<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 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 No. 0-16176
McLAREN AUTOMOTIVE GROUP, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 84-1016459
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
32233 West Eight Mile Road,
Livonia, Michigan 48152
- ---------------------------------------- --------------------------
(Address of principal executive offices) (Zip Code)
(248) 477-6240
---------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 [_]
Applicable only to issuers involved in bankruptcy proceedings during the
preceding five years:
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes [ ] No [ ]
There were 9,122,217 shares of the Registrant's common stock outstanding as of
December 31, 1999.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [ X ]
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McLAREN AUTOMOTIVE GROUP, INC.
FORM 10-QSB
INDEX
Page
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Unaudited Balance Sheet as of
December 31, 1999 3
Consolidated Condensed Unaudited Statements of Operations
for the three month periods ended December 31, 1999 and 1998 4
Consolidated Condensed Unaudited Statements of Cash Flows
for the three month periods ended December 31, 1999 and 1998 5
Notes to Consolidated Condensed Unaudited Financial Statements 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
Part II. Other Information and Signatures 9
Signatures 10
2
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MCLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED UNAUDITED BALANCE SHEET AS OF DECEMBER 31, 1999
<TABLE>
<CAPTION>
DECEMBER 31,
1999
<S> <C>
ASSETS
CURRENT ASSETS:
CASH AND CASH EQUIVALENTS 291,662
MARKETABLE SECURITIES 38,276
ACCOUNTS RECEIVABLE, NET OF ALLOWANCE
FOR DOUBTFUL ACCOUNTS OF $15,000 AT
DECEMBER 31, 1999 2,582,067
INVENTORIES 135,181
PREPAID EXPENSES AND OTHER 119,649
-----------
TOTAL CURRENT ASSETS 3,166,835
PROPERTY AND EQUIPMENT, AT COST
NET OF ACCUMULATED DEPRECIATION
AND AMORTIZATION 4,398,126
OTHER ASSETS:
OTHER ASSETS 3,211
GOODWILL AND OTHER INTANGIBLES,
AT COST, NET OF ACCUMLATED
AMORTIZATION 748,182
-----------
TOTAL OTHER ASSETS 751,393
-----------
TOTAL ASSETS 8,316,354
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
LINE OF CREDIT PAYABLE 1,175,000
ACCOUNTS PAYABLE 1,021,811
CUSTOMER DEPOSITS 251,015
PAYROLL AND RELATED 209,776
ACCRUED LIABILITIES 107,921
CURRENT PORTION OF NOTES PAYABLE 344,456
-----------
TOTAL CURRENT LIABILITIES 3,109,979
NOTES PAYABLE--NET OF CURRENT PORTION 2,668,148
TOTAL LIABLITIES 5,778,127
STOCKHOLDERS' EQUITY:
PREFERRED STOCK, $ .001 PAR VALUE
AUTHORIZED - 10,000,000 SHARES
NO SHARES ISSUES OR OUTSTANDING --
COMMON STOCK, .00001 PAR VALUE
AUTHORIZED - 20,000,000 SHARES
ISSUED AND OUTSTANDING - 9,088,517 SHARES
AT DECEMBER 31, 1999 91
ADDITIONAL PAID-IN CAPITAL 13,192,514
ACCUMULATED DEFICIT (10,556,116)
LESS: TREASURY STOCK AT COST (81,907)
ACCUMULATED COMPREHENSIVE LOSS (16,355)
-----------
TOTAL STOCKHOLDERS' EQUITY 2,538,227
-----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY 8,316,354
===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS.
3
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MCLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDING DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
REVENUES:
LICENSE AND ROYALITIES 163,176 --
CONTRACT AND OTHER SERVICES 2,660,628 103,006
------------------------
TOTAL REVENUES 2,823,804 103,006
OPERATING EXPENSES:
RESEARCH AND DEVELOPMENT 335,328 533,089
COST OF REVENUES 1,724,948 --
SELLING, GENERAL AND ADMINISTRATIVE 1,078,193 621,680
------------------------
3,138,469 1,154,769
------------------------
LOSS FROM OPERATIONS (314,665) (1,051,763)
OTHER INCOME(EXPENSE)
INTEREST INCOME 6,552 40,193
INTEREST EXPENSE (84,043) (13,252)
OTHER 13,659 --
------------------------
(63,832) 26,941
------------------------
LOSS BEFORE PROVISION FOR INCOME TAXES (378,497) (1,024,822)
PROVISION FOR INCOME TAXES -- 800
------------------------
NET LOSS (378,497) (1,025,622)
========================
BASIC LOSS PER SHARE (0.04) (0.12)
========================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 9,088,517 8,805,985
========================
COMPREHENSIVE LOSS:
NET LOSS (378,497) (1,025,622)
UNREALIZED LOSS ON MARKETABLE SECURITIES (2,415) --
------------------------
COMPREHENSIVE LOSS (380,912) (1,025,622)
========================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS.
4
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MCLAREN AUTOMOTIVE GROUP, INC.
CONSOLIDATED CONDENSED UNAUDITED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDING DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET LOSS (378,497) (1,025,622)
ADJUSTMENTS TO RECONCILE NET LOSS TO
NET CASH USED IN OPERATING ACTIVITIES:
DEPRECIATION AND AMORTIZATION 147,287 32,242
CHANGES IN OPERATING ASSETS AND
LIABILITIES:
ACCOUNTS RECEIVABLE (802,429) 930,561
INVENTORIES (119,691) --
PREPAID EXPENSES AND OTHER (31,724) 39,828
ACCOUNTS PAYABLE 448,364 83,734
CUSTOMER DEPOSITS 100,020 --
PAYROLL AND RELATED 30,305 (49,260)
ACCRUED LIABILITIES (58,098) 7,439
----------------------
NET CASH PROVIDED BY(USED IN) OPERATING ACTIVITIES (664,463) 18,922
CASH FLOWS FROM INVESTING ACTIVITIES:
PURCHASES OF MARKETABLE SECURITIES (416) (346,394)
ADDITIONS TO PROPERTY AND EQUIPMENT (187,495) (94,800)
----------------------
NET CASH USED IN INVESTING ACTIVITIES (187,911) (441,194)
NET CASH FROM FINANCING ACTIVITIES:
BORROWING UNDER LINE OF CREDIT 809,000 --
REPAYMENTS UNDER LINE OF CREDIT (400,000) (10,033)
BORROWING UNDER NOTES PAYABLE 75,000 --
REPAYMENTS OF LOAN PAYABLE (79,359) --
PROCEEDS FROM ISSUANCE OF COMMON STOCK -- 6,976
----------------------
NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES 404,641 (3,057)
----------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (447,733) (425,329)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 739,395 2,348,540
----------------------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD 291,662 1,923,211
======================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID FOR INTEREST 83,191 13,252
======================
CASH PAID FOR INCOME TAXES -- 800
======================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS.
5
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McLAREN AUTOMOTIVE GROUP, INC.
NOTES TO CONSOLIDATED CONDENSED UNAUDITED FINANCIAL STATEMENTS
PRESENTATION
The financial statements included herein have been prepared by McLaren
Automotive Group, Inc. (the "Company") without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission and include all
adjustments which are, in the opinion of management, necessary for a fair
presentation. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures are adequate to make
these financial statements not misleading; however, it is suggested that these
financial statements and the accompanying notes be read in conjunction with the
financial statements and notes thereto in the Company's Annual Report on Form
10-KSB for the fiscal year ended September 30, 1999. The financial data for the
interim period may not necessarily be indicative of results to be expected for
the year.
In the opinion of the Company, these unaudited statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of McLaren Automotive Group, Inc. as
of December 31, 1999, and the results of the Company's operations and its
cash flow for the three months then ended.
6
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McLaren Automotive Group
Notes to Financial Statements
Revenue Recognition
During the three months ended December 31, 1999, the Company recorded royalty
revenues totaling $163,176 from New Venture Gear, Inc. Royalty revenues are
recorded as earned per the terms of the licensing agreement.
Concentration of Credit Risk
For the three months ended December 31, 1999, revenue derived from two customers
represented 72 % and 13 % respectively of the Company's Total Revenues. These
customers accounted for 72 % and 14 %, respectively of accounts receivable at
December 31, 1999.
Statement of Cash Flows
The Company recorded a $2,415 decrease in fair value of marketable securities.
Marketable Securities
As of December 31, 1999, marketable securities consisted of NBT Bancorp.
Net Income (Loss) Per Share
Net income (loss) per share is based on the weighted average number of common
and common equivalent shares outstanding. Common stock equivalents were not
considered in the calculation, as their effect would be antidilutive.
Income Tax
The Company did not provide for federal income taxes due to net operating loss
carryforwards.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following should be read in conjunction with the Company's Annual Report
on Form 10-KSB and the attached consolidated condensed financial statements
and notes of the Company.
FORWARD-LOOKING STATEMENTS
Statements included in this Report that do not relate to present or
historical conditions are "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "1995 Reform Act"). Such
forward-looking statements involve a number of known and unknown risks and
uncertainties. While these statements represent the Company's current judgment
in the future direction of the business, such risks and uncertainties could
cause actual results performance and achievements, or industry results, to
differ materially from those suggested herein. The Company undertakes no
obligation to publicly release the result of any revisions to these forward-
looking statements, which may be made to reflect events or circumstances after
the date hereof or to reflect the occurrence of unanticipated events. Forward-
looking statements in this Report may include, without limitation, statements
relating to the Company's plans, strategies, objectives, expectations,
intentions and adequacy of resources. All forward-looking statements in this
Report are intended to be made pursuant to the Safe Harbor provisions of the
1995 Reform Act. Factors that could cause results to differ materially from
those projected in the forward-looking statements include: market conditions,
variability of quarterly operations, dependence on management, competition, and
the bureaucratic nature of the automobile industry.
THREE MONTHS ENDED DECEMBER 31, 1999 VERSUS THREE MONTHS ENDED DECEMBER 31, 1998
The Company experienced a net loss of $378,497 for the three months ended
December 31, 1999, compared to a net loss of $1,025,622 for the three months
ended December 31, 1998. The primary reasons for the improvement in the
Company's performance compared to the first fiscal quarter of 1999 were strong
sales by the Company's McLaren Engines Division, which was acquired by the
Company during the second quarter of 1998. In addition, the Company
significantly reduced operating expenses at its McLaren Traction Division which
involved a reduction in staff to the level necessary to support Traction's
current level of operations. Management intends to continue its efforts to
balance the size of the Traction Division with current business.
Significant expenses occurring during the quarter ended December 31, 1999,
totaled approximately $298,930, including legal expenses incurred in connection
with the Dana litigation, legal expenses incurred in connection with initial
investigation of two potential acquisition targets, and consulting payments to
the Company's former Chief Executive Officer and former Chief Financial Officer.
An additional factor affecting results in the period was a fire that
occurred October 21, 1999, at the McLaren Engines facility. This fire damaged
one dynamometer cell which is currently being repaired. The Company's business
interruption insurance will compensate for lost earnings of that dynamometer
cell during the time it is not functioning. Management anticipates receiving
this insurance settlement in the second quarter.
Management believes that the results for the first quarter of fiscal year
2000 reflect the initial benefits of the Company's new strategy of aggressive
cost management, increased market focus and capabilities expansion. It is the
intent of Management to continue to develop these strategic initiatives as well
as other opportunity bases such as the performance aftermarket and manufacturing
related businesses.
YEAR 2000 COMPLIANCE
The Company has experienced no impact on its information systems
since January 1, 2000, and the Company does not expect to encounter any
such problems as the year progresses. The Company's business does
not rely significantly on date dependent computer systems and, therefore,
8
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Management believes that any residual Year 2000 related problems will not have a
material impact on the Company. Prior to the beginning of 2000, the Company
assessed its information systems, and upgraded its information systems as a part
of its continuing technology refresh program, which resulted in these systems
becoming Year 2000 compliant. Since the Company had upgraded its information
technology systems as a part of its normal technology refresh program, it did
not expend significant amounts on Year 2000 issues. In light of the Company's
state of readiness prior to the beginning of the year and the fact that the
Company has experienced no Year 2000 problems, the Company does not believe that
a contingency plan for Year 2000 issues is required.
PART II. OTHER INFORMATION
ITEM 1. 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.
On December 30, 1999, Murat Okcuoglu, a former employee of the Company,
filed an action against the Company. In his complaint, Mr. Okcuoglu alleges
that pursuant to his March 1, 1991 employment agreement with the Company, he is
entitled to damages in excess of $5,000,000 based on the Company's improper
commercialization of ideas he allegedly originated. The Company denies that it
has any obligations to Mr. Okcuoglu arising out of his employment agreement or
otherwise, and the Company intends to vigorously defend itself against Mr.
Okcuoglu's allegations. The case is pending in the Superior Court of Santa
Barbara, California.
ITEM 2. CHANGES IN SECURITIES. None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES. None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None.
ITEM 5. OTHER INFORMATION. None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS. The following exhibits are filed herewith electronically:
EXHIBIT 10.1 Employment Agreement dated as of January 3, 2000, between
the Company and Jacqueline K. Kurtz
EXHIBIT 10.2 Consulting Agreement dated as of October 1, 1999, between
the Company and Steven E. Sanderson
EXHIBIT 27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. None.
9
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
McLAREN AUTOMOTIVE GROUP, INC.
Date: February 14, 2000 By: /s/ Wiley R. McCoy
-----------------------------
Wiley R. McCoy, President
By: /s/ Jacqueline K. Kurtz
-----------------------------
Jacqueline K. Kurtz,
Chief Financial Officer
10
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EXHIBIT 10.1
McLAREN AUTOMOTIVE GROUP, INC.
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), is made as of the third day of
January, 2000, by and between McLAREN AUTOMOTIVE GROUP, INC., a Delaware
corporation with its principal office located at 32233 West Eight Mile Road,
Livonia, Michigan, 48152 (the "Corporation"), and Jacqueline K. Kurtz, whose
address is 1280 Sunset Road, Ann Arbor, Michigan, 48103 (the "Employee").
RECITALS:
A. The Corporation is engaged in the business of designing, fabricating,
developing, validating and certifying powertrain and driveline components,
services and products for the vehicle industry (the "Business");
B. The Corporation wishes to employ Employee and utilize her professional
experience, ability, services, background and know-how; and
C. Employee wishes to work for the Corporation under the terms and
conditions in this Agreement.
NOW, THEREFORE, in consideration of the covenants and conditions set forth
in this Agreement and for other good and valuable consideration, which has been
received and which is sufficient, the parties agree to the following terms:
1. Employment Term. Subject to the terms and conditions contained in this
Agreement, the Corporation employs Employee, and Employee agrees to be employed
by the Corporation, for a two (2) year period from the date of this Agreement
unless the Agreement is terminated before the end of two years in accordance
with Section 13. This Agreement will automatically renew for successive periods
of two (2) years, up to a maximum of two (2) successive two-year periods, unless
the Corporation notifies Employee of its intent to terminate this Agreement at
least ninety (90) days prior to the end of the initial two-year term or any
successive two-year period, or unless the Agreement is terminated before the end
of any successive two-year period in accordance with Section 13. The initial
two-year term and any successive terms are referred to in this Agreement as the
"Employment Term."
2. Duties. Employee's position with the Corporation will be Executive
Vice President Business Infrastructure/Chief Financial Officer. As the
Executive Vice President Business Infrastructure/Chief Financial Officer,
Employee will be responsible for management of non-operations aspects of the
business including but not limited to finance, accounting, human resources,
facilities, planning, public and investor relations, internal and external
communications, information systems, legal activities, non-operations purchasing
and will perform other duties which the Corporation requests from time to time.
The Employee will report to the President/CEO of the Corporation.
3. Time and Efforts. During her employment with the Corporation, Employee
will diligently and conscientiously devote her full business time, attention and
ability to the Corporation and its Business, and will faithfully serve the
Corporation. Employee will fulfill her responsibilities described in this
Agreement honestly, diligently, in good faith, with her best efforts and in the
best interests of the Corporation. While she is employed by the Corporation,
Employee will not engage in any other business activity without first receiving
written approval from the Corporation, except for personal investments in a
passive capacity such written approval which shall not be reasonably withheld if
it is determined that the requested business activity will in no way interfere
with Employee's activities with the Corporation.
4. Salary and Bonus. During her employment with the Corporation, the
Corporation will pay Employee an annual salary of One Hundred Thousand Dollars
($100,000.00), payable according to the Corporation's standard payment
practices. The ordinary and usual sums for taxes and withholding will be
deducted from this salary. Employee will be eligible for any bonus plan which
is in effect for employees of a similar level within the Corporation.
1
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5. Stock Options. Upon commencement of this agreement and upon each
successive renewal of this agreement, Employee shall receive a grant of 25,000
options of the Corporations stock. Exercise price for these options shall be
the average of the closing price for the Corporations stock for the five (5)
trading days following the commencement of the agreement. Options shall vest
over the period of the agreement with one-half of the options grant vesting on
the last business day of the first year of the agreement and the second half of
the options grant vesting on the last business day of the second year of the
agreement and following the same pattern in successive renewals of the
agreement.
6. Vacation and Other Benefits. Employee will be entitled to take four
(4) weeks of paid vacation per year. No vacation time may be carried over from
one year to the next. Employee will be entitled to receive health benefits and
also to participate all other benefits provided to employees of a similar level
within the Corporation.
7. Expenses. The Corporation will pay or reimburse Employee for all
reasonable and necessary expenses incurred by the Employee in performing her
duties under this Agreement.
8. Rules of the Corporation. Employee agrees that she will comply with
all reasonable rules and regulations of the Corporation in performing her duties
under this Agreement. Employee agrees that she will carry out all reasonable
orders, directions and policies of the Corporation which are consistent with her
position with the Corporation and which are communicated by the Corporation to
Employee, either orally or in writing. However, Employee will not be required
to comply with any directions or orders if she has obtained an attorney's
written opinion which is reasonably satisfactory to the Corporation stating that
her compliance with a particular direction or order would violate applicable
law.
9. Confidentiality. Employee knows that the Corporation possesses
business information which is confidential. During the Employee's employment
with the Corporation and after the termination of Employee's employment,
Employee will not use or reveal, divulge or make known to any person, company,
or any other third party, any Proprietary Information. "Proprietary
Information" is any and all information or data, whether in writing, or learned
by Employee orally, by observation or other sensory detection, relating to any
product, product design, service, research, development, formula, process,
method of distribution or delivery, know-how, trade secret, customer list,
contract term, customer pricing, supplier list or price, business strategy,
compensation, plan or practice, operating records, software, technology, sales
data, information or other records, lists or documents used by the Corporation
in operating the Business or otherwise. The Proprietary Information and all
other information relating to the Corporation belongs to and will remain the
property of the Corporation. All Proprietary Information, other information and
property of the Corporation must be returned to the Corporation by Employee upon
termination of Employee's employment.
10. Corporate Opportunity. Employee agrees that during her employment
with the Corporation she will not take any action which might divert from the
Corporation or any affiliate of the Corporation any business opportunity which
would be within the scope of any of the present or future businesses of the
Corporation or any of its subsidiaries or affiliates (future businesses are
business which are then under consideration by the Corporation or its
subsidiaries and affiliates), if the loss of the business would have, as
reasonably determined by the Corporation, an adverse effect upon the
Corporation, unless the Corporation has given prior written approval.
11. Discoveries and Works. Employee agrees that all discoveries and works
made or conceived by her as of the date of this Agreement or during her
employment with the Corporation, individually or with others, that relate to the
Business or the Corporation's activities (including actual or demonstrably
anticipated research or development of the Corporation), or result from any work
performed by Employee for the Corporation, will be owned by the Corporation.
The term "discoveries and works" includes, but is not limited to, the following:
designs, inventions, computer programs (including documentation of the
programs), technical improvements, processes, drawings and works of authorship.
The Employee will (a) promptly notify, make full disclosure to, and execute and
deliver any documents requested by, the Corporation to evidence or better assure
the Corporation's title to the discoveries and works, (b) assist the Corporation
in obtaining or maintaining for itself at its own expense United States and
foreign patents, copyrights, trade secret protection or other protection of any
and all discoveries and works, and (c) promptly execute, whether during or after
his employment with the Corporation, all applications or
2
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other endorsements necessary or appropriate to maintain or protect patents and
other rights for the Corporation. If there are any discoveries and works which,
within six (6) months after the termination of the Employee's employment, are
made, disclosed, reduced to a tangible or written form or description, or are
reduced to practice by the Employee and which pertain to the Business or the
products or services being sold or developed by the Corporation at the time of
Employee's termination, these discoveries and works will, as between the
Employee and the Corporation, be deemed to have been made during the Employee's
employment and will be owned by the Corporation. However, any discovery or work
that the Employee has developed entirely on her own time without using the
Corporation's equipment, supplies, facilities or trade secret information will
not be owned by the Corporation, except for those discoveries and works that
either: (i) relate to the Corporation's Business, or actual or demonstrably
anticipated research or development of the Corporation at the time of conception
or reduction to practice; or (ii) result from any work performed by the Employee
for the Corporation.
12. Non Solicitation. Employee agrees that she will not, while she is an
employee of the Corporation and for a period of one (1) year thereafter, (a)
directly or indirectly, personally or for any business entity in any capacity,
entice away, employ or solicit for employment any current or former employee of
the Corporation or its affiliates, or (b) contact any customer or prospective
customer of the Corporation or its affiliates except for the benefit of the
Corporation or its affiliates.
13. Termination.
(a) This Agreement may be terminated by the Corporation: (i) for Cause
as defined below; or (ii) immediately and without notice upon the Employee's
death or disability. For the purposes of this Agreement, "disability" means as a
physical or mental condition that, notwithstanding reasonable accommodations, as
defined under applicable state and/or federal law, prevents Employee from
performing any essential function of his job.
(b) Termination of Employee for "Cause" means: (i) any act or acts of
Employee which would constitute a felony (or its equivalent) or fraud; (ii) a
material breach by Employee performing the duties described in this Agreement
which is not cured by Employee within five (5) days after the Corporation gives
Employee notice of the breach; or (iii) gross neglect, gross malfeasance,
willful neglect, willful misconduct or dishonesty.
(c) If Employee's employment is terminated by the Corporation for
Cause, the Corporation's obligations under this Agreement will terminate and the
Corporation will not be liable to Employer for any payments of any kind under
this Agreement, including without limitation any claim to unpaid bonus amounts.
(d) If Employee's employment under this Agreement is terminated by the
Corporation for reason other than Cause during the first year of any two-year
employment period under this Agreement, the Corporation will pay Employee the
remaining salary that he would have received under this Agreement. If Employee's
employment under this Agreement is terminated for reason other than Cause during
the second year of any two-year employment period under this Agreement, the
Corporation will pay Employee an amount equal to the salary earned by Employee
during the twelve months immediately preceding the termination, excluding any
bonus amounts received by Employee during that twelve-month period. The
frequency of the payments made to Employee under this Section will be at the
Corporation's discretion.
(e) If Employee's employment is terminated due to his death or
disability, the Employee (or her estate) will be entitled to a pro rata portion
of her salary and bonus earned through the date of termination.
14. Assignment. Employee knows that the services to be performed by her
for the Corporation are unique and personal. Accordingly, Employee may not
assign any of her rights or delegate any of her duties or obligations under this
Agreement, except as otherwise expressly provided for in this Agreement.
15. Injunctive Relief. Employee agrees that the remedy of monetary
damages for any breach or threatened breach by Employee of the covenants in
Sections 9 (Confidentiality), 10 (Corporate Opportunity), and 12
(Nonsolicitation) of this Agreement will be inadequate to remedy fully the
breach because any breach or attempted breach by
3
<PAGE>
Employee would cause immediate, substantial and irreparable loss of business and
profits to the Corporation and its affiliates in an amount which would be
impossible to calculate. Therefore, if Employee breaches or threatens to breach
any of the covenants, in addition to any and all other legal and equitable
remedies which may be available, including suit for recovery of actual damages,
the Corporation and its affiliates, or any successor of the Corporation or its
affiliates, will be entitled to injunctive relief, without needing to prove any
actual loss of business to the Corporation or its affiliates by reason of the
Employee's breach and, to the extent permissible under the applicable law, a
temporary restraining order will be granted immediately on commencement of any
suit by the Corporation or its affiliates. Employee waives any right to notice
of any application by the Corporation or its affiliates for a temporary
restraining order.
16. Reasonableness. Employee has weighed all the facts, conditions and
circumstances pertaining to this Agreement and Employee agrees that all of the
provisions of this Agreement are reasonable. Employee will not contest the
validity of any provision of this Agreement and he waives any and all rights he
may have to bring any claim, action or suit or to raise any defense regarding
the validity and reasonableness of this Agreement or any of its provisions. If
Employee brings an action or raises any defense in violation of this Section,
the Corporation will be entitled to receive reimbursement from Employee for the
Corporation's reasonable attorney fees and costs.
17. Validity. If any provision contained in this Agreement, or the
application of any provision, is held invalid or unenforceable by a court of
competent jurisdiction, that provision will be deemed to be modified in a manner
to make it consistent with the intent of the original provision, so that, as
revised, the provision will be valid and enforceable, and this Agreement, and
the application of the provision to persons or circumstances other than those
for which it would be invalid or unenforceable, will not be affected by the
revision.
18. Binding Effect. This Agreement will inure to the benefit of and be
binding upon the Corporation and its permitted assigns, including without
limitation any person or entity which may acquire substantially all of the
Corporation's assets or business, or with or into which the Corporation may be
liquidated, consolidated, merged or otherwise combined, and will inure to the
benefit and be binding upon Employee, his heirs, distributes and personal
representatives.
19. Notices. All notices and other communications to be provided under
this Agreement will be effective when they are received if they are in writing
and hand delivered or sent by facsimile transmission and confirmed by U.S. mail,
and will be effective one (1) day after they are sent by a nationally recognized
overnight delivery service. Any communication given in any other manner will be
effective only if and when it is received by the party to be notified. For the
purposes of this Section, the addresses of the parties are the addresses stated
in the first paragraph of this Agreement. A party may change the address to
which all communications are to be sent by giving written notice to the other
party in accordance with this Section.
20. Waiver. Either party's failure to insist in any one or more instances
upon the other party's performance of any of the terms or conditions of this
Agreement will not be construed as a waiver of future performance of any term,
covenant or condition, but the obligations of either party with respect to the
term or condition will continue in full force and effect.
21. Entire Agreement. This Agreement supersedes all previous agreements
between Employee and the Corporation, and contains the entire understanding and
agreement between the parties regarding Employee's employment with the
Corporation. This Agreement cannot be amended, modified or supplemented in any
respect except by a subsequent written agreement signed by both the Corporation
and Employee.
22. Governing Law; Forum. This Agreement is a contract made under, and
will be governed by and construed in accordance with, the law of the State of
Michigan which is applicable to contracts made and to be performed entirely
within Michigan, without giving effect to choice of law principles of Michigan.
The Corporation and Employee each agree that any legal or equitable action or
proceeding with respect to this Agreement or Employee's employment with the
Corporation will be brought only in any court of the State of Michigan, or in
any court in the United States of America sitting in Michigan, and the
Corporation and Employee each submits to and accepts the jurisdiction of those
courts with respect to such party's person and property, and irrevocably
consents to the service of
4
<PAGE>
process in connection with any action or proceeding by personal delivery to or a
mailing by registered or certified mail, postage prepaid to each party at the
party's address contained in this Agreement. Nothing in this Section will affect
the right of the Corporation and Employee to serve process in any other manner
permitted by law. The Corporation and Employee each irrevocably waives any
objection to the laying of venue of any action or proceeding in the courts
described in this Section.
23. Headings. The headings contained in this Agreement are for
convenience only and are not to be used in construing or interpreting this
Agreement.
24. Counterparts. This Agreement may be executed in one or more
counterparts, which will each be deemed to be an original, but all of which will
constitute one and the same document.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date written in the first paragraph of this Agreement.
McLAREN AUTOMOTIVE GROUP, INC.
/s/ Wiley R. McCoy
By: Wiley R. McCoy
Its: President
/s/ Jacqueline K. Kurtz
Jacqueline K. Kurtz
Compensation Committee:
/s/ Robert J. Sinclair
/s/ Nicholas P. Bartolini
5
<PAGE>
EXHIBIT 10.2
McLAREN AUTOMOTIVE GROUP, INC.
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is made as of the 1st day of
October, 1999, by and between STEVEN E. SANDERSON, an individual residing at
180 Holly Ave., Carpinteria, California 93013 ("Consultant"), and McLAREN
AUTOMOTIVE GROUP, INC., a Delaware corporation with its principal office located
at 32233 West Eight Mile Road, Livonia, Michigan 48152 (the "Corporation").
W I T N E S S E T H:
WHEREAS, the Corporation is in the business of designing, fabricating,
developing, validating and certifying engines and related components and
products for the automotive industry (the "Business");
WHEREAS, Consultant has significant experience and knowledge of the
Corporation's finances and financial operations as well as the Business;
WHEREAS, Consultant has been employed by the Corporation pursuant to an
Employment Agreement with the Corporation dated May 1, 1999 (the "Employment
Agreement");
WHEREAS, the Corporation and Consultant wish to terminate the Employment
Agreement;
WHEREAS, Consultant wishes to resign as the Chief Financial Officer and
Secretary of the Corporation as set forth in Schedule A attached hereto, and the
Corporation wishes to accept such resignation; and
WHEREAS, the Corporation desires to retain the services of Consultant as a
consultant to provide the Corporation with advice regarding the operations of
the Corporation and the Business on the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the covenants and conditions contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Recitals. The foregoing recitals are hereby incorporated into this
Agreement and made a part hereof.
2. Consulting Services. During the Term of this Agreement (as defined
below), Consultant agrees that he will make himself available to the Corporation
during normal business hours to consult with the Corporation and to do all
things reasonably requested by the President or Board of Directors of the
Corporation. Consultant will be available to the Corporation via a cellular
phone which will be furnished to Consultant by the Corporation.
3. Term. The term of this Agreement shall commence on the date hereof and
shall continue until May 31, 2000, unless earlier terminated in accordance with
Section 10 of this Agreement (the "Term").
4. Compensation. For all services rendered by Consultant hereunder, the
Corporation shall pay Consultant Forty-Seven Thousand Six Hundred Dollars
($47,600.00) (the "Consulting Fee"), payable at a rate of Five Thousand Nine
Hundred Fifty Dollars ($5,950.00) per month, which shall be remitted to
Consultant on the first day of each month. In addition, the Corporation shall
pay Consultant Four Hundred Seven and 55/100 Dollars ($407.55) per month, or
such amount as is necessary, to cover the costs of Consultant's COBRA coverage.
5. Stock Options. During the Term, the Corporation shall grant to
Consultant Seventeen Thousand Five Hundred (17,500) options to purchase the
common stock of the Corporation (the "Options"). The price and the exercise
schedule for the Options shall be the same as that for options granted to
executives of the Corporation. Neither the termination of Consultant's
Employment Agreement nor Consultant's resignation as the Corporation's Chief
Financial Officer and Secretary shall affect Consultant's retention of
1
<PAGE>
all unexercised stock options which were granted to him during the term of his
employment with the Corporation.
6. Independent Contractor Status. Nothing contained in this Agreement
shall be construed to constitute Consultant as an employee or agent of the
Corporation, nor shall either party have any authority to bind the other in any
respect, it being intended and understood that Consultant shall remain an
independent contractor responsible for his own actions. Consultant acknowledges
that the Corporation has no obligation to and will not withhold income or
payroll taxes with respect to the duties performed by Consultant and Consultant
hereby agrees to pay all such taxes.
7. Indemnity. Each party shall indemnify, protect and hold harmless the
other party from and against all expenses, claims and liabilities arising out of
or relating to a breach of that party's obligations hereunder.
8. Confidentiality. Consultant acknowledges that certain of the
Corporation's business information is confidential. Therefore, Consultant
agrees that Consultant shall not use or reveal, divulge or make known to any
person, firm, company, corporation or other entity any Proprietary Information
except as required by law or court order. "Proprietary Information" is any and
all information or data, whether in writing, or learned orally, by observation
or other sensory detection, whether learned by Consultant during his employment
relationship with the Corporation or during the Term, as well as that
information relating to any product, product design, research, development,
formula, manufacturing process, method of distribution or delivery, knowhow,
trade secret, customer list, contract term, customer pricing, supplier list or
price, business strategy, compensation, plan or practice, financial and
operating records, software, technology, sales data, information or other
records, lists or documents used by the Corporation in the operation of the
Business or otherwise. All Proprietary Information and other Corporation
property shall be returned to the Corporation at the termination of Consultant's
consulting relationship with the Corporation. The Proprietary Information and
all other information relating to the Corporation shall belong to and remain the
property of the Corporation. Upon termination of this Agreement, Consultant
shall leave with the Corporation all such information in any way relating to the
Corporation or the Business. However, Proprietary Information shall not be
deemed to include information which: (a) at the time of disclosure is properly
in the public domain or thereafter properly becomes part of the public domain by
publication or otherwise through no fault or act of Consultant or his agents, or
(b) is independently made available to Consultant in good faith by a third party
who has not violated a confidential relationship with the Corporation.
9. Discoveries and Works. Consultant agrees and acknowledges that all
discoveries and works made or conceived by Consultant as of the date hereof
while in the employ of the Corporation, or during the Term, individually or with
others, that relate to the Business or the Corporation's activities (including
actual or demonstrably anticipated research or development of the Corporation),
or result from any work performed by Consultant for the Corporation shall be
owned by the Corporation. The term "discoveries and works" includes, but is not
limited to, reports, financial analyses or other financial information,
improvements, processes and works of authorship. Consultant shall: (a)
promptly notify, make full disclosure to, and execute and deliver any documents
requested by, the Corporation to evidence or better assure title to such
discoveries and works in the Corporation, (b) assist the Corporation in
obtaining or maintaining for itself at its own expense United States and foreign
patents, copyrights, trade secret protection or other protection of any and all
such discoveries and works, and (c) promptly execute, whether during the Term
or thereafter, all applications or other endorsements necessary or appropriate
to maintain patents and other rights for the Corporation and to protect its
title thereto. Any discoveries and works which, within six (6) months after the
termination of the Term, are made, disclosed, reduced to a tangible or written
form or description, or are reduced to practice by Consultant and which pertain
to the business carried on or products or services being sold or developed by
the Corporation at the time of such termination shall, as between Consultant and
the Corporation, be deemed to have been made during the Term and shall be owned
by the Corporation. The foregoing does not apply to a discovery or work that
Consultant has developed entirely on his own time without using the
Corporation's equipment, supplies, facilities or trade secret information except
for those discoveries and works that either: (i) relate at the time of
conception or reduction to practice of the discoveries and works to the
Corporation's Business, or actual or demonstrably anticipated research or
development of the Corporation; or (ii) result from any work performed by
Consultant for the Corporation.
2
<PAGE>
10. Termination. This Agreement may be terminated by either party after
November 29, 1999, upon thirty (30) days written notice to the other party. In
the event this Agreement is terminated by the Corporation, the Corporation shall
remit to Consultant the unpaid portion of the Consulting Fee. In the event this
Agreement is terminated by Consultant, the Corporation shall remit to Consultant
an amount equal to fifty percent (50%) of the unpaid portion of the Consulting
Fee. Upon termination of the Agreement, the Corporation's obligation to provide
a cellular phone to Consultant and to pay Consultant for COBRA coverage as set
forth in Section 4 shall cease.
11. Complete Agreement; Termination of Employment Agreement. This
Agreement is the complete agreement between the parties with respect to the
subject matter hereof. This Agreement supersedes all previous agreements
between Consultant and the Corporation, including the Employment Agreement, each
of the Corporation and Consultant acknowledge and agree that neither party shall
have any further obligations to the other under the Employment Agreement.
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the parties.
12. Release. Consultant agrees, in consideration of the Corporation's
entering into this Agreement and the compensation to be paid to Consultant
hereunder, not to sue and Consultant hereby releases and forever discharges the
Corporation, and its predecessors, assigns, and affiliates, and each of their
past and present officers, directors, employees and agents, both in their
individual and representative capacities, from any and all claims, demands,
actions and causes of action, damages, costs, payments and expenses of every
kind, nature or description which may exist as of the date of this Agreement
arising out of or relating to facts or circumstances, whether known or unknown,
in existence on the date of this Agreement, including but not limited to those
arising out of or related to Consultant's employment relationship with the
Corporation, its predecessor, or otherwise. Consultant agrees that this release
includes, but is not limited to, a voluntary waiver of all claims of
discrimination, including age discrimination, against the Corporation, under
both federal and state law. Specifically, Consultant agrees that this release
includes a voluntary waiver of all claims under the Age Discrimination in
Employment Act of 1967, 29 U.S.C. (S)(S) 621 to 634; the Civil Rights Act of
1871, 42 U.S.C. (S)(S) 1981; the Civil Rights Act of 1964, 44 U.S.C. (S) 2000e,
et seq.; the employment laws and regulations of the State of Michigan, including
the Elliott-Larsen Civil Rights Act; the employment laws and regulations of the
State of California, including the Fair Employment and Housing Act; and/or any
claims growing out of any legal restrictions on the Corporation's right to
terminate its employees. Consultant agrees that this also includes a voluntary
waiver and release of any claims based on any contract or promise, express or
implied. Consultant acknowledges that Consultant fully understands and agrees
that the release contained in this Agreement may be used by Corporation as a
complete defense to any claim which hereafter may be asserted by Consultant or
other persons or agencies on behalf of Consultant in any suit or claim against
Corporation for or on account of any matter or thing whatsoever arising out of
the employment relationship between Consultant and Corporation.
13. Injunctive Relief. Consultant agrees that the remedy of monetary
damages for any breach or threatened breach of the covenants of this Agreement
would be inadequate to remedy fully the breach because any breach or attempted
breach by Consultant would cause immediate, substantial and irreparable loss of
business and profits to the Corporation in an amount which would be impossible
to ascertain. Accordingly, in the event of any breach or threatened breach of
any of said covenants by Consultant, in addition to any and all other legal and
equitable remedies which may be available, including suit for recovery of actual
damages, the Corporation, and/or any affiliated or related corporation, or any
successor of the Corporation, shall be entitled to equitable relief, including
injunctive relief and specific performance, without the necessity of posting
security or proving actual loss of business to the Corporation by reason of such
breach and, to the extent permissible under applicable law, a temporary
restraining order shall be granted immediately on commencement of any such suit
by the Corporation. Such remedies will not be the exclusive remedies for any
breach of this Agreement but will be in addition to all other remedies available
under this Agreement or at law or equity to the Corporation.
14. Binding Agreement; Successors. This Agreement shall be binding upon,
inure to the benefit of and be enforceable by the successors, permitted assigns,
heirs, legatees, executors, personal representatives, guardians, custodians,
administrators and conservators of the parties hereto.
3
<PAGE>
15. Validity. If any Section, paragraph, sentence, clause or other
provision of this Agreement, or the application of such provision, is held
invalid or unenforceable by a court of competent jurisdiction, such provision
shall be deemed to be modified in a manner consistent with the intent of such
original provision, so as to make it valid and enforceable, and this Agreement,
and the application of such provision to persons or circumstances other than
those with respect to which it would be invalid or unenforceable, shall not be
affected thereby.
16. Notices. Any notices required or permitted to be given under this
Agreement shall be sent by a nationally recognized overnight delivery service
and shall be effective when received by the other party. For the purposes of
the Paragraph, the addresses of the parties shall be as set forth in the first
paragraph of this Agreement. Any party may change the address to which such
communications are to be sent by notice to the other parties as provided herein.
17. Governing Law; Forum. This Agreement is a contract made under, and
shall be governed by and construed in accordance with, the law of the State of
Michigan applicable to contracts made and to be performed entirely within such
State and without giving effect to choice of law principles of such State. Each
of the parties hereto agrees that any legal or equitable action or proceeding
with respect to this Agreement, or any agreement represented herein or entered
in connection herewith or the transactions contemplated hereby shall be brought
only in any court of the State of Michigan, or in any court in the United States
of America sitting in Michigan, and each of the parties hereto hereby submits to
and accepts generally and unconditionally the jurisdiction of those courts with
respect to such party's person and property, and irrevocably consents to the
service of process in connection with any such action or proceeding by the
mailing thereof by registered or certified mail, postage prepaid to each party
at such party's address set forth above. Nothing in this paragraph shall affect
the right of any party hereto to serve process in any other manner permitted by
law. Each party hereby irrevocably waives any objection to the laying of venue
of any such action or proceeding in the above described courts.
18. Headings. The section headings herein are for reference purposes only
and shall not affect in any way the meaning or interpretation of this Agreement,
nor are they deemed to constitute a part of this Agreement.
19. Waiver. The failure of either party to exercise or enforce any right
or remedy conferred upon it hereunder shall not be deemed to be a waiver of any
such right or remedy nor operate to bar the exercise or enforcement thereof at
any time thereafter.
20. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
McLAREN AUTOMOTIVE GROUP, INC.
/s/ Wiley R. McCoy
By: Wiley R. McCoy, President
/s/ Steven E. Sanderson
STEVEN E. SANDERSON
SCHEDULE A
Resignation
I, STEVEN E. SANDERSON, hereby resign as the Chief Financial Officer and
Secretary of McLaren Automotive Group, Inc., a Delaware corporation, effective
September 30, 1999.
STEVEN E. SANDERSON
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEETS AND STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 291,662
<SECURITIES> 38,276
<RECEIVABLES> 2,582,067
<ALLOWANCES> (15,000)
<INVENTORY> 135,181
<CURRENT-ASSETS> 3,166,835
<PP&E> 4,398,126
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,316,354
<CURRENT-LIABILITIES> 3,109,979
<BONDS> 0
0
0
<COMMON> 91
<OTHER-SE> 2,538,136
<TOTAL-LIABILITY-AND-EQUITY> 8,316,354
<SALES> 2,823,804
<TOTAL-REVENUES> 2,823,804
<CGS> 1,724,948
<TOTAL-COSTS> 1,724,948
<OTHER-EXPENSES> 1,413,521
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 84,043
<INCOME-PRETAX> (378,497)
<INCOME-TAX> 0
<INCOME-CONTINUING> (378,497)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (378,497)
<EPS-BASIC> (.04)
<EPS-DILUTED> 0
</TABLE>
