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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file Number 0-16176
McLAREN AUTOMOTIVE GROUP, INC.
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(Name of small business issuer in its charter)
Delaware 84-1016459
- - - - - - - - - --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
32233 West Eight Mile Road, Livonia, Michigan 48152
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(Address of principal executive offices)
Issuer's telephone number: (248) 477-6240
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: Common
Stock, $.00001 par value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for the most recent fiscal year were $4,858,504.
As of December 27, 1999, 9,088,517 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of the shares held by non-affiliates
was approximately $19,885,675.
Documents incorporated by reference: None.
Transitional Small Business Disclosure Format (Check One:) Yes No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
McLaren Automotive Group, Inc. (the "Company" or "McLaren") was
incorporated as a Delaware corporation on January 28, 1986, as "Capital Equity
Resources, Inc.". On September 19, 1986, the name of the Company was changed
to "ASHA Corporation".
On January 7, 1999, ASHA Corporation acquired McLaren Engines, Inc., a
privately held Delaware corporation incorporated in 1969. On April 28, 1999, the
name of the Company was changed to "McLaren Automotive Group, Inc." The business
was subsequently reorganized in September, 1999, into two operating divisions,
McLaren Traction Technologies and McLaren Engines (collectively, the
"Divisions").
Prior to the acquisition of McLaren Engines, Inc., ASHA was principally
involved in the business of engineering research and development focused
primarily on developing and licensing new technologies to the vehicle industry.
The Company's major product had been the licensing of technology for Gerodisc, a
proprietary, automatic, hydro-mechanical control device designed to improve
vehicle traction and handling. In 1999, the McLaren Traction Technologies
Division expanded ASHA's product offerings and today offers:
. Gerodisc Traction Control Technology
. TwinDisc Traction Control Technology
. Electronically Controlled Gerodisc and TwinDisc Technologies
. Gerotor Only Systems (GOS) for Front Wheel Drive Systems
. Chassis Systems Design and Development
. Component and Vehicle Systems Prototypes
. Driveline Systems Design and Development
. Simulation
. Environmental Testing
McLaren Engines, Inc., which was established to provide a North American
base for Bruce McLaren Motor Racing, had gradually shifted its focus through the
years from purely racing related work to providing powertrain design, testing
and development for vehicle Original Equipment Manufacturers (OEMs) and
suppliers. Today, the McLaren Engines Division supplies a variety of products
and services including:
. Power Development
. Endurance and Reliability Testing
. Steady State Emissions Testing
. Software Calibration and Development
. Custom Electronic Systems Development
. Engine Build/Teardown/Evaluation
. Powertrain Engineering and Design
. Noise/Vibration Studies
. Fabrication and Vehicle Build
. Rapid Prototyping
. EPA and CARB Certification
. Manufacturing and Field Support
. Warranty Failure Analysis
. Production Engine Audit
. Catalyst Aging and Development
. Accelerated Aging and Alternative to Extending Testing
Products and services produced by both Divisions of the Company are
marketed principally to vehicle OEMs and suppliers. The Company's offerings are
believed to be unique in the market in that a wide range of services are offered
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which relate specifically to powertrain/driveline technologies. Historically,
these services have been developed by customers internally. Therefore,
management believes that there are a limited number of outside resources
available to provide these services. The full spectrum of capabilities provided
by the Company enables the Company to offer complete, turnkey solutions to its
customers.
The primary competition of the McLaren Traction Technologies Division comes
from the research and development activity by suppliers of full axle systems.
While most of these companies have competing technologies, in testing by OEM
vehicle manufacturers, the Gerodisc system has generally been superior when
ultimate traction and smooth operation were the primary test criteria. The chief
disadvantage has been the greater cost of manufacturing the Gerodisc device as
compared to other systems. A fundamental goal of the McLaren Traction
Technologies Division for the year 2000 is to make Gerodisc designs more cost
effective.
The McLaren Traction Technologies Division's recent development of
electronically controlled systems for the Gerodisc may provide a marketing
advantage for the product in the near term. Management believes that the only
currently available competitive systems are electromagnetic devices which are
much more complex and heavier.
Because of the diversity of services offered by the McLaren Engines
Division, the Division operates in several different market segments. While
there are many competitors in these segments, many of these competitors are also
customers of the Division. With regard to the few other broad-based competitors,
management believes that the McLaren Engines Division has a competitive
advantage in that it serves as a supplier to multiple customers and the Division
is not perceived as a specific dedicated supplier to a single OEM. The
Division's chief competitive disadvantage has been a lack of focus on marketing.
Specific plans for the year 2000 are in development to counter this situation.
Given the nature of the Company's business, the Company has minimal
material requirements and does not rely significantly on any particular
suppliers.
In 1999, business with General Motors Corporation accounted for
approximately 57% of all Company revenues and business with Ford Motor Company
accounted for approximately 18% of all Company revenue. All of this business was
generated by the McLaren Engines Division. No other customer exceeded more than
10% of all Company revenue. While it is quite common in the industry for a
single automotive OEM to represent a significant portion of revenues, increased
marketing efforts are being focused at other customers and the third and fourth
quarters of fiscal year 1999 saw significant increases in the Division's
business with both Daimler Chrysler and Ford Motor Company.
The Company has registered the trademark "McLaren" in the United States for
engineering services. The Company is also the owner of eleven patents on the
Gerodisc technology and has filed eight additional patent disclosures for new
products. The Company also owns patents on a body structure technology for use
in emerging or niche markets. Currently, the Company does not plan to
commercialize this body structure technology.
The products and services of the Company require no special governmental or
regulatory approvals, although the Company has obtained certain routine
environmental permits required in connection with the performance of its
services. At the current time the Company has identified no particular or
pending governmental regulations which are likely to significantly affect the
Company's business; however, additional Federal or state regulation
of vehicle emissions might positively impact the business of the McLaren Engines
Division.
In 1999, the Company spent approximately $2,466,000 on research and
development, compared to approximately $1,605,000 in 1998.
As of December 22, 1999, the Company employed 86 full time employees; 72 of
these employees work in the Livonia, Michigan facility and 14 are located at the
Santa Barbara, California facility.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal office is located at 32233 West Eight Mile Road,
Livonia, Michigan. The Company owns three buildings at this location consisting
of approximately 55,000 square feet in total. The facilities are in good
condition and include office space, work areas for building engines, modifying
vehicles, fabricating and machining, and an engine test facility. The Company
leases to a third party approximately 1,000 square feet of space on a month-to-
month basis at a rate of $500 per month. The Company also leases to another
third party approximately 3,200 square feet of space at a rate of $1,700 per
month. This lease expires August, 2001. The Company has the option to terminate
the lease in August, 2000.
The Company also leases an office which is in good condition and which is
located at 600 C Ward Drive, Santa Barbara, California 93111, at a monthly rate
of $10,435 through May 2003. Each January, the base rent is adjusted in
proportion to the percentage increase or decrease of the Consumer Price Index of
the Bureau of Labor Statistics, United States Department of Labor. In no event
will the rent be increased more than 8% for any one adjustment period nor shall
rent be less than the base rent. This facility includes office space, work areas
for designers and a shop containing equipment for performing design, development
and styling work. Approximately 30,000 square feet of space are utilized at this
location. The Company subleases approximately 2,100 square feet of space to a
subtenant at a rate of $2,000 per month. This sublease expires in May 2003.
ITEM 3. LEGAL PROCEEDINGS
The Company entered into a License Agreement in 1994 with Dana Corporation.
On July 21, 1998, Dana terminated the License Agreement. On September 9, 1998,
the Company filed an action alleging that Dana breached the License Agreement.
On April 6, 1999, the Company filed a patent infringement action against Dana.
In its Complaint, the Company alleged that Dana infringed upon the Company's
patented Gerodisc system, United States Patent No. 5,888,163 (the "'163
patent"), and the Company is seeking damages and declaratory and injunctive
relief. In response to the patent infringement action, Dana filed a counterclaim
in which it alleged that the '163 patent is invalid, unenforceable, and not
infringed upon by Dana. Dana's counterclaim is a declaratory judgment action in
which no money damages are sought. The patent infringement action and the breach
of contract action have been consolidated for purposes of discovery and trial.
Discovery is now being undertaken in the consolidated action. The case is
pending in the District Court for the Eastern District of Michigan.
A former employee of the Company, Murat Okcuoglu, has asserted that he
believes he is entitled to certain payments pursuant to his employment contract
with the Company dated as of March 1, 1991. In a letter dated August 31, 1999,
Mr. Okcuoglu made demand for payment of $1,563,321 and asserted that he was
entitled to ongoing payments from the Company attributable to commercialization
by the Company of ideas allegedly originating from Mr. Okcuoglu. The Company
denies that it has any obligations to Mr. Okcuoglu arising out of his employment
agreement or otherwise. In the event that Mr. Okcuoglu should decide to pursue
his claims against the Company, the Company intends to contest the matter
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended September
30, 1999.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET OR MARKETS. The Company's Common Stock is traded in the
over-the-counter market, and was listed on the Nasdaq Small-Cap Market under the
symbol "ASHA" between June 30, 1997 and April, 1999, and is currently listed
under the symbol "MCLN." Prior to June 30, 1997, quotations were carried on the
OTC Bulletin Board.
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The following table sets forth the high and low closing sales prices for
the Company's Common Stock as reported on the Nasdaq Small-Cap Market for the
periods indicated.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
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<S> <C> <C>
December 31, 1997 $7.375 $5.125
March 31, 1998 $7.875 $6.000
June 30, 1998 $7.813 $5.563
September 30, 1998 $6.500 $3.562
December 31, 1998 $5.312 $2.750
March 31, 1999 $7.000 $4.375
June 30, 1999 $6.750 $4.750
September 30, 1999 $5.000 $2.312
</TABLE>
APPROXIMATE NUMBER OF SHAREHOLDERS OF COMMON STOCK. The approximate number
of holders of record of the Company's Common Stock on October 22, 1999, was
2,301. Many shares are registered in the names of brokerage firms or other
nominee names. As a result, the Company estimates that it has in excess of 6,000
beneficial owners of its Common Stock.
DIVIDENDS. Holders of Common Stock are entitled to receive such dividends
as may be declared by the Company's Board of Directors. No dividends have been
paid with respect to the Company's Common Stock and no dividends are anticipated
to be paid in the foreseeable future. The Company currently intends to retain
all earnings to finance the development and expansion of its operations. The
declaration of cash dividends in the future will be determined by the Board of
Directors based upon the Company's earnings, financial condition, capital
requirements and other relevant factors.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
In 1999, the Company's financial performance was adversely affected due to
three factors: first, the lack of revenues from McLaren Traction's Gerodisc
business in new license fees, royalty income and new development agreements;
second, the Company spent considerable sums on the Dana litigation described in
Item 3; and finally, the Company has incurred a series of non-recurring expenses
resulting from its restructuring arising primarily from the McLaren Engines
acquisition.
For the next year, the Company plans to take several steps designed to
improve operations. With respect to the McLaren Engines Division, the Company
plans to expand its business by offering additional services and improving its
marketing efforts for existing services. It is expected that additional capital
will be required to achieve this expansion.
With the re-direction of the research and development activities for
Gerodisc, the McLaren Traction Division reduced its staff effective September
30, 1999, to more closely match revenues with expenditures. Management believes
that the investments in 1999, which have resulted in four new patent
applications and a new line of electronically controlled differential products,
will enhance the Company's competitive position in the marketplace for the full
line of Gerodisc products. Management also believes that the perception in the
marketplace will be that the Gerodisc technology outperforms the competition and
that the Company has attained a new competitive advantage with the
electronically controlled products developed at the urging of its customers.
Further, a number of new products have been offered to OEMs and are in the
evaluation stages for possible inclusion in their product plans. In addition,
the trend toward increased specialty offerings is opening new potential customer
areas for the Division.
Management sees trends that may positively affect the performance of the
Company. One such trend is the increased outsourcing by the automotive companies
of engineering services that may benefit the McLaren Engines Division. Another
trend is the increase of "specialty niche market vehicles" within the auto
companies, which increases the application base for the Gerodisc products in new
vehicle programs.
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The Company has also identified strategies for growth that will further
enhance its product lines and service offerings. The successful implementation
of these strategies would support an expanded suite of service offerings at
the McLaren Engines Division, as well as an expansion of the depth of the
support for the new product lines in the Gerodisc business. The Company is also
studying the opportunities in the automotive performance aftermarket with the
Gerodisc and other product lines.
FORWARD-LOOKING STATEMENTS
This Report contains certain forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934, as amended, which are
intended to be covered by the safe harbor created thereby. These statements
include the plans and objectives of management for future operations, including
plans and objectives relating to (i) the licensing of Gerodisc technology to
suppliers for the major United States and foreign automotive and vehicle
manufacturers; (ii) researching and developing new technologies that can be
commercially exploited; and (iii) operational plans and strategies for growth of
the Company's business. The forward-looking statements included herein are
based on current expectations that involve numerous risks and uncertainties.
Although the Company expects to grant additional licenses for the Gerodisc
technology, there can be no assurance that any additional licenses will be
granted, or if granted, that they will lead to any future royalty revenues. The
Company's plan and objectives relating to Gerodisc are also based on the
assumption that automobile and vehicle manufacturers will elect to incorporate
Gerodisc in their future models, that competitive conditions within the industry
will not change materially or adversely, and that there will be no material
adverse change in the Company's operations or business. Assumptions relating
to the foregoing involve judgments with respect to, among other things, future
economic, competitive and market conditions and future business decisions, all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of the
assumptions could be inaccurate and, therefore, there can be no assurance that
the forward-looking statements included in this Report will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
RESULTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 1999 VERSUS YEAR ENDED
SEPTEMBER 30, 1998
During the year ended September 30, 1999, the Company had revenue of
approximately $4.9 million as compared to approximately $5.7 million for the
year ended September 30, 1998. The majority of the revenue for the latest fiscal
year was derived from McLaren Engines, which was acquired in January, 1999. The
revenue for the prior fiscal year was primarily attributable to license fees of
$5.1 million for the Company's Gerodisc technology.
Total operating expenses were approximately $9.1 million for the fiscal
year ended September 30, 1999, as compared to approximately $3.6 million for the
prior fiscal year. Approximately $4.0 million of this increase is attributable
to the operation of McLaren Engines. The remaining $1.4 million increase in
overall operating expenses was a combination of increased administrative costs
of approximately $570,000, increased domestic and international marketing
efforts of approximately $105,000, and increased engineering activities of
approximately $667,000.
Research and development costs increased by $860,000 during fiscal year
ended September 30, 1999, as compared to the prior year. This increase was due
primarily to salaries and payroll related items incurred in connection with
retaining the services of additional engineers.
The Company's selling, general and administrative costs increased by $2.7
million in 1999. This increase was primarily attributable to McLaren Engines,
which accounted for $2.0 million of this increase. The balance of this increase
was primarily attributable to legal fees incurred in connection with the
Company's patents and litigation costs.
The Company recorded a loss of approximately $610,000 from its investment
in ASHA-Taisun, an affiliate, during the fiscal year ended September 30, 1999,
as compared to a loss of approximately $534,000 for the prior fiscal year. The
Company reduced its ownership in the prior fiscal year to 18% from 50% in
exchange for royalties to be given per unit produced. The recorded loss for the
current year represents the write off of the carrying value of the investment in
ASHA-Taisun because production is not at the level that management anticipated,
and management believes the remaining investment is not realizable.
Interest income of approximately $65,000 was substantially lower for the
year ended September 30, 1999, as compared to the interest income of
approximately $270,000 for the prior year. Interest expense of approximately
$202,000 for the latest fiscal year was substantially higher than the $30,000
for the prior year. The most significant interest item in the current year was
approximately $155,000 of interest expense incurred in connection with
borrowings to finance the acquisition of McLaren Engines.
The Company incurred a net loss of $4.9 million in the fiscal year ended
September 30, 1999, compared to the prior year's net income of $1.8 million.
Income before taxes of approximately $630,000 was derived from the McLaren
Engines Division, which reduced the Company's overall losses in the current
year. However, minimal revenue from the McLaren Traction Division, coupled with
the expenses associated with its ongoing operations, were the primary causes of
the Company's loss.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had working capital of approximately
$500,000, compared to working capital of approximately $5,665,000 at September
30, 1998. The decrease was primarily due to borrowings and cash payments related
to finance the acquisition of McLaren Engines, Inc.
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Operating activities for the twelve months ended September 30, 1999,
utilized $845,000 of net cash compared to $210,000 of cash used in the twelve
months ended September 30, 1998. The operations of McLaren Engines utilized
$286,000 in its operating activities, which was required primarily to fund its
growth. Net losses for the twelve months ended September 30, 1999, utilized
approximately $4,948,000 of cash.
On January 7, 1999, the Company acquired all of the outstanding stock of
McLaren Engines, Inc. in exchange for 150,000 shares of the Company's authorized
but unissued Common Stock. The shares were valued at $675,000. Immediately prior
to the acquisition, McLaren Engines, Inc. completed a reorganization in which
it redeemed the stock of its existing shareholders and issued new shares to
certain of its employees. The Company loaned McLaren Engines, Inc. $1,355,000
from its operating funds for the reorganization. McLaren Engines, Inc. also
borrowed $2,454,000 from an unaffiliated bank to complete this reorganization.
The primary reason for the acquisition is that McLaren Engines and McLaren
Traction have many of the same clients and similar service offerings. Through
integrating sales, marketing, and research and development engineering staff,
management believes that the acquisition of McLaren Engines will better serve
the worldwide licensee base, adding new capabilities and core services, while
improving net earnings.
Investing activities for year ended September 30, 1999, used $2.2 million
of cash compared to $1.0 million used for the comparable period in 1998. The
Company has invested approximately $1,119,000 with the purchase of the real
estate and equipment of McLaren Engines. No investment was made in ASHA-Taisun
during the current year as compared to $534,000 invested during the twelve
months ended September 30, 1998.
The Company anticipates that its cash requirements may exceed its available
cash during the next twelve months. Through a combination of bank borrowings and
sale of its common stock, the Company anticipates that it will be able to
satisfy its cash requirements to finance its current and foreseeable cash
requirements.
YEAR 2000 COMPLIANCE
The Company's business does not rely significantly on date dependent
computer systems and, therefore, management believes that Year 2000 related
problems will not have a material impact on the Company. Nevertheless, the
Company has assessed its information systems, and has upgraded its information
systems as a part of its continuing technology refresh program, which has
resulted in these systems becoming Year 2000 compliant. Since the Company has
upgraded its information technology systems as a part of its normal technology
refresh program, it has not expended significant amounts on Year 2000 issues. In
light of the Company's state of readiness, the Company does not believe that a
contingency plan for Year 2000 issues is required.
ITEM 7. FINANCIAL STATEMENTS
The Report of Independent Public Accountants appears at page F-1 and the
Financial Statements and Notes to Financial Statements appear at pages F-2
through F-21 hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No response required.
PART III.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The current Directors and Executive Officers of the Company and those who
have served during the fiscal year ended September 30, 1999, are as follows:
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<TABLE>
<CAPTION>
NAME AGE POSITION
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<S> <C> <C>
Nicholas P. Bartolini... 63 Director
Lawrence Cohen.......... 55 Chairman of the Board and Director
Louis J. Infante........ 49 Executive Vice President and Chief Operating
Officer, McLaren Traction; Secretary of
the Company
David D. Jones.......... 56 Director
Jacqueline K. Kurtz..... 46 Chief Financial Officer/Executive Vice President-
Business Infrastructure
Wiley R. McCoy.......... 60 President, Chief Operating Officer and Director
Erick A. Reickert....... 64 Director
Robert J. Sinclair...... 67 Director
Kenneth R. Black/1/..... 53 Vice President of Sales and Marketing
John C. McCormack/2/.... 68 Director
Steven E. Sanderson/3/.. 46 Chief Financial Officer, Secretary and Treasurer
</TABLE>
There are no family relationships among any of the Directors or Executive
Officers.
NICHOLAS P. BARTOLINI. Mr. Bartolini has served as a Director of the
Company since October, 1997. Since 1995, Mr. Bartolini has been Principal of
Bartolini Associates with offices in Santa Barbara, California. Bartolini
Associates has provided process re-engineering new product and business
development and sales consultant services to automotive suppliers in the United
States and Europe. It also engages in venture investments and has pro bono
association with RAND. Mr. Bartolini was Vice President, Ford Parts and Service
Operations for Ford Motor Company in Europe from 1989 to 1994.
LAWRENCE COHEN. Mr. Cohen has served as a Director of the Company since
January 20, 1995, and as Chairman of the Board since April 1, 1999. Mr. Cohen
founded and is currently the Chairman of the Board and President of Bristol
Retail Solutions, Inc. Mr. Cohen is also Chairman of the Board of Registry Magic
Inc., a company founded by Mr. Cohen (NASDAQ).
LOUIS J. INFANTE. Mr. Infante has served as the Executive Vice
President and Chief Operating Officer of McLaren Traction, a division of McLaren
Automotive Group, since May 1, 1999. Mr. Infante was the Chief Operating Officer
of AG
- - - - - - - - - --------------------
/1/ Kenneth R. Black served as the Company's Vice President of Sales and
Marketing between July 1992 and June 18, 1999. Mr. Black resigned as the Vice
President of Sales and Marketing effective June 18, 1999.
/2/ John C. McCormack served as a Director of the Company from January 8, 1998,
until September 30, 1999. Mr. McCormack resigned as a Director effective
September 30, 1999. Mr. McCormack served as Chief Executive Officer between
January 8, 1998 and April, 1999. He also served as President and Chief
Operating Officer of the Company between January, 1995, and April, 1999, as
Secretary and Treasurer between January 31, 1996, and April, 1999, and as
Chairman of the Board between January 8, 1998, and April, 1999.
/3/ Steven E. Sanderson served as Chief Financial Officer between March 1997 and
September 30, 1999. Mr. Sanderson resigned as Chief Financial Officer of the
Company effective September 30, 1999.
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Simpson/Usiminas Ltda. from May, 1997, through April, 1999. Between September,
1996, and May, 1997, he served as the Managing Director of South American
Operations for the Becker Group. Mr. Infante was the Managing Director of South
American Operations for APX International from 1993 through August, 1996.
DAVID D. JONES. Mr. Jones has been a Director of the Company since January,
1998. Since September, 1997, Mr. Jones has served as President and Chief
Executive Officer and a Director of Outboard Marine Corporation ("OMC"), which
manufactures and markets outboard marine engines, boats and marine parts with
annual sales of approximately $1.1 billion. He was named Chairman of the Board
of OMC in May, 1999. OMC is privately owned but has publicly-held debt and files
reports under the Securities Exchange Act of 1934. From 1990 through August,
1997, he served as president of the Mercury Marine Division of the Brunswick
Corporation, a manufacturer of boats, outboard motors, stern drives and other
recreational products. Mr. Jones is also a Director of National Exchange Bank,
Fond du Lac, Wisconsin.
JACQUELINE K. KURTZ. Ms. Kurtz was appointed Chief Financial Officer/
Executive Vice President-Business Infrastructure on December 6, 1999. Ms. Kurtz
was previously employed by UUNet Technologies, an MCI World/Com Company, from
1997 to 1999. From 1994-1997 she held the office of Vice President-
Administration of APX International, a Detroit area firm specializing in
engineering and design services. She served as Vice President Finance and
Corporate Administration of Pioneer Engineering from 1990-1994.
WILEY R. McCOY. Mr. McCoy has served as President and Chief Operating
Officer of the Company since April 20, 1999. Mr. McCoy served as the President
and Chief Operating Officer of McLaren Engines, Inc. from December, 1993 through
January, 1999.
ERICK A. REICKERT. Mr. Reickert has served as a Director of the Company
since October, 1997. Mr. Reickert is currently retired. From September, 1992 to
January, 1996 he was President and CEO of New Venture Gear, Inc. which is
jointly owned by Chrysler Corp. and General Motors Corp., and is a licensee of
the Company's Gerodisc technology.
ROBERT J. SINCLAIR. Mr. Sinclair has served as a Director of the Company
since April 1994. Mr. Sinclair is a retired Chairman and Chief Executive Officer
of Saab Cars USA, Inc. Mr. Sinclair consults for many organizations.
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee.
The Audit Committee consists of David A. Jones and Nick P. Bartolini, each
of whom is an independent Director. John C. McCormack was a member of the Audit
Committee until April, 1999. The Audit Committee's function is to review and
report to the Board of Directors with respect to the selection and the terms of
engagement of the Company's independent public accountants, and to maintain
communications among the Board of Directors, such independent public
accountants, and the Company's internal accounting staff with respect to
accounting and audit procedures, the implementation of recommendations by such
independent public accountants, the adequacy of the Company's internal controls
and related matters. The Audit Committee also reviews certain related party
transactions and any potential conflict of interest situations involving
officers, directors or stockholders beneficially owning more than 10% of an
equity security of the Company.
The Compensation Committee consists of Robert J. Sinclair and Nick P.
Bartolini. The Compensation Committee's function is to review and approve annual
salaries and bonuses for all executive officers and review, approve and
recommend to the Board of Directors the terms and conditions of all employee
benefit plans or changes thereto, including the granting of stock options
pursuant to the Company's 1994 Option Plan.
The Company agreed with the Representative of the Underwriters in the
Company's 1997 Public Offering that, for a period of 36 months from the date of
closing of the offering, the Company will allow an observer designated by the
Representative and acceptable to the Company to attend all meetings of the Board
of Directors. Such observer will have no voting rights. He or she will be
reimbursed for out-of-pocket expenses incurred in attending such meetings, and
will be indemnified against any claims arising out of participation at Board
meetings, including claims based on liabilities arising under the securities
laws.
9
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3 and 4 and amendments thereto furnished
to the Company during its most recent fiscal year, and Forms 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year and
certain written representations, no persons who were either a Director, Officer
or beneficial owner of more than 10% of the Company's Common Stock, failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act
during the most recent fiscal year, except as follows:
Louis J. Infante filed Form 3 one month late and Form 5 reporting one
transaction ten days late; Erick A. Reickert filed Form 5 reporting one option
grant ten days late.
10
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the executive
compensation for the Company's Chief Executive Officer and each other Executive
Officer who received compensation in excess of $100,000 for the fiscal years
ended September 30, 1999, 1998 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------- ---------------------------------------------
SECURI-
TIES
UNDERLY-
OTHER RE- ING ALL
ANNUAL STRICTED OPTIONS/ OTHER
NAME AND PRINCIPAL COMPEN- STOCK SARs LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARD(S) (NUMBER) PAYOUTS SATION
- - - - - - - - - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wiley R. McCoy,/1/ 1999 $ 121,389/2/ -0- -0- -0- -0- -0- -0-
President and COO
Louis J. Infante, 1999 $ 52,500/3/ -0- -0- 28,571/4/ -0- -0- -0-
Executive Vice President
and COO, McLaren Traction
Kenneth R. Black,/5/ 1999 $ 97,500 $1,950 -0- -0- 41,589 -0- $ 21,002/6/
Vice President 1998 $ 119,167/7/ -0- -0- -0- 17,374 -0- -0-
Of Sales and Marketing 1997 $ 90,000 -0- -0- -0- 104,257 -0- -0-
Steven E. Sanderson,/8/ 1999 $ 119,453 $1,650 -0- -0- 37,096 -0- -0-
Chief Financial Officer 1998 $ 104,418/9/ -0- -0- -0- 9,781 -0- -0-
1997 $ 51,468 -0- -0- -0- 10,000 -0- -0-
John C. McCormack,/10/ 1999 $ 95,233 $2,100 -0- -0- 38,400 -0- $ 1,250/11/
President & Chief 1998 $ 123,603/12/ -0- -0- -0- 49,414 -0- $ 1,250/13/
Executive Officer 1997 $ 90,000 -0- -0- -0- 106,386 -0- -0-
Alain J-M Clenet, Officer/14/ 1998 $ 38,125 -0- -0- -0- 11,450 -0- $ 33,925/15/
1997 $ 152,500 -0- -0- -0- 8,278 -0- $ 5,953/16/
</TABLE>
- - - - - - - - - --------------------
/1/ Mr. McCoy was appointed President and COO of the Company on April 20, 1999.
/2/ Mr. McCoy received compensation of $25,784 from McLaren Engines between
October 1, 1998, and January 6, 1999, and compensation of $95,605 from the
Company between January 6, 1999, through September 30, 1999.
/3/ Mr. Infante was hired on May 1, 1999.
/4/ The fair market value of these shares, when awarded in July, 1999,
was $100,000.
/5/ Mr. Black resigned as Vice President of Sales & Marketing effective June
18, 1999. /6/ Represents accrued vacation paid to Mr. Black upon his
resignation.
/7/ Effective January 1, 1998, Mr. Black's compensation was increased from
$90,000 per year to $130,000 per year.
/8/ Mr. Sanderson resigned as Chief Financial Officer effective September 30,
1999.
/9/ Mr. Sanderson was hired on January, 1997, as Controller and Chief Financial
Officer effective March, 1997. Effective January 1, 1998, his annual salary
increased from $85,000 per year to $110,000 per year.
/10/ Mr. McCormack resigned as President and Chief Executive Officer in
April, 1999.
/11/ Represents amounts paid by the Company as a matching payment to a 401(k)
plan contribution.
/12/ Effective January 1, 1998, Mr. McCormack's compensation was increased from
$90,000 per year to $140,000 per year.
/13/ Represents amounts paid by the Company as a matching amount to a 401(k)
plan contribution.
/14/ Mr. Clenet resigned as an Officer and Director of the Company on January 8,
1998.
/15/ Represents automobile purchased for $28,000 for Mr. Clenet as part of
termination agreement, legal expenses of $5,109 in connection to termination,
and $816 for additional medical expenses.
/16/ Represents contractual employment agreement for estate and trust planning
for Mr. Clenet and his family of $2,600, premiums of $371 on a $5,000,000
umbrella liability insurance policy and $2,982 for additional medical expenses
paid on his behalf.
11
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
Individual Grants
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs
UNDERLYING GRANTED TO EXERCISE
OPTIONS/SARs EMPLOYEES IN OR BASE EXPIRATION
NAME GRANTED (#) FISCAL YEAR PRICE ($/SH) DATE
- - - - - - - - - ---------------------- ------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Wiley R. McCoy 0 0.0% ---------- ---------
Louis J. Infante 0 0.0% ---------- ---------
Kenneth R. Black/1/ 41,589 12.32% 3.25 9/18/99
John C. McCormack/2/ 38,400 12.30% 3.25 10/28/01
Steven E. Sanderson/3/ 37,096 11.88% 3.25 10/28/01
</TABLE>
In January, 1999, McLaren Engines, Inc. entered into an employment
agreement with Wiley R. McCoy to employ Mr. McCoy in the position of President
and Chief Operating Officer of McLaren Engines, Inc. On April 20, 1999, this
agreement was terminated and Mr. McCoy entered into a new employment agreement
with the Company to serve as the Company's President and Chief Operating
Officer. Mr. McCoy's current employment agreement is for an initial term of two
years, but will be automatically extended an additional two year period unless
either party notifies the other of its intent to end the agreement at least 90
days prior to the end of the initial term. Mr. McCoy is to receive a base salary
of $140,000 plus annual cost of living adjustments. Mr. McCoy's agreement also
entitles him to participate in all fringe benefits available to other executive
officers and provides that he is to be granted options to purchase 25,000 to
30,000 shares of the Company annually. The agreement may be terminated by the
Company with or without cause at any time. If the agreement is terminated by the
Company without cause, Mr. McCoy will continue to receive his salary and
benefits for up to 12 months.
On May 1, 1999, the Company entered into an employment agreement with Louis
J. Infante to employ Mr. Infante in the position of Executive Vice-President and
Chief Operating Officer of the Company's McLaren Traction Division. The
agreement is for an initial term of two years, but will be automatically
extended an additional two year period unless either party notifies the other of
its intent to end the agreement at least 90 days prior to the end of the initial
term. Mr. Infante is to receive a base salary of $130,000 plus annual cost of
living adjustments. Mr. Infante's agreement also entitles him to participate in
all fringe benefits available to other executive officers and provides that he
is to be granted options to purchase 25,000 shares annually. In addition, Mr.
Infante received a one-time grant of shares with a market value equal to
$100,000 in July, 1999. The agreement may be terminated by the Company with or
without cause at any time. If the agreement is terminated by the Company without
cause, Mr. Infante will continue to receive his salary and benefits for up to 12
months.
On May 1, 1999, the Company entered into an employment agreement with
Steven E. Sanderson, the Company's Chief Financial Officer. This agreement was
terminated on September 30, 1999. Under this agreement, Mr. Sanderson received a
base salary of $130,000 plus annual cost of living adjustments. The agreement
also entitled him to participate in all fringe benefits available to other
executive officers and provided that he was to be granted options to purchase
25,000 shares annually. On October 1, 1999, the Company, in consideration for
the termination of Mr. Sanderson's employment agreement agreed to enter into a
consulting agreement with Mr. Sanderson for a period of eight months, with
compensation of $5,950 per month.
In April, 1999, John C. McCormack resigned as President and Chief Executive
Officer of the Company. The Company entered into a Consulting Agreement with Mr.
McCormack on April 1, 1999, whereby he was retained as a corporate consultant
until April 24, 2000. The agreement calls for Mr. McCormack to receive
compensation of $147,000 during the term of the consulting agreement, plus use
of a vehicle and medical benefits.
- - - - - - - - - --------------------
/1/ Mr. Black resigned as Vice President of Sales and Marketing effective June
18, 1999.
/2/ Mr. McCormack resigned as President and Chief Executive Officer in
April, 1999.
/3/ Mr. Sanderson resigned as Chief Financial Officer effective September 30,
1999.
12
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDER- VALUE OF UNEXER-
SHARES LYING UNEXER- CISED-IN-THE
ACQUIRED CISED OPTIONS/ MONEY OPTIONS/
ON SARS AT FY-END SARS AT FY-END
EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (NUMBER) REALIZED UNEXERCISABLE UNEXERCISABLE
- - - - - - - - - --------------------- --------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Wiley R. McCoy -- -- 0/0 $0/0
Louis J. Infante -- -- 0/0 $0/0
John C. McCormack -- -- 244,240/0 $0/0
Kenneth R. Black -- -- 0/0 $0/0
Steven E. Sanderson -- -- 52,877/0 $0/0
</TABLE>
DIRECTORS' COMPENSATION
The Company's Directors receive fees of $1,250 per meeting for their
attendance at Board or committee meetings, and receive 12,500 options under the
Company's 1994 Stock Option Plan. Directors are also reimbursed for their
reasonable expenses in attending meetings of the Board of Directors and any
committees thereof. During the fiscal year ended September 30, 1999, the
Company's Directors received 75,000 options under the Company's 1994 Stock
Option Plan in lieu of cash fees.
In October, 1998, stock options to purchase 12,500 shares each were granted
to Robert J. Sinclair, Lawrence Cohen, Nick Bartolini, Erick Reickert and David
D. Jones. These options are exercisable at $3.25 per share.
In October, 1999, stock options to purchase 12,500 shares each were granted
to Robert J. Sinclair, Lawrence Cohen, Nick Bartolini, Erick Reickert and David
D. Jones. These options are exercisable for five years at $2.3125 per share.
Certain of the Company's Directors receive fees for consulting services to
the Company in addition to the fees they receive as Directors. During the fiscal
year ended September 30, 1999, the Company paid Lawrence Cohen $42,174 for such
consulting services.
STOCK OPTION PLANS
1994 STOCK OPTION PLAN
The 1994 Stock Option Plan provides for the grant of options to purchase up
to 750,000 shares of Common Stock to employees, officers, directors and
consultants of the Company. The purpose of this plan is two-fold. First, the
plan will further the interests of the Company and its shareholders by providing
incentives in the form of stock options to employees who contribute materially
to the success and profitability of the Company. Second, the plan will provide
the Company flexibility and the means to reward directors and consultants who
render valuable contributions to the Company. The Board has the power to
determine at the time the option is granted whether the option will be an
incentive stock option (an option which qualifies under Section 422 of the
Internal Revenue Code of 1986) or an option which is not an incentive stock
option. However, incentive stock options will only be granted to persons who are
employees of the Company. Vesting provisions are determined by the Board at the
time options are granted. The option price must be satisfied by the payment of
cash. The Board of Directors may amend the plan at any time, provided that the
Board may not amend the plan to materially increase the number of shares
available under the plan or to materially change the eligible class of employees
without shareholder approval.
On July 1, 1997, the Company's Board of Directors adopted amendments to the
1994 Stock Option Plan to increase the number of shares of Common Stock which
may subject to options granted under the plan to 1,000,000;
13
<PAGE>
to allow the exercise price of options to be paid by means other than cash; and
to allow options to be granted with reload option provisions. On December 16,
1997, the Company's Board of Directors adopted an additional amendment to
increase the number of shares of Common Stock which may be subject to options
granted under the plan to 1,400,000. These amendments were approved by the
Company's shareholders on April 3, 1998. On October 28, 1998, the Board of
Directors adopted an additional amendment to increase the number of shares of
Common Stock which may be subject to options granted under the plan to
2,000,000. This amendment was approved by the Company's shareholders on April 4,
1999.
As of September 30, 1999, there were 1,219,670 options outstanding under
the plan with exercise prices ranging from $6.28125 to $3.25.
401(K) PLAN
The Company has a 401(k) plan under which all eligible employees may
contribute up to 15 percent of their compensation. The Company matches
contributions in the amount of 10 percent of all elective deferrals, and, at the
Company's option, may contribute annually up to 15 percent of the total
compensation of all eligible employees.
As a result of the acquisition of McLaren, the Company is maintaining an
additional 401(k) plan for the employees of this Division. Under the terms of
this plan, the Company contributes up to two percent of the participant's annual
salary. Company contributions have a graded vesting period based on years of
service. Additionally, this plan allows for contributions by the participant
equal to eighteen percent of the participant's salary.
During the years ended September 30, 1998 and 1999, the Company made $8,230
and $35,471, respectively, in matching contributions under these plans.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number and percentage of shares of the
Company's Common Stock owned beneficially, as of October 22, 1999, by any person
who is known to the Company to be the beneficial owner of 5% or more of such
Common Stock, and, in addition, by each Director and Executive Officer of the
Company and by all Directors and Officers of the Company as a group. Information
as to beneficial ownership is based upon statements furnished to the Company by
such persons. Each person has sole voting and investment power with respect to
the shares shown except as noted.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNERS BENEFICIAL OWNERSHIP OF CLASS
- - - - - - - - - --------------------------------- -------------------- ---------
<S> <C> <C>
Nicholas P. Bartolini 48,840/1/ *
1926 Santa Barbara Street
Santa Barbara, CA 93101
Lawrence Cohen 539,906/2/ 5.2%
3311 NE 26th Avenue
Lighthouse Point, FL 33064
</TABLE>
- - - - - - - - - --------------------
* Represents less than 1% of Class.
/1/ Represents 11,340 shares held directly and 37,500 shares underlying
currently exercisable stock options held by Mr. Bartolini.
/2/ Represents 10,500 shares held directly by Mr. Cohen, 229,406 shares held
directly by Mr. Cohen's wife, and 300,000 shares underlying currently
exercisable stock options held by Mr. Cohen.
14
<PAGE>
<TABLE>
<S> <C> <C>
Louis J. Infante 53,571/3/ *
32233 West Eight Mile Road
Livonia, MI 48152
David D. Jones 25,000/4/ *
100 Sea Horse Drive
Waukegan, IL 60085
Jacqueline K. Kurtz -0- 0.0%
32233 West Eight Mile Road
Livonia, MI 48152
Wiley R. McCoy 101,250/5/ 1.0%
32233 West Eight Mile Road
Livonia, MI 48152
Erick A. Reickart 31,250/6/ *
5128 Woodlands Drive
Bloomfield Hills, MI 48302
Robert J. Sinclair 114,000/7/ 1.1%
1025 North Ontare Road
Santa Barbara, CA 93105
All Directors and Executive 913,817 8.7%
Officers as a Group (8 persons)
Kenneth R. Black/8/ -0- 0.0%
600 C Ward Drive
Santa Barbara, CA 93111
John C. McCormack/9/ 244,240/10/ 2.1%
600 C Ward Drive
Santa Barbara, CA 93111
Steven E. Sanderson/11/ 70,377/12/ *
600 C Ward Drive
Santa Barbara, CA 93111
Brian Chang...................... 1,217,113/13 11.6%
</TABLE>
- - - - - - - - - --------------------
/3/ Represents 28,571 shares held directly and 25,000 shares underlying
currently exercisable stock options held by Mr. Infante.
/4/ Represents shares underlying currently exercisable stock options held by
Mr. Jones.
/5/ Represents 76,250 shares held directly and 25,000 shares underlying
currently exercisable stock options held by Mr. McCoy.
/6/ Represents shares underlying currently exercisable stock options held by
Mr. Reickert.
/7/ Represents 10,000 shares held directly, 4,000 shares held with his wife as
joint tenants, and 100,000 shares underlying currently exercisable stock options
held by Mr. Sinclair.
/8/ Mr. Black resigned as Vice President of Sales and Marketing effective June
18, 1999.
/9/ Mr. McCormack resigned as an officer of the Company effective April, 1999,
and as a Director effective September 30, 1999.
/10/ Represents shares underlying currently exercisable stock options held by
Mr. McCormack.
/11/ Mr. Sanderson resigned as Chief Financial Officer effective September 30,
1999.
/12/ Represents 70,377 shares underlying currently exercisable stock options
held by Mr. Sanderson.
15
<PAGE>
<TABLE>
<S> <C> <C>
1 Chatsworth Court
#24-21 Chatsworth Court
Singapore 249745
Greenmotors, L.L.C./14/ 1,118,652 10.7%
277 Park Avenue, 27th Floor
</TABLE>
ITEM 12. CERTAIN RELATIONS AND RELATED TRANSACTIONS
On January 8, 1998, the Company was a party to two agreements in which
Alain Clenet, who was the Company's Chairman of the Board and Chief Executive
Officer, sold a total of 1,677,978 shares of the Company's common stock. In one
agreement Mr. Clenet sold 1,118,652 shares to Greenmotors L.L.C., which as a
result of this purchase, now owns 10.7% of the Company's shares outstanding.
David D. Jones, a Director of the Company, is a member of Greenmotors L.L.C. In
the other agreement, Mr. Clenet sold a total of 559,326 to four investors,
including the wife of Lawrence Cohen, one of the Company's Directors, who
purchased 219,406 shares. Simultaneously with the closing of these two
transactions, the Company and Mr. Clenet entered into a Separation Agreement
pursuant to which Mr. Clenet agreed to resign as an Officer and Director of the
Company, which was immediately effective.
- - - - - - - - - --------------------------------------------------------------------------------
/13/ John C. McCormack, a former officer and Director of the Company, holds a
revocable proxy to vote Mr. Chang's shares.
/14/ David D. Jones, a Director of the Company, is a member of Greenmotors,
L.L.C. New York, NY 10172
16
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT
NUMBER DESCRIPTION LOCATION
- - - - - - - - - ---------------------------------------------------
3.1 Articles of Incorporation Incorporated by reference to the
Company's Registration Statement on
Form S-18 (SEC File No. 33-3135D)
3.2 Bylaws Incorporated by reference to the
Company's Registration Statement on
Form S-18 (SEC File No. 33-3135D)
10.1 License Agreement with Incorporated by reference to Exhibit
New Venture Gear, Inc.* 10.2 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1993.
10.2 License Agreement with Incorporated by reference to Exhibit
Dana Corporation 10.3 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1993 and year
ended September 30, 1994
10.3 1994 Stock Option Plan Incorporated by reference to Exhibit
10.4 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1994
10.4 License Agreement with Incorporated by reference to Exhibit
ASHA/TAISUN Pte. Ltd. 10.4 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.5 Amended and Restated Incorporated by reference to Exhibit
Employment Agreement 10.5 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.6 Lease Agreement, as amended Incorporated by reference to Exhibit
10.6 to the Company's Annual Report
on Form 10-K for the fiscal year
ended September 30, 1995
10.7 Option Agreement with Incorporated by reference to
America Axle and Manufacturing, Exhibit 10.7 to the Company's
Inc. Annual Report on Form 10-K for the
fiscal year ended September 30, 1995
10.8 Employment Agreement with Incorporated by reference to Exhibit
John McCormack 10.8 to the Company's Registration
Statement on Form SB-2 (File No.
333-23891)
10.9 Employment Agreement with Incorporated by reference to Exhibit
Ken Black 10.9 to the Company's Registration
Statement on Form SB-2 (File No.
333-23891)
10.10 Gerodisc Technology Transfer Incorporated by reference to Exhibit
and License Agreement with 10.11 to the Company's Registration
Steyr-Daimler-Puch- Statement on Form SB-2 (File No.
Fahrgeugtechnik, AG&KOKG 333-23891)
Dated March 31, 1997*
10.11 License Agreement with New Incorporated by reference to Exhibit
10.11 to the Company's
17
<PAGE>
Venture Gear, Inc. dated Annual Report on Form 10-KSB for the
January 5, 1998* fiscal year ended September 30, 1997
10.12 Stock Purchase Agreement Incorporated by reference to Exhibit
among Greenmotors LLC, 10.12 to the Company's Annual Report
Alain Clenet and the Company on Form 10-KSB for the fiscal year
dated January 8, 1998 ended September 30, 1997
10.13 Separation Agreement with Incorporated by reference to Exhibit
Alain Clenet dated January 10.13 to the Company's Annual Report
8, 1998 on Form 10-KSB for the fiscal year
ended September 30, 1997
10.14 ASHA/TAISUN Board of Incorporated by reference to Exhibit
Directors Resolution 10.14 to the Company's Annual Report
on Form 10-KSB for the fiscal year
ended September 30, 1998
10.15 Employment Agreement with Filed herewith electronically
Wiley R. McCoy
10.16 Employment Agreement with Filed herewith electronically
Louis J. Infante
10.17 Employment Agreement with Filed herewith electronically
Steven E. Sanderson
10.18 Consulting Agreement with Filed herewith electronically
John C. McCormack
23 Consent of Arthur Anderson LLP Filed herewith electronically
27 Financial Data Schedule Filed herewith electronically
- - - - - - - - - --------------------
*Portions of the this document have been excluded pursuant to a confidential
agreement request.
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the
period covered by this Report.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
McLAREN AUTOMOTIVE GROUP, INC.
Dated: December 27, 1999 /s/ Wiley R. McCoy
------------------------------
By: Wiley R. McCoy
President, COO and Director
Dated: December 29, 1999 /s/ Jacqueline K. Kurtz
------------------------------
By: Jacqueline K. Kurtz
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
SIGNATURES TITLE DATE
/s/ Wiley R. McCoy December 27, 1999
- - - - - - - - - ------------------------------
Wiley R. McCoy President, COO and Director
/s/ Robert J. Sinclair December 26, 1999
- - - - - - - - - ------------------------------
Robert J. Sinclair Director
/s/ Lawrence Cohen December 29, 1999
- - - - - - - - - ------------------------------
Lawrence Cohen Chairman of the Board
and Director
/s/ Nicholas P. Bartolini December 27, 1999
- - - - - - - - - ------------------------------
Nicholas P. Bartolini Director
/s/ Erick A. Reickert December 23, 1999
- - - - - - - - - ------------------------------
Erick A. Reickert Director
/s/ David D. Jones December 23, 1999
- - - - - - - - - ------------------------------
David D. Jones Director
19
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
McLaren Automotive Group, Inc.:
We have audited the accompanying consolidated balance sheets of McLAREN
AUTOMOTIVE GROUP, INC. (formerly ASHA Corporation) (a Delaware corporation) as
of September 30, 1999 and 1998, and the related consolidated statements of
operations and comprehensive income, stockholders' equity 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 that 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 McLAREN AUTOMOTIVE GROUP, INC.
as of September 30, 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.
/s/ Arthur Andersen LLP
Detroit, Michigan,
November 15, 1999.
F-1
<PAGE>
MCLAREN AUTOMOTIVE GROUP
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS $ 739,395 $ 2,348,540
MARKETABLE SECURITIES 40,275 -
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS OF
$15,000 AND $- IN 1999
AND 1998, RESPECTIVELY 1,782,587 3,653,200
PREPAID EXPENSES AND OTHER 103,679 64,183
------------ ------------
TOTAL CURRENT ASSETS 2,665,936 6,065,923
------------ ------------
PROPERTY AND EQUIPMENT, AT COST
NET OF ACCUMULATED DEPRECIATION
AND AMORTIZATION 4,346,411 570,382
OTHER ASSETS:
INVESTMENT IN AFFILIATE - 609,557
GOODWILL AND OTHER INTANGIBLES,
AT COST, NET OF ACCUMLATED
AMORTIZATION 759,687 -
------------ ------------
TOTAL OTHER ASSETS 759,687 609,557
------------ ------------
TOTAL ASSETS $ 7,772,034 $ 7,245,862
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
LINE OF CREDIT PAYABLE $ 766,000 $ -
ACCOUNTS PAYABLE 573,447 78,000
CUSTOMER DEPOSITS 145,995 -
PAYROLL AND RELATED 179,638 163,467
ACCRUED LIABILITIES 171,658 95,807
CURRENT PORTION OF NOTES PAYABLE 328,456 63,638
------------ ------------
TOTAL CURRENT LIABILITIES 2,165,194 400,912
------------ ------------
NOTES PAYABLE--NET OF CURRENT PORTION 2,687,701 272,842
TOTAL LIABLITIES 4,852,895 673,754
------------ ------------
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $ .001 PAR VALUE:
AUTHORIZED - 10,000,000 SHARES
NO SHARES ISSUED OR OUTSTANDING - -
COMMON STOCK, .00001 PAR VALUE:
AUTHORIZED - 20,000,000 SHARES
ISSUED AND OUTSTANDING - 9,088,517
SHARES IN 1999 AND 8,798,223
SHARES IN 1998 91 88
ADDITIONAL PAID-IN CAPITAL 13,192,514 11,884,000
ACCUMULATED DEFICIT (10,177,619) (5,230,073)
LESS: TREASURY STOCK AT COST (81,907) (81,907)
ACCUMULATED COMPREHENSIVE LOSS (13,940) -
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 2,919,139 6,572,108
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 7,772,034 $ 7,245,862
============ ============
</TABLE>
F-2
<PAGE>
MCLAREN AUTOMOTIVE GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
REVENUES:
LICENSE FEES $ - $ 5,500,000
CONTRACT AND OTHER SERVICES 4,858,504 184,883
----------- -----------
TOTAL REVENUES 4,858,504 5,684,883
----------- -----------
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT 2,465,534 1,604,964
COST OF REVENUES 1,909,080 -
SELLING, GENERAL AND ADMINISTRATIVE 4,681,686 1,959,436
----------- -----------
9,056,300 3,564,400
----------- -----------
INCOME(LOSS) FROM OPERATIONS (4,197,796) 2,120,483
----------- -----------
OTHER INCOME(EXPENSE):
LOSS ON INVESTMENT IN AFFILIATE (609,557) (534,467)
INTEREST INCOME 64,498 270,196
INTEREST EXPENSE (201,725) (29,038)
OTHER (3,918) 7,126
----------- -----------
(750,702) (286,183)
----------- -----------
INCOME(LOSS) BEFORE PROVISION FOR
FOR INCOME TAXES (4,948,498) 1,834,300
PROVISION(CREDIT) FOR INCOME TAXES (952) 44,425
----------- -----------
NET INCOME(LOSS) $(4,947,546) $ 1,789,875
=========== ===========
BASIC EARNINGS (LOSS) PER SHARE $ (0.55) $ 0.21
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 8,988,266 8,725,168
=========== ===========
DILUTED EARNINGS (LOSS) PER SHARE $ (0.55) $ 0.20
=========== ===========
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
AND EQUIVALENTS OUTSTANDING 8,988,266 9,044,216
=========== ===========
COMPREHENSIVE INCOME (LOSS):
NET INCOME (LOSS) $(4,947,546) $ 1,789,875
UNREALIZED LOSS ON MARKETABLE SECURITIES (13,940) -
----------- -----------
COMPREHENSIVE INCOME (LOSS) $(4,961,486) $ 1,789,875
=========== ===========
</TABLE>
F-3
<PAGE>
MCLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
ADDITIONAL ACCUMULATED TOTAL
COMMON STOCK PAID-IN ACCUMULATED TREASURY COMPREHENSIVE STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT STOCK LOSS EQUITY
------------ --------- ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE
SEPTEMBER 30, 1997 8,651,393 $ 87 $ 11,247,348 $ (7,019,948) $ (81,907) $ - $ 4,145,580
ISSUANCE OF
COMMON STOCK
DUE TO EXERCISE
OF STOCK OPTIONS 146,830 1 636,652 - - - 636,653
NET INCOME - - - 1,789,875 - - 1,789,875
------------ --------- ------------ ------------ ------------ ------------ ------------
BALANCE
SEPTEMBER 30, 1998 8,798,223 $ 88 $ 11,884,000 $ (5,230,073) $ (81,907) $ - $ 6,572,108
------------ --------- ------------ ------------ ------------ ------------ ------------
ISSUANCE OF
COMMON STOCK
DUE TO EXERCISE
OF STOCK OPTIONS 111,723 1 482,849 - - - 482,850
ISSUANCE OF
COMMON STOCK
IN CONNECTION
WITH ACQUISITION 150,000 2 674,998 - - - 675,000
COMPENSATION
EXPENSE IN
CONNECTION
EMPLOYEE STOCK
AWARD 28,571 - 100,000 - - - 100,000
CONSULTANT EXPENSE
INCURRED IN CON-
NECTION WITH ISSUANCE
OF STOCK OPTIONS - - 50,667 - - - 50,667
UNREALIZED LOSS
ON MARKETABLE
SECURITIES - - - - - (13,940) (13,940)
NET LOSS - - - (4,947,546) - - (4,947,546)
------------ --------- ------------ ------------ ------------ ------------ ------------
BALANCE
SEPTEMBER 30, 1999 9,088,517 $ 91 $ 13,192,514 $(10,177,619) $ (81,907) $ (13,940) $ 2,919,139
============ ========= ============ ============ ============ ============ ============
</TABLE>
F-4
<PAGE>
MCLAREN AUTOMOTIVE GROUP
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME(LOSS) $(4,947,546) $ 1,789,875
ADJUSTMENTS TO RECONCILE NET INCOME(LOSS) TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 427,808 118,539
COMPENSATION AND CONSULTANT EXPENSE RELATED
TO THE ISSUANCE OF STOCK AND STOCK OPTIONS 150,667
LOSS ON INVESTMENT IN AFFILIATE 609,557 534,467
LOSS ON SALES OF MARKETABLE SECURITIES 39,496 -
LOSS ON DISPOSAL OF EQUIPMENT 25,532 -
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
ACCOUNTS RECEIVABLE 2,465,421 (2,755,194)
PREPAID EXPENSES AND OTHER 41,154 9,673
ACCOUNTS PAYABLE 373,678 (36,843)
CUSTOMER DEPOSITS 26,361 -
PAYROLL AND RELATED (78,720) 92,221
ACCRUED LIABILITIES 21,497 36,430
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (845,095) (210,832)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF MARKETABLE SECURITIES (338,076) -
SALES OF MARKETABLE SECURITIES 343,826 -
ADDITIONS TO PROPERTY AND EQUIPMENT (951,793) (512,319)
PROCEEDS FROM DISPOSAL OF EQUIPMENT 3,500 15,671
INVESTMENT IN AFFILIATE - (534,467)
CASH PAID FOR ACQUISITION, NET OF CASH ACQUIRED (1,296,035) -
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (2,238,578) (1,031,115)
----------- -----------
NET CASH FROM FINANCING ACTIVITIES:
BORROWINGS UNDER LINE OF CREDIT 1,616,000 -
REPAYMENTS UNDER LINE OF CREDIT (850,000) -
BORROWINGS UNDER NOTES PAYABLE 421,174 370,000
REPAYMENTS OF NOTES PAYABLE (195,497) (33,520)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 482,851 636,653
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,474,528 973,133
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (1,609,145) (268,814)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,348,540 2,617,354
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 739,395 $ 2,348,540
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST $ 186,000 $ 29,000
=========== ===========
CASH PAID FOR INCOME TAXES $ 32,000 $ 47,000
=========== ===========
NON CASH TRANSACTIONS:
UNREALIZED LOSS ON MARKETABLE SECURITIES $ (13,940) $ -
=========== ===========
STOCK ISSUED IN CONNECTION WITH ACQUISITION $ 675,000 $ -
=========== ===========
</TABLE>
F-5
<PAGE>
1. THE COMPANY
McLaren Automotive Group, Inc., (formerly ASHA Corporation) ("the
Company"), is incorporated in the State of Delaware. Through fiscal year
1999, the Company was principally involved in the business of research and
development in the automotive industry, and performed research and
development on a fee for service basis, as well as developed new
technologies to be licensed to its customers. The Company's focus has
broadened from providing only research and development services to
providing special application engineering services related to its Gerodisc
technology. This broadening of focus should generate revenue producing
activities on a more consistent basis than licensing alone.
On January 7, 1999, the Company acquired all of the outstanding stock of
McLaren Engines, Inc. ("McLaren") in exchange for 150,000 shares of the
Company's authorized but unissued Common Stock valued at $675,000. The
acquisition was made pursuant to the terms of a Stock Purchase Agreement
among the Company, McLaren and the shareholders of McLaren. Immediately
prior to the acquisition, the Company assisted McLaren to complete a
reorganization in which McLaren redeemed the stock of its two shareholders
and issued new shares to McLaren's employees. The Company loaned McLaren
$1,355,000 from its operating funds for the reorganization. McLaren also
borrowed $2,454,000 from an unaffiliated bank to complete this
reorganization. The primary reason for the acquisition is that McLaren and
the Company have many of the same clients and similar service offerings.
Through integrating sales, marketing, and R&D engineering staff, the
Company looks to better serve the worldwide licensee base, adding new
capabilities and core services, while improving net earnings.
The consolidated financial statements include the amounts of the Company
and McLaren since the date of acquisition. All significant intercompany
balances and transactions have been eliminated in consolidation.
The acquisition was accounted for under the purchase method of accounting.
The excess of the purchase price (including expenses of approximately
$203,000) over the fair value of net assets acquired, consisting of
primarily of accounts receivable, property and equipment, a trademark and
notes payable, of approximately $203,000 has been assigned to goodwill and
is being amortized on a straight line basis over 20 years.
Results of operations of McLaren are included in the consolidated financial
statements subsequent to January 7, 1999. Unaudited proforma operating
results of the Company, assuming the acquisition had been made on October
1, 1997 are as follows. Such information reflects adjustments to reflect
additional interest expense, depreciation expense and goodwill
amortization.
<TABLE>
<CAPTION>
Unaudited
1999 1998
----------- ----------
<S> <C> <C>
Revenue $ 5,870,000 $9,173,000
Operating income (loss) $(4,096,000) $2,360,000
Net income (loss) $(4,854,000) $1,870,000
Diluted earnings (loss)
per share $ (.53) $ .20
</TABLE>
F-6
<PAGE>
During fiscal year 1998 the Company derived all of its revenues from its
Gerodisc technology which it had licensed to Automotive Original Equipment
Manufacturers (OEMs). With the acquisition of McLaren during fiscal
year1999, the Company derived a significant portion of its revenues from
designing, developing, fabricating, testing and validating engines and
related components for the automotive OEMs.
2. BUSINESS RISKS AND FUTURE OPERATIONS
The Company is subject to numerous business risks at this stage of its
development. These risks include, but are not limited to, the Company's
accumulated deficit, market acceptance of the Company's Gerodisc product
into the automotive industry, the dependence upon a few customers in one
industry, and potential competition.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
REVENUE RECOGNITION
The Company recognizes revenue from license fees in the period in which the
license fee is earned. Service revenues are recognized as the service is
performed. The Company recognizes revenue from contracts over the life of
the contract using the percentage of completion method. When estimates
indicate a loss, the full amount of the loss is accrued.
RESEARCH AND DEVELOPMENT
Costs associated with developing and testing new concepts and designs are
expensed as incurred. All research and development and patent acquisition
costs have been expensed for the years ended September 30, 1999 and 1998.
F-7
<PAGE>
CUSTOMER DEPOSITS
Customer deposits represent amounts paid by customers for services to be
completed by the Company. As of September 30, 1999 these customer deposits
totaled $145,995 and will be recognized as revenue as the related services
are performed. As of September 30, 1998 the Company had no customer
deposits.
MARKETABLE SECURITIES
Marketable securities are accounted for as "available for sale" in
accordance with Statement of Financial Accounting Standards (SFAS) 115,
whereby unrealized gains and losses are recorded as a component of
stockholders' equity. At September 30, 1999, the market value of the
securities was $40,275 and the carrying cost was $54,215. As of September
30, 1998 the Company did not have any marketable securities.
During the year ended September 30, 1999 the Company had the following
sales of marketable securities classified as "available for sale":
Gross Proceeds $343,826
Cost of Securities Sold ($383,322)
----------
Net Realized Loss ($ 39,496)
==========
CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
The Company maintains cash balances in highly qualified financial
institutions. At various times such amounts are in excess of insured
limits.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost, including significant
expenditures that increase the asset lives. Ordinary maintenance and
repairs are charged to operations as incurred. When assets are sold or
otherwise disposed of, the cost and accumulated deprecation or amortization
is removed from the accounts and any resulting gain or loss is recognized.
Realization of property and equipment is periodically reviewed in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets To Be Disposed Of."
F-8
<PAGE>
Depreciation and amortization is computed on straight-line and accelerated
methods over estimated useful lives as follows:
Building and Improvements 20 years
Leasehold Improvements 5 years
Machinery and Equipment 5 to 7 years
Vehicles 5 years
SIGNIFICANT CUSTOMERS
During fiscal 1999, revenues derived from two customers represented 57
percent and 18 percent of the Company's total revenues. Those customers
accounted for 65 percent and 22 percent, respectively, of accounts
receivable at September 30, 1999.
During fiscal 1998, revenue derived from one customer represented 95
percent of the Company's total revenues. At September 30, 1998, receivables
from the same customer accounted for 99 percent of the Company's accounts
receivable balance.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed in accordance with SFAS No. 128,
"Earnings Per Share". Earnings (loss) per share for the years ended
September 30, 1999 and 1998 are based on the weighted average number of
shares outstanding plus the dilutive effects of stock options. For the year
ended September 30, 1999, stock options were not included in the
computation as the Company incurred a net loss and their effect would be
anti-dilutive.
The weighted average number of common shares outstanding for the years
ended September 30, 1999 and 1998 were 8,988,266 and 8,725,168,
respectively. Options to purchase common shares of approximately 1,220,000
and 5,500, as of September 30, 1999 and 1998 respectively, were not
included in the computation of diluted net earnings (loss) per share
because such options would be anti-dilutive.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
current year's presentation.
F-9
<PAGE>
4. SHORT TERM BORROWINGS
The Company maintains two lines of credit with banks.
Under the first line the Company may borrow up to $750,000 at the prime
rate plus 1 percent (effective rate 9.25% at September 30, 1999). This line
is secured by substantially all assets of the Company and provides for
monthly interest payments with the outstanding principal due in full in
February 2000. As of September 30, 1999, $666,000 was outstanding on this
line of credit. No amount was outstanding on this line as of September 30,
1998.
Under the second line the Company may borrow up to the lesser of $700,000
or 80% of the accounts receivable not more than ninety-days old at McLaren.
The interest rate is at prime (effective rate 8.25% at September 30, 1999).
This line is secured by accounts receivable at McLaren and provides for
monthly interest payments with outstanding principal due in January 2000.
As of September 30, 1999, $100,000 was outstanding on this line of credit.
The Company and McLaren are subject to certain financial covenants under
their long term and short term debt agreements. The most restrictive
covenants require the Company and McLaren to maintain certain levels of
working capital and tangible net worth. As of September 30, 1999, the
Company was in violation of certain covenants. The Company has obtained a
waiver relating to this violation. As of September 30, 1999, McLaren was
fully in compliance with its covenant requirements.
5. LONG TERM DEBT
The Company has notes payable to banks which require monthly payments of
principal and interest. These notes are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Note payable to a bank, monthly payments
of $17,512, including interest at 8.15%
through January 2004, secured by related
buildings. $1,774,798 $ -
Note payable to a bank, monthly payments
of $13,090, including interest at
prime +3/4%, (effective rate 9.0% at
September 30, 1999) through January
2004, secured by related equipment. 568,408 -
Note payable to a bank, monthly payments
of $6,344, including interest at
9.25% through March 2003 secured by
related equipment. 224,302 272,544
</TABLE>
F-10
<PAGE>
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Note payable to a bank, monthly payments of
$3,000 plus interest at prime plus 1/2%
(effective rate 8.75% at September 30, 1999)
through July 2004, secured by related
equipment. 174,000 -
Note payable to a bank, monthly payments of
$1,737, plus interest at prime +1/2% (effective
rate 8.75% at September 30, 1999) through
May 2004, secured by related equipment. 97,253 -
Notes payable to a bank, monthly payments
totaling $1,824, including interest at rates
ranging from 8.5% to 9.0% through March 2004,
secured by related vehicles. 79,953 -
Note payable to a bank, monthly payments of
$1,443 including interest at 8.75% through
April 2003, secured by related equipment. 53,331 63,936
Note payable to a bank, monthly payments of
$1,009, including interest at 8.75% through
March 2004, secured by related equipment. 44,112 -
--------- -------
Total notes payable 3,016,157 336,480
Less current portion ( 328,456) ( 63,638)
---------- ---------
Total $2,687,701 $ 272,842
========== =========
</TABLE>
Future scheduled maturities of notes payable as of September 30, 1999 are as
follows:
Year ending September 30:
Year
2000 $ 328,456
2001 357,473
2002 384,610
2003 366,537
2004 1,579,081
----------
$3,016,157
==========
F-11
<PAGE>
6. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at September 30, 1999
and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- --------
<S> <C> <C>
Land $ 517,905 $ -
Vehicles 200,354 72,186
Machinery and equipment 2,509,804 958,592
Leasehold improvements 48,044 35,667
Building and improvements 1,766,912 -
Construction in progress 47,244 -
---------- --------
5,090,263 1,066,445
---------- --------
Less: Accumulated depreciation
and amortization ( 743,852) ( 496,063)
---------- ---------
$4,346,411 $ 570,382
========== =========
</TABLE>
7. INVESTMENT IN AFFILIATE
On August 11, 1994 the Company entered into a joint venture agreement with
TAISUN Automotive Pte. Ltd., a Singapore corporation, which is 85 percent
owned by a principal shareholder of the Company. The joint venture is
operated through ASHA-TAISUN Pte. Ltd. (ASHA-TAISUN), a Singapore
corporation. This investment was initially recorded on the equity method.
ASHA-TAISUN is a holding company, which through its 85 percent-owned
subsidiary, Jiaxing Independence Auto Design and Development Co., Ltd.
(Jiaxing Auto), is developing automobile manufacturing facilities in
Jiaxing, China. In December 1997, ASHA-TAISUN increased its ownership
interest in Jiaxing Auto to 95%.
During fiscal year 1997, the Company recorded its investment in ASHA-TAISUN
at its invested capital contributions less its share of the operating
losses. For the years ended September 30, 1997 and 1998, the Company
recorded its share of losses relating to this investment of $861,257 and
$534,467, respectively.
F-12
<PAGE>
During fiscal year 1998, the Company reduced its ownership in ASHA-TAISUN
to 18 percent. As the Company owned less than 20 percent of ASHA-TAISUN
and did not believe they exercise significant influence, the investment was
recorded on the cost method. Furthermore, the Company had no additional
financial commitments related to this investment. In exchange for the
decreased ownership, the Company was to receive royalty payments in the
amount of $100 per unit going forward. As of September 30, 1998,
management believed the investment of $609,560 represented the realizable
value of this investment.
Due to declining economic conditions in Jiaxing, China and the uncertainty
of future royalty payments, management has determined that the remaining
investment was not realizable and, as of September 30, 1999, has written
off the investment.
8. STOCK OPTION PLANS
In August 1993, the Company's Board of Directors approved the 1993
Nonqualified Stock Option Plan in which any employee, officer, director or
consultant that the Board, in its sole discretion, designates is eligible
to participate. At September 30, 1999, no options were outstanding under
this plan.
In May 1994, the Company granted an option to a consultant to purchase up
to 11,765 shares of its common stock at the exercise price of $1.28 per
share. The option was exercised in October 1997.
In December 1994, the Company's Board of Directors approved the 1994 Stock
Option Plan which provides for the granting of options to purchase up to
750,000 shares of common stock, consisting of both incentive and
nonqualified stock options. Incentive stock options are issuable only to
employees of the Company and may not be granted at an exercise price less
than the fair market value of the common stock on the date the option is
granted. Vesting provisions are determined by the Board at the time the
options are granted, and the options expire three to five years from the
date of grant.
On July 1, 1997, the Company's Board of Directors adopted amendments to the
1994 Stock Option Plan to increase the number of shares of Common Stock
which may be subject to options granted under the plan to 1,000,000; to
allow the exercise price of options to be paid by means other than cash;
and to allow options to be granted with reload options provisions. On
December 16,1997, the Company's Board of Directors adopted an additional
amendment to increase the number of shares of Common Stock which may be
subject to options granted under the plan to 1,400,000. These amendments
were approved by the
F-13
<PAGE>
Company's shareholders on April 3, 1998. On October 28, 1998, the Board of
Directors adopted an additional amendment to increase the number of shares
of Common Stock which may be subject to options granted under the plan to
1,800,000.
In 1999, the Company entered into three employment agreements, which call
for annual option grants under this plan totaling 75,000 shares.
In July 1997, the Company granted, under no specific plan, an option to a
consultant to purchase up to 93,100 shares of its common stock at the
exercise price of $4.375 per share. The options vest at the rate of 2,100
per month plus 17,500 at the date of grant.
Under the provision of SFAS 123, equity instruments granted to non-
employees are excluded from the pro forma disclosure requirements and are
recorded as compensation expense at fair value in the accompanying
statements of operations. During fiscal 1999, the Company recorded
consulting expense of $50,667 in connection with stock options granted to a
non-employee.
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation"
in 1996. As allowed by SFAS No. 123, the Company has elected to continue to
measure compensation cost under Accounting Principles Board Opinion (APB)
No.25, "Accounting for Stock Issued to Employees" and comply with the pro
forma disclosure requirements of the new standard.
A summary of the Company's outstanding stock options and activity follows
for the years ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------------------- ---------------------
Shares Weighted Shares Weighted
Under Average Under Average
Options Ex. Price Options Ex.Price
<S> <C> <C> <C> <C>
Outstanding at beginning --------- --------- --------- -------
of year 1,146,556 $ 4.90 933,872 $ 4.60
Granted 387,137 3.25 360,029 5.45
Exercised (111,723) 4.32 (146,830) 4.35
Forfeited (202,300) 4.13 (515) 3.69
--------- --------- --------- -------
Outstanding at end
Of year 1,219,670 $ 4.23 1,146,556 $ 4.90
========= ========= ========= =======
Exercisable at end
of year 1,200,770 $ 4.23 1,102,456 $ 4.73
========= ========= ========= =======
Weighted average fair value
of options granted $ 1.88 $ 2.98
========= =======
</TABLE>
F-14
<PAGE>
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
Weighted Weighted Average Weighted
Average Remaining Average
Exercise Price Number O/S Exercise Price Contract Life Exercisable Exercise Price
--------------- ------------- -------------- ----------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.25-$4.56 951,995 3.90 1.92 years 933,095 3.89
$5.125-$6.28 267,675 5.42 2.09 years 267,675 5.42
--------- ---------
1,219,670 1,200,770
========= =========
</TABLE>
As permitted by SFAS 123, the Company continues to apply the accounting
rules of APB 25 governing the recognition of compensation expense from its
stock option plans. Had the Company applied the fair value based method of
accounting, which is not required, to all grants of stock options, under
SFAS 123, the Company would have recorded additional compensation expense
and computed pro forma net income (loss) and earnings (loss) per share
amounts as follows for 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Additional compensation expense $ 728,008 $1,073,802
Pro forma net income (loss) $(5,428,030) $1,081,166
Pro forma earnings (loss) per share
Basic $ (.60) $ .12
Diluted $ (.60) $ .12
</TABLE>
These pro forma amounts were determined by estimating the fair value of
each option on its grant date using the Black-Scholes option-pricing model.
The following assumptions were applied: (I) risk-free interest rates
ranging from 4.15 percent to 5.69 percent for all years, (ii) expected
lives of 3 years for all periods, (iii) expected volatility of 87 percent
for 1999 and 79 percent in 1998, and (iv) no expected dividends.
F-15
<PAGE>
STOCK WARRANTS
A summary of the Company's outstanding warrants and activity for the years
ended September 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
1999 1998
------------------- ------------------
Shares Weighted Shares Weighted
Under Average Under Average
Options Ex. Price Options Ex. Price
-------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 143,750 $4.87 143,750 $4.87
Granted - - - -
Exercised - - - -
Forfeited - - - -
--------------------- -------------------
Outstanding and exercisable
at end of year 143,750 $4.87 143,750 $4.87
===================== ===================
Exercisable at end
of year
</TABLE>
The weighted average fair value of the warrants above was $2.18. As of
September 30, 1999, all outstanding warrants have a weighted average
contractual remaining life of 7.2 months.
STOCK INCENTIVE PLANS
In December 1988, the Board of Directors approved a stock incentive plan.
Under this plan, 58,824 shares of common stock have been reserved for
issuance to participants, defined as any person or firm providing services
to the Company. The stock will be granted at the discretion of the Board
of Directors and a cash payment equal to twenty percent of the value of the
stock granted will be paid to the participant. Granting of stock under
this plan is intended to encourage a continued relationship and services by
the participant and to reward creative or noteworthy efforts to the
participant.
The stock is 100 percent forfeitable if the services of the participant are
terminated within two years of the grant of the stock and 50 percent
forfeitable if services are terminated after two years but less than three
years from the grant of the stock.
A balance of 45,523 shares are available for issuance under this plan at
September 30, 1999. No stock has been issued under this plan since fiscal
1990.
F-16
<PAGE>
DIRECTOR STOCK COMPENSATION PLAN
In June 1994, the Company's Board of Directors approved a Director Stock
Compensation Plan and have reserved 20,000 shares of the Company's common
stock for issuance in exchange for services provided to the Company outside
of their regular duties as directors. All members of the Board of Directors
will be eligible to receive shares under the plan. A balance of 10,000
shares are available for issuance under this plan at September 30, 1999. No
shares have been issued since fiscal 1994.
STOCK GRANT
In July, 1999, the Company granted 28,571 shares of common stock to an
executive in connection with an employment agreement. Compensation expense
totaling $100,000 related to this grant is included in the accompanying
statements of operations for the year ended September 30, 1999.
9. INCOME TAXES
Deferred income tax assets or liabilities are computed based on the
temporary difference between the financial statement and income tax basis
of assets and liabilities using the current marginal income tax rate.
Deferred income tax expenses or credits are based on the changes in the
deferred income tax assets or liabilities from period to period.
The provision (credit) for income taxes for the years ended September 30,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Current:
Federal $(1,752) $43,625
State 800 800
------- -------
(952) 44,425
------- -------
Deferred - -
------- -------
Provision for income taxes $ (952) $44,425
======= =======
</TABLE>
F-17
<PAGE>
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended September 30, 1999
and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---- -------- ---
<S> <C> <C> <C> <C>
Income tax provision(benefit)
at statutory federal rates $(1,682,489) (34%) $623,662 34%
State income taxes, net of
federal benefit (58,898) ( 1%) 107,020 6%
Tax benefits not recognized 1,729,057 34% -
Net operating loss
carry forward - - (686,257)(38%)
Other 11,378 1%
----------- --- -------- ---
$ (952) 0% $ 44,425 2%
=========== === ======== ===
</TABLE>
Under SFAS No. 109, deferred tax assets are recognized for temporary
differences that will result in deductible amounts in future periods. The
components of the deferred income tax assets at September 30, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Loss in investment $1,440,354 $1,179,220
Capitalized research and
development costs 102,844 102,844
Net operating loss carryforwards 2,276,121 817,964
Property and equipment (589,600) -
Other, net 74,864 28,153
---------- ----------
Less: Valuation reserve 3,304,583 2,128,181
(3,304,583) (2,128,181)
---------- ----------
$ - $ -
========== ==========
</TABLE>
Realization of the net deferred income tax asset is dependent on generating
sufficient taxable income during the periods in which temporary differences
will reverse. Due to the Company's limited operating history, a valuation
reserve equal to the deferred income tax asset has been recorded. The
change in the valuation allowance is due to additional income tax benefits
not recognized of approximately $1,729,000 reduced by an allocation to
goodwill of approximately $553,000 due to future taxable amounts, primarily
relating to property and equipment, recognized in connection with the
acquisition of McLaren.
F-18
<PAGE>
The net operating loss carry forward as of September 30, 1999 for federal
tax purposes is approximately $6,600,000 and expire beginning in 2010.
10. LICENSING AGREEMENTS
On January 5, 1998, the Company entered into a licensed agreement with New
Venture Gear, Inc. (NVG) granting a worldwide nonexclusive license to
GERODISC. Under the terms of the agreement, NVG was obligated to pay the
Company a license fee of $5,100,000 payable in two equal installments. The
first installment was paid in January 1998 and the second installment was
paid in February 1999. The Company recorded $5,100,000 as license revenue
in fiscal 1998 as the license fee was solely for the right to manufacture
and market the GERODISC with no additional performance requirements. The
license revenue is included in the accompanying statements of operations
for the year ended September 30, 1998.
This agreement also provides for royalty payments on each unit produced.
These payments will begin in fiscal year 2000 when NVG reaches the
specified level of production. Royalty revenue will be recognized as earned
under the agreement.
On December 29, 1994, the Company entered into an agreement with DANA
Corporation (DANA) in which the Company licensed DANA the right to
manufacture and market GERODISC. The license agreement provides for a
licensing fee of $2,000,000 of which $1,000,000 was paid in February 1995
and $1,000,000 was paid in January 1996. In addition, the Company was to
receive a royalty on each unit produced under the agreement. During fiscal
years 1999 and 1998, the Company was entitled to receive royalties from
DANA; however DANA has refused payment and the Company is enforcing the
agreement through legal actions. Due to the pending litigation, the
Company has not recorded royalties earned under this agreement in the
accompanying statements of operations.
11. OTHER ASSETS
Other assets consisted of the following at September 30, 1999 and 1998:
1999 1998
-------- --------
Trademark, net of accumulated
amortization of approximately $18,800 $533,046 $ -
Goodwill, net of accumulated
amortization of approximately $7,600 195,403 -
Other 31,238 -
-------- --------
Total $759,687 -
======== ========
F-19
<PAGE>
In connection with the acquisition of McLaren, the company assigned
approximately $552,000 to the trademark "McLaren." The method used to value
the trademark incorporated discounted cash flows and assumptions about
expected future growth and the royalty rate that would be paid if the trade
name was not owned. The trademark is being amortized on a straight line
basis over a period of 20 years.
Goodwill resulting from the acquisition is being amortized on a straight
line basis over a period of 20 years.
12. COMMITMENTS
LEASE COMMITMENTS
The Company leases a facility under an operating lease agreement with
monthly payments of approximately $10,435 through May 2003. Rent expense
under this agreement was approximately $214,000 and $96,000 for the years
ended September 30, 1999 and 1998.
The Company also leases certain equipment under operating lease agreements
that expire at various dates through April 2001.
Minimum future obligations under these agreements are as follows:
<TABLE>
<CAPTION>
Years ending September 30,
<S> <C>
2000 $182,000
2001 153,000
2002 145,000
2003 97,000
--------
$577,000
========
</TABLE>
EMPLOYMENT CONTRACTS
As of September 30, 1999 the Company had employment contracts with two of
its officers. These contracts require monthly payments of $11,667 and
$10,833 through January 2001 and April 2001, respectively.
F-20
<PAGE>
CONSULTING AGREEMENTS
As of September 30, 1999 the Company had a consulting agreement with the
former Chairman of McLaren which requires monthly payments of $8,333
through December 2001.
The Company has also entered into consulting agreements with two of its
former employees which require monthly payments of $12,250 and $5,417
through April 2000.
13. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) Plan under which all eligible employees may
contribute up to 15 percent of their compensation. The Company matches
contributions in the amount of 10 percent of all elective deferrals, and,
at the Company's option, may contribute annually up to 15 percent of the
total compensation of all eligible employees.
As a result of the acquisition of McLaren, the Company is maintaining an
additional 401(k) Plan for the employees of this subsidiary. Under terms
of this plan, the Company contributes up to two percent of the
participant's annual salary. Company contributions have graded vesting
period based on years of service. Additionally, this plan allows for
contributions by the participant equal to eighteen percent of their salary.
During the years ended September 30, 1999 and 1998, the Company made
$35,471 and $8,230 respectively, in matching contributions under these
plans.
14. REPORTABLE SEGMENTS
McLaren Automotive Group, Inc. has two reportable segments that provide
engineering services to the automotive industry. As discussed in Note 1,
McLaren Engines, Inc. derives its revenues from designing, developing,
fabricating, testing and validating engines and related components for the
automotive OEMs, and McLaren Traction Technologies, Inc. derives revenues
from license fees and royalties relating to its Gerodisc technology, as
well as performing research and development on a fee for service basis.
For the year ended September 30, 1998, the Company had only one reportable
segment.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates performance based on profit or loss from operations before income
taxes, and accounts for intersegment sales as if they were to third
parties.
The following table provides information applicable to the reportable
segments for the year ended September 30, 1999:
<TABLE>
<CAPTION>
McLaren Engines McLaren Traction
--------------- ----------------
<S> <C> <C>
Revenues from external customers $ 4,742,400 $ 204,300
Intersegment revenue $ 88,200 -
Interest expense $ 155,200 $ 46,600
Depreciation and amortization $ 272,300 $ 155,500
Income (loss) before income taxes $ 628,800 $(5,577,300)
Segment assets $ 6,222,400 $ 2,989,600
Expenditures for segment assets $ 615,300 $ 336,500
<CAPTION>
Intercompany
Eliminations Consolidated
------------ ------------
<C> <C>
Revenues from external customers $ (88,200) $ 4,858,500
Intersegment revenue $ (88,200) $ -
Interest expense $ - $ 201,800
Depreciation and amortization $ - $ 427,800
Income (loss) before income taxes $ - $(4,948,500)
Segment assets $(1,355,000)
$ (85,000) $ 7,772,000
Expenditures for segment assets - $ 951,800
</TABLE>
F-21
<PAGE>
EXHIBIT 10.15
McLAREN AUTOMOTIVE GROUP, INC.
EMPLOYMENT AGREEMENT
This Agreement made and entered into as of this 20TH day of April 1999 by and
between McLaren Automotive Group, Inc., a corporation duly organized and
existing under and pursuant to the laws of the State of Delaware, with its
principle offices located at 600 C Ward Drive, Santa Barbara, California 93111
(hereinafter referred to as "MAG") and Wiley R. McCoy an individual residing in
Oakland County, Michigan (hereinafter referred to as "McCoy").
Witnesseth:
Whereas, MAG is engaged in the development, marketing, sale and use of
intellectual properties and wishes to employ McCoy starting April 20, 1999, in
the position of President and Chief Operating Officer of MAG and
Whereas, MAG will employ McCoy and McCoy will accept employment by MAG, as its
President and Chief Operating Officer, pursuant to the terms hereof.
Now, therefore, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
1. Employment Term: MAG agrees to employ McCoy and McCoy agrees to work
for MAG. The initial term of McCoy's employment shall begin on the twentieth day
of April 1999 and shall continue until the nineteenth day of April 2001.
Thereafter, McCoy's employment shall be renewed for an additional two (2) years
unless either party gives to the other no less than ninety (90) days written
notice prior to April 19, 2001 that this Agreement will be terminated at the end
of the initial term.
2. Scope of Employment: McCoy will manage and direct MAG and will have
such other duties as may be assigned to him, from time to time, by the Board of
Directors of MAG. McCoy will also serve on the Board of Directors of MAG and in
addition will serve in administrative capacities as may be required and/or
directed by the Board of Directors of MAG and be expected to attend to any other
matters generally falling within the scope of the President and Chief Operating
Officer. In addition McCoy will continue to manage the day to day activities of
McLaren Engines, Inc., as President and Chief Operating Officer of this
subsidiary unit of MAG.
3. Compensation and Benefits:
(a) MAG shall pay to McCoy as compensation for the services to
be rendered by McCoy hereunder an annual base salary of One Hundred Forty
Thousand Dollars
<PAGE>
($140,000.00) payable in 26 equal consecutive installments of Five Thousand
Three Hundred Eighty four and 62/100 Dollars ($5,384.62) each on Friday of every
second week. Such installments are subject to all legally required Federal and
State withholding amounts. McCoy's salary shall be increased by an amount equal
to ten percent (10%) of his annual base salary on October 1, l999 subject to the
review and approval of the Board of Directors. In the event this Agreement
should continue after the initial term, McCoy's base salary shall be adjusted
annually as of October 1st each year there after to reflect any percentage
increase in the cost of living index published by the United States Government
for the greater Los Angeles-Long Beach area.
(b) In addition, McCoy shall receive 25,000 options to purchase
stock in MAG annually. On October 1st 1999 the aforementioned 25,000 options
shall be increased to 30,000 annually, such increase to be subject to the review
and approval of the Board of Directors. All such option grants shall be subject
to MAG's Stock Option Plan as amended from time to time.
(c) In addition to the compensation hereinabove set forth, McCoy
shall be entitled to participate in such other fringe benefit programs from MAG
as may be made available to other executives of MAG from time to time,
including, but not limited to, bonuses, stock options, profit sharing, auto
allowance, cellular phone, merit increases, health insurance programs, vacation
and other such programs as may be determined by MAG's Chief Executive Officer
and /or its Board of Directors. McCoy shall be reimbursed for all reasonable,
ordinary and necessary business expenses incurred for the benefit of MAG subject
to MAG's policies and procedures.
4. Termination:
(a) If this Agreement is terminated at will by MAG prior to the
expiration of the initial or any succeeding term, MAG's sole obligation to McCoy
shall be (i) to pay to McCoy a severance payment equal to the then current
annual base salary of McCoy at the time of termination payable in equal monthly
installments on the last business day of each month for twelve (12) months
following the effective date of termination; and (ii) to reimburse McCoy for the
COBRA health insurance premiums paid by McCoy for the twelve (12) month period
following termination. If McCoy obtains other employment during this twelve (12)
month period, the amount of severance paid each month may be reduced by MAG by
the amount of compensation paid each month by the other employer and, if McCoy
receives health insurance from any source during such twelve (12) month period,
MAG will not be obligated to reimburse McCoy for his COBRA payments.
(b) This agreement may be terminated for cause without any
continuing obligation to McCoy by MAG. Cause shall be any action or actions by
McCoy that are determined prosecutable as criminal in a court of competent
jurisdiction.
5. Arbitration: Any controversy or claim arising out of or relating to
this agreement, or breach thereof, shall be settled by binding arbitration in
Santa Barbara, California before a
<PAGE>
panel of arbitrators selected as follows: within ten (10) days of demand by
either party for arbitration, each party will select on arbitrator and those two
will select a third arbitrator, and those three shall constitute the panel. The
arbitrator's decision will be by majority vote. The arbitration shall not be
appealable by either party. The rules of the American Arbitration Association
shall govern, and the decision of the arbitrators shall be final and binding and
judgement on the award may be entered by any court of competent jurisdiction.
6. Entire Agreement: The foregoing constitutes the entire Agreement
between the parties and no modification of any of the provisions hereof shall be
binding upon either McCoy or MAG unless in writing signed by the party against
whom such modification is sought to be enforced.
7. Interpretation: This Agreement has been submitted to the scrutiny
of all parties hereto and of counsel. This Agreement shall be controlled by the
laws of the State of California without regard to its conflicts of laws
principles.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
McLAREN AUTOMOTIVE GROUP, INC. WILEY R. McCOY
By: /s/ Lawrence Cohen By: /s/ Wiley R. McCoy
------------------------------ ----------------------
Its: Chairman of the Board of Directors
By: /s/ John C. McCormack
------------------------------
Member Compensation Committee
By: /s/ Nicholas P. Bartolini
------------------------------
Member Compensation Committee
By:
-----------------------------
Member Compensation Committee
<PAGE>
EXHIBIT 10.16
MCLAREN AUTOMOTIVE GROUP, INC.
EMPLOYMENT AGREEMENT
This agreement made and entered into as of this 23rd day of April 1999 by and
between McLaren Automotive Group, Inc., a corporation duly organized and
existing under and pursuant to the laws of the State of Delaware, with its
principle offices located at 600 C Ward Drive, Santa Barbara, California 93111
(hereinafter referred to as "MAG") and Louis J. Infante an individual residing
in the City of Troy, Michigan (hereinafter referred to as "Infante").
Witnesseth:
Whereas, MAG is engaged in the development, marketing, sale and use of
intellectual properties and wishes to employ Infante starting May 1, 1999, in
the position of Executive Vice President and Chief Operating Officer, for its,
Asha Technologies Division; and
Whereas, MAG will employ Infante and Infante will accept employment by MAG, as
its Executive Vice President and Chief Operating Officer, Asha Technologies
Division, pursuant to the terms hereof.
Now, therefore, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
1. Employment Term: MAG agrees to employ Infante and Infante agrees
to work for MAG. The initial term of Infante's employment shall begin on the
first day of May 1999 and shall continue until the thirtieth day of April 2001.
Thereafter, Infante's employment shall be renewed for an additional two (2)
years unless either party gives to the other no less than ninety (90) days
written notice prior to April 30, 2001 that this Agreeement will be terminated
at the end of the initial term.
2. Scope of Employment: Infante will manage and direct the Asha
Technologies Division of MAG and will have such other duties as may be assigned
to him, from time to time, by the President, and Chief Operating Officer, or the
Board of Directors of MAG. Infante will also serve in administrative capacities
as may be required and/or directed by the President or Board of Directors of MAG
and be expected to attend to any other matters generally falling within the
scope of the Executive Vice President and Chief Operating Officer, Asha
Technologies Division.
<PAGE>
3 Compensation and Benefits:
(a) MAG shall pay to Infante as compensation for the services to be
rendered by Infante hereunder an annual base salary of One Hundred Thirty
Thousand Dollars ($130,000.00) payable in 26 equal consecutive installments of
Five Thousand Dollars ($5,000.00) each on Friday of every second week. Such
installments are subject to all legally required Federal and State withholding
amounts. In the event this Agreement should continue after the initial term,
Infante's base salary shall be adjusted annually as of May 1st each year there
after to reflect any percentage increase in the cost of living index published
by the United States Government for the Greater Los Angeles-Long Beach area.
(b) In addition, Infante shall receive 25,000 options to purchase
stock in MAG annually. All such option grants shall be subject to MAG's Stock
Option Plan as amended from time to time. Infante shall also receive a one time
grant of MAG stock in an amount of shares equal to One Hundred Thousand Dollars
($100,000.00). Such Grant to be exercisable by Infante at any time during the
life of this Agreement.
(c) In addition to the compensation hereinabove set forth, Infante
shall be entitled to participate in such other fringe benefit programs from MAG
as may be made available to other executives of MAG from time to time,
including, but not limited to, bonuses, stock options, profit sharing, auto
allowance, cellular phone, merit increases, health insurance programs, vacation
and other such programs as may be determined by MAG's Chief Operating Officer
and/or its Board of Directors. Infante shall be reimbursed for all reasonable,
ordinary and necessary business expenses incurred for the benefit of MAG subject
to MAG's policies and procedures.
4. Termination:
(a) If this Agreement is terminated at will by MAG prior to the
expiration of the initial or any succeeding term, MAG's sole obligation to
Infante shall be (i) to pay to Infante a severance payment equal to the then
current annual base salary of Infante at the time of termination payable in
equal monthly installments on the last business day of each month for twelve
(12) months following the effective date of termination; and (ii) to reimburse
Infante for the COBRA health insurance premiums paid by Infante for the twelve
(12) month period following termination. If Infante obtains other employment
during this twelve (12) month period, the amount of severance paid each month
may be reduced by MAG by the amount of compensation paid each month by the other
employer and, if Infante receives health insurance from any source during such
twelve (12) month period, MAG will not be obligated to reimburse Infante for his
COBRA payments.
(b) This agreement may be terminated for cause without any
continuing obligation to Infante by MAG. Cause shall be any action or actions by
Infante that are determined prosecutable as criminal in a court of competent
jurisdiction.
<PAGE>
5. Arbitration: Any controversy or claim arising out of or relating
to this agreement, or breach thereof, shall be settled by binding arbitration in
Santa Barbara, California before a panel of arbitrators selected as follows:
within ten (10) days of demand by either party for arbitration, each party will
select an arbitrator and those two will select a third arbitrator, and those
three shall constitute the panel. The arbitrator's decisiion will be by majority
vote. The arbitration shall not be appealable by either party. The rules of the
American Arbitration Association shall govern, and the decision of the
arbitrators shall be final and binding and judgement on the award may be entered
by any court of competent jurisdiction.
6. Entire Agreement: The foregoing constitutes the entire Agreement
between the parties and no modification of any of the provisions hereof shall be
binding upon either Infante or MAG unless in writing signed by the party against
whom such modification is sought to be enforced.
7. Interpretation: This Agreement has been submitted to the
scrutiny of all parties hereto and of counsel. This Agreement shall be
controlled by the laws of the State of California without regard to its
conflicts of laws principles.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date set forth above.
MCLAREN AUTOMOTIVE GROUP, INC. LOUIS J. INFANTE
By: /s/ Wiley R. McCoy By: /s/ Louis J. Infante
------------------------- ------------------------
Its: President and Chief
Operating Officer
By: /s/ John C. McCormack
-------------------------
Member Compensation Committee
By: /s/ Nicholas P. Bartolini
-------------------------
Member Compensation Committee
By: /s/
-------------------------
Member Compensation Committee
<PAGE>
EXHIBIT 10.17
McLAREN AUTOMOTIVE GROUP, INC.
EMPLOYMENT AGREEMENT
This Agreement made and entered into as of this first day of May 1999 by and
between McLaren Automotive Group, Inc., a corporation duly organized and
existing under and pursuant to the laws of the State of Delaware, with its
principle offices located at 600 C Ward Drive, Santa Barbara, California 93111
(hereinafter referred to as "MAG") and Steve Sanderson an individual residing in
the City of Santa Barbara, California (hereinafter referred to as "Sanderson").
Witnesseth:
Whereas, MAG is engaged in the development, marketing, sale and use of
intellectual properties and wishes to employ Sanderson starting May 1st, 1999,
in the position of Chief Financial Officer, for the Corporation; and Whereas,
MAG will employ Sanderson and Sanderson will accept employment by MAG, as its
Chief Financial Officer, pursuant to the terms hereof.
Now, therefore, for good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereby agree as follows:
1. Employment Term: MAG agrees to employ Sanderson and Sanderson agrees
to work for MAG. The initial term of Sanderson's employment shall begin on the
first day of May 1999 and shall continue until the Thirtieth day of April 2001.
Thereafter, Sanderson's employment shall be renewed for an additional two (2)
years unless either party gives to the other no less than ninety (90) days
written notice that this Agreement will be terminated at the end of the initial
term.
2. Scope of Employment: Sanderson will manage and direct the Financial
activities of MAG and will have full authority for the proper execution of his
responsibilities as provided by the laws of the State of Delaware, subject to
the appropriate review and direction of the President and Chief Operating
Officer as well as the Audit and Compensation Committees of MAG. Sanderson will
also serve as Secretary of the Corporation and will be expected to attend all
Board of Director meetings as well as attend to any other maters generally
falling within the scope of Chief Financial Officer and Secretary of MAG.
3. Compensation and Benefits:
(a) MAG shall pay to Sanderson as compensation for the services to
be rendered by Sanderson hereunder an annual base salary of One Hundred Thirty
Thousand dollars ($130,000.00) payable in 26 equal consecutive installments of
Five Thousand dollars
<PAGE>
($5,000.00) each on Friday of every second week. Such installments are subject
to all legally required Federal and State withholding amounts. In the event this
Agreement should continue after the initial term, Sanderson's base salary shall
be adjusted annually as of May 1st each year there after to reflect any
percentage increase in the cost of living index published by the United States
Government for the Greater Los Angeles, Long Beach area.
(b) In addition, Sanderson shall receive 25,000 options to
purchase stock in MAG annually . All such option grants shall be subject to
MAG's Stock Option Plan as amended from time to time.
(c) In addition to the compensation hereinabove set forth,
Sanderson shall be entitled to participate in such other fringe benefit programs
from MAG as may be made available to other executives of MAG from time to time,
including, but not limited to, bonuses, stock options, profit sharing, auto
allowance, cellular phone, merit increases, health insurance programs, vacation
and other such programs as may be determined by MAG's Chief Executive Officer
and /or its Board of Directors. Sanderson shall be reimbursed for all
reasonable, ordinary and necessary business expenses incurred for the benefit of
MAG subject to MAG's policies and procedures.
4. Termination:
(a) If this Agreement is terminated at will by MAG prior to the
expiration of its initial year MAG will pay Sanderson's base salary as if the
Agreement was to remain in effect for its full term. Should termination, at
will, occur in the second year or any subsequent extension of this Agreement,
MAG's sole obligation to Sanderson shall be (i) to pay to Sanderson a severance
payment equal to the then current annual base salary of Sanderson at the time of
termination payable in equal monthly installments on the last business day of
each month for twelve (12) months following the effective date of termination;
and (ii) to reimburse Sanderson for the COBRA health insurance premiums paid by
Sanderson for the twelve (12) month period following termination. If Sanderson
obtains other employment during this twelve (12) month period, the amount of
severance paid each month may be reduced by MAG by the amount of compensation
paid each month by the other employer and, if Sanderson receives health
insurance from any source during such twelve (12) month period, MAG will not be
obligated to reimburse Sanderson for his COBRA payments.
(b) This agreement may be terminated for cause without any
continuing obligation, to Sanderson, by MAG. Cause shall be any action or
actions by Sanderson that are determined prosecutable as criminal in a court of
competent jurisdiction.
5. Arbitration: Any controversy or claim arising out of or relating to
this agreement, or breach thereof, shall be settled by binding arbitration in
Santa Barbara, California before a panel of arbitrators selected as follows:
within ten (10) days of demand by either party for arbitration, each party will
select on arbitrator and those two will select a third arbitrator, and those
three shall constitute the panel. The arbitrator's decision will be by majority
vote. The arbitration shall not be appealable by either party. The rules of the
American Arbitration
<PAGE>
Association shall govern, and the decision of the arbitrators shall be final and
binding and judgement on the award may be entered by any court of competent
jurisdiction.
6. Entire Agreement: The foregoing constitutes the entire Agreement
between the parties and no modification of any of the provisions hereof shall be
binding upon either Sanderson or MAG unless in writing signed by the party
against whom such modification is sought to be enforced.
7. Interpretation: This Agreement has been submitted to the scrutiny of
all parties hereto and of counsel. This Agreement shall be controlled by the
laws of the State of California without regard to its conflicts of laws
principles.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
McLAREN AUTOMOTIVE GROUP, INC. NAME OF CONTRACT PARTY
By: /s/ Wiley R. McCoy By: /s/ Steve Sanderson
----------------------------- ----------------------
Steve Sanderson
Its: President and Chief Operating Officer
By: /s/ John C. McCormack
-----------------------------
Member Compensation Committee
By: /s/ Nicholas P. Bartolini
-----------------------------
Member Compensation Committee
By:
-----------------------------
Member Compensation Committee
<PAGE>
EXHIBIT 10.18
CONSULTING AGREEMENT
This Agreement made and entered into this first day of April 1999 by
and between ASHA Corporation, a corporation duly organized and existing under
and pursuant to the laws of the State of Delaware (hereinafter referred to as
"ASHA/McLaren or the "Company") and John C. McCormack, an individual residing in
the city of Santa Ynez, State of California (hereinafter referred to as
"McCormack").
WHEREAS, ASHA/McLaren is engaged in the development, marketing and sale
of Intellectual Properties as well as in Contractual Engineering and Engine
Development via its subsidiary McLaren Engines, Inc., and is desirous of
entering the automotive after market, and has employed McCormack since February
1, 1995 first as President and Chief Operating Officer and since January, 1998
as Chairman, President and Chief Executive Officer;
WHEREAS, both ASHA/McLaren and McCormack have agreed that McCormack
shall resign from his position and employment with ASHA/McLaren and in so doing
vacate the offices of Chairman, President and Chief Executive Officer of
ASHA/McLaren;
WHEREAS, McCormack, in order to facilitate a smooth and orderly
transition of ASHA/McLaren's senior management agrees to retention by
ASHA/McLaren as a consultant to the new Chairman and the new President and Chief
Operating Officer of ASHA/McLaren; and
WHEREAS, both ASHA/McLaren and McCormack wish to formalize this
relationship, in contractual form, it is hereby agreed that ASHA/McLaren will
retain McCormack and McCormack will accept retention by ASHA/McLaren as a
consultant pursuant to the terms hereof,
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Resignation. McCormack hereby acknowledges and agrees that he
voluntarily and irrevocably resigns from his positions and employment
with ASHA/McLaren effective April 21, 1999. Provided however; McCormack
shall remain a member of ASHA/McLaren's Board of Directors through
September 30, 1999.
2. Consulting.
(a) At the reasonable request of the Chief Executive Officer, Chief
Operating Officer or Board of Directors of ASHA/McLaren; McCormack
agrees to provide consulting services to ASHA/McLaren during the
period commencing on April 21, 1999 and ending on April 20, 2000
("Consulting Term"). Such consulting services shall include advice
on transitional issues, financial matters, customer and public
relations, and other mutually agreeable projects. After April 21,
1999, McCormack shall no longer be an employee of ASHA/McLaren
and the consulting services shall be rendered as an independent
contractor. McCormack shall endeavor to render his
1
<PAGE>
services to ASHA/McLaren at a time and in a manner reasonably
convenient to ASHA/McLaren and McCormack. McCormack shall be
entitled to reasonable vacation and leisure time during which he
shall have no obligation to provide any consulting services.
McCormack shall have no liability or obligation for any consulting
services he performs or any action or omission on the part of
ASHA/McLaren or any of its subsidiaries based thereon.
Within ten (10) days after the conclusion of each month during the
Consulting Term, McCormack agrees to submit a report to the Chief
Executive Officer and Chief Operating Officer detailing the
consulting services provided for the previous month. This report
shall include an outline of specific actions recommended and
planned during the next ninety (90) days.
3. Compensation. The compensation for consulting services rendered
pursuant to this Agreement and the consideration for the releases and
non-competition covenants contained in this Agreement shall consist of
the following:
(a) ASHA/McLaren shall pay to McCormack the annual amount of $147,000
payable in twenty-six (26) equal and consecutive installments of
$5,653.85 each on the Friday of every second week of the month
during the term of this Agreement beginning April 30, 1999 and
ending April 14, 2000.
(b) Upon the effective date of this Agreement, McCormack shall be
granted an option to purchase 50,000 shares of ASHA/McLaren common
stock at a price equal to the closing price of ASHA common stock
on the date of grant. 25,000 of such shares of ASHA common stock
will vest upon the effective date of this Agreement. The remaining
25, 000 shares will vest upon a motion made and approved by the
Board of Directors of ASHA/McLaren at the conclusion of the
Consulting Term that McCormack has fulfilled all of his
obligations pursuant to this Agreement. The expiration date of
such options shall be in accordance with the terms of the Notice
of Grant for such options.
(c) McCormack SHALL be compensated for his reasonable expenses
incurred in connection with consulting activities under this
Agreement.
(d) All options currently held by McCormack shall remain valid until
the stated expiration date of the options.
(e) the full or complete payment of compensation described in this
Agreement shall be considered as fulfilling all of the Company's
compensation obligations to McCormack, including salary, bonuses,
unpaid vacation and stock options.
4. Other Compensation and Benefits. During the Consulting Term, McCormack
shall be entitled to participate in and receive the same benefits under
ASHA/McLaren's group life, health, dental and medical/hospital in
effect from time to time.
2
<PAGE>
McCormack shall be supplied with a 1999 Jeep Grand Cherokee presently
in use as a test vehicle for his own personal use during the Consulting
Term. At the termination of the Consulting Term, he may purchase the
vehicle at this option for a price equal to 50% of the then wholesale
Blue Book value of the vehicle. McCormack shall also have available for
his personal use the Apple computer that he currently uses and shall be
allowed to purchase this computer at its fair market value at the
termination of the Consulting Term.
5. Non-Competition. McCormack agrees that during and for a period of one
year after the expiration of the Consulting Term (the "Non-Compete
Period"), McCormack shall not, directly or indirectly, without the
prior written consent of ASHA/McLaren:
(a) solicit, entice, persuade or induce any employee, consultant, agent
or independent contractor of ASHA/McLaren or of any of its
subsidiaries or affiliates to terminate his or her employment with
ASHA/McLaren or such subsidiary or affiliate, to become employed by
any person, firm or corporation other than ASHA/McLaren or such
subsidiary or affiliate or approach any such employee, consultant,
agent or independent contractor for any of the foregoing purposes,
or authorize or assist in the taking of any such actions by any
third party (for purposes of this Section 5(a), the terms
"employee," "consultant," "agent" and "independent contractor"
shall include any persons with such status at any time during the
six (6) months preceding any solicitation in question); or
(b) directly or indirectly engage, participate, or make any financial
investment in, or become employed by or render consulting, advisory
or other services to or for any person, firm, corporation or other
business enterprise, wherever located, which is engaged, directly
or indirectly, in competition with ASHA/McLaren's business or the
businesses of its subsidiaries or affiliates as conducted or any
business proposed to be conducted at the time of the expiration or
termination of the Consulting Term; provided, however, that nothing
in this Section 5(b) shall be construed to preclude McCormack from
making any investments in the securities of any business
enterprise.
6. Termination of Employment Agreement. McCormack and ASHA/McLaren hereby
agree that the Employment Agreement between McCormack and the Company
dated February 1, 1997 has terminated and is rendered null and void and
that ASHA/McLaren shall not have any obligation or liability
thereunder.
7. General Release.
(a) In exchange for the full and complete execution of payments
described herein, McCormack and his heirs, executors,
administrators and assigns hereby forever release and discharge
ASHA/McLaren and its shareholders, subsidiaries, related entities
and affiliates, their respective predecessors, successors,
assigns, and past, present or future officers, partners,
directors, shareholders, employees, agents,
3
<PAGE>
trustees, from any and all claims, demands, liens, agreements,
covenants, actions, suits, causes of action, obligations,
controversies, costs, expenses, damages, judgments, orders, and
liabilities of whatever kind or nature, in law or in equity, by
statute or otherwise, whether now known or unknown, vested or
contingent, which exist or have existed prior to the date of this
General Release ("Claims").
(b) Without limiting the generality of the foregoing, Claims with
respect to McCormack shall include any claims and liabilities
relating to or arising out of McCormack's employment or
termination of employment by ASHA/McLaren and any and all claims
of employment under the United States Constitution, Title VII of
the Civil Rights Act of 1964, as amended, the Americans with
Disabilities Act of 1990, as amended, the Age Discrimination in
Employment Act of 1967, as amended ("ADEA"), and any other local,
state or federal law, order, regulation, or ordinance relating to
employment or otherwise.
(c) The parties acknowledge that this Agreement, when duly and
completely executed, is intended to constitute a full and final
settlement, mutual release and bar to all employment related
claims of any kind, known or unknown which the parties may have
against each other. The Parties acknowledge that they are familiar
with Section 1542 of the Civil Code of the State of California,
which provides as follows:
"A general release does not extend to claims which the
creditor does not know or suspect to exist in his favor at the
time of executing the release, which, if known by him, must
have materially affected his settlement with the debtor."
The parties expressly waive and relinquish any and all rights and
benefits which they may have under Civil Code section 1542 to the
fullest extent permissible under the law. The Parties acknowledge
that they are aware that they, or their attorneys, may hereafter
discover claims or facts in addition to or different from those
which are known or believed to exist with respect to the subject
matter of this Agreement, but that it is the Parties' intention to
fully, finally and forever settle and release all claims known or
unknown, suspected or unsuspected which the Parties may have
against each other with respect to the subject matter of this
Agreement.
8. Cooperation Regarding Litigation. McCormack agrees to continue to
cooperate with ASHA/MCLaren and its counsel with respect to pending or
future litigation involving ASHA/McLaren. Such cooperation includes
meeting with counsel for purposes of preparation for deposition and
testimony at trial, if necessary in the opinion of ASHA/McLaren
counsel. McCormack agrees he will not meet or have discussions with
counsel for adverse parties without providing ASHA/McLaren's counsel an
opportunity to be present during such meeting or discussion.
ASHA/McLaren agrees to reimburse McCormack at a reasonable rate for the
time spent by McCormack in litigation matters at the request of
ASHA/McLaren after the expiration of the Consulting Term.
4
<PAGE>
9. No Admission of Liability. ASHA/McLaren and McCormack understand and
agree that this General Release is not intended to be and shall not be
deemed, construed, or treated in any respect as an admission of
liability by any person or entity for any purpose.
10. Confidentiality. Neither party will divulge or discuss any aspects of
this Agreement with third parties, except as may be required by law or
by such party's legal or financial advisors. All hard copy and computer
stored proprietary information owned by ASHA/McLaren will be documented
and returned and recorded with the Chief Financial Officer of
ASHA/McLaren. Any action by McCormack, intentional or unintentional,
that breaches the confidentiality of ASHA/McLaren's strategy, plans,
intellectual assets or any other confidential information or trade
secrets of ASHA/McLaren shall constitute a material breach of this
Agreement and the Company's obligation to pay any remaining
consideration under this Agreement shall cease, and the Company shall
be entitled to pursue additional remedies.
11. McCormack and ASHA/McLaren acknowledge that it is their mutual intent
that the Age Discrimination in Employment Act waiver contained in
Section 7 above fully comply with the Older Workers Benefit Protection
Act. Accordingly, this Agreement requires and McCormack acknowledges
and agrees that:
(a) he has carefully read this General Release in its entirety and has
had an opportunity to consider fully the terms of this General
Release for at least twenty-one (21) days;
(b) that he has been advised and encouraged to consult with counsel of
his choice regarding the terms and conditions of this General
Release;
(c) that he has had answered to his satisfaction any questions he had
asked with regard to the meaning and significance of any of the
terms and conditions of this General Release;
(d) that he fully understands the significance of all the terms and
conditions of the General Release;
(e) that after executing this General Release, he has a period of
seven (7) days during which he may revoke this General Release by
delivering a written revocation to ASHA/McLaren; and
(f) that he is signing this General Release voluntarily and of his own
free will and assents to all the terms and conditions therein.
12. Arbitration. Any controversy or claim arising out of or relating to
this agreement, or a breach thereof, shall be settled by arbitration in
Santa Barbara, California before a panel of Arbitrators selected as
follows: Within ten (10) days of demand by either party for
arbitration, each party will select one arbitrator and those two will
select a third arbitrator, and those three shall constitute the panel.
The arbitrator's decision will be by a majority vote. The arbitration
shall not be appealable de novo by either party.
5
<PAGE>
13. Entire Agreement. The foregoing constitutes the entire agreement
between the parties and no modification of any of the provisions hereof
shall be binding upon either McCormack or ASHA unless in writing and
signed by the party against whom such modification is sought to be
enforced.
14. Interpretation. This agreement has been submitted to the scrutiny of
all parties hereto and of counsel. This Agreement shall be controlled
by the laws of the State of California.
15. Severability. If any provision of this Agreement is declared void or
unenforceable by any competent judicial or administrative authority,
then any such provision shall be severed and all remaining provisions
of this Agreement shall remain in full force and effect.
16. Assignment. This Agreement shall be binding upon and inure to the
benefit of the successors, but will not be otherwise assignable without
the written consent of the other party, which consent will not be
unreasonably withheld.
JOHN C.MCCORMACK ASHA CORPORATION
/s/ John C. McCormack By: /s/ Robert J. Sinclair
- - - - - - - - - --------------------------- -------------------------
Name: Robert J. Sinclair
-----------------------
Title: Director
----------------------
WITNESS
Print Name: Nicholas P. Bartolini
-----------------------------
Signature: /s/ Nicholas P. Bartolini
------------------------------
6
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated November 15, 1999 in this form 10-KSB, into the Company's
previously filed Registration Statement File No. 33-81688 and File No.
333-53461.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Detroit, Michigan,
December 29, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACRTED FROM THE BALANCE
SHEETS AND STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOUND ON PAGES F-2
AND F-3 OF THE COMPANY'S FORM 10-KSB FOR THE FISCAL YEAR ENDED SEPTEMBER 30,
1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 739,395
<SECURITIES> 40,775
<RECEIVABLES> 1,782,587
<ALLOWANCES> 15,000
<INVENTORY> 0
<CURRENT-ASSETS> 2,665,936
<PP&E> 4,346,411
<DEPRECIATION> 0
<TOTAL-ASSETS> 7,772,034
<CURRENT-LIABILITIES> 2,165,194
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 2,919,028
<TOTAL-LIABILITY-AND-EQUITY> 7,772,034
<SALES> 4,858,504
<TOTAL-REVENUES> 4,858,504
<CGS> 1,909,080
<TOTAL-COSTS> 1,909,080
<OTHER-EXPENSES> 7,147,220
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201,725
<INCOME-PRETAX> (4,948,498)
<INCOME-TAX> (952)
<INCOME-CONTINUING> (4,947,546)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,947,546)
<EPS-BASIC> (.55)
<EPS-DILUTED> (.55)
</TABLE>
