires to obtain the right to select proposed sites
on which to construct Bullhide Liner Installation Centers, to submit the same to
Bullhide for its acceptance and, upon the acceptance of each proposed site by
Bullhide construct, own and operate a Bullhide Liner Installation Center upon
such site (hereinafter "Developmental Rights") upon the terms and conditions set
forth herein which terms are necessary to ensure the controlled development of
Bullhide Liner Installation Centers within the Licensed Areas and to maintain
<PAGE>
Bullhide's high uniform standards of quality and service and to protect the
goodwill and enhance the pubic image of the Bullhide Liner System and the
Licensed Rights.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
herein contained, the parties, intending to be legally bound, hereby agree as
follows:
1. Area Exclusivity and Construction Schedule.
1.1 Subject to the terms and conditions of this Agreement,
Bullhide hereby grants to the Licensee the exclusive
Development and Distribution Rights for Bullhide Liner
Installation Centers in the following areas (hereinafter the
"Exclusive Development Area"):
THE COUNTIES OF COOK, DUPAG, LAKE, MCHENRY, BOONE, AND
WINNEBAGO.
1.2 Licensee Agrees to develop and commence construction a minimum
of 8 Bullhide Liner Installation Centers within the Exclusive
Development Areas in accordance with the following development
and performance schedule (hereinafter the "Performance
Schedule"):
Total No. of Installation Centers On or Before
1 June 15, 1999
2 December 15, 2000
5 December 15, 2001
8 December 15, 2002
1.3.1 SECTION 1.3.1 IS VOID FOR THE PURPOSES OF
THIS AGREEMENT.
1.3.2 For the Exclusive Marketing rights to
develop the areas above, the Licensee agrees
to pay a sum of $55,000. The number of Unit
Licenses in this Development Area is
specified in P. 1.2. Licensee agrees that
this specifically does not constitute a
franchise fee per se, that this payment is
in consideration for Bullhide for the
reservation of these areas by the Licensee
for future development.
1.3.3 The continuous purchase of Bullhide
materials is necessary to qualify a location
as open and operating. Following a two month
grace period.
6.1 Licensee shall execute said Unit License Agreement for each
Bullhide Installation Center. Said Unit License Agreement
shall be the standard form of Unit License Agreement then bing
utilized by Bullhide; provided, however, that Licensee, may
elect to sign the Unit Licensee Agreement in use at the time
of the execution of
<PAGE>
this Development Agreement, subject to law, regulation or
ordinance in effect from time to time.
7. Commencement of Construction.
7.1 SECTION 7.1 IS VOID FOR THE PURPOSES OF THIS AGREEMENT.
7.2 Licensee must obtain all permits, governmental approvals, and
otherwise obtained the rights to construct, maintain and
operate a Bullhide Liner Installation Center on the site, and
Licensee shall notify Bullhide of such fact in writing.
7.3 SECTION 7.3 IS VOID FOR THE PURPOSES OF THIS AGREEMENT.
8. Limitation of Agreement. License acknowledges and agrees that:
8.1 This Agreement does not include the grant of a license by
Bullhide to Licensee of any rights to use the Licensed Rights,
the Bullhide Liner System, or to open or operate any Bullhide
Liner Installation Centers within the Licensed Area. Licensee
shall obtain the license to use such additional rights at each
Bullhide Liner Installation Center upon the execution of each
Unit License Agreement by both Licensee and Bullhide and only
in accordance with the terms of each Unit License Agreement.
8.2 The Development Rights granted hereunder are personal to
Licensee and cannot be sold, assigned, transferred or
encumbered, in whole or in part, except as set forth in P. 12
hereof.
8.3 SECTION 8.3 IS VOID FOR THE PURPOSES OF THIS AGREEMENT.
8.4 Except as provided in P. 1 hereof, the Developmental rights
granted hereunder are non-exclusive, and Bullhide retains the
right in its sole discretion:
8.4.1 To continue to construct and operate other Bullhide
Liner Installation Centers and to use Bullhide Liner
System and the Licensed Rights at any location
outside the Development Areas, and to license others
to do so.
8.4.2 To develop, use and license the rights to any trade
names, trademarks, service marks, trade symbols,
emblems, signs, slogans, insignia or copyrights not
designated by Bullhide as Licensed Rights, for use
with different license systems for the sale of
different products or services other than in
connection with the Bullhide Liner Systems, on such
terms and conditions as Bullhide may deem advisable
and without granting Licensee any rights therein.
8.4.3 To promote or conduct special exhibits at regional
or nationally oriented
<PAGE>
fairs, shows and special evens utilizing mobile units
or temporary locations within the Development areas.
Bullhide believes that, on occasion, certain national
or regional customer accounts will be developed by
them which may require a bidding process by two or
more Licensees. In this event, each qualified
Licensee desiring to bid on such accounts will be
given the opportunity to bid for such work.
8.5 Because complete and detailed uniformity under many varying
conditions may not be possible or practical, Bullhide
specifically reserves the right and privilege, at its sole
discretion and as it may deem in the best interests of all
concerned in any specific instance, to vary standards for any
Licensee based upon the peculiarities of a particular site or
circumstance, density of population, business potential,
population of trade area, existing business practices or any
other condition which Bullhide deems to be of importance to
the successful operation of such Licensee's business. Licensee
shall not be heard to complain on account any variation from
standard specifications and practices granted to any Licensee
and shall not be entitled to require Bullhide to grant
Licensee a like or similar variation hereunder.
8.6 Licensee has sole responsibility for the performance of all
obligation arising out of the operation of its business
pursuant to this Agreement, including, but not limited to, the
payment when due of any and all taxes levied or assessed by
reason of such operation.
8.7 In all public records, in its relationship with other persons,
and in any offering circular, prospectus or similar document,
Licensee shall indicate clearly the independent ownership of
Licensee's business and that the operations of said business
are separate and distinct from the operation of Bullhide's
business.
8.8 Licensee agrees to indemnify and hold harmless Bullhide from
any liability or damage Bullhide may incur, including
reasonable attorney's fees, as a result of claims, demands,
costs or judgments, of any kind or nature, by anyone
whomsoever, arising out of, or otherwise connected with this
Agreement, the Developmental Rights, the acquisition of any
Installation Center site, or ownership, maintenance or
operation of any Bullhide Liner Installation Center by
Licensee.
9. Services by Bullhide. Bullhide shall, at its expense, make available to
Licensee the following:
9.1 The benefit of Bullhide's experience in the selection of
Bullhide's Liner Installation Center sites through the use of
Bullhide's Site Acceptance Form, site selection criteria and
any related materials which Bullhide may make available to
<PAGE>
new Licenses from time to time, and such review thereof as
Bullhide, at its option, may undertake as part of its
evaluation of Licensee's request for site approvals.
9.2 SECTION 9.2 IS VOID FOR THE PURPOSES OF THIS AGREEMENT.
9.3 Initial training in the Bullhide Liner System, including
standards, methods, procedures and techniques for Licensee (if
he is an individual); for each persona who has an interest in
the Licensee (if Licensee is a group of individuals, a
corporation, a partnership or an unincorporated association or
a similar entity); if required to do so by Bullhide; and for
two additional persons who are actively involved in the
management or operation of the business of Licensee or the
operation of Bullhide Liner Installation Center. Such training
shall be at such time and places as Bullhide may designate for
its training program, in its discretion, and shall be subject
to the terms of each Unit License Agreement.
10. Default. Termination.
10.1 The occurrence of any of the following events shall constitute
a default under this Development Agreement.
10.1.1 If Licensee shall, in any respect, fail to
meet the Performance Schedule.
10.1.2 If Licensee shall use the Bullhide Liner
System or Licensed Rights, or any other
names. marks systems, insignia, symbols or
rights which are the property of Bullhide
except pursuant to, and in accordance with,
a valid and effective Unit License
Agreement.
10.1.3 If Licensee, or persons controlling,
controlled by, or under common control with
License, shall have any interest, direct or
indirect, in the ownership or operation of
any Installation Center engaged in the sale
or use of competitive polyruethane coatings
and related products within the Development
Areas or in any Installation Center which
looks like, copies of imitates any Bullhide
Liner Installation Center or operates in a
manner tending to have such effect other
than in accordance withP. 11 hereof.
10.1.4. If Licensee shall fail to remit to
Bullhide any payments pursuant to P.
5 when the same are due.
10.1.5 If Licensee shall purport to effect any
assignment other than in accordance with P.
11 hereof.
10.1.6 Except as provided in P. 11.2 hereof, if
Licensee attempts to sell, assign, transfer
or encumber this Agreement prior to the time
that
<PAGE>
at least fifty percent (50%) of the Bullhide
Liner Installation Centers to be constructed
and opened for business, inc accordance with
the Performance Schedule are, in fact, open
or under construction.
10.1.7 If Licensee makes or has made, any
misrepresentations to Bullhide in connection
with obtaining the development Agreement,
any side approval hereunder, or any Unit
Franchise Agreement.
10.1.8 If Licensee fails to obtain Bullhide's prior
written approval or consent as expressly
required by this Agreement.
10.1.9 If Licensee defaults im the performance of
any other obligation under this Agreement.
10.1.10 If Licensee defaults in the performance of
any obligation under any Unit License
Agreement with Bullhide. regardless of
whether or not said Unit License Agreement
is terminated as a result of such default.
10.1.11 If Licensee, or any person controlling,
controlled by or under common control with
Licensee, shall be adjudicated a bankrupt or
insolvent; shall make an assignment for the
benefit of creditors or similar disposition
of the assets of the license business; or
shall voluntarily abandon the license
business. this provision may not be
enforceable under federal bankruptcy law (11
U.S.C.A.ss.101, et seq.).
10.1.12 If Licensee, or any person controlling,
controlled by, or under common control with
Licensee, shall be convicted or pleads
guilty or not contest to a charge of
violating any felony relating to business.
10.2 Upon occurrence of any of the events set forth in P. 10.1,
Bullhide may, without prejudice to any other rights or
remedies contained in this Agreement or provided by law or
equity, terminate this Agreement. Such termination shall be
effective thirty (30) days after written notice (or such other
notice as may be required by applicable Washington law) is
given by Bullhide to Licensee of any of the events set forth
in subparagraph 10.1.1 through 10.1.10 of P. 10.1 if such
defaults are not cured within such period. Termination shall
be effective immediately and without notice, however, upon
occurrence of any of the events specified in subparagraph
10.1.11 and 10.1.12 of P. 10.1, except where prohibited by
Washington law.
10.3 Upon termination of this Agreement for any reason, or upon
expiration of the term hereof, Licensee agrees as follows:
<PAGE>
10.3.1 To cease immediately any attempts to select
or develop sites on which to construct
Bullhide Liner Installation Centers.
10.3.2 To cease immediately to hold itself out in
any way as a Licensee of Bullhide or to do
anything which would indicate any
relationship between it and Bullhide except
to the extent permitted pursuant to P. 10.4.
10.4 Termination of this Agreement shall not affect the rights of
Licensee to operate Bullhide Liner Installation Centers in
accordance with the terms of any Unit License Agreements with
Bullhide until and unless such Unit License Agreements, or any
of them. are terminated in accordance with their terms/
11. Assignment. Conditions and Limitations.
11.1 Licensee shall neither sell, assign, transfer nor encumber
this Agreement, the Developmental Rights, or any other
interest hereunder, nor suffer or permit any such assignment,
transfer or encumbrance to occur buy operation of law or
otherwise, without the prior written consent of Bullhide.
If Licensee is a corporation, partnership, unincorporated
association or similar entity, the terms of P. 11 shall be
deemed to apply to any sale, resale, pledge, assignment,
transfer or encumbrance of the voting stock of, or other
ownership interest in, Licensee, which would, along or
together with other related, precious, simultaneous or
proposed transfers, result in a change of "control" of
Licensee within the meaning of the Securities Exchange Act of
1934 and the regulations thereunder.
The term "Licensee," as used in this P. 11 shall be deemed to
include the person or persons who control Licensee as
disclosed to Bullhide in a writing upon the execution of this
Agreement attached hereto as an exhibit and made a part hereof
for all purposes.
11.2 In the event of the death, disability or permanent incapacity
of Licensee, Bullhide shall not unreasonably withhold its
consent to the transfer of all of the interest of License to
his spouse, heirs or relatives, by blood or marriage, whether
such transfer is made by will or by operation of law, provided
that the requirements of P. 11.7 hereof have been met. In the
event that Licenser's heirs do not obtain the consent of
Bullhide, as prescribed herein, the personal representative of
Licensee shall have a reasonable time to dispose of Licensee's
interest hereunder, which disposition shall be subject to all
the terms and conditions for transfers under this Agreement.
11.3 Licensee has represented to Bullhide that he is entering into
this Development Agreement with the intention of complying
with its terms and conditions itself
<PAGE>
and not for the purpose of resale of the Developmental Rights
hereunder. Therefore, Licensee agrees that any attempt to
assign this Agreement, prior to the time at least fifty
percent (50%) of the Bullhide Liner Installation Centers to be
constructed hereunder are opened or under construction, except
pursuant to P. 11.2 hereof, shall be deemed to be an event of
default.
11.4 Except as provided in P. 11.3, if Licensee received from a
third person and desires to accept bona fide written offer to
purchase its business, Developmental Rights and interest,
Bullhide shall have the option, exercisable within forty-five
(45) days after receipt of written notice, and a copy of such
offer and other information set forth in P. 11.4, to purchase
such business, Developmental Rights and interests, including
Licensee's right to develop sites within the Licensed Areas,
on the same terms and conditions as offered by said third
party. In order that Bullhide may have information sufficient
to enable it to determine whether to exercise its option,
Licensee shall deliver to Bullhide certified financial
statements as of the end of Licensee's most recent fiscal year
and such other information about the business and operations
of Licensee as Licensee must purchase a minimum of a drum set
(160 gallon) per month for the first eighteen (18) months.
Licensee must purchase 6 drum sets (960 gallons) per month
during months nineteen through thirty (19-30). Licensee must
purchase 10 drum sets (1600 gallons) per month during months
thirty-one through forty-two (31-42). Licensee must purchase
sixteen drum sets (2560 gallons) per month for each subsequent
month that this Agreement remains in place.
1.4 Failure to meet the Performance Schedule set forth in
paragraph 1.2 above will result in the forfeiture of the
rights to exclusivity by the Licensee, for the development
area. However, the license(s) to maintain, distribute to an
operate the Installation centers established in the areas will
not be affected by such failure to meet any Performance
Schedule
2. Termination.
Unless sooner termination in accordance with the terms of this
Agreement, the term of this Agreement and all Developmental Rights
granted hereunder shall last indefinitely, subject to renewal every
five (5) years.
3. Renewal
This Agreement shall be subject to renewal every five years by
agreement of both of the parties.
4. Timely Performance.
Licensee hereby acknowledges that its timely development of the
Bullhide Liner Installation Centers in the Licensed Development areas
in accordance with the Performance Schedule is of material importance
to Bullhide and the Licensee, and agrees, as a condition of the
continuance of the rights granted hereunder, to develop and construct
Bullhide Liner Installation Centers within the Development Areas in
<PAGE>
accordance with the Performance Schedule, to operate such Installation
Centers pursuant to the terms of the Unit License Agreements and to
maintain all such Installation Centers in operation continuously.
5. SECTION 5 IS VOID FOR THE PURPOSES OF THIS AGREEMENT
6. Unit License Agreement.
Licensee has provided to said third party. If Bullhide does
not exercise its option Licensee may, within sixty (60) days
from the expiration of the option period, sell, assign and
transfer its business, Developmental Rights and interests to
said third party provided Bullhide has consented to such
transfer as required by this P. 11. Any material change in the
terms of the offer prior to closing of the sale to such third
party shall constitute a new offer, subject to the sale rights
of first refusal by Bullhide or its nominee as in the case of
an initial offer. Failure by Bullhide to exercise the option
afforded by this P. 11.4 shall not constitute a waiver of any
other provision of this Agreement, including all of the
requirements of this P. 11 with respect to the proposed
transfer.
11.5 Licensee acknowledges and agrees that the restrictions on
sale, assignment or transfer impose herein are reasonable and
are necessary to protect the Development Rights, the Bullhide
Liner System and the Licensed Rights, as well as Bullhide's
excellent reputation and image, and are for the protection of
Bullhide, Licensee, and other Licensees. Any assignment or
transfer permitted by thisP. 11 shall not be effective until
Bullhide receives a completely executed copy of all transfer
documents, and consents in writing.
11.6 Except as provided in P. 11.3 hereof, Bullhide agrees not to
unreasonably withhold its consent to a sale, assignment or
transfer by Licensee hereunder. Consent to such transfer
otherwise permitted or permissible as reasonable may be
refused unless:
11.6.1 All obligations of the Licensee created by
this Agreement, all other licensee
documents, including all Unit License
Agreements, and the relationship created
hereunder are assumed by the transferee.
11.6.2 All ascertained debts of Licensee to
Bullhide are paid.
11.6.3 Licensee is not in default hereunder.
11.6.4 Transferee satisfactorily completes the
training required of new Licensees on
Bullhide's then current terms prior to the
date of transfer.
<PAGE>
11.6.5 Licensee satisfies Bullhide that the
transferee meets all of the requirements of
Bullhide for new Licensees, including but
not limited to, good reputation and
character, business acumen, operational
ability, financial strength and other
business considerations.
11.6.6 Transferee executes or, in appropriate
circumstances, causes all necessary parties
to execute Bullhide's standard form of
Development Agreement, Unit License
Agreements for all Installation Centers open
or under construction and such other than
current ancillary agreements being required
by Bullhide of new Licensees on the date of
transfer.
11.6.7 Licensee executes a general release in a
form satisfactory to Bullhide of any and all
claims against Bullhide.
11.6.8 Licensee or transferee pays to Bullhide a
transfer fee in an amount sufficient to
cover Bullhide's reasonable costs in
effecting the transfer and in providing
training and other initial assistance to
transferee.
11.6.9 This Agreement shall inure to the benefit of
Bullhide, its successors and assigns, and
Bullhide shall have the right to transfer or
assign all or any part of its interest
herein to any person or legal entity.
12. Notices. All notices hereunder shall be in writing and shall
be duly given if hand delivered or sent by registered or certified mail, postage
prepaid, addressed:
If to Bullhide at: The Bullhide Liner Corporation
North 525 Fancher Way
Spokane, WA 99212
If to Licensee at:
or at such other address as Bullhide or Licensee shall have specified
by notice to the other party hereunder.
13. Governing Law. This Agreement shall be deemed to have been made and
entered into the State of Washington an all rights and obligations of
the parties hereto shall be governed by and construed in accordance
with the laws of the State of Washington.
<PAGE>
14. Remedies Cumulative: Waiver Consents. All rights and remedies of
Bullhide and of Licensee enumerated in this Agreement shall be
cumulative and, except as specifically contemplated otherwise by this
Agreement, none shall exclude any other right or remedy allowed by law
or in equity and said rights or remedies may be exercised and enforced
concurrently. No waiver by Bullhide or by Licensee of any covenant or
condition or the breach of any covenant or condition of this Agreement
to be kept or performed by the other party shall constitute a waiver by
the waiving party of any subsequent breach or non-observance on any
other occasion of the same or any other covenant or condition of this
Agreement. Subsequent acceptance by Bullhide of any payments due to it
hereunder shall not be deemed to be a waiver by Bullhide of any
preceding breach by Licensee of any terms, covenants or conditions of
this Agreement.
Whenever this Agreement requires Bullhide's prior approval or consent,
Licensee shall make a timely written request to Bullhide therefor, and
such approval shall be obtained in writing. Bullhide will also consider
granting, in its sole discretion, other reasonable requests
individually submitted by Licensee in writing for Bullhide's prior
waiver of any obligation imposed by this Agreement. Bullhide makes no
warranties or guarantees upon which Licensee may rely, and assumes no
liability or obligation to Licensee, by providing any waiver, approval,
consent or suggestion to Licensee in connection with this Agreement, or
by reason by any neglect, delay or denial of any request thereof. Any
waiver granted by Bullhide shall be subject to Bullhide's continuing
review, may subsequently be revoked for any reason effective upon
Licensee's receipt of ten (10) days' prior written notice, and shall be
without prejudice to any other rights Bullhide may have.
15. Severability. If any provision of this Agreement or the application of
any provision to any person or to any circumstances shall be determined
to be invalid or unenforceable, then such determination shall not
affect any other provision to any other person or circumstances, all of
which other provisions shall remain in full force and effect, and it is
the intention of Bullhide and Licensee that if any provision of this
Agreement is susceptible of two or more constructions one of which
would render th provision enforceable and the other or others of which
would render th provision unenforceable, then the provision shall have
the meaning which renders it enforceable.
16. Entire Agreement. This Agreement together with all Unit License
Agreements executed hereunder constitute the entire agreement between
Bullhide and Licensee in respect of the subject matter hereof, and this
Agreement supersedes all prior and contemporaneous agreements between
Bullhide and LICENSEE in connection with the subject matter of this
Agreement. No officer, employee or other servant or agent of Bullhide
or Licensee is authorized to make any representations, warranty or
other promise not contained in this Agreement. No change, termination
or attempted waiver of any of the provisions of this Agreement shall be
binding upon Bullhide or Licensee unless in writing and signed by
Bullhide and Licensee.
<PAGE>
17. Joint and Several Obligation. If the Licensee consists of more than one
person, their liability under this Agreement shall be deemed to be
joint and several.
18. Counterpart: Paragraph Headings. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but
all of which together shall constitute one and the same instrument. The
paragraph headings in this Agreement are for convenience of reference
only and shall not be deemed to alter or affect any provision thereof.
Each pronoun used herein shall be deemed to include the other number
and genders.
19. Acknowledgments. Licensee acknowledges that:
19.1 It has conducted an independent investigation of the business
contemplated by this Agreement and recognizes that it involves
business risks making the success of the venture largely
dependent upon the business abilities of Licensee. Bullhide
expressly disclaims the making of, and Licensee acknowledges
that it has not received or relied upon, any warranty or
guarantee, express or implied, as to the potential sites,
volume, profits or success of the business venture
contemplated by this Agreement.
19.2 It has no knowledge of any representations by Bullhide or its
officers, directors, shareholders, employees, agents or
servants about the business contemplated by this Agreement,
that are contrary to the terms of this Agreement or the
documents incorporated herein, and further represents to
Bullhide as an inducement to its entry into this Agreement,
that it has made no misrepresentations in obtaining this
Agreement.
19.3 It has received, read and understood this Agreement, the
attachments hereto, including the Unit license Agreement
attached hereto; Bullhide has fully and adequately explained
the provisions of each to its satisfaction; and Bullhide has
accorded it ample time and opportunity to consult with
advisors of its own choosing about the potential benefits and
risks of entering into this Agreement.
19.4 It is aware of the fact that some other present Licensees of
Bullhide may operate under different forms of agreement and,
consequently, that Bullhide's obligations and rights in
respect to its various joint ventures may differ materially in
certain circumstances.
<PAGE>
20. Effective Date. This Agreement shall be effective as of the date it is
executed by the Bullhide Corporation, d/b/a Bullhide Liner.
<TABLE>
<CAPTION>
Bullhide:
<S> <C>
THE BULLHIDE LINER CORPORATION,
By /s/ Its
G.M.
WITNESSES
/s/ Dated:
AREA DEVELOPER LICENSEE
Corporation:
Protective Services, Inc.
By
Title
By
Title
WITNESSES:
/s/ Dated:
</TABLE>
<PAGE>
EXHIBIT 10.5
BULLHIDE
STANDARD UNIT LICENSE AGREEMENT
THIS AGREEMENT, made at Spokane, Washington, as of the date set forth below, by
and between THE BULLHIDE LINER CORPORATION , a Washington corporation,
(hereinafter "Bullhide"'), and Protective Surfacing, Inc. (hereinafter
"Licensee").
WHEREAS, Bullhide is engaged in the business of operating and licensing a
process under the name of "Bullhide Liner" which offers to sell to the public a
custom spray-molded permanent polyurethane lining that protects and preserves
the beds of trucks, vans, trailers and boats; and
WHEREAS, Bullhide has developed information and methods in connection with the
operation of such Bullhide Liner Installation Centers for providing products and
services, utilizing certain standards, specifications, methods, procedures,
techniques, management systems, identification schemes, recipes and proprietary
marks and information (hereinafter "Bullhide Liner System"); all of which may be
changed, improved and further developed from time to time by Bullhide; and
WHEREAS, the distinguishing characteristics of the Bullhide Liner System
include, without limitations, the name and mark "Bullhide Liner," together with
such other trade names, service marks, trademarks and trade symbols, emblems,
signs, slogans, insignia and copyrights as Bullhide has adopted and designated
for use in connection with the Bullhide Liner System and as Bullhide may
hereafter acquire or develop and designate for use in connection with the
Bullhide Liner System (hereinafter "Licensed Rights"); and
WHEREAS, Bullhide has established an excellent reputation and goodwill with the
public with respect to the quality of products and services available at
Bullhide Liner Installation Centers, which reputation and goodwill have been and
continue to be of major benefit to Bullhide and its Licensees; and
WHEREAS, Licensee recognizes the benefits to be derived from being identified
with and licensed by Bullhide and being able utilize the Bullhide Liner System
and the Licensed Rights which Bullhide makes available to its Licensees; and
WHEREAS, Licensee has the right to select proposed sites on which to construct
Bullhide Liner Installation Centers under that certain Development Agreement
between Bullhide and Licensee dated
__________________________________(hereinafter "Development Agreement"), within
the area described in that Development Agreement (hereinafter "Licensed Area");
and
WHEREAS, Licensee desires to construct, own and operate Bullhide Liner
Installation Centers described in P. 1 hereof upon the tam and conditions set
forth herein, which tam and conditions are reasonably necessary to maintain
Bullhide's high and uniform standards of quality and service and to protect the
goodwill and enhance the public image of the Bullhide Liner
<PAGE>
System and the Licensed Rights; and
WHEREAS, the location described in P. 1 is within the Licensed Area and has been
proposed by Licensee and accepted by Bullhide as a site for a Bullhide Liner
Installation Center;
NOW, THEREFORE, in consideration of the foregoing and of the covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. Grant of License and Licensed Rights.
-------------------------------------
1.1 Subject to the terms and conditions of this Agreement,
Bullhide hereby grants to the Licensee the exclusive license
to construct, lease, own and operate a Bullhide Liner
Installation Center (hereinafter the "Installation Center") at
the following location:
1.2 Subject to the terms and conditions of this Agreement,
Bullhide agrees to license to Licensee the right to use the
Bullhide Liner System and the Licensed Rights of the
Installation Center.
1.3
1.3.1
It is understood and agreed that Licensee
shall have the exclusive right to operate a
Bullhide Liner Installation Center and to
use the Bullhide Liner System and the
Licensed Rights at the Installation Center
within an area determined by such factors as
population, truck and boat density and other
factors that may influence the potential of
success for the Licensee. The continuous
purchase of Bullhide materials is necessary
to maintain the exclusive rights to the
area. Each location or equivalent machine
must purchase a minimum average of one drum
set of material (160 gallons) every month on
average for the first year period, beginning
after the initial two mouth start-up period,
and 240 gallons per month in the second and
continuing years of operation. Failure to
purchase the minimum amount of Bullhide
material could result in reduction in the
size of the exclusive territory, up to and
including the loss of exclusivity for the
entire territory.
Subject to negotiation prior to the time of
signing this Agreement and the Development
Agreement, if applicable, the Exclusive
Licensed Unit Marketing Area Unit License")
is:
<PAGE>
Bounded between: Route 64, Highway 59, Lake
Cook Rd. and Interstate 24
2. Term and Performance.
---------------------
The license is extended indefinitely as long as all the terms of this
agreement are fulfilled.
3. Payments .
----------
Licensee specifically acknowledges that no fee is being paid for the
license to operate their Installation Center under the Bullhide Liner
System, and for the licensed rights there of. Exclusive continuous
purchase by the licensee at what is considered to be bonafide wholesale
prices and use of the products sold by Bullhide constitute the full
consideration given to BULLHIDE by the Licensee for the full licensed
rights under the Unit License Agreement.
4. Services by Bullhide
--------------------
Bullhide agrees to use its best efforts to maintain the excellent
reputation of all Bullhide Liner Installation Centers and, in
connection therewith, to make available to Licensee the following:
4.1 Initial training in the Bullhide Liner System, including
standards, methods, procedures and techniques, for each person
identified in 19 of this Agreement,-- at such time and places
as Bullhide may designate for its training program, in its
discretion, and subject to the terms of 19 hereof
4.2 Such assistance as Bullhide determines is required in
connection with the opening of the Installation Center by
Licensee, including assistance by Bullhide's personnel in
planning and developing of pre-opening and promotional
programs.
4.3 The use of Bullhide's Operations Manual and other manuals and
training aids as developed and revised from time to time.
4.4 Such merchandising, marketing and other data and advice as may
from time to time be developed by Bullhide and deemed by it to
be helpful in the operation of the Installation Center.
4.5 Such periodic continuing individual or group advice,
consultation and assistance, rendered by personal visit or
telephone, or by newsletters or bulletins made available from
time to time to all Licensees of Bullhide as Bullhide may deem
necessary or appropriate.
<PAGE>
4.6 Such bulletins, brochures and reports as may from time to time
be published by Bullhide regarding its plans, policies,
research, developments and activities.
4.7 Such other resources and assistance as may hereafter be
developed and offered by Bullhide to its Licensees.
5. Limitations of Licensed Right . Licensee acknowledges and agrees that:
----------------------------------------------------------------------
5.1 The license and Licensed Rights granted hereunder are personal
to Licensee and cannot be sold, assigned or transferred, in
whole or in part, except as set forth in 113 hereof.
5.2 Bullhide is the exclusive owner of the Licensed Rights and of
the identification schemes, standards, specifications,
operating procedures and other concepts embodied in the
Bullhide Liner System. Licensee will use the Bullhide Liner
System and the Licensed Rights strictly in accordance with the
terms of this Agreement, and any unauthorized use of the
Bullhide Liner System and the Licensed Rights is and shall be
deemed an infringement of Bullhide's rights. Except as
expressly provided by this Agreement and any other Unit
License Agreements, Licensee shall acquire no right, title or
interest to the Bullhide Liner System or the Licensed Rights;
any and all goodwill associated with the Bullhide Liner System
and the Licensed Rights shall inure exclusively to Bullhide's
benefit. Licensee will at no time take any action whatsoever
to contest the validity or ownership of the Licensed Rights
and the goodwill associated therewith.
5.3 Licensee shall have no right without permission to use in its
name the name "Bullhide", "Bullhide Liner", or other names
used by Bullhide. If licensee has heretofore obtained
permission to use any of these names, and does use any of them
in its name, then, upon termination of this Agreement for any
reason whatsoever, Licensee shall immediately take all steps
necessary to eliminate any of these names from its name,
except as permitted by any other Unit License Agreement.
5.4 Except as provided in I I hereof the Licensed Rights granted
hereunder are nonexclusive, and Bullhide retains the right, in
its sole discretion:
5.4.1 To continue to conduct and operate other Bullhide
Liner Installation Centers and to use the Bullhide
Liner System and the Licensed Rights at
5.9 Because complete and detailed uniformity under many varying
conditions may not be possible or practical, Bullhide
specifically reserves the right and privilege, at its sole
discretion and as it may deem in the best interests of all
concerned in any specific instance, to vary standards for any
Licensee based upon the peculiarities of a particular site or
circumstance, density of population, business potential,
population of trade area, existing business practices or any
other condition which
<PAGE>
Bullhide deems to be of importance to the successful operation
of such Licensee's business. Licensee shall not be heard to
complain on account of any variation from standard
specifications and practices granted to any other Licensee and
shall not be entitled to require Bullhide to grant them a like
or similar variation hereunder.
5.10 Licensee has sole responsibility for the performance of all
obligations arising out of the operation of its business
pursuant to this Agreement, including, but not limited to, the
payment when due of any and all taxes levied or assessed by
reason of such operation.
5.11 Licensee, or each person who is actively involved in the
management or operation of the business of Licensee, must
continuously demonstrate to Bullhide its ability to operate
the business of Licensee pursuant to this Agreement and all
other Unit License Agreements.
5.12 In all public records, in its relationship with other persons,
and in any offering circular, prospectus or similar document,
Licensee shall indicate clearly the independent ownership of
Licensee's business and that the operations of said business
are separate and distinct from the operation of Bullhide's
business.
6. *SECTION 6 IS VOID FOR THE PURPOSES OF THIS AGREEMENT
7. *SECTION 7 IS VOID FOR THE PURPOSES OF THIS AGREEMENT
8. Operations. Licensee covenants and agrees that:
-----------
8.1 In order to protect the Bullhide Liner System and to maintain
uniform standards of operation under the Licensed Rights,
Licensee shall operate the Installation Center in accordance
with Bullhide's Operations Manual, a numbered copy of which
Licensee acknowledges receiving on loan from Bullhide for the
term of this Agreement. Licensee understands and acknowledges
that Bullhide may, from time to time, revise the contents of
the Operations Manual to implement new or different operating
requirements applicable to all Bullhide Liner Installation
Centers, including Installation Centers owned by Bullhide, and
Licensee expressly agrees to comply with each changed
requirement within such reasonable time as Bullhide may
require. Licensee shall at all times ensure that its copy of
the operations Manual and any other manuals given to it are
kept current and up to' date and, in the event of any dispute
as to the contents thereof the terms of the master copies
maintained by Bullhide at its principal place of business
shall be controlling.
8.2 In order to protect the Bullhide Trademark, the Licensed
Rights and the goodwill associated therewith, it will:
<PAGE>
8.2.1 Operate, Produce and Install the liner under the name
"Bullhide Liner" and advertise only under the
Licensed Rights designated by Bullhide for use for
that purpose and will use such rights without Prefix,
except where such use may conflict with a prior
registration or use, in which event Licensee shall
operate and advertise only under such other names as
Bullhide has previously approved in writing.
8.2.2 Feature and use the Licensed Rights solely in the
manner prescribed by Bullhide.
8.2.3 Observe such reasonable requirements with respect to
service mark, trade name, trademark and fictitious
name registrations and copyright notices as Bullhide
may, from time to time, direct in writing.
8.3 Licensee shall use only such materials for the manufacture of
linings and methods of preparation, application and service as
conform to the specifications and standards of Bullhide in
effect from time to time. Licensee shall discontinue selling
or offering for sale any competitive products Bullhide may, in
its discretion, disapprove in writing at any time.
8.4 It will cause its employees to wear apparel which conforms
strictly to the specifications, design and style approved by
Bullhide from time to time.
8.5 It will maintain at all times, at its expense, the
Installation Center, equipment, fixtures, furnishings and
furniture and related premises, parking areas, landscape areas
and interior and exterior sips in a good, clean, attractive
and safe condition in conformity with Bullhide's high
standards and public image, and in connection therewith, shall
make such additions, alterations, repairs and replacements
thereto as may be required to keep the Installation Center in
the highest degree of repair and condition, including, without
limitation, such periodic repainting, repairs to equipment not
in good working order, and replacement of outdated signs as
Bullhide may reasonably direct.
8.6 It will comply with all laws, ordinances and regulations
affecting the operation of the Installation Center. Without
limiting the generality of the foregoing, Licensee
specifically agrees to comply with applicable health and
safety laws, and air pollution laws, ordinances and
regulations so as to be rated in the highest available health
and safety and air purity classifications by the appropriate
governmental authorities and to furnish to Bullhide, within
ten (10) days of Licensee's receipt thereof, copies of all
inspection reports, warnings, certificates and ratings issued
by any governmental agency which reflect Licensee's failure to
meet and maintain the highest applicable ratings, or
Licensee's noncompliance or less than full compliance with any
applicable law, rule or regulation.
8.7 It will notify Bullhide in writing within ten (10) days of the
commencement of any
<PAGE>
action, suit or proceeding, and of the issuance of any order,
writ, injunction, award or decree of any court, agency or
other governmental instrumentality, which may adversely affect
Licensee's financial condition or ability to meet its
obligations hereunder.
8.9 It will permit authorized personnel of Bullhide to enter the
Installation Center at any time during normal business hours
for the purpose of inspecting and examining the operations and
facilities (including, but not limited to, testing, sampling
and inspecting the materials for the manufacturing of linings
used by Licensee and the products and services sold by it, as
well as the storage, preparation and application of such
linings and products). Licensee shall cooperate with
Bullhide's representatives in such inspections by rendering
such assistance as they may reasonably request. It shall
permit Bullhide's representatives to remove from the
Installation Center samples of any ingredients and products
without payment therefor in amounts reasonably necessary for
testing by Bullhide, or an independent certified laboratory to
determine whether said samples meet Bullhide's then-current
standards and specifications. In addition to any other
remedies it may have under this Agreement, Bullhide may
require Licensee to bear the cost of such testing if the
supplier from whom such ingredients and products were acquired
has not been approved by Bullhide or if the sample fails to
conform to Bullhide's specifications. Upon notice from
Bullhide or its agents, Licensee shall take such steps as may
be necessary immediately to correct any deficiencies detected
during any inspection or by such testing, without limitation,
immediately ceasing to use any methods, ingredients, products
or advertising materials which do not conform to Bullhide's
then current specifications, standards or requirements.
8.9 It shall purchase all liner materials and chemicals
exclusively from Bullhide, as well as the application
equipment utilized in the production of the liner. All
Bullhide materials are warranted to be free from manufacturer
defect, and will be replaced free of charge if found to be
defective. Product defect is defined as product properties
outside of Bullhide's material specification. All other
equipment, inventory, other supplies, products, and
ingredients used in the operation of the Installation Center
as Bullhide, in its discretion, may specify from time to time,
solely from suppliers who demonstrate to Bullhide's continuing
reasonable satisfaction the ability to meet Bullhide's
standards and specifications for such items, who have been
approved in writing by Bullhide and not thereafter
disapproved. If Licensee desires to purchase any such items
from a supplier who is not approved, Licensee shall submit to
Bullhide a written request for such or shall request the
supplier to do so. Bullhide shall have the right to require,
as a condition of its approval that its representatives be
permitted to inspect the suppliers facilities and that samples
from the supplier be delivered, at Bullhide's option, to
Bullhide or as designee for testing. A charge not to exceed
the cost of inspection and testing shall be paid by the
Licensee or by the supplier seeking approval, and Bullhide
shall not be liable for damage to any sample which might
<PAGE>
result from the testing process. Bullhide reserves the right,
at its option, to re inspect the facilities and to reject the
products of any such approved supplier at any time and to
revoke such approval if the supplier has failed to continue to
meet any of the foregoing criteria.
8.10 It will open and operate the Installation Center at least five
days per week (except during such periods as it may be
required by law or permitted by Bullhide to be closed) during
the minimum hours of 8:00 A.M. to 5:00 P.M. local time.
Minimum requirements are that the phones be forwarded or
awarded.
8.11 It will pay on a timely basis for all products and other items
used in the operation of the Installation Center. Licensee is
aware that failure to make prompt payment to its suppliers may
cause irreparable harm to the reputation and credit of
Bullhide and other Licensees.
8.12 Licensee, at its expense, shall have annual financial
statements covering the results of operations of the
Installation Center prepared by a qualified accountant
selected by Licensee and, if requested by Bullhide in writing,
shall deliver such financial statements to Bullhide.
8.13 It shall comply with all other requirements set forth in this
Agreement.
9. Bullhide Training Program.
--------------------------
9.1 The following persons shall satisfy all of the conditions
established by Bullhide from time to time for admission to,
and graduation from, Bullhide's management initial training
program.
9.1.1 Licensee, if he is an individual.
9.1.2 One person who is actively involved in the management
or operation of the business of Licensee and one
Application Specialist from the Installation Center,
9.1.3 Each person who has an interest in Licensee (if
Licensee is a group of individuals or a corporation,
partnership, unincorporated association or similar
entity) at the option of the Licensee.
Each such person shall successfully complete Bullhide's
training program to Bullhide's satisfaction. Upon the failure
of Licensee or any other such person to complete the training
program successfully for any reason, a substitute trainee
satisfactory to Bullhide shall attend and successfully
complete the program and shall operate or supervise the
operation of the Installation Center thereafter if Bullhide,
at its option, so directs.
<PAGE>
9.2 The classroom and on-the-job training is held in Spokane,
Washington, for five (5) days and averages six (6) hours per
day. The training involves the use of Bullhide's Operating
Manual and covers basic principles of marketing, management,
bookkeeping, scheduling, cost control, product costs, health
and safety, operating procedures, equipment operation and
Bullhide Liner application methods.
9.3 No fee shall be charged by Bullhide for participation in the
initial training program. Licensee shall be responsible for
the costs and expenses (such as room, board and
transportation) of each person who attends the program. At
Bullhide's discretion, there may be a charge for the cost of
materials used during training.
9.4 The persons listed above in 19.1 may also attend any optional
advanced training programs or seminars offered and conducted
by Bullhide. Licensee shall be responsible for the costs and
expenses of each person who attends any such program.
9.5 Bullhide may, in the future, authorize Licensee to offer and
sell additional products and services beyond the current
product and service line. If they choose to offer and sell the
additional products and services, Licensee and all employees
Bullhide so designates must complete Bullhide's advanced
training seminars for those additional products and services
to Bullhide's satisfaction.
9.6 Bullhide also maintains an in-service training program. If
requested by Licensee, and if personnel is available, a
Bullhide staff member will provide on-the-job training at the
Licensee's Installation Center. Bullhide reserves the right to
charge a fee for this service equal to two times the
Installation Center managers daily salary, as established by
Bullhide's Payroll Guidelines in effect at the time of the
request, plus expenses.
10. Advertising and Promotion.
--------------------------
10.1 SECTION 10.1 IS VOID FOR THE PURPOSES OF THIS AGREEMENT
10.2 Licensee agrees to honor all valid warranty claims made by any
customer of Bullhide when presented with the proper warranty
certification. The direct cost of materials and labor, as
directed by Bullhide, shall be reimbursed by producer of
original liner or Bullhide if original producing Installation
Center is no longer operating. Licensee farther agrees to
reimburse other Licensees their cost as stated above, for
providing warranty service on liners produced by Licensee.
11. Hold Harmless: Insurance.
--------------
11.1 Licensee agrees to indemnify and hold harmless Bullhide from
any liability or damage Bullhide may incur, including
reasonable attorney fees, as a result of
<PAGE>
claims, demands, costs or judgments, of any kind or nature, by
anyone whomsoever, arising out of or otherwise connected with,
this Agreement, the franchise, the Licensed Rights or the
ownership, maintenance or operation of the Installation Center
by the Licensee.
11.2 Notwithstanding the foregoing, Bullhide agrees to cooperate
with Licensee to protect Licensee against the infringement of
the Bullhide Liner System and the Licensed Rights, including,
but not limited to, the defense or prosecution of any lawsuits
W, in the judgment of Bullhide's counsel, such action is
necessary or advisable.
11.3 Licensee agrees to maintain insurance as follows:
11.3.1 All insurable properties shall be insured against
loss or damage by fire, lightning, windstorm, hail,
explosion, riot, riot attending a strike, civil
commotion, air traffic, vehicle, smoke or other risks
usually insured against by persons operating like
properties in the localities where the properties
operated by Licensee are located, in amounts
sufficient to prevent Bullhide or the Licensee from
becoming a co-insurer within the terms of the
policies in question, and in any event in amounts not
less than eighty percent (80%) of the then-insurable
value thereof
11.3.2 During the construction or remodel of the
Installation Center, policies of Builder's Risk
Insurance shall be maintained in amounts not less
than customarily maintained by Bullhide.
11.3.3 Public liability insurance shall be maintained
against claims for personal injury, death or property
damage suffered by others upon, in or about the
Installation Center or occurring as a result of the
maintenance or operation by Licensee of any
automobiles, trucks, or other vehicles, airplanes or
other facilities or as a result of the use of
products sold by it or services rendered by it or any
claims arising out of the business of Licensee
pursuant to this Agreement or the operation of the
Installation Center in a total amount not less than
$500,000.
11.3.4 Workmen's compensation, unemployment compensation,
disability insurance, social security, and other
insurance coverage, shall be maintained in such
amounts as may now, or hereafter, be required by the
State law where the licensee is located.
All such policies shall insure Licensee and Bullhide (if
necessary under any law, ordinance or regulation) and shall
protect the Licensee and Bullhide against any liabi* which may
accrue by reason of this agreement, the LwmnW Rights, or
<PAGE>
the ownw*p, maintenance or operation by Licensee of the
Installation Center. quality in appearance and service in the
operation of the Installation Center.
12.1.7 If Licensee shall purport to effect any assignment
other than in accordance with 113 hereof
12.1.8 If Licensee shall be in default under any lease or
sublease of the Installation Center site or loses the
right to possession thereof for any reason
whatsoever.
12.1.9 If a threat or danger to public health or safety
results from the construction, maintenance or
operation of the Installation Center.
12.1.10 If Licensee makes, or has made, any misrepresentation
to Bullhide in connection with obtaining the
Development Agreement or this Agreement or in
conducting the business Licensed and licensed
hereunder.
12.1.11 If Licensee fails to obtain Bullhide's prior written
approval or consent as expressly required by this
Agreement.
12.1.12 If Licensee defaults in the performance of any other
obligation under this Agreement.
12.1.13 If the Installation Center ceases operations without
the written consent of Bullhide for any reason except
for a period of not more than one hundred eighty
(180) days as a result of fire, condemnation or Act
of God.
12.1.14 If Licensee, or any person controlling, controlled by
or under common control with Licensee, shall be
convicted or pleads guilty or no contest to a felony
charge of violating any law.
12.2 Upon occurrence of any of the events set forth in 112. 1,
Bullhide may, without prejudice to any other rights or
remedies contained in this Agreement or provided by law or
equity, terminate this Agreement. Such termination shall be
effective thirty (30) days after written notice (or such other
notice as may be required by applicable Washington law) is
given by Bullhide to Licensee of any of the events set forth
in subparagraphs 12. 1.1 through 12.1.13 if such defaults are
not cured within such period. Termination shall be effective
immediately and without notice, however, upon occurrence of
any of the events specified in subparagraphs 12.1.14, except
where prohibited by Washington law.
12.3 Upon termination of this Agreement for any reason, or upon
expiration of the term hereof Licensee agrees as follows:
<PAGE>
12.3.1 To pay immediately to Bullhide the full amount of all
sums due under this Agreement.
12.3.2 To cease immediately to use the Bullhide Liner System
and all of the Licensed Rights provided by Bullhide
hereunder and any confusingly similar names, marks,
systems, insignia, symbols or other rights,
procedures or methods except to the extent permitted
pursuant to 14.4.
12.3.3 To return Bullhide's Operations Manual and all other
manuals, plans and specifications, designs, records,
data, samples, models, programs, handbooks or
drawings touching or concerning Bullhide's operations
or business.
12.3.4 To cease immediately to hold itself out in any way as
a Licensee of Bullhide or to do anything which would
indicate any relationship between it and Bullhide
except to the extent permitted pursuant to 12.4.
12.3.5 To permit Bullhide's agents to enter the premises and
to remove or permanently cover all signs or
advertisements identifiable in any way with
Bullhide's name or image.
12.3.6 To sell to Bullhide at their option all of the spray
mix-metering machine, including the gun and spare
parts, at a price of up to thirty-five percent (3 5%)
of its original cost depending upon the condition of
the equipment. Bullhide shall also purchase at
Bullhide's option from Licensee, all Bullhide Liner
component materials, in usable condition, at a price
of up to fifty percent (50%) of its original cost.
12.3.7 SECTION 12.3.7 IS VOID FOR THE PURPOSES OF THIS
AGREEMENT
12.3.8 Licensee shall also be responsible, at its expense,
for compliance with state or local laws, rules and
regulations for the removal of unusable chemicals or
other waste or materials considered by law to be
hazardous or not.
12.4 Termination of this Agreement shall not affect the rights of
Licensee to operate other Bullhide Liner Installation Centers
in accordance with the terms of any Unit License Agreements
until and unless such Unit License Agreements, or any of them
are terminated in accordance with their terms. Notwithstanding
the foregoing& termination of this Agreement or any default
hereunder may be grounds for termination of the Development
Agreement.
<PAGE>
13. Assignment. Conditions and Limitations.
-----------
13.1 If Licensee is a corporation, partnership, unincorporated
association or similar entity, the terms of this 113 shall be
deemed to apply to any sale, resale, pledge, assignment,
transfer or encumbrance of the voting stock of, or other
ownership interest in, Licensee, which would, alone or
together with other related, previous, simultaneous or
proposed transfers, result in a change of "control" of
Licensee within the meaning of the Securities Exchange Act of
1934 and the regulations thereunder.
The term "Licensee," as used in this 113, shall be deemed to
include the person or persons who control Licensee as
disclosed to Bullhide in a writing upon the execution of the
Development Agreement.
13.2 In the event of the death, disability or permanent incapacity
of Licensee, Bullhide shall not unreasonably withhold its
consent to the transfer of all of the interest of Licensee to
his spouse, heirs or relatives, by blood or marriage, whether
such transfer is made by will or by operation of law, provided
that the requirements of 13.6 hereof have been met. In the
event that Licensee's heirs do not obtain the consent of
Bullhide as prescribed herein, the personal representative of
Licensee shall have a reasonable time to dispose of Licensee's
interest hereunder, which disposition shall be subject to all
the terms and conditions for transfers under this Agreement.
13.3 If Licensee receives from a third person other than their
spouse, heirs, or relatives, and desires to accept a bona fide
written offer to purchase its business, Licensed Rights and
interests, Bullhide shall have the option, exercisable within
forty-five (45) days after receipt of written notice, and a
copy of such offer and the other information set forth in this
113.3, to purchase such business, Licensed Rights and
interests, including Licensee"s right to occupy and use the
Installation Center, on the same term and conditions as
offered by said third party. In order that Bullhide may have
information sufficient to enable it to determine whether to
exercise its option, Licensee shall deliver to Bullhide
certified financial statements as of the end of Licensee's
most recent fiscal year and such other information about the
business and operations of Licensee as they have provided to
said third party. If Bullhide does not exercise its option,
Licensee may, within sixty (60) days from the expiration of
the option period, sell, assign and transfer its business,
Licensed Rights and interests to said third party provided
Bullhide has consented to such transfer as required by this
113. Any material change in the terms of the offer prior to
closing of the sale to such third party shall constitute a new
offer, subject to the same Tights of first refusal by Bullhide
or its nominee as in the case of an initial offer. Failure by
Bullhide to exercise the option afforded by this 113.3 shall
not constitute a waiver of any other provision of this
Agreement, including a of the requirements of this 113 with
respect to the proposed transfer.
<PAGE>
13.4 In the event Licensee or its successor is a corporation or
partnership or similar entity, it is agreed as follows: The
Articles of Incorporation (Charter) and the Bylaws
(Regulations) or the Partnership, Agreement shall reflect that
the issuance and transfer of voting stock of, or other
ownership interest dierein (*securities"), is restricted by
the terms of this Agreement. Licensee shall furnish Bullhide
at the time of execution of this Agreement or assignment to
the corporation or partnership an agreement executed by all
stockholders or partners of the Licensee, stating that no
stockholder or partner will sell, assign or transfer
voluntarily or by operation of law any securities of the
Licensee to any person or entity other than existing
stockholders or partners to the extent permitted hereunder
without the prior written consent of Bullhide. All securities
issued by Licensee will bear the' following legend which shall
be printed legibly and conspicuously on each stock certificate
or other evidence of ownership interest:
The transfer of these securities is subject to the
terms and conditions of a License Agreement with The
Bullhide Corporation, d/b/a Bullhide Liner
("Bullhide"), dated ______________________ and
certain other Agreements executed thereunder.
Reference is made to said Agreements and to the
restrictive provisions of the Articles and Bylaws of
this Corporation.
A stop transfer order shall be in effect against the transfer
of any securities on the Licensee's records, except transfers
permitted by this P. 13.
13.5 Licensee acknowledges and agrees that the restrictions on
transfer imposed herein are reasonable and are necessary to
protect Bullhide, the Bullhide Liner System and the Licensed
Rights, as well as Bullhide's excellent reputation and image,
and are for the protection of Bullhide, Licensee, and other
Licensees. Any assignment or transfer permitted by this 113
shall not be effective until Bullhide receives a completely
executed copy of all transfer documents, and consents in
writing.
13.6 Bullhide agrees not to unreasonably withhold its consent to a
sale, assignment or transfer by Licensee hereunder. Consent to
such transfer otherwise permitted or permissible as reasonable
may be refused unless:
13.6.1 All obligations of the Licensee created by this
Agreement, all other documents, including the
Development Agreement and any other Unit License
Agreement, and the relationship created hereunder are
assumed by the transferee.
13.6.2 All ascertained debts of Licensee to Bullhide are
paid.
13.6.3 Licensee is not in default under this Agreement, the
Development Agreement, or any other Unit License
Agreement.
<PAGE>
13.6.4 Transferee satisfactorily completes the training
required of new Licensees on Bullhide then-current
terms prior to the date of transfer.
13.6.5 Licensee satisfies Bullhide that the transferee meets
all of the requirements of Bullhide for new
Licensees, including, but not limited to, good
reputation and character, business acumen,
operational ability, financial strength and other
business considerations.
13.6.6 Transferee executes or, in appropriate circumstances,
causes all necessary parties to execute Bullhide's
standard form of Unit License Agreement for the
Installation Center and such other then current
ancillary agreements being required by Bullhide of
new Licensees on the date of transfer.
13.6.7 Licensee executes a general release in a form
satisfactory to Bullhide of any and all claims
against Bullhide.
13.6.8 Licensee or transferee pays to Bullhide a transfer
fee in an amount equal to $5,000.00 to cover
Bullhide's reasonable costs in effecting the transfer
and in providing training and other initial
assistance to transferee.
13.7 This Agreement shall inure to the benefit of Bullhide, its
successors and assignees, and Bullhide shall have the right to
transfer or assign all or any part of its interest herein to
any person or legal entity.
14. Non-Competition: Confidentiality.
14.1 Licensee, and persons controlling, controlled by or under
common control with Licensee, will not, without Bullhide's
prior written consent:
14.1.1 Have any interest, direct or indirect, in the
ownership or operation of any Installation Center
engaged in the sale or use of competitive liners to
Bullhide or related products (i) within the United
States during the term of this Agreement or (ii)
within the Licensed area or within a two hundred mile
radius of the Installation Center for the term of
this Agreement.
14.1.2 At any time during the term of this Agreement or
thereafter, use, in connection with the operation of
any other shop wherever located, any of the Licensed
Rights or any other names, marks, systems, insignia
or symbols, provided by Bullhide to Licensee pursuant
to this Agreement, or cause or permit any such
Installation Center to
<PAGE>
look like, copy or imitate any Bullhide Liner
Installation Center or to be operated in a manner
tending to have such effect.
14.2 During the term of this Agreement, any officer or area
supervisor of Bullhide or their representatives shall have the
right to inspect any Installation Center in which Licensee has
an interest at reasonable times and during normal business
hours to the extent reasonably necessary to determine whether
the conditions of this paragraph are being satisfied. If by
reason of such inspections or otherwise, Bullhide has reason
to believe that Licensee is not in full compliance with the
terms of this paragraph, Bullhide shall give notice of such
default to Licensee, specifying the nature of such default. If
Licensee denies that it is in default hereunder, as specified
by Bullhide, it shall have the burden of establishing that
such default does not exist and shall give notice to Bullhide
of its position, within ten (10) days of receipt of the notice
from Bullhide. Unless Licensee so denies such default, it
shall immediately take all steps to cure said default in a
manner satisfactory to Bullhide.
14.3 Licensee, and persons controlling, controlled by or under
common control with Licensee, shall at all times treat as
confidential the Operations Manual, any other manuals or
materials designated for user with the Bullhide Liner System
and such other information as Bullhide may designate from time
to time for confidential user with the Bullhide Liner System
(as well as all other trade secrets, if any, and confidential
information, knowledge and know-how concerning the
construction or operation of the Installation Center that may
be imparted to, or acquired by, Licensee from time to time in
connection with this Agreement), and shall use all reasonable
efforts to keep such information confidential. Licensee
acknowledges that the unauthorized use or disclosure of such
confidential information (and trade secrets, if any) will
cause incalculable and irreparable injury to Bullhide.
Licensee accordingly agrees that it shall not at any time,
without Bullhide's prior written consent, disclose (except to
such employees or agents as must have access to such
information in order to construct or operate the Installation
Center) or use or permit the use (except as may be required by
local state of federal law or authorized by this Agreement) of
such information, in whole or in part, or otherwise make the
same available to any unauthorized person or source. Any and
all information, knowledge and know-how, not generally known
in the auto after market business about the Bullhide Liner
System and Bullhide's products, services, standards,
specifications, systems, procedures and techniques, and such
other information or material as Bullhide may designate as
confidential, shall be deemed confidential for purposes of
this Agreement, except information which Licensee can
demonstrate came to its attention prior to disclosure thereof
by Bullhide, or which is or has become a part of the public
domain through publication or communication by others. The
Operations Manual, any other manuals or material designated
for use with the Bullhide Liner System and all confidential
information (and trade secrets, if any) shall at all times be
deemed to be, and shall remain, the sole property of Bullhide,
and Licensee shall acquire no
<PAGE>
rights, title or interest therein by virtue of its
authorization pursuant to this Agreement to possess and use
the same.
14.4 Licensee shall cause any person who is actively involved in
the management or operation of the business of Licensee
pursuant to this Agreement or the operation of the
installation Center, at the time of his employment, to enter
into a Confidentiality and Non-Competition Agreement in the
form recommended from time to time by Bullhide. A copy of this
signed confidentiality & non-competition agreement shall be
sent to Bullhide upon completion. Licensee shall use his best
efforts to prevent any such persons from using, in connection
with the operation of any Installation Center wherever
located, the Bullhide Liner System and any of the Licensed
Rights or from operating any Installation Center which looks
like, copies or imitates any Bullhide Liner Installation
Center or operates in a manner tending to have such effect. If
Licensee has reason to believe that any such person has
violated the provisions of the Confidentiality and
Non-Competition Agreement of this paragraph, Licensee shall
notify Bullhide and shall cooperate with Bullhide to protect
Bullhide against infringement or other unlawful use of the
Licensed Rights or the Bullhide Liner System, including, but
not limited to, the prosecution of any lawsuits if, in the
judgment of Bullhide's counsel, such action is necessary or
advisable.
14.5 Licensee will not analyze or cause to be analyzed any of the
materials, ingredients or components thereof of any of the
products purchased from or received as samples from Bullhide,
for purposes of determining chemical or physical properties,
without Bullhide's written consent. All requests from
"authorities" for such materials shall be referred to
Bullhide.
14.6 The unenforceability of all or part of the covenants not to
compete in any state shall not affect the enforceability of
the covenants not to compete in other states, or the
enforceability of the remainder of this Agreement. The
covenants not to compete are given in part in specific
consideration for access to trade secrets provided as a part
of Bullhide's training or ongoing support programs.
15. Notices.
-------
All notices hereunder shall be in writing and shall be duly given if
hand delivered or sent by registered or certified mail, postage
prepaid, addressed:
If to Bullhide, at: The Bullhide Corporation
525 North Fancher Way
Spokane, WA 99212
If to Licensee
Owner, at: 760 Edgewood Ave.
Wood Dale, Illinois 60191.
or at such other address as Bullhide or Licensee shall have specified by notice
to the other party hereunder.
<PAGE>
16. Governing Law and Venue.
------------------------
This Agreement shall be deemed to have been made and entered into in
the State of Washington and all rights and obligations of the parties
hereto shall be governed by and construed in accordance with the laws
of the State of Washington and giving full force and effect to, and
that the application of the laws of Washington will not derogate
against RCW 19. 100. 180. Venue shall lie in the Superior Court in
Spokane County, State of Washington.
17. Remedies Cumulative: Waiver: Consent.
------------------------------------
All rights and remedies of Bullhide and of Licensee enumerated in this
Agreement shall be cumulative and, except as specifically contemplated
otherwise by this Agreement, none shall exclude any other right or
remedy allowed at law or in equity and said rights or remedies may be
exercised and enforced concurrently. No waiver by Bullhide or by
Licensee of any covenant or condition or the breach of any covenant or
condition of this Agreement to be kept or performed by the other party
shall constitute a waiver by the waiving party of any subsequent the
same Or breach or non-observance on any other occasion of any other
covenant or condition of this Agreement. Subsequent acceptance by
Bullhide of any payments due to it hereunder shall not be deemed to be
a waiver by Bullhide of any preceding breach by Licensee of any term,
covenants or conditions of this Agreement.
Whenever this Agreement requires Bullhide's prior approval or consent,
Licensee shall make a timely written request to Bullhide therefor, and
such approval shall be obtained in writing. Bullhide will also consider
granting, in its sole discretion, other reasonable requests
individually submitted by Licensee in writing for Bullhide's prior
waiver of any obligation imposed by this Agreement. Bullhide makes no
warranties or guarantees upon which Licensee may rely, and assumes no
liability or obligation to Licensee, by providing any waiver, approval,
consent or suggestion to Licensee in connection with this Agreement, or
by reason of any neglect, delay or denial of any request therefor. Any
waiver granted by Bullhide shall be subject to Bullhide's continuing
review, may subsequently be revoked any reason effective upon
Licensee's receipt of ten (10) days' prior written notice, and shall be
without prejudice to any other rights Bullhide may have.
18. Severablity.
------------
If any provision of this Agreement or the application of any provision
to any person or to any circumstances shall be determined to be invalid
or unenforceable, then such determination shall not affect any other
provision to any other person or circumstance, all of which other
provisions shall remain in full force and effect, and it is the
intention of Bullhide and Licensee that if any provision of this
Agreement is susceptible of two or more constructions, one of which
would render the provision enforceable and the other or others of which
would render the provision unenforceable, then the provision shall have
the meaning which renders it enforceable.
19. Entire Agreement.
-----------------
This Agreement, together with the Development Agreement and any other
Unit License Agreements thereunder, constitutes the entire agreement
between Bullhide and Licensee in respect of the subject matter hereof~
and this Agreement supersedes all prior and contemporaneous agreements
between Bullhide and Licensee in connection with the subject matter of
this Agreement. No officer, employee or other
<PAGE>
servant or agent of Bullhide or Licensee is authorized to make any
representation, warranty or other promise not contained in this
Agreement. No change, termination or attempted waiver of any of the
provisions of this Agreement shall be binding upon Bullhide or Licensee
unless in writing and signed by Bullhide and Licensee.
20. Joint and Several Obligation .
------------------------------
If the Licensee consists of more than one person, their liability under
this Agreement shall be deemed to be joint and several.
21. Counterpart: Paragraph Headlines: Pronouns.
-----------
This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original but all of which together shall
constitute one and the same instrument. The paragraph headings in this
Agreement are for convenience of reference only and shall not be deemed
to alter or affect any provision thereof. Each pronoun used herein
shall be deemed to include the other number and genders.
22. Acknowledgments. Licensee acknowledges that:
----------------
22.1 It has conducted an independent investigation of the business
contemplated by this Agreement and recognizes that it involves
business risks making the success of the venture largely
dependent upon the business abilities of Licensee. Bullhide
expressly disclaims the making of, and Licensee acknowledges
that it has not received or relied upon, any warranty or
guarantee, express or implied, as to the potential site,
volume, profits or success of the business venture
contemplated by this Agreement.
22.2 It has no knowledge of any representations by Bullhide or its
officers, directors, shareholders, employees, agents or
servants about the business contemplated by this Agreement,
that are contrary to the terms of this Agreement or the
documents incorporated herein, and further represents to
Bullhide, as an inducement to its entry into this Agreement,
that it has made no misrepresentations in obtaining this
Agreement.
22.3 It has received, read and understood this Agreement, the
attachments hereto, if any. Bullhide has fully and adequately
explained the provisions of each to its satisfaction; and
Bullhide has accorded it ample time and opportunity to consult
with advisors of its own choosing about the potential benefits
and risks of entering into this Agreement.
22.4 It is aware of the fact. that other Licensees of Bullhide may
now or in the future operate under different forms of
agreement and, consequently, that Bullhide's obligations and
rights in respect to its various Licensees may differ
materially in certain circumstances.
23. Effective Date.
---------------
This Agreement shall be effective as of the date it is executed by The
Bullhide Corporation, d/B/a Bullhide Liner.
<PAGE>
<TABLE>
<CAPTION>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
<S> <C>
Bullhide:
---------
THE BULLHIDE LINER CORPORATION, d/b/a
BULLHIDE LINER
By /s/
Its
WITNESSES:
/S/ Dated:
LICENSEE:
---------
If Sole Proprietor:
By
Its
WITNESSES:
/S/
If Partnership:
By
Partner
By
Partner
Dated:
If Corporation:
/s/
By: /s/
Title: Treasurer
By:
Title
Do Not Write Below This Line
Unit License Agreement No.
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EXHIBIT 10.6
BULLHIDE
DEVELOPMENT and Distribution AGREEMENT
THIS AGREEMENT, made a Spokane, Washington, as of the date set forth
below, by and between THE BULLHIDE LINER CORPORATION, a Washington corporation,
d/b/a Bullhide Liner (hereinafter "Bullhide"), and ________________ Corporation,
(hereinafter referred to as "Licensee"); TO BE NAMED.
WHEREAS, Bullhide is engaged in the business of operating and licensing
Installation Centers under the name of "Bullhide Liner" which offers to sell to
the public a custom spray- molded permanent polyurethane lining that protects
and preserves the beds of trucks, vans, trailers and boats; and
WHEREAS, Bullhide has developed a business plan and method in
connection with the operation of Bullhide Liner Installation Centers for
providing products and services, utilizing certain standards, specifications,
methods, procedures, techniques, management systems, identification schemes,
recipes and proprietary marks and information (hereinafter "Bullhide Liner
System"); all of which may be changed, improved and further developed from time
to time by Bullhide; and
WHEREAS, the distinguishing characteristics of the Bullhide Liner
System include, without limitation, the name and mark "Bullhide," together with
such other trade names, service marks, trademarks and trade symbols, emblems,
signs, slogans, insignia and copyrights as Bullhide has adopted and designated
for use in connection with the Bullhide Liner System and as Bullhide may
hereafter acquire or develop and designate for use in connection with the
Bullhide Liner System (hereinafter "Licensed Rights"); and
WHEREAS, Bullhide has established an excellent reputation and goodwill
with the public with respect to the quality of products and services available
at Bullhide Liner Installation Centers, which reputation and goodwill have been
and continue to be of major benefit to Bullhide; and
WHEREAS, Licensee recognizes the benefits to be derived from being
identified with and licensed by Bullhide and being able to utilize the Bullhide
Liner System and the Licensed Rights which Bullhide makes available to its
Licensees and through Unit License Agreements relating to specific Installation
Center sites selected by Licensee and Accepted by Bullhide; and
WHEREAS, Licensee desires to obtain the right to select proposed sites
on which to construct Bullhide Liner Installation Centers, to submit the same to
Bullhide for its acceptance and, upon the acceptance of each proposed site by
Bullhide construct, own and operate a Bullhide Liner Installation Center upon
such site (hereinafter "Developmental Rights") upon the terms and conditions set
forth herein which terms are necessary to ensure the controlled
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development of Bullhide Liner Installation Centers within the Licensed Areas and
to maintain Bullhide's high uniform standards of quality and service and to
protect the goodwill and enhance the public image of the Bullhide Liner System
and the Licensed Rights.
NOW, THEREFORE, in consideration of the foregoing and of the covenants
herein contained, the parties, intending to be legally bound, hereby agree as
follows:
I . Area Exclusivity and Construction Schedule
1.1 Subject to the terms and conditions of this Agreement,
Bullhide hereby grants to the Licensee the exclusive
Developmental and Distribution Rights for Bullhide Liner
Installation Centers in the following areas (hereinafter the
"Exclusive Development Areas"):
SUFFOLK COUNTY AND MIDDLESEX COUNTY, MASSACHUSETTS
1.2 Licensee agrees to develop and commence construction a minimum
of 7 Bullhide Liner Installation Centers within the Exclusive
Development Areas in accordance with the following development
and performance schedule (hereinafter the "Performance
Schedule"):
Total No. of Installation Centers
Open or Under Construction On or Before
1 SEPTEMBER 15, 1999
2 MARCH 15, 2000
3 SEPTEMBER 15, 2000
4 MARCH 15,2001
5 SEPTEMBER 15, 2001
6 MARCH 15, 2002
7 SEPTEMBER 15, 2002
1.3.1 For purposes of this Agreement, a Bullhide Liner Installation
Center shall be deemed to be "under construction," where the
plans and specifications provide for the remodeling of an
existing building, whether owned or leased by Licensee, such
plans and specifications have been approved by Bullhide,
remodeling work has actually commenced and at least One
Thousand Dollars ($1,000.00) has been expended for labor and
materials Any Bullhide Liner Installation Center under
construction which is not completed and in operation within
one hundred eighty (180) days from the date such Installation
Center is first deemed under construction, shall not
thereafter be deemed "under construction."
***1.3.2 For the Exclusive Marketing rights to develop the areas above,
the Licensee agrees to pay a sum of $5,000 per licensed
Installation Center to be developed. The number of Unit
Licenses in this Development Area is
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specified in 11.2. Licensee agrees that this specifically does
not constitute a franchise fee per se, that this payment is in
consideration to Bullhide for the reservation of these areas
by the licensee for future development.*** THIS SECTION IS
VOID FOR THE PURPOSES OF THIS AGREEMENT
1.3.3 The continuous purchase of Bullhide materials is necessary to
qualify a location as open and operating. Each location must
purchase a drum set of material (160 gallons) per month on
average over a six month period, not including the initial six
month start-up period. Any location not purchasing or
consuming the minimum amount of material over a six month
period win not be counted under the Performance Schedule.
1.4 Failure to meet the Performance Schedule set forth in
paragraph 1.2 above will result in the forfeiture of the
rights to exclusivity by the Licensee, for the development
area. However, the license(s) to maintain, distribute to and
operate the Installation centers established in the areas will
not be effected by such failure to meet any Performance
schedule.
2. Termination
Unless sooner terminated in accordance with the terms of this
Agreement, the term of this Agreement and all Developmental Rights
granted hereunder shall last indefinitely, subject to renewal every
five (5) years.
3. Renewal.
This Agreement shall be subject to renewal every five years by
agreement of both of the parties.
4. Timely Performance.
Licensee hereby acknowledges that its timely development of the
Bullhide Liner Installation Centers in the Licensed Development Areas
in accordance with the performance Schedule is of material importance
to Bullhide and the Licensee, and agrees, as a condition of the
continuance of the rights granted hereunder, to develop and construct
Bullhide Liner Installation Centers within the Development Areas in
accordance with the Performance Schedule, to operate such Installation
Centers pursuant to the terms of the Unit License Agreements and to
maintain all such Installation Centers in operation continuously.
5. Site Selection. Licensee agrees to submit for evaluation by Bullhide
pursuant to Bullhide's site selection criteria, a completed Bullhide's
Site Acceptance Request Form and the required attachments for each site
proposed for a Bullhide Liner Installation Center. Bullhide shall
review the Site Acceptance Request Form, conduct such other
investigation of the proposed site it determines is necessary to
properly evaluate the site,
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and either accept or reject the site by written notice to Licensee on
Bullhide's Site Acceptance Form. Site acceptance shall be contingent
upon, among other things, execution by Licensee and Bullhide of the
Unit License Agreement for said site as provided in 16 hereof Licensee
acknowledges that no officer, employee or agent of Bullhide has any
authority to approve or accept any proposed site except by written
acceptance on Bullhide's Site Acceptance Form and any other
representations, approvals or acceptance, whether oral or written,
shall be of no effect; Licensee further acknowledges that Bullhide's
acceptance of said site does not constitute any representation,
warranty or guarantee by Bullhide that said site will be a successful
location for a Bullhide Liner Installation Center.
6. Unit License Agreement.
6.1 Licensee shall execute said Unit License Agreement for each
Bullhide Installation Center. Said Unit License Agreement
shall be the standard form of Unit License Agreement then
being utilized by Bullhide; provided, however, that Licensee
may elect to sign the Unit License Agreement in use at the
time of the execution of this Development Agreement, subject
to any changes in said Unit License Agreement required by any
applicable law, regulation or ordinance in effect from time to
time.
7. Commencement of Construction.
7.1 Upon receipt of Bullhide's written acceptance of a proposed
site on Bullhide's Site Acceptance Form as set forth in 15
hereof, Licensee shall immediately take the necessary steps to
acquire the site, by purchase, lease or sublease, and to
otherwise obtain the rights to construct, maintain and operate
a Bullhide Liner Installation Center on the site.
7.2 Licensee must obtain all permits, governmental approvals, and
otherwise obtained the rights to construct, maintain and
operate a Bullhide Liner Installation Center on the site, and
Licensee shall notify Bullhide of such fact in writing.
7.3 Upon receipt from Bullhide of the executed Unit License
Agreement for said site, Licensee shall commence construction
or remodeling of the Bullhide Liner installation Center at the
site in accordance with the terms of the Unit License
Agreement.
8. Limitation of Agreement. Licensee acknowledges and agrees that:
8.1 This Agreement includes only the right to select sites for the
construction of Bullhide Liner Installation Centers and to
submit the same to Bullhide for its approval in accordance
with the terms of this Agreement. This Agreement does not
include the grant of a license by Bullhide to Licensee of any
rights to use the Licensed Rights, the Bullhide Liner System,
or to open or operate any Bullhide
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Liner Installation Centers within the Licensed Area. Licensee
shall obtain the license to use such additional rights at each
Bullhide Liner Installation Center upon the execution of each
Unit License Agreement by both Licensee and Bullhide and only
in accordance with the terms of each Unit License Agreement.
8.2 The Developmental Rights granted hereunder are personal to
Licensee and cannot be sold, assigned, transferred or
encumbered, in whole or in part, except as set forth in 112
hereof
8.3 Licensee shall have no right to use in its name the name
"Bullhide Liner" or other names used by Bullhide. If Licensee
has heretofore obtained permission to use any of these names,
and does use any of them in its name, then, upon termination
of this Agreement for any reason whatsoever, Licensee shall
immediately take all steps necessary to eliminate any of these
names from its name, except as permitted by any Unit License
Agreement.
8.4 Except as provided in I I hereof, the Developmental Rights
granted hereunder are non-exclusive, and Bullhide retains the
right, in its sole discretion:
8.4.1 To continue to construct and operate other Bullhide
Liner Installation Centers and to use Bullhide Liner
System and the Licensed Rights at any location
outside the Development Areas, and to license others
to do so.
8.4.2 To develop, use and license the rights to any trade
names, trademarks, service marks, trade symbols,
emblems, signs, slogans, insignia or copyrights not
designated by Bullhide as Licensed Rights, for use
with different license system for the sale of
different products or services other than in
connection with the Bullhide Liner System, on such
terms and conditions as Bullhide may deem advisable
and without granting Licensee any rights therein.
8.4.3 To promote or conduct special exhibits at regional or
nationally oriented fairs, shows and special events
utilizing mobile units or temporary locations within
the Development Areas.
Bullhide believes that, on occasion, certain national
or regional customer accounts will be developed by
them which may require a bidding process by two or
more Licensees. In this event, each qualified
Licensee desiring to bid on such accounts will be
given the opportunity to bid for such work.
8.5 Because complete and detailed uniformity under many varying
conditions may not be possible or practical, Bullhide
specifically reserves the right and privilege, at its sole
discretion and as it may deem in the best interests of all
concerned in any specific instance, to vary standards for any
Licensee based upon the peculiarities of a particular site or
circumstance, density of population, business potential,
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population of trade area, existing business practices or any
other condition which Bullhide deems to be of importance to
the successful operation of such Licensee's business. Licensee
shall not be heard to complain on account of any variation
from standard specifications and practices granted to any
Licensee and shall not be entitled to require Bullhide to
grant Licensee a like or similar variation hereunder.
8.6 Licensee has sole responsibility for the performance of all
obligations arising out of the operation of its business
pursuant to this Agreement, including, but not limited to, the
payment when due of any and all taxes levied or assessed by
reason of such operation.
8.7 In all public records, in its relationship with other persons,
and in any offering circular, prospectus or similar document,
Licensee shall indicate clearly the independent ownership of
Licensee's business and that the operations of said business
are separate and distinct from the operation of Bullhide's
business.
8.8 Licensee agrees to indemnify and hold harmless Bullhide from
any liability or damage Bullhide may incur, including
reasonable attorney fees, as a result of claims, demands,
costs or judgments, of any kind or nature, by anyone
whomsoever, arising out of, or otherwise connected with, this
Agreement, the Developmental Rights, the acquisition, of any
Installation Center site, or ownership, maintenance or
operation of any Bullhide Liner Installation Center by
Licensee.
9. Services by Bullhide . Bullhide shall, at its expense, make available
to Licensee the following:
9.1 The benefit of Bullhide's experience in the selection of
Bullhide Liner Installation Center sites through the use of
Bullhide's Site Acceptance Form, site selection criteria and
any related materials which Bullhide may make available to new
Licensees from time to time, and such review thereof as
Bullhide, at its option, may undertake as part of its
evaluation of Licensee's request for site approvals.
9.2 Review of Licensee's site plan and final construction plans
and specifications for conformity to the construction
standards and specifications of the Bullhide Liner System,
upon Bullhide's receipt of Licensee's written request for
approval thereof.
9.3 Initial training in the Bullhide Liner System, including
standards, methods, procedures and techniques, for Licensee
(if he is an individual); for each person who has an interest
in the Licensee (if Licensee is a group of individuals, a
corporation, a partnership or an unincorporated association or
a similar entity); if requested to do so by Bullhide; and for
two additional persons who are actively involved in the
management or operation of the business of Licensee or the
operation of any Bullhide Liner Installation Center. Such
training shall be at such
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time and places as Bullhide may designate for its training
program, in its discretion, and shall be subject to the terms
of each Unit License Agreement.
10. Default: Termination.
10.1 The occurrence of any of the following events shall constitute
a default under this Development Agreement:
10.1.1 If Licensee shall, in any respect, fail to
meet the Performance Schedule.
10.1.2 If Licensee shall use the Bullhide Liner
System or Licensed Rights, or any other
names, marks, systems, insignia, symbols or
rights which are the property of Bullhide
except pursuant to, and in accordance with,
a valid and effective Unit License
Agreement.
10.1.3 If Licensee, or persons controlling,
controlled by, or under common control with
Licensee, shall have any interest, direct or
indirect, in the ownership or operation of
any installation Center engaged in the sale
or use of competitive polyurethane coatings
and related products within the development
Areas or in any Installation Center which
looks like, copies or imitates any Bullhide
Liner Installation Center or operates in a
manner tending to have such effect other
than in accordance withP. I I hereof.
10.1.4 If Licensee shall fail to remit to Bullhide
any payments pursuant to P. 5 when the same
are due.
10.1.5 If Licensee shall purport to effect any
assignment other than in accordance with P.
I I hereof
10.1.6 Except as provided in P. 11. 2 hereof, if
Licensee attempts to sell, assign, transfer
or encumber this Agreement prior to the time
that at least fifty percent (50 %) of the
Bullhide Liner Installation Centers to be
constructed and opened for business in
accordance with the Performance Schedule
are, in fact, open or under construction.
10.1.7 If Licensee makes, or has made, any
misrepresentation to Bullhide in connection
with obtaining this Development Agreement,
any site approval hereunder, or any Unit
Franchise Agreement.
10.1.8 If Licensee fails to obtain Bullhide's prior
written approval or consent as expressly
required by this Agreement.
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10.1.9 If Licensee defaults in the performance of
any other obligation under this Agreement.
10.1.10 If Licensee defaults in the performance of
any obligation under any Unit License
Agreement with Bullhide, regardless of
whether or not said Unit License Agreement
is terminated as a result of such default.
10.1.11 If Licensee, or any person controlling,
controlled by or under common control with
Licensee, shall be adjudicated a bankrupt or
insolvent; shall make an assignment for the
benefit of creditors or similar disposition
of the assets of the license business; or
shall voluntarily abandon the license
business. This provision may not be
enforceable under federal bankruptcy law (I
I U. S. C. A.ss.10 1, et seq.).
10.1.12 If Licensee, or any person controlling,
controlled by, or under common control with
Licensee, shall be convicted or pleads
guilty or no contest to a charge of
violating any felony relating to business.
10.2 Upon occurrence of any of the events set forth inP. 10. 1,
Bullhide may, without prejudice to any other rights or
remedies contained in this Agreement or provided by law or
equity, terminate this Agreement. Such termination shall be
effective thirty (30) days after written notice (or such other
notice as may be required by applicable Washington law) is
given by Bullhide to Licensee of any of the events set forth
in subparagraphs 10. 1. 1 through 10. 1. 10 ofP. 10. 1 if such
defaults are not cured within such period. Termination shall
be effective immediately and without notice, however, upon
occurrence of any of the events specified in subparagraphs 10.
1. 11 and 10. 1. 12 ofP. 10. 1, except where prohibited by
Washington law.
10.3 Upon termination of this Agreement for any reason, or upon
expiration of the term hereof, Licensee agrees as follows:
10.3.1 To cease immediately any attempts to select
or develop sites on which to construct
Bullhide Liner Installation Centers.
10.3.2 To cease immediately to hold itself out in
any way as a Licensee of Bullhide or to do
anything which would indicate any
relationship between it and Bullhide except
to the extent permitted pursuant to P. 10.4.
10.4 Termination of this Agreement shall not affect the rights of
Licensee to operate Bullhide Liner Installation Centers in
accordance with the terms of any Unit
<PAGE>
License Agreements with Bullhide until and unless such Unit
License Agreements, or any of them, are terminated in
accordance with their terms.
11. Assignment. Conditions and Limitations.
11.1 Licensee shall neither sell, assign, transfer nor encumber
this Agreement, the Developmental Rights, or any other
interest hereunder, nor suffer or permit any such assignment,
transfer or encumbrance to occur by operation of law or
otherwise, without the prior written consent of Bullhide.
If Licensee is a corporation, partnership, unincorporated
association or similar entity, the terms of this P. I I shall
be deemed to apply to any sale, resale, pledge, assignment,
transfer or encumbrance of the voting stock of, or other
ownership interest in, Licensee, which would, alone or
together with other related, precious, simultaneous or
proposed transfers, result in a change of "control" of
Licensee within the meaning of the Securities Exchange Act of
1934 and the regulations thereunder.
The term "Licensee," as used in this P. 11, shall be deemed to
include the person or persons who control Licensee as
disclosed to Bullhide in a writing upon the execution of this
Agreement attached hereto as an exhibit and made a part hereof
for all purposes.
11.2 In the event of the death, disability or permanent incapacity
of Licensee, Bullhide shall not unreasonably withhold its
consent to the transfer of all of the interest of Licensee to
his spouse, heirs or relatives, by blood or marriage, whether
such transfer is made by will or by operation of law, provided
that the requirements of P. 11. 7 hereof have been met. In the
event that Licensee's heirs do not obtain the consent of
Bullhide as prescribed herein, the personal representative of
Licensee shall have a reasonable time to dispose of Licensee's
interest hereunder, which disposition shall be subject to all
the terms and conditions for transfers under this Agreement.
11.3 Licensee has represented to Bullhide that he is entering into
this Development Agreement with the intention of complying
with its terms and conditions itself and not for the purpose
of resale of the Developmental Rights hereunder. Therefore,
Licensee agrees that any attempt to assign this Agreement,
prior to the time that at least fifty percent (50%) of the
Bullhide Liner Installation Centers to be constructed
hereunder are opened or under construction, except pursuant to
P. 11. 2 hereof, shall be deemed to be an event of default.
11.4 Except as provided in P. 11. 3, if Licensee receives from a
third person and desires to accept a bona fide written offer
to purchase its business, Developmental Rights and interests,
Bullhide shall have the option, exerciseable within forty-five
(45) days after receipt of written notice, and a copy of such
offer and the other
<PAGE>
information set forth in this P. 11. 4, to purchase such
business, Developmental Rights and interests, including
Licensee's right to develop sites within the Licensed Areas,
on the same terms and conditions as offered by said third
party. In order that Bullhide may have information sufficient
to enable it to determine whether to exercise its option,
Licensee shall deliver to Bullhide certified financial
statements as of the end of Licensee's most recent fiscal year
and such other information about the business and operations
of Licensee as Licensee has provided to said third party. If
Bullhide does not exercise its option, Licensee may, within
sixty (60) days from the expiration of the option period,
sell, assign and transfer its business, Developmental Rights
and interests to said third party provided Bullhide has
consented to such transfer as required by this P. 11. Any
material change in the terms of the offer prior to closing of
the sale to such third party shall constitute a new offer,
subject to the sale rights of first refusal by Bullhide or its
nominee as in the case of an initial off-er. Failure by
Bullhide to exercise the option afforded by this P. 11. 4
shall not constitute a waiver of any other provision of this
Agreement, including all of the requirements of this P. I I
with respect to the proposed transfer.
11.5 Licensee acknowledges and agrees that the restrictions on
sale, assignment or transfer imposed herein are reasonable and
are necessary to protect the Developmental Rights, the
Bullhide Liner System and the Licensed Rights, as well as
Bullhide's excellent reputation and image, and are for the
protection of Bullhide, Licensee, and other Licensees. Any
assignment or transfer permitted by this P. I I shall not be
effective until Bullhide receives a completely executed copy
of all transfer documents, and consents in writing.
11.6 Except as provided in P. 11. 3 hereof, Bullhide agrees not to
unreasonably withhold its consent to a sale, assignment or
transfer by Licensee hereunder. Consent to such transfer
otherwise permitted or permissible as reasonable may be
refused unless:
11.6.1 All obligations of the Licensee created by
this Agreement, all other license documents,
including all Unit License Agreements, and
the relationship created hereunder are
assumed by the transferee.
11.6.2 All ascertained debts of Licensee to
Bullhide are paid.
11.6.3 Licensee is not in default hereunder.
11.6.4 Transferee satisfactorily completes the
training required of new Licensees on
Bullhide's then current terms prior to the
date of transfer.
11.6.5 Licensee satisfies Bullhide that the
transferee meets all of the requirements of
Bullhide for new Licensees, including but
not
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limited to, good reputation and character,
business acumen, operational ability,
financial strength and other business
considerations.
11.6.6 Transferee executes or, in appropriate
circumstances, causes all necessary parties
to execute Bullhide's standard form of
Development Agreement, Unit License
Agreements for all Installation Centers open
or under construction, and such other then
current ancillary agreements being required
by Bullhide of new Licensees on the date of
transfer.
11.6.7 Licensee executes a general release in a
form satisfactory to Bullhide of any and all
claims against Bullhide.
11.6.8 Licensee or transferee pays to Bullhide a
transfer fee in an amount sufficient to
cover Bullhide's reasonable costs in
effecting the transfer and in providing
training and other initial assistance to
transferee.
11.6.9 This Agreement shall inure to the benefit of
Bullhide, its successors and assignees, and
Bullhide shall have the right to transfer or
assign all or any part of its interest
herein to any person or legal entity.
12. Notices. All notices hereunder shall be in writing and shall be duly
given if hand delivered or sent by registered or certified mail,
postage prepaid, addressed:
If to Bullhide at: The Bullhide Liner Corporation
North 535 Fancher Way
Spokane, WA 99212
If to Licensee at: 6 Olde Village Drive
Winchester, MA 01890
To be Named
Marc Landini
or at such other address as Bullhide or Licensee shall have specified by notice
to the other party hereunder.
13. Governing. This Agreement shall be deemed to have been made and entered
into in the State of Washington and all rights and obligations of the
parties hereto shall be governed by and construed in accordance with
the laws of the State of Washington.
14. Remedies Cumulative: Waiver: Consent . All rights and remedies of
Bullhide and of
<PAGE>
Licensee enumerated in this Agreement shall be cumulative and, except
as specifically contemplated otherwise by this Agreement, none shall
exclude any other right or remedy allowed by law or in equity and said
rights or remedies may be exercised and enforced concurrently. No
waiver by Bullhide or by Licensee of any covenant or condition or the
breach of any covenant or condition of this Agreement to be kept or
performed by the other party shall constitute a waiver by the waiving
party of any subsequent breach or non-observance on any other occasion
of the same or any other covenant or condition of this Agreement.
Subsequent acceptance by Bullhide of any payments due to it hereunder
shall not be deemed to be a waiver by Bullhide of any preceding breach
by Licensee of any terms, covenants or conditions of this Agreement.
Whenever this Agreement requires Bullhide's prior approval or consent,
Licensee shall make a timely written request to Bullhide therefor, and
such approval shall be obtained in writing. Bullhide will also consider
granting, in its sole discretion, other reasonable requests
individually submitted by Licensee in writing for Bullhide's prior
waiver of any obligation imposed by this Agreement. Bullhide makes no
warranties or guarantees upon which Licensee may rely, and assumes no
liability or obligation to Licensee, by providing any waiver, approval,
consent or suggestion to Licensee in connection with this Agreement, or
by reason of any neglect, delay or denial of any request therefor. Any
waiver granted by Bullhide shall be subject to Bullhide's continuing
review, may subsequently be revoked for any reason effective upon
Licensee's receipt of ten (10) days' prior written notice, and shall be
without prejudice to any other rights Bullhide may have.
15. Severability. If any provision of this Agreement or the application of
any provision to any person or to any circumstances shall be determined
to be invalid or unenforceable, then such determination shall not
affect any other provision to any other person or circumstance, all of
which other provisions shall remain in full force and effect, and it is
the intention of Bullhide and Licensee that if any provision of this
Agreement is susceptible of two or more constructions, one of which
would render the provision enforceable and the other or others of which
would render the provision unenforceable, then the provision shall have
the meaning which renders it enforceable.
16. Entire. This Agreement together with all Unit License Agreements
executed hereunder constitutes the entire agreement between Bullhide
and Licensee in respect of the subject matter hereof, and this
Agreement supersedes all prior and contemporaneous agreements between
Bullhide and Licensee in connection with the subject matter of this
Agreement. No officer, employee or other servant or agent of Bullhide
or Licensee is authorized to make any representation, warranty or other
promise not contained in this Agreement. No change, termination or
attempted waiver of any of the provisions of this Agreement shall be
binding upon Bullhide or Licensee unless in writing and signed by
Bullhide and Licensee.
17. Joint and Several Obligation. If the Licensee consists of more than one
person, their liability under this Agreement shall be deemed to be
joint and several.
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18. Counterpart: Paragraph Headings: Pronouns. This Agreement may be
executed in any number of counterparts, each of which shall be deemed
an original but all of which together shall constitute one and the same
instrument. The paragraph headings in this Agreement are for
convenience of reference only and shall not be deemed to alter or
affect any provision thereof. Each-pronoun used herein shall be deemed
to include the other number and genders.
19. Acknowledgments. Licensee acknowledges that:
19.1 It has conducted an independent investigation of the business
contemplated by this Agreement and recognizes that it involves
business risks making the success of the venture largely
dependent upon the business abilities of Licensee. Bullhide
expressly disclaims the making of, and Licensee acknowledges
that it has not received or relied upon, any warranty or
guarantee, express or implied, as to the potential sites,
volume, profits or success of the business venture
contemplated by this Agreement.
19.2 It has no knowledge of any representations by Bullhide or its
officers, directors, shareholders, employees, agents or
servants about the business contemplated by this Agreement,
that are contrary to the terms of this Agreement or the
documents incorporated herein, and further represents to
Bullhide as an inducement to its entry into this Agreement,
that it has made no misrepresentations in obtaining this
Agreement.
19.3 It has received, read and understood this Agreement, the
attachments hereto, including the Unit License Agreement
attached hereto; Bullhide has fully and adequately explained
the provisions of each to its satisfaction; and Bullhide has
accorded it ample time and opportunity to consult with
advisors of its own choosing about the potential benefits and
risks of entering into this Agreement.
19.4 It is aware of the fact that some other present Licensees of
Bullhide may operate under different forms of agreement and,
consequently, that Bullhide's obligations and rights in
respect to its various joint ventures may differ materially in
certain circumstances.
20. Effective Date. This Agreement shall be effective as of the date it is
executed by The Bullhide Corporation, d/b/a Bullhide Liner.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
<S> <C>
Bullhide:
THE BULLHIDE LINER CORPORATION
By__________________________________
Its____________________________
WITNESSES:
______________________________ Dated:_____________________________
AREA DEVELOPER LICENSEE:
Corporation:
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To Be Named
By____________________________
Marc Landini
Title___________________________
WITNESSES:
_____________________________ Dated:_________________________
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EXHIBIT 10.7
BULLHIDE
STANDARD UNIT LICENSE AGREEMENT
THIS AGREEMENT, made at Spokane, Washington, as of the date set forth below, by
and between THE BULLHIDE LINER CORPORATION, a Washington corporation,
(hereinafter "Bullhide"), NEW ENGLAND POLYCOTE (hereinafter "Licensee").
WHEREAS, Bullhide is engaged in the business of operating and licensing a
process under the name of "Bullhide Liner" which offers to sell to the public a
custom spray-molded permanent polyurethane lining that protects and preserves
the beds of trucks, vans, trailers and boats; and
WHEREAS, Bullhide has developed information and methods in connection with the
operation of such Bullhide Liner Installation Centers for providing products and
services, utilizing certain standards, specifications, methods, procedures,
techniques, management systems, identification schemes, recipes and proprietary
marks and information (hereinafter "Bullhide Liner System"); all of which may be
changed, improved and further developed from time to time by Bullhide; and
WHEREAS, the distinguishing characteristics of the Bullhide Liner System
include, without limitations, the name and mark "Bullhide Liner," together with
such other trade names, service marks, trademarks and trade symbols, emblems,
signs, slogans, insignia and copyrights as Bullhide has adopted and designated
for use in connection with the Bullhide Liner System and as Bullhide may
hereafter acquire or develop and designate for use in connection with the
Bullhide Liner System (hereinafter "Licensed Rights"); and
WHEREAS, Bullhide has established an excellent reputation and goodwill with the
public with respect to the quality of products and services available at
Bullhide Liner Installation Centers, which reputation and goodwill have been and
continue to be of major benefit to Bullhide and its Licensees; and
WHEREAS, Licensee recognizes the benefits to be derived from being identified
with and licensed by Bullhide and being able utilize the Bullhide Liner System
and the Licensed Rights which Bullhide makes available to its Licensees; and
WHEREAS, Licensee has the right to select proposed sites on which to construct
Bullhide Liner Installation Centers under that certain Development Agreement
between Bullhide and Licensee dated hereinafter "Development Agreement"), within
the area described in that Development Agreement (hereinafter "Licensed Area");
and
WHEREAS, Licensee desires to construct, own and operate Bullhide Liner
Installation Centers described in P. I hereof upon the terms and conditions set
forth herein, which terms and conditions
are reasonably necessary to maintain Bullhide's high and uniform standards of
quality and service and to protect the goodwill and enhance the public image of
the Bullhide Liner System
<PAGE>
and the Licensed Rights; and
WHEREAS, the location described in P. 1 is within the Licensed Area and has been
proposed by Licensee and accepted by Bullhide as a site for a Bullhide Liner
Installation Center;
NOW, THEREFORE, in consideration of the foregoing and of the covenants herein
contained, the parties, intending to be legally bound, hereby agree as follows:
1. Grant of License and Licensed Rights.
1.1 Subject to the terms and conditions of this Agreement,
Bullhide hereby grants to the Licensee the exclusive license
to construct, lease, own and operate a Bullhide Liner
Installation Center (hereinafter the "Installation Center") at
the following location:
------
1.2 Subject to the terms and conditions of this Agreement,
Bullhide agrees to license to Licensee the right to use the
Bullhide Liner System and the Licensed Rights of the
Installation Center.
1.3
1.3.1 It is understood and agreed that Licensee shall have
the exclusive right to operate a Bullhide Liner
Installation Center and to use the Bullhide Liner
System and the Licensed Rights at the Installation
Center within an area determined by such factors as
population, truck and boat density and other factors
that may influence the potential of success for the
Licensee. The continuous purchase of Bullhide
materials is necessary to maintain the exclusive
rights to the area. Each location or equivalent
machine must purchase a minimum average of one drum
set of material (160 gallons) every month on average
for the first year period, beginning after the
initial two month start-up period, and 240 gallons
per month in the second and continuing years of
operation. Failure to purchase the minimum amount of
Bullhide material could result in reduction in the
size of the exclusive territory, up to and including
the loss of exclusivity for the entire territory.
1.3.2 Subject to negotiation prior to the time of signing
this Agreement, if applicable, the Exclusive Licensed
Unit Marketing Area ("Unit License") is:
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SEE DEVELOPMENT AGREEMENT
==========================================
==========================================
2. Term and Performance.
The license is extended indefinitely as long as all the terms of this
agreement are fulfilled.
3. Payments.
Licensee specifically acknowledges that no fee is being paid for the
license to operate their Installation Center under the Bullhide Liner
System, and for the licensed rights there of Exclusive continuous
purchase by the licensee at what is considered to be bonafide wholesale
prices and use of the products sold by Bullhide constitute the full
consideration given to Bullhide by the Licensee for the full licensed
rights under the Unit License Agreement.
4. Services by Bullhide.
Bullhide agrees to use its best efforts to maintain the excellent
reputation of all Bullhide Liner Installation Centers and, in
connection therewith, to make available to Licensee the following:
4.1 Initial training in the Bullhide Liner System, including
standards, methods, procedures and techniques, for each person
identified in 19 of this Agreement, at such time and places as
Bullhide may designate for its training program, in its
discretion, and subject to the terms of 19 hereof.
4.2 Such assistance as Bullhide determines is required in
connection with the opening of the Installation Center by
Licensee, including assistance by Bullhide's personnel in
planning and developing of pre-opening and promotional
programs.
4.3 The use of Bullhide's Operations Manual and other manuals and
training aids as developed and revised from time to time.
4.4 Such merchandising, marketing and other data and advice as may
from time to time be developed by Bullhide and deemed by it to
be helpful in the operation of the Installation Center.
4.5 Such periodic continuing individual or group advice,
consultation and assistance, rendered by personal visit or
telephone, or by newsletters or bulletins made available from
time to time to all Licensees of Bullhide as Bullhide may deem
necessary or appropriate.
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4.6 Such bulletins, brochures and reports as may from time to time
be published by Bullhide regarding its plans, policies,
research, developments and activities.
4.7 Such other resources and assistance as may hereafter be
developed and offered by Bullhide to its Licensees.
5. Limitations of Licensed Rights. Licensee acknowledges and agrees that:
5.1 The license and Licensed Rights granted hereunder are personal
to Licensee and cannot be sold, assigned or transferred, in
whole or in part, except as set forth in P. 3 hereof
5.2 Bullhide is the exclusive owner of the Licensed Rights and of
the identification schemes, standards, specifications,
operating procedures and other concepts embodied in the
Bullhide Liner System. Licensee will use the Bullhide Liner
System and the Licensed Rights strictly in accordance with the
terms of this Agreement, and any unauthorized use of the
Bullhide Liner System and the Licensed Rights is and shall be
deemed an infringements of Bullhide's rights. Except as
expressly provided by this Agreement and any other Unit
License Agreements, Licensee shall acquire no right, title or
interest to the Bullhide Liner System or the Licensed Rights;
any and all goodwill associated with the Bullhide Liner System
and the Licensed Rights shall inure exclusively to Bullhide's
benefit. Licensee will at no time take any action whatsoever
to contest the validity or ownership of the Licensed Rights
and the goodwill associated therewith.
5.3 Licensee shall have no right without permission to use in its
name the name "Bullhide", "Bullhide Liner", or other names
used by Bullhide. If Licensee has heretofore obtained
permission to use any of these names, and does use any of them
in its name, then, upon termination of this Agreement for any
reason whatsoever, Licensee shall immediately take all steps
necessary to eliminate any of these names from its name,
except as permitted by any other Unit License agreement.
5.4 Except as provided in P. 1 hereof the Licensed Rights granted
hereunder are nonexclusive, and Bullhide retains the right, in
its sole discretion:
5.4.1 To continue to construct and operate other Bullhide
Liner Installation Centers and to use the Bullhide
Liner System and the Licensed Rights at any location
outside the Exclusive Marketing Area, and to license
others to do so.
5.4.2 To develop, use and license the rights to symbols,
emblems, signs, slogans, insignia or copyrights not
designated by Bullhide as Licensed Rights, for use
with different systems for the sale of different
products or
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services other than in connection with the Bullhide
Liner System at any location, on such terms and
conditions as Bullhide may deem advisable and without
granting Licensee any rights therein.
5.4.3 To promote or conduct special exhibits at regional or
nationally oriented fairs, shows and special events
utilizing mobile units or temporary locations within
the Exclusive Marketing Area. Licensee may utilize
mobile units or temporary locations throughout the
Exclusive Marketing Area for special events or fbr
normal business calls at customer locations. Licensee
may also utilize mobile units for special events or
normal business calls at customer locations outside
of the Exclusive Marketing Area where no licensees
have been granted by the Bullhide. Bullhide may
authorize Licensees from other territories to do
mobile work within another Licensee's territory,
provided that the opportunity for such work has first
been offered to the Licensee in the respective
territory and that he is either not, in the sole
judgment of Bullhide, sufficiently trained for the
particular work, or the Licensee otherwise declines
the opportunity to perform such work.
Bullhide believes that, on occasion, certain national or
regional customer accounts will be developed by them which may
require a bidding process by two or more Licensees, In this
event, each Licensee desiring to bid on such accounts will be
given the opportunity to bid for such work.
5.5 Licensee may conduct sales at a local fair or special event
through mobile units or temporary locations at any location,
temporary or permanent, within his territory.
5.6 Bullhide has the right to determine, approve and supervise the
quality of services, the products and techniques used by
Licensee and the methods of preparation of all Bullhide
products sold from the Installation Center; to conduct
periodic inspections of the Installation Center, equipment,
and products; and to take all action it deems necessary to
maintain the quality and standards of the products, the
Installation Center and the Bullhide Liner System.
5.7 Licensee shall. carefully monitor the performance of any
person who is actively involved in the management or operation
of the Installation Center.
5.8 Any disputes between Licensee and Bullhide as to matters such
as merchandising, production, performance, distribution,
promotions, advertising, sales and general business policies
shall be resolved as determined by Bullhide.
5.9 Because complete and detailed uniformity under many varying
conditions may not be possible or practical, Bullhide
specifically reserves the right and privilege, at its sole
discretion and as it may deem in the best interests of all
concerned in any specific instance, to vary standards for any
Licensee based upon the
<PAGE>
peculiarities of a particular site or circumstance, density of
population, business potential, population of trade area,
existing business practices or any other condition which
Bullhide deems to be of importance to the successful operation
of such Licensees business. Licensee shall not be heard to
complain on account of any variation from standard
specifications and practices granted to any other Licensee and
shall not be entitled to require Bullhide to grant them a like
or similar variation hereunder.
5.10 Licensee has sole responsibility for the performance of all
obligations arising out of the operation of its business
pursuant to this Agreement, including, but not limited to, the
payment when due of any and all taxes levied or assessed by
reason of such operation.
5.11 Licensee, or each person who is actively involved in the
management or operation of the business of Licensee, must
continuously demonstrate to Bullhide its ability to operate
the business of Licensee pursuant to this Agreement and all
other Unit License Agreements.
5.12 In all public records, in its relationship with other persons,
and in any offering circular, prospectus or similar document,
Licensee shall indicate clearly the independent ownership of
Licensees business and that the operations of said business
are separate and distinct from the operation of Bullhide's
business.
6. Construction.
6.1 Whether or not Licensee is remodeling an existing building,
Licensee shall construct or remodel the Installation Center in
accordance with a plan approved by Bullhide for such site and
Bullhide's standard specifications and interior layouts
subject, however, to any alteration thereto that may be
required by any applicable law, regulation or ordinance. If
alterations of any kind are required to be made to the
licensees plan, as approved by Bullhide to any of Bullhide's
plans, specifications or interior layouts, for any reason,
such alterations must be approved by Bullhide in writing
before any work is begun on the Installation Center. Any cost,
including engineering and architectural fees, incurred in
obtaining approvals by the plans, specifications and interior
layouts shall be paid by the Licensee.
6.2 If Licensee is remodeling an existing building, all plans and
specifications must be approved by Bullhide in writing before
any work is begun on the Installation Center.
6.3 Licensee shall not deviate from the approved plans,
specifications and interior layouts in any manner in the
construction or remodeling of the Installation Center without
the prior written approval of Bullhide. If, at any time,
Bullhide determines that Licensee has not constructed or
remodeled the Installation Center in
<PAGE>
accordance with the plans, specifications and interior layouts
approved by Bullhide, Bullhide shall, in addition to any other
remedies, have the right to obtain an injunction from a court
of competent authority against the continued construction and
the opening of the Installation Center (or, if the
Installation Center has already opened, against the continued
operation of the Installation Center), and Licensee hereby
consents to any such injunction.
7. Opening.
7.1 Licensee shall give Bullhide at least forty-five (45) days
prior written notice of the opening of the Installation
Center. If such notice is not given, Bullhide shall be
relieved of its obligation under this Agreement to provide
assistance in connection with the opening of the Installation
Center and the planning and development of pre-opening
promotions and programs.
7.2 Licensee agrees to spend a minimum of One Thousand Dollars ($
1,000. 00) for advertising and promotion of the grand opening
of the Installation Center.
8. Operations. Licensee covenants and agrees that:
8.1 In order to protect the Bullhide Liner System and to maintain
uniform standards of operation under the Licensed Rights,
Licensee shall operate the Installation Center in accordance
with Bullhide's Operations Manual, a numbered copy of which
Licensee acknowledges receiving on loan from Bullhide for the
term of this Agreement. Licensee understands and acknowledges
that Bullhide may, from time to time, revise the contents of
the Operations Manual to implement new or different operating
requirements applicable to all Bullhide Liner Installation
Centers, including Installation Centers owned by Bullhide, and
Licensee expressly agrees to comply with each changed
requirement within such reasonable time as Bullhide may
require. Licensee shall at all times ensure that its copy of
the Operations Manual and any other manuals given to it are
kept current and up to date and, in the event of any dispute
as to the contents thereof, the terms of the master copies
maintained by Bullhide at its principal place of business
shall be controlling.
8.2 In order to protect the Bullhide Trademark, the Licensed
Rights and the goodwill associated therewith, it win:
8.2.1 Operate, Produce and Install the finer under the name
"Bullhide Liner" and advertise only under the
Licensed Rights designated by Bullhide for use for
that purpose and will use such rights without Prefix,
except where such use may conflict with a prior
registration or use, in which event Licensee shall
operate and advertise only under such other names as
Bullhide has previously approved in writing.
<PAGE>
8.2.2 Feature and use the Licensed Rights solely in the
manner prescribed by Bullhide.
8.2.3 Observe such reasonable requirements with respect to
service mark, tradename, trademark and fictitious
name registrations and copyright notices as Bullhide
may, from time to time, direct in writing.
8.3 Licensee shall use only such materials for the manufacture of
linings and methods of preparation, application and service as
conform to the specifications and standards of Bullhide in
effect from time to time. Licensee shall discontinue selling
or offering for sale any competitive products Bullhide may, in
its discretion, disapprove in writing at any time.
8.4 It will cause its employees to wear apparel which conforms
strictly to the specifications, design and style approved by
Bullhide from time to time.
8.5 It will maintain at all times, at its expense, the
Installation Center, equipment, fixtures, furnishings and
furniture and related premises, parking areas, landscape areas
and interior and exterior signs in a good, clean, attractive
and safe condition in conformity with Bullhide's high
standards and public image, and in connection therewith, shall
make such additions, alterations, repairs and replacements
thereto as may be required to keep the Installation Center in
the highest degree of repair and condition, including, without
limitation, such periodic repainting, repairs to equipment not
in good working order, and replacement of outdated signs as
Bullhide may reasonably direct.
8.6 It will comply with all laws, ordinances and regulations
affecting the operation of the Installation Center. Without
limiting the generality of the foregoing, Licensee
specifically agrees to comply with applicable health and
safety laws, and air pollution laws, ordinances and
regulations so as to be rated in the highest available health
and safety and air purity classifications by the appropriate
governmental authorities and to furnish to Bullhide, within
ten (10) days of Licensee's receipt thereof, copies of all
inspection reports, warnings, certificates and ratings issued
by any governmental agency which reflect licensee's
noncompliance or less than full compliance with any applicable
law, rule or regulation.
8.7 It will notify Bullhide in writing within ten (10) days of the
commencement of any action, suit or proceeding, and of the
issuance of any order, writ, injunction, award of decree of
any court, agency or other governmental instrumentality, which
may adversely affect licensee's financial condition or ability
to meet its obligations hereunder.
8.8 It will permit authorized personnel of Bullhide to enter the
Installation Center at any time during normal business hours
for the purpose of inspecting and
<PAGE>
examining the operations and facilities (including, but not
limited to, testing, sampling and inspecting the materials for
the manufacturing of linings used by Licensee and the products
and services sold by it, as well as the storage, preparation
and application of such linings and products). Licensee shall
cooperate with Bullhide's representatives in such inspections
by rendering such assistance as they may reasonably request.
It shall permit Bullhide's representatives to remove from the
Installation Center samples of any ingredients and products
without payment therefor in amounts reasonably necessary for
testing by Bullhide, or an independent certified laboratory to
determine whether said samples meet Bullhide's then-current
standards and specifications. In addition to any other
remedies it may have under this Agreement, Bullhide may
require Licensee to bear the cost of such testing if the
supplier from whom such ingredients and products were acquired
has not been approved by Bullhide or if the sample fails to
conform to Bullhide's specifications. Upon notice from
Bullhide or its agents, Licensee shall take such steps as may
be necessary immediately to correct any deficiencies detected
during any inspection or by such testing, without limitation,
immediately ceasing to use any methods, ingredients, products
or advertising materials which do not conform to Bullhide's
then current specifications, standards or requirements.
8.9 It shall purchase all liner materials and chemicals
exclusively from Bullhide, as well as the application
equipment utilized in the production of the liner. All
Bullhide materials are warranted to be free from manufacturer
defect, and will be replaced free of charge if found to be
defective. Product defect is defined as product properties
outside of Bullhide's material specification. All other
equipment, inventory, other supplies, products, and
ingredients used in the operation of the Installation Center
as Bullhide, in its discretion, may specify from time to time,
solely from suppliers who demonstrate to Bullhide's continuing
reasonable satisfaction the ability to meet Bullhide's
standards and specifications for such items, who have been
approved in writing by Bullhide and not thereafter
disapproved. If Licensee desires to purchase any such items
from a supplier who is not approved, Licensee shall submit to
Bullhide a written request for such or shall request the
supplier to do so. Bullhide shall have the right to require,
as a condition of its approval, that its representatives be
permitted to inspect the supplier's facilities and that
samples from the supplier be delivered, at Bullhide's option,
to Bullhide or its designee for testing. A charge not to
exceed the cost of inspection and testing shall be paid by the
Licensee or by the supplier seeking approval, and Bullhide
shall not be liable for damage to any sample which might
result from the testing process. Bullhide reserves the right,
at its option, to reinspect the facilities and to reject the
products of any such approved supplier at any time to revoke
such approval if the supplier has failed to continue to meet
any of the foregoing criteria.
8.10 It will open and operate the Installation Center at least five
days per week (except during such periods as it may be
required by law or permitted by Bullhide to be
<PAGE>
closed) during the minimum hours of 8:00 A.M. to 5:00 P.M.
local time. Minimum. requirements are that the phones be
forwarded or answered.
8.11 It will pay on a timely basis for all products and other items
used in the operation of the Installation Center. Licensee is
aware that failure to make prompt payment to its suppliers may
cause irreparable harm to the reputation and credit of
Bullhide and other Licensees.
8.12 Licensee, at its expense, shall have annual financial
statements covering the results of operations of the
Installation Center prepared by a qualified accountant
selected by Licensee and, if requested by Bullhide in writing,
shall deliver such financial statements to Bullhide.
8.13 It shall comply with all other requirements set forth in this
Agreement.
9. Bullhide Training Program.
9.1 The following persons shall satisfy all of the conditions
established by Bullhide from time to time for admission to,
and graduation from, Bullhide's management initial training
program.
9.1.1 Licensee, if he is an individual.
9.1.2 One person who is actively involved in the management
or operation of the business of Licensee and one
Application Specialist from the installation Center.
9.1.3 Each person who has an interest in Licensee (if
Licensee is a group of individuals or a corporation,
partnership, unincorporated association or similar
entity) at the option of the Licensee.
Each such person shall successfully complete
Bullhide's training program to Bullhide's
satisfaction. Upon the failure to Licensee or any
other such person to complete the training program
successfully for any reason, a substitute trainee
satisfactory to Bullhide shall attend and
successfully complete the program and shall operate
or supervise the operation of the Installation Center
thereafter if Bullhide, at its option, so directs.
9.2 The classroom and on-the-job training is held in Spokane,
Washington, for five (5) days and averages six (6) hours per
day. The training involves the use of Bullhide's Operating
Manual and covers basic principles of marketing, management,
bookkeeping, scheduling, cost control, product costs, health
and safety, operating procedures, equipment operation and
Bullhide Liner application methods.
<PAGE>
9.3 No fee shall be charged by Bullhide for participation in the
initial training program. Licensee shall be responsible for
the costs and expenses (such as room, board and
transportation) of each person who attends the program. At
Bullhide's discretion, there may be a charge for the cost of
materials used during training.
9.4 The persons listed above in 19.1 may also attend any optional
advanced training programs or seminars offered and conducted
by Bullhide. Licensee shall be responsible for the costs and
expenses of each person who attends any such program.
9.5 Bullhide may, in the future, authorize Licensee to offer and
sell additional products and services beyond the current
product and service line. If they choose to offer and sell the
additional products and services, Licensee and all employees
Bullhide so designates must complete Bullhide's advanced
training seminars for those additional products and services
to Bullhide's satisfaction.
9.6 Bullhide also maintains an in-service training program. If
requested by Licensee, and if personnel is available, a
Bullhide staff member will provide on-the-job raining at the
Licensee's Installation Center. Bullhide reserves the right to
charge a fee for this service equal to two times the
Installation Center manager's daily salary, as established by
Bullhide's Payroll Guidelines in effect at the time of the
request, plus expenses.
10. Advertising and Promotions,
10.1 It is required by Bullhide that Licensee spend for local
advertising an amount equal to not less than Five Hundred
Dollars ($500.00) each month the Installation Center is opened
and operating. Such advertising may include, but shall not be
limited to, the following:
10.1.1 Participation in local area media advertising
programs established from time to time by Bullhide.
10.1.2 Participation in drives, contests and similar program
related to sales promotions established from time to
time by Bullhide.
10.1.3 Advertisements in the classified or "yellow pages" of
local telephone directories in a manner required by
Bullhide.
Licensee shall be free to conduct, at its expense, additional
advertising and marketing activities in its local market area
and elsewhere, and Bullhide may offer, from time to time, to
provide Licensee with approved local advertising and marketing
plans and materials, including, without limitation, newspaper
mats, radio commercial tapes, sales aids and other promotional
marketing materials at a price equal to Bullhide's cost
therefor. Samples of all local advertising and
<PAGE>
marketing materials not prepared or previously provided by
Bullhide or its designated agents shall be submitted (by
certified mail, return receipt requested) to Bullhide for
approval (except with respect to prices to be charged), which
approval shall not be withheld unreasonably, prior to their
use by Licensee. ff written approval is not received by
Licensee within thirty (30) days from the date of receipt by
Bullhide of such materials, Bullhide shall be deemed to have
waived the required approval; provided, that Licensee shall
discontinue the use thereof within a reasonable time, if
Bullhide subsequently requests such action in writing.
Bullhide reserves the right to require Licensee to cooperate
with other Licensees in connection with regional advertising
and marketing activities.
10.2 Licensee agrees to honor all valid warranty claims made by any
customer of Bullhide when presented with the proper warranty
certification. The direct cost of materials and labor, as
directed by Bullhide, shall be reimbursed by producer of
original liner or Bullhide if original producing Installation
Center is no longer operating. Licensee further agrees to
reimburse other Licensees their cost as stated above, for
providing warranty service on liners produced by Licensee.
11. Hold Harmless- Insurance.
11.1 Licensee agrees to indemnify and hold harmless Bullhide from
any liability or damage Bullhide may incur, including
reasonable attorney fees, as a result of claims, demands,
costs or judgments, of any kind or nature, by anyone
whomsoever, arising out of, or otherwise connected with, this
Agreement, the franchise, the Licensed Rights or the
ownership, maintenance or operation of the Installation Center
by the Licensee.
11. 2 Notwithstanding the foregoing, Bullhide agrees to cooperate
with Licensee to protect Licensee against the infringement of
the Bullhide Liner System and the Licensed Rights, including,
but not limited to, the defense or prosecution of any lawsuits
if, in the judgment of Bullhide's counsel, such action is
necessary or advisable.
11.3 Licensee agrees to maintain insurance as follows:
11.3.1 All insurable properties shall be insured against
loss or damage by fire, lightning, windstorm, hail,
explosion, riot, riot attending a strike, civil
commotion, air traffic, vehicle, smoke or other risks
usually insured against by persons operating like
properties in the localities where the properties
operated by Licensee are located, in amounts
sufficient to prevent Bullhide or the Licensee from
becoming a co-insurer within the terms of the
policies in question, and in any event in amounts not
less than eighty percent (80%) of the then-insurable
value thereof.
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11.3.2 During the construction or remodel of the
Installation Center, policies of Builder's Risk
Insurance shall be maintained in amounts not less
than customarily maintained by Bullhide.
11.3.3 Public liability insurance shall be maintained
against claims for personal injury, death or property
damage suffered by others upon, in or about the
Installation Center or occurring as a result of the
maintenance or operation by Licensee of any
automobiles, trucks, or other vehicles, airplanes or
other facilities or as a result of the use of
products sold by it or services rendered by it or any
claims arising out of the business of Licensee
pursuant to this Agreement or the operation of the
Installation Center in a total amount not less than
$500,000.
11.3.4 Workmen' s compensation, unemployment compensation,
disability insurance, social security, and other
insurance coverage, shall be maintained in such
amounts as may now, or hereafter, be required by the
State law where the licensee is located.
All such policies shall insure Licensee and Bullhide (if
necessary under any law, ordinance or regulation) and shall
protect the Licensee and Bullhide against any liability which
may accrue by reason of this Agreement, the Licensed Rights,
or the ownership, maintenance or operation by Licensee of the
Installation Center.
Licensee-s obligation to obtain and maintain the foregoing
policy or policies of insurance shall not be limited in any
way by reason of any insurance which may be maintained by
Bullhide, nor shall Licensee's performance of this obligation
relieve it of liability under the indemnity provision set
forth in I 11. 1 hereof. If requested to do so by Bullhide in
writing, Licensee shall deliver to Bullhide certificates of
insurance evidencing its compliance with this P. 11.3.
12. Default: Termination,
12.1 The occurrence of any of the following events shall constitute
a default under this Agreement:
12.1.1 If Licensee shall misuse the Bullhide Liner System or
Licensed Rights, of any other names, marks, systems,
insignia, symbols or rights provided by Bullhide to
Licensee, or otherwise materially impair the goodwill
associated therewith or Bullhide's rights therein, or
if Licensee shall use, at the Installation Center,
any names, marks, systems, insignia or symbols not
authorized by Bullhide.
12.1.2 If Licensee or persons controlling, controlled by or
under common control with Licensee, shall have any
interest, direct or indirect, in the ownership or
operation of any Installation Center engaged in the
sale of competitive liners and related products
within the Exclusive Marketing Area or in any
Installation Center which looks like, copies or
imitates any Bullhide Liner Installation Center or
operates in a manner tending to have such effect
other than in accordance withP. 14 hereof.
12.1.3 If Licensee shall fail to remit any payments when due
to Bullhide.
12.1.4 If Licensee shall fail to submit to Bullhide the
financial or other information required under this
Agreement.
12.1.5 If Licensee shall fad to construct, maintain or
remodel the Installation Center in accordance with
Bullhide's plans and specifications or to equip the
Installation Center in accordance with Bullhide's
standards and specifications.
12.1.6 If Licensee shall fail to operate the Installation
Center in accordance with Bullhide's Operations
Manual or other manuals or shall fail to use
products, ingredients and methods of preparation
which conform to the specifications and standards of
Bullhide, or shall fad in any other way to maintain
Bullhide's standards of quality in appearance and
service in the operation of the Installation Center.
12.1.7 If Licensee shall purport to effect any assignment
other than in accordance with 113 hereof.
12.1.8 If Licensee shall be in default under any lease or
sublease of the Installation Center site or loses the
right to possession thereof for any reason
whatsoever.
12.1.9 If a threat or danger to public health or safety
results from the construction, maintenance or
operation of the Installation Center.
12.1.10 If Licensee makes, or has made, any misrepresentation
to Bullhide in connection with obtaining the
Development Agreement or this Agreement or in
conducting the business Licensed and licensed
hereunder.
12.1.11 If Licensee fails to obtain Billhide's prior written
approval or consent as expressly required by this
Agreement.
12.1.12 If Licensee defaults in the performance of any other
obligation
<PAGE>
under this Agreement.
12.1.13 If the Installation Center ceases operations without
the written consent of Bullhide for any reason except
for a period of not more than one hundred eighty
(180) days as a result of fire, condemnation or Act
of God.
12.1.14 If Licensee, or any person controlling, controlled by
or under common control with Licensee, shall be
convicted or pleads guilty or no contest to a felony
charge of violating any law.
12.2 Upon occurrence of any of the events set forth in P. 12. 1,
Bullhide may, without prejudice to any other rights or
remedies contained in this Agreement or provided by law or
equity, terminate this Agreement. Such termination shall be
effective thirty (30) days after written notice (or such other
notice as may be required by applicable Washington law) is
given by Bullhide to Licensee of any of the events set forth
in subparagraphs 12. 1.1 through 12.1.13 if such defaults are
not cured within such period. Termination shall be effective
immediately and without notice, however, upon occurrence of
any of the events specified in subparagraphs 12.1-14, except
where prohibited by Washington law.
12.3 Upon termination of this Agreement for any reason, or upon
expiration of the term hereof, Licensee agrees as follows:
12.3.1 To pay immediately to Bullhide the full amount of all
sums due under this Agreement.
12.3.2 To cease immediately to use the Bullhide Liner System
and all of the Licensed Rights provided by Bullhide
hereunder and any confusingly similar names, marks,
systems, insignia, symbols or other rights,
procedures or methods except to the extent permitted
pursuant to 14.4.
12.3.3 To return Bullhide's Operations Manual and all other
manuals, plans and specifications, designs, records,
data, samples, models, programs, handbooks or
drawings touching or concerning Bullhide's operation
or business.
12.3.4 To cease immediately to hold itself out in any way as
a Licensee of Bullhide or to do anything which would
indicate any relationship between it and Bullhide
except to the extent permitted pursuant to 12.4.
12.3.5 To permit Bullhide's agents to enter the premises and
to remove or permanently cover all signs or
advertisements identifiable in any
<PAGE>
way with Bullhide's name or image.
12.3.6 To sell to Bullhide at their option all of the spray
mix-metering machine, including the gun and spare
parts, at a price of up to thirty-five percent (35%)
of its original cost depending upon the condition of
the equipment. Bullhide shall also purchase at
Bullhide's option from Licensee, all Bullhide Liner
component materials, in usable condition, at a price
of up to fifty percent (50%) of its original cost.
12.3.7 If Licensee leases its own real estate and/or
building, at the sole option of Bullhide, it must
immediately assign said lease to Bullhide and
Bullhide agrees to them indemnify and hold Licensee
harmless from any further obligations pursuant to
said lease agreement. Licensee shall have a clause
inserted in its lease for the premises which
encompasses the above rights, options, and
obligations. In addition, Licensee must immediately
assign to Bullhide, the Bullhide Liner Installation
Center telephone number(s).
12.3.8 Licensee shall also be responsible, at its expense,
for compliance with state or local laws, rules and
regulations for the removal of unusable chemicals or
other waste or materials considered by law to be
hazardous or not.
12.4 Termination of this Agreement shall not affect the rights of
Licensee to operate other Bullhide Liner Installation Centers
in accordance with the terms of any Unit License Agreements
until and unless such Unit License Agreements, or any of them,
are terminated in accordance with their terms. Notwithstanding
the foregoing, termination of this Agreement or any default
hereunder may be grounds for termination of the Development
Agreement.
13. Assignment. Conditions and Limitations.
13.1 If Licensee is a corporation, partnership, unincorporated
association or similar entity, the terms of this 113 shall be
deemed to apply to any sale, resale, pledge, assignment,
transfer or encumbrance of the voting stock of, or other
ownership interest in, Licensee, which would, alone or
together with other related, previous, simultaneous or
proposed transfers, result in a change of "control" of
Licensee within the meaning of the Securities Exchange Act of
1934 and the regulations thereunder.
The term "Licensee," as used in this 113, shall be deemed to
include the person or persons who control Licensee as
disclosed to Bullhide in a writing upon the execution of the
Development Agreement.
<PAGE>
13.2 In the event of the death, disability or permanent incapacity
of Licensee, Bullhide shall not unreasonably withhold its
consent to the transfer of all of the interest of Licensee to
his spouse, heirs or relatives, by blood or marriage, whether
such transfer is made by will or by operation of law, provided
that the requirements of 13.6 hereof have been met. In the
event that Licensee's heirs do not obtain the consent of
Bullhide as prescribed herein, the personal representative of
Licensee shall have a reasonable time to dispose of Licensee's
interest hereunder, which disposition shall be subject to all
the terms and conditions for transfers under this Agreement.
13.3 If Licensee receives from a third person other than their
spouse, heirs, or relatives, and desires to accept a bona fide
written offer to purchase its business, Licensed Rights and
interests, Bullhide shall have the option, exercisable within
forty-five (45) days after receipt of written notice, and a
copy of such offer and the other information set forth in this
113.3, to purchase such business, Licensed Rights and
interests, including Licensee's right to occupy and use the
Installation Center, on the same term and conditions as
offered by said third party. In order that Bullhide may have
information sufficient to enable it to determine whether to
exercise its option, Licensee shall deliver to Bullhide
certified financial statements as of the end of Licensee's
most recent fiscal year and such other information about the
business and operations of Licensee as they have provided to
said third party. If Bullhide does not exercise its option,
Licensee may, within sixty (60) days from the expiration of
the option period, sell, assign and transfer its business,
Licensed Rights and interests to said third party provided
Bullhide has consented to such transfer as required by this
113. Any material change in the terms of the offer prior to
closing of the sale to such third party shall constitute a new
offer, subject to the same rights of first refusal by Bullhide
or its nominee as in the case of an initial offer. Failure by
Bullhide to exercise the option afforded by this 113.3 shall
not constitute a waiver of any other provision of this
Agreement, including all of the requirements of this P. 13
with respect to the proposed transfer.
13.4 In the event Licensee or its successor is a corporation or
partnership or similar entity, it is agreed as follows: The
Articles of Incorporation (Charter) and the Bylaws
(Regulations) or the Partnership Agreement shall reflect that
the issuance and transfer of voting stock of, or other
ownership interest therein ("securities"), is restricted by
the terms of this Agreement. Licensee shall furnish Bullhide
at the time of execution of this Agreement or assignment to
the corporation or partnership an agreement executed by all
stockholders or partners of the Licensee, stating that no
stockholder or partner will sell, assign or transfer
voluntarily or by operation of law any securities of the
Licensee to any person or entity other than existing
stockholders or partners to the extent permitted hereunder
without the prior written consent of Bullhide. All securities
issued by Licensee will bear the following legend which shall
be printed legibly and conspicuously on each stock certificate
or other evidence of ownership interest:
<PAGE>
The transfer of these securities is subject to the
terms and conditions of a License Agreement with The
Bullhide Corporation, d/b/a Bullhide
Liner("Bullhide"), dated _______________and certain
other Agreements executed thereunder. Reference is
made to said Agreements and to the restrictive
provisions of the Articles and Bylaws of this
Corporation.
A stop transfer order shall be in effect against the transfer
of any securities on the Licensee's records, except transfers
permitted by this P. 13.
13.5 Licensee acknowledges and agrees that the restrictions on
transfer imposed herein are reasonable and are necessary to
protect Bullhide, the Bullhide Liner System and the Licensed
Rights, as well as Bullhide's excellent reputation and image,
and are for the protection of Bullhide, Licensee, and other
Licensees. Any assignment or transfer permitted by this 113
shall not be effective until Bullhide receives a completely
executed copy of all transfer documents, and consents in
writing.
13.6 Bullhide agrees not to unreasonably withhold its consent to a
sale, assignment or transfer by Licensee hereunder. Consent to
such transfer otherwise permitted or permissible as reasonable
may be refused unless:
13.6.1 All obligations of the Licensee created by this
Agreement, all other documents, including the
Development Agreement and any other Unit License
Agreement, and the relationship created hereunder are
assumed by the transferee.
13.6.2 All ascertained debts of Licensee to Bullhide are
paid.
13.6.3 Licensee is not in default under this Agreement, the
Development Agreement, or any other Unit License
Agreement.
13.6.4 Transferee satisfactorily completes the training
required of new licensees on Bullhide's then-current
terms prior to the date of transfer.
13.6.5 Licensee satisfies Bullhide that the transferee meets
all of the requirements of Bullhide for new
Licensees, including, but not limited to, good
reputation and character, business acumen,
operational ability, financial strength and other
business considerations.
13.6.6 Transferee executes or, in appropriate circumstances,
causes all necessary parties to execute Bullhide's
standard form of Unit License Agreement for the
Installation Center and such other then-current
ancillary agreements being required by Bullhide of
new Licensees on the date of transfer.
<PAGE>
13.6.7 Licensee executes a general release in a form
satisfactory to Bullhide of any and all claims
against Bullhide.
13.6.8 Licensee or transferee pays to Bullhide a transfer
fee in an amount equal to $5,000.00 to cover
Bullhide's reasonable costs in effecting the transfer
and in providing training and other initial
assistance to transferee.
13.7 This Agreement shall inure to the benefit of Bullhide, its
successors and assignees, and Bullhide shall have the right to
transfer or assign all or any part of its interest herein to
any person or legal entity.
14. Non-Competition: Confidentiality.
14.1 Licensee, and persons controlling, controlled by or
under common control with Licensee, will not, without
Bullhide's prior written consent:
14.1.1 Have any interest, direct or indirect, in the
ownership or operation of any Installation Center
engaged in the sale or use of competitive liners to
Bullhide or related products (i) within the United
States during the term of this Agreement or (ii)
within the Licensed area or within a two hundred mile
radius of the Installation Center for a period of
five (5) years following the termination of this
Agreement, except in accordance with other Unit
License Agreements.
14.1.2 At any time during the term of this Agreement or
thereafter, use, in connection with the operation of
any other shop wherever located, any of the Licensed
Rights or any other names, marks, systems, insignia
or symbols, provided by Bullhide to Licensee pursuant
to this Agreement, or cause or permit any such
installation Center to look like, copy or imitate any
Bullhide Liner Installation Center or to be operated
in a manner tending to have such effect.
14.2 During the term of this Agreement, any officer or area
supervisor of Bullhide or their representatives shall have the
right to inspect any installation Center in which Licensee has
an interest at reasonable times and during normal business
hours to the extent reasonably necessary to determine whether
the conditions of this Paragraph are being satisfied. If, by
reason of such inspections or otherwise, Bullhide has reason
to believe that Licensee is not in full compliance with the
terms of this paragraph, Bullhide shall give notice of such
default to Licensee, specifying the nature of such default. If
Licensee denies that it is in default hereunder, as specified
by Bullhide, it shall have the burden of establishing that
<PAGE>
such default does not exist and shall give notice to Bullhide
of its position, within ten (10) days of receipt of the notice
from Bullhide. Unless Licensee so denies such default, it
shall immediately take all steps to cure said default in a
manner satisfactory to Bullhide.
14.3 Licensee, and persons controlling, controlled by or under
common control with Licensee, shall at all times treat as
confidential the operations manual, any other manuals or
materials designated for user with the Bullhide Liner System
and such other information as Bullhide may designate from tune
to time for confidential user with the Bullhide Liner System
(as well as all other trade secrets, if any, and confidential
information, knowledge and know-how concerning the
construction or operation of the Installation Center that may
be imparted to, or acquired by, Licensee from time to time in
connection with this Agreement), and shall use all reasonable
efforts to keep such information confidential. Licensee
acknowledges that the unauthorized use or disclosure of such
confidential information (and trade secrets, if any) will
cause incalculable and irreparable injury to Bullhide.
Licensee accordingly agrees that it shall not at any time,
without Bullhide's prior written consent, disclose (except to
such employees or agents as must have access to such
information in order to construct or operate the installation
Center) or use or permit the use (except as may be required by
local state of federal law or authorized by this Agreement) of
such information, in whole or in part, or otherwise make the
same available to any unauthorized person or source. Any and
all information, knowledge and know-how, not generally known
in the auto after market business about the Bullhide Liner
System and Billhide's products, services, standards,
specifications, systems, procedures and techniques, and such
other information or material as Bullhide may designate as
confidential, shall be deemed confidential for purposes of
this Agreement, except information which Licensee can
demonstrate came to its attention prior to disclosure thereof
by Bullhide, or which is or has become a part of the public
domain through publication or communication by others. The
Operations Manual, any other manuals designated for use with
the Bullhide Liner System, and all confidential information
(and trade secrets, if any) shall at all times be deemed to
be, and shall remain, the sole property of Bullhide, and
Licensee shall acquire no rights, title or interest therein by
virtue of its authorization pursuant to this Agreement to
possess and use the same.
14.4 Licensee shall cause any person who is actively involved in
the management or operation of the business of Licensee
pursuant to this Agreement or the operation of the
Installation Center, at the time of his employment, to enter
into a Confidentiality and Non-Competition Agreement in the
form recommended from time to time by Bullhide. A copy of this
signed confidentiality & non-competition agreement shall be
sent to Bullhide upon completion. Licensee shall use his best
efforts to prevent any such persons from using, in connection
with the operation of any Installation Center wherever
located, the Bullhide Liner System and any of the Licensed
Rights or from operating any Installation Center which looks
like,
<PAGE>
copies or imitates any Bullhide Liner Installation Center or
operates in a manner tending to have such effect. If Licensee
has reason to believe that any such person has violated the
provisions of the Confidentiality and Non-Competition
Agreement of this paragraph, Licensee shall notify Bullhide
and shall cooperate with Bullhide to protect Bullhide against
infringement or other unlawful use of the Licensed Rights or
the Bullhide Liner System, including, but not limited to, the
prosecution of any lawsuits it in the judgment of Bullhide's
counsel, such action is necessary or advisable.
14.5 Licensee will not analyze or cause to be analyzed any of the
materials, ingredients or components thereof of any of the
products purchased from or received as samples from Bullhide,
for purposes of determining chemical or physical properties,
without Bullhide's written consent. All requests from
"authorities" for such materials shall be referred to
Bullhide.
14.6 The unenforceability of all or part of the covenants not to
compete in any state shall not affect the enforceability of
the covenants not to compete in other states, or the
enforceability of the remainder of this Agreement. The
covenants not to compete are given in part in specific
consideration for access to trade secrets provided as a part
of Bullhide's training or ongoing support programs.
15. Notices. All notices hereunder shall be in writing and shall be duly
given if hand delivered or sent by registered or certified mail,
postage prepaid, addressed:
If to Bullhide, at: The Bullhide Corporation
10 Fairway Drive #211
Deerfield Beach, Fl, 33441
If to Licensee
21
........ ...... ...... ....... .... ..
entry into this Agreement, that it has made no misrepresentations in obtaining
this Agreement.
22.3 It has received, read and understood this Agreement, the
attachments hereto, if any. Bullhide has fully and adequately
explained the provisions of each to its satisfaction; and
Bullhide has accorded it ample time and opportunity to consult
with advisors of its own choosing about the potential benefits
and risks of entering into this Agreement.
22.4 It is aware of the fact that other Licensees of Bullhide may
now or in the future operate under different forms of
agreement and, consequently, that Bullhide's obligations and
rights in respect to its various Licensees may differ
materially in certain circumstances.
23. Effective Date. This Agreement shall be effective as of the date it is
executed by The
<PAGE>
Bullhide Corporation, d/B/a Bullhide Liner.
<TABLE>
<CAPTION>
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement.
<S> <C>
BULLHIDE:
THE BULLHIDE LINER CORPORATION, d/b/a
BULLHIDE LINER
By____________________________________
Its______________________________
WITNESSES:
_____________________________ Dated: ___________________________
LICENSEE:
NEW ENGLAND POLYCOTE
If Sole Proprietor:
By: /s/
Its President
WITNESS
Dated: 8/17/99
If Partnership:
By
Partner
By
Partner
Dated:
If Corporation:
<PAGE>
By
Title:
By
Title:
Do Not Write Belaw This Line
Unit License Agreement No.
</TABLE>
