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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
_____________
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ ] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 (Fee Required)
[X] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(No Fee Required)
For the transition period from July 1, 1996 to March 31, 1997.
Commission file number 1-12850
THE SLED DOGS COMPANY
(Exact name of small business issuer as specified in its charter)
212 THIRD AVENUE NORTH, SUITE 420
MINNEAPOLIS, MINNESOTA 55401
(Address of principal executive offices)
COLORADO 84-116-8832
State or other Jurisdiction of Incorporation IRS Identification Number
(612) 359-9020
(Small Business Issuer's telephone number including area code)
______________
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01
PAR VALUE PER SHARE
(Title of Class)
Indicate by check mark whether the Company (1) filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not 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. [X]
The issuer's revenues for its most recent fiscal year were $1,463,467.
The aggregate market value of the Company's common stock held by non-affiliates
of the Company on June 9, 1997 was approximately $2,295,317 computed by
reference to the average of the closing bid and ask prices as quoted by Nasdaq
on that date.
The Company has one class of equity securities outstanding: Common Stock, $.01
par value per share. On June 9, 1997, there were 13,513,193 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
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THE SLED DOGS COMPANY
FORM 10-KSB TRANSITION REPORT FOR THE NINE MONTHS ENDED MARCH 31, 1997
TABLE OF CONTENTS
Page
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PART I 1
ITEM 1. BUSINESS 9
ITEM 2. PROPERTIES 9
ITEM 3. LEGAL PROCEEDINGS 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 9
PART II 9
ITEM 5. MARKET FOR THE COMPANY'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS 9
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 10
ITEM 7. FINANCIAL STATEMENTS 13
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 13
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT 14
ITEM 10. EXECUTIVE COMPENSATION 16
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT 18
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 19
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
FINANCIAL STATEMENTS
EXHIBITS
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PART I
ITEM 1. BUSINESS
GENERAL
The Sled Dogs Company (the "Company"), markets, manufactures and
distributes Sled Dogs(TM) brand snow skates and related accessories. Snow
skates are snowboard-like boots with interchangeable metal-edged bases that are
slightly longer and wider than the boot, designed to permit travel across snow
using a skating motion or gliding downhill like an alpine skier. Sled Dog snow
skates are the world's first patented performance snow skates that integrate a
comfortable, lightweight, supportive boot with a unique replaceable base. The
Company currently sells four models of Sled Dogs snow skates in unisex sizes
from 3 through 14, with suggested retail prices ranging from $229 to $359 per
pair. The Company also sells accessory products such as gloves, hats,
headbands, vests, jackets and bags.
The Company is pioneering snow skating as a new winter sport. Snow
skating combines the freedom and movements of in-line and ice skating with the
fun, challenge and excitement of alpine skiing and snowboarding. No ski poles
are required. The Company believes that snow skating not only appeals to the
new winter sports enthusiast (active individuals who enjoy the outdoors and are
eager to find a winter activity that is quick and fun to learn) but also will
appeal to a broad segment of the nearly 31 million in-line skaters in the U.S.,
primarily the 20 million who, according to the Company's marketing studies,
currently do not have a winter sport of choice. The Company also believes its
products and the new sport it is creating will be an alternative for infrequent
skiers and snowboarders in the U.S.
The Company's long-term objective is to establish snow skating as the
largest participation winter sport and become its leading brand, the brand
synonymous with the sport.
HISTORY
The original prototype of a snow skate was developed by Hannes Jacob, a
Swiss citizen. Mr. Jacob filed a U.S. patent application on his snow skate in
1988, subsequently filing corresponding patent applications in 20 countries. A
number of countries, including the U.S., have granted patents to Mr. Jacob.
Mr. Jacob also registered the trademark "SnowRunner" in 15 countries, including
the U.S. In February 1990, Mr. Jacob granted an exclusive world-wide license
to the patented technology and the SnowRunner trademark to DalBello Sport
S.R.L., an Italian company ("DalBello"), which developed a commercial snow
skate and began to market and manufacture snow skates on a limited basis. In
1991, the predecessor of the Company secured exclusive U.S. distribution rights
for the SnowRunner(R) snow skate from DalBello.
After one season of product testing, the Company was able to expand its
operations by raising $1,125,000 from the sale of preferred stock. In
September 1993 the Company, through its wholly-owned subsidiary, SnowRunner
(Properties) Inc., acquired from Mr. Jacob the patent rights, trademark rights
and the rights to a manufacturing agreement between Hannes Jacob and DalBello
relating to the snow skates. Other than holding such rights, SnowRunner
(Properties) Inc. is inactive and is expected to remain so. In exchange for
such rights, the Company paid Mr. Jacob $250,000 in cash and granted him a
$4.00 per pair royalty payable until the earlier of June 30, 2003 or the date
on which the Company has paid an aggregate royalty of $2 million to Mr. Jacob.
At the same time that the Company acquired such rights, the Company canceled
the manufacturing agreement with DalBello, DalBello transferred all of the
product-specific assets used to manufacture the SnowRunner(R) snow skate to the
Company in exchange for
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100,000 shares of the Company's Common Stock plus a payment by DalBello to the
Company of $250,000 and the Company entered into manufacturing and product
development agreements with DalBello. DalBello no longer manufactures snow
skates for the Company. See "Business - Manufacturing and Sources of Supply."
In March 1994, the Company completed its initial public offering of
1,750,000 shares of common stock, in which it received net proceeds of
$7,101,862.
In November 1995, the Company sold 8,000,000 units (the "Units") in a
private placement, each Unit consisting of one share of common stock and one
warrant to purchase one share of common stock. The price per Unit was $.50.
The Company received net proceeds of $3,421,131 from the sale of the Units.
In August 1996, the Company raised $1,322,396 in net proceeds from the
exercise of 1,763,194 Private Placement Warrants. The Warrants were
exercisable at an exercise price $.75 per share during the period commencing
July 17, 1996 and ending August 30, 1996. Upon the expiration of such period,
the Private Placement Warrants were again exercisable for $1.00 per share.
The Company was originally incorporated in Colorado under the name Snow
Runner (USA), Inc. in April 1991. In June 1991, the Company's name was changed
to Snow Runner Holdings, Inc. The Company was the general partner of Snow
Runner (USA) Ltd., a Colorado limited partnership (the "Partnership"). The
Company's organization was restructured in July 1992. As part of the
restructuring, the limited partners, including Nigel Alexander and Steven
Clarke (the founders of the Company), contributed their limited partnership
interests to the Company in exchange for stock of the Company. The Partnership
then conveyed all of its assets to the Company and the Company assumed all the
liabilities and obligations of the Partnership. The Partnership was
subsequently dissolved in August 1992 and the Company's name was changed to
Snow Runner (USA) Inc. In late 1993, the Company relocated its operations to
Minnesota and, in January 1994, changed its name to SnowRunner, Inc. In
November 1994, the Company changed its name to The Sled Dogs Company, the
Company's current name. The Company's principal executive offices are
currently located at 212 Third Avenue North, Suite 420, Minneapolis, Minnesota
55401. The Company's telephone number is (612) 359-9020.
INDUSTRY BACKGROUND
Snow skates resemble a pair of snowboard-like boots with interchangeable
metal-edged bases. The bases are slightly longer and wider than the boot and
are designed to permit travel across snow using a skating motion or gliding
downhill like an alpine skier. The metal-edged bases on Sled Dogs snow skates
are shaped to allow a skater to glide on the snow and have an edge design to
provide control in turning and stopping. Snow skates perform best on
well-groomed alpine ski hills but can be used in other mountain conditions, as
well as for street skating.
Snow skating was introduced as a winter sport in the United States in
1991, and there can be no assurance that snow skating will be accepted as a
winter sport. Nevertheless, the Company believes that alpine skiing,
snowboarding and in-line skating each provide impetus and support for the
emergence of snow skating as a significant new winter sport.
Alpine Skiing/Snowboarding Industry
Until the introduction of the snowboard, the winter sports industry was
dominated by alpine skiing. Skiing has developed over the past fifty years
with four primary elements playing a significant role in its success: (i)
uphill lift capacity evolved from rudimentary rope tows to high speed gondolas
and chair lifts that transport thousands of skiers and, more recently,
snowboarders to the top of a mountain each hour while offering relative safety
and comfort; (ii) greater attention to preparation and grooming of the snow
surface created increased opportunities for acceptable skiing conditions and
provided an
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increased level of safety; (iii) snowmaking capacity has made it possible to
ski or snowboard even without the cooperation of nature; and (iv) technological
developments have improved the performance and safety of ski and snowboard
equipment.
Based on statistics available from the Ski Industries of America ("SIA"),
the trade association for manufacturers in the "on-snow" industry, the Company
estimates that nearly $1.8 billion was spent at retail on winter sports
merchandise during the 1995/1996 season. According to the SIA, national
participation dropped by 18% from approximately 11.3 million participants in
1990 to approximately 9.3 million participants in 1995.
Over the past ten years, snowboarding has emerged as an alternative to the
more traditional winter sport of alpine skiing and is the fastest growing
segment of the winter sports business. According to the 1995 National Sporting
Goods Association Sports Participation Study, the total number of snowboarding
participants increased from approximately 1.4 million in 1990 to approximately
2.2 million in 1995, an increase of 57%. A snowboard is a single platform on
which a person places his or her feet sideways in fixed bindings. The
snowboard is controlled in a manner similar to a surfboard or skateboard.
Snowboarding is physically challenging and snowboarders tend to be
predominantly young and fit.
The demographics of snowboarders contrast significantly with those of
alpine skiers. The majority of skiers are between the ages of 18 and 40, with
35 as the median age, whereas the majority of snowboarders are in the age range
of 12 to 24 with 20.5 as the median age. Approximately 73% of snowboarders are
male, whereas only 60% of the ski population is male.
Snowboarding was not always widely accepted (7% of alpine ski areas in the
United States in 1985; all but four today in 1997), due in part to the
perception that snowboards were less controllable than skis. Some resistance to
snowboards continues to exist both with ski areas and alpine skiers because of
the view that snowboarders are inconsistent with the traditional image of
skiers and because some who snowboard operate their boards aggressively,
thereby increasing conflict with skiers. Despite whatever problems exist, the
popularity of the snowboard has grown rapidly in recent years and sales of
snowboard-related equipment and clothing represent an increasing percentage of
the overall winter sports market.
In-line Skating Industry
The Company views in-line skaters as a potential key target market for
snow skates. In-line skates are boots with a set of three to five wheels
mounted in a straight line on a light-weight frame attached to the bottom of
each boot. According to America Sports Data, Inc., a national research firm,
in-line skating was one of the fastest growing sports in the United States over
the past seven years, having grown from 3 million participants in 1989 to
approximately 31 million in 1996. In 1995 approximately 45% of in-line skaters
were under the age of 14, and 40 percent were between 14 and 34 years of age.
The Company believes that a significant market opportunity exists to create a
large and new winter snow sport -- snow skating. Because of the continuing
popularity of winter sports, as demonstrated by the size of alpine skiing and
the growth of snowboarding, and the large segment of in-line skaters that do
not currently have a winter sport of choice (a population that also continues
to grow rapidly) and whose skills are readily transferable to those used in
snow skating, management believes that the conditions are ideal for the
emergence of this new winter sport. However, there can be no assurance that
snow skating will ever develop as a significant market opportunity for the
Company.
PRINCIPAL PRODUCTS
Sled Dogs snow skates are a unique combination of today's technologies,
together with the first of its kind snow skate technology, that have been
integrated into a simple, one-piece system that delivers what the market is
looking for - a comfortable, versatile piece of equipment that provides an
exciting snow skating experience. From street moves to simple downhill
turns, from backwards skating to
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the more aggressive rail slides and landing "big air," Sled Dogs snow
skates meet the expectations of today's alternative sports enthusiast.
Sled Dogs snow skates are available in unisex sizes from 3 through 14
and are currently offered in four models with suggested retail prices
ranging from $229 to $359 per pair.
<TABLE>
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ROVER -- STREET TO MOUNTAIN
- ------------------------------------------------------------------------------------------------
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- New entry level snow skate designed for beginning snow skaters in alpine venues.
- Pivoting, forward flexing low-profile cuff with laceless entry/exit system.
- Enhanced phast exchange integration base system.
- Enhanced safety restraint strap and hooking mechanism.
- Max V-base(TM) - a base made of composite polyurethane
with carbon steel metal edges and a molded Sled Dogs graphic.
- One color - charcoal/slate blue; unisex sizes 3-14.
- Suggested retail of $229.
K9 -- MOUNTAIN AGGRESSIVE
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- Designed for intermediate aggressive snow skating in alpine and urban venues.
- Utilizes the K9 boot platform.
- Enhanced phast exchange integration base system.
- Enhanced safety restraint strap and hooking mechanism.
- Comes standard with the traditional phat base or new Max V-base(TM) - a composite
polyurethane V-base with carbon steel metal edges and a molded Sled Dogs top graphic.
- Two color combinations - rust/tan and dark green/navy; unisex sizes 3-14.
- Suggested retail of $299.
K9 GRIND -- STREET/MOUNTAIN AGGRESSIVE
- Designed for winter rail grinding and advanced snow skating in urban areas and at
snowboard parks.
- Utilizes the K9 boot platform.
- Enhanced phast exchange integration base system.
- Enhanced safety restraint strap and hooking mechanism.
- GrooVy(TM) base - a composite polyurethane V-base with a built-in grinding groove,
carbon steel metal edges and a molded Sled Dogs top graphic.
- Two color combinations - rust/tan and dark green/navy; unisex sizes 3-14.
- Suggested retail of $329.
K9 SPEED -- HIGH PERFORMANCE ON MOUNTAIN
- ------------------------------------------------------------------------------------------------
- New top-of-the-line snow skate designed for advanced snow skating in urban areas
and at snowboard parks.
- Utilizes the K9 boot platform.
- Enhanced phast exchange integration base system.
- Enhanced safety restraint strap and hooking mechanism.
- Flying V-base(TM) - a lightweight and fast-sliding P-Tex(R) V-base with contoured
and offset carbon steel metal edges, tip and tail protectors and a Sled Dogs color
graphic on bottom of base.
- Two color combinations - rust/tan and dark green/navy; unisex sizes 3-14.
- Suggested retail of $359.
</TABLE>
The product line also features a line of accessories that includes a snow
skating specific glove with protective wrist insert, skate and base bags, Sled
Dogs "attitude" and logo T-shirts and baseball style cotton and wool caps.
As the sport and market grow, the Company intends to develop new products
to meet the snow skater's needs for enhanced performance. Included in these
efforts are expected to be skate bases designed
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specifically for different snow conditions and for different user applications.
Since the snow skate boot has different requirements than other skating and
skiing footwear, emphasis will be placed upon the design of boots specific to
this sport. The Company intends to introduce new products as testing is
completed to the Company's satisfaction and funding is available. There can be
no assurance that the Company will succeed in developing such additional
products or that, if developed, they will prove commercially successful.
During fiscal year 1997, the Company spent approximately $138,000 on research
and development.
The Company's snow skate products are warranted for one year. Because
snow skating involves physical activity, injuries may occur. Products
developed, manufactured or sold by the Company may expose the Company to
potential liability to end users of the products. Though the Company intends to
maintain product liability insurance, there can be no assurance that such
insurance can be maintained or, if maintained, will provide adequate coverage
against all potential claims.
MARKETING AND SALES; DISTRIBUTION METHODS
Sled Dogs snow skates are currently distributed by sporting goods
retailers throughout the U.S. and are accepted for use at nearly all U.S. and
Canadian ski/snow areas, some of which also operate rental programs. Each ski
area is asked by the Company to accept snow skating at their facility by
signing a snow skating participation form. Once ski area access is permitted
for snow skaters, season to season approval is not generally required, but
there can be no assurance that snow skating will continue to be accepted at
previously approved facilities.
The Company's marketing strategy is designed to position The Sled Dogs
Company as the leader and pioneer of snow skating, communicating a combination
of tangible and emotional/experiential messages via an aggressive and
integrated program of grassroots/traditional promotion vehicles specifically
geared to the target markets. Initially, the Company will target the new
winter sports enthusiast -- the 20 million in-line skaters who, the Company's
marketing studies indicate, do not have a winter sport, primarily males aged
13-20, followed by males and females aged 18-35, who enjoy the outdoors and who
are eager to find a winter activity that is quick and fun to learn and provides
a new sports challenge. The Company uses a number of integrated marketing
techniques to promote the Sled Dogs brand and its products and build the sport
of snow skating, including the following:
- The Company is developing plans to hold the inaugural Sled
Dogs World Snow Skating Championships in March 1998 with the help of
Vail Associates and several other national brand co-sponsors.
- The Company will be offering Sled Dogs rentals at some major
ski resorts during the 1997/1998 season. It is the intention of the
resorts to in turn support the Company's promotional efforts by
displaying signage, distributing consumer bounce-back cards, etc.
- The Company plans to further its commitment to direct
response marketing by approaching nearly 100,000 pre-qualified
consumer leads with a national rental program designed to offer two
week Sled Dogs rentals for $39.95. A credit card skate deposit will
be required.
- The Company obtains "free media" through aggressive public
relations campaigns. Over the past two seasons the Company has
received approximately 342,000,000 impressions (exposures to
individuals) in media ranging from the USA Today, CBS This Morning,
CNN fn, Parade, Esquire, Sporting Goods Business, Brandweek, Fit
and several daily newspapers and national magazines. The Company
estimates that equivalent exposure in paid media would have cost
nearly three million dollars.
- The Company will continue to utilize its 800 number and web
site as its main vehicles for communication with consumers. Last
season the web site hosted approximately 250,000 unique visitors in
its first three months of operation. Some 30,000 consumers were
referred to retailers via the 800 number last season.
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- A team of talented snow skaters called "Top Dogs" have been
selected and serve as company spokespeople, product testers and
sport promoters from around the country.
As it begins the 1997/1998 season, the Company's distribution is carried
out by independent representatives. The entire sales force focuses on general
retail and specialty sporting goods stores, both within and away from ski areas,
in accordance with the level of consumer awareness and demand within each
region.
The Company participates annually in the NSGA and the Snow Industries of
America (SIA) trade shows to create increased awareness and build demand from
the sporting goods trade.
The Company is focusing its marketing efforts and resources on building
the sport of snow skating in the United States. The Company expects to expand
to international markets on a case by case basis as international distributors
express interest in using similar techniques as the Company in building the
sport in foreign markets. The Company has distributor relationships in Japan,
Canada, Norway, Australia and certain European countries.
COMPETITION
Other than the Footski(TM) product (as described below), which was
introduced by Footski during the 1993/1994 season, the Company does not believe
any products on the market compete directly with the Sled Dogs snow skate. The
winter recreation business is, however, highly competitive. Indirectly the
Company competes with other winter sports products such as skis, short/mini
skis and snowboards. Numerous sporting goods companies involved in alpine ski
products, snowboards and other winter recreation products have significantly
greater name recognition and financial and personnel resources than those of
the Company. In addition, sales of ski equipment, snowboards, snow skates, as
well as in-line skates and other recreational equipment, are generally
dependent on discretionary spending by consumers and the Company must therefore
compete with other industries for the available consumer dollars. If the
Company is successful in creating a new winter sport, it anticipates that other
sporting goods companies will seek entry into this market.
The Footski product is a boot accessory consisting of a simple plastic
runner which can be attached to the bottom of most ski boots and is marketed to
skiers as an alternative product to skis. The Company does not believe that
sales of the Footski product will materially affect its sales because the
Company has chosen a different target market. In addition, the Company
believes its products are more comfortable, of higher quality and provide the
user with more control and versatility.
In addition, companies such as Salomon, Kneissel (Bigfoot) MicroSki, Klimax,
Canon Skiboards and T.S.S. Manufacturing have all introduced skiboards/short
skis that attach to a ski boot with a traditional binding system. These
products are being marketed to skiers as an alternative and to in-line skaters
who do not have a winter sport. The Company believes it has a significant
price advantage over skiboards/short skis as they require the purchase of a
pair of ski boots to utilize.
The Company believes that its U.S. patent covering certain structural
features of the snow skate technology, the quality of the Sled Dogs snow skate,
and its emergence as the first company to exhibit a product in the snow skate
market provide competitive advantages to the Company.
MANUFACTURING AND SOURCES OF SUPPLY
The Company has entered into a Product Manufacturing Agreement with
DalBello Sport S.R.L. ("DalBello")in September 1993. DalBello is a
privately-owned Italian company which is a manufacturer of alpine ski boots.
The Company had chosen to rely on DalBello as an independent contractor for
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manufacturing in order to minimize its investment in plant and equipment and
because DalBello had considerable experience in injection molding and winter
sports product design.
DalBello manufactured the boots, liners and sole plates for certain snow
skates according to the Company's specifications. DalBello and the Company
determine the prices of the products in lira for each year by mutual agreement.
If at any time, the parties cannot reach an agreement with respect to product
specifications, price or other terms, the Company may obtain manufacturing from
other sources, several of which the Company has identified. The Company
granted DalBello a right of first refusal to manufacture new or modified snow
skate products, whether developed solely by the Company or jointly with
DalBello. If the Company and DalBello cannot agree upon the specifications,
price or other terms relating to such new products, the Company can obtain
competitive manufacturing quotations. If DalBello's quote is more than 10%
higher than a competitive quote received from a manufacturer in any European
country (other than Greece or Portugal), the Company may use such other
manufacturer, subject to DalBello's right to make a counteroffer. The
Agreement provides that during the term of the Agreement and for one year
thereafter, DalBello will not manufacture any snow skate that competes with any
product produced by DalBello under the Agreement. The Agreement extends through
September 2, 1998, with automatic three-year renewals unless, 12 months prior
to a scheduled termination, notice is given by either party of its intent to
terminate the Agreement.
The Company and DalBello also entered into a Product Development Agreement
in September 1993, under which DalBello agreed to perform research and
development activities upon the Company's request and pursuant to mutually
agreed upon procedures, schedules and costs. DalBello is given the right of
first refusal to review and discuss each new proposed research and development
project of the Company. If the parties are unable to agree on the relevant
terms within 45 days, the Company may contract for development of the project
with another party. With certain exceptions, the Company and DalBello are
co-owners of any products developed under this Agreement. Under this
Agreement, DalBello licensed to the Company its intellectual property relating
to snow skates, provided that the Company is obligated to pay a reasonable
royalty (of 2% to 5%) on product cost with respect to product purchased from
other manufacturers utilizing DalBello patented technology. The term and
termination provisions of the Product Development Agreement mirror those of the
Product Manufacturing Agreement. Currently, the Company is engaged in no
product development activities with DalBello.
In the Spring of 1996, subject to the Product Manufacturing Agreement with
DalBello Sport, the Company elected to pursue production of its new K9 model
through Minson Enterprises Co., LTD. ("Minson"), Taipei, Taiwan, R.O.C. The
Company has also elected to pursue production of its new Rover model through
Minson. Minson uses molds owned by the Company to produce the K9 and Rover
boots. No manufacturing agreement exists between the parties and the
quantities and costs for the K9 and Rover boots are set by mutual agreement
between the parties. Minson is a well known manufacturer of in-line skates for
leading brands in the United States. Minson has five factories that could have
some level of involvement in manufacturing the K9 and Rover boot; one located
in Taipei, Taiwan and four in Bangkok, Thailand. On May 2,1997, the Company
reached a Settlement Agreement with Minson regarding payment for boots supplied
for the 1996/1997 season. The Settlement Agreement includes a schedule of
payments to be made by the Company to Minson.
The metal-edge bases in inventory were produced by Evergreen Molding
("Evergreen"), Greenville, South Carolina using molds owned by the Company.
New base products for the '97/'98 season will be produced by Straightline
Sports and Exothermic Molding. No manufacturing agreements exist between the
parties and the quantities and costs for the various types and sizes are set by
mutual agreement between the parties. Evergreen and Exothermic use a reaction
injection molding process (a low pressure flow molding process). Straightline
Sports is an OEM producer of winter and summer sporting goods, and uses a
compression molding process to manufacture bases.
The components for the Company's phast system are produced by Midwest
Plastics, Inc., St. Paul, Minnesota, a plastics injection molder, using molds
owned by the Company. Additional
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suppliers provide the hardware components necessary to assemble the bases and
phast system. No manufacturing agreement exists between the parties and the
quantities and costs for the phast system components and hardware are set by
mutual agreement between the parties.
The Company's accessories line is produced on a purchase order basis by a
variety of soft goods and hard goods manufacturers around the world. The
Company believes that no single accessory supplier is material to its
operations.
PATENTS, TRADEMARKS AND PROPRIETARY RIGHTS
The Company is the assignee of one U.S. patent, along with corresponding
patents from several other countries, covering structural aspects which are
incorporated into its Sled Dogs snow skates. The Company has also filed U.S.
and foreign patent applications on certain aspects of its K9 snow skate. The
Company believes that its patent rights are important to its business and the
Company intends to protect them to the fullest extent practicable. No assurance
can be given, however, that the Company's current or future patent rights will
not be successfully challenged or circumvented by competitors or that the other
measures taken by the Company will prevent the effective competition with its
technologies. In addition, the strength of the patent rights is uncertain and
the cost to enforce its patent rights may exceed the Company's resources.
The Company has registered the marks Sled Dogs, the Sled Dogs logo, Park
Sled Dogs, and SnowRunner with the U.S. Patent and Trademark Office. The
Company has also filed for U.S. trademark registration for the trademarks "The
World is Going to the Dogs," "K9," "Slide," and "Half Breed." The Sled Dogs ,
Sled Dogs logo, K9 and SnowRunner marks are also registered (or the subject of
registration applications) in a number of foreign countries. While the Company
is not aware of any conflicting trademark rights owned by other parties, no
assurance can be given that no such rights exist.
With respect to foreign patent and trademark filings of the Company, no
assurance can be given that the Company will secure patent or trademark
registrations in all foreign countries in which applications are now pending or
in which applications are expected to be filed sometime in the future, or that
the Company will maintain all existing applications or registrations.
RESEARCH AND DEVELOPMENT
Expenditures by the Company for research and development activities
amounted to $137,818 in 1997 and $315,632 in 1996.
EMPLOYEES
As of June 9, 1997, the Company had 10 full-time employees, including two
in sales and marketing, four in operations and four in finance and
administration. The Company's employees are not represented by any collective
bargaining organization.
FORWARD-LOOKING STATEMENTS
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Certain
important factors could cause results to differ materially from those
anticipated by some statements made herein. You are cautioned that all
forward-looking statements involve risks and uncertainties. Among the factors
that could cause results to differ materially are the following: lack of
availability of financing; inability to control costs or expenses;
manufacturing and distribution problems; and lack of market acceptance of the
Company's products. Reference is also made to the risk factors contained in
the Company's Registration Statement on Form S-3 (No. 33-80875), which are
incorporated herein by reference.
8
<PAGE> 11
ITEM 2. PROPERTIES
The Company's current facilities are located in Minneapolis, Minnesota,
and consist of approximately 5,500 square feet of office space. The space is
occupied under a lease which expires in April 1999. Future minimum lease
commitments are $32,851 for the year ending March 31, 1998, and $41,153 for the
year ending March 31, 1999. The Company's facilities are expected to be
sufficient for its needs for fiscal 1998-1999.
ITEM 3. LEGAL PROCEEDINGS
Minson Enterprises Co. Ltd., a/k/a Minson Sporting Goods Limited v. The Sled
Dogs Company, a Colorado corporation, United States District Court, District of
Minnesota. Minson Enterprises commenced this action against the Company in
January 1997 to recover $435,665.25 plus interest, cost and attorneys' fees
for merchandise Minson provided to the Company from June 1996 through October
1996. The Company answered the complaint and disputed the amount owing for
merchandise and claimed a credit for defective merchandise. The parties
reached a settlement in May 1997, under which the Company agreed to pay
Minson Enterprises $410,655.29 plus interest (less any negotiated credit for
defective merchandise), by installment payments from May 1997 through November
1997. The parties amended the settlement agreement on or about June 2, 1997.
The Company has paid $200,000 of the settlement amount, in accordance with the
amended settlement agreement.
Eagle USA Airfreight, Inc. v. The Sled Dogs Company, District Court of Harris
County, Texas, 189 Judicial District Court. EagleUSA commenced this action
against the Company in January 1997 to recover $66,293.72 plus interest, costs,
and attorneys' fees for freight forwarding services EagleUSA performed for the
Company. The parties reached a settlement on or about April 16, 1997, under
which the Company agreed to pay EagleUSA $66,293.72 plus interest, in
installment payments of $33,146.86 on May 1, 1997; and $33,146.86 on December
1, 1997. The Company did not make the May 1 payment and EagleUSA has extended
the date for payment of that amount to June 30, 1997.
West Telemarketing Corporation, a Delaware corporation v. The Sled Dogs
Company, District Court of Douglas County, Nebraska. West Telemarketing
commenced this action to recover $84,602.27 plus interest, for inbound
telemarketing services West Telemarketing provided to the Company. The parties
reached a settlement on or about May 19, 1997, under which the Company agreed
to pay West Telemarketing $44,497.30 on or before June 1, 1997. That
settlement is secured by a Confession of Judgment by the Company for
$88,994.60. The Company did not make the June 1 payment and West Telemarketing
has extended the date for payment of the settlement amount to June 30, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the third quarter of fiscal year 1997.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of The Sled Dogs Company was traded on the Nasdaq
Small-Cap Market under the symbol SNOW and on the Boston Stock Exchange under
the symbol SNW. Effective with the close of business on June 19, 1997, the
Company was delisted from the Nasdaq Small-Cap Market as it was unable to meet
current Nasdaq listing standards of a minimum bid price of at least $1.00, or
in the alternative to the minimum bid price, capital and surplus of $2,000,000
or more. After June 19, 1997, the Company's common stock traded on the Nasdaq
over-the-counter (OTC) Bulletin Board. The price ranges per share shown in the
table below are the highest and lowest prices as quoted by the Nasdaq Small-Cap
Market for the periods shown. These prices include interdealer prices, without
retail markup, markdown or commissions, and do not always represent
transactions with the public.
<TABLE>
Nine months ended March 31, 1997:
High Low
---- ---
<S> <C> <C>
First Quarter $1.19 $ .75
Second Quarter $1.03 $ .31
Third Quarter $ .50 $ .19
Fiscal year ended June 30, 1996:
First Quarter $2.94 $ .44
Second Quarter $2.94 $1.00
Third Quarter $2.00 $ .75
Fourth Quarter $1.25 $ .69
</TABLE>
As of June 9, 1997, the Company had 375 holders of record of its common stock.
The Company believes that there are approximately 2800 beneficial owners of the
common stock who hold securities of the Company in street name.
9
<PAGE> 12
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following information should be read in conjunction with the
consolidated condensed financial statements and the notes thereto included in
Item 7 of this Form 10-KSB Report. Please note that the Company has changed
its fiscal year end to March 31. As a result of this change, the following
discussion and analysis will contain comparisons between the nine month period
ended March 31, 1997 and the twelve month period ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Results of the Company's infomercial in fiscal 1997 were mixed. The
infomercial was effective in creating consumer leads and demand at the retail
level but it did not generate the expected direct sales. While the Company
believes the results of the infomercial will benefit the Company longer term,
the short term effect was lower than expected direct sales and higher than
expected inventory levels both of which negatively impacted cash flow. These
factors have forced the Company into a negative working capital position,
requiring immediate capital to fund ongoing operations.
As of March 31, 1997, the Company had no availability under its asset-based
line of credit with a commercial bank. The line of credit bears interest at
prime plus 4.0%, has a maximum borrowing level of $2 million and expires in
June 1997. The line of credit is secured by substantially all of the Company's
assets, requires the Company to maintain certain financial ratios and restricts
the payment of dividends. At March 31,1997 the Company was in default of the
minimum book net worth covenant which increases the rate of interest by two
percentage points. At March 31, 1997, there were outstanding borrowings under
the line of $619,727 that also included an overdraft amount of $248,778 (i.e.,
borrowings in excess of available collateral). The Company has been informed
by this commercial bank that it will not renew the Company's line of credit,
effective June 30, 1997. The Company and the bank are currently working on a
plan for repayment. The Company is currently pursuing alternative sources of
asset-based lines of credit. However, there can be no assurances that an asset
- -based line of credit will be obtained.
In June 1997 the Company secured the first $500,000 of its $1.5 million private
loan unit offering. Each unit of the offering consists of a $50,000
convertible subordinated secured promissory note and a warrant to purchase
25,000 shares of common stock at $.25 per share. The notes are convertible
into common stock of the Company at $.25 per share. In the event this offering
is not successfully completed, the Company will be required to cease
operations. Even if the Company raises the maximum proceeds in this offering,
the Company will require significant additional capital in order to continue
operations. The Company is exploring other financing alternatives such as the
exercise of existing warrants through a discount exercise price and the
completion of a shareholder rights offering. There can be no assurance the
Company will be able to obtain such capital.
The Company continues to work on generating additional cash and working capital
internally through the collection of existing receivables and sales of
excess/obsolete inventory. The Company also has taken many steps to conserve
cash such as: 1) Rescheduling payments to the majority of its creditors
allowing new capital to be used for moving the business forward into the
1997/1998 season; 2) Reducing headcount from sixteen to ten and 3)
Significantly reducing fiscal 1998 planned expenses. The Company is behind in
its rescheduled payments to creditors. The Company has reached settlement
agreements with three major creditors that require specific payments on
specific dates. The Company is behind in its payments to two of these creditors.
The Company's external auditors have included an explanatory paragraph in the
Report of Independent Auditors with regards to the Company's ability to
continue as a going concern as the realization of its assets and orderly
satisfaction of its liabilities are dependent on obtaining additional funds
from outside sources and generating sufficient working capital from operations.
If the Company is unable to obtain additional funds from outside sources and
generate sufficient working capital form operations, the Company will be
required to cease operations.
The Company's cash and cash equivalents were $11,542 at March 31, 1997,
compared to $653,251 at June 30, 1996, a decrease of $641,709. The Company's
working capital position at March 31, 1997 was a negative $1,186,341. During
the nine months ended March 31, 1997, the Company's operations used net cash of
$2,369,983, primarily to fund operating losses and purchase additional
inventories.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
The $246,146 increase in inventory from June 30, 1996 to March 31, 1997 was
due to inventory purchases made to meet sales projections for the 1996/97
winter season. The Company must commit to inventory purchases at least 90-120
days prior to first customer shipment dates to ensure on-time deliveries from
its foreign suppliers. The Company committed to inventory purchases based on
anticipated higher sales levels than were achieved. The acquisition of excess
K9 inventory for the season negatively impacted cash flow.
The increases in accounts payable and other accrued expenses and other
liabilities from June 30, 1996 to March 31, 1996 were $930,022 and $404,274,
respectively. The increases were due to the Company delaying and rescheduling
payments to its creditors to ensure sufficient working capital for operations.
The Company's investing activities for the nine months ended March 31, 1997
consisted of capital expenditures of $311,644 that primarily related to
manufacturing molds for the K9 product ($271,989 or 87% of the total),
warehouse assembly equipment ($28,233) and other ($11,421). The Company also
spent $27,446 on additional patents and trademarks. These expenditures were
offset by proceeds of $2,867 received on the sale of warehouse equipment.
The Company's financing activities for the nine months ended March 31, 1997
provided cash of $2,064,497 consisting of $1,322,396 in net proceeds from the
exercise of 1,763,194 Private Placement Warrants, $150,000 in net proceeds from
the issuance of long-term debt and $592,101 in net borrowings under the
Company's line of credit. The Private Placement Warrants were exercisable at
an exercise price of $.75 per share during the period commencing July 17, 1996
and ending August 30, 1996. Upon the expiration of such period, the Private
Placement Warrants were again exercisable for $1.00 per share. The proceeds
from these financing activities were applied to working capital and other
corporate purposes.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales for the nine months ended March 31, 1997 (fiscal 1997)
were $1,463,467, a 67% increase from the net sales of $876,803 reported for the
twelve months ended June 30, 1996 (fiscal 1996). The increase in net sales
results can be attributed primarily to the sales of the new K9 product and the
growth in the retail, direct and international distribution channels. The
accessory product line accounted for 10% of net sales for fiscal 1997 compared
to 11% for fiscal 1996.
COST OF GOODS SOLD AND GROSS MARGIN
Gross margin as a percentage of net sales was 10% for fiscal 1997 (before
considering the provision for inventory obsolescence of $728,589 and
manufacturing asset write-down of $262,692), compared to 14% for fiscal 1996
(before considering the provision for inventory obsolescence of $250,000). The
four point reduction in gross margin from fiscal 1996 was primarily due to the
increase in fixed costs for manufacturing asset depreciation and warehouse
operations. The Company acquired new production molds in fiscal 1997 for the
K9 product that resulted in the increased manufacturing asset depreciation.
The Company also incurred additional warehouse expenses due to the increase in
inventory in fiscal 1997. The Company outsources its warehouse operations and
is charged on a per unit basis for shipping, assembly and storage.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for fiscal 1997 were $1,219,485, compared
to $1,188,705 for fiscal 1996, an increase of $30,780 or 3%. The increase from
the prior year was primarily attributed to higher salaries and benefits due to
one new hire for operations management and the reclassification of one employee
from marketing to administrative. In fiscal 1998 and beyond, the Company
expects general and administrative expenses to decrease as a percentage of net
sales, if it controls these costs, and if its net sales base increases. For
fiscal 1998, the administrative staff has been reduced by two employees.
SALES AND MARKETING
Sales and marketing expenses for fiscal 1997 were $2,098,415, compared to
$2,124,714 for fiscal 1996, a decrease of $26,299 or 1%. The Company plans to
decrease sales and marketing expenses substantially in fiscal 1998, primarily
in the area of advertising, in an effort to conserve its cash. For fiscal
1998, the sales and marketing staff has been reduced by four employees. The
Company is unable to predict what effect the decrease in expenses and staff
will have on sales, but it could have a material adverse effect.
11
<PAGE> 14
RESULTS OF OPERATIONS - CONTINUED
RESEARCH AND DEVELOPMENT
Research and development expenses for fiscal 1997 were $137,818, compared to
$315,632 for fiscal 1996, a decrease of $177,814 or 56%. The decrease from the
prior year was primarily due to the reduction in development costs for future
generation snow skate products versus the costs incurred in fiscal 1996
developing the new K9 model. The Company expects research and development
expenses to increase if there is demand for alternative boot and base
structures to accommodate different snow skating styles and venues.
INTEREST EXPENSE
Interest expense for fiscal 1997 was $77,580 compared to $80,935 for fiscal
1996. The decrease from the prior fiscal year was due to interest expense
being incurred for only nine months in fiscal 1997.
INTEREST INCOME AND OTHER (INCOME) EXPENSE
Interest income and other (income) expense for fiscal 1997 was ($22,469)
compared to ($83,813) for fiscal 1996, a decrease of $61,344 or 73%. The
decrease from the prior year was due to less interest income earned as fiscal
1997 cash balances were much lower than in fiscal 1996.
NET LOSS
The net loss of $4,369,815 for fiscal 1997 was $619,727 greater than the net
loss of $3,750,088 reported for fiscal 1996. The increase in net loss for
fiscal 1997 was primarily due to the noncash provision for inventory
obsolescence of $728,589. The Company does not expect to be profitable in
fiscal 1998.
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Certain
important factors could cause results to differ materially from those
anticipated by some statements made herein. You are cautioned that all
forward-looking statements involve risks and uncertainties. Among the factors
that could cause results to differ materially are the following: lack of
availability of financing; inability to control costs or expenses;
manufacturing and distribution problems; lack of market acceptance of the
Company's products; and competitive pressures. Reference is made to the risk
factors contained in the Company's Registration Statement on Form S-3 (No.
33-80875), which are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The following Financial Statements and Independent Auditors' Report are
included herein on the pages indicated:
Page
----
Report of Ernst & Young LLP F-1
Balance Sheets as of March 31, 1997 and June 30, 1996 F-2
Statements of Operations for the nine months ended March 31, 1997 and
1996 and the year ended June 30, 1996 F-3
Statements of Shareholders' Equity (Deficiency) for the nine months ended
March 31, 1997 and the year ended June 30, 1996 F-4
Statements of Cash Flows for the nine months ended March 31, 1997 and
1996 and the year ended June 30, 1996 F-5
Notes to Financial Statements F-6
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE> 15
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
The Bylaws of the Company provide that the number of directors shall be no less
than three (3) and no more than seven (7). Subject to approval by
shareholders, seven (7) directors will be elected at the Annual Meeting, each
person to serve until the next annual meeting of shareholders and until a
successor has been elected and qualified.
Mr. Kent Rodriguez, Mr. David N. Braus, and Mr. Rudy A. Slucker are
currently directors of the Company and each has consented to being named as a
nominee. It is intended that proxies will be voted for such nominees. The
Company believes that each nominee will be able to serve, but should any of the
nominees be unable to serve as a director, the persons named in the proxies
have advised the Company that they will vote for the election of such
substitute nominee as the Board of Directors may propose. Nominees to the
Board of Directors are elected by a majority of the votes cast in person or by
proxy at the Annual Meeting.
BOARD OF DIRECTORS
The names, ages and positions with the Company of each nominee are set
forth below.
<TABLE>
<CAPTION>
Position with Director
Name Age the Company Since
- ---- --- ----------- -----
<S> <C> <C> <C>
Kent Rodriguez 40 Chairman and Director 1997
David N. Braus 40 Director 1992
Rudy A. Slucker 49 Director 1996
</TABLE>
BUSINESS EXPERIENCE
Kent Rodriguez has served as Chairman and a director since January 1997.
Prior to joining the Company and during 1996, Mr. Rodriguez acted as a
financial consultant to American Research Corporation, a marketing services
firm and was employed as a financial analyst by Summit Investment Corporation,
an investment banking and brokerage firm. From 1994 to 1995, Mr. Rodriguez
served as president of The First National Bank of Elmore, Minnesota, a
commercial banking firm. From 1985 to 1994, Mr. Rodriguez held various
positions with The First National Bank of Elmore, Minnesota.
David N. Braus has been a director of the Company since August 1992. Mr.
Braus has served as General Counsel, Corporate Secretary and a director of
HAIFinance Corp., a venture capital firm, since 1989. Mr. Braus has served as
President of David N. Braus, Chartered, a law firm specializing in venture
capital law and international business law. Mr. Braus also serves as a
director of numerous companies in various types of business and in some cases
also serves as general counsel and/or corporate secretary.
Rudy A. Slucker has served as a director of the Company since February
1996. Since August 1990, Mr. Slucker has been engaged in investing for his own
account. Mr. Slucker is the designee of GKN Securities Corp. ("GKN").
Pursuant to the Agency Agreement, dated October 12, 1995, between the Company
and GKN relating to the private placement of 8,000,000 units, the Company
agreed that for a five-year period commencing on the closing of such private
placement, GKN has the right to designate a nominee to the Company's Board of
Directors, reasonably acceptable to the Company.
13
<PAGE> 16
BOARD AND COMMITTEE MEETINGS
During fiscal 1997, the Board of Directors held eleven formal meetings and
took action in writing five times. Each director attended at least 75 percent
of the meetings of the Board of Directors and Committees of which he or she was
a member. The Compensation/Stock Option Committee was comprised of Rudy A.
Slucker, Hope S. Taitz and Thomas F. Votel and met two times during fiscal
1997. The Audit Committee was comprised of David N. Braus, Hope S. Taitz and
Thomas F. Votel and did not meet during fiscal 1997. The Compensation/Stock
Option Committee recommends the compensation for the Company's executive
officers, reviews the compensation of all Company officers and has
responsibility for approval of all material terms of options granted to
employees and directors. The Audit Committee recommends to the Board of
Directors the selection of independent accountants and reviews the activities
and reports of the independent accountants.
EXECUTIVE OFFICERS
The following table sets forth the names and ages of the Company's
Executive Officers, together with all positions and offices held with the
Company by each such Executive Officer. Officers are appointed to serve until
their successors have been elected and have qualified.
Name Age Offices
Kent Rodriguez 40 Chairman and Director
Michael P. Wise 40 Chief Financial Officer, Treasurer and Secretary
Michael Wise has served as Chief Financial Officer of the Company since
November 1995. Mr. Wise joined the Company in June 1994 as the Controller
after serving as a consultant to the Company since April 1994. In September
1994, he was elected to serve as Treasurer and Secretary. Prior to joining the
Company, Mr. Wise was employed by National Computer Systems, Inc., Education
Systems Division, a developer and marketer of information systems and services
for education, serving as the Complementary Channels Manager from April 1992 to
March 1994, as Division Controller from November 1989 to May 1992 and as
Manager of Finance and Administration from April 1986 to October 1989. From
March 1982 to March 1986, Mr. Wise held various financial positions with
Jostens, Inc., a scholastic, sportswear and recognition products company. From
September 1979 to February 1982, Mr. Wise was employed by Arthur Andersen &
Co., a big six public accounting firm.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "SEC"). Officers, directors and greater than ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of the copies of such forms
received by it, the Company believes that, during the period from July 1, 1995
through March 31, 1997, all filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were complied with.
14
<PAGE> 17
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth all cash compensation paid or to be paid by
the Company, as well as certain other compensation paid or accrued, during
fiscal years 1997, 1996, and 1995 to the Chief Executive Officer. No executive
officer received annual salary and bonus in excess of $100,000 for the nine
months ended March 31, 1997.
<TABLE>
<CAPTION>
Long Term All Other
Annual Compensation Compensation Compensation
------------------- ------------ ------------
Name and
Principal Fiscal Salary Bonus Other
Position Year ($) ($) ($) Options ($)
- -------- ---- --- --- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
[------ -----] 1997 59,423 3,964(1) 415,000 --
John Sundet 1996 90,000 -- 6,000(1) 250,000 --
President and 1995 90,900 -- 6,000(1) -- --
Chief 1994 70,000 -- -- 165,000 --
Executive
Officer
</TABLE>
- ----------
(1) Consists of a monthly car allowance.
OPTION GRANTS DURING FISCAL YEAR 1997
The following table provides information regarding stock options granted
during fiscal 1997 to the executive officer named in the Summary Compensation
Table. The Company has not granted any stock appreciation rights.
Percent of Total Exercise or
Options Options Granted Base Price
Name Granted in Fiscal Year Per Share Expiration Date
- ---- ------- -------------- --------- -----------------
John Sundet 415,000 45% $ .50 February 28, 2002
OPTION EXERCISES DURING FISCAL YEAR 1997 AND FISCAL YEAR-END OPTION VALUES
The named executive officer in the Summary Compensation Table did not
exercise any options during fiscal 1997. The Company has no outstanding stock
appreciation rights.
Number of Unexercised
Unexercised In-the-Money
Shares Options at Options at
Acquired March 31, 1997 March 31, 1997
on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable(1)
- ---- -------- -------- ------------- ----------------
415,000 exercisable $-0- exercisable
John Sundet -- -- -0- unexercisable $-0- unexercisable
15
<PAGE> 18
(1) Value is calculated on the basis of the difference between the option
exercise price and the average of the bid and asked prices for the
Company's Common Stock at March 31, 1997 as quoted on the Nasdaq SmallCap
Market, multiplied by the number of shares of Common Stock underlying the
option.
16
<PAGE> 19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides information as of June 9, 1997 concerning the
beneficial ownership of the Company's Common Stock by (i) each director and
nominee for director of the Company, (ii) the executive officers named in the
Summary Compensation Table, (iii) any holder known by the Company to be the
beneficial owner of more than 5% of the outstanding shares of Common Stock, and
(iv) all directors and executive officers as a group. Except as otherwise
indicated, the persons named in the table have sole voting and investment power
with respect to all shares of Common Stock owned by them.
<TABLE>
<CAPTION>
Name and Address or Identity Number of Shares Percent of
of Group Beneficially Owned (1) Class (1)
- ------------- --------------------------- ----------
<S> <C> <C>
John Sundet 1,028,000(2) 7.07%
13785 Wood Lane
Minnetonka, MN 55401
David N. Braus 1,125,000(3) 7.69%
HAIFinance Corp.
Fairfax Square Tower II, Suite 760
8075 Leesburg Pike
Vienna, VA 22182
Kent Rodriguez 800,000(4) 5.59%
212 Third Avenue North
Suite 420
Minneapolis, MN 55401
HAIFinance Corp. 1,125,000(3) 7.69%
Fairfax Square Tower II
Suite 760
8075 Leesburg Pike
Vienna, VA 22182
Rudy A. Slucker 1,050,000(5) 7.21%
66 Duffield Drive
South Orange, NJ 07029
All Directors and Executive 3,196,500(3)(4)(5)(6) 19.13%
Officers as a Group (4 persons)
</TABLE>
(1) Under the rules of the Securities and Exchange Commission ("SEC"), shares
not actually outstanding are deemed to be beneficially owned by a person if
such person has the right to acquire the shares within 60 days of the record
date. Pursuant to such SEC Rules, shares deemed beneficially owned by virtue
of a person's right to acquire them are also treated as outstanding when
calculating the percent of the class owned by such person and when determining
the percent owned by any group in which the person is included.
(2) Includes options and warrants to purchase 440,000 shares of Common Stock.
(3) Includes 750,000 shares owned by HAIFinance Corp. ("HAI"), of which Mr.
Braus is an officer and director, and 375,000 shares which may be purchased by
HAI upon exercise of currently exercisable warrants.
(4) Includes warrants to purchase 800,000 shares of Common Stock.
(5) Includes warrants to purchase 550,000 shares of Common Stock.
(6) Includes options and warrants to purchase 1,354,165 shares of Common
Stock.
17
<PAGE> 20
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
The Company issued an aggregate of 1,125,000 shares of Series A Preferred
Stock to HAIFinance Corp., a Virginia corporation ("HAI"), between July 1992
and January 1993 for aggregate consideration of $1,125,000. HAI is an
independent venture capital company. Prior to its preferred stock investment,
it had no relationship with the Company or any of its affiliates. The
1,125,000 shares of Series A Preferred Stock were converted automatically into
750,000 shares of the Company's Common Stock upon the effective date of the
Company's initial public offering in March 1994.
In July 1993 and January 1994, the Company concluded bridge financing
arrangements with HAI for a total of $1,382,000 plus a letter of credit
accommodation from HAI in the amount of $201,900. The bridge financing was
evidenced by promissory notes bearing interest at 12% per annum, and the letter
of credit accommodation is subject to a letter of credit fee of 4% per quarter.
The Company repaid the promissory notes, as well as any amounts drawn on the
letter of credit, from the proceeds of the initial public offering. In July
1993, the Company issued HAI five-year warrants to purchase 250,000 shares of
the Company's Common Stock at a price of $.30 per share in connection with
HAI's commitment for $525,000 of the bridge financing. In January 1994, the
Company issued HAI five-year warrants to purchase 125,000 shares of the
Company's Common Stock at a price of $1.50 per share in connection with HAI's
commitment for the balance of the bridge financing, with a value of $81,000
assigned to such warrants as an additional cost of such financing.
In January 1994, the Company, John Sundet, HAI and four other shareholders
(collectively, the "Shareholders") entered into an Amended and Restated
Shareholders Agreement (the "Shareholder Agreement"). The Shareholder
Agreement prohibits transfers by any of the Shareholders to third parties
unless the offering Shareholder first offers the stock to the other
Shareholders under the Shareholder Agreement.
In February 1994, the Company and HAI entered into an agreement under
which HAI, upon the closing of the initial public offering, converted $637,500
of debt owed to it by the Company into 150,000 shares of the Company's Common
Stock at $4.25 per share. Under the agreement, the Company also permitted HAI
to sell 150,000 shares of the Company's Common Stock in the offering as a
selling shareholder.
In March 1997, the Company borrowed a total of $150,000 under three convertible
subordinated debt notes with Kent Rodriguez, Chairman. The Convertible
subordinated debt bears interest at 12% per year and is due on March 31, 2000.
The notes are convertible into common stock at a conversion price of $.50 per
share at any time prior to the maturity of the notes. The notes will be
automatically converted into common stock in the event that the last sale price
of the Company's common stock has been at least $2.00 for 20 consecutive
trading days. In connection with the convertible subordinated debt, the
Company has granted Mr. Rodriguez warants to purchase 45,000 shares of common
stock at an exercise price of $.375 per share. The warrants expire on March
31, 2000.
In April 1997, the Company borrowed an additional $100,000 from Kent Rodriguez
under convertible subordinated notes. The terms of these notes are identical
to the terms described above. In addition, Mr. Rodriguez was granted warrants
to purchase an additional 30,000 shares of common stock at an exercise price of
$.375.
In April 1997, the Company's Board of Directors, in consideration for Mr.
Rodriguez loaning $250,000 to the Company, has canceled the original warrants
to purchase 75,000 shares of common stock and issued Mr. Rodriguez warrants to
purchase 250,000 shares of common stock at $.25 per share. These warrants
expire on March 31, 2000.
In April 1997, the Company borrowed a total of $50,000 under a subordinated
secured promissory note with Rudy Slucker, Director. The note bears interest at
12% per year and was due on June 1, 1997. In connection with the note, the
Company granted Mr. Slucker warrants to purchase 50,000 shares of common stock
at an exercise price of $.25 per share. As of the date of this report, the
note had not been repaid.
In May 1997, the Company entered into a $25,000 subordinated secured promissory
note with Mr. Rodriguez. The note bears interest at 12% per year and is due on
July 15, 1987. The note is secured by the Company's assets.
In May 1997, the company announced that it had reached a settlement agreement
with Minson Enterprises Co. LTD. The Settlement Agreement calls for the
Company to pay Minson amounts currently due totaling $410,655 plus interest at
a rate of 5% per year. The amount due Minson has been personally guaranteed by
Mr. Rodriguez. In connection with this guarantee, the Company has granted Mr.
Rodriguez a warrant to purchase 500,000 shares of common stock at $.25 per
share. The warrant expires on March 31, 2000.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. See "Exhibit Index" immediately following the signatures
on this report on Form 10-KSB.
(b) Reports on Form 8-K. The Registrant filed a report on Form 8-K
January 27, 1997.
18
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Company has caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: June 30, 1997 THE SLED DOGS COMPANY "Company"
/s/ Kent Rodriguez
-------------------------------------
Kent Rodriguez, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Company in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature and Title Date
<S> <C>
/s/ Kent Rodriguez June 30, 1997
- -----------------------------------------
Kent Rodriguez, Chairman of the Board
and
Director (Principal Executive Officer)
/s/ Michael P. Wise June 30, 1997
- -----------------------------------------
Michael P. Wise, Chief Financial Officer, Treasurer and Secretary
(Principal Financial and Accounting Officer)
/s/ Rudy A. Slucker June 30, 1997
- -----------------------------------------
Rudy A. Slucker, Director
/s/ David N. Braus June 30, 1997
- -----------------------------------------
David N. Braus, Director
</TABLE>
19
<PAGE> 22
CONSOLIDATED FINANCIAL STATEMENTS
THE SLED DOGS COMPANY
NINE MONTHS ENDED MARCH 31, 1997 AND
YEAR ENDED JUNE 30, 1996
<PAGE> 23
The Sled Dogs Company
Consolidated Financial Statements
Nine Months ended March 31, 1997 and
Year ended June 30, 1996
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors...................................... 1
Audited Consolidated Financial Statements
Consolidated Balance Sheets......................................... 2
Consolidated Statements of Operations............................... 3
Consolidated Statement of Changes in Shareholders'
Equity (Deficit).................................................... 4
Consolidated Statements of Cash Flows............................... 5
Notes to Consolidated Financial Statements.......................... 6
</TABLE>
<PAGE> 24
Report of Independent Auditors
Board of Directors and Shareholders
The Sled Dogs Company
We have audited the accompanying consolidated balance sheets of The Sled Dogs
Company as of March 31, 1997 and June 30, 1996, and the related consolidated
statements of operations, changes in shareholders' equity (deficit) and cash
flows for the nine months ended March 31, 1997 and the year ended June 30,
1996. 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 consolidated financial position of The Sled Dogs
Company at March 31, 1997 and June 30, 1996, and the consolidated results of
its operations and its cash flows for the nine months ended March 31, 1997 and
the year ended June 30, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 2 to the financial statements, the Company's recurring
losses from operations and accumulated deficit raise substantial doubt about
its ability to continue as a going concern. The financial statements do not
include any adjustment that might result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 13, 1997
1
<PAGE> 25
The Sled Dogs Company
Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
-------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,542 $ 653,251
Accounts receivable, less allowance for doubtful
accounts of $167,000 and $147,000 at March 31, 1997 and
June 30, 1996, respectively 225,168 349,354
Other receivables 34,402
Inventories 940,226 694,080
Prepaid expenses 23,385 168,714
1,200,321 1,899,801
Property and equipment:
Furniture 135,309 128,999
Computer equipment 83,854 78,743
Vehicles 63,708 63,708
Manufacturing assets 1,015,517 743,529
Warehouse equipment 39,309 19,056
Leasehold improvements 27,197 27,197
Accumulated depreciation (1,023,125) (456,043)
------------- ------------
341,769 605,189
Patents, less accumulated amortization of $159,253 and
$123,686 at March 31, 1997 and June 30, 1996,
respectively 151,575 159,697
------------- ------------
Total assets $ 1,693,665 $ 2,664,687
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 1,308,700 $ 378,678
Accrued expenses and other liabilities 458,235 53,961
Line of credit 619,727 27,626
------------- ------------
2,386,662 460,265
Convertible subordinated debt-related party 150,000 -
Shareholders' equity (deficit):
Convertible preferred stock, Series A, $1.00 par value:
Authorized shares - 1,500,000
Issued and outstanding shares - -0- at March 31, 1997
and June 30, 1996 - -
Common stock, $.01 par value:
Authorized shares - 50,000,000
Issued and outstanding shares - 13,513,193 and
11,749,999 - at March 31, 1997 and June 30, 1996,
respectively 35,132 117,500
Additional paid-in capital 13,596,638 12,291,874
Accumulated deficit (14,574,767) (10,204,952)
------------- ------------
Total shareholders' equity (deficit) (842,997) 2,204,422
------------- ------------
Total liabilities and shareholders' equity (deficit) $ 1,693,665 $ 2,664,687
============= ============
</TABLE>
See accompanying notes.
2
<PAGE> 26
The Sled Dogs Company
Consolidated Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED JUNE 30,
MARCH 31
1997 1996 1996
------------ ------------ ------------------
(Unaudited)
<S> <C> <C> <C>
Net sales $ 1,463,467 $ 985,468 $ 876,803
Cost of goods sold 2,322,453 753,930 1,000,718
----------- ----------- ------------------
Gross margin (858,986) 231,538 (123,915)
Costs and expenses:
General and administrative 1,219,485 942,994 1,188,705
Sales and marketing 2,098,415 1,400,530 2,124,714
Research and development 137,818 259,475 315,632
----------- ----------- ------------------
3,455,718 2,602,999 3,629,051
Interest expense 77,580 71,864 80,935
Interest income and other (income) expense (22,469) (62,872) (83,813)
----------- ----------- ------------------
Net loss $(4,369,815) $(2,380,453) $ (3,750,088)
=========== =========== ==================
Net loss per common share $ (.32) $ (.29) $ (.41)
=========== =========== ==================
Weighted average number of common and
common equivalent shares outstanding 13,265,220 8,171,817 9,061,474
=========== =========== ==================
</TABLE>
See accompanying notes.
3
<PAGE> 27
The Sled Dogs Company
Consolidated Statement of Changes in Shareholders' Equity (Deficit)
<TABLE>
<CAPTION>
CONVERTIBLE
COMMON STOCK PREFERRED STOCK ADDITIONAL TOTAL
------------------------------------------ PAID-IN ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY (DEFICIT)
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 3,749,999 $ 37,500 - $ - $ 8,940,743 $ (6,454,864) $ 2,523,379
Common Stock issued in
private placement, net
of offering costs 8,000,000 80,000 - - 3,341,131 - 3,421,131
Expense related to
warrants issued in
connection with services
rendered - - - - 10,000 - 10,000
Net loss - - - - - (3,750,088) (3,750,088)
---------- -------- ------- ------------ ----------- ------------- ---------------
Balance at June 30, 1996 11,749,999 117,500 - - 12,291,874 (10,204,952) 2,204,422
Warrants exercised 1,763,194 17,632 - - 1,304,764 _ 1,322,396
Net loss - - - - - (4,369,815) (4,369,815)
---------- -------- ------- ------------ ----------- ------------- ---------------
Balance at March 31, 1997 13,513,193 $135,132 - $ - $13,596,638 $ (14,574,767) $ (842,997)
========== ======== ======= ============ =========== ============= ===============
</TABLE>
See accompanying notes.
4
<PAGE> 28
The Sled Dogs Company
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
MARCH 31 JUNE 30,
1997 1996 1996
------------- ------------ -------------
(Unaudited)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (4,369,815) $ (2,380,453) $ (3,750,088)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization 290,812 217,916 299,242
Non-cash expense related to warrants issued - 10,000 10,000
Loss on asset disposals 316,953 16,920 27,458
Changes in operating assets and liabilities:
Receivables 124,186 (270,305) (23,154)
Other receivables 34,402 - 24,221
Inventories (246,146) (123,351) 10,540
Prepaid expenses 145,329 (214,388) 119,677
Accounts payable 930,022 (76,012) 209,308
Other accrued expenses 404,274 (30,187) (35,667)
------------- ------------ -------------
Net cash used in operating activities (2,369,983) (2,849,860) (3,108,463)
INVESTING ACTIVITIES
Purchases of property and equipment (311,644) (201,388) (425,682)
Acquisition of patents and trademarks (27,446) (19,581) (27,747)
Proceeds from sale of property and equipment 2,867 32,000 32,800
------------- ------------ -------------
Net cash used in investing activities (336,223) (188,969) (420,629)
FINANCING ACTIVITIES
Net proceeds from sale of common stock 1,322,396 3,421,131 3,421,131
Net change in payable to banks 592,101 - 27,626
Issuance of convertible subordinated debt 150,000 - -
------------- ------------ -------------
Net cash provided by financing activities 2,064,497 3,421,131 3,448,757
------------- ------------ -------------
Net (decrease) increase in cash and cash equivalents (641,709) 382,302 (80,335)
Cash and cash equivalents at beginning of period 653,251 733,586 733,586
Cash and cash equivalents at end of period $ 11,542 $ 1,115,288 $ 653,251
============= ============ =============
Supplemental disclosures of cash flow information:
Cash paid for interest $ 77,580 $ 80,935
</TABLE>
5
See accompanying notes.
<PAGE> 29
The Sled Dogs Company
Notes to Consolidated Financial Statements
Nine Months ended March 31, 1997 and
the Year ended June 30, 1996
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND DESCRIPTION OF BUSINESS
The Company was incorporated in Colorado in 1991 as SnowRunner (USA), Inc. and
served as a general partner in a limited partnership that was engaged in the
distribution and marketing of SnowRunner snow skates. In July 1992, the limited
partnership was dissolved and all assets and liabilities of the limited
partnership were conveyed to the Company. The limited partners contributed
their partnership interests to the Company in exchange for voting common stock
of the Company. Following the restructuring, the name of the Company was
changed to SnowRunner (USA) Inc. In January 1994, the name was changed to
SnowRunner, Inc, and in November of 1994 the name was changed to The Sled Dogs
Company. The Company sells its products throughout the United States, Canada
and Japan.
CONSOLIDATION
The financial statements include the accounts of the Company and its
wholly-owned subsidiary, SnowRunner (Properties) Inc., which was established
and incorporated in April 1993. The subsidiary was inactive in fiscal 1997 and
1996.
FISCAL YEAR
In September 1996, the Company elected to change its fiscal year end from June
30 to March 31 effective March 31, 1997. The Company's consolidated financial
statements and notes thereto include the Company's results of operations and
cash flows for the nine month period from July 1, 1996 through March 31, 1997,
as well as the results of operations and cash flows based on the Company's
previous fiscal year ended June 30, 1996. All information related to the nine
month period from July 1, 1995 through March 31, 1996 is unaudited.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a maturity
of three months or less to be cash equivalents.
6
<PAGE> 30
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVENTORIES
Inventories consist exclusively of finished goods and are stated at the lower
of cost (first-in, first-out) or market. Included in the March 31, 1997 and
June 30, 1996 balances are $69,200 and $52,760, respectively, which represent
prepayments to a supplier for inventory for the upcoming winter season.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using a
straight-line method over the estimated useful lives of the assets which range
from three to six years. During fiscal 1997, the Company wrote down the
carrying value of molds used in the manufacturing process by $262,692.
INTANGIBLE ASSETS
Intangible assets (patents and organization costs) are stated at cost and are
amortized on a straight-line basis over 60 months. The carrying value of
intangible assets will be reviewed if the facts and circumstances suggest that
it may be impaired. If this review indicates that intangible assets will not be
recoverable, as determined based on the undiscounted cash flows over the
remaining amortization period, the Company's carrying value of the intangible
assets will be reduced by the estimated shortfall of cash flows.
INCOME TAXES
The Company accounts for income taxes using the liability method. Deferred
income taxes are provided for temporary differences between financial reporting
and tax bases of assets and liabilities.
NET LOSS PER SHARE
Net loss per common share for the nine months ended March 31, 1997 and the year
ended June 30, 1996 is based on the weighted average number of common shares
outstanding and does not include any common stock equivalents as they are
anti-dilutive.
7
<PAGE> 31
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising expenses
were approximately $836,949 and $568,300 in 1996, respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion No. 25 (APB 25)
and related interpretations in accounting for its plans. Under APB 25, when the
exercise price of employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
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 amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
2. GOING CONCERN
Net losses since the Company's inception have resulted in an accumulated
deficit balance of $14,574,767 at March 31, 1997. The Company's ability to
continue as a going concern and the realization of its assets and orderly
satisfaction of its liabilities are dependent on obtaining additional funds
from outside sources and generating sufficient working capital from operations.
8
<PAGE> 32
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
2. GOING CONCERN (CONTINUED)
Subsequent to March 31, 1997, the Company has raised an additional $512,500
through the sale of subordinated convertible debt in a private placement. The
Company believes it must secure significant additional capital to be able to
fund operations over the next 12 months. However, there can be no assurance
that the Company will be able to secure enough capital to ensure ongoing
operations.
3. COMMON STOCK
In November 1995, the Company sold 8,000,000 units (the "Units") in a private
placement, each Unit consisting of one share of common stock and one warrant to
purchase one share of common stock. The price per Unit was $.50. The Company
received net proceeds of $3,421,131 from the sale of the units.
The warrants issued are exercisable at $1.00 per share and expire November 1,
2000. They may be redeemed, at the option of the Company, upon notice, at the
price of $.01 per warrant, provided that the last sales price of the Company's
common stock has been at least $2.50 on each of the twenty consecutive trading
days ending on the third business day prior to the date on which notice of
redemption was given.
In July and August 1996, the Company received net proceeds of $1,322,396 from
the exercise of 1,763,194 outstanding warrants. These warrants were exercised
at a discount price of $.75 per share.
The Company also issued to the investment banking firm and certain individuals,
upon completion of the private placement, unit purchase options ("UPOs") to
purchase 890,000 Units at $.55. Each UPO consists of one share of common stock
and one warrant to purchase one share of common stock at $.75. Half of the UPOs
became exercisable on November 1, 1996, the other half are exercisable on
November 1, 1997. The UPOs expire November 1, 2000.
9
<PAGE> 33
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS AND WARRANTS
On July 25, 1992, the Company adopted the SnowRunner, Inc. Stock Option Plan
which was amended in October 1996 (the "Plan"). Under the Plan, the Company has
reserved 2,160,000 shares of common stock for issuance to key employees and
others as either incentive based options or non-qualified options. Under the
Plan, incentive stock options may be granted at prices not less than the fair
market value of the Company's common stock at the grant date. Non-qualified
options may be granted at prices less than the fair market value of the
Company's common stock. The options are outstanding for ten years following the
date of grant.
The following table summarizes the option transactions under the Plan for the
nine months ended March 31, 1997 and the year ended June 30, 1996:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
EXERCISE PRICE PER
INCENTIVE NON-QUALIFIED TOTAL SHARE
------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding as of June 30, 1995 507,059 55,000 562,059 $ 1.34
Granted 873,000 60,000 933,000 1.06
Canceled (47,000) - (47,000) 1.70
--------- ------------ ----------
Outstanding as of June 30, 1996 1,333,059 115,000 1,448,059 1.15
Granted 924,000 - 924,000 .51
Canceled (982,000) (23,750) (1,005,750) 1.13
--------- ------------ ----------
Outstanding as of March 31, 1997 1,275,059 91,250 1,366,309 $ .73
========= ============ ========== ====================
</TABLE>
As of March 31, 1997 there were 941,250 options outstanding with exercise
prices between $.30 and $.63, 326,059 options outstanding with exercise prices
between $1.00 and $1.69 and 75,000 options outstanding with exercise prices
between $1.88 and $2.69. At March 31, 1997 outstanding options had a
weighted-average remaining contractual life of 6 years.
The number of options exercisable as of March 31, 1997 was 1,180,726 at a
weighted average exercise price of $.69.
The weighted average fair value of options granted during the years ended March
31, 1997 and June 30, 1996 was $.32 and $.83 per share, respectively.
10
<PAGE> 34
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
PRO FORMA DISCLOSURES
Pro forma information regarding net loss and loss per share is required by
Statement 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a
Black-Scholes option pricing model with the following weighted-average
assumptions for 1997 and 1996, respectively: a risk-free interest rate of 6.2%;
no dividend yield; a volatility factor of the expected market price of the
Company's common stock of 1.16; and a weighted-average expected life of the
option of 5 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period. The Company's pro
forma information follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Pro forma net loss $(4,684,627) $(3,863,059)
Pro forma loss per share $ (.35) $ (.43)
</TABLE>
11
<PAGE> 35
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
The Company has also issued warrants in connection with loan agreements and
with debt and equity offerings to purchase shares of common stock. Warrant
activity is summarized as follows:
<TABLE>
<CAPTION>
WARRANTS OUTSTANDING AND PRICE PER EXPIRATION
EXERCISABLE SHARE DATE
-----------------------------------------------------
<S> <C> <C> <C>
Balance at June 30, 1995 685,000 $.30-$7.60 1999 - 2005
Warrants granted 8,000,000 1.00 2000
-------------------------
Balance at June 30, 1996 8,685,000 .30- 7.60 1999 - 2005
Warrants granted 60,000 .38- 1.00 2000 - 2001
Warrants exercised (1,763,194) .75
-------------------------
Balance at March 31, 1997 6,981,806 $ .30-$7.60 1999 - 2005
========================= ============ ===========
</TABLE>
5. INCOME TAXES
At March 31, 1997, the Company has accumulated a net operating loss of
approximately $12,807,000 which may be used to reduce future taxable income
through 2011. A valuation allowance has been recognized to completely reserve
for the deferred tax assets related to the loss carryforwards. The reserve has
been established because of the uncertainty of future taxable income which is
necessary in order to realize the benefits of the net operating loss
carryforwards.
The Company's ability to utilize these carryforwards to offset future taxable
income is subject to certain restrictions under Section 382 of the Internal
Revenue Code in the event of certain changes in the equity ownership of the
Company. The Company's initial public offering resulted in a change in equity
ownership under Section 382. The Company believes that the sale of common stock
in November 1995 will result in an additional ownership change under Section
382.
12
<PAGE> 36
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Components of the Company's
deferred tax assets are:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
---------------- ---------------
<S> <C> <C>
Deferred tax assets:
Allowances $ 365,000 $ 89,000
Net operating loss carryforward 4,675,000 3,405,000
--------------- ---------------
Total deferred tax assets 5,040,000 3,494,000
Less valuation allowance (5,040,000) (3,494,000)
--------------- ---------------
Net deferred tax assets $ - $ -
=============== ===============
</TABLE>
6. COMMITMENTS
The Company leases its office space under an operating lease that expires in
1999. The lease contains a renewal option for an additional three year period.
Operating expenses, including maintenance, utilities, real estate taxes and
insurance, are paid by the Company. Rent expense was $43,682 and 57,273 for the
nine months ended March 31, 1997 and the year ended June 30, 1996,
respectively.
Future minimum lease commitments as of March 31, 1997 are as follows:
<TABLE>
<S> <C>
1998 $ 32,851
1999 41,153
2000 3,487
---------
$ 77,491
=========
</TABLE>
13
<PAGE> 37
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
7. ACQUISITION OF INTELLECTUAL PROPERTY RIGHTS AND RELATED MANUFACTURING ASSETS
In September 1993, the Company acquired all the manufacturing assets and
intellectual property rights related to the SnowRunner snow skates for a net
consideration of 100,000 shares of the Company's common stock.
As additional consideration for the acquisition of the intellectual property
rights, the Company has an obligation to pay a royalty of $4.00 per pair of
snow skates sold. The royalties are payable annually on June 30 of each year.
The royalties cease automatically on the earlier of: (1) the date on which the
Company has paid an aggregate of $2,000,000 or (2) June 30, 2003.
In conjunction with the acquisition of all the manufacturing assets and
intellectual property rights, the Company entered into long-term agreements for
manufacturing and product development with DalBello. Both agreements have a
term of five years and may be terminated upon written notice. The manufacturing
agreement provides for certain rights of first refusal to DalBello but allows
the Company free access to other suppliers if arrangements acceptable to both
parties cannot be negotiated. In the event that the Company does purchase
products from other suppliers, the product development agreement provides for
royalty payments of not less than 2 percent or more than 5 percent to be made
to DalBello if such products utilize DalBello owned patents. After any
termination of this agreement, DalBello shall pay the Company a royalty of not
less than 2 percent or more than 5 percent of sales of products which utilize a
patent of the Company.
14
<PAGE> 38
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
8. LOAN AGREEMENTS
In June of 1995, the Company secured a $2,000,000 revolving line of credit with
a bank that was renewed in June of 1996 and expires in June of 1997. The line
bears an interest rate of prime plus 4% and is secured by accounts receivable,
inventories, equipment and general intangibles. At March 31, 1997 the Company
was in default of the minimum net worth covenant which increases the rate of
interest by 2%. The outstanding balance was $619,727 and $27,626 at March 31,
1997 and June 30, 1996, respectively. The Company has been informed by the bank
that the bank will not renew the line of credit on June 30, 1997. The Company
and the bank are currently working on a plan for repayment.
In March 1997, the Company borrowed a total of $150,000 under three convertible
subordinated debt notes with its Chairman. The convertible subordinated debt
bears interest at 12% per year and is due on March 31, 2000. The notes are
convertible into common stock at a conversion price of $.50 per share at any
time prior to the maturity of the notes. The notes will be automatically
converted into common stock in the event that the last sale price of the
Company's common stock has been at least
$2.00 for 20 consecutive trading days. In connection with the convertible
subordinated debt, the Company has granted the Chairman warrants to purchase
45,000 shares of common stock at an exercise price of $.375 per share. The
warrants expire on March 31, 2000.
Subsequent to year-end, the Company has borrowed an additional $100,000 from
the Chairman under convertible subordinated notes. The terms of these new notes
are identical to the terms described above. In addition, the Chairman was
granted warrants to purchase an additional 30,000 shares of common stock.
The Company's Board of Directors, in consideration for the Chairman loaning
$250,000 to the Company, has canceled the original warrants to purchase 75,000
shares of common stock and issued the Chairman warrants to purchase 250,000
shares of common stock at $.25 per share. These warrants expire on March 31,
2000. Also, the Company has entered into a $25,000 subordinated secured
promissory note with the Chairman. The note bears interest at 12% per year and
is due on July 15, 1997. The note is secured by the Company's assets.
15
<PAGE> 39
The Sled Dogs Company
Notes to Consolidated Financial Statements (continued)
8. LOAN AGREEMENTS (CONTINUED)
The $100,000 of convertible subordinated notes issued by the Company to the
Chairman subsequent to year-end have been exchanged for $100,000 of the
convertible subordinated notes being issued as part of a private placement. The
new convertible subordinated notes bear interest at 12% per year and are due
March 31, 2000. The notes are convertible into common stock at the rate of $.25
per share. In connection with the new convertible subordinated notes, the
Chairman received a warrant to purchase 50,000 shares of common stock at $.25
per share. The warrants expire March 31, 2000.
Also subsequent to year-end, the Company borrowed $125,000 from certain
individuals, including a member of the Board of Directors. The subordinated
secured promissory notes bear interest at 12% per year and are due on June 1,
1997. In connection with the notes, the Company has granted the individuals
warrants to purchase 125,000 shares of common stock at an exercise price of
$.25 per share. The warrants expire on March 31, 2000.
9. MAJOR CUSTOMER
During the nine months ended March 31, 1997, net sales from one customer
represented 18% of total net sales.
10. SUBSEQUENT EVENT
Subsequent to year-end, the Company announced that it had reached a settlement
agreement with a vendor. The settlement agreement calls for the Company to pay
the vendor amounts currently due the vendor totaling $410,655 plus interest at
a rate of 5% per year. The amount due the vendor has been personally guaranteed
by the Company's Chairman. In connection with this guarantee, the Company has
granted the Chairman a warrant to purchase 500,000 shares of common stock at
$.25 per share. The warrant expires on March 31, 2000.
16
<PAGE> 40
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
THE SLED DOGS COMPANY
EXHIBIT INDEX TO FORM 10-KSB
For the fiscal year Commission File Number 1-12850
ended March 31, 1997
<TABLE>
<CAPTION>
Exhibit Description Page Number
<S> <C> <C>
3.1 Restated Articles of Incorporation (Incorporated by reference to *
Exhibit 3.1 to Registration Statement on Form SB-2, Registration No.
33-74240C).
3.2 Restated Bylaws (Incorporated by reference to Exhibit 3.2 to *
Registration Statement on Form SB-2, Registration No. 33-74240C).
4.1 Specimen of Common Stock (Incorporated by reference to Exhibit 4.1 *
to Registration Statement on Form SB-2, Registration No. 33-74240C).
10.1 Contract of Sale between Hannes Jacob and Allrounder Idea *
Realization, S.A. and Snow Runner (Properties) Inc. dated September
3, 1993 (Incorporated by reference to Exhibit 10.1 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.2 Payment Agreement between Hannes Jacob and Allrounder Idea *
Realization, S.A. and Snow Runner (Properties) Inc. dated September
3, 1993 (Incorporated by reference to Exhibit 10.2 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.3 Termination and Release Agreement between Hannes Jacob and *
Allrounder Idea Realization, S.A. and Snow Runner (Properties) Inc.
dated September 3, 1993 (Incorporated by reference to Exhibit 10.3
to Registration Statement on Form SB-2, Registration No. 33-74240C).
10.4 Assignment, Bill of Sale and Agreement between DalBello Sport S.R.L. *
and Snow Runner (USA), Inc. effective September 3, 1993
(Incorporated by reference to Exhibit 10.4 to Registration Statement
on Form SB-2, Registration No. 33-74240C).
10.5 Product Manufacturing Agreement between Snow Runner (USA) Inc. and *
DalBello Sport S.R.L. effective September 3, 1993 (Incorporated by
reference to Exhibit 10.5 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
10.6 Product Development Agreement between Snow Runner (USA) Inc. and *
DalBello Sport S.R.L. effective September 3, 1993 (Incorporated by
reference to Exhibit 10.6 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.7 Termination and Release Agreement between DalBello Sport S.R.L. and *
Snow Runner (USA) Inc. effective September 3, 1993 (Incorporated by
reference to Exhibit 10.7 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.8 Termination and Release Agreement between DalBello Sport S.R.L. and *
Snow Runner (Properties) Inc. effective September 3, 1993
(Incorporated by reference to Exhibit 10.8 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.9 Inter-company Assignment and Bill of Sale between Snow Runner (USA) *
Inc. and Snow Runner (Properties) Inc. effective September 3, 1993
(Incorporated by reference to Exhibit 10.9 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.10 License Agreement between Snow Runner (Properties) Inc. and Snow *
Runner (USA) Inc. effective September 3, 1993 (Incorporated by
reference to Exhibit 10.10 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.11 License Agreement between Hannes Jacob and Allrounder Realization *
SA and Snow Runner (USA) Inc. dated June 26, 1992 (Incorporated by
reference to Exhibit 10.11 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.12 Amended and Restated Distribution Agreement between Snow Runner *
(USA) Inc. and DalBello Sport S.R.L. dated June 26, 1992
(Incorporated by reference to Exhibit 10.12 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.13 Stock Purchase Agreement between Snow Runner (USA) Inc. and *
HAIFinance Corp. dated July 25, 1992 (Incorporated by reference to
Exhibit 10.13 to Registration Statement on Form SB-2, Registration
No. 33-74240C).
10.14 Assignment and Assumption Agreement between Snow Runner (USA) Ltd. *
and Snow Runner Holdings, Inc. dated July 23, 1992 (Incorporated by
reference to Exhibit 10.14 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.15 SnowRunner, Inc. Stock Option Plan effective January 1994 *
(Incorporated by reference to Exhibit 10.15 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.16 Lease between the Company and Midtown Commons dated September 29, *
1993 (Incorporated by reference to Exhibit 10.16 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
10.17 Lease between the Company and McCann Developments dated September *
29, 1993 (Incorporated by reference to Exhibit 10.17 to
Registration Statement on Form SB-2, Registration No. 33-74240C).
10.18 Shareholder Agreement by and among Snow Runner (USA) Inc., Nigel *
Alexander, Steven Clarke, Harbour Settlement, HAIFinance Corp.
dated July 28, 1992 (Incorporated by reference to Exhibit 10.18 to
Registration Statement on Form SB-2, Registration No. 33-74240C).
10.19 Reorganization Agreement by and among Snow Runner (USA) Ltd., Snow *
Runner Holdings, Inc., Nigel Alexander, Steven Clarke and Harbour
Settlement dated July 23, 1992 (Incorporated by reference to
Exhibit 10.19 to Registration Statement on Form SB-2, Registration
No. 33-74240C).
10.20 Amendment to Limited Partnership Agreement by and among Snow Runner *
Holdings, Inc., Nigel Alexander, Steven Clarke and Harbour
Settlement dated July 23, 1992 (Incorporated by reference to
Exhibit 10.20 to Registration Statement on Form SB-2, Registration
No. 33-74240C).
10.21 Option Agreement by and between Nigel Alexander and Steven Clarke *
dated July 28, 1992 (Incorporated by reference to Exhibit 10.21 to
Registration Statement on Form SB-2, Registration No. 33-74240C).
10.22 Employment Agreement dated January 1, 1994 for John Sundet *
(Incorporated by reference to Exhibit 10.22 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.23 Employment Agreement dated January 1, 1994 for Nigel Alexander *
(Incorporated by reference to Exhibit 10.23 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.24 Employment Agreement dated January 1, 1994 for Mary Horwath *
(Incorporated by reference to Exhibit 10.24 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.25 Employment Agreement dated January 1, 1994 for Steven Clarke *
(Incorporated by reference to Exhibit 10.25 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
10.26 Loan Agreement by and between Snow Runner (USA), Inc. and *
HAIFinance Corp. dated January 7, 1994 (Incorporated by reference
to Exhibit 10.26 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.27 Term Note to HAIFinance Corp. dated January 7, 1994 (Incorporated *
by reference to Exhibit 10.27 to Registration Statement on Form
SB-2, Registration No. 33-74240C).
10.28 Existing Loans Note to HAIFinance Corp. dated January 7, 1994 *
(Incorporated by reference to Exhibit 10.28 to Registration
Statement on Form SB-2, Registration No. 33-74240C).
</TABLE>
<PAGE> 43
<TABLE>
<S> <C> <C>
10.29 Bridge Financing Agreement by and between Snow Runner (USA), Inc. *
and HAIFinance Corp. dated January 7, 1994, with Registration
Rights Agreement (Incorporated by reference to Exhibit 10.29 to
Registration Statement on Form SB-2, Registration No. 33-74240C).
10.30 Security Agreement dated January 7, 1994 made by Snow Runner (USA), *
Inc. to HAIFinance Corp. (Incorporated by reference to Exhibit
10.30 to Registration Statement on Form SB-2, Registration No.
33-74240C).
10.31 Subordinated Promissory Note dated September 16, 1993 to Seaton *
Place Nominees, Ltd. (Incorporated by reference to Exhibit 10.31 to
Registration Statement on Form SB-2, Registration No. 33-74240C).
10.32 Amended and Restated Shareholders Agreement dated January 7, 1994 *
by and among Snow Runner (USA) Inc., Nigel Alexander, Steven
Clarke, Harbour Settlement, HAIFinance Corp. (Incorporated by
reference to Exhibit 10.32 to Registration Statement on Form SB-2,
Registration No. 33-74240C).
10.33 Credit and Security Agreement dated June 30,1995 between the *
Company and Norwest Credit, Inc.
10.34 Revolving Note for $2,000,000 dated June 30, 1995 between the *
Company and Norwest Credit, Inc.
10.35 Patent and Trademark Security Agreement dated June 30, 1995 between *
the Company and Norwest Credit, Inc.
10.36 Consulting Agreement with Douglas Ellenoff dated January 1, 1995. *
10.37 Consulting Agreement with Stephen C. Martin dated January 1, 1995. *
10.38 Market Representative Agreement, dated July 24, 1996, between the *
Company and Japan Business Link, Inc.
10.39 Agency Services Agreement, dated July 26, 1996, between the Company *
and Williams Television Time, Inc.
10.40 Telesales Service Agreement, dated August 12, 1996, between the *
Company and Icon Health & Fitness, Inc.
10.41 Agreement, dated September 18, 1996, between the Company and *
Distribution Systems and Services Corporation
10.42 Employment Agreement dated April 1, 1997 for Michael Wise
10.43 Employment Agreement dated April 1, 1997 for Kent Rodriguez
10.44 Resignation Agreement dated February 26, 1997 for Mary Horwath
10.45 Resignation Agreement dated February 28, 1997 for John Sundet
10.46 Form of Note used in the Company's Private Loan Unit Offering
</TABLE>
<PAGE> 44
10.47 Form of Warrant used in the Company's Private Loan Unit Offering
10.48 Form of Security Agreement used in the Company's Private Loan
Unit Offering
21 List of Subsidiaries (Incorporated by reference *
to Exhibit 21 to Registration Statement on Form
SB-2, Registration No. 33-74240C).
23.2 Consent of Ernst & Young LLP
------------------
* Incorporated by reference to a previously filed exhibit or report.
<PAGE> 1
EXHIBIT 10.42
THE SLED DOGS COMPANY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into effective as of
April 1, 1997, by and between Michael P. Wise (hereinafter referred to as
"Employee") and Sled Dogs Company, a Colorado corporation (hereinafter referred
to as the "Company").
RECITALS
A. The Company is duly organized and operated under the laws of the State
of Colorado and is engaged in the business of the manufacture, marketing and
sale of a snowskate marketed and sold under the trademark "Sled Dogs."
B. Employee is currently employed by the Company and performs the duties
and responsibilities described herein.
C. The Company desires to continue the retention of Employee for the
position and to perform the duties and responsibilities described herein.
D. The parties desire to evidence the existing employment arrangement of
Employee and to enter into certain additional agreements as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties hereto and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
1. Employment. The Company hereby continues the employment of Employee,
and Employee hereby accepts such continued employment from the Company, upon
the terms and conditions set forth in this Agreement. Employee agrees to devote
all time necessary to such employment as the Company shall direct. Such
employment shall be on a full-time basis and Employee shall not engage in any
other activities which materially interfere with Employee's performance of the
duties and responsibilities of Employee's position with the Company under this
Agreement.
2. Term. The employment of the Employee shall continue until December 31,
1997 (the "Term") unless earlier terminated pursuant to paragraph 11 hereof.
Upon the expiration of the Term of Employee's employment hereunder and on each
anniversary of such expiration, the term of employment of Employee shall
automatically renew for successive terms of one year each unless either party
has given the other written notice of nonrenewal as provided in paragraph 11 or
unless earlier terminated pursuant to paragraph 11.
<PAGE> 2
3. Compensation.
(a) Base Salary. For all services rendered by Employee under this
Agreement, the Company shall pay Employee an annual base salary, determined on
a calendar year basis ("Base Salary"), to be determined from time to time by
the Board of Directors. The initial Base Salary of Employee shall be the amount
set forth on Exhibit A hereto. The Base Salary shall be payable in accordance
with the payroll procedures of the Company then in effect, subject to normal
and customary withholding. The Base Salary may be adjusted from time to time by
the Board of Directors on the basis of the value of Employee's services to the
Company and for unusual absences because of illness or accident or leaves of
absence.
(b) Bonuses. In addition to the Base Salary, Employee shall be entitled to
receive such bonus compensation as may be determined to be payable by the Board
of Directors of the Company from time to time in the exercise of its sole
discretion.
4. Employee's Position and Duties. Employee shall be employed on behalf of
the Company with the title and duties set forth on Exhibit A hereto. Subject to
paragraph 1 hereof, Employee shall devote his full business time and attention
to the business of the Company and to the furtherance of the Company's best
interests. Employee further agrees that he will perform such acts and duties
as the Company may assign to him in the Company's discretion; provided,
however, that notwithstanding anything contained in this Agreement to the
contrary, in no event shall Employee be required to perform any duties which
are unlawful. Employee agrees that he will at all times faithfully,
industriously, and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him pursuant to the express
and implicit terms hereof, to the reasonable satisfaction of the Company.
5. Working Facilities. The Company shall furnish Employee with a private
office, secretarial assistance, and such other facilities and services as are
considered customary, consistent with his position and adequate for the proper
performance of his duties.
6. Benefits.
(a) General. Employee shall receive all of the customary benefits as
offered to employees of the Company generally from time to time. The cost of
such benefits shall be borne by the Company unless otherwise determined by the
Board of Directors. Employee shall be entitled to receive such additional
benefits not available generally to employees of the Company as may from time
to time be determined by the Board of Directors.
(b) Insurance. The Company shall provide to Employee and dependents of
Employee at the expense of the Company major medical, hospital, surgical and
dental and long-term disability benefits and insurance.
2
<PAGE> 3
7. Non-Liability of the Company. All matters of eligibility for coverage
or benefits under any plan or plans of health, hospitalization, life or other
insurance shall be determined in accordance with the provisions of such
insurance policies. The Company shall not be liable to the Employee, his
family, heirs, executors, personal representatives or beneficiaries, for any
payment payable or claimed to be payable under any plan of insurance or benefit
plan.
8. Expenses. In the event that Employee incurs any expenses in the
performance of the duties on behalf of the Company, the Company shall reimburse
Employee for such expenses in accordance with its customary reimbursement
policies and procedures in effect from time to time.
9. Vacations. Employee shall be entitled each calendar year to three weeks
of vacation time, provided that such Employee shall arrange any vacations to
avoid seriously interfering with the business of the Company.
10. Leaves of Absence. The Company may, from time to time, approve leaves
of absence with full or partial payment of salary and/or expenses for other
purposes in the sole and absolute discretion of the Board of Directors.
11. Termination. The employment of Employee hereunder may be terminated as
follows:
(a) Upon expiration of the Term of Employee's employment hereunder and
each anniversary thereof, the term of employment of Employee shall
automatically renew for successive terms of one year each unless either party
has given the other written notice of nonrenewal not fewer than 30 days prior
to any such date.
(b) By the Company without cause, for any reason or no reason, provided
that Employee shall receive notice of such termination and severance payments
equaling six months in the aggregate as provided in paragraph 12 below.
(c) Automatically upon death of Employee; or
(d) Automatically upon disability of Employee (as defined in and
determined under paragraph 11(f) hereof; or
(e) Immediately by the Company for "cause" upon written notice by the
Company to Employee. For purposes of this Agreement, "cause" shall mean:
(i) Failure to Comply with Policies. The willful and continual
failure or refusal by Employee to comply with the policies, standards and
regulations of the Company as established from time to time by the Board of
Directors of the Company, after a written demand for compliance is delivered to
Employee that specifically identifies the manner in which the Company believes
that Employee is not complying, and Employee has failed to
3
<PAGE> 4
commence or resume compliance on a continuous basis within seven (7) days of
receiving the demand; or
(ii) Injurious Conduct. Willfully engaging in conduct which is
demonstrably and materially injurious to the financial condition or business
reputation of the Company; or
(iii) Failure to Perform. The willful and continual failure or
refusal by Employee to substantially perform his duties hereunder (other than
any such failure resulting from his disability), after a written demand for
substantial performance is delivered to Employee that specifically identifies
the manner in which the Company believes that Employee has not substantially
performed his duties, and Employee has failed to resume substantial performance
of his duties on a continuous basis within twenty (20) days of receiving such
demand.
(f) Determination of Disability. Employee shall be deemed to be
disabled for purposes of this Agreement on such date as: (i) Employee is
eligible for and receiving disability benefits under any disability insurance
policy; (ii) Employee is eligible for and receiving disability benefits under
the Social Security Act; or (iii) the Company, in the sole and absolute
discretion of the Board of Directors of the Company, determines that Employee is
disabled (for this purpose, the Company may rely on the opinion of one or more
licensed physicians).
12. Obligation of the Company Upon Termination of Employment.
(a) Termination Upon Notice of Nonrenewal or Without Cause by the
Company. If the Company at any time gives a notice of nonrenewal or terminates
the employment of Employee without cause under paragraph 11 hereof, the Company
shall be obligated to continue the Base Salary and benefits of Employee then in
effect for a period of six months or such lesser time as is the difference
between the time period of any notice given to Employee and twelve months (e.g.,
if the Company gives Employee 2 months notice of such termination, the Company
is obligated to continue Employee's Base Salary and benefits for a period of 4
months following termination of employment).
(b) Termination Upon Notice By Employee. Upon termination of
employment by Employee by notice of nonrenewal under paragraph 11(a) or
otherwise, the Company shall be obligated to pay Employee the Base Salary and
benefits then in effect through the effective date of termination (determined on
a prorated annual basis).
(c) Termination Under Death. If employment of Employee is terminated
upon death of Employee under paragraph 11(c) hereof, the Company shall be
obligated to pay to the estate of Employee the unpaid Base Salary up to and
including the date of death.
4
<PAGE> 5
(d) Termination Upon Disability. If the employment of Employee is
terminated upon disability of Employee under paragraph 11(d) hereof, the Company
shall be obligated to pay Employee the Base Salary and benefits then in effect
through the date of determination of disability.
(e) Termination for Cause. Upon termination of employment of Employee
under paragraph 11(e) hereof, the Company shall be obligated to pay Employee his
Base Salary and benefits then in effect through the date of termination.
(f) COBRA. Notwithstanding a provision herein to the contrary,
continuation of medical benefits will be offered to Employee by the Company
beyond the date of termination of employment as required by The Consolidated
Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"). The Company
will continue to contribute funds toward the cost of benefits at the same level
as provided other employees who are currently employed by the Company for the
same benefits through any mandatory continuation of coverage period as required
by COBRA.
13. Restrictive Covenants.
(a) In consideration of the severance payments granted to Employee
under paragraph 12(a) hereof (which were unavailable to Employee prior to the
date hereof), and the benefits granted to Employee pursuant to Section 14
hereof, during the term of his employment by the Company hereunder, Employee
shall not, without the prior written consent of the Company, engage, as a
proprietor, partner, employee, officer or holder of a five percent (5%) or
greater equity interest, in any business or in any activities in competition
with the business of the Company. The foregoing covenant not to compete shall
also apply following termination of Employee's employment by the Company
hereunder until a date twelve (12) months after such termination, insofar as
such activities of Employee may during such period relate to the business of the
Company as of the date of termination of employment. Employee expressly agrees
and acknowledges that the covenant not to compete is reasonable both as to time
and to area and is necessary for the Company's protection because of the nature
and scope of the business of the Company and of Employee's employment with the
Company. Employee also expressly agrees and acknowledges that any breach of the
covenant not to compete contained herein would injure the Company irreparably
and therefore the Company may, in addition to pursuing any and all remedies
provided by law, obtain an injunction against Employee restraining any violation
of the covenant not to compete. The period, the area and the scope of the
restrictions on Employee's activities are divisible so that if any provision of
the restriction is invalid, that provision shall be automatically modified to
the extent necessary to make it valid.
(b) For a period of twelve (12) months after termination of his
employment with the Company for any reason, neither Employee nor any business of
which he is a proprietor, partner, principal officer or significant equity owner
shall employ any person who possesses confidential or proprietary business,
technical or customer information of the
5
<PAGE> 6
Company or any of its subsidiaries, and who is presently an employee or becomes
an employee of the Company or any of its subsidiaries while Employee is so
employed, without the written consent of the Company, which shall not be
unreasonably withheld; and during such period Employee will refrain from any
action intended to influence or result in the employment of any such persons by
any business with which Employee is otherwise employed, affiliated or has an
ownership interest.
14. Stock Options. Employee has been granted certain stock options from
the Company, which stock options were scheduled to vest on the date(s) specified
in the agreements granting said options (the "Option Agreements"). The Option
Agreements are hereby modified as follows:
(a) Accelerated Vesting. The rights granted in the Option Agreements
will fully vest on the earlier of (a) six-months from the date of this
Agreement, or (b) the scheduled maturity date.
(b) Exercise Price. The Option Agreements are hereby amended to
provide for an exercise price of twenty-five cents ($0.25) per share.
15. Corporate Property/Confidentiality. Regardless of the circumstances of
the termination of employment, Employee shall not communicate to any person,
firm or corporation any confidential knowledge or trade secrets which he might
from time to time acquire with respect to the business of the Company. Upon
termination of employment, Employee shall not remove any files, documents, or
any other property of the Company relating to the business of the Company from
the Company's place of business.
16. Violations. In the event of the violation or anticipated violation of
this Agreement by Employee, the Company may, in addition to other remedies
available to it, obtain an injunction to prohibit such violation. The dispute
may be judicially determined; or in the alternative, if both parties agree, the
matter may be submitted to arbitration (and if so submitted such arbitration
shall be binding and non-appealable) pursuant to the rules of the American
Arbitration Association, provided that such arbitration shall not restrict the
Company's right to obtain an injunction or continue an injunction previously
obtained. The parties hereto acknowledge and agree that an injunction is a
proper, but not exclusive, remedy available to the Company, and that the harm
from any violation of the covenants set forth herein would be irreparable and
immediate.
17. Relationship of Parties. The relationship between the Company and
Employee is that of an employer and employee.
18. No Vested Interests. Nothing herein contained shall be construed to
give Employee any interest in the tangible or intangible assets of the Company
or any ownership interest or right to receive any ownership interest in the
Company.
6
<PAGE> 7
19. Communication to the Company. From the time this Agreement commences
until the termination hereof, Employee shall communicate and channel to the
Company all knowledge regarding business opportunities which could concern or
be in any way beneficial to the business of the Company, whether acquired by
Employee before or during the term of this Agreement; provided, however, that
nothing hereunder shall be construed as requiring such communications where the
information is lawfully protected from disclosure. Any such information
communicated to the Company shall be and remain the property of the Company,
notwithstanding subsequent termination of this Agreement.
20. Notices. Any notices required or permitted to be given under this
Agreement shall be sufficient if in writing and if delivered personally or sent
by registered or certified mail to the residence of Employee as shown on the
books and records of the Company or to the principal office of the Company, as
the case may be.
21. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements.
22. Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible
under the laws and the applicable public policies of the State of Minnesota.
Accordingly, the terms of this Agreement are determined to be severable, and if
any particular portion shall be adjudicated or determined to be invalid or
unenforceable, such determination shall only apply to that portion of the
Agreement and the remaining portion of the Agreement shall nevertheless be
enforceable to the fullest extent permissible under the laws and public
policies applying thereto.
23. Notification of Contract. No waiver of any breach or violation hereof
shall be implied from forbearance or failure by any party to take action
thereon. No waiver or modification of this Agreement or any covenant, condition
or limitation herein contained shall be valid unless in writing and duly
executed by the party to be charged therewith.
24. Choice of Law. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder should be construed in accordance with, under and pursuant to the
laws of the State of Minnesota, and that any action, special proceeding or
other proceeding that may be brought arising out of, in connection with or by
reason of this Agreement, the laws of the State of Minnesota shall be
applicable and shall govern to the exclusion of the laws of any other forum,
without regard to the jurisdiction in which any action or special proceeding
may be instituted. Further, the parties hereby agree that the venue for any
action brought by either party against the other shall be in the District Court
in and for the City and County of Ramsey, or other court of competent
jurisdiction, and any other venue is hereby waived. The prevailing party to any
dispute arising out of this Agreement shall be entitled to recover from the
non-prevailing party all reasonable attorneys' fees and costs connected with
such action.
7
<PAGE> 8
25. Inurement. This Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns. The rights and benefits of
Employee under this Agreement are personal to him and no such right or benefit
shall be subject to voluntary or involuntary alienation, assignment or
transfer, except as otherwise provided.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the date set forth below effective as of the day and year first above
written.
"THE COMPANY"
THE SLED DOGS COMPANY,
a Colorado corporation
By: ______________________________________
Title: _______________________________
Date: ____________________________________
"EMPLOYEE"
_________________________________________
Michael P. Wise
Date:_____________________________________
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EXHIBIT A
TITLE, DUTIES AND BASE SALARY OF EMPLOYEE
TITLE: Chief Financial Officer; Treasurer; Secretary
DUTIES: Employee shall be principally responsible for, and shall
undertake the duties incident to, the supervision of the
Company's finance, administration, production planning,
purchasing and distribution, subject to the direction and control
of the Company's Chairman of the Board and/or Chief Executive
Officer and to the modification from time to time of such duties
and responsibilities by the Company's Chief Executive Officer
and/or Board of Directors.
BASE SALARY: $75,000 until April 1, 1997, then $84,000
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EXHIBIT 10.43
THE SLED DOGS COMPANY
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is entered into effective as of
April 1, 1997, by and between Kent Rodriguez (hereinafter referred to as
"Employee") and Sled Dogs Company, a Colorado corporation (hereinafter referred
to as the "Company").
RECITALS
A. The Company is duly organized and operated under the laws of the State
of Colorado and is engaged in the business of the manufacture, marketing and
sale of a snowskate marketed and sold under the trademark "Sled Dogs."
B. Employee is currently employed by the Company and performs the duties
and responsibilities described herein.
C. The Company desires to continue the retention of Employee for the
position and to perform the duties and responsibilities described herein.
D. The parties desire to evidence the existing employment arrangement of
Employee and to enter into certain additional agreements as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and covenants of
the parties hereto and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties, intending to be
legally bound, agree as follows:
1. Employment. The Company hereby continues the employment of Employee,
and Employee hereby accepts such continued employment from the Company, upon
the terms and conditions set forth in this Agreement. Employee agrees to devote
all time necessary to such employment as the Company shall direct. Such
employment shall be on a full-time basis and Employee shall not engage in any
other activities which materially interfere with Employee's performance of the
duties and responsibilities of Employee's position with the Company under this
Agreement.
2. Term. The employment of the Employee shall continue until March 31,
1998 (the "Initial Term") unless earlier terminated pursuant to paragraph 11
hereof. Upon the expiration of the Initial Term of Employee's employment
hereunder and on each anniversary of such expiration, the term of employment of
Employee shall automatically renew for successive terms of one year each unless
either party has given the other written notice of nonrenewal as provided in
paragraph 11 or unless earlier terminated pursuant to paragraph 11.
<PAGE> 2
3. Compensation.
(a) Base Salary. For all services rendered by Employee under this
Agreement, the Company shall pay Employee an annual base salary, determined on a
calendar year basis ("Base Salary"), to be determined from time to time by the
Board of Directors. The initial Base Salary of Employee shall be the amount set
forth on Exhibit A hereto. The Base Salary shall be payable in accordance with
the payroll procedures of the Company then in effect, subject to normal and
customary withholding. The Base Salary may be adjusted from time to time by the
Board of Directors on the basis of the value of Employee's services to the
Company and for unusual absences because of illness or accident or leaves of
absence.
(b) Bonuses. In addition to the Base Salary, Employee shall be
entitled to receive such bonus compensation as may be determined to be payable
by the Board of Directors of the Company from time to time in the exercise of
its sole discretion.
4. Employee's Position and Duties. Employee shall be employed on behalf
of the Company with the title and duties set forth on Exhibit A hereto. Subject
to paragraph 1 hereof, Employee shall devote his full business time and
attention to the business of the Company and to the furtherance of the Company's
best interests. Employee further agrees that he will perform such acts and
duties as the Company may assign to him in the Company's discretion; provided,
however, that notwithstanding anything contained in this Agreement to the
contrary, in no event shall Employee be required to perform any duties which are
unlawful. Employee agrees that he will at all times faithfully, industriously,
and to the best of his ability, experience and talents, perform all of the
duties that may be required of and from him pursuant to the express and implicit
terms hereof, to the reasonable satisfaction of the Company.
5. Working Facilities. The Company shall furnish Employee with a private
office, secretarial assistance, and such other facilities and services as are
considered customary, consistent with his position and adequate for the proper
performance of his duties.
6. Benefits.
(a) General. Employee shall receive all of the customary benefits as
offered to employees of the Company generally from time to time. The cost of
such benefits shall be borne by the Company unless otherwise determined by the
Board of Directors. Employee shall be entitled to receive such additional
benefits not available generally to employees of the Company as may from time to
time be determined by the Board of Directors.
(b) Insurance. The Company shall provide to Employee and dependents of
Employee at the expense of the Company major medical, hospital, surgical and
dental and long-term disability benefits and insurance.
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<PAGE> 3
7. Non-Liability of the Company. All matters of eligibility for coverage or
benefits under any plan or plans of health, hospitalization, life or other
insurance shall be determined in accordance with the provisions of such
insurance policies. The Company shall not be liable to the Employee, his family,
heirs, executors, personal representatives or beneficiaries, for any payment
payable or claimed to be payable under any plan of insurance or benefit plan.
8. Expenses. In the event that Employee incurs any expenses in the
performance of the duties on behalf of the Company, the Company shall reimburse
Employee for such expenses in accordance with its customary reimbursement
policies and procedures in effect from time to time.
9. Vacations. Employee shall be entitled each calendar year to four weeks
of vacation time, provided that such Employee shall arrange any vacations to
avoid seriously interfering with the business of the Company.
10. Leaves of Absence. The Company may, from time to time, approve leaves
of absence with full or partial payment of salary and/or expenses for other
purposes in the sole and absolute discretion of the Board of Directors.
11. Termination. The employment of Employee hereunder may be terminated as
follows:
(a) Upon expiration of the Initial Term of Employee's employment
hereunder and each anniversary thereof, the term of employment of Employee shall
automatically renew for successive terms of one year each unless either party
has given the other written notice of nonrenewal not fewer than 30 days prior to
any such date.
(b) By the Company without cause, for any reason or no reason, provided
that Employee shall receive notice of such termination and severance payments
equaling six months in the aggregate as provided in paragraph 12 below.
(c) Automatically upon death of Employee; or
(d) Automatically upon disability of Employee (as defined in and
determined under paragraph 11(f) hereof; or
(e) Immediately by the Company for "cause" upon written notice by the
Company to Employee. For purposes of this Agreement, "cause" shall mean:
(i) Failure to Comply with Policies. The willful and continual
failure or refusal by Employee to comply with the policies, standards and
regulations of the Company as established from time to time by the Board of
Directors of the Company, after a written demand for compliance is delivered to
Employee that specifically identifies the manner in which the Company believes
that Employee is not complying, and Employee has failed to
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<PAGE> 4
commence or resume compliance on a continuous basis within seven (7) days of
receiving the demand; or
(ii) Injurious Conduct. Willfully engaging in conduct which is
demonstrably and materially injurious to the financial condition or business
reputation of the Company; or
(iii) Failure to Perform. The willful and continual failure or
refusal by Employee to substantially perform his duties hereunder (other than
any such failure resulting from his disability), after a written demand for
substantial performance is delivered to Employee that specifically identifies
the manner in which the Company believes that Employee has not substantially
performed his duties, and Employee has failed to resume substantial performance
of his duties on a continuous basis within twenty (20) days of receiving such
demand.
(f) Determination of Disability. Employee shall be deemed to be
disabled for purposes of this Agreement on such date as: (i) Employee is
eligible for and receiving disability benefits under any disability insurance
policy; (ii) Employee is eligible for and receiving disability benefits under
the Social Security Act; or (iii) the Company, in the sole and absolute
discretion of the Board of Directors of the Company, determines that Employee is
disabled (for this purpose, the Company may rely on the opinion of one or more
licensed physicians).
12. Obligation of the Company Upon Termination of Employment.
(a) Termination Upon Notice of Nonrenewal or Without Cause by the
Company. If the Company at any time gives a notice of nonrenewal or terminates
the employment of Employee without cause under paragraph 11 hereof, the Company
shall be obligated to continue the Base Salary and benefits of Employee then in
effect for a period of three months or such lesser time as is the difference
between the time period of any notice given to Employee and twelve months (e.g.,
if the Company gives Employee 2 months notice of such termination, the Company
is obligated to continue Employee's Base Salary and benefits for a period of 1
month following termination of employment).
(b) Termination Upon Notice By Employee. Upon termination of
employment by Employee by notice of nonrenewal under paragraph 11(a) or
otherwise, the Company shall be obligated to pay Employee the Base Salary and
benefits then in effect through the effective date of termination (determined on
a prorated annual basis).
(c) Termination Under Death. If employment of Employee is terminated
upon death of Employee under paragraph 11(c) hereof, the Company shall be
obligated to pay to the estate of Employee the unpaid Base Salary up to and
including the date of death.
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<PAGE> 5
(d) Termination Upon Disability. If the employment of Employee is
terminated upon disability of Employee under paragraph 11(d) hereof, the Company
shall be obligated to pay Employee the Base Salary and benefits then in effect
through the date of determination of disability.
(e) Termination for Cause. Upon termination of employment of Employee
under paragraph 11(e) hereof, the Company shall be obligated to pay Employee his
Base Salary and benefits then in effect through the date of termination.
(f) COBRA. Notwithstanding a provision herein to the contrary,
continuation of medical benefits will be offered to Employee by the Company
beyond the date of termination of employment as required by The Consolidated
Omnibus Budget Reconciliation Act of 1986, as amended ("COBRA"). The Company
will continue to contribute funds toward the cost of benefits at the same level
as provided other employees who are currently employed by the Company for the
same benefits through any mandatory continuation of coverage period as required
by COBRA.
13. Restrictive Covenants.
(a) In consideration of the severance payments granted to Employee
under paragraph 12(a) hereof (which were unavailable to Employee prior to the
date hereof), and the benefits granted to Employee pursuant to Section 14
hereof, during the term of his employment by the Company hereunder, Employee
shall not, without the prior written consent of the Company, engage, as a
proprietor, partner, employee, officer or holder of a five percent (5%) or
greater equity interest, in any business or in any activities in competition
with the business of the Company. The foregoing covenant not to compete shall
also apply following termination of Employee's employment by the Company
hereunder until a date twelve (12) months after such termination, insofar as
such activities of Employee may during such period relate to the business of the
Company as of the date of termination of employment. Employee expressly agrees
and acknowledges that the covenant not to compete is reasonable both as to time
and to area and is necessary for the Company's protection because of the nature
and scope of the business of the Company and of Employee's employment with the
Company. Employee also expressly agrees and acknowledges that any breach of the
covenant not to compete contained herein would injure the Company irreparably
and therefore the Company may, in addition to pursuing any and all remedies
provided by law, obtain an injunction against Employee restraining any violation
of the covenant not to compete. The period, the area and the scope of the
restrictions on Employee's activities are divisible so that if any provision of
the restriction is invalid, that provision shall be automatically modified to
the extent necessary to make it valid.
(b) For a period of twelve (12) months after termination of his
employment with the Company for any reason, neither Employee nor any business of
which he is a proprietor, partner, principal officer or significant equity owner
shall employ any person who possesses confidential or proprietary business,
technical or customer information of the
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<PAGE> 6
Company or any of its subsidiaries, and who is presently an employee or becomes
an employee of the Company or any of its subsidiaries while Employee is so
employed, without the written consent of the Company, which shall not be
unreasonably withheld; and during such period Employee will refrain from any
action intended to influence or result in the employment of any such persons by
any business with which Employee is otherwise employed, affiliated or has an
ownership interest.
14. Stock Options. Employee has been granted certain stock options from
the Company, which stock options were scheduled to vest on the date(s) specified
in the agreements granting said options (the "Option Agreements"). The Option
Agreements are hereby modified as follows:
(a) Accelerated Vesting. The rights granted in the Option Agreements
will fully vest on the earlier of (a) six-months from the date of this
Agreement, or (b) the scheduled maturity date.
(b) Exercise Price. The Option Agreements are hereby amended to
provide for an exercise price of twenty-five cents ($0.25) per share.
15. Corporate Property/Confidentiality. Regardless of the circumstances of
the termination of employment, Employee shall not communicate to any person,
firm or corporation any confidential knowledge or trade secrets which he might
from time to time acquire with respect to the business of the Company. Upon
termination of employment, Employee shall not remove any files, documents, or
any other property of the Company relating to the business of the Company from
the Company's place of business.
16. Violations. In the event of the violation or anticipated violation of
this Agreement by Employee, the Company may, in addition to other remedies
available to it, obtain an injunction to prohibit such violation. The dispute
may be judicially determined; or in the alternative, if both parties agree, the
matter may be submitted to arbitration (and if so submitted such arbitration
shall be binding and non-appealable) pursuant to the rules of the American
Arbitration Association, provided that such arbitration shall not restrict the
Company's right to obtain an injunction or continue an injunction previously
obtained. The parties hereto acknowledge and agree that an injunction is a
proper, but not exclusive, remedy available to the Company, and that the harm
from any violation of the covenants set forth herein would be irreparable and
immediate.
17. Relationship of Parties. The relationship between the Company and
Employee is that of an employer and employee.
18. No Vested Interests. Nothing herein contained shall be construed to
give Employee any interest in the tangible or intangible assets of the Company
or any ownership interest or right to receive any ownership interest in the
Company.
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<PAGE> 7
19. Communication to the Company. From the time this Agreement commences
until the termination hereof, Employee shall communicate and channel to the
Company all knowledge regarding business opportunities which could concern or
be in any way beneficial to the business of the Company, whether acquired by
Employee before or during the term of this Agreement; provided, however, that
nothing hereunder shall be construed as requiring such communications where the
information is lawfully protected from disclosure. Any such information
communicated to the Company shall be and remain the property of the Company,
notwithstanding subsequent termination of this Agreement.
20. Notices. Any notices required or permitted to be given under this
Agreement shall be sufficient if in writing and if delivered personally or sent
by registered or certified mail to the residence of Employee as shown on the
books and records of the Company or to the principal office of the Company, as
the case may be.
21. Entire Agreement. This Agreement contains the entire agreement of the
parties with respect to the subject matter hereof and supersedes all prior
agreements.
22. Severability. It is the desire and intent of the parties that the
provisions of this Agreement be enforced to the fullest extent permissible
under the laws and the applicable public policies of the State of Minnesota.
Accordingly, the terms of this Agreement are determined to be severable, and if
any particular portion shall be adjudicated or determined to be invalid or
unenforceable, such determination shall only apply to that portion of the
Agreement and the remaining portion of the Agreement shall nevertheless be
enforceable to the fullest extent permissible under the laws and public
policies applying thereto.
23. Notification of Contract. No waiver of any breach or violation hereof
shall be implied from forbearance or failure by any party to take action
thereon. No waiver or modification of this Agreement or any covenant, condition
or limitation herein contained shall be valid unless in writing and duly
executed by the party to be charged therewith.
24. Choice of Law. It is the intention of the parties hereto that this
Agreement and the performance hereunder and all suits and special proceedings
hereunder should be construed in accordance with, under and pursuant to the
laws of the State of Minnesota, and that any action, special proceeding or
other proceeding that may be brought arising out of, in connection with or by
reason of this Agreement, the laws of the State of Minnesota shall be
applicable and shall govern to the exclusion of the laws of any other forum,
without regard to the jurisdiction in which any action or special proceeding
may be instituted. Further, the parties hereby agree that the venue for any
action brought by either party against the other shall be in the District Court
in and for the City and County of Ramsey, or other court of competent
jurisdiction, and any other venue is hereby waived. The prevailing party to any
dispute arising out of this Agreement shall be entitled to recover from the
non-prevailing party all reasonable attorneys' fees and costs connected with
such action.
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25. Inurement. This Agreement shall inure to the benefit of and be binding
upon the Company, its successors and assigns. The rights and benefits of
Employee under this Agreement are personal to him and no such right or benefit
shall be subject to voluntary or involuntary alienation, assignment or
transfer, except as otherwise provided.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the date set forth below effective as of the day and year first above
written.
"THE COMPANY"
THE SLED DOGS COMPANY,
a Colorado corporation
By: ______________________________________
Title: __________________________________
Date: ____________________________________
"EMPLOYEE"
_________________________________________
Kent Rodriguez
Date:_____________________________________
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<PAGE> 1
EXHIBIT 10.44
RESIGNATION AGREEMENT
This Agreement is made this 26th day of February, 1997, by and between The Sled
Dogs Company, a Colorado corporation (the "Company"), and Mary L. Horwath
("Horwath").
WITNESSETH
WHEREAS, Horwath is serving as the Chief Operating Officer of the Company
and as a Director of the Company; and
WHEREAS, Horwath has decided to resign as an Officer and Director of the
Company; and
WHEREAS, the Company and Horwath desire to resolve any possible or
potential issues in dispute between them in connection with Horwath's
resignation; and
WHEREAS, the Company and Horwath desire to set forth their agreement with
respect to certain matters in connection with Horwath's resignation;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained in this Agreement, the Company and Horwath hereby agree
as follows:
1. Resignation. Effective on the opening of business on the date hereof,
(a) Horwath hereby resigns from her positions as Chief Operating Officer and
Director, and all other positions which she may hold, in the Company, and (b)
that certain Employment Agreement, dated January 1, 1994, by and between
Horwath and the Company, as amended on October 31, 1995 (the "Employment
Agreement"), shall be null and void and of no further force and effect. In
consideration of the benefits provided hereunder, and (c) Horwath hereby
unconditionally and irrevocably waives any rights to any compensation under the
Employment Agreement, including, without limitation, any payments upon
termination of employment, and (d) the Company hereby unconditionally and
irrevocably waives its rights to enforce any provisions of the Employment
Agreement, including, without limitation, the restrictions on competition.
2. Options. Subject to Section 16 hereof, effective on the date hereof
the Company shall reprice all of the stock options currently granted to
Horwath, which the parties agree is 485,000, at an exercise price of $.50 per
share, and will, upon delivery to the Company of option certificates
representing the said 485,000 options, reissue new certificates to Horwath,
representing such new options, which shall be fully vested and exercisable on
the sixteenth day after the date hereof, for a term of five years from the date
hereof.
3. Vacations and Benefits. The Company shall pay Horwath for three weeks
of accumulated vacation. The Company will offer Horwath the option of
continuing her medical benefits, as required by the Consolidated Omnibus Budget
Reconciliation Act of 1986, as amended, at Horwath's expense; provided,
however, that the foregoing obligation shall terminate on the earlier of (a)
the date on which Horwath accepts full-time employment, or (b) two years
<PAGE> 2
from the date hereof. The Company shall also reimburse Horwath for any
legitimate business expenses incurred by her prior to the date hereof, upon
presentation of appropriate documentation therefor. The parties acknowledge
that such expenses do not exceed $500.00.
4. Restrictive Covenants.
(a) For a period of twelve months from the date hereof, Horwath
shall not engage, either directly or indirectly, as a proprietor,
partner, employee, officer, director, consultant, shareholder, joint
venturer, member, governor, in any business or in any activities in
competition with the business of the Company. A business or activity
shall be deemed to be "in competition with the business of the Company"
only if it directly relates to the sport of snow skating. The
restriction contained in this subsection shall not prohibit Horwath from
becoming involved with a sporting goods or other enterprise which enters
the snow skate business, so long as none of Horwath's activities for such
enterprise are related thereto.
(b) For a period of twelve months from the date hereof, Horwath
shall not solicit any person who is then employed by or otherwise engaged
to perform services for the Company, or is a customer or supplier of the
Company, to terminate such person's relationship with the Company, or
interfere with the Company's relationship with any such person.
(c) Horwath shall not communicate to any person, firm or entity, or
use for her own benefit, any confidential information which she may have
acquired with respect to the business of the Company. "Confidential
information" means any information not generally known and proprietary to
the Company and includes, without limiting the generality of the
foregoing, trade secrets, inventions and information pertaining to
research, development, manufacturing, manufacturing methods,
manufacturing processes, techniques, engineering, purchasing, marketing,
selling, accounting, customers, prices and licensing. Such confidential
information may be contained in the Company's development plans, business
plans, proposed new products, product designs, marketing plans or
proposals, customer lists, the particular needs and requirements of
customers and the identify of customers and potential customers. Such
information shall be treated as confidential information irrespective of
its source.
(d) Horwath shall not remove any files, documents or any other
property of the Company (regardless of the medium) relating to the
business of the Company or constituting confidential information from the
Company's place of business and shall return to the Company all such
items which are in her personal possession or under her control. Horwath
hereby represents that she either has not removed any such Company
property or has returned any of the same.
5. Indemnification. The Company shall maintain a policy of officer and
director liability insurance, covering Horwath as an insured, for so long as it
maintains such insurance for
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its then-existing officers and directors and such policy shall cover Horwath to
the same extent as existing officers and directors are covered.
6. Acknowledgments.
(a) Horwath acknowledges that (i) she has been informed of her right
to consider this Agreement for twenty-one (21) days before signing this
Agreement, insofar as it extends to potential claims under the Federal
Age Discrimination in Employment Act (29 U.S.C. Section 621 et. seq.) and
she hereby waives such right; and (ii) she has been informed of her right
to rescind or revoke this Agreement under the Federal Age Discrimination
in Employment Act within seven (7) calendar days following execution of
this Agreement.
(b) Horwath acknowledges that she has been informed of her right to
rescind this Agreement, insofar as it extends to potential claims under
the Minnesota Human Rights Act, Minnesota Statutes Chapter 363, which
prohibits discrimination in employment on the basis of race, sex, age,
national origin, disability, marital status, status with regard to public
assistance and status for having served on a local or state commission,
within fifteen (15) calendar days following the execution of this
Agreement. This fifteen day time period encompasses the seven (7) day
rescission or revocation period referenced above under the Federal Age
Discrimination in Employment Act. Horwath understands that for any
rescission to be effective she must comply with the terms of the Notice
which appears after the signature page of this Agreement.
7. Release by Horwath. In consideration of the faithful performance of
this Agreement by the Company, Horwath hereby irrevocably and unconditionally
releases, acquits and forever discharges the Company, its officers, directors,
agents, employees, shareholders, partners, divisions, subsidiaries, successors
and assigns, individually and in their representative capacities, and any
entity affiliated with any of the foregoing, from any and all past or present,
known or unknown claims, demands, obligations, actions, damages, expenses, and
compensation of any nature and from whatever source, whether based in tort,
contract, or any other theory of recovery, and whether for compensatory or
punitive or other damages, which Horwath now has or which may hereafter accrue
on account of or in any way growing out the employment relationship among the
parties or her service as a director, the termination of employment, and the
statements or actions of the Company, including, without limitation, claims
arising under the Minnesota Human Rights Act, Minnesota Statutes Section 363
et. seq. (or all applicable provisions in the Minnesota Human Rights Act),
claims arising under the Federal Age Discrimination in Employment Act, claims
of violation of civil rights, discrimination, promissory estoppel, wrongful
termination, or contract rights; provided, however, that this release shall not
apply to (a) the executory provisions of this Agreement; (b) a third party
action (including a shareholder or shareholder directive suit) relating to the
operations, management or activities of the Company, in which Horwath in good
faith believes that the Company or its other officers and directors may be
liable, in which case, Horwath may proceed with an action which includes
joinder of such persons, making such persons third party defendants, seeking
indemnity or contribution from such persons, or seeking an apportionment of
liability between or among herself
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and such persons; and (c) any claims by Horwath to indemnification arising out
of her capacity as an officer, director, employee or agent of the Company
pursuant to Minnesota Statutes, Section 302A.521.
8. Release by the Company. In consideration of the faithful performance
of this Agreement by Horwath, the Company hereby irrevocably and
unconditionally releases, acquits and forever discharges Horwath, and her heirs
and personal representatives from any and all past or present, known or unknown
claims, demands, obligations, actions, damages, expenses, and compensation of
any nature and from whatever source, whether based in tort, contract, or any
other theory of recovery, and whether for compensatory or punitive or other
damages, which the Company now has or which may hereafter accrue on account of
or in any way growing out the employment relationship among the parties or her
service as a director, the termination of employment, and her statements or
actions; provided, however, that this release shall not apply to (a) the
executory provisions of this Agreement; and (b) a third party action (including
a shareholder or shareholder derivative suit) relating to the operations,
management or activities of Horwath, in which the Company or its officers and
directors in good faith believe that Horwath may be liable, in which case, the
Company or such persons may proceed with an action which includes joinder of
Horwath, making Horwath a third party defendant, seeking indemnity or
contribution from Horwath, or seeking an apportionment of liability between or
among such persons and Horwath.
9. Press Release. The Company and Horwath have agreed on the wording of a
press release regarding Horwath's resignation and on the statement the Company
may make to prospective employers of Horwath. Such press release and statement
are attached hereto as Exhibit 1 and the parties shall make no communication or
press release, nor statement to prospective employers, other than as set forth
as Exhibit 1.
10. Future Statements. Horwath and the Company agree that they will not
engage in speech or actions which are detrimental to the name and/or reputation
of each other, nor make any disparaging comments concerning each other,
including the products, plans and operations of the Company and the officers,
directors, agents, employees, and shareholders of the Company, except that this
provision shall have no effect in the event a party hereto is made the subject
of any action commenced by the other party, its officers, directors, agents,
employees or shareholders in the future.
11. Confidentiality. Horwath and the Company agree that the terms and
conditions of, and the consideration under, this Agreement shall be
confidential and shall not be disclosed to third parties, subject to the
following:
a. A party's right to discuss this Agreement with her or its
attorney, tax adviser, accountant and spouse;
b. A party's right to make disclosure pursuant to any lawfully
issued court order and as may be required by state or federal law or
regulation, in which case the disclosing party shall notify the other
promptly of such disclosure; and
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c. A party's right to make disclosure in the event it is necessary
to commence any action to force compliance with the terms of this
Agreement or in the event a party is made a defendant in any action
commenced by the other party, its directors, officers, employees, agents,
or shareholders.
12. Referrals of Mail and Telephone Calls. The Company shall promptly
forward all mail received by the Company and addressed to Horwath to Horwath's
home address. The Company shall immediately refer all telephone calls for
Horwath that do not relate to the Company's business to Horwath's home
telephone number or to such other number as Horwath may reasonably request.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to their claims against each other, Horwath's
employment relationship with the Company and her resignation from the Company
and the parties agree that there were no inducements or representations leading
to the execution hereof, except as herein stated. This Agreement may not be
modified or amended except in a writing signed by Horwath and the Company.
14. Minnesota Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota. In accordance with
Minnesota Statues, Section 363.031, subd. 2, Horwath has been provided the
notice appended to this Agreement on the last page.
15. Effect. This Agreement shall be binding upon and inure to the benefit
of each party and upon her or its heirs, administrators, representatives,
executors, successors and assigns.
16. Rescission. In the event this Agreement is rescinded pursuant to
Minnesota Statutes, Section 363.031, subd. 2, as provided in the notice under
this statute, this Agreement shall immediately terminate and shall be null and
void and of no further force or effect. Without limiting the generality of the
foregoing, in the event this Agreement is rescinded, the repricing of options
as provided for in Section 2 hereof shall be null and void and said options
shall revert to their original exercise prices.
17. Remedies. The parties acknowledge that any breach of the covenants
and agreements set forth herein would lead to irreparable injury which could
not be satisfied solely by monetary damages. Accordingly, the parties agree
that each party hereto may, in addition to pursuing any and all remedies
provided by law, obtain equitable remedies, including the remedies of
injunction and specific performance, to restrain or prevent any breach or
threatened breach of the provisions of this Agreement. The parties further
agree that no party seeking such remedy shall be required to post any bond.
18. Consulting. Upon the request of the Company, Horwath shall provide
consulting services to the Company, not to exceed ten hours per week for up to
eight weeks, at hourly rates to be agreed upon by the Company and Horwath.
5
<PAGE> 6
20. Severability. If any provision of this Agreement is found to be
unenforceable, this shall not affect the other provisions, which are severable.
Without limiting the generality of the foregoing, if any court of competent
jurisdiction holds that any restriction in Sections 4(a) - (c) exceeds the
limit of restrictions that are enforceable under applicable law, then the
restriction will nevertheless apply to the maximum extent that is enforceable
under applicable law.
21. Representation. Horwath acknowledges that she has been represented by
her own attorney in this matter and that she has had a full opportunity to
consider this Agreement and the release contained herein.
22. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Resignation Agreement to
be executed on the day and year first above written.
THE SLED DOGS COMPANY
By ________________________________
Kent Rodriguez
Chairman of the Board
___________________________________
Mary L. Horwath
6
<PAGE> 7
NOTICE UNDER MINNESOTA STATUTES. SECTION 363.031. SUBD. 2.
You may rescind this Settlement Agreement for any reason within fifteen
(15) calendar days after you have signed it. To be effective, the rescission
must be in writing and hand delivered or mailed to The Sled Dogs Company, 121
Third Avenue North, Suite 420, Minneapolis, MN 55401, Attention: Kent
Rodriguez, within the fifteen (15) day period. If mailed, the rescission must
be sent by certified mail, return receipt requested.
7
<PAGE> 8
EXHIBIT 1
PRESS RELEASE
THE SLED DOGS COMPANY ANNOUNCES MANAGEMENT CHANGES
MINNEAPOLIS, Feb. 00, 1997--The Sled Dogs Company (Nasdaq: SNOW) announced
today that John Sundet, the Company's President and Chief Executive Officer,
and Mary Horwath, the Company's Chief Operating Officer, have both resigned as
officers and members of the Company's Board of Directors, effective today, to
pursue other interests. Kent Rodriguez, the Company's Chairman, stated: "Mr.
Sundet and Ms. Horwath have laid the foundation for snow skating to become the
next big winter sport. Our record breaking sales this season are a tribute to
their accomplishments here. The main task now is to raise additional financing
to ensure that the investment in that foundation delivers an attractive return.
Peter Osberg, Vice President of Sales and Lisa Svac, Director of Marketing,
have taken charge of the sales and marketing functions."
The Sled Dogs Company markets, manufactures and distributes Sled Dogs
brand show skates and related accessories and is pioneering snow skating as a
new winter sport. The Sled Dogs Company has developed the world's first
patented snow skate that integrates a comfortable, supportive boot and a unique
replaceable base allowing the skate to glide over the snow. Snow skating is
currently enjoyed at approximately 75 percent of all ski/snow areas across the
country. In addition to its U.S. roots, Sled Dogs has distribution in Canada,
Japan, Korea and Norway.
[FORWARD LOOKING STATEMENTS PARAGRAPH.]
STATEMENTS TO PROSPECTIVE EMPLOYERS:
Mary Horwath was employed by The Sled Dogs Company in the position of Vice
President, Marketing and Chief Operating Officer from January 1, 1994, through
February 28, 1997. The Company issued a press release on February 28, 1997,
which said [QUOTE FROM PRESS RELEASE].
8
<PAGE> 1
EXHIBIT 10.45
RESIGNATION AGREEMENT
This Agreement is made this 28th day of February, 1997, by and between The Sled
Dogs Company, a Colorado corporation (the "Company"), and John Sundet
("Sundet").
WITNESSETH
WHEREAS, Sundet is serving as the Chief Executive Officer and President of
the Company and as a Director of the Company; and
WHEREAS, Sundet has decided to resign as an Officer and Director of the
Company; and
WHEREAS, the Company and Sundet desire to resolve any possible or
potential issues in dispute between them in connection with Sundet's
resignation; and
WHEREAS, the Company and Sundet desire to set forth their agreement with
respect to certain matters in connection with Sundet's resignation;
NOW, THEREFORE, in consideration of the premises and the mutual promises
and covenants contained in this Agreement, the Company and Sundet hereby agree
as follows:
1. Resignation. Effective on the opening of business on the date hereof,
(a) Sundet hereby resigns from his positions as Chief Executive Officer,
President and Director, and all other positions which he may hold, in the
Company, and (b) that certain Employment Agreement, dated January 1, 1994, by
and between Sundet and the Company, as amended on October 31, 1995 (the
"Employment Agreement"), shall be null and void and of no further force and
effect. In consideration of the benefits provided hereunder, and (c) Sundet
hereby unconditionally and irrevocably waives any rights to any compensation
under the Employment Agreement, including, without limitation, any payments
upon termination of employment, and (d) the Company hereby unconditionally and
irrevocably waives its rights to enforce any provisions of the Employment
Agreement, including, without limitation, the restrictions on competition.
2. Options. Subject to Section 16 hereof, effective on the date hereof
the Company shall reprice all of the stock options currently granted to Sundet,
which the parties agree is 415,000, at an exercise price of $.50 per share, and
will, upon delivery to the Company of option certificates representing the said
415,000 options, reissue new certificates to Sundet, representing such new
options, which shall be fully vested and exercisable on the sixteenth day
after the date hereof, for a term of five years from the date hereof.
3. Vacations and Benefits. The Company will offer Sundet the option of
continuing his medical benefits, as required by the Consolidated Omnibus Budget
Reconciliation Act of 1986, as amended, at Sundet's expense; provided, however,
that the foregoing obligation shall terminate on the earlier of (a) the date on
which Sundet accepts full-time employment, or (b) two years from the date
hereof. The Company shall also reimburse Sundet for any legitimate business
<PAGE> 2
expenses incurred by him prior to the date hereof, upon presentation of
appropriate documentation therefor. The parties acknowledge that such expenses
do not exceed $500.00.
4. Restrictive Covenants.
(a) For a period of twelve months from the date hereof, Sundet shall
not engage, either directly or indirectly, as a proprietor, partner,
employee, officer, director, consultant, shareholder, joint venturer,
member, governor, in any business or in any activities in competition
with the business of the Company. A business or activity shall be deemed
to be "in competition with the business of the Company" only if it
directly relates to the sport of snow skating. The restriction contained
in this subsection shall not prohibit Sundet from becoming involved with
a sporting goods or other enterprise which enters the snow skate
business, so long as none of Sundet's activities for such enterprise are
related thereto.
(b) For a period of twelve months from the date hereof, Sundet shall
not solicit any person who is then employed by or otherwise engaged to
perform services for the Company, or is a customer or supplier of the
Company, to terminate such person's relationship with the Company, or
interfere with the Company's relationship with any such person.
(c) Sundet shall not communicate to any person, firm or entity, or
use for his own benefit, any confidential information which he may have
acquired with respect to the business of the Company. "Confidential
information" means any information not generally known and proprietary to
the Company and includes, without limiting the generality of the
foregoing, trade secrets, inventions and information pertaining to
research, development, manufacturing, manufacturing methods,
manufacturing processes, techniques, engineering, purchasing, marketing,
selling, accounting, customers, prices and licensing. Such confidential
information may be contained in the Company's development plans, business
plans, proposed new products, product designs, marketing plans or
proposals, customer lists, the particular needs and requirements of
customers and the identify of customers and potential customers. Such
information shall be treated as confidential information irrespective of
its source.
(d) Sundet shall not remove any files, documents or any other
property of the Company (regardless of the medium) relating to the
business of the Company or constituting confidential information from the
Company's place of business and shall return to the Company all such
items which are in his personal possession or under his control. Sundet
hereby represents that he either has not removed any such Company
property or has returned any of the same.
5. Indemnification. The Company shall maintain a policy of officer and
director liability insurance, covering Sundet as an insured, for so long as it
maintains such insurance for its then-existing officers and directors and such
policy shall cover Sundet to the same extent as existing officers and directors
are covered. In addition, the Company shall cause Sundet to be
2
<PAGE> 3
released from that certain agreement with Norwest Business Credit ("NBC"),
obligating Sundet to perform certain srvices for NBC, by the fifteenth day
after the date hereof and will indemnify and hold Sundet harmless from any
obligations thereunder.
6. Acknowledgments.
(a) Sundet acknowledges that (i) he has been informed of his right
to consider this Agreement for twenty-one (21) days before signing this
Agreement, insofar as it extends to potential claims under the Federal
Age Discrimination in Employment Act (29 U.S.C. Section 621 et. seq.) and
he hereby waives such right; and (ii) he has been informed of his right
to rescind or revoke this Agreement under the Federal Age Discrimination
in Employment Act within seven (7) calendar days following execution of
this Agreement.
(b) Sundet acknowledges that he has been informed of his right to
rescind this Agreement, insofar as it extends to potential claims under
the Minnesota Human Rights Act, Minnesota Statutes Chapter 363, which
prohibits discrimination in employment on the basis of race, sex, age,
national origin, disability, marital status, status with regard to public
assistance and status for having served on a local or state commission,
within fifteen (15) calendar days following the execution of this
Agreement. This fifteen day time period encompasses the seven (7) day
rescission or revocation period referenced above under the Federal Age
Discrimination in Employment Act. Sundet understands that for any
rescission to be effective he must comply with the terms of the Notice
which appears after the signature page of this Agreement.
7. Release by Sundet. In consideration of the faithful performance of
this Agreement by the Company, Sundet hereby irrevocably and unconditionally
releases, acquits and forever discharges the Company, its officers, directors,
agents, employees, shareholders, partners, divisions, subsidiaries, successors
and assigns, individually and in their representative capacities, and any
entity affiliated with any of the foregoing, from any and all past or present,
known or unknown claims, demands, obligations, actions, damages, expenses, and
compensation of any nature and from whatever source, whether based in tort,
contract, or any other theory of recovery, and whether for compensatory or
punitive or other damages, which Sundet now has or which may hereafter accrue
on account of or in any way growing out the employment relationship among the
parties or his service as a director, the termination of employment, and the
statements or actions of the Company, including, without limitation, claims
arising under the Minnesota Human Rights Act, Minnesota Statutes Section 363
et. seq. (or all applicable provisions in the Minnesota Human Rights Act),
claims arising under the Federal Age Discrimination in Employment Act, claims
of violation of civil rights, discrimination, promissory estoppel, wrongful
termination, or contract rights; provided, however, that this release shall not
apply to (a) the executory provisions of this Agreement; (b) a third party
action (including a shareholder or shareholder directive suit) relating to the
operations, management or activities of the Company, in which Sundet in good
faith believes that the Company or its other officers and directors may be
liable, in which case, Sundet may proceed with an action which includes joinder
of such persons, making such persons third party defendants, seeking indemnity
or contribution from such persons,
3
<PAGE> 4
or seeking an apportionment of liability between or among himself and such
persons; and (c) any claims by Sundet to indemnification arising out of his
capacity as an officer, director, employee or agent of the Company pursuant to
Minnesota Statutes, Section 302A.521.
8. Release by the Company. In consideration of the faithful performance
of this Agreement by Sundet, the Company hereby irrevocably and unconditionally
releases, acquits and forever discharges Sundet, and his heirs and personal
representatives from any and all past or present, known or unknown claims,
demands, obligations, actions, damages, expenses, and compensation of any
nature and from whatever source, whether based in tort, contract, or any other
theory of recovery, and whether for compensatory or punitive or other damages,
which the Company now has or which may hereafter accrue on account of or in any
way growing out the employment relationship among the parties or his service as
a director, the termination of employment, and his statements or actions;
provided, however, that this release shall not apply to (a) the executory
provisions of this Agreement; and (b) a third party action (including a
shareholder or shareholder derivative suit) relating to the operations,
management or activities of Sundet, in which the Company or its officers and
directors in good faith believe that Sundet may be liable, in which case, the
Company or such persons may proceed with an action which includes joinder of
Sundet, making Sundet a third party defendant, seeking indemnity or
contribution from Sundet, or seeking an apportionment of liability between or
among such persons and Sundet.
9. Press Release. The Company and Sundet have agreed on the wording
of a press release regarding Sundet's resignation and on the statement the
Company may make to prospective employers of Sundet. Such press release and
statement are attached hereto as Exhibit 1 and the parties shall make no
communication or press release, nor statement to prospective employers, other
than as set forth as Exhibit 1.
10. Future Statements. Sundet and the Company agree that they will not
engage in speech or actions which are detrimental to the name and/or reputation
of each other, nor make any disparaging comments concerning each other,
including the products, plans and operations of the Company and the officers,
directors, agents, employees, and shareholders of the Company, except that this
provision shall have no effect in the event a party hereto is made the subject
of any action commenced by the other party, its officers, directors, agents,
employees or shareholders in the future.
11. Confidentiality. Sundet and the Company agree that the terms and
conditions of, and the consideration under, this Agreement shall be
confidential and shall not be disclosed to third parties, subject to the
following:
a. A party's right to discuss this Agreement with his or its
attorney, tax adviser, accountant and spouse;
b. A party's right to make disclosure pursuant to any lawfully
issued court order and as may be required by state or federal law or
regulation, in which case the disclosing party shall notify the other
promptly of such disclosure; and
4
<PAGE> 5
c. A party's right to make disclosure in the event it is necessary
to commence any action to force compliance with the terms of this
Agreement or in the event a party is made a defendant in any action
commenced by the other party, its directors, officers, employees, agents,
or shareholders.
12. Referrals of Mail and Telephone Calls. The Company shall promptly
forward all mail received by the Company and addressed to Sundet to Sundet's
home address. The Company shall immediately refer all telephone calls for
Sundet that do not relate to the Company's business to Sundet's home telephone
number or to such other number as Sundet may reasonably request.
13. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to their claims against each other, Sundet's
employment relationship with the Company and his resignation from the Company
and the parties agree that there were no inducements or representations leading
to the execution hereof, except as herein stated. This Agreement may not be
modified or amended except in a writing signed by Sundet and the Company.
14. Minnesota Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Minnesota. In accordance with
Minnesota Statues, Section 363.031, subd. 2, Sundet has been provided the
notice appended to this Agreement on the last page.
15. Effect. This Agreement shall be binding upon and inure to the benefit
of each party and upon his or its heirs, administrators, representatives,
executors, successors and assigns.
16. Rescission. In the event this Agreement is rescinded pursuant to
Minnesota Statutes, Section 363.031, subd. 2, as provided in the notice under
this statute, this Agreement shall immediately terminate and shall be null and
void and of no further force or effect. Without limiting the generality of the
foregoing, in the event this Agreement is rescinded, the repricing of options
as provided for in Section 2 hereof shall be null and void and said options
shall revert to their original exercise prices.
17. Remedies. The parties acknowledge that any breach of the covenants
and agreements set forth herein would lead to irreparable injury which could
not be satisfied solely by monetary damages. Accordingly, the parties agree
that each party hereto may, in addition to pursuing any and all remedies
provided by law, obtain equitable remedies, including the remedies of
injunction and specific performance, to restrain or prevent any breach or
threatened breach of the provisions of this Agreement. The parties further
agree that no party seeking such remedy shall be required to post any bond.
18. Consulting. Upon the request of the Company, Sundet shall provide
consulting services to the Company, not to exceed ten hours per week for up to
eight weeks, at hourly rates to be agreed upon by the Company and Sundet.
5
<PAGE> 6
20. Severability. If any provision of this Agreement is found to be
unenforceable, this shall not affect the other provisions, which are severable.
Without limiting the generality of the foregoing, if any court of competent
jurisdiction holds that any restriction in Sections 4(a) - (c) exceeds the
limit of restrictions that are enforceable under applicable law, then the
restriction will nevertheless apply to the maximum extent that is enforceable
under applicable law.
21. Representation. Sundet acknowledges that he has been represented by
his own attorney in this matter and that he has had a full opportunity to
consider this Agreement and the release contained herein.
22. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Resignation Agreement to
be executed on the day and year first above written.
THE SLED DOGS COMPANY
By ________________________________
Kent Rodriguez
Chairman of the Board
___________________________________
John Sundet
6
<PAGE> 7
NOTICE UNDER MINNESOTA STATUTES. SECTION 363.031. SUBD. 2.
You may rescind this Settlement Agreement for any reason within fifteen
(15) calendar days after you have signed it. To be effective, the rescission
must be in writing and hand delivered or mailed to The Sled Dogs Company, 121
Third Avenue North, Suite 420, Minneapolis, MN 55401, Attention: Kent
Rodriguez, within the fifteen (15) day period. If mailed, the rescission must
be sent by certified mail, return receipt requested.
7
<PAGE> 8
EXHIBIT 1
PRESS RELEASE
THE SLED DOGS COMPANY ANNOUNCES MANAGEMENT CHANGES
MINNEAPOLIS, Feb. 00, 1997--The Sled Dogs Company (Nasdaq: SNOW) announced
today that John Sundet, the Company's President and Chief Executive Officer,
and Mary Horwath, the Company's Chief Operating Officer, have both resigned as
officers and members of the Company's Board of Directors, effective today, to
pursue other interests. Kent Rodriguez, the Company's Chairman, stated: "Mr.
Sundet and Ms. Horwath have laid the foundation for snow skating to become the
next big winter sport. Our record breaking sales this season are a tribute to
their accomplishments here. The main task now is to raise additional financing
to ensure that the investment in that foundation delivers an attractive return.
Peter Osberg, Vice President of Sales and Lisa Svac, Director of Marketing,
have taken charge of the sales and marketing functions."
The Sled Dogs Company markets, manufactures and distributes Sled Dogs
brand show skates and related accessories and is pioneering snow skating as a
new winter sport. The Sled Dogs Company has developed the world's first
patented snow skate that integrates a comfortable, supportive boot and a unique
replaceable base allowing the skate to glide over the snow. Snow skating is
currently enjoyed at approximately 75 percent of all ski/snow areas across the
country. In addition to its U.S. roots, Sled Dogs has distribution in Canada,
Japan, Korea and Norway.
[FORWARD LOOKING STATEMENTS PARAGRAPH.]
STATEMENTS TO PROSPECTIVE EMPLOYERS:
John Sundet was employed by The Sled Dogs Company in the position of
President and Chief Executive Officer from January 1, 1994, through February
____, 1997. The Company issued a press release on February ____, 1997, which
said [QUOTE FROM PRESS RELEASE].
8
<PAGE> 1
EXHIBIT 10.46
CONVERTIBLE SUBORDINATED
SECURED PROMISSORY NOTE*
$_____ Minneapolis, Minnesota ___________, 1997
FOR VALUE RECEIVED, the undersigned, The Sled Dogs Company, (the
"Company"), promises to pay to the order of _________ (the "Lender"), his
successors and assigns, at his principal office at _____________ or such other
place as the holder may designate in writing from time to time, the principal
sum of ____________Dollars ($__________) in lawful money of the United States,
together with interest from the date hereof on the unpaid principal balance
outstanding from time to time at the rate of 12% per year (calculated on the
basis of the actual number of days elapsed and a 360-day year). Interest shall
be paid semiannually, in arrears, on the first day of each January and July,
commencing January 1, 1998. All outstanding principal and interest accrued on
this Note shall be due and payable on March 31, 2000.
1. Subordination. This Note and the indebtedness evidenced hereby are
subordinate and junior in right of payment, to the extent and in the manner
herein set forth, to all Senior Debt (as herein after defined) of the Company,
whether outstanding at the date hereof or incurred hereafter, so that:
(a) In the event of any insolvency or bankruptcy proceedings, or any
receivership, liquidation, reorganization or other similar proceedings, and in
the event of any proceedings for voluntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or bankruptcy,
then (i) the holders of Senior Debt shall be entitled to receive payment in
full in cash or cash equivalents of all Senior Debt before the holder of this
Note is entitled to receive any payment on account of the principal of or
interest on this Note and (ii) the holder of this Note will at the request of
any holder of Senior Debt file any claim, proof of claim or other instrument of
similar character necessary to enforce obligations of the Company in respect of
this Note, and the event that the holder of this Note shall fail to take such
action any holder of Senior Debt may as attorney-in-fact for the holder of this
Note, take such action on behalf of the holder of this Note to file claim,
proof of claim or other instrument of similar character and to take such other
action (including acceptance or rejection of any plan of reorganization or
arrangement) in its name or in the name of the holder of this Note as such
holder of Senior Debt may deem necessary or advisable for the enforcement of
these subordination provisions, and the holder of this Note will execute and
deliver to such holder of Senior Debt such other and further powers of attorney
or other instruments as it may request in order to accomplish the foregoing;
- -----------------
* THIS NOTE IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT THE BOTTOM
OF THE LAST PAGE HEREOF.
<PAGE> 2
(b) In the event this Note is declared due and payable before its
expressed maturity because of the existence of a default (under circumstances
when the provisions of the foregoing clause (a) are not applicable) then the
holders of Senior Debt outstanding at the time this Note so becomes due and
payable shall be entitled to receive payment in full in cash or cash
equivalents of a Senior Debt before the holder of this Note shall be entitled
to receive any payment on account of the principal of or interest on this Note;
(c) During the continuance of any default in the payment of the principal
of or interest on Senior Debt, no payment of principal or interest shall be
made on the Note;
(d) In the event that the holder of this Note receives notice (a "Blockage
Notice") from any holder Senior Debt that there has occurred and is continuing
a non-payment default or defaults under any agreement pursuant to which Senior
Debt was issued, which with the passage of time or the giving of notice, or
both, would permit the holder or holders of Senior Debt outstanding thereunder
to accelerate the maturity thereof then, for a period of 180 days after the
Blockage Notice has been given, no payment on account of the principal or
interest on this Note shall be made, unless and until such default or defaults
shall have been cured or waived or shall have ceased to exist or the benefits
of this clause (d) shall have been waived by or on behalf of the holders of
Senior Debt, provided that not more than one Blockage Notice may be given in
any 360-day period (any Blockage Notice to be given by certified mail, return
receipt requested, addressed to the Lender, and to be effective upon receipt);
(e) No prepayment on account of the principal or interest on this Note
shall be made, either in whole or part (other than regular installments of
interest in accordance with the terms hereof), if at the time of such
prepayment any Senior Debt shall be outstanding; and
(f) If and so long as any Senior Debt is outstanding and payment on
account of principal of or interest on the Note is barred by these
subordination provisions, the holder of this Note shall not commence or
prosecute a legal action against the Company to obtain a judgment for principal
of or interest on this Note, or attach, execute, levy, garnish or otherwise
realize upon any assets of the Company, or join with any creditor (unless the
holder or holders of at least two-thirds of the outstanding principal amount of
Senior Debt so join) in filing an involuntary petition against the Company
under the Federal Bankruptcy Code, as the same has been or may hereafter be
amended, modified or replaced.
The provisions of this Section are solely for the purpose of defining the
relative rights of the holders of Senior Debt on the one hand and the holder of
this Note on the other hand and nothing herein shall impair, as between the
Company and the holder of this Note, the obligation of the Company, which is
unconditional and absolute, to pay to the holder of this Note the principal and
interest hereon in accordance with its terms, nor shall anything herein prevent
the holder of this Note from exercising all remedies otherwise permitted by
law, under the Security Agreement (as defined herein) or hereunder upon default
hereunder, subject to the relative rights of the holders of Senior Debt
expressed in this paragraph.
2
<PAGE> 3
For purposes of this instrument, the term Senior Debt shall mean and
include the principal amount of, premium, if any, and interest on (including,
without limitation, interest. at the rate specified in any instrument
evidencing Senior Debt from and after the date of filing of any petition by or
against the Company under the Federal Bankruptcy Code) all indebtedness of the
Company to any bank, insurance company or other financial institution for money
borrowed, whether now existing or hereafter incurred (except for such
indebtedness which is subordinate or junior in respect of any other
indebtedness of the Company).
In the event that, notwithstanding the foregoing subordination provisions,
any payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities (other than stock of the Company
reorganized or readjusted or securities of the Company or any other corporation
provided for by a plan of reorganization or readjustment, the payment of which
is subordinate, at least to the extent provided in this Note, to the payment in
full of a Senior Debt at the time outstanding and to any security issued in
respect thereof under any such plan of reorganization or readjustment), shall
be received by the holder of this Note at a time when payment on account of the
principal or any interest on this Note is prohibited by the foregoing
subordination provisions, then for so long thereafter as the holder of this
Note would be prohibited by the subordination provision from receiving payments
on this Note, such payment or distribution shall be held in trust for the
benefit of, and shall be paid over or delivered to, the holder or holders of
Senior Debt, pro rata, according to the respective unpaid principal balances of
Senior Debt for application to the payment of all amounts owed under Senior
Debt remaining unpaid to the extent necessary to pay all such amounts in full
after giving effect to any concurrent payment or distribution, or provision
therefor, to the holders of Senior Debt.
Subject to the payment in full of all Senior Debt, the holder of this Note
shall be subrogated to the rights of the holders of Senior Debt to receive
payments or distributions of assets of the Company made thereon until the
principal of and interest on this Note shall be paid in full; and, for the
purposes of such subrogation, no payments or distributions to the holders of
Senior Debt of any cash, property or securities to which the holder of this
Note would be entitled except for the subordination provisions of this Note,
and no payment to the holders of Senior Debt by the holder of this Note as
between the Company, its creditors (other than the holders of Senior Debt) and
the holder of this Note, shall be deemed to be payment by the Company to or on
account of Senior Debt.
2. Security Agreement. This Note is secured under that certain Security
Agreement (the "Security Agreement") between the Company and Lender, dated as
of June 5, 1997 Reference is hereby made to the Security Agreement for a
description of the nature and extent of the security for this Note and the
rights with respect to such security of the holder of this Note. The security
interest granted to the Lender is (a) subordinate in all respects to any
security interest which the Company has granted, or may grant in the future, in
connection with any Senior Debt, or in connection with the financing of any
aspect of its operations, such as a security interest in its inventory granted
to a manufacturer or a factor, or any security interest granted in connection
with the purchase of any asset, and the Lender agrees to execute all documents,
instruments and agreements requested by any secured party with a security
interest
3
<PAGE> 4
senior to the security interest granted to the Lender, to affectuate this
subordination; and (b) the Lender's security interest is pari passu with the
security interests granted to other lenders who have received a note of like
tenor to this Note (the "Other Notes") and are parties to the Security
Agreement.
3. Prepayment. This Note may be prepaid in whole or in part at any time
and from time to time without premium or penalty; provided, however, that the
Company shall give the Lender not less than five (5) days advance written
notice of its intention to make any such prepayment. All prepayments on this
Note and all notes issued to the Secured Parties (as defined in the Security
Agreement) shall be applied to this Note and such Other Notes pro rata on the
basis of the proportion that the original principal amount of this Note and
each Other Note bears to the aggregate original principal amount of this Note
and the Other Notes bears to the aggregate original principal amount thereof.
4. Investment Intent. Other than pursuant to registration under federal
and any applicable state securities laws or an exemption from such
registration, the availability of which shall be determined pursuant to an
opinion of counsel, such counsel to be reasonably acceptable to the Company,
this Note may not be sold, pledged, assigned or otherwise disposed of (whether
voluntarily or involuntarily). The Company may condition such sale, pledge,
assignment or other disposition on the receipt from the party to whom this Note
is to be so transferred of any representations and agreements requested by the
Company in order to permit such transfer to be made pursuant to exemptions from
registration under federal and applicable state securities laws. The Lender, by
acceptance hereof, agrees to give written notice to the Company before
transferring this Note of the Lender's intention to do so, describing briefly
the manner of any proposed transfer. Within thirty (30) days after receiving
such written notice, the Company shall notify the Lender as to whether such
transfer may be effected and of the conditions to any such transfer. In the
event such transfer may not be affected, the Company will promptly return this
Note to Lender.
5. Conversion.
(a) Optional Conversion. At any time prior to the maturity of this Note,
Lender may convert all or any portion of this Note into a number of whole
common shares of the Company, $.01 par value (the "Common Shares") equal to the
quotient arrived at by dividing the amount to be converted by the Conversion
Price, as adjusted. The initial Conversion Price shall be $.25. In addition,
in lieu of payment of all or any part of principal in money, the Company may
make payment by delivering to Lender, or other holder of this Note, at the
option of Lender a number of Common Shares equal to the quotient arrived at by
dividing the amount to be paid by the Conversion Price, as adjusted.
(b) Mandatory Conversion. In the event that the last sale price of a
Common Share has been at least $2.00 (the "Trigger Price") for 20 consecutive
trading days, this Note shall automatically be converted into that number of
whole common shares equal to the quotient arrived at by dividing the amount
outstanding by the Conversion Price, as adjusted.
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<PAGE> 5
(c) Adjustment of Conversion Price and Trigger Price. If the Company at
any time while this Note remains outstanding shall split, subdivide or combine
its Common Shares, the Conversion Price and the Trigger Price shall be
proportionately decreased in the case of a split or subdivision or
proportionately increased in the case of a combination. Any adjustment under
this subsection (c) shall become effective when the split, subdivision or
combination becomes effective.
6. Representations. The Company represents, covenants and promises as
follows:
(a) The Common Shares to be issued by the Company when issued in
accordance with this Note, shall be duly authorized, validly issued, fully paid
and non-assessable;
(b) The Company will fully comply with all federal and state laws
regarding the issuance of the Common Shares; and
(c) The Company will at all times when this Note is outstanding reserve
and keep available, solely for issuance and delivery upon payment of this Note
with Common Shares, the maximum number of Common Shares from time to time
issuable upon payment of this Note.
Any Common Shares issuable upon conversion of this Note shall have the
registration rights set forth on Exhibit A hereto.
7. Notices. All demands and notices to be given hereunder shall be
delivered or sent by certified mail, return receipt requested; in the case of
the Company, addressed to its corporate headquarters, and in the case of the
Lender, addressed to the address written above, in either case, until a new
address shall have been substituted by like notice.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on its
behalf by its duly authorized officer on the day and year first above written.
THE SLED DOGS COMPANY
By _______________________________
Michael Wise
Its: Chief Financial Officer
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
CORPORATION WHOSE AUTHORIZED OFFICER HAS SIGNED THIS NOTE ABOVE.
5
<PAGE> 6
EXHIBIT A
Registration Rights.
(a) The Company shall file a registration statement with the
Securities and Exchange Commission (the "Commission") on or before 30 days
following the final closing of the offering of which this Note is a part with
respect to Common Stock issued upon conversion of this Note at the Company's
sole expense (other than the fees and disbursements of counsel for the Holder
and the underwriting discounts, if any, payable in respect of the Shares sold
by the Holder) under the Securities Act of 1933 (the "Act") and such state laws
as the Holder may reasonably request.
(b) In connection therewith, the Company will:
(i) Prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts
to cause such registration statement to become effective within 60
days of the date of the initial filing of such registration
statement and remain effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed two
(2) years;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary
to effect the sale of such securities, not to exceed two (2) years;
(iii) provide Holder's counsel with reasonable opportunities
to review and comment on, and otherwise participate in, the
preparation of such registration statement;
(iv) furnish to the Holders and to the underwriters of the
securities, if any, being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as the Holders and underwriters
may reasonably request in order to facilitate the public offering
of such securities;
(v) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as such Holders
may reasonably request in writing within 30 days following the
original filing of such registration statement, except that the
Company shall not for any purpose be required to execute a general
consent to service of process (which shall not include a "Uniform
Consent to Service of Process" or other similar consent to service
of process which
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<PAGE> 7
relates only to actions or proceedings arising out of or in
connection with the sale of securities, or out of a violation of
the laws of the jurisdiction requesting such consent) or to qualify
to do business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(vi) notify the Holders, promptly after it shall receive
notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
(vii) notify the Holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(viii) prepare and file with the Commission, promptly upon
the request of any the Holders, any amendments or supplements to
such registration statement or prospectus which, in the opinion of
counsel for such Holders (and concurred in by counsel for the
Company), is required under the Act or the rules and regulations
thereunder in connection with the sale of the Shares by such
Holder;
(ix) prepare and promptly file with the Commission and
promptly notify the Holders of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time
when a prospectus relating to such securities is required to be
delivered under the Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as then
in effect would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made,
not misleading;
(x) advise the Holders, and the Holders' counsel, if any,
promptly after it shall receive notice or obtain knowledge thereof,
of the issuance of any stop order by the Commission suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(xi) not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of the Holders shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Act or the rules and
regulations thereunder, after having been furnished with a copy
thereof at least five business days prior to the filing thereof,
unless in the opinion of counsel for the Company the filing of such
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<PAGE> 8
amendment or supplement is reasonably necessary to protect the
Company from any liabilities under any applicable federal or state
law and such filing will not violate applicable law; and
(xii) at the request of any of the Holders, furnish on the
effective date of the registration statement and, if such
registration includes an underwritten public offering, at the
closing provided for in the underwriting agreement: (i) opinions,
dated such respective dates, of the counsel representing the
Company for the purposes of such registration, addressed to the
underwriters, if any, and to the Holder or Holders making such
request, covering such matters as such underwriters and Holder or
Holders may reasonably request; and (ii) letters, dated such
respective dates, from the independent certified public accountants
of the Company, addressed to the underwriters, if any, and to the
Holder or Holders making such request, covering such matters as
such underwriters and Holder or Holders may reasonably request, in
which letter such accountants shall state (without limiting the
generality of the foregoing) that they are independent certified
public accountants within the meaning of the Securities Act and
that in the opinion of such accountants the financial statements
and other financial data of the Company included in the
registration statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the
applicable accounting requirements of the Act.
The Company hereby indemnifies the Holder of this Note and any
person who controls such Holder within the meaning of Section 15 of the Act,
against all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in any registration statement,
prospectus, notification or offering circular (and as amended or supplemented if
the Company shall have furnished any amendments or supplements thereto) or any
preliminary prospectus or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading except insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission contained in information furnished in
writing to the Company by the Holder expressly for use therein, and the Holder
by its acceptance hereof severally agrees that it will indemnify and hold
harmless the Company and each of its officers who signs such registration
statement and each of its directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Act with respect to losses,
claims, damages or liabilities which are caused by any untrue statement or
omission contained in information furnished in writing to the Company by the
Holder expressly for use therein.
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<PAGE> 1
EXHIBIT 10.47
W1997-_
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SAID ACT, SUPPORTED BY AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION
IS NOT REQUIRED.
WARRANT TO PURCHASE SHARES
OF COMMON STOCK
Company: The Sled Dogs Company, a Colorado
corporation (the "Company"), and any corporation
that shall succeed to the obligations of the Company
under this Warrant.
Number of Shares:
----------------------------
Class of Stock: Common Stock, $.01 per value
----------------------------
Initial Exercise Price: $.25 per share,
----------------------------
Expiration Date: March 31, 2000
----------------------------
Date of Grant:
----------------------------
THIS CERTIFIES THAT, for value received, ____________ is entitled to
purchase the above number (as may be adjusted pursuant to Section 5 hereof) of
fully paid and nonassessable shares of the above Class of Stock of the Company
at the Initial Exercise Price above (as may be adjusted pursuant to Section 5
hereof) subject to the provisions and upon the terms and conditions set forth
herein.
1. Definitions.
As used herein, the following terms, unless the context otherwise
requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations thereunder, as shall be
in effect at the time.
<PAGE> 2
(b) "Common Stock" shall mean shares of the presently authorized Common
Stock, $.01 par value, of the Company and any stock into which such Common
Stock may hereafter be exchanged.
(c) "Holder" shall mean any person who shall at the time be the holder of
this Warrant.
(d) "Shares" shall mean the shares of the Class of Stock that the Holder
is entitled to purchase upon exercise of this Warrant, as may be adjusted
pursuant to Section 5 hereof.
(e) "Warrant" shall mean the right to purchase the Number of Shares of the
Class of Stock (as such Number of Shares may be adjusted and as such Class of
Stock may be changed pursuant to the provisions hereof) represented by this
certificate.
(f) "Warrants" shall mean all warrants of like tenor to this Warrant and
represented by all such warrant certificates with the prefix "W1997-___."
(g) "Warrant Price" shall mean the Initial Exercise Price at which this
Warrant may be exercised, as may be adjusted pursuant to Section 5 hereof.
2. Term.
The purchase right represented by this Warrant is exercisable, in whole or
in part, at any time on or before 5:00 p.m., Minneapolis local time, on the
Expiration Date.
3. Method of Exercise; Payment; Issuance of New Warrant.
Subject to Section 2 hereof, the purchase right represented by this
Warrant may be exercised by the Holder, in whole or in part, by the surrender
of this Warrant (with the notice of exercise form attached hereto as Appendix A
duly executed) at the principal office of the Company and by the payment to the
Company, by check made payable to the Company drawn on a United States bank and
for United States funds, of an amount equal to the then applicable Warrant
Price per Share multiplied by the number of Shares then being purchased. In
the event of any exercise of the purchase right represented by this Section 3,
the Company will use its best efforts to deliver certificates for the Shares so
purchased to the Holder within five (5) days of receipt of such payment and,
unless this Warrant has been fully exercised or expired, a new Warrant
representing the portion of the Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
within such five (5) day period. If any such exercise is rejected by the
Company, the Company will promptly return to Holder all documentation furnished
by Holder hereunder.
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<PAGE> 3
4. Exercise Price.
The Warrant Price at which this Warrant may be exercised shall be the
Initial Exercise Price, as may be adjusted from time to time pursuant to
Section 5 hereof.
5. Adjustment of Number and Kind of Shares and Adjustment of
Warrant Price.
5.1 Adjustments. The number and kind of securities purchasable upon the
exercise of this Warrant and the Warrant Price shall be subject to adjustment
from time to time upon the occurrence of certain events, as follows:
(a) Reclassification, Reorganization, Consolidation or Merger. In the
case of any reclassification of the Common Stock, or any reorganization,
consolidation or merger of the Company with or into another corporation (other
than a merger or reorganization with respect to which the Company is the
continuing corporation and which does not result in any reclassification of the
Common Stock), the Company, or such successor corporation, as the case may be,
shall execute a new warrant, providing that the Holder shall have the right to
exercise such new warrant and upon such exercise to receive, in lieu of each
share of the Common Stock theretofore issuable upon exercise of this Warrant,
the number and kind of securities receivable upon such reclassification,
reorganization, consolidation or merger by a holder of shares of the Common
Stock of the Company for each share of Common Stock. Subject to any adjustment
that may be made pursuant to Section 5(b) or (c) hereof, the aggregate warrant
price of the new warrant shall be the aggregate Warrant Price in effect
immediately prior to the reclassification, reorganization, consolidation or
merger. Such new warrant shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Section
5 including, without limitation, adjustments to the Warrant Price and to the
number of shares issuable upon exercise of this Warrant. The provisions of this
subsection (a) shall similarly apply to successive reclassifications,
reorganizations, consolidations or mergers.
(b) Split, Subdivision or Combination of Shares. If the Company at any
time while this Warrant remains outstanding and unexpired shall split, subdivide
or combine the Class of Stock for which this Warrant is then exercisable, the
Warrant Price shall be proportionately decreased in the case of a split or
subdivision or proportionately increased in the case of a combination. Any
adjustment under this subsection (b) shall become effective when the split,
subdivision or combination becomes effective.
(c) Stock Dividends. At any time while this Warrant remains
outstanding and unexpired if the Company shall pay a dividend with respect to
the Class of Stock for which this Warrant is then exercisable, payable in shares
of that Class of Stock, or in options or rights to purchase such Class of Stock,
or securities convertible into such Class of Stock, the Warrant Price shall be
adjusted, from and after
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<PAGE> 4
the date of determination of the shareholders entitled to receive such dividend
or distributions, to that price determined by multiplying the Warrant Price in
effect immediately prior to such date of determination by a fraction (i) the
numerator of which shall be the total number of shares of that Class of Stock
outstanding immediately prior to such dividend or distribution, and (ii) the
denominator of which shall be the total number of shares of the same Class of
Stock outstanding immediately after such dividend or distribution (including
shares of that Class of Stock issuable upon exercise, conversion or exchange of
any options, rights or convertible securities issued as such dividend or
distribution).
5.2 Adjustment of Number of Shares. Upon each adjustment in the Warrant
Price pursuant to this Section 5.1 (b) or (c), the number of Shares issuable
upon exercise of this Warrant shall be adjusted to the product obtained by
multiplying the number of Shares issuable immediately prior to such adjustment
in the Warrant Price by a fraction (i) the numerator of which shall be the
Warrant Price immediately prior to such adjustment, and (ii) the denominator of
which shall be the Warrant Price immediately after such adjustment.
5.3 No Impairment. The Company will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 5 and in the taking of all such actions as may be necessary or
appropriate in order to protect against impairment of the rights of the holder
of this Warrant to adjustments in the Warrant Price.
6. Notice of Adjustments.
Whenever the Warrant Price and number of shares purchasable under this
Warrant shall be adjusted pursuant to Section 5 hereof, the Company shall issue
a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Warrant
Price and number of shares purchasable under this Warrant after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed (by
first class mail, postage prepaid) to the Holder.
7. Compliance With Act; Transferability of Warrant; Disposition
of Shares.
7.1 Legends. This Warrant and the Shares issued upon exercise thereof
shall be imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
4
<PAGE> 5
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF SAID ACT, SUPPORTED BY AN OPINION OF COUNSEL, REASONABLY SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED."
7.2 Transferability and Non-negotiability of Warrant and Shares. This
Warrant and the Shares issued upon exercise thereof may not be transferred or
assigned in whole or in part without compliance with applicable federal and
state securities laws by the transferor and the transferee (including, without
limitation, the delivery of investment representation letters and legal
opinions reasonably satisfactory to the Company, if reasonably requested by the
Company). Subject to the provisions of this Section 7.2, title to this Warrant
may be transferred in the same manner as a negotiable instrument transferable
by endorsement and delivery.
8. Registration Rights.
(a) The Company shall file a registration statement with the Securities
and Exchange Commission (the "Commission") on or before 30 days following the
final closing of the offering of which the Note is a part with respect to
Common Stock issued upon exercise of the Warrants or Common Stock underlying
the Warrants, at the Company's sole expense (other than the fees and
disbursements of counsel for the Holder and the underwriting discounts, if any,
payable in respect of the Shares sold by the Holder) under the Securities Act
of 1933 (the "Act") and such state laws as the Holder may reasonably request.
(b) In connection therewith, the Company will:
(i) Prepare and file with the Commission a registration
statement with respect to such securities, and use its best efforts
to cause such registration statement to become effective within 60
days of the date of the initial filing of such registration
statement and remain effective for such period as may be reasonably
necessary to effect the sale of such securities, not to exceed two
(2) years;
(ii) prepare and file with the Commission such amendments to
such registration statement and supplements to the prospectus
contained therein as may be necessary to keep such registration
statement effective for such period as may be reasonably necessary
to effect the sale of such securities, not to exceed two (2) years;
(iii) provide Holder's counsel with reasonable opportunities
to review and comment on, and otherwise participate in, the
preparation of such registration statement;
5
<PAGE> 6
(iv) furnish to the Holders and to the underwriters, if any, of
the securities being registered such reasonable number of copies of
the registration statement, preliminary prospectus, final prospectus
and such other documents as such Holders and underwriters may
reasonably request in order to facilitate the public offering of
such securities;
(v) use its best efforts to register or qualify the
securities covered by such registration statement under such state
securities or blue sky laws of such jurisdictions as the Holders
may reasonably request in writing within 30 days following the
original filing of such registration statement, except that the
Company shall not for any purpose be required to execute a general
consent to service of process (which shall not include a "Uniform
Consent to Service of Process" or other similar consent to service
of process which relates only to actions or proceedings arising out
of or in connection with the sale of securities, or out of a
violation of the laws of the jurisdiction requesting such consent)
or to qualify to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified;
(vi) notify the Holders, promptly after it shall receive
notice thereof, of the time when such registration statement has
become effective or a supplement to any prospectus forming a part
of such registration statement has been filed;
(vii) notify the Holders promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(viii) prepare and file with the Commission, promptly upon
the request of any of the Holders, any amendments or supplements to
such registration statement or prospectus which, in the opinion of
counsel for such Holder (and concurred in by counsel for the
Company), is required under the Act or the rules and regulations
thereunder in connection with the sale of the Shares by such
Holder;
(ix) prepare and promptly file with the Commission and
promptly notify the Holders of the filing of such amendment or
supplement to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time
when a prospectus relating to such securities is required to be
delivered under the Act, any event shall have occurred as the
result of which any such prospectus or any other prospectus as then
in effect would include an untrue statement of a material fact or
omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made,
not misleading;
6
<PAGE> 7
(x) advise the Holders, and the Holders' counsel, if any,
promptly after it shall receive notice or obtain knowledge thereof,
of the issuance of any stop order by the Commission suspending the
effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its
best efforts to prevent the issuance of any stop order or to obtain
its withdrawal if such stop order should be issued;
(xi) not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of the Holders shall have reasonably objected on the
grounds that such amendment or supplement does not comply in all
material respects with the requirements of the Act or the rules and
regulations thereunder, after having been furnished with a copy
thereof at least five business days prior to the filing thereof,
unless in the opinion of counsel for the Company the filing of such
amendment or supplement is reasonably necessary to protect the
Company from any liabilities under any applicable federal or state
law and such filing will not violate applicable law; and
(xii) at the request of any of the Holders, furnish on the
effective date of the registration statement and, if such
registration includes an underwritten public offering, at the
closing provided for in the underwriting agreement: (i) opinions,
dated such respective dates, of the counsel representing the
Company for the purposes of such registration, addressed to the
underwriters, if any, and to the Holder or Holders making such
request, covering such matters as such underwriters and Holder or
Holders may reasonably request; and (ii) letters, dated such
respective dates, from the independent certified public accountants
of the Company, addressed to the underwriters, if any, and to the
Holder or Holders making such request, covering such matters as
such underwriters and Holder or Holders may reasonably request, in
which letter such accountants shall state (without limiting the
generality of the foregoing) that they are independent certified
public accountants within the meaning of the Securities Act and
that in the opinion of such accountants the financial statements
and other financial data of the Company included in the
registration statement or the prospectus or any amendment or
supplement thereto comply in all material respects with the
applicable accounting requirements of the Act.
(d) The Company hereby indemnifies the Holder of this Warrant and
any person who controls such Holder within the meaning of Section 15 of the Act,
against all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in any registration statement,
prospectus, notification or offering circular (and as amended or supplemented
if the Company shall have furnished any
7
<PAGE> 8
amendments or supplements thereto) or any preliminary prospectus or caused by
any omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by the
Holder expressly for use therein, and the Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company and each
of its officers who signs such registration statement and each of its directors
and each person, if any, who controls the Company within the meaning of Section
15 of the Securities Act of 1933 with respect to losses, claims, damages or
liabilities which are caused by any untrue statement or omission contained in
information furnished in writing to the Company by the Holder expressly for use
therein.
9. Redemption of Warrants by the Company.
(a) Redemption. This Warrant may be redeemed, at the option of the
Company, as a whole at any time prior to the Expiration Date, at the executive
office of the Company, upon the notice referred to in Section 9(b), at the price
of $.01 per Warrant ("Redemption Price"), provided that the last sale price of
the Common Stock has been at least $1.00 (the "Trigger Price") on each of the
twenty (20) consecutive trading days ending on the third business day prior to
the date on which notice of redemption is given, the satisfaction of which
condition shall be certified by the Company.
(b) Date Fixed for and Notice of Redemption. Notice of redemption
shall be mailed by first class mail, postage prepaid, by the Company or the
Company's agent at its discretion not less than 30 days from the date fixed for
redemption to the Holder at the last address as shall appear on the registration
books. Any notice mailed in the manner herein provided shall be conclusively
presumed to have been duly given whether or not the registered holder received
such notice.
(c) Exercise After Notice of Redemption. This Warrant may be exercised
in accordance with the terms hereof at any time after notice of redemption shall
have been given by the Company pursuant to Section 9(b) hereof and prior to the
date fixed for redemption. On and after the redemption date, the Holder shall
have no further rights except to receive, upon surrender of this Warrant, the
Redemption Price.
(d) If there is any adjustment in the Warrant Price, pursuant to
Section 5 hereof, then the Trigger Price will be adjusted correspondingly.
10. Reservation of Stock. A number of Shares to which this Warrant
relates, sufficient to provide for the exercise of this Warrant upon the basis
herein set forth, shall at all times be reserved for the exercise thereof.
8
<PAGE> 9
11. Miscellaneous.
No fractional Shares shall be issued in connection with any exercise
hereunder, but in lieu of such fractional Shares the Company shall make a cash
payment therefor upon the basis of the Warrant Price then in effect. The terms
and provisions of this Warrant shall inure to the benefit of, and be binding
upon, the Company and the Holder hereof and its respective successors and
assigns. This Warrant shall be governed by and construed under the laws of the
State of Minnesota as applied to contracts entered into between residents of
the State of Minnesota to be wholly performed in the State of Minnesota. The
titles of the sections and subsections of this Warrant are for convenience only
and are not to be considered in construing this Warrant. All pronouns used in
the Warrant shall be deemed to include masculine, feminine and neuter forms.
THE SLED DOGS COMPANY
By: ________________________________
Title: ________________________________
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APPENDIX A
NOTICE OF EXERCISE
TO: _____________________
1. The undersigned hereby elects to purchase ______________ shares of the
Common Stock of The Sled Dogs Company, pursuant to terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full, together with all applicable transfer taxes, if any.
2. Please issue a certificate or certificates representing said shares of
the Common Stock in the name of the undersigned or in such other name as is
specified below:
3. The undersigned represents it is acquiring the shares of Common Stock
solely for its own account and not as a nominee for any other party and not
with a view toward the resale or distribution thereof.
_________________________________
(Name)
_________________________________
(Address)
_________________________________
_________________________________
_________________________________
(Taxpayer Identification Number)
_________________________________
[print name of Holder]
By: ____________________________
Title: ___________________
10
<PAGE> 1
EXHIBIT 10.48
SECURITY AGREEMENT
This Security Agreement is made and entered into this 5th day of June,
1997, between The Sled Dogs Company ("Debtor") and the persons specified on
Exhibit A hereto, as the same may be amended from time to time (collectively
referred to as the "Secured Parties").
RECITALS
WHEREAS, Debtor has borrowed from the Secured Parties and has made,
executed and delivered promissory notes, in favor of the Secured Parties (the
"Promissory Notes") as set forth in Schedule 1 hereto, as amended from time to
time; and
WHEREAS, to induce the Secured Parties to lend such amount, Debtor has
agreed to grant the Secured Parties a security interest in certain of its
assets;
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. Creation of Security Interest. Debtor hereby grants to the Secured
Parties a subordinate security interest in all of Debtor's right, title and
interest in and to the collateral described in Section 2 below (the
"Collateral") in order to secure the payment and performance of the obligations
of Debtor to the Secured Parties described in Section 3 below (the "Security
Interest").
2. Collateral. The Collateral under this Security Agreement is as
follows:
INVENTORY: All inventory of Debtor, as such term is defined in the UCC,
whether now owned or hereafter acquired, whether consisting of whole goods,
spare parts or components, supplies or materials, whether acquired, held or
furnished for sale, for lease or under service contracts or for manufacture or
processing, and wherever located; and
ACCOUNTS AND OTHER RIGHTS TO PAYMENT: Each and every right of Debtor to the
payment of money, whether such right to payment now exists or hereafter arises,
whether such right to payment arises out of a sale, lease or other disposition
of goods or other property, out of a rendering of services, out of a loan, out
of the overpayment of taxes or other liabilities, or otherwise arises under any
contract or agreement, whether such right to payment is created, generated or
earned by Debtor or by some other person who subsequently transfers such
person's interest to Debtor, whether such right to payment is or is not already
earned by performance, and howsoever such right to payment may be evidenced,
together with all other rights and interests (including all liens and security
interests) which Debtor may at any time have by law or agreement against any
account
<PAGE> 2
debtor or other obligor obligated to make any such payment or against any
property of such account debtor or other obligor, all including all of Debtor's
rights to payment in the form of all present and future accounts, contract
rights, loans and obligations receivable, chattel papers, bonds, notes and
other debt instruments, tax refunds and rights to payment in the nature of
general intangibles; and
EQUIPMENT: All of the Debtor's equipment, as such term is defined in the UCC
whether now or hereafter owned, including all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office
and recordkeeping equipment, parts, tools, supplies, and including specifically
the goods described in any equipment schedule or list herewith or hereafter
furnished to the Secured Parties by the Debtor; and
GENERAL INTANGIBLES: All of the Debtor's general intangibles, as such term is
defined in the UCC, whether now owned or hereafter acquired, including all
present and future contract rights, patents, patent applications, copyrights,
trademarks, trade names, trade secrets, customer or supplier lists and
contracts, license agreements regarding any intellectual property (including,
without limitation, the Patent and Trademark License Agreement), manuals,
operating instructions, permits, franchises, the right to use the Debtor's
name, and the goodwill of Debtor's business; and
PROCEEDS: Together with all substitutions and replacements for and products of
any of the foregoing property and together with proceeds of any and all of the
foregoing property and, in the case of all tangible property, together with all
accessions and together with (i) all accessories, attachments, parts, equipment
and repairs now or hereafter attached or affixed to or used in connection with
any such tangible property, and (ii) all warehouse receipts, bills of lading
and other documents of title now or hereafter covering such tangible property.
3. Secured Obligations of Debtor; Subordination.
(a) The Collateral secures and shall hereafter secure (i) the due and
punctual payment by Debtor to the Secured Parties of all amounts now or
hereafter owed to the Secured Parties by Debtor under the Promissory Note,
together with any interest thereon and extensions, modifications and
renewals thereof, and (ii) the performance by Debtor of all other
obligations and the discharge of all other liabilities to the Secured
Parties direct or indirect, absolute or contingent, due or to become due,
now existing or hereafter arising, joint, several and joint and several,
created under the Promissory Notes and Warrants issued to Secured Parties
in connection with the Promissory Notes (the "Warrants") (upon execution
and delivery thereof) or this Security Agreement, (all such obligations,
the "Obligations"). All payments and performance shall be in accordance
with the terms under which the Obligations were or are hereafter incurred
or created. Debtor shall also promptly reimburse the Secured Parties for
any and all amounts expended by the Secured Parties in accordance with, or
in the enforcement (judicially or otherwise) or exercise of its rights
under, the terms of this Security Agreement, including reasonable
attorneys' fees, which amounts are included in the Obligations secured
hereunder.
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<PAGE> 3
(b) The security interest granted hereunder is (a) subordinate in
all respects to any security interest which the Company has granted, or
may grant in the future, in connection with any Senior Debt (as defined
in the Promissory Notes), including without limitation the security
interest granted to Norwest Credit, Inc. (the "Bank"), or in connection
with the financing of any aspect of its operations, such as a security
interest in its inventory granted to a manufacturer or a factor, or any
security interest granted in connection with the purchase of any asset,
and the Secured Parties agree to execute all documents, instruments and
agreements requested by any secured party with a security interest senior
to the security interest granted to the Lender, to effectuate this
subordination.
(c) Whenever this Security Agreement contemplates an action, decision
or notice by the Secured Parties, such an action, decision or notice shall
be deemed to have been validly taken, made or given (as the case may be)
hereunder if concurred in or consented to by a majority in interest of the
Secured Parties. A majority in interest of the Secured Parties shall
consist of a majority of the then outstanding principal amount of
indebtedness held by all Secured Parties under the Promissory Notes.
4. Debtor's Representations and Warranties. Debtor represents and
warrants that:
(a) Debtor is (or to the extent that the Collateral is to be
acquired after the date hereof, will be) the sole owner of the
Collateral; there are no security interests, liens or encumbrances, or
adverse claims of title to, or any other interest in, the Collateral or
any portion thereof except the interest of the Bank and the Secured
Parties and that created by this Security Agreement; and that no
financing statement, mortgage or deed of trust covering the Collateral or
any portion thereof exists or is on file in any public office except for
the security interest granted to the Bank;
(b) Neither the execution and delivery of this Security Agreement by
Debtor nor the consummation of the transactions herein contemplated nor
the fulfillment of the terms hereof will result in a breach of any of the
terms or provisions of, or constitute a default under, or constitute an
event which with notice or lapse of time or both will result in a breach
of or constitute a default under, any agreement, indenture, mortgage,
deed of trust, equipment lease, instrument or other document to which
Debtor is a party, or conflict with any law, order, rule or regulation
applicable to Debtor of any court or any federal or state government,
regulatory body or administrative agency, or any other governmental body
having jurisdiction over Debtor or their respective properties.
5. Covenants of Debtor. Debtor covenants that:
(a) So long as the Secured Parties have not completed foreclosure
proceedings hereunder, Debtor will defend the Collateral against all
claims and demands of all persons (other than the Secured Parties) at any
time claiming the same or any interest therein;
3
<PAGE> 4
(b) Debtor will not, without the prior written consent of the
Secured Parties, change its place of business other than that set forth
in this Security Agreement, or change its name, identity or corporate
structure, and, in the event such consent is given, Debtor will execute
and file any and all documents relative thereto, including without
limitation, financing statements and/or amendments thereto, as reasonably
requested by the Secured Parties;
(c) Debtor will, within 5 business days of the date hereof, procure
or execute and deliver any document; give any notices, execute and file
any financing statements or other documents, all in form and substance
satisfactory to the Secured Parties and take any other actions which are
necessary or, in the judgment of the Secured Parties, desirable to
perfect or continue the perfection and priority of the Secured Parties'
security interest in the Collateral, to protect the Collateral against
the rights, claims, or interests of third persons or to effect the
purposes of this Security Agreement, and will pay all reasonable costs
incurred in connection therewith. If Debtor shall fail to fulfill its
obligations described in this subsection (c) within the time periods
provided herein, the Secured Parties are hereby authorized to sign,
deliver and/or file any such documents, notices, financing statements or
other writings, as it deems necessary or advisable as Debtor's agent
and/or attorney-in-fact;
(d) Debtor will not, without the prior written consent of the
Secured Parties, in any way hypothecate or create or permit to exist any
lien, security interest or encumbrance on the Collateral other than the
interest of the Secured Parties created by this Security Agreement, nor
will Debtor sell, transfer, assign, exchange, lease, or otherwise dispose
of the Collateral except in the ordinary course of business. If the
Collateral, or any part thereof, is sold, transferred, assigned, leased,
exchanged, or otherwise disposed of in violation of these provisions, the
security interest of the Secured Parties shall continue in such
Collateral or part thereof notwithstanding such sale, transfer,
assignment, lease, exchange or other disposition, and Debtor will hold
the proceeds thereof in a separate account for the Secured Parties'
benefit. Debtor will, at the Secured Parties' request, transfer such
proceeds to the Secured Parties in kind;
(e) Debtor will pay and discharge all taxes, assessments and
governmental charges or levies against the Collateral prior to
delinquency thereof and will keep the Collateral free of all unpaid
charges whatsoever; provided however, that Debtor shall have the right to
contest any such taxes, assessments, charges or levies;
(f) Debtor will keep and maintain the Collateral in good condition
and repair. Debtor will not misuse or abuse the Collateral, or waste or
allow it to deteriorate except for the ordinary wear and tear of its
normal and expected use in Debtor's business;
(g) Debtor will cause the Collateral to be kept insured at its own
expense under one or more policies and against such risks and liabilities
as are currently covered.
4
<PAGE> 5
6. Defaults and Remedies.
6.1 The occurrence of any one or more of the following events or
conditions shall constitute a default under this Security Agreement
("Default(s)").
(a) Debtor fails to pay or perform any Obligation or covenant
required herein, or discharge any liability to the Secured Parties
in accordance with the terms upon which such Obligation, covenant
or liability was incurred or created within thirty (30) days of
giving written notice from the Secured Parties to Debtor of such
failure;
(b) Debtor makes or has made or furnishes or has furnished any
warranty, representation or statement to the Secured Parties as set
forth in with this Security Agreement or in the Promissory Note or
Warrants, which is or was false or misleading in any material
respect when made or furnished (a "False Warranty"), which False
Warranty has a material adverse impact on the Secured Parties;
(c) The Collateral, or any substantial portion thereof, is
destroyed or damaged and for which the Debtor is not fully insured
against;
(d) Any lien or encumbrance other than that created by this
Security Agreement is placed on or any levy is made on the
Collateral or any portion thereof, or the Collateral or any portion
thereof is seized or attached pursuant to legal process; provided,
however, that Debtor shall post an appropriate bond (only if such
lien or encumbrance may be a priority lien to the Secured Parties'
lien hereunder) or take other actions reasonably satisfactory to
the Secured Parties that will ensure that the Secured Parties'
rights hereunder, including its lien in the Collateral, are not
modified or diminished;
(e) Debtor becomes insolvent as defined in the Federal
Bankruptcy Code, admits in writing its insolvency or its present or
prospective inability to pay its debts as they become due, is
unable to or does not pay all or any material portion (in number or
dollar amount) of its debts as they become due, permits or suffers
a judgment to exist against it which has or may have a material
impact on Debtor's ability to perform its obligations under the
Promissory Note, Warrants or hereunder (unless enforcement thereof
is stayed pending appeal) makes or proposes an assignment for the
benefit of creditors, convenes or proposes to convene a meeting of
its creditors, or any class thereof, for purposes of effecting a
moratorium upon or extension or composition of its debts, proposes
any such moratorium, extension or composition, or commences or
proposes to commence any bankruptcy, reorganization or insolvency
proceeding, or other proceeding under any federal, state or other
law for the relief of debtors;
5
<PAGE> 6
(f) Debtor fails to obtain the dismissal, within sixty (60)
days after the commencement thereof, of any bankruptcy,
reorganization or insolvency proceeding, or other proceeding under
any law for the relief of debtors, instituted against it by one or
more third parties, fails actively to oppose any such proceeding,
or, in any such proceeding, defaults or files an answer admitting
the material allegations upon which the proceeding was based or
alleges its willingness to have an order for relief entered or its
desire to seek liquidation, reorganization or adjustment of any of
its debts;
(g) Any receiver, trustee or custodian is appointed to take
possession of all or any substantial portion of the assets of
Debtor, or any committee of the Debtor's creditors, or any class
thereof, is formed for the purpose of monitoring or investigating
the financial affairs of Debtor or enforcing such creditors'
rights;
(h) Debtor ceases to conduct its business in the ordinary
course.
6.2 Immediately upon the occurrence of a Default hereunder, the
Secured Parties may, at its option, upon five (5) business days' notice to or
demand upon Debtor, do any one or more of the following:
(a) Declare all Obligations to be immediately due and payable,
whereupon all unpaid amounts and interest on said amounts shall
become and be immediately due and payable;
(b) Exercise any or all of the rights and remedies provided
for by the applicable Uniform Commercial Code, specifically
including, without limitation, the right to recover the reasonable
attorneys' fees and other reasonable expenses incurred by the
Secured Parties in the enforcement of this Security Agreement or in
connection with Debtor's redemption of the Collateral;
(c) Enforce one or more remedies hereunder, successively or
concurrently, and such action shall not operate to estop or prevent
the Secured Parties from pursuing any other or further remedy which
it may have, and any repossession or retaking or sale of the
Collateral pursuant to the terms hereof shall not operate to
release Debtor until full and final payment of any deficiency has
been made in cash. Debtor shall reimburse the Secured Parties upon
demand for, or the Secured Parties may apply any proceeds of
Collateral to, the costs and expenses (including reasonable
attorneys' fees, transfer taxes and any other charges) incurred by
the Secured Parties in connection with any sale, disposition or
retention of any Collateral hereunder;
(d) In connection with any public or private sale under the
applicable Uniform Commercial Code, the Secured Parties shall give
Debtor at least five (5) business days' prior written notice of the
time and place of any public sale of the Collateral or of the time
after which any private sale or other intended disposition
6
<PAGE> 7
thereof is to be made, which shall be deemed to be reasonable
notice of such sale or other disposition. Such notice may be
delivered to Debtor at the address set forth in Section 7.2 of this
Security Agreement. The Secured Parties shall have no obligation
to exhibit (as may be required, if any, under any relevant Uniform
Commercial Code(s) and/or applied in cases thereunder) any part of
the Collateral at or prior to the sale thereof;
(e) Proceed by an action or actions at law or in equity to
recover the amounts secured hereunder or to foreclose this Security
Agreement and sell the Collateral, or any portion thereof, pursuant
to a judgment or decree of a court or courts of competent
jurisdiction; and
(f) In the event the Secured Parties recover possession of all
or any part of the Collateral pursuant to a writ of possession or
other judicial process, whether prejudgment or otherwise, the
Secured Parties may thereafter retain, sell or otherwise dispose of
such Collateral in accordance with this Security Agreement or the
applicable Uniform Commercial Code, and following such retention,
sale or other disposition, the Secured Parties may voluntarily
dismiss without prejudice the judicial action in which such writ of
possession or other judicial process was issued. Debtor hereby
consents to the voluntary dismissal by the Secured Parties of such
judicial action, and Debtor further consents to the exoneration of
any bond which the Secured Parties filed in such action.
7. Miscellaneous Provisions.
7.1 Applicable Law; Entire Agreement; Modification. The existence,
validity, construction, operation and effect of this Security Agreement
shall be determined in accordance with and be governed by the laws of the
State of Minnesota. The parties each acknowledge that the other party
has not made any representations other than those which are contained
herein (or any exhibit or attachment thereto). This Security Agreement
may not be amended or modified in any way, except by a writing signed by
an authorized officer or the party against whom the amendment,
modification or waiver is sought to be enforced.
7.2 Notices. All notices and other communications from either party
to the other hereunder shall be in writing and shall be deemed received
upon actual receipt when personally delivered, upon acknowledgment of
receipt if sent by facsimile or upon the expiration of the third business
day after being deposited in the United States mails, postage prepaid,
certified or registered mail, addressed to the other party as follows: if
to a Secured Party, to his address as it appears on the Schedule 1
attached hereto and if to the Company, to 212 Third Avenue N., Suite 420,
Minneapolis, Minnesota 55401.
All payments to be made under this Security Agreement, if made by mail,
shall be deemed to have been made on the date of receipt thereof. The
parties hereto may change their addresses
7
<PAGE> 8
by giving notice thereof in conformity with this Section 7.2 except that
if such notice is sent by United States mail it need not be certified or
registered.
7.3 Severability. Nothing contained in this Security Agreement
shall be construed so as to require the commission of any act contrary to
Law, and wherever there is any conflict between any provision of this
Security Agreement and any Law, such Law shall prevail; provided,
however, that in such event the provisions of this Security Agreement so
affected shall be curtailed and limited only to the extent necessary to
permit compliance with the minimum legal requirement, and no other
provisions of this Security Agreement shall be affected thereby and all
such other provisions shall continue in full force and effect.
7.4 Successors, Assignment. This Security Agreement shall be
binding on and shall inure to the benefit of any and all successors and
assigns of the parties. Any purported assignment by Debtor without the
prior written consent of the Secured Parties, which may be withheld in
its sole discretion, shall be null and void and of no force and effect.
the Secured Parties shall have the right to assign its interest under
this Security Agreement.
7.5 Heading. The descriptive headings of the several sections and
paragraphs of this Security Agreement are inserted for convenience only
and do not constitute a part of this Security Agreement.
7.6 Counterparts. This Security Agreement may be executed in
several counterparts, each of which shall be deemed an original, and all
such counterparts together shall constitute but one and the same
instrument.
7.7 No Waiver. No delay in enforcing or failure to enforce any
right under this Security Agreement by the Secured Parties shall
constitute a waiver by the Secured Parties of such right. No waiver by
the Secured Parties of any default or Default hereunder shall be
effective unless in writing, nor shall any waiver operate as a waiver of
any other default or Default or of the same default or Default on a
future occasion.
7.8 Power of Attorney. Debtor hereby appoints and constitutes the
Secured Party designated in writing by Secured Parties holding at least
51% of the aggregate principal amount of the Promissory Notes as Debtor's
attorney-in-fact for purposes of (i) collecting accounts or proceeds of
any Collateral, (ii) conveying any item of Collateral, only upon an event
of Default, to any purchaser thereof, and (iii) executing, delivering,
marking and/or filing any documents or instruments which the Secured
Parties may file pursuant to the last sentence of Section 5(c) hereof.
This power of attorney is coupled with an interest and is irrevocable by
Debtor.
7.9 Termination of Agreement. This Security Agreement shall
terminate upon full and final payment and performance of all indebtedness
and fulfillment of the other Obligations secured hereunder. At such
time, the Secured Parties shall release its interest to
8
<PAGE> 9
Debtor in all of the Collateral hereunder which has not been sold,
disposed of, retained or applied by the Secured Parties in accordance
with the terms hereof. Such release shall be without warranty by or
recourse to the Secured Parties, except that the Secured Parties shall
warrant that the Collateral shall be free and clear of any liens or
encumbrances caused by it, and shall be at the expense of Debtor. Both
parties shall reasonably provide the other with requested documentation
and filings with respect to such release.
7.10 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Security Agreement, or to seek damages for
a breach of any provision hereof, or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees in addition to any other available
remedy.
IN WITNESS WHEREOF, each of the parties hereto has duly executed and
delivered this Agreement as of the day and year first written above.
"DEBTOR"
The Sled Dogs Company
By: _____________________
Its: ____________________
9
<PAGE> 10
EXHIBIT A
Secured Parties Amount of Promissory Note
Name and Address Signature
Kent Rodriguez ______________________ $100,000
7020 Lanham Lane
Edina, MN 55439
Henry Furst ______________________ $25,000
52 Glen Avenue
Llewellyn Park
W. Orange, NJ 07052
Jay Goldman ______________________ $25,000
40 Kean Road
Short Hills, NJ 07078
Leonard B. Zelin ______________________ $50,000
720 Apple Ridge Road
Franklin Lakes, NJ 07417
John Weiler _______________________ $25,000
117 Plymouth Cove
San Rafel, CA 94901
David S. Becker _______________________ $50,000
14 Hall Drive
Orinda, CA 94563
Daniel L. Berger _______________________ $50,000
Carolyn B. Berger
11 Byron Lane
Larchmont, NY 10538
Edward P. Torres _______________________ $25,000
Irene Torres
1354 Cinnamon Drive
Fort Washington, PA 19304
10
<PAGE> 11
Marie E. Valdes _______________________ $25,000
c/o Bailin
405 Park Avenue, 15th Floor
New York, NY 10022
Albert Wachtel _______________________ $12,500
Sydelle Wachtel
1050 North Mills Avenue
Claremont Colleges
Claremont, CA 91711-6101
John Heilshorn _______________________ $12,500
175 East 79th Street, Apt. 5A
New York, NY 10021
Richard S. Thompson ________________________ $12,500
4821 South Lake Drive
Boynton Beach, FL 33436
Peter Salas ________________________ $25,000
Marianne Salas
8 West Mill Drive (1F)
Great Neck, NY 11021
Rick N. Diamond ________________________ $12,500
1000 Fernbrook Lane North
Plymouth, MN 55447
Stephen A. deKanter ________________________ $12,500
Charlotte B. deKanter
1810 Mocanopy Avenue
Coconut Grove, FL 33133
Lawrence M. Gordon _________________________ $25,000
30 Talbot Court
Short Hills, NJ 07078
Howard J. Shire _________________________ $12,500
c/o Kenyon & Kenyon
1 Broadway
New York, NY 10004
11
<PAGE> 12
UPDATED AS OF JUNE 9, 1997
Howard J. Shire _________________________ $12,500
c/o Kenyon & Kenyon
1 Broadway
New York, NY 10004
12
<PAGE> 1
EXHIBIT 23.2
Consent of Ernest & Young LLP
We consent to the incorporation by reference in the Registration Statement
(Form S-3 No. 33-80875) of The Sled Dogs Company and in the related Prospectus
of our report dated May 13, 1997, with respect to the consolidated financial
statements of The Sled Dogs Company included in this Annual Report (Form
10-KSV) for the year ended March 31, 1997.
/s/ Ernst & Young
Minneapolis, Minnesota
June 26, 1997
