-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KhBHmnwM5e7CR0j2d/j5MpGH8I113ymN10v48/WsUPc8OAdOZR/6EjpTtG+j9JvC GtbwuJylk+9EGSIqO3+tLQ== 0000950147-02-000404.txt : 20020415 0000950147-02-000404.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950147-02-000404 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20020308 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WARREN KENNETH J CENTRAL INDEX KEY: 0001015902 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: OH FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D BUSINESS ADDRESS: STREET 1: 5920 CROMDALE, SUITE 1 CITY: DUBLIN STATE: OH ZIP: 43017 BUSINESS PHONE: 6147661960 MAIL ADDRESS: STREET 1: 41 SOUTH HIGH STREET STREET 2: SUITE 2300 CITY: COLUMBUS STATE: OH ZIP: 43215 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ROYAL PRECISION INC CENTRAL INDEX KEY: 0001016395 STANDARD INDUSTRIAL CLASSIFICATION: [3949] IRS NUMBER: 061453896 STATE OF INCORPORATION: DE FISCAL YEAR END: 0531 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-53445 FILM NUMBER: 02571019 BUSINESS ADDRESS: STREET 1: 15170 NORTH HAYDEN ROAD STREET 2: SUITE 1 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 6026270200 MAIL ADDRESS: STREET 1: 15170 NORTH HAYDEN ROAD STREET 2: SUITE 1 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 FORMER COMPANY: FORMER CONFORMED NAME: FM PRECISION GOLF CORP DATE OF NAME CHANGE: 19970521 SC 13D 1 e-8263.txt SCHEDULE 13D OF KENNETH J. WARREN UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------- SCHEDULE 13D (Rule 13d-101) ROYAL PRECISION, INC. ------------------------------ (Name of Issuer) Common Stock, par value $.001 per share --------------------------------------- (Title of Class of Securities) 780921-10-2 -------------- (CUSIP Number) February 22, 2002 ------------------------------------------------------- (Date of Event which Requires Filing of this Statement) ---------- If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(b)(3) or (4), check the following box [X]. - --------------------- ----------------- CUSIP NO. 780921-10-2 SCHEDULE 13D Page 2 of 6 Pages - --------------------- ----------------- 1 NAMES OF REPORTING PERSON S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON Kenneth J. Warren -------------------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ] (b) [ ] -------------------------------------------------------------------------- 3 SEC USE ONLY -------------------------------------------------------------------------- 4 SOURCE OF FUNDS* OO -------------------------------------------------------------------------- 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ] -------------------------------------------------------------------------- 6 CITZENSHIP OR PLACE OF ORGANIZATION United States of America -------------------------------------------------------------------------- 7 SOLE VOTING POWER 377,102 NUMBER OF --------------------------------------------------------- SHARES 8 SHARED VOTING POWER BENEFICIALLY -0- OWNED BY --------------------------------------------------------- EACH 9 SOLE DISPOSITIVE POWER REPORTING 377,102 PERSON --------------------------------------------------------- WITH 10 SHARED DISPOSITIVE POWER -0- --------------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 377,102(1) -------------------------------------------------------------------------- 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [ ] -------------------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 6.6% (based on 5,681,711 shares outstanding) -------------------------------------------------------------------------- 14 TYPE OF REPORTING PERSON* IN -------------------------------------------------------------------------- (1) Consists of (a) 344,479 shares held by the reporting person; (b) a currently exercisable warrant for 12,000 shares held by DWR, Custodian for Kenneth Warren, Attorney at Law, fbo Kenneth J. Warren, VIP Plus Profit Sharing Plan (the "Profit Sharing Plan"); (c) 300 shares held by the Profit Sharing Plan; and (d) 20,323 shares issuable upon the exercise of currently exercisable options. Does not include (i) any shares held by The Johnston Family Charitable Foundation of which the reporting person is a trustee but as to which he shares no voting or dispositive power; (ii) any shares issuable upon conversion of a $50,000 convertible subordinated note held by the Profit Sharing Plan referred to in Item 6 which is not convertible until the occurrence of a default; (iii) the 30,000 shares subject to an option from The Johnston Family Charitable Remainder Unitrust #3 referred to in Item 6 which is not currently exercisable; and (iv) 20,000 shares issuable upon exercise of an employee stock option not exercisable within 60 days. ITEM 1 SECURITY AND ISSUER. Common Stock, par value $.001 per share Royal Precision, Inc. 535 Migeon Avenue Torrington, CT 06790 ITEM 2 IDENTITY AND BACKGROUND. (a) Kenneth J. Warren (b) 5134 Blazer Parkway, Dublin, OH 43017 (c) Attorney at Law 5134 Blazer Parkway, Dublin, OH 43017 (d) The reporting person has not, during the last five years, been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors). (e) During the last five years, the reporting person has not been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction. (f) Mr. Warren is a citizen of the United States of America. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. The reporting person acquired 344,479 shares in 1996 and 1999, substantially all of which were purchased on credit (see Item 6). A warrant for 12,000 shares held by DWR, Custodian for Kenneth Warren, Attorney at Law, fbo Kenneth J. Warren, VIP Plus Profit Sharing Plan ("the Profit Sharing Plan") was issued to the Profit Sharing Plan in exchange for a loan to the Company in the amount of $50,000 on February 28, 2002. Included in the reporting person's total shareholdings are (i) the 344,479 shares held by the reporting person purchased in 1996 and 1999; (ii) 300 shares purchased and held by the Profit Sharing Plan; (iii) 12,000 shares issuable upon exercise of the warrant held by the Profit Sharing Plan; and (iv) 20,323 shares issuable to the reporting person upon the exercise of options which are exercisable within 60 days. Does not include (a) any shares held by The Johnston Family Charitable Foundation; (b) shares issuable upon conversion of the $50,000 convertible subordinated note held by the Profit Sharing Plan referred to in Item 6 which is not currently convertible; (c) 30,000 shares subject to an option from The Johnston Family Charitable Remainder Unitrust #3 referred to in Item 6 which is not currently exercisable; and (d) 20,000 shares issuable upon exercise of an employee stock option which are not exercisable within 60 days. ITEM 4. PURPOSE OF TRANSACTION. The reporting person was previously a party to a Stockholder Agreement among the issuer and certain other stockholders and reported his ownership as a member of that "group" on Schedule 13G. The reporting person was released as a party to that agreement in February 1999 and filed a Schedule 13G with respect to his ownership in his individual capacity at that time. The reporting person acquired and continues to hold the shares of Common Stock reported herein for investment purposes. The reporting person intends to review continuously his equity position in the Issuer. Depending upon future evaluations of the business prospects of the Issuer and upon other developments, including, but not limited to, general economic and business conditions and money market and stock market conditions, the reporting person may determine to 3 increase or decrease his equity interest in the Issuer by acquiring additional shares of Common Stock or by disposing of all or a portion of his holdings subject to any applicable legal and contractual restrictions on his ability to do so. In addition, in connection with the Issuer's ongoing needs for additional capital, the reporting person has from time to time engaged in discussions with respect to one or more possible privately negotiated investments in the Issuer which may be purchases of additional common stock, loans or direct investments in assets of the Issuer, or a combination of all, and which may involve one or more additional accredited individual or institutional investors or lenders. Except as disclosed in this Item 4, the reporting person has no current plans or proposals that relate to or would result in any of the following, although he may consider certain of such types of transactions and reserves the right to develop such plans or proposals in the future: (a) The acquisition by any person or additional securities of the Issuer, or the disposition of securities of the Issuer; (b) An extraordinary corporate transaction, such as a merger, reorganization, or liquidation involving the Issuer or any of its subsidiaries; (c) A sale or transfer of a material amount of assets of the Issuer or any of its subsidiaries; (d) Any change in the present board of directors or management of the Issuer, including any plans or proposals to change the number or terms of directors or to fill any existing vacancies on the board; (e) Any material change in the present capital or dividend policy of the Issuer; (f) Any other material change in the Issuer's business or corporate structure; (g) Changes in the Issuer's charter, bylaws, or instruments corresponding thereto or other actions that may impede the acquisition of control of the Issuer by any person; (h) Causing a class of securities of the Issuer to be delisted from a national securities exchange or to cease to be authorized to be quoted in an inter-dealer quotation system of a registered national securities association; (i) A class of equity securities of the Issuer becoming eligible for termination of registration pursuant to Section 12(g)(4) of the Securities Act of 1934; or (j) Any action similar to any of those set forth in (a) through (i) above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) (i) Amount Beneficially Owned: 377,102 shares (ii) Percent of Class: 6.6% (based upon 5,681,711 outstanding shares) (b) Number of shares as to which the person has: (i) Sole power to vote or to direct the vote: 377,102 (ii) Shared power to vote or to direct the vote: -0- (iii) Sole power to dispose or to direct the disposition of: 377,102 (iv) Shared power to dispose or to direct the disposition of: -0- 4 (c) (i) On February 28, 2002, the reporting person granted to Christopher A. Johnston a one year option to purchase 121,750 shares of common stock at an exercise price of $0.25 per share. See subparagraph (f) of Item 6. (ii) On February 28, 2002, the Profit Sharing Plan lent to the Company $50,000, evidenced by the Company's subordinated promissory note and a warrant to purchase 12,000 shares of the Company's common stock at a price of $0.25 per share. See subparagraph (g) of Item 6. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. (a) On May 29, 1996, the original 80 shares held by the reporting person in a constituent company prior to a merger in 1999 were pledged by the reporting person to RPJ/JAJ Partners, Ltd. under a pledge agreement pursuant to which the pledgee will only acquire voting power or dispositive power over the shares upon the occurrence of certain contingencies which have not yet occurred. These 80 shares were converted to 334,031 shares of the Company in the merger and remain subject to the pledge agreement. (b) The reporting person is a party to a stockholders agreement dated May 29, 1996 under which the holders of 59,006 shares have granted to him and Christopher A. Johnston rights of first refusal, which rights are not currently exercisable, and Mr. Warren has granted a right of first refusal and a call right on his shares to Christopher A. Johnston, which rights are not currently exercisable. (c) In September 1999, 3,900 shares were pledged by the reporting person to Richard P. Johnston and Jayne A. Johnston, Trustees of the Johnston Family Living Trust u/a dtd. April 11, 1999, to enable the reporting person to purchase on credit shares of common stock of the Company by delivery of a promissory note to such Living Trust and 667 additional shares were purchased using the reporting person's personal funds. (d) On October 19, 1999, 5,881 shares were pledged by the reporting person to Richard P. Johnston and Jayne A. Johnston, Trustees of the Johnston Family Living Trust u/a dtd. April 11, 1999, to enable the reporting person to purchase on credit shares of common stock of the Company by delivery of a promissory note to such Living Trust. (e) On July 24, 2001, The Johnston Family Charitable Remainder Unitrust #3 granted a seven year option to the reporting person to purchase 30,000 shares. 20% of such option becomes exercisable July 24, 2002 and on each July 24 of the four subsequent years. (f) On February 28, 2002, the reporting person granted to Christopher A. Johnston a one-year option to purchase 121,750 shares of common stock at an exercise price of $0.25 per share. This option may be extended for four successive one year periods upon receipt of $1,406.49 for each extension. (g) On February 28, 2002, the Profit Sharing Plan lent to the Company $50,000, evidenced by the Company's subordinated promissory note ("Subordinated Note") which bears interest at the rate of 13% per annum and matures in 12 months. The Subordinated Note is subordinate to the Company's bank credit facilities. In connection with such financing, the Profit-Sharing Plan also received a warrant to purchase 12,000 shares of the Company's common stock at a price of $0.25 per share. Additionally, upon default, the Profit-Sharing Plan will have an option to convert the indebtedness into common stock of the Company at an exchange ratio of $0.25 per share with respect to any outstanding principal and accrued interest that is not repaid in full on or before the maturity date. 5 ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. Exhibit 1. Pledge Agreement between the reporting person and RPJ/JAJ Partners, Ltd. Dated May 29, 1996. Exhibit 2. Stockholders Agreement among Christopher A. Johnston, the reporting person and David J. Lyon, et al dated May 29, 1996. Exhibit 3. Pledge Agreement to Johnston Family Living Trust dated September 1, 1999. Exhibit 4. Pledge Agreement to Johnston Family Living Trust dated October 19, 1999. Exhibit 5. Option Agreement from Johnston Family Charitable Remainder Unitrust #3 dated July 24, 2001. Exhibit 6. Option Agreement to Christopher A. Johnston dated February 28, 2002. Exhibit 7. Subordinated Promissory Note of the Company dated February 28, 2002. Exhibit 8. Warrant dated February 28, 2002 held by the Profit Sharing Plan. SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. March 8, 2002 ---------------------------------------- (Date) /s/ Kenneth J. Warren ---------------------------------------- (Signature) Kenneth J. Warren ---------------------------------------- 6 EX-1 3 ex1.txt PLEDGE AGREEMENT - KENNETH J. WARREN EXHIBIT 1 PLEDGE AGREEMENT In order to induce RPJ/JAJ PARTNER, LTD. (the "Company"), to extend credit to KENNETH J. WARREN, an individual residing at 5567 Capelstone Lane, Dublin. Ohio 43017 (the "Pledgor"), to enable Pledgor to purchase on credit shares of the capital stock of FM PRECISION GOLF CORP. ("PGC") by the delivery of a promissory note (the promissory note, being of even date herewith, and this Agreement are hereinafter referred to as the "Loan Documents" and the obligations of Pledgor under such promissory note and under this Agreement are hereafter referred to as the "Secured Obligations"), Pledgor hereby grants to the Company a security interest to secure the Secured Obligations, on the following terms and subject to the following conditions, in: (a) Eighty shares of the capital stock, par value $.01 per share of the Company (collectively, the "Pledged Shares"); (b) any equity securities issued by PGC and any options, warrants or rights to acquire such securities, owned or acquired by Pledgor, directly or indirectly, now or at any time in the future; (c) any securities or other property issued or distributed to Pledgor with respect to any securities described in clauses (a) or (b) above as a dividend or as a result of any amendment of the Certificate of Incorporation of PGC or other charter documents, merger, consolidation, redesignation, reclassification, purchase or sale of assets, dissolution, or plan of arrangement, compromise or reorganization of the issuer thereof; (d) any rights incidental to the ownership of any of the securities described in clauses (a), (b) or (c) above such as voting, conversion and registration rights and rights of recovery for violations of applicable securities laws; and (e) the proceeds of the exercise, redemption, sale or exchange of any of the foregoing or any dividend, interest payment or other distribution of cash or property in respect thereof. All of the foregoing may be referred to herein as the "Pledged Collateral." ARTICLE 1. PLEDGE. SECTION 1.1. DELIVERY. (a) Before, or at the same time as Pledgor has executed and delivered this Agreement to the Company, he has delivered to the Company all of the certificates representing the Pledged Shares, duly endorsed in blank without restriction and with all signatures guaranteed with a medallion signature guaranty acceptable at any principal national securities exchange and with all necessary transfer tax stamps affixed. (b) If, at any time, Pledgor obtains possession of any certificate or instrument constituting or representing any of the Pledged Collateral (other than cash dividends from PGC out of earnings of the current or the last two fiscal years, he shall deliver such certificate or instrument to the Company forthwith duly endorsed in blank without restriction and with all signatures guaranteed with a medallion signature guaranty acceptable at any principal national securities exchange and with all necessary transfer tax stamps affixed. (c) Pledgor may retain for his own use and shall not be required to deliver to the Company any interest payments on or any cash dividends paid by PGC out of earnings of the current or the last two fiscal years which have been paid on the Pledged Collateral, but if an event of default as described in Section 4.1 below (an "Event of Default") has occurred and is continuing, then all such interest and dividends shall be delivered to the Company as provided in paragraph (b) of this Section 1.1. (d) If any of the Pledged Collateral is uncertificated securities, Pledgor shall (i) procure the issuance of security certificates to represent such Pledged Collateral and endorse and deliver such certificates to the Company as required by paragraph (b) of this Section 1.1, (ii) cause the issuer thereof to register the Company as the registered owner of such securities or (iii) cause the issuer thereof to enter into an agreement, in form and substance satisfactory to the Company, among the Company, the registered owner of such security, and the issuer to the effect that the issuer will comply with instructions originated by the Company without further consent by the registered owner. (e) If any Pledged Collateral is not securities and is not capable of being delivered, Pledgor shall deliver to the Company such financing statements or other instruments as are deemed necessary by the Company to enable it to perfect its security interest in such Pledged Collateral under applicable law. SECTION 1.2. RIGHTS. If no Event of Default has occurred or is continuing, the Pledged Collateral will be registered in the name of Pledgor, and he may exercise any voting or consensual rights that he may have as the owner of the Pledged Collateral for any purpose which is not inconsistent with this Agreement. Pledgor shall deliver to the Company copies of all notices, proxy statements, proxies and other information or instruments in his possession concerning such exercise and advise the Company of how he will exercise such rights at least five (5) days before any meeting or mailing any ballot or consent and shall not exercise any such right if, in the judgment of the Company, such exercise would have a material adverse effect on the value of the Pledged Collateral. If an Event of Default has occurred and is continuing, the Company may exercise all voting or consensual rights of the owners of any of the Pledged Collateral and Pledgor shall deliver to the Company all notices, proxy statements, proxies and other information and instruments relating to the exercise of such rights received by Pledgor from the issuers of any of the Pledged Collateral promptly upon receipt thereof and shall at the request of the Company execute and deliver to the Company any proxies or other instruments which are, in the judgment of the Company, necessary for the Company to validly exercise such voting and consensual rights. SECTION 1.3. DUTY OF THE COMPANY. The duty of the Company with respect to the Pledged Collateral shall be solely to use reasonable care in the physical custody thereof, and the Company shall not be under any obligation to take any action with respect to any of the Pledged Collateral or to preserve rights against prior parties. The powers conferred on the Company hereunder are solely to protect its interest in the Pledged Collateral and do not impose any duty upon it to exercise any such powers. Pledgor is not looking to the Company to provide him with investment advice. The Company shall have no duty to ascertain or take any action with respect to calls, conversions, exchanges, maturities, tenders or other matters concerning any Pledged Collateral, whether or not the Company has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve any rights pertaining to any Pledged Collateral. The Company shall have no duty to exercise reasonable care to preserve the value of any of the Pledged Collateral unless (a) the value of the Pledged Collateral as determined by market prices (taking for this purpose Pledged Collateral which is not the subject of market quotations as having no value unless it is the subject of a contract to purchase with a creditworthy counterparty) exceeds by at least ten percent (10%) the total amount of the Secured Obligations plus the cost of sale of such Pledged Collateral, (b) an Event of Default has occurred and is continuing, (c) Pledgor has timely made a reasonable request in writing to the Company to sell or redeem such Pledged Collateral, (d) Pledgor provides the Company with the funds necessary to exercise any purchase right and (e) Pledgor executes all instruments necessary to continue the security interest of the Company in the proceeds of the requested action. SECTION 1.4. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. Pledgor acknowledges that he has made his own arrangements for keeping informed of changes or potential changes affecting the Pledged Collateral (including, but not limited to, conversions, subscriptions, exchanges, reorganizations, dividends, tender offers, mergers, consolidations and shareholder meetings) and Pledgor agrees that the Company has no responsibility to inform Pledgor of such matters or to take any action with respect thereto even if any of the Pledged Collateral has been registered in the name of the Company or its agent or nominee. SECTION 1.5. RETURN OF PLEDGED COLLATERAL. The security interest granted to the Company hereunder shall not terminate and the Company shall not be required to return the Pledged Collateral to Pledgor unless and until (a) the Secured Obligations have been fully paid or performed, (b) all of Pledgor's obligations hereunder have been fully paid or performed, and (c) Pledgor has reimbursed the Company for any expenses of returning the Pledged Collateral and filing such termination statements and other instruments as are required to be filed in public offices under applicable laws. -2- ARTICLE 2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants to the Company as follows: SECTION 2.1. ENFORCEABILITY. This Agreement has been duly executed and delivered by Pledgor, constitutes his valid and legally binding obligation and is enforceable in accordance with its terms against Pledgor, his other creditors and purchasers of the Pledged Collateral. SECTION 2.2. NO CONFLICT. The execution, delivery and performance of this Agreement, the grant of the security interest in the Pledged Collateral hereunder and the consummation of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, (a) violate any material law applicable to Pledgor; (b) violate any judgment, writ, injunction or order of any court or governmental body or officer applicable to Pledgor; (c) violate or result in the breach of any material agreement to which Pledgor is a party or by which any of his properties, including the Pledged Collateral, is bound; nor (d) violate any restriction on the transfer of any of the Pledged Collateral. SECTION 2.3. NO CONSENTS. No consent, approval, license, permit or other authorization of any third party or any governmental body or officer is required for the valid and lawful execution and delivery of this Agreement, the valid and lawful creation and perfection of the Company's security interest in the Pledged Collateral or the valid and lawful exercise by the Company of remedies available to it under this Agreement or applicable law or of the voting and other rights granted to it in this Agreement except as may be required for the offer or sale of those items of Pledged Collateral which are securities under applicable securities laws. SECTION 2.4. SECURITY INTEREST. Pledgor is the sole record and beneficial owner of the Pledged Shares free and clear of all liens, encumbrances and adverse claims and Pledgor has the unrestricted right to grant the security interest provided for herein to the Company. Pledgor has duly endorsed and delivered to the Company all of the certificates representing the Pledged Shares and has granted to the Company a valid and perfected first priority security interest in the Pledged Shares, free of all liens, encumbrances, transfer restrictions and adverse claims. SECTION 2.5. INFORMATION. None of the information, documents, or financial statements which has been furnished by Pledgor or his representatives to the Company or any of its representatives in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact required to be stated hereby or thereby or necessary to make such statements not misleading. SECTION 2.6. NAME AND ADDRESS. Pledgor's full legal name and his principal residence address are correctly set forth under his signature at the end of this Agreement. ARTICLE 3. COVENANTS. Pledgor hereby covenants and agrees with the Company that Pledgor shall: SECTION 3.1. DEFEND TITLE. Defend his title to the Pledged Collateral and the security interest of the Company therein against the claims of any person claiming rights in the Pledged Collateral against or through Pledgor and maintain and preserve such security interest and its priority so long as this Agreement shall remain in effect. SECTION 3.2. NO TRANSFER. Neither sell nor offer to sell nor otherwise transfer nor encumber any portion of the Pledged Collateral; nor enter into any agreement which relates to the voting of or restricts the transfer of any of the Pledged Collateral. SECTION 3.3. FURTHER ASSURANCES. At Pledgor's expense, do such further acts and execute and deliver such additional conveyances, certificates, instruments, legal opinions and other assurances as the Company may at any time request or require to protect, assure or enforce its interests, rights and remedies under this Agreement. Pledgor shall execute and deliver to the Company and file with the appropriate governmental offices in the State of Wyoming one or more Uniform Commercial Code financing statements describing the Pledged Collateral in the words used above, or amendments or continuations thereof whenever necessary to continue the perfection of the Company's security interest hereunder and whenever requested by the Company. -3- SECTION 3.4. NAME AND ADDRESS. Notify the Company at least ninety (90) days before he changes his name or the address of his principal residence. SECTION 3.5. LATER DELIVERIES. Deliver or transfer a first priority security interest in any Pledged Collateral that is transferred or delivered to the Company after the date hereof, free and clear of all liens, encumbrances, transfer restrictions and adverse claims. ARTICLE 4. DEFAULT. SECTION 4.1. EVENTS OF DEFAULT. (a) If Pledgor fails to pay or perform, as the case may be, any of the Secured Obligations when the same becomes due and payable or performable, as the case may be; or (b) If an event of default or event requiring the payment of the balance of such promissory note occurs; or (c) If Pledgor fails to perform any obligation or violates any covenant contained in this Agreement, other than those referred to in subsection (a) above, and such failure or violation continues unremedied for a period of three (3) days after the Company requests Pledgor to remedy such failure or violation; or (d) If any representation or warranty made by Pledgor in this Agreement or any information contained in any financial statement or other document delivered to the Company by or on behalf of Pledgor contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; or (e) If Pledgor: (i) dies; or (ii) makes an assignment for the benefit of, or enters into any composition or arrangement with, creditors; or (iii) generally does not pay his debts as such debts become due; or (iv) conceals, removes, or permits to be concealed or removed, any part of his property, with intent to hinder, delay or defraud his creditors or any of them, or makes or suffers a transfer of any of his property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law, or makes any transfer of his property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or (f) If (i) a trustee, receiver, agent or custodian is appointed or authorized to take charge of any property of Pledgor for the purpose of enforcing a lien against such property or for the purpose of administering such property for the benefit of his creditors; or (ii) an order (A) for relief as to Pledgor is granted under Title 11 of the United States Code or any similar law, or (B) declaring Pledgor to be incompetent is entered by any court; or (iii) Pledgor files any pleading seeking, or authorizes or consents to, any such appointment or order, whether by formal action or by the admission of the material allegations of a pleading or otherwise; or (iv) any action or proceeding seeking such appointment or order is commenced without the authority or consent of Pledgor, and is not dismissed within thirty (30) days after its commencement; Pledgor shall be in default and the Company shall have, in addition to any other remedies available to it under the law or any agreement, the rights and remedies of a secured party under Article 9 of the Uniform Commercial Code. SECTION 4.2. REMEDIES. (a) If an Event of Default has occurred and is continuing, the Company may, in its discretion: (i) register any of the Pledged Collateral in its name or in the name of its broker/dealer, agent or nominee or any of their nominees, (ii) exchange certificates representing any of the Pledged Collateral for certificates of larger or smaller denominations, (iii) exercise any voting rights of a holder of any of the Pledged Collateral in any manner which would, in the commercially reasonable judgment of the Company, preserve or enhance the value of the Pledged Collateral; (iv) exercise any conversion, registration, purchase or other rights of a holder of any of the Pledged Collateral and any reasonable expense of such exercise shall be deemed to be an expense of -4- preserving the value of such Pledged Collateral for the purposes of Section 5.1 below; and (v) collect, including by legal action, any notes, checks or other instruments for the payment of money included in the Pledged Collateral and compromise or settle with any obligor of such instruments. (b) If notice of the time and place of any public sale of the Pledged Collateral or the time after which any private sale or other intended disposition is required by the Uniform Commercial Code, Pledgor acknowledges that five (5) days advance notice thereof will be a reasonable notice. The Company shall not be obligated to make any sale of Pledged Collateral regardless of whether notice of sale has been given. The Company may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (c) If, under the Uniform Commercial Code, the Company may purchase any part of the Pledged Collateral, it may, in payment of any part of the purchase price thereof cancel any part of the Secured Obligations. (d) If any of the Pledged Collateral is sold on credit or for future delivery, it need not be retained by the Company until the purchase price is paid and the Company shall incur no liability if the purchaser fails to take up or pay for such Pledged Collateral. In case of any such failure, such Pledged Collateral may be sold again. (e) Pledgor shall execute and deliver to the purchasers of the Pledged Collateral all instruments and other documents necessary or proper to sell, convey, and transfer title to such Pledged Collateral and, if approval of any sale of Pledged Collateral by any governmental body or officer is required, Pledgor shall prepare or cooperate fully in the preparation of and cause to be filed with such governmental body or officer all necessary or proper applications, reports, and forms and do all other things necessary or proper to expeditiously obtain such approval. (f) Any cash held by the Company as Pledged Collateral and all cash proceeds of any sale of, collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Company, be held by the Company as collateral for, or then or at any time thereafter be applied (after payment of any amounts payable to the Company pursuant to Article 5 below) in whole or in part against, all or any part of the Secured Obligations in such order as the Company may elect. Any surplus of such cash or cash proceeds held by the Company and remaining after payment in full of all of the Company's expenses hereunder and the Secured Obligations shall be paid over to Pledgor or to whomever may be lawfully entitled to receive such surplus. SECTION 4.3. APPOINTMENT OF THE COMPANY AS AGENT. Pledgor hereby appoints and constitutes the Company, its successors and assigns, as his agent and attorney-in-fact for the purpose of carrying out the provisions of this Agreement and taking any action or executing any instrument that the Company considers necessary or convenient for such purpose, including the power to (a) endorse and deliver checks, notes and other instruments for the payment of money in the name of and on behalf of Pledgor, (b) endorse and deliver in the name of and on behalf of Pledgor securities certificates, (c) execute and deliver in the name of and on behalf of Pledgor instructions to the issuers of uncertificated securities and (d) to execute and file in the name of and on behalf of Pledgor financing statements (which may be photocopies of this Agreement) and continuations and amendments to financing statements in the State of Wyoming or elsewhere and Forms 144 with the United States Securities and Exchange Commission. This appointment is coupled with an interest and is irrevocable and will not be affected by the death or bankruptcy of Pledgor nor by the lapse of time. If Pledgor fails to perform any act required by this Agreement, the Company may perform such act in the name of and on behalf of Pledgor and at his expense which shall be chargeable to Pledgor under Article 5 below. Pledgor hereby consents and agrees that the issuers of or obligors of the Pledged Collateral or any registrar or transfer agent or trustee for any of the Pledged Collateral shall be entitled to accept the provisions hereof as conclusive evidence of the rights of the Company to effect any transfer pursuant to this Agreement and the authority granted to the Company herein, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Pledgor, or any other person, to any of such issuers, obligors, registrars, transfer agents, or trustees. -5- SECTION 4.4. IMPACT OF REGULATIONS. Pledgor acknowledges that compliance with the Securities Act of 1933 and the rules and regulations thereunder and any relevant state securities laws and other applicable laws may impose limitations on the right of the Company to sell or otherwise dispose of securities included in the Pledged Collateral. For this reason, Pledgor hereby authorizes the Company to sell any securities included in the Pledged Collateral in such manner and to such persons as would, in the judgment of the Company, help to ensure that the transfer of such securities will be given prompt and effective approval by any relevant regulatory authorities and will not require any of the securities to be registered or qualified under any applicable securities laws. Pledgor understands that a sale under the foregoing circumstances may yield a substantially lower price for such Pledged Collateral than would otherwise be obtainable if the same were registered and sold in the open market, and Pledgor shall not attempt to hold the Company responsible for selling any of the Pledged Collateral at an inadequate price even if the Company accepts the first offer received or if only one possible purchaser appears or bids at any such sale. If the Company shall sell any securities included in the Pledged Collateral at such sale, the Company shall have the right to rely upon the advice and opinion of any qualified appraiser or investment banker as to the commercially reasonable price obtainable on the sale thereof but shall not be obligated to obtain such advice or opinion. Pledgor hereby assigns to the Company any registration rights or similar rights Pledgor may have from time to time with respect to any of the Pledged Collateral. SECTION 4.5. IRREVOCABLE PROXY. In furtherance of the rights granted to the Company under Section 1.2 and paragraph (a) of Section 4.2 above, and not by way of limitation of such rights, Pledgor hereby appoints the Company and its officers as his proxy to vote any of the Pledged Shares or any of the other Pledged Collateral, attend meetings of the holders of such securities and to execute consents, waivers and releases with respect thereto. The Company and such officers shall have the power of substitution with respect to such proxy. Such proxy shall continue in force until the security interest granted to the Company hereunder has terminated. Such proxy is irrevocable by Pledgor or by his death, incapacity or bankruptcy. Pledgor acknowledges that such proxy is a power coupled with an interest, including, without limitation, the security interest granted to the Company herein and the related remedies granted to the Company in this Article 4. The proxy granted under this Section 4.5 shall not be exercised by the Company or its officers unless and until an Event of Default has occurred and is continuing. If an Event of Default has occurred and is continuing, the Company may exercise such proxy as provided in paragraph (a) of Section 4.2 above. ARTICLE 5. EXPENSES. SECTION 5.1. PAYMENT. Pledgor agrees that he will forthwith upon demand pay to the Company: (a) the amount of any taxes which the Company may have been required to pay by reason of holding the Pledged Collateral or to free any of the Pledged Collateral from any lien, encumbrance or adverse claim thereon, and (b) the amount of any and all out-of-pocket expenses, including the fees and disbursements of counsel and of any brokers, investment brokers, appraisers or other experts, that the Company may incur in connection with (i) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Pledged Collateral and the validity, perfection, rank and value of the Company's security interest therein, (ii) the collection, sale or other disposition of any of the Pledged Collateral, (iii) the exercise by the Company of any of the rights conferred upon it hereunder, or (iv) any action or proceeding to enforce its rights under this Agreement or in pursuit of any non-judicial remedy hereunder including the sale of the Pledged Collateral. Any such amount not paid on demand shall bear interest (computed on the basis of the number of days elapsed over a year of three hundred sixty (360) days) at a rate per annum equal to the rate announced from time to time by Star Bank in Cincinnati, Ohio as its prime rate, plus three (3) percentage points. SECTION 5.2 INDEMNITY. Pledgor shall indemnify the Company and its partners, directors, officers, employees, agents and attorneys against, and hold them harmless from, any liability, cost or expense, including the fees and disbursements of their legal counsel, incurred by any of them under the corporate or securities laws applicable to holding or selling any of the Pledged Collateral, except for liability, cost or expense arising out of the recklessness or willful misconduct of the indemnified parties. -6- SECTION 5.3 DISCHARGE OF LIENS. At its option, the Company may pay and discharge taxes, liens, security interests and other encumbrances on the Pledged Collateral. Pledgor agrees to reimburse the Company under Section 5.1 above for any payment made or any expense incurred (including reasonable attorneys' fees and expenses to the extent permitted by law) by the Company pursuant to the foregoing authorization. ARTICLE 6. WAIVERS. SECTION 6.1. WAIVER OF SURETYSHIP AND IMPAIRMENT OF COLLATERAL DEFENSES. Pledgor hereby waives any defense to his obligations under this Agreement and any claim that the security interest granted herein has been discharged or released based on suretyship or impairment of collateral including, but not limited to, the occurrence on any one or more occasions, of any of the following: (a) the amendment, modification or waiver of any term of the Loan Documents or any other agreement or instrument evidencing or creating any of the Secured Obligations or any payment or other performance due thereunder; (b) the grant, exchange, release, surrender, disposal, invalidity or impairment of or the failure to properly perfect any security interest in any collateral which secures the Company's obligations hereunder, any of the Secured Obligations or any other guaranty thereof; (c) the existence or assertion by Pledgor of any defense to the Secured Obligations, including, but not limited to, the bankruptcy of PGC; (d) the impossibility or illegality of any payment or performance of any of the Secured Obligations by Pledgor; (e) any change in the relationship between Pledgor and the Company that existed on the date hereof; (f) any extension of the time for the payment or other performance of any Secured Obligation on one or more occasions and for any period of time; (g) any merger, consolidation, reorganization or other change in the corporate organization of PGC; (h) the exercise, pursuit or waiver of any right or remedy that the Company may have against Pledgor or any other person or collateral at any time or the failure to exercise or pursue any such right or remedy; (i) the failure of the Company to give notice to Pledgor of the occurrence of any default in Pledgor's payment or other performance of the Secured Obligations; (j) the taking of or omission to take any action under this Agreement, the Loan Documents or the Secured Obligations; and (k) the release or discharge of any guarantor or surety with respect to the Loan Documents or Secured Obligations or any agreement not to sue such persons. SECTION 6.2. WAIVERS OF NOTICE. Pledgor hereby waives presentment, demand, protest, notice of any default under the Loan Documents, and all other notices to Pledgor specified in the Loan Documents or any other agreement between Pledgor and the Company. ARTICLE 7. MISCELLANEOUS. SECTION 7.1. THIS AGREEMENT. This Agreement, the schedules and exhibits hereto and the agreements and instruments required to be executed and delivered hereunder set forth the entire agreement of the parties with respect to the subject matter hereof and supersede and discharge all prior agreements (written or oral) and negotiations and all contemporaneous oral agreements concerning such subject matter and negotiations. There are no oral conditions precedent to the effectiveness of this Agreement. SECTION 7.2. NON-WAIVER. Neither the failure of nor any delay by any party to this Agreement to enforce any right hereunder or to demand compliance with its terms is a waiver of any right hereunder. No action taken pursuant to this Agreement on one or more occasions is a waiver of any right hereunder or constitutes a course of dealing that modifies this Agreement. -7- SECTION 7.3. WAIVERS. No waiver of any right or remedy under this Agreement shall be binding on any party unless it is in writing and is signed by the party to be charged. No such waiver of any right or remedy under any term of this Agreement shall in any event be deemed to apply to any subsequent default under the same or any other term contained herein. SECTION 7.4. AMENDMENTS. No amendment, modification or termination of this Agreement shall be binding on any party hereto unless it is in writing and is signed by the party to be charged. SECTION 7.5. SEVERABILITY. If any term or provision set forth in this Agreement shall be invalid or unenforceable, the remainder of this Agreement, or the application of such terms or provisions to persons or circumstances, other than those to which it is held invalid or unenforceable, shall be construed in all respects as if such invalid or unenforceable term or provision were omitted. SECTION 7.6. SUCCESSORS. The terms of this Agreement shall be binding upon Pledgor, his heirs and personal representatives, and shall inure to the benefit of the Company, its corporate successors, and any holder, owner or assignee of any rights in any of the Loan Documents and will be enforceable by them as their interest may appear. SECTION 7.7. THIRD PARTIES. Nothing herein expressed or implied is intended or shall be construed to give any person other than the parties hereto any rights or remedies under this Agreement. SECTION 7.8. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Agreement authorizes or requires a payment or performance on a Saturday, Sunday or public holiday, such payment or performance shall be deemed to be timely if made on the next succeeding business day. SECTION 7.9. JOINT PREPARATION. This Agreement shall be deemed to have been prepared jointly by the parties hereto. Any ambiguity herein shall not be interpreted against any party hereto and shall be interpreted as if each of the parties hereto had prepared this Agreement. SECTION 7.10. RULES OF CONSTRUCTION. In this Agreement, words in the singular number include the plural, and in the plural include the singular; words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender and the word "or" is disjunctive but not exclusive. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Agreement. SECTION 7.11. NOTICES. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received or two days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth under such party's signature hereto and with such copies delivered, transmitted or mailed to such persons as are specified therein. Any party may change his address for notices in the manner set forth above. SECTION 7.12. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing and delivering one or more counterparts. SECTION 7.13 LEGAL MATTERS. (a) REASONABLE RELATION. The parties hereto agree that certain material events, occurrences and transactions relating to this Agreement bear a reasonable relationship to the State of Wyoming. (b) CHOICE OF LAW. The validity, terms, performance and enforcement of this Agreement shall be governed by those laws of the State of Wyoming which are applicable to agreements which are negotiated, executed, delivered and performed solely in the State of Wyoming. (c) JURISDICTION, VENUE, SERVICE OF PROCESS. The State and Federal District Courts located in Wyoming shall have exclusive jurisdiction and venue of any action or proceeding arising out of or related to the negotiation, execution, delivery, performance, breach or enforcement of this Agreement or any other agreement, document or instrument negotiated, executed, delivered, entered -8- into or performed in connection with this Agreement or any of the transactions contemplated hereby or thereby; any waiver, modification, amendment or termination hereof or thereof or any action taken or omission made by Pledgor or the Company or any of their respective directors, officers, employees, agents or attorneys in connection with the payment, performance, exercise or enforcement of any right, duty or obligation created or implied hereby or thereby or arising hereunder or thereunder; regardless of whether any claim, counterclaim or defense in any such action, suit or proceeding is characterized as arising out of fraud, negligence, recklessness, intentional misconduct, a breach of contract or fiduciary duty, or violation of a statute, law, ordinance, rule or regulation. The parties hereto hereby irrevocably consent to the personal jurisdiction of such courts, to such venue and to the service of process in the manner provided for the giving of notices in this Agreement. The parties hereto hereby waive all objections to such jurisdiction and venue including those which might be based upon inconvenience or the nature of the forum. (d) WAIVER OF JURY TRIAL. Pledgor hereby voluntarily, knowingly, irrevocably and unconditionally waives and relinquishes his right to trial by jury under the Constitution of the United States of America or of the State of Wyoming or any other constitution, statute or law in any civil legal action, suit or proceeding arising out of or related to the negotiation, execution, delivery, performance, breach or enforcement of this Agreement or any other agreement, document or instrument negotiated, executed, delivered, entered into or performed in connection with this Agreement or any of the transactions contemplated hereby or thereby; any waiver, modification, amendment or termination hereof or thereof or any action taken or omission made by Pledgor or the Company or any of their respective directors, officers, employees, agents or attorneys in connection with the payment, performance, exercise or enforcement of any right, duty or obligation created or implied hereby or thereby or arising hereunder or thereunder; regardless of whether any claim, counterclaim or defense in any such action, suit or proceeding is characterized as arising out of fraud, negligence, recklessness, intentional misconduct, a breach of contract or fiduciary duty, or violation of a statute, law, ordinance, rule or regulation. IN WITNESS WHEREOF, Pledgor has signed this Pledge Agreement as of this first day of April, 1996. PLEDGOR: /s/ Kenneth J. Warren ---------------------------------------- Kenneth J. Warren 5567 Capelstone Lane Dublin, Ohio 43017 Accepted as of May 29, 1996 RPJ/JAJ PARTNERS. LTD. By: /s/ Richard P. Johnston ------------------------------ Richard P. Johnston, Partner 9651 North Pusch Ridge Place Tuscon, Arizona 85737 -9- EX-2 4 ex2.txt STOCKHOLDERS AGREEMENT EXHIBIT 2 STOCKHOLDERS AGREEMENT THIS STOCKHOLDERS AGREEMENT (the "Agreement"), dated as of May 29, 1996 is made by and among CHRISTOPHER A. JOHNSTON residing in Jackson, Wyoming ("Chris"), KENNETH J. WARREN residing in Dublin, Ohio ("Ken"), DAVID J. LYON residing in Dublin, Ohio ("David"), and SHERRY J. ROTHFIELD residing in Miami, Florida ("Sherry"). ARTICLE I DEFINITIONS Section 1.1. DEFINITIONS. The following terms, as used herein, have the following meanings: "Common Stock" means the shares of common stock, par value of $.01 per share, of the Issuer. "Holder" means each Person (other than Chris) who shall be a party to this Agreement, whether in connection with the execution and delivery of the Agreement as of the date hereof or otherwise, so long as such Person shall "beneficially own" (as such term is defined in Rule 13D-3 under the Securities Exchange Act of 1934, as amended) any shares of Common Stock. "Issuer" means FM Precision Golf Corp., a Delaware corporation. "Permitted Transferee" means such individual's spouse or lineal descendants, or a trust partnership, limited liability company or other entity for the benefit of same. "Person" means and includes an individual, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or other department or agency thereof. ARTICLE II RIGHTS AND OBLIGATIONS WITH RESPECT TO TRANSFER Section 2.1. GENERAL RESTRICTIONS. (a) No Holder shall, directly or indirectly, transfer, sell, assign, pledge, hypothecate, encumber or otherwise dispose of any Common Stock to any Person (any such act being referred to as a "Transfer", with the term "Transferee" to mean any transferee in a Transfer), except (i) in compliance with all applicable federal and state securities laws and (ii) as expressly permitted by this Agreement. (b) Notwithstanding any other provision of this Agreement to the contrary, any Holder may at any time Transfer any or all shares of Common Stock to one or more of his or her Permitted Transferees so long as (i) such Permitted Transferee shall have agreed in writing to be bound (through execution of an agreement substantially in the form of Exhibit 2.1(b) hereto) by the terms of this Agreement applicable to Holders and (ii) the Transfer to such Permitted Transferee is not in violation of any applicable federal or state securities laws. Any such Transfer shall not relieve the Holder of any liability under this Agreement whether occurring before or after such Transfer, and such Holder shall remain liable for any breach of this Agreement or Exhibit 2.1(b) by such Permitted Transferee. Section 2.2. RESTRICTIVE LEGEND. For so long as this Agreement remains in effect, each certificate representing Common Stock owned by any Holder shall include a legend in substantially the following form: THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS AND MAY NOT BE OFFERED OR SOLD EXCEPT IN COMPLIANCE THEREWITH. THIS SECURITY IS SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS AGREEMENT, DATED AS OF MAY 29, 1996, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER. Section 2.3. RIGHTS OF FIRST REFUSAL FOR DAVE AND SHERRY. (a) Neither David nor Sherry (for purposes of this Section 2.3, each an "Offering Holder") will Transfer any Common Stock other than to his or her Permitted Transferee without first giving Ken and Chris (each an "Offeree Holder") prior notice thereof (an "Offer Notice") and the opportunity (as hereinafter provided) to purchase all but not less than all such Common Stock (the "Offered Stock") at a cash price (the "Offer Price") equal to the sum of the amount of any cash plus the fair market value of any other consideration offered by the prospective purchaser or other transferee pursuant to a bona fide offer to purchase. The Offer Notice shall constitute an offer (the "Offer") by an Offering Holder to sell all but not less than all of the Offered Stock to first Ken and, if Ken does not accept the Offer, then Chris, at the Offer Price and shall state the identity of the purchaser or Transferee and the terms of the proposed Transfer. (b) The Offer may be accepted within 45 days of receipt by the Offeree Holders of the Offer Notice and, if accepted, such acceptance shall constitute the binding agreement of Ken or Chris to purchase the Offered Stock by the later of (i) the date 30 days after such acceptance or (ii) the date by which the prospective purchaser or Transferee would have been obligated to purchase the Offered Stock. If the Offer is not accepted or the Offered Stock is not purchased as contemplated above, the Offering Holder may Transfer the Offered Stock to such prospective purchaser or Transferee at a price not less than the Offer Price and on substantially the same terms as described in the Offer Notice. If the Transfer to such prospective purchaser or Transferee is not consummated as contemplated above within 30 days after the expiration of the 45-day offer period or earlier irrevocable rejection of the Offer or failure to -2- purchase the Offered Stock after acceptance of the Offer, no Transfer may be made by the Offering Holder without again complying with this Section 2.3. Notwithstanding the foregoing, if the purchase and sale of the Offered Stock is subject to any prior regulatory approval, the time periods specified above within which such purchase and sale must be consummated shall be extended until the expiration of five business days after all such approvals shall have been received. (c) If the consideration offered by the prospective purchaser or Transferee includes non-cash consideration, the Offeree Holder and Offering Holder shall negotiate in good faith with a view to agreeing upon the fair market value of such non-cash consideration. If, despite such good faith negotiations, the Offering Holder and Offeree Holder are unable to agree on such fair market value within 15 days following receipt by the Offeree Holder of the Offer Notice, each of the Offering Holder and the Offeree Holder shall, at its own expense, retain an investment banking firm of national reputation to determine such fair market value. If such two investment banking firms do not make substantially similar determinations and neither determination is acceptable to both the Offering Holder and the Offeree Holder, then such investment banking firms shall, at the equally shared expense of the Offering Holder and the Offeree Holder, retain a third investment banking firm of national reputation to select between the two determinations, which selection shall be binding upon each party. If a determination under this subsection (c) is required, the deadline for acceptance provided for in this Section 2.3 shall be postponed until the fifth business day after the date of such determination. Section 2.4. RIGHTS OF FIRST REFUSAL FOR KEN. (a) Ken will not Transfer any Common Stock other than to his Permitted Transferee without first giving Chris prior notice thereof (an "Offer Notice") and the opportunity (as hereinafter provided) to purchase all but not less than all such Common Stock (the "Offered Stock") at a cash price (the "Offer Price") equal to the sum of the amount of any cash plus the fair market value of any other consideration offered by the prospective purchaser or other transferee pursuant to a bona fide offer to purchase. The Offer Notice shall constitute an offer (the "Offer") by Ken to sell all but not less than all of the Offered Stock to Chris, at the Offer Price and shall state the identity of the purchaser or Transferee and the terms of the proposed Transfer. (b) The Offer may be accepted within 45 days of receipt by Chris of the Offer Notice and, if accepted, such acceptance shall constitute the binding agreement of Chris to purchase the Offered Stock by the later of (i) the date 30 days after such acceptance or (ii) the date by which the prospective purchaser or Transferee would have been obligated to purchase the Offered Stock. If the Offer is not accepted or the Offered Stock is not purchased as contemplated above, Ken may Transfer the Offered Stock to such prospective purchaser or Transferee at a price not less than the Offer Price and on substantially the same terms as described in the Offer Notice. If the Transfer to such prospective purchaser or Transferee is not consummated as contemplated above within 30 days after the expiration of the 45-day offer period or earlier irrevocable rejection of the Offer or failure to purchase the Offered Stock after acceptance of the Offer, no Transfer may be made by Ken without again complying with this Section 2.4. Notwithstanding the foregoing, if the purchase and sale of the Offered Stock is subject to any prior regulatory approval, the time periods specified above within which such purchase and sale must be consummated shall be extended until the expiration of five business days after all such approvals shall have been received. -3- (c) If the consideration offered by the prospective purchaser or Transferee includes non-cash consideration, Ken and Chris shall negotiate in good faith with a view to agreeing upon the fair market value of such non-cash consideration. If, despite such good faith negotiations, Ken and Chris are unable to agree on such fair market value within 15 days following receipt by Chris of the Offer Notice, each of Ken and Chris shall, at his own expense, retain an investment banking firm of national reputation to determine such fair market value. If such two investment banking firms do not make substantially similar determinations and neither determination is acceptable to both Ken and Chris, then such investment banking firms shall, at the equally shared expense of Ken and Chris, retain a third investment banking firm of national reputation to select between the two determinations, which selection shall be binding upon each party. If a determination under this subsection (c) is required, the deadline for acceptance provided for in this Section 2.4 shall be postponed until the fifth business day after the date of such determination. ARTICLE III OPTION ON DEATH OR INCAPACITY 3.1. GRANT OF OPTION. Upon the death or mental incapacity of Ken, Chris shall have an option to purchase all of the shares of Common Stock then owned by the Holders on the following terms and conditions: (a) Within 45 days of the appointment of a representative of the estate of Ken or of a guardian of the person of Ken, Chris shall send a notice (the "Option Notice") to the Holders of his intent to exercise the option herein granted. Such notice shall set forth the price Chris believes is the fair market price for the Common Stock owned by the Holders. (b) The Holders and Chris shall negotiate in good faith with a view to agreeing upon the fair market value of such Common Stock. If, despite such good faith negotiations, the Holders and Chris are unable to agree on such fair market value within 15 days following receipt by the Holders of the Option Notice, the Holders, on the one hand, and Chris, on the other, shall, at his and their own expense, retain an investment banking firm of national reputation to determine such fair market value. If such two investment banking firms do not make substantially similar determinations and neither determination is acceptable to a majority of the Holders (by ownership of Common Stock) and Chris, then such investment banking firms shall, at the equally shared expense of the Holders and Chris (50% to Chris and 50% to the Holders ratably to their percentage stock ownership), retain a third investment banking firm of national reputation to select between the two determinations, which selection shall be binding upon each party. (c) Within 10 days following the agreement or determination of the fair market value of the Common Stock, a closing shall take place at a place and time mutually agreeable to the parties (or in the absence of such agreement, on the 10th day following such determination at the offices of the Issuer at 10:00 -4- a.m. local time) at which time Chris shall pay the purchase price in cash or by certified or bank cashier's check against receipt of the certificates representing the Common Stock free and clear of all liens and encumbrances, with signatures appropriately guaranteed under the then rules and regulations generally applicable to the transfer of stock certificates. ARTICLE IV MISCELLANEOUS Section 4.1. HEADINGS. The headings in this Agreement are for convenience of reference only and shall not control or affect the meaning or construction of any provisions hereof. Section 4.2. ENTIRE AGREEMENT; AMENDMENTS; NO WAIVERS. (a) This Agreement embodies the entire agreement of the parties hereto with respect to the subject matter hereof and supersedes all prior agreements with respect thereto. This Agreement may be amended but only in a writing signed by each of the parties and by the addition of Transferees through execution of an agreement substantially in the form attached as Exhibit 2.1(b). Any provision hereof may be waived but only in a writing signed by the party against which such waiver is sought to be enforced. (b) No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. Section 4.3. NOTICES. Any notice, request, instruction or other document to be given hereunder by any party hereto to another party hereto shall be in writing (including telecopies or similar writing) and shall be given to such party at its address or telecopier number set forth on its signature page or, in the case of a Transfer, to the address, or telecopier number of the party executing the written agreement pursuant to Section 2.1 hereof, or to such other address as the party to whom notice is to be given may provide in a written notice to the party giving such notice, a copy of which written notice shall be on file with the Secretary of the Issuer. Each such notice, request or other communication shall be effective (a) if given by telecopy, when such telecopy is transmitted to the telex or telecopy number specified in its signature page and the appropriate answerback or confirmation, as the case may be, is received, (b) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid addressed as aforesaid or (c) if given by any other means, when delivered at the address set forth on its signature page. Section 4.4. APPLICABLE LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to conflicts of law principles. -5- Section 4.5. SEVERABILITY. The invalidity or unenforceability of any provisions of this Agreement in any jurisdiction shall not affect the validity, legality or enforceability of the remainder of this Agreement in such jurisdiction or the validity, legality or enforceability of this Agreement, including any such provision, in any other jurisdiction, it being intended that all rights and obligations of the parties hereunder shall be enforceable to the fullest extent permitted by law. Section 4.6. SUCCESSORS, ASSIGNS, TRANSFEREES. (a) The provisions of this Agreement shall be binding upon and accrue to the benefit of the parties hereto and their respective heirs, successors and permitted assigns. Neither this Agreement nor any provisions hereof shall be construed so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and permitted assigns. (b) This Agreement shall not be assignable or otherwise transferable by any party hereto, except that any Person acquiring shares of Common Stock who is required by the terms of this Agreement to become a party hereto shall execute and deliver to the other parties hereto an agreement to be bound (substantially in the form of Exhibit 2.1(b)) by this Agreement and shall thenceforth be a "Holder", and any Holder who ceases to beneficially own any Shares shall cease to be bound by the terms hereof. Section 4.7. COUNTERPARTS; EFFECTIVENESS. This Agreement may be executed in any number of counterparts, each of which shall be an original with the same effect as if the signatures thereto and hereto were upon the same instrument. Section 4.8. FEES AND EXPENSES. All fees and expenses incurred by any party hereto in connection with the preparation of this Agreement and the transactions contemplated hereby and all matters related thereto shall be borne by the party incurring such fees or expenses. Section 4.9. RECAPITALIZATION, ETC. If any capital stock or other securities are issued in respect of, or in exchange or substitution for, any Common Stock by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or complete liquidation, stock dividend, split-up, sale of assets, distribution to stockholders or combination of the Common Stock or any other change in capital structure of the Issuer, appropriate adjustments shall be made with respect to the relevant provisions of this Agreement so as to fairly and equitably preserve, as far as practicable, the original rights and obligations of the parties hereto under this Agreement. Section 4.10. REMEDIES. The parties hereby acknowledge that money damages would not be adequate compensation for the damages that a party would suffer by reason of a failure of any other party to perform any of the obligations of this Agreement. Therefore, each party hereto agrees that specific performance is the only appropriate remedy under this Agreement and hereby waives the claim or defense that any other party has an adequate remedy at law. Section 4.11. TERMINATION. This Agreement shall terminate, and the rights and obligations created hereunder shall no longer be of any force or effect on and after any public offering of equity securities of the Issuer, or any successor thereto, pursuant to an effective registration statement under the Securities Act of 1933 other than pursuant to a registration statement on Form S-4 or Form S-8 or any successor or similar form. -6- /s/ Christopher A. Johnston ---------------------------------------- Christopher A. Johnston 4015 Westlake Creek Drive, Suite 1 Jackson, Wyoming 83001 Telephone: (307) 739-1188 Telecopy: (307) 739-2288 /s/ Kenneth J. Warren ---------------------------------------- Kenneth J. Warren 41 South High Street, Suite 2300 Columbus, Ohio 43215 Telephone: (614) 222-3015 Telecopy: (614) 224-0360 /s/ David J. Lyon ---------------------------------------- David J. Lyon 5900 Cromdale Drive Dublin, Ohio 43017 Telephone: (614) 798-9351 Telecopy: (614) 798-9390 /s/ Sherry J. Rothfield ---------------------------------------- Sherry J. Rothfield 1021 N. Venetian Drive Miami, Florida 33139 Telephone: (305) 379-0934 Telecopy: (305) 579-9125 -7- Exhibit 2.1(b) FORM OF AGREEMENT TO BE BOUND [DATE] To the Parties to the Stockholders Agreement dated as of May __, 1996 Dear Sirs: Reference is made to the Stockholders Agreement dated as of May __, 1996 (the "Stockholders Agreement"), by and among CHRISTOPHER A. JOHNSTON residing in Jackson, Wyoming ("Chris"), KENNETH J. WARREN residing in Dublin, Ohio ("Ken"), DAVID J. LYON residing in Dublin, Ohio ("David"), and SHERRY J. ROTHFIELD residing in Miami, Florida ("Sherry"). Capitalized terms not defined herein have the meanings assigned to them in the Stockholders Agreement. In consideration of the covenants and agreements contained in the Stockholders Agreement and the transfer of the common stock, par value $.01 per share, of the Issuer (the "Common Stock") to the undersigned by _________ (the "Transferor"), the undersigned hereby confirms and agrees to be bound by all of the provisions thereof. [The undersigned acknowledges that it is a condition to such transfer that the undersigned confirms and agrees, that at any time that the undersigned is not a Permitted Transferee of the Transferor, the undersigned will, prior to such time, transfer the Common Stock to the Transferor or a Person which then qualifies as a Permitted Transferee of the Transferor.]+ This letter shall be construed and enforced in accordance with the laws of the State of Delaware. Very truly yours, ---------------------------------------- [Transferee] - ---------- + Include in the case of a Transfer to a Permitted Transferee. EX-3 5 ex3.txt PLEDGE AGREEMENT - JOHNSTON & WARREN EXHIBIT 3 PLEDGE AGREEMENT In order to induce RICHARD P. JOHNSTON and JAYNE A. JOHNSTON, trustees of the JOHNSTON FAMILY LIVING TRUST U/A DTD. APRIL 11, 1994 (the "Company"), to extend credit to KENNETH J. WARREN, an individual residing at 5567 Capelstone Lane, Dublin Ohio 43017 (the "Pledgor"), to enable Pledgor to purchase on credit shares of the capital stock of ROYAL PRECISION, INC.("RIFL") by the delivery of a promissory note (the promissory note, being of even date herewith, and this Agreement are hereinafter referred to as the "Loan Documents" and the obligations of Pledgor under such promissory note and under this Agreement are hereafter referred to as the "Secured Obligations"), Pledgor hereby grants to the Company a security interest to secure the Secured Obligations, on the following terms and subject to the following conditions, in: (A) Three thousand and nine hundred shares of the capital stock, par value $.01 per share of the Company (collectively, the "Pledged Shares"); (B) any equity securities issued by RIFL and any options, warranties or rights to acquire such securities, owned or acquired by Pledgor, directly or indirectly, now or at any time in the future; (C) any securities or other property issued or distributed to Pledgor with respect to any securities described in clauses (a) or (b) above as a dividend or as a result of any amendment of the Certificate of Incorporation of RIFL or other charter documents, merger, consolidation, redesignation, reclassification, purchase or sale of assets, dissolution, or plan of arrangement, compromise or reorganization of the issuer thereof; (D) any rights incidental to the ownership of any of the securities described in clauses (a), (b) or (c) above such as voting, conversion and registration rights and rights of recovery for violations of applicable securities laws; and (E) the proceeds of the exercise, redemption, sale or exchange of any of the foregoing or any dividend, interest payment or other distribution of cash or property in respect thereof. All of the foregoing may be referred to herein as the "Pledged Collateral." ARTICLE 1. PLEDGE. SECTION 1.1. DELIVERY. (A) Before, or at the same time as Pledgor has executed and delivered this Agreement to the Company, he has delivered to the Company all of the certificates representing the Pledged Shares, duly endorsed in blank without restriction and with all signatures guaranteed with a medallion signature guaranty acceptable at any principal national securities exchange and with all necessary transfer tax stamps affixed. (B) If, at any time, Pledgor obtains possession of any certificate or instrument constituting or representing any of the Pledged Collateral (other than cash dividend from RIFL out of earnings of the current or the last two fiscal years, he shall deliver such certificate or instrument to the Company forthwith duly endorsed in blank without restriction and with all signatures guaranteed with a medallion signature guaranty acceptable at any principal national securities exchange and with all necessary transfer tax stamps affixed. (C) Pledgor may retain for his own use and shall not be required to deliver to the Company any interest payments on or any cash dividends paid by RIFL out of earning of the current or the last two fiscal years which have been paid on the Pledged Collateral, but if an event of default as described in Section 4.1 below (an "Event of Default") has occurred and is continuing, then all such interest and dividends shall be delivered to the Company as provided in paragraph (b) of this Section 1.1. (D) If any of the Pledged Collateral is uncertificated securities, Pledgor shall (i) procure the issuance of security certificates to represent such Pledged Collateral and endorse and deliver such certificates to the Company as required by paragraph (b) of this Section 1.1, (ii) cause the issuer thereof to register the Company and the registered owner of such securities or (iii) cause the issuer thereof to enter into an agreement, in form and substance satisfactory to the Company, among the Company, the registered owner of such security, and the issuer to the effect that the issuer will comply with instructions originated by the Company without further consent by the registered owner. (E) If any Pledged Collateral is not securities and is not capable of being delivered, Pledgor shall deliver to the Company such financing statements or other instruments as are deemed necessary by the Company to enable it to perfect its security interest in such Pledged Collateral under applicable law. SECTION 1.2. RIGHTS. If no Event of Default has occurred or is continuing, the Pledged Collateral will be registered in the name of Pledgor, and he may exercise any voting or consensual rights that he may have as the owner of the Pledged Collateral for any purpose which is not inconsistent with this Agreement. Pledgor shall deliver to the Company copies of all notices, proxy statements, proxies and other information or instruments in his possession concerning such exercise and advise the Company of how he will exercise such rights at least five (5) days before any meeting or mailing any ballot or consent and shall not exercise any such right it, in the judgement of the Company, such exercise would have a material adverse effect on the value of the Pledged Collateral. If an Event of Default has occurred and is continuing, the Company may exercise all voting or consensual rights of the owners of any of the Pledged Collateral and Pledgor shall deliver to the Company all notices, proxy statements, proxies and other information and instruments relating to the exercise so such rights received by Pledgor from the issuers of any of the Pledged Collateral promptly upon receipt thereof and shall at the request of the 2 Company execute and deliver to the Company any proxies or other instruments which are, in the judgment of the Company, necessary for the Company to validly exercise such voting and consensual rights. SECTION 1.3. DUTY OF THE COMPANY. The duty of the Company with respect to the Pledged Collateral shall be solely to use reasonable care in the physical custody thereof, and the Company shall not be under any obligation to take any action with respect to any of the Pledged Collateral or to preserve rights against prior parties. The powers conferred on the Company hereunder are solely to protect its interest in the Pledged Collateral and do not impose any duty upon it to exercise any such powers. Pledgor is not looking to the Company to provide him with investment advice. The Company shall have no duty to ascertain or take any action with respect to calls, conversations, exchanges, maturities, tenders or other matters concerning any Pledged Collateral, whether or not the Company has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve any rights pertaining to any Pledged Collateral. The Company shall have no duty to exercise reasonable care to preserve the value of any of the Pledged Collateral unless (a) the value of the Pledged Collateral as determined by market prices (taking for this purpose Pledged Collateral which is not the subject of market quotations as having no value unless it is the subject of a contract to purchase with a creditworthy counterparty) exceeds by at least ten percent (10%) the total amount of the Secured Obligations plus the cost of sale of such Pledged Collateral. (b) an Event of Default has occurred and is continuing, (c) Pledgor has timely made a reasonable request in writing to the Company to sell or redeem such Pledged Collateral. (d) Pledgor provides the Company with the funds necessary to exercise any purchase right and (e) Pledgor executes all instruments necessary to continue the security interest of the Company in the proceeds of the requested action. SECTION 1.4. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. Pledgor acknowledges that he has made his own arrangements for keeping informed of changes or potential changes affecting the Pledged Collateral (including, but not limited to, conversions, subscriptions, exchanges. reorganizations, dividends, tender offers, mergers, consolidations and shareholder meetings) and Pledgor agrees that the Company has no responsibility to inform Pledgor of such matters or to take any action with respect thereto even if any of the Pledged Collateral has been registered in the name of the Company or its agent or nominee. SECTION 1.5. RETURN OF PLEDGED COLLATERAL. The security interest granted to the Company hereunder shall not terminate and the Company shall not be required to return the Pledged Collateral to Pledgor unless and until (a) the Secured Obligations have been fully paid or performed, (b) all of Pledgor's obligations hereunder have been fully paid or performed and (e) Pledgor has reimbursed the Company for any expenses of returning the Pledged Collateral and filing such termination statements and other instruments as are required to be filed in public offices under applicable laws. ARTICLE 2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants to the Company as follows: SECTION 2.1. ENFORCEABILITY. This Agreement has been duly executed and delivered by Pledgor, constitutes his valid and legally binding obligation and is enforceable in accordance with its terms against Pledgor, his other creditors and purchasers of the Pledged Collateral. 3 SECTION 2.2. NO CONFLICT. The execution, delivery and performance of this Agreement, the grant of the security interest in the Pledged Collateral hereunder and the consummation of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, (a) violate any material law applicable to Pledgor; (b) violate any judgment, writ, injunction or order of any court or governmental body or officer applicable to Pledgor; (c) violate or result in the breach of any material agreement to which Pledgor is a party or by which any of his properties. including the Pledged Collateral, is bound; nor (d) violate any restriction on the transfer of any of the Pledged Collateral. SECTION 2.3. NO CONSENTS. No consent, approval, license, permit or other authorization of any third party or any governmental body or officer is required for the valid and lawful execution and delivery of this Agreement, the valid and lawful creation and perfection of the Company's security interest in the Pledged Collateral or the valid and lawful exercise by the Company of remedies available to it under this Agreement or applicable law or of the voting and other rights granted to it in this Agreement except as may be required for the offer or sale of those items of Pledged Collateral which are securities under applicable securities laws. SECTION 2.4. SECURITY INTEREST. Pledgor is the sole record and beneficial owner of the Pledged Shares free and clear of all liens. encumbrances and adverse claims and Pledgor has the unrestricted right to grant the security interest provided for herein to the Company. Pledgor has duly endorsed and delivered to the Company all of the certificates representing the Pledged Shares and has granted to the Company a valid and perfected first priority security interest in the Pledged Shares, free of all interest in the Pledged Shares, free of all liens, encumbrances, transfer restrictions and adverse claims. SECTION 2.5. INFORMATION. None of the information, documents, or financial statements which has been furnished by Pledgor or his representatives to the Company or any of its representatives in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact required to be stated hereby or thereby or necessary to make such statements not misleading. SECTION 2.6. NAME AND ADDRESS. Pledgor's full legal name and his principal residence address are correctly set forth under his signature at the end of this Agreement. ARTICLE 3. COVENANTS. Pledgor hereby covenants and agrees with the Company that Pledgor shall: SECTION 3.1 DEFEND TITLE. Defend his title to the Pledged Collateral and the security interest of the Company therein against the claims of any person claiming rights in the Pledged Collateral against or through Pledgor and maintain and preserve such security interest and its priority so long as this Agreement shall remain in effect SECTION 3.2. NO TRANSFER. Neither sell nor offer to sell nor otherwise transfer nor encumber any portion of the Pledged Collateral; nor enter into any agreement which relates to the voting of or restricts the transfer of any of the Pledged Collateral. SECTION 3.3. FURTHER ASSURANCES. At Pledgor's expense, do such further acts and execute and deliver such additional conveyances, certificates, instruments, legal opinions and other assurances as the Company may at any time request or require to protect, assure or enforce its interests, rights and remedies under this Agreement. Pledgor shall execute and deliver to the Company and file with the appropriate governmental offices in the State of Wyoming one or more Uniform Commercial Code financing statements describing the Pledged Collateral in the words used above, or amendments or continuations thereof whenever necessary to continue the perfection of the Company's security interest hereunder and whenever requested by the Company. 4 SECTION 3.4. NAME AND ADDRESS. Notify the Company at least ninety (90) days before he changes his name or the address of his principal residence. SECTION 3.5. LATER DELIVERIES. Deliver or transfer a first priority security interest in any Pledged Collateral that is transferred or delivered to the Company after the date hereof, free and clear of all liens, encumbrances, transfer restrictions and adverse claims. ARTICLE 4. DEFAULT. SECTION 4.1. EVENTS OF DEFAULT. (A) If Pledgor fails to pay or perform, as the case may be, any of the Secured Obligations when the same becomes due and payable or performable, as the case may be; or (B) If an event of default or event requiring the payment of the balance of such promissory note occurs; or (C) If Pledgor fails to fails to perform any obligation or violates any covenant contained in this Agreement, other than those referred to in subsection (a) above, and such failure or violation continues unremedied for a period of three (3) days after the Company requests Pledgor to remedy such failure or violation; or (D) If any representation or warranty made by Pledgor in this Agreement or any information contained in any financial statement or other document delivered to the Company by or on behalf of Pledgor contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; or (E) If Pledgor: (i) dies; or (ii) makes an assignment for the benefit of, or enters into any composition or arrangement with, creditors; or (iii) generally does not pay his debts as such debts become due; or (iv) conceals, removes, or permits to be concealed or removed, any part of his property, with intent to hinder, delay or defraud his creditors or any of them, or makes or suffers a transfer of any of his property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law, or makes any transfer of his property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or (F) If (i) a trustee, receiver, agent or custodian is appointed or authorized to take charge of any property of Pledgor for the purpose of enforcing a lien against such property or for the purpose of administering such property for the benefit of his creditors; or (ii) an order (A) for relief as to Pledgor is granted under Title 11 of the United States Code or any similar law, or (B) declaring Pledgor to be incompetent is entered by any court, or (iii) Pledgor files any pleading seeking, or authorizes or consents to, any such appointment or order, whether by formal action or by the admission of the material allegations of a pleading or otherwise, or (iv) any action or proceeding seeking such appointment or order is commenced without the authority or consent of Pledgor, and is not dismissed within thirty (30) days after its commencement; 5 Pledgor shall be in default and the Company shall have, in addition to any other remedies available to it under the law or any agreement, the rights and remedies of a secured party under Article 9 of the Uniform Commercial Code. SECTION 4.2. REMEDIES. (A) If an Event of Default has occurred and is continuing, the Company may, in its discretion: (i) register any of the Pledged Collateral in its name or in the name of its broker/dealer, agent or nominee or any of their nominees, (ii) exchange certificates representing any of the Pledged Collateral for certificates of larger or smaller denominations, (iii) exercise any voting rights of a holder of any of the Pledged Collateral in any manner which would, in the commercially reasonable judgment of the Company. preserve or enhance the value of the Pledged Collateral, (iv) exercise any conversion, registration. purchase or other rights of a holder of any of the Pledged Collateral and any reasonable expense of such exercise shall be deemed to be an expense of preserving the value of such Pledged Collateral for the purposes of Section 5.1 below; and (v) collect,. including by legal action, any notes, checks or other instruments for the payment of money included in the Pledged Collateral and compromise or settle with any obligor of such instruments. (B) If notice of the time and place of any public sale of the Pledged Collateral or the time after which any private sale or other intended disposition is required by the Uniform Commercial Code, Pledgor acknowledges that five (5) days advance notice thereof will be a reasonable notice. The Company shall not be obligated to make any sale of Pledged Collateral regardless of whether notice of sale has been given. The Company may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (C) If, under the Uniform Commercial Code, the Company may purchase any part of the Pledged Collateral, it may. in payment of any part of the purchase price thereof cancel any part of the Secured Obligations. (D) If any of the Pledged Collateral is sold on credit or for future delivery, it need not be retained by the Company until the purchase price is paid and the Company shall incur no liability if the purchaser fails to take up or pay for such Pledged Collateral In case of any such failure, such Pledged Collateral may be sold again. (E) Pledgor shall execute and deliver to the purchasers of the Pledged Collateral all instruments and other documents necessary or proper to sell, convey, and transfer title to such Pledged Collateral and, if approval of any sale of Pledged Collateral by any governmental body or officer is required, Pledgor shall prepare or cooperate fully in the preparation of and cause to be filed with such governmental body or officer all necessary or proper applications reports, and forms and do all other things necessary or proper to expeditiously obtain such approval. (F) Any cash held by the Company as Pledged Collateral and all cash proceeds of any sale of collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Company, be held by the Company as collateral for, or then or at any time thereafter be applied (after payment of any amounts payable to the Company pursuant to Article 5 below) in whole or in part against, all or any part of the Secured Obligations in such order as the Company may elect. Any surplus of such cash or cash proceeds held by the Company and remaining after payment in full of all of the Company's expenses hereunder and the Secured Obligations shall be paid over to Pledgor or to whomever may be lawfully entitled to receive such surplus. SECTION 4.3. APPOINTMENT OF THE COMPANY AS AGENT. Pledgor hereby appoints and constitutes the Company, its successors and assigns, as his agent and attorney-in-fact for the purpose of carrying out the provisions of this Agreement and taking any action or executing any instrument that the Company 6 considers necessary or convenient for such purpose, including the power to (a) endorse and deliver checks, notes and other instruments for the payment of money in the name of and on behalf of Pledgor, (b) endorse and deliver in the name of and on behalf of Pledgor securities certificates, (c) execute and deliver in the name of and on behalf of Pledgor instructions to the issuers of uncertified securities and (d) to execute and file in the name of and on behalf of Pledgor financing statements (which may be photocopies of this Agreement) and continuations and amendments to financing statements in the State of Wyoming or elsewhere and Forms 144 with the United States Securities and Exchange Commission. This appointment is coupled with an interest and is irrevocable and will not be affected by the death or bankruptcy of Pledgor nor by the lapse of time. If Pledgor fails to perform any act required by this Agreement, the Company may perform such act in the name of and on behalf of Pledgor and at his expense which shall be chargeable to Pledgor under Article 5 below. Pledgor hereby consents and agrees that the issuers of or obligors of the Pledged Collateral or any registrar or transfer agent or trustee for any of the Pledged Collateral shall be entitled to accept the provisions hereof as conclusive evidence of the rights of the Company to effect any transfer pursuant to this Agreement and the authority granted to the Company herein, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Pledgor, or any other person, to any of such issuers, obligors, registrars, transfer agents, or trustees. SECTION 4.4. IMPACT OF REGULATIONS. Pledgor acknowledges that compliance with the Securities Act of 1933 and the rules and regulations thereunder and any relevant state securities laws and other applicable laws may impose limitations on the right of the Company to sell or otherwise dispose of securities included in the Pledged Collateral. For this reason, Pledgor hereby authorizes the Company to sell any securities included in the Pledged Collateral in such manner and to such persons as would, in the judgment of the Company, help to ensure that the transfer of such securities will be given prompt and effective approval by any relevant regulatory authorities and will not require any of the securities to be registered or qualified under any applicable securities laws. Pledgor understands that a sale under the foregoing circumstances may yield a substantially lower price for such Pledged Collateral than would otherwise be obtainable if the same were registered and sold in the open market, and Pledgor shall not attempt to hold the Company responsible for selling any of the Pledged Collateral at an inadequate price even if the Company accepts the first offer received or if only one possible purchaser appears or bids at any such sale. If the Company shall sell any securities included in the Pledged Collateral at such sale, the Company shall have the right to rely upon the advice and opinion of any qualified appraiser or investment banker as to the commercially reasonable price obtainable on the sale thereof but shall not be obligated to obtain such advice or opinion. Pledgor hereby assigns to the Company any registration rights or similar rights Pledgor may have from time to time with respect to any of the Pledged Collateral. SECTION 4.5. IRREVOCABLE PROXY. In furtherance of the rights granted to the Company under Section 1.2 and paragraph (a) of Section 4 2 above, and not by way of limitation of such rights, Pledgor hereby appoints the Company and its officers as his proxy to vote any of the Pledged Shares or any of the other Pledged Collateral, attend meetings of the holders of such securities and to execute consents, waivers and releases with respect thereto. The Company and such officers shall have the power of substitution with respect to such proxy. Such proxy shall continue in force until the security interest granted to the Company hereunder has terminated. Such proxy is irrevocable by Pledgor or by his 7 death, incapacity or bankruptcy. Pledgor acknowledges that such proxy is a power coupled with an interest, including, without limitation, the security interest granted to the Company herein and the related remedies granted to the Company in this Article 4 The proxy granted under this Section 4.5 shall not be exercised by the Company or its officers unless and until an Event of Default has occurred and is continuing. If an Event of Default has occurred and is continuing, the Company may exercise such proxy as provided in paragraph (a) of Section 4.2 above. ARTICLE 5. EXPENSES. SECTION 5.1. PAYMENT. Pledgor agrees that he will forthwith upon demand pay to the Company: (A) the amount of any taxes which the Company may have been required to pay by reason of holding the Pledged Collateral or to free any of the Pledged Collateral from any lien, encumbrance or adverse claim thereon, and (B) the amount of any and all out-of-pocket expenses, including the fees and disbursements of counsel and of any brokers, investment brokers, appraisers or other experts, that the Company may incur in connection with (i) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Pledged Collateral and the validity, perfection, rank and value of the Company's security interest therein, (ii) the collection, sale or other disposition of any of the Pledged Collateral, (iii) the exercise by the Company of any of the rights conferred upon it hereunder, or (iv) any action or proceeding to enforce its rights under this Agreement or in pursuant of any non-judicial remedy hereunder including the sale of the Pledged Collateral. Any such amount not paid on demand shall bear interest (computed on the basis of the number of days elapsed over a year of three hundred sixty(360) days) at a rate per annum equal to the prime rate appearing in the Wall Street Journal on the business day preceding the interest payment. SECTION 5.2 INDEMNITY. Pledgor shall indemnify the Company and its partners, directors, officers, employees, agents and attorneys against, and hold them harmless from, any liability, cost or expense, including the fees and disbursements of their legal counsel, incurred by any of them under the corporate or securities laws applicable to holding or selling any of the Pledged Collateral, except for liability, cost or expense arising out of the recklessness or willful misconduct of the indemnified parties. SECTION 5.3. DISCHARGE OF LIENS. At its option, the Company may pay and discharge taxes, liens, security interests and other encumbrances on the Pledged Collateral. Pledgor agrees to reimburse the Company under Section 5.1 above for any payment made or any expense incurred (including reasonable attorneys' fees and expenses to the extent permitted by law) by the Company pursuant to the foregoing authorization. ARTICLE 6. WAIVERS. SECTION 6.1. WAIVER OF SURETYSHIP AND IMPAIRMENT OF COLLATERAL DEFENSES. Pledgor hereby waives any defense to his obligations under this Agreement and any claim that the security interest granted herein had been discharged or released based on suretyship or impairment of collateral including, but not limited to, the occurrence on any one or more occasions, of any of the following: (A) the amendment, modification or waiver of any term of the Loan Documents or any other agreement or instrument evidencing or creating any of the Secured Obligations or any payment or other performance due thereunder. 8 (B) the grant, exchange, release, surrender, disposal, invalidity or impairment of or the failure to properly perfect any security interest in any collateral which secures the Company's obligations hereunder, any of the Secured Obligations or any other guaranty thereof. (C) the existence or assertion by Pledgor of any defense to the Secured Obligations, including, but not limited to, the bankruptcy of RIFL; (D) the impossibility or illegality of any payment or performance of any of the Secured Obligations by Pledgor; (E) any change in the relationship between Pledgor and the Company that existed on the date hereof; (F) any extension of the time for the payment or other performance of any Secured Obligation on one or more occasions and for any period of time; (G) any merger, consolidation, reorganization or other change in the corporate organization of RIFL; (H) the exercise, pursuit or waiver of any right or remedy that the Company may have against Pledgor or any other person or collateral at any time or the failure to exercise or pursue any such right or remedy; (I) the failure of the Company to give notice to Pledgor of the occurrence of any default in Pledgor's payment or other performance of the Secured Obligations; (J) the taking of or omission to take any action under this Agreement, the Loan Documents or the Secured Obligations; and (K) the release or discharge of any guarantor or surety with respect to the Loan Documents or Secured Obligations or any agreement not to sue such persons. SECTION 6.2. WAIVERS OF NOTICE. Pledgor hereby waives presentment, demand, protest, notice of any default under the Loan Documents, and all other notices to Pledgor specified in the Loan Documents or any other agreement between Pledgor and the Company. ARTICLE 7. MISCELLANEOUS. SECTION 7.1. THIS AGREEMENT. This Agreement, the schedules and exhibits hereto and the agreements and instruments required to be executed and delivered hereunder set forth the entire agreement of the parties with respect to the subject matter hereof and supersede and discharge all prior agreements (written or oral) and negotiations and all contemporaneous oral agreements concerning such subject matter and negotiations. There are no oral conditions precedent to the effectiveness of this Agreement. SECTION 7.2. NON-WAIVER. Neither the failure of nor any delay by any party to this Agreement to enforce any right hereunder or to demand compliance with its terms is a waiver of any right hereunder. No action taken pursuant to this Agreement on one or more occasions is a waiver of any right hereunder or constitutes a course of dealing that modifies this Agreement. SECTION 7.3. WAIVERS. No waiver of any right or remedy under this Agreement shall be binding on any party unless it is in writing and is signed by the party to be charged. No such waiver of any right or remedy under any term of this Agreement shall in any event be deemed to apply to any subsequent default under the same or any other term contained herein. 9 SECTION 7.4. AMENDMENTS. No amendment, modification or termination of this Agreement shall be binding on any party hereto unless it is in writing and is signed by the party to be charged. SECTION 7.5. SEVERABILITY. If any term or provision set forth in this Agreement shall be invalid or unenforceable, the remainder of this Agreement, or the application of such terms or provisions to persons or circumstances, other than those to which it is held invalid or unenforceable, shall be construed in all respects as if such invalid or unenforceable term or provision were omitted. SECTION 7.6. SUCCESSORS. The terms of this Agreement shall be binding upon Pledgor, his heirs and personal representatives, and shall inure to the benefit of the Company, its corporate successors, and any holder, owner or assignee of any rights in any of the Loan Documents and will be enforceable by them as their interest may appear. SECTION 7.7. THIRD PARTIES. Nothing herein expressed or implied is intended or shall be construed to give any person other than the parties hereto any rights or remedies under this Agreement. SECTION 7.8. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Agreement authorized or requires a payment or performance on a Saturday, Sunday or public holiday, such payment or performance shall be deemed to be timely if made on the net succeeding business day. SECTION 7.9. JOINT PREPARATION. This Agreement shall be deemed to have been prepared jointly by the parties hereto. Any ambiguity herein shall not be interpreted against any party hereto and shall be interpreted as if each of the parties hereto had prepared this Agreement. SECTION 7.10. RULES OF CONSTRUCTION. In this Agreement, words in the singular number include the plural, and in the plural include the singular; words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender and the word "or" is disjunctive buy not exclusive. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Agreement. SECTION 7.11. NOTICES. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received or two days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth under such party's signature hereto and with such copies delivered, transmitted or mailed to such persons as are specified therein. Any party may change his address for notices in the manner set forth above. SECTION 7.12. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may executed this Agreement by signing and delivering one or more counterparts. 10 SECTION 7.13. LEGAL MATTERS. (A) REASONABLE RELATION. The parties hereto agree that certain material events, occurrences and transactions relating to this Agreement bear a reasonable relationship to the State of Wyoming. (B) CHOICE OF LAW. The validity, terms, performance and enforcement of this Agreement shall be governed by those laws of the State of Wyoming which are applicable to agreements which are negotiated, executed, delivered and performed solely in the State of Wyoming. (C) JURISDICTION, VENUE, SERVICE OF PROCESS. The State and Federal District Courts located in State and Federal District Courts located in Wyoming shall have exclusive jurisdiction and venue of any action or proceeding arising out of or related to the negotiation, executing, delivery, performance, breach or enforcement of this Agreement or any other agreement, document or instrument negotiated, executed, delivered, entered into or performed in connection with this Agreement or any of the transactions contemplated hereby or thereby; any waiver, modification, amendment or termination hereof or thereof are any action taken or omission made by Pledgor or the Company or any of their respective directors, officers, employees, agents or attorneys in connection with the payment, performance, exercise or enforcement or any right, duty or obligation created or implied hereby or thereby or arising hereunder or thereunder; regardless of whether any claim, counterclaim or defense in any such action, suit or proceeding is characterized as arising out of fraud, negligence, recklessness, intentional misconduct, a breach of contract or fiduciary duty, or violation of a statute, law, ordinance, rule or regulation. The parties hereto hereby irrevocably consent to the personal jurisdiction of such courts, to such venue and to the service of process in the manner provided for the giving of notices in this Agreement. The parties hereto hereby waive all objections to such jurisdiction and venue including those which might be based upon inconvenience or the nature of the forum. (D) WAIVER OF JURY TRIAL. Pledgor hereby voluntarily, knowingly, irrevocably and unconditionally waives and relinquishes his right to trial by jury under the Constitution of the United States of America or of the State of Wyoming or any other constitution, statute or law in any civil legal action, suit or proceeding arising out of or related to the negotiation, execution, delivery, performance, breach or enforcement of this Agreement or any other agreement, document or instrument negotiated, executed, delivered, entered into or performed in connection with this Agreement or any of the transactions contemplated hereby or thereby; any waiver, modification, amendment or termination hereof or thereof or any action taken or omission made by Pledgor or the Company or any of their respective directors, officers, employees, agents or attorneys in connection with the payment, performance, exercise or enforcement of any right , duty or obligation created or implied hereby or thereby or arising hereunder or thereunder; regardless of whether any claim, counterclaim or defense in any such action, suit or proceeding is characterized as arising out of fraud, negligence, recklessness, international misconduct, a breach of contract or fiduciary duty, or violation of a statue, law, ordinance, rule or regulation. 11 IN WITNESS WHEREOF, Pledgor has signed this Pledge Agreement as of this 1st day of September, 1999. PLEDGOR: ---------------------------------------- Kenneth J. Warren Accepted as of September 1, 1999 JOHNSTON FAMILY LIVING TRUST U/A DTD. APRIL 11, 1994 By: -------------------------------- Richard P. Johnston, Trustee 12 EX-4 6 ex4.txt PLEDGE AGREEMENT - JOHNSTON & WARREN EXHIBIT 4 PLEDGE AGREEMENT In order to induce RICHARD P. JOHNSTON and JAYNE A. JOHNSTON, trustees of the JOHNSTON FAMILY LIVING TRUST U/A DTD. APRIL 11, 1994 (the "Company"), to extend credit to KENNETH J. WARREN, an individual residing at 5567 Capelstone Lane, Dublin Ohio 43017 (the "Pledgor"), to enable Pledgor to purchase on credit shares of the capital stock of ROYAL PRECISION, INC.("Company") by the delivery of a promissory note (the promissory note, being of even date herewith, and this Agreement are hereinafter referred to as the "Loan Documents" and the obligations of Pledgor under such promissory note and under this Agreement are hereafter referred to as the "Secured Obligations"), Pledgor hereby grants to the Company a security interest to secure the Secured Obligations, on the following terms and subject to the following conditions, in: (A) Five thousand eight hundred and eighty-one shares of the capital stock, par value $.01 per share of the Company (collectively, the "Pledged Shares"); (B) any equity securities issued by the Company and any options, warranties or rights to acquire such securities, owned or acquired by Pledgor, directly or indirectly, now or at any time in the future; (C) any securities or other property issued or distributed to Pledgor with respect to any securities described in clauses (a) or (b) above as a dividend or as a result of any amendment of the Certificate of Incorporation of the Company or other charter documents, merger, consolidation, redesignation, reclassification, purchase or sale of assets, dissolution, or plan of arrangement, compromise or reorganization of the issuer thereof; (D) any rights incidental to the ownership of any of the securities described in clauses (a), (b) or (c) above such as voting, conversion and registration rights and rights of recovery for violations of applicable securities laws; and (E) the proceeds of the exercise, redemption, sale or exchange of any of the foregoing or any dividend, interest payment or other distribution of cash or property in respect thereof. All of the foregoing may be referred to herein as the "Pledged Collateral." ARTICLE 1. PLEDGE. SECTION 1.1. DELIVERY. (A) Before, or at the same time as Pledgor has executed and delivered this Agreement to the Company, he has delivered to the Company all of the certificates representing the Pledged Shares, duly endorsed in blank without restriction and with all signatures guaranteed with a medallion signature guaranty acceptable at any principal national securities exchange and with all necessary transfer tax stamps affixed. -1- (B) If, at any time, Pledgor obtains possession of any certificate or instrument constituting or representing any of the Pledged Collateral (other than cash dividend from the Company out of earnings of the current or the last two fiscal years, he shall deliver such certificate or instrument to the Company forthwith duly endorsed in blank without restriction and with all signatures guaranteed with a medallion signature guaranty acceptable at any principal national securities exchange and with all necessary transfer tax stamps affixed. (C) Pledgor may retain for his own use and shall not be required to deliver to the Company any interest payments on or any cash dividends paid by the Company out of earning of the current or the last two fiscal years which have been paid on the Pledged Collateral, but if an event of default as described in Section 4.1 below (an "Event of Default") has occurred and is continuing, then all such interest and dividends shall be delivered to the Company as provided in paragraph (b) of this Section 1.1. (D) If any of the Pledged Collateral is uncertificated securities, Pledgor shall (i) procure the issuance of security certificates to represent such Pledged Collateral and endorse and deliver such certificates to the Company as required by paragraph (b) of this Section 1.1, (ii) cause the issuer thereof to register the Company and the registered owner of such securities or (iii) cause the issuer thereof to enter into an agreement, in form and substance satisfactory to the Company, among the Company, the registered owner of such security, and the issuer to the effect that the issuer will comply with instructions originated by the Company without further consent by the registered owner. (E) If any Pledged Collateral is not securities and is not capable of being delivered, Pledgor shall deliver to the Company such financing statements or other instruments as are deemed necessary by the Company to enable it to perfect its security interest in such Pledged Collateral under applicable law. SECTION 1.2. RIGHTS. If no Event of Default has occurred or is continuing, the Pledged Collateral will be registered in the name of Pledgor, and he may exercise any voting or consensual rights that he may have as the owner of the Pledged Collateral for any purpose which is not inconsistent with this Agreement. Pledgor shall deliver to the Company copies of all notices, proxy statements, proxies and other information or instruments in his possession concerning such exercise and advise the Company of how he will exercise such rights at least five (5) days before any meeting or mailing any ballot or consent and shall not exercise any such right it, in the judgement of the Company, such exercise would have a material adverse effect on the value of the Pledged Collateral. If an Event of Default has occurred and is continuing, the Company may exercise all voting or consensual rights of the owners of any of the Pledged Collateral and Pledgor shall deliver to the Company all notices, proxy -2- statements, proxies and other information and instruments relating to the exercise so such rights received by Pledgor from the issuers of any of the Pledged Collateral promptly upon receipt thereof and shall at the request of the Company execute and deliver to the Company any proxies or other instruments which are, in the judgment of the Company, necessary for the Company to validly exercise such voting and consensual rights. SECTION 1.3. DUTY OF THE COMPANY. The duty of the Company with respect to the Pledged Collateral shall be solely to use reasonable care in the physical custody thereof, and the Company shall not be under any obligation to take any action with respect to any of the Pledged Collateral or to preserve rights against prior parties. The powers conferred on the Company hereunder are solely to protect its interest in the Pledged Collateral and do not impose any duty upon it to exercise any such powers. Pledgor is not looking to the Company to provide him with investment advice. The Company shall have no duty to ascertain or take any action with respect to calls, conversations, exchanges, maturities, tenders or other matters concerning any Pledged Collateral, whether or not the Company has or is deemed to have knowledge of such matters, or as to the taking of any necessary steps to preserve any rights pertaining to any Pledged Collateral. The Company shall have no duty to exercise reasonable care to preserve the value of any of the Pledged Collateral unless (a) the value of the Pledged Collateral as determined by market prices (taking for this purpose Pledged Collateral which is not the subject of market quotations as having no value unless it is the subject of a contract to purchase with a creditworthy counterparty) exceeds by at least ten percent (10%) the total amount of the Secured Obligations plus the cost of sale of such Pledged Collateral. (b) an Event of Default has occurred and is continuing, (c) Pledgor has timely made a reasonable request in writing to the Company to sell or redeem such Pledged Collateral. (d) Pledgor provides the Company with the funds necessary to exercise any purchase right and (e) Pledgor executes all instruments necessary to continue the security interest of the Company in the proceeds of the requested action. SECTION 1.4. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. Pledgor acknowledges that he has made his own arrangements for keeping informed of changes or potential changes affecting the Pledged Collateral (including, but not limited to, conversions, subscriptions, exchanges. reorganizations, dividends, tender offers, mergers, consolidations and shareholder meetings) and Pledgor agrees that the Company has no responsibility to inform Pledgor of such matters or to take any action with respect thereto even if any of the Pledged Collateral has been registered in the name of the Company or its agent or nominee. SECTION 1.5. RETURN OF PLEDGED COLLATERAL. The security interest granted to the Company hereunder shall not terminate and the Company shall not be required to return the Pledged Collateral to Pledgor unless and until (a) the Secured Obligations have been fully paid or performed, (b) all of Pledgor's obligations hereunder have been fully paid or performed and (e) Pledgor has reimbursed the Company for any expenses of returning the Pledged Collateral and filing such termination statements and other instruments as are required to be filed in public offices under applicable laws. ARTICLE 2. REPRESENTATIONS AND WARRANTIES. Pledgor hereby represents and warrants to the Company as follows: SECTION 2.1. ENFORCEABILITY. This Agreement has been duly executed and delivered by Pledgor, constitutes his valid and legally binding obligation and is enforceable in accordance with its terms against Pledgor, his other creditors and purchasers of the Pledged Collateral. -3- SECTION 2.2. NO CONFLICT. The execution, delivery and performance of this Agreement, the grant of the security interest in the Pledged Collateral hereunder and the consummation of the transactions contemplated hereby will not, with or without the giving of notice or the lapse of time, (a) violate any material law applicable to Pledgor; (b) violate any judgment, writ, injunction or order of any court or governmental body or officer applicable to Pledgor; (c) violate or result in the breach of any material agreement to which Pledgor is a party or by which any of his properties. including the Pledged Collateral, is bound; nor (d) violate any restriction on the transfer of any of the Pledged Collateral. SECTION 2.3. NO CONSENTS. No consent, approval, license, permit or other authorization of any third party or any governmental body or officer is required for the valid and lawful execution and delivery of this Agreement, the valid and lawful creation and perfection of the Company's security interest in the Pledged Collateral or the valid and lawful exercise by the Company of remedies available to it under this Agreement or applicable law or of the voting and other rights granted to it in this Agreement except as may be required for the offer or sale of those items of Pledged Collateral which are securities under applicable securities laws. SECTION 2.4. SECURITY INTEREST. Pledgor is the sole record and beneficial owner of the Pledged Shares free and clear of all liens. encumbrances and adverse claims and Pledgor has the unrestricted right to grant the security interest provided for herein to the Company. Pledgor has duly endorsed and delivered to the Company all of the certificates representing the Pledged Shares and has granted to the Company a valid and perfected first priority security interest in the Pledged Shares, free of all interest in the Pledged Shares, free of all liens, encumbrances, transfer restrictions and adverse claims. SECTION 2.5. INFORMATION. None of the information, documents, or financial statements which has been furnished by Pledgor or his representatives to the Company or any of its representatives in connection with the transactions contemplated by this Agreement contains any untrue statement of a material fact or omits to state a material fact required to be stated hereby or thereby or necessary to make such statements not misleading. SECTION 2.6. NAME AND ADDRESS. Pledgor's full legal name and his principal residence address are correctly set forth under his signature at the end of this Agreement. ARTICLE 3. COVENANTS. Pledgor hereby covenants and agrees with the Company that Pledgor shall: SECTION 3.1 DEFEND TITLE. Defend his title to the Pledged Collateral and the security interest of the Company therein against the claims of any person claiming rights in the Pledged Collateral against or through Pledgor and maintain and preserve such security interest and its priority so long as this Agreement shall remain in effect SECTION 3.2. NO TRANSFER. Neither sell nor offer to sell nor otherwise transfer nor encumber any portion of the Pledged Collateral; nor enter into any agreement which relates to the voting of or restricts the transfer of any of the Pledged Collateral. SECTION 3.3. FURTHER ASSURANCES. At Pledgor's expense, do such further acts and execute and deliver such additional conveyances, certificates, instruments, legal opinions and other assurances as the Company may at any time request or require to protect, assure or enforce its interests, rights and remedies under this Agreement. Pledgor shall execute and deliver to the Company and file with the appropriate governmental offices in the State of Wyoming one or more Uniform -4- Commercial Code financing statements describing the Pledged Collateral in the words used above, or amendments or continuations thereof whenever necessary to continue the perfection of the Company's security interest hereunder and whenever requested by the Company. SECTION 3.4. NAME AND ADDRESS. Notify the Company at least ninety (90) days before he changes his name or the address of his principal residence. SECTION 3.5. LATER DELIVERIES. Deliver or transfer a first priority security interest in any Pledged Collateral that is transferred or delivered to the Company after the date hereof, free and clear of all liens, encumbrances, transfer restrictions and adverse claims. ARTICLE 4. DEFAULT. SECTION 4.1. EVENTS OF DEFAULT. (A) If Pledgor fails to pay or perform, as the case may be, any of the Secured Obligations when the same becomes due and payable or performable, as the case may be; or (B) If an event of default or event requiring the payment of the balance of such promissory note occurs; or (C) If Pledgor fails to fails to perform any obligation or violates any covenant contained in this Agreement, other than those referred to in subsection (a) above, and such failure or violation continues unremedied for a period of three (3) days after the Company requests Pledgor to remedy such failure or violation; or (D) If any representation or warranty made by Pledgor in this Agreement or any information contained in any financial statement or other document delivered to the Company by or on behalf of Pledgor contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements therein not misleading in light of the circumstances in which they were made; or (E) If Pledgor: (i) dies; or (ii) makes an assignment for the benefit of, or enters into any composition or arrangement with, creditors; or (iii) generally does not pay his debts as such debts become due; or (iv) conceals, removes, or permits to be concealed or removed, any part of his property, with intent to hinder, delay or defraud his creditors or any of them, or makes or suffers a transfer of any of his property which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law, or makes any transfer of his property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid; or (F) If (i) a trustee, receiver, agent or custodian is appointed or authorized to take charge of any property of Pledgor for the purpose of enforcing a lien against such property or for the purpose of administering such property for the benefit of his creditors; or (ii) an order (A) for relief as to Pledgor is granted under Title 11 of the United States Code or any similar law, or (B) declaring Pledgor to be incompetent is entered by any court, or -5- (iii) Pledgor files any pleading seeking, or authorizes or consents to, any such appointment or order, whether by formal action or by the admission of the material allegations of a pleading or otherwise, or (iv) any action or proceeding seeking such appointment or order is commenced without the authority or consent of Pledgor, and is not dismissed within thirty (30) days after its commencement; Pledgor shall be in default and the Company shall have, in addition to any other remedies available to it under the law or any agreement, the rights and remedies of a secured party under Article 9 of the Uniform Commercial Code. SECTION 4.2. REMEDIES. (A) If an Event of Default has occurred and is continuing, the Company may, in its discretion: (i) register any of the Pledged Collateral in its name or in the name of its broker/dealer, agent or nominee or any of their nominees, (ii) exchange certificates representing any of the Pledged Collateral for certificates of larger or smaller denominations, (iii) exercise any voting rights of a holder of any of the Pledged Collateral in any manner which would, in the commercially reasonable judgment of the Company. preserve or enhance the value of the Pledged Collateral, (iv) exercise any conversion, registration. purchase or other rights of a holder of any of the Pledged Collateral and any reasonable expense of such exercise shall be deemed to be an expense of preserving the value of such Pledged Collateral for the purposes of Section 5.1 below; and (v) collect,. including by legal action, any notes, checks or other instruments for the payment of money included in the Pledged Collateral and compromise or settle with any obligor of such instruments. (B) If notice of the time and place of any public sale of the Pledged Collateral or the time after which any private sale or other intended disposition is required by the Uniform Commercial Code, Pledgor acknowledges that five (5) days advance notice thereof will be a reasonable notice. The Company shall not be obligated to make any sale of Pledged Collateral regardless of whether notice of sale has been given. The Company may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned. (C) If, under the Uniform Commercial Code, the Company may purchase any part of the Pledged Collateral, it may. in payment of any part of the purchase price thereof cancel any part of the Secured Obligations. (D) If any of the Pledged Collateral is sold on credit or for future delivery, it need not be retained by the Company until the purchase price is paid and the Company shall incur no liability if the purchaser fails to take up or pay for such Pledged Collateral In case of any such failure, such Pledged Collateral may be sold again. (E) Pledgor shall execute and deliver to the purchasers of the Pledged Collateral all instruments and other documents necessary or proper to sell, convey, and transfer title to such Pledged Collateral and, if approval of any sale of Pledged Collateral by any governmental body or officer is required, Pledgor shall prepare or cooperate fully in the preparation of and cause to be filed with such governmental body or officer all necessary or proper applications reports, and forms and do all other things necessary or proper to expeditiously obtain such approval. (F) Any cash held by the Company as Pledged Collateral and all cash proceeds of any sale of collection from, or other realization upon all or any part of the Pledged Collateral may, in the discretion of the Company, be held by the Company as collateral for, or then or at any time thereafter be applied (after payment of any amounts payable to the Company pursuant to Article 5 -6- below) in whole or in part against, all or any part of the Secured Obligations in such order as the Company may elect. Any surplus of such cash or cash proceeds held by the Company and remaining after payment in full of all of the Company's expenses hereunder and the Secured Obligations shall be paid over to Pledgor or to whomever may be lawfully entitled to receive such surplus. SECTION 4.3. APPOINTMENT OF THE COMPANY AS AGENT. Pledgor hereby appoints and constitutes the Company, its successors and assigns, as his agent and attorney-in-fact for the purpose of carrying out the provisions of this Agreement and taking any action or executing any instrument that the Company considers necessary or convenient for such purpose, including the power to (a) endorse and deliver checks, notes and other instruments for the payment of money in the name of and on behalf of Pledgor, (b) endorse and deliver in the name of and on behalf of Pledgor securities certificates, (c) execute and deliver in the name of and on behalf of Pledgor instructions to the issuers of uncertified securities and (d) to execute and file in the name of and on behalf of Pledgor financing statements (which may be photocopies of this Agreement) and continuations and amendments to financing statements in the State of Wyoming or elsewhere and Forms 144 with the United States Securities and Exchange Commission. This appointment is coupled with an interest and is irrevocable and will not be affected by the death or bankruptcy of Pledgor nor by the lapse of time. If Pledgor fails to perform any act required by this Agreement, the Company may perform such act in the name of and on behalf of Pledgor and at his expense which shall be chargeable to Pledgor under Article 5 below. Pledgor hereby consents and agrees that the issuers of or obligors of the Pledged Collateral or any registrar or transfer agent or trustee for any of the Pledged Collateral shall be entitled to accept the provisions hereof as conclusive evidence of the rights of the Company to effect any transfer pursuant to this Agreement and the authority granted to the Company herein, notwithstanding any other notice or direction to the contrary heretofore or hereafter given by Pledgor, or any other person, to any of such issuers, obligors, registrars, transfer agents, or trustees. SECTION 4.4. IMPACT OF REGULATIONS. Pledgor acknowledges that compliance with the Securities Act of 1933 and the rules and regulations thereunder and any relevant state securities laws and other applicable laws may impose limitations on the right of the Company to sell or otherwise dispose of securities included in the Pledged Collateral. For this reason, Pledgor hereby authorizes the Company to sell any securities included in the Pledged Collateral in such manner and to such persons as would, in the judgment of the Company, help to ensure that the transfer of such securities will be given prompt and effective approval by any relevant regulatory authorities and will not require any of the securities to be registered or qualified under any applicable securities laws. Pledgor understands that a sale under the foregoing circumstances may yield a substantially lower price for such Pledged Collateral than would otherwise be obtainable if the same were registered and sold in the open market, and Pledgor shall not attempt to hold the Company responsible for selling any of the Pledged Collateral at an inadequate price even if the Company accepts the first offer received or if only one possible purchaser appears or bids at any such sale. If the Company shall sell any securities included in the Pledged Collateral at such sale, the Company shall have the right to rely upon the advice and opinion of any qualified appraiser or investment banker as to the commercially reasonable -7- price obtainable on the sale thereof but shall not be obligated to obtain such advice or opinion. Pledgor hereby assigns to the Company any registration rights or similar rights Pledgor may have from time to time with respect to any of the Pledged Collateral. SECTION 4.5. IRREVOCABLE PROXY. In furtherance of the rights granted to the Company under Section 1.2 and paragraph (a) of Section 4 2 above, and not by way of limitation of such rights, Pledgor hereby appoints the Company and its officers as his proxy to vote any of the Pledged Shares or any of the other Pledged Collateral, attend meetings of the holders of such securities and to execute consents, waivers and releases with respect thereto. The Company and such officers shall have the power of substitution with respect to such proxy. Such proxy shall continue in force until the security interest granted to the Company hereunder has terminated. Such proxy is irrevocable by Pledgor or by his death, incapacity or bankruptcy. Pledgor acknowledges that such proxy is a power coupled with an interest, including, without limitation, the security interest granted to the Company herein and the related remedies granted to the Company in this Article 4 The proxy granted under this Section 4.5 shall not be exercised by the Company or its officers unless and until an Event of Default has occurred and is continuing. If an Event of Default has occurred and is continuing, the Company may exercise such proxy as provided in paragraph (a) of Section 4.2 above. ARTICLE 5. EXPENSES. SECTION 5.1. PAYMENT. Pledgor agrees that he will forthwith upon demand pay to the Company: (A) the amount of any taxes which the Company may have been required to pay by reason of holding the Pledged Collateral or to free any of the Pledged Collateral from any lien, encumbrance or adverse claim thereon, and (B) the amount of any and all out-of-pocket expenses, including the fees and disbursements of counsel and of any brokers, investment brokers, appraisers or other experts, that the Company may incur in connection with (i) the administration or enforcement of this Agreement, including such expenses as are incurred to preserve the value of the Pledged Collateral and the validity, perfection, rank and value of the Company's security interest therein, (ii) the collection, sale or other disposition of any of the Pledged Collateral, (iii) the exercise by the Company of any of the rights conferred upon it hereunder, or (iv) any action or proceeding to enforce its rights under this Agreement or in pursuant of any non-judicial remedy hereunder including the sale of the Pledged Collateral. Any such amount not paid on demand shall bear interest (computed on the basis of the number of days elapsed over a year of three hundred sixty(360) days) at a rate per annum equal to the prime rate appearing in the Wall Street Journal on the business day preceding the interest payment. SECTION 5.2 INDEMNITY. Pledgor shall indemnify the Company and its partners, directors, officers, employees, agents and attorneys against, and hold them harmless from, any liability, cost or expense, including the fees and disbursements of their legal counsel, incurred by any of them under the corporate or securities laws applicable to holding or selling any of the Pledged Collateral, except for liability, cost or expense arising out of the recklessness or willful misconduct of the indemnified parties. SECTION 5.3. DISCHARGE OF LIENS. At its option, the Company may pay and discharge taxes, liens, security interests and other encumbrances on the Pledged Collateral. Pledgor agrees to reimburse the Company under Section 5.1 above for any payment made or any expense incurred (including reasonable attorneys' fees and expenses to the extent permitted by law) by the Company pursuant to the foregoing authorization. -8- ARTICLE 6. WAIVERS. SECTION 6.1. WAIVER OF SURETYSHIP AND IMPAIRMENT OF COLLATERAL DEFENSES. Pledgor hereby waives any defense to his obligations under this Agreement and any claim that the security interest granted herein had been discharged or released based on suretyship or impairment of collateral including, but not limited to, the occurrence on any one or more occasions, of any of the following: (A) the amendment, modification or waiver of any term of the Loan Documents or any other agreement or instrument evidencing or creating any of the Secured Obligations or any payment or other performance due thereunder. (B) the grant, exchange, release, surrender, disposal, invalidity or impairment of or the failure to properly perfect any security interest in any collateral which secures the Company's obligations hereunder, any of the Secured Obligations or any other guaranty thereof. (C) the existence or assertion by Pledgor of any defense to the Secured Obligations, including, but not limited to, the bankruptcy of the Company; (D) the impossibility or illegality of any payment or performance of any of the Secured Obligations by Pledgor; (E) any change in the relationship between Pledgor and the Company that existed on the date hereof; (F) any extension of the time for the payment or other performance of any Secured Obligation on one or more occasions and for any period of time; (G) any merger, consolidation, reorganization or other change in the corporate organization of the Company; (H) the exercise, pursuit or waiver of any right or remedy that the Company may have against Pledgor or any other person or collateral at any time or the failure to exercise or pursue any such right or remedy; (I) the failure of the Company to give notice to Pledgor of the occurrence of any default in Pledgor's payment or other performance of the Secured Obligations; (J) the taking of or omission to take any action under this Agreement, the Loan Documents or the Secured Obligations; and (K) the release or discharge of any guarantor or surety with respect to the Loan Documents or Secured Obligations or any agreement not to sue such persons. SECTION 6.2. WAIVERS OF NOTICE. Pledgor hereby waives presentment, demand, protest, notice of any default under the Loan Documents, and all other notices to Pledgor specified in the Loan Documents or any other agreement between Pledgor and the Company. ARTICLE 7. MISCELLANEOUS. SECTION 7.1. THIS AGREEMENT. This Agreement, the schedules and exhibits hereto and the agreements and instruments required to be executed and delivered hereunder set forth the entire agreement of the parties with respect to the subject matter hereof and supersede and discharge all prior agreements (written -9- or oral) and negotiations and all contemporaneous oral agreements concerning such subject matter and negotiations. There are no oral conditions precedent to the effectiveness of this Agreement. SECTION 7.2. NON-WAIVER. Neither the failure of nor any delay by any party to this Agreement to enforce any right hereunder or to demand compliance with its terms is a waiver of any right hereunder. No action taken pursuant to this Agreement on one or more occasions is a waiver of any right hereunder or constitutes a course of dealing that modifies this Agreement. SECTION 7.3. WAIVERS. No waiver of any right or remedy under this Agreement shall be binding on any party unless it is in writing and is signed by the party to be charged. No such waiver of any right or remedy under any term of this Agreement shall in any event be deemed to apply to any subsequent default under the same or any other term contained herein. SECTION 7.4. AMENDMENTS. No amendment, modification or termination of this Agreement shall be binding on any party hereto unless it is in writing and is signed by the party to be charged. SECTION 7.5. SEVERABILITY. If any term or provision set forth in this Agreement shall be invalid or unenforceable, the remainder of this Agreement, or the application of such terms or provisions to persons or circumstances, other than those to which it is held invalid or unenforceable, shall be construed in all respects as if such invalid or unenforceable term or provision were omitted. SECTION 7.6. SUCCESSORS. The terms of this Agreement shall be binding upon Pledgor, his heirs and personal representatives, and shall inure to the benefit of the Company, its corporate successors, and any holder, owner or assignee of any rights in any of the Loan Documents and will be enforceable by them as their interest may appear. SECTION 7.7. THIRD PARTIES. Nothing herein expressed or implied is intended or shall be construed to give any person other than the parties hereto any rights or remedies under this Agreement. SECTION 7.8. SATURDAYS, SUNDAYS AND HOLIDAYS. Where this Agreement authorized or requires a payment or performance on a Saturday, Sunday or public holiday, such payment or performance shall be deemed to be timely if made on the net succeeding business day. SECTION 7.9. JOINT PREPARATION. This Agreement shall be deemed to have been prepared jointly by the parties hereto. Any ambiguity herein shall not be interpreted against any party hereto and shall be interpreted as if each of the parties hereto had prepared this Agreement. SECTION 7.10. RULES OF CONSTRUCTION. In this Agreement, words in the singular number include the plural, and in the plural include the singular; words of the masculine gender include the feminine and the neuter, and when the sense so indicates words of the neuter gender may refer to any gender and the word "or" is disjunctive buy not exclusive. The captions and section numbers -10- appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit or describe the scope or intent of the provisions of this Agreement. SECTION 7.11. NOTICES. Any notice, request or other communication required or permitted to be given under this Agreement shall be in writing and deemed to have been properly given when delivered in person, or when sent by telecopy or other electronic means and electronic confirmation of error free receipt is received or two days after being sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed to the party at the address set forth under such party's signature hereto and with such copies delivered, transmitted or mailed to such persons as are specified therein. Any party may change his address for notices in the manner set forth above. SECTION 7.12. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and any party hereto may executed this Agreement by signing and delivering one or more counterparts. SECTION 7.13. LEGAL MATTERS. (A) REASONABLE RELATION. The parties hereto agree that certain material events, occurrences and transactions relating to this Agreement bear a reasonable relationship to the State of Wyoming. (B) CHOICE OF LAW. The validity, terms, performance and enforcement of this Agreement shall be governed by those laws of the State of Wyoming which are applicable to agreements which are negotiated, executed, delivered and performed solely in the State of Wyoming. (C) JURISDICTION, VENUE, SERVICE OF PROCESS. The State and Federal District Courts located in State and Federal District Courts located in Wyoming shall have exclusive jurisdiction and venue of any action or proceeding arising out of or related to the negotiation, executing, delivery, performance, breach or enforcement of this Agreement or any other agreement, document or instrument negotiated, executed, delivered, entered into or performed in connection with this Agreement or any of the transactions contemplated hereby or thereby; any waiver, modification, amendment or termination hereof or thereof are any action taken or omission made by Pledgor or the Company or any of their respective directors, officers, employees, agents or attorneys in connection with the payment, performance, exercise or enforcement or any right, duty or obligation created or implied hereby or thereby or arising hereunder or thereunder; regardless of whether any claim, counterclaim or defense in any such action, suit or proceeding is characterized as arising out of fraud, negligence, recklessness, intentional misconduct, a breach of contract or fiduciary duty, or violation of a statute, law, ordinance, rule or regulation. The parties hereto hereby irrevocably consent to the personal jurisdiction of such courts, to such venue and to the service of process in the manner provided for the giving of notices in this Agreement. The parties hereto hereby waive all objections to such jurisdiction and venue including those which might be based upon inconvenience or the nature of the forum. (D) WAIVER OF JURY TRIAL. Pledgor hereby voluntarily, knowingly, irrevocably and unconditionally waives and relinquishes his right to trial by jury under the Constitution of the United States of America or of the State of Wyoming or any other constitution, statute or law in any civil legal action, suit or proceeding arising out of or related to the negotiation, execution, -11- delivery, performance, breach or enforcement of this Agreement or any other agreement, document or instrument negotiated, executed, delivered, entered into or performed in connection with this Agreement or any of the transactions contemplated hereby or thereby; any waiver, modification, amendment or termination hereof or thereof or any action taken or omission made by Pledgor or the Company or any of their respective directors, officers, employees, agents or attorneys in connection with the payment, performance, exercise or enforcement of any right, duty or obligation created or implied hereby or thereby or arising hereunder or thereunder; regardless of whether any claim, counterclaim or defense in any such action, suit or proceeding is characterized as arising out of fraud, negligence, recklessness, international misconduct, a breach of contract or fiduciary duty, or violation of a statue, law, ordinance, rule or regulation. IN WITNESS WHEREOF, Pledgor has signed this Pledge Agreement as of this 19th day of October, 1999. PLEDGOR: ---------------------------------------- Kenneth J. Warren Accepted as of October 19, 1999 JOHNSTON FAMILY LIVING TRUST U/A DTD. APRIL 11, 1994 By: -------------------------------- Richard P. Johnston, Trustee -12- EX-5 7 ex5.txt OPTION AGREEMENT - JOHNSTON FAM. TRUST & WARREN EXHIBIT 5 OPTION AGREEMENT THIS OPTION AGREEMENT (the "Agreement"), dated as of July 24, 2001 between JOHNSTON FAMILY CHARITABLE REMAINDER UNITRUST #3, dated October 15, 1998 ("CRT"), and KENNETH J. WARREN, an individual residing at 5567 Caplestone Lane, Dublin, Ohio 43017 ("KJW"). WHEREAS, CRT has acquired an equity interest in ROYAL PRECISION, INC., a corporation duly incorporated under the laws of the State of Delaware (the "Company"); and WHEREAS, the parties hereto desire that KJW have an option to acquire 30,000 shares of common stock of the Company previously acquired by CRT on the terms and conditions herein set forth. NOW THEREFORE, in consideration of the undertakings hereinafter contained, the parties hereto, intending to be legally bound, do hereby agree as follows: Section 1. OPTION. CRT hereby grants to KJW an option (the "Option") to purchase 30,000 shares of common stock of the Company (the "Shares") previously acquired by CRT in consideration for the services KJW has performed as a Director of the Company, upon the following terms and conditions: 1.1. VESTING. One fifth of the Shares originally subject to this Option will vest and become exercisable on each of the first five anniversaries of this Agreement if KJW has been a Director of the Company continuously from the date of this Agreement through the date when such portion of the Option vests. No portion of this Option shall vest and become exercisable after KJW's directorship with the Company has terminated, unless the reason for such termination is because there is a "Change in Control" in the Company approved by CRT, and as a result, KJW's directorship is terminated because he is asked to resign as a Director or his directorship is otherwise terminated. In either of those cases, the Option shall immediately vest. "Change in Control" means: that any one or more of the following occurs: (a) a merger, consolidation or other corporate reorganization of the Company in which the Company does not survive, (b) any person (defined for the purposes of this Section 1.1 to mean any person within the meaning of Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange Act"), other than the Company, or an executive benefit plan created by the Company for the benefit of its executives, or CRT or any group affiliated with CRT, either directly or indirectly through a merger, consolidation or otherwise, acquires beneficial ownership (determined under Rule 13d-3 of the Regulations promulgated by the Securities and Exchange Commission under Section 13(d) of the Exchange Act) of as much as 50% of the outstanding voting stock of the Company, (c) the shareholders of the Company approve a transfer of substantially all of the assets of the Company to another person or (d) as may otherwise be defined by the Company from time to time to include such other circumstances not inconsistent with the foregoing. 1.2. LAPSE. This Option will lapse and cease to be exercisable upon the earliest of (a) the expiration of seven years from the date of this Agreement or (b) the termination of KJW's directorship with the Company. 1.3. PRICE. The price to be paid by KJW to CRT for the Shares (the "Purchase Price") shall be $2.50 per Share. 1.4. PROCEDURE. The Option shall be exercised by KJW sending to CRT a notice (the "Notice") of the intention of KJW to acquire the Shares, setting forth the number of Shares to be acquired, and a time and date, not less than 30 days from the date of the Notice, for a closing; provided that if CRT has provided notice to KJW under the provisions of Section 2, KJW may cause the closing to occur prior to the time of any event set forth in such notice. 1.5. THE CLOSING. The closing shall occur at a mutually acceptable time and place on the date set forth in the Notice. At the closing, KJW shall deliver to CRT a certified or bank check drawn on a bank having an office in Jackson, Wyoming for the payment of the Purchase Price against delivery by CRT of an assignment of the Shares to be purchased, free and clear of any claim that the transfer of the Shares was or would be wrongful or that any person, other than CRT, is the owner of or has an interest in the Shares, whether by way of lien, contract of sale, restrictions on use or transfer or otherwise other than the following legend (which shall also appear on certificates representing all of KJW's Shares). THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES OR SECURITIES OWNED BY AN AFFILIATE OF THE ISSUER WITHIN THE MEANING OF SECURITIES ACT RULE 144. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER SAID ACT. 1.6. LIMITATION. The Option cannot be exercised at any time that such exercise would breach the provisions of the trust instrument governing CRT. Additionally, CRT cannot be required to sell shares if such a sale would cause CRT to be subject to the provisions of Section 16(b) of the Exchange Act. If a notice to exercise the Option is given and CRT cannot sell such shares, and the time period is going to expire, then the seven year period shall be extended until five days after receipt of notice from CRT that it is now permissible for CRT to sell such shares. 1.7. ADJUSTMENT. If the Shares are split or if a dividend is paid on such Shares, the number of Shares subject to the Option shall be automatically increased by the ratio between the number of Shares outstanding immediately after such event and the number of Shares outstanding immediately before such event. If at any time prior to the first anniversary of the date of this Agreement, there is a transaction which would result in the Company no longer being subject to the Securities Act of 1933 registration requirements and the shares of the Company being held by a small group of former "insiders" which would include CRT or an affiliate of CRT ("Private Transaction") and KJW has not exercised the Option, this Agreement shall terminate. In the event of a Private -2- Transaction prior to the third anniversary of this Agreement and KJW has exercised his Option, then at CRT's sole option, CRT can repurchase the Shares KJW received upon his exercise of the Option which he then continues to own. The purchase price shall be $2.50 per Share plus interest from the date of exercise of the Option to the closing for the repurchase of the Shares. The interest rate shall be at an annual rate of interest equal to the prime rate appearing in the Wall Street Journal on the business day preceding the purchase price. The process for the closing shall follow the same procedures as outlined in Sections 1.4 and 1.5. In the event of any other change in the Shares, through recapitalization, merger, consolidation or exchange of Shares or otherwise, there shall automatically be substituted for each Share subject to the Option, the number and kind of shares or other securities into which each outstanding Share subject to the Option was changed. Section 2. NOTICES. CRT agrees to give KJW reasonable notice in advance of any (a) material change or modification to the Shares of which it has knowledge, or (b) exchange of the Shares for any property other than cash and/or promissory notes of which it has knowledge. CRT agrees to give KJW at least five business days notice of the sale, exchange or other disposition of the Shares for cash and/or promissory notes. Section 3. INVESTMENT INTENT. 3.1. TRANSFER RESTRICTION. KJW understands that the grant of the Option and the acquisition of the Shares from CRT by KJW has not been registered under the Securities Act of 1933 on the ground that the sale of securities provided for in this Agreement is exempt from registration under the Securities Act of 1933 and that in order to obtain such exemption, the transfer of such securities is restricted by the legend required by this Agreement. KJW will not offer for sale, sell or otherwise transfer any of the Shares unless such Shares have been registered under the Securities Act of 1933 and under applicable state securities laws or their offer, sale or transfer are exempt from such registration and the Company has received an opinion of counsel, in form and substance reasonably satisfactory to the Company, to the effect that their offer, sale or transfer, are so exempt. Any certificates representing the Shares shall continue to bear the legend set forth above until such time as KJW is, in the opinion of counsel to the Company, lawfully able to offer, sell and transfer such Shares without registration under the Securities Act of 1933 or any applicable state securities law and without compliance with Rule 144. 3.2. REPRESENTATION. KJW represents that he is an "accredited investor" (as defined in Section 501 of the Securities Act of 1933). KJW has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of his investment in the Shares as contemplated by this Agreement, and is able to bear the economic risk of such investment for an indefinite period of time. He has been furnished access to such information and documents as he has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company. Section 4. MISCELLANEOUS. 4.1. WAIVER. No purported waiver by either party or any default by the other party of any term or provision contained herein shall be deemed to be a waiver of such term or provision unless the waiver is in writing and signed by -3- the waiving party. No such waiver shall, in any event, be deemed a waiver of any subsequent default under the same or any other term or provision contained herein. 4.2. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between the parties concerning the subject matter of this Agreement and incorporates all prior negotiations and understandings. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than those set forth herein. No representation or warranty has been made by or on behalf of either party to this Agreement (or any officer, director, employee or agent thereof) to induce the other party to enter into this Agreement or to abide by or consummate any transactions contemplated by any terms of this Agreement, except representations and warranties expressly set forth herein. No alteration, amendment, change or addition to this Agreement shall be binding upon either party unless in writing and signed by the parties to be charged. 4.3. JOINT PREPARATION. This Agreement is to be deemed to have been prepared jointly by the parties hereto and any uncertainty or ambiguity existing herein shall be interpreted according to the application of the rules of interpretation for arms' length agreements. 4.4. NO PARTNERSHIP. Nothing contained in this Agreement shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent or of partnership. 4.5. SUCCESSORS. Each and all of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and, except as otherwise specifically provided in this Agreement, their respective successors and permitted assigns; provided, however, that neither this Agreement, nor any rights herein granted may be assigned, transferred or encumbered except as specifically otherwise permitted herein. 4.6. NOTICE PROCEDURE. Any consent, waiver, notice, demand, request or other instrument required or permitted to be given under this Agreement shall be in writing and be deemed to have been properly given only when delivered in person or by telecopy or other facsimile transmission (followed with hard copy sent by prepaid courier service), addressed to the following: If to KJW: 5134 Blazer Parkway Tel. No. (614)-766-1960 Dublin, Ohio 43017 Fax No. (614) 766-1974 If to CRT: 4350 Greens Place Tel. No. (307) 739-3010 Wilson, WY 83014 Fax No. (307) 739-1070 Notice of change of address will be effective only upon receipt. -4- 4.7. CAPTIONS. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Agreement. 4.8. PARTIAL INVALIDITY. If any term or provision of this Agreement, or the application thereof to any person, firm, corporation or other entity or circumstance, shall be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, firms, corporations or other entities or circumstances other than those as to which it is held invalid, shall be unaffected thereby and each remaining term or provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 4.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and the parties hereto may execute this Agreement by signing one or more counterparts. 4.10. THIRD PARTIES. Nothing herein express or implied is intended or shall be construed to confer upon or give any person, other than the parties hereto and their respective heirs, successors or permitted assigns, any rights or remedies under or by reason of this Agreement. 4.11. GOVERNING LAW. This Agreement shall be governed and construed by the provisions hereof and in accordance with the laws of the State of Wyoming applicable to agreements to be performed in the State of Wyoming. 4.12. FURTHER ASSURANCES. If, at any time, either of the parties hereto shall consider or be advised that any further documents are necessary or desirable to carry out the provisions hereof, the appropriate party or parties hereto shall execute and deliver, or cause to be executed and delivered, any and all such other documents and do, or cause to be done, all things necessary or proper to fully carry out the provisions hereof. -5- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. JOHNSTON FAMILY CHARITABLE REMAINDER UNITRUST #3 By: /s/ Richard P. Johnston ------------------------------------ Richard P. Johnston, Trustee /s/ Kenneth J. Warren ------------------------------------ Kenneth J. Warren -6- EX-6 8 ex6.txt OPTION AGREEMENT - JOHNSTON & WARREN EXHIBIT 6 OPTION AGREEMENT THIS OPTION AGREEMENT (the "Agreement"), dated as of February 28, 2002 between CHRISTOPHER A. JOHNSTON, an individual residing in Jackson Hole, Wyoming ("CAJ"), and KENNETH J. WARREN, an individual residing in Dublin, Ohio ("KJW"). WHEREAS, KJW has acquired an equity interest in ROYAL PRECISION, INC., a corporation duly incorporated under the laws of the State of Delaware (the "Company"); and WHEREAS, the parties hereto desire that CAJ have an option to acquire 121,750 shares of common stock of the Company previously acquired by KJW on the terms and conditions herein set forth. NOW THEREFORE, in consideration of the undertakings hereinafter contained, the parties hereto, intending to be legally bound, do hereby agree as follows: Section 1. OPTION. KJW hereby grants to CAJ an option (the "Option") to purchase 121,750 shares of common stock of the Company (the "Shares") previously acquired by KJW upon the following terms and conditions: 1.1. LAPSE. This Option will lapse and cease to be exercisable upon the first anniversary of this Agreement (or later date as outlined in Section 1.6). However, CAJ will have the option to renew the Option for another year for a Renewal Fee (as defined in Section 1.2). To effectuate any renewal, written notice to do so and the Renewal Fee must be received by KJW no later than 30 days prior to the expiration of the Option. Any renewal shall not extend the Option beyond February 25, 2007. 1.2. RENEWAL FEE. The renewal fee shall be $1,406.49. 1.3. PRICE. The price to be paid by CAJ to KJW for the Shares (the "Purchase Price") shall be $.25 per Share. 1.4. PROCEDURE. The Option shall be exercised by CAJ sending to KJW a notice (the "Notice") of the intention of CAJ to acquire the Shares, setting forth the number of Shares to be acquired, and a time and date, not less than 30 days from the date of the Notice, for a closing; provided that if KJW has provided notice to CAJ under the provisions of Section 2, CAJ may cause the closing to occur prior to the time of any event set forth in such notice. 1.5. THE CLOSING. The closing shall occur at a mutually acceptable time and place on the date set forth in the Notice. At the closing, CAJ shall deliver to KJW a certified or bank check drawn on a bank having an office in Dublin, Ohio for the payment of the Purchase Price against delivery by KJW of an assignment of the Shares to be purchased, free and clear of any claim that the transfer of the Shares was or would be wrongful or that any person, other than KJW, is the owner of or has an interest in the Shares, whether by way of lien, contract of sale, restrictions on use or transfer or otherwise other than the following legend (which shall also appear on certificates representing all of CAJ's Shares). THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE RESTRICTED SECURITIES OR SECURITIES OWNED BY AN AFFILIATE OF THE ISSUER WITHIN THE MEANING OF SECURITIES ACT RULE 144. THE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT THE SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER SAID ACT. 1.6. LIMITATION. KJW cannot be required to sell shares if such a sale would cause KJW to be subject to the provisions of Section 16(b) of the Exchange Act. If a notice to exercise the Option is given and KJW cannot sell such shares, and the time period is going to expire, then the period shall be extended until five days after receipt of notice from KJW that it is now permissible for KJW to sell such shares. 1.7. ADJUSTMENT. If the Shares are split or if a dividend is paid on such Shares, the number of Shares subject to the Option shall be automatically adjusted by the ratio between the number of Shares outstanding immediately after such event and the number of Shares outstanding immediately before such event. 1.8. LIENS. KJW agrees to keep available the number of shares subject to this option, free and clear of all liens and encumbrances except the lien in effect in favor of RPJ/JAJ Partner, Ltd and the right of CAJ to purchase any shares to be sold by KJW under an agreement between the two currently in effect. Section 2. INVESTMENT INTENT. 2.1. TRANSFER RESTRICTION. CAJ understands that the grant of the Option and the acquisition of the Shares from KJW by CAJ has not been registered under the Securities Act of 1933 on the ground that the sale of securities provided for in this Agreement is exempt from registration under the Securities Act of 1933 and that in order to obtain such exemption, the transfer of such securities is restricted by the legend required by this Agreement. CAJ will not offer for sale, sell or otherwise transfer any of the Shares unless such Shares have been registered under the Securities Act of 1933 and under applicable state securities laws or their offer, sale or transfer are exempt from such registration and the Company has received an opinion of counsel, in form and substance reasonably satisfactory to the Company, to the effect that their offer, sale or transfer, are so exempt. Any certificates representing the Shares shall continue to bear the legend set forth above until such time as CAJ is, in the opinion of counsel to the Company, lawfully able to offer, sell and transfer such Shares without registration under the Securities Act of 1933 or any applicable state securities law and without compliance with Rule 144. -2- 2.2. REPRESENTATION. CAJ represents that he is an "accredited investor" (as defined in Section 501 of the Securities Act of 1933). CAJ has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of his investment in the Shares as contemplated by this Agreement, and is able to bear the economic risk of such investment for an indefinite period of time. He has been furnished access to such information and documents as he has requested and has been afforded an opportunity to ask questions of and receive answers from representatives of the Company concerning the Company. Section 3. MISCELLANEOUS. 3.1. WAIVER. No purported waiver by either party or any default by the other party of any term or provision contained herein shall be deemed to be a waiver of such term or provision unless the waiver is in writing and signed by the waiving party. No such waiver shall, in any event, be deemed a waiver of any subsequent default under the same or any other term or provision contained herein. 3.2. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding between the parties concerning the subject matter of this Agreement and incorporates all prior negotiations and understandings. There are no covenants, promises, agreements, conditions or understandings, either oral or written, between them relating to the subject matter of this Agreement other than those set forth herein. No representation or warranty has been made by or on behalf of either party to this Agreement (or any officer, director, employee or agent thereof) to induce the other party to enter into this Agreement or to abide by or consummate any transactions contemplated by any terms of this Agreement, except representations and warranties expressly set forth herein. No alteration, amendment, change or addition to this Agreement shall be binding upon either party unless in writing and signed by the parties to be charged. 3.3. JOINT PREPARATION. This Agreement is to be deemed to have been prepared jointly by the parties hereto and any uncertainty or ambiguity existing herein shall be interpreted according to the application of the rules of interpretation for arms' length agreements. 3.4. NO PARTNERSHIP. Nothing contained in this Agreement shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent or of partnership. 3.5. SUCCESSORS. Each and all of the provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and, except as otherwise specifically provided in this Agreement, their respective successors and permitted assigns; provided, however, that neither this Agreement, nor any rights herein granted may be assigned, transferred or encumbered except as specifically otherwise permitted herein. 3.6. NOTICE PROCEDURE. Any consent, waiver, notice, demand, request or other instrument required or permitted to be given under this Agreement shall be in writing and be deemed to have been properly given only when delivered in person or by telecopy or other facsimile transmission (followed with hard copy sent by prepaid courier service), addressed to the following: -3- If to KJW: 5134 Blazer Parkway Tel. No. (614)-766-1960 Dublin, Ohio 43017 Fax No. (614) 766-1974 If to CAJ: P.O. Box 25182 3490 Club House Drive Suite 102 Tel. No. (307) 739-1188 Jackson, Wyoming 83001 Fax No. (307) 739-2288 Notice of change of address will be effective only upon receipt. 3.7. CAPTIONS. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience. They do not define, limit, construe or describe the scope or intent of the provisions of this Agreement. 3.8. PARTIAL INVALIDITY. If any term or provision of this Agreement, or the application thereof to any person, firm, corporation or other entity or circumstance, shall be invalid or unenforceable, the remainder of this Agreement, or the application of such term or provision to persons, firms, corporations or other entities or circumstances other than those as to which it is held invalid, shall be unaffected thereby and each remaining term or provision of this Agreement shall be valid and be enforced to the fullest extent permitted by law. 3.9. COUNTERPARTS. This Agreement may be executed in any number of counterparts, all of which shall constitute one and the same instrument, and the parties hereto may execute this Agreement by signing one or more counterparts. 3.10. THIRD PARTIES. Nothing herein express or implied is intended or shall be construed to confer upon or give any person, other than the parties hereto and their respective heirs, successors or permitted assigns, any rights or remedies under or by reason of this Agreement. 3.11. GOVERNING LAW. This Agreement shall be governed and construed by the provisions hereof and in accordance with the laws of the State of Delaware applicable to agreements to be performed in the State of Delaware. 3.12. FURTHER ASSURANCES. If, at any time, either of the parties hereto shall consider or be advised that any further documents are necessary or desirable to carry out the provisions hereof, the appropriate party or parties hereto shall execute and deliver, or cause to be executed and delivered, any and all such other documents and do, or cause to be done, all things necessary or proper to fully carry out the provisions hereof. -4- IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first above written. ---------------------------------------- Christopher A. Johnston ---------------------------------------- Kenneth J. Warren -5- EX-7 9 ex7.txt SUBORDINATED PROMISSORY NOTE EXHIBIT 7 THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT BY DEAN WITTER REYNOLDS, CUSTODIAN F/B/O KENNETH J. WARREN VP PLUS PROFIT-SHARING ACCOUNT IN FAVOR OF WELLS FARGO BUSINESS CREDIT, INC. DATED AS OF FEBRUARY 28, 2002. THE SALE OR OTHER TRANSFER OF THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER. SUBORDINATED PROMISSORY NOTE ================================================================================ $50,000 Torrington, Connecticut February 28, 2002 ================================================================================ FOR VALUE RECEIVED, the undersigned, ROYAL PRECISION, INC. (the "Borrower"), hereby promises to pay to the order of DEAN WITTER REYNOLDS, CUSTODIAN F/B/O KENNETH J. WARREN VP PLUS PROFIT-SHARING ACCOUNT (the "Lender"), the principal amount of $50,000, together with interest, all as provided herein. SECTION 1. LOAN. The Lender shall provide $50,000 to the Borrower. SECTION 2. PAYMENT. Payment of $50,000, together with interest on the unpaid principal balance hereunder at a rate of interest as hereinafter set forth, shall be made at the principal office of the Lender or at such other place as the Lender or other holder hereof ("Holder") may from time to time designate in writing, in immediately available funds. 2.1. PRINCIPAL. The unpaid principal balance shall be payable by the Borrower on October 26, 2002. 2.2. INTEREST. The Borrower shall pay interest on the unpaid principal balance at a rate per annum equal to 13%. Interest on the unpaid principal balance shall be payable on April 26, 2002, July 26, 2002 and at the maturity of the loan. All interest payable under this Note or otherwise payable hereunder shall be computed on the basis of the actual number of days elapsed over a year of 365 days. Interest on the unpaid principal balance shall be payable at the maturity of the loan. Notwithstanding the provisions of the first sentence of this Section 2.2, upon the occurrence and continuance of an Event of Default, all unpaid principal shall bear interest at a rate per annum equal to 17% from the date of such Event of Default until paid in full. 2.3. RATE OF INTEREST. In no event whatsoever shall the interest rate and other charges hereunder exceed the highest rate permissible under any law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that a court determines that the Lender has received interest and other charges hereunder in excess of the highest rate applicable hereto, the Lender shall promptly refund such excess amount to the Borrower and the provisions hereof shall be deemed amended to provide for such permissible rate. 2.4. PREPAYMENTS; PAYMENTS. 2.4.1. The Borrower shall have the right to make prepayments at any time of the principal amount, in whole or in part, without notice. Each prepayment shall be without premium or penalty. Once a prepayment is made, Borrower shall not be able to reborrow such amount. 2.4.2. If any payment of principal or interest on this Note shall become due on a day other than a Business Day, such payment shall be due and payable upon the next succeeding Business Day and such extension of time shall in such case be included in computing interest in connection with such payment. 2.5. PRO-RATA PAYMENT. This Note is one of a set of four notes being issued by the Borrower on the date hereof. Each Holder, by acceptance of this Note, and the Company, agrees that no payment shall be made by the Company on any such note, whether for interest or principal, unless a pro rata payment is made by the Company on all such notes, with each such payment with respect to each note being in the ratio of such aggregate payment that the balance of the note then outstanding bears to the sum of the balance of all notes then outstanding. Each Holder reserves the right to waive the benefits provided to such Holder by this Section 2.5 with or without the approval of the holders of the other notes. SECTION 3. REPRESENTATIONS AND WARRANTIES. The execution of this Note by the Borrower shall be deemed to constitute the Borrower's representation and warranty to the Lender that, at the time of execution: (a) this Note is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms; (b) the execution and delivery of this -2- Note by the Borrower does not and will not conflict with, violate or constitute a default under or breach the Borrower's charter documents, any resolutions of the Borrower or any court or administrative order, decree or ruling (including, without limitation, a ruling from the Internal Revenue Service), or any law, statute, ordinance or regulation, or any agreement, indenture, mortgage, deed of trust, guaranty, lease, note or other obligation or instrument binding upon the Borrower or any of its properties or assets; and (c) neither this Note nor any other statement, assignment, agreement, instrument or certificate of the Borrower made or delivered pursuant to or in connection with this Note contains any untrue statement of a material fact or omits to state a material fact required to be stated therein, in light of the circumstances under which they were made, or necessary to make the statements therein not misleading. SECTION 4. COVENANTS. On and after the date hereof and until payment in full of all obligations owed under this Note: 4.1. MAINTENANCE OF BUSINESS. The Borrower shall preserve and maintain its existence, rights, franchises and privileges in the jurisdiction of its formation and to qualify and remain qualified as a foreign business entity in each jurisdiction in which such qualification is necessary or desirable in view of its business and operations or for the ownership of its properties. The Borrower shall maintain and preserve in a reasonable manner in good working order and condition, ordinary wear and tear excepted, all of its properties which are necessary or useful in the proper conduct of its business, and to make, from time to time, all necessary and proper repairs, renewals, replacements, additions and improvements to said properties. The Borrower shall keep adequate records and books of account in which complete entries will be made in accordance with generally accepted accounting principles, reflecting all financial transactions. 4.2. COMPLIANCE WITH LAWS. The Borrower shall comply in all material respects with all applicable laws including, without limitation, all environmental laws. SECTION 5. SUBORDINATION. By acceptance of this Note, the Lender agrees as follows: Any and all obligations and liabilities of the Borrower to the Lender for principal and interest under this Note (the "Subordinated Indebtedness"), are subordinated in right of payment to any and all obligations and liabilities of the Borrower and its subsidiaries to Wells Fargo Business Credit, Inc. pursuant to a Subordination Agreement between the Lender and said bank of even date herewith (the "Senior Indebtedness"). SECTION 6. EVENTS OF DEFAULT. The following are Events of Defaults: 6.1. INTEREST. The Borrower fails to make a payment of interest on the Note when and as due and such failure is not remedied within three Business Days after the date such payment is due. 6.2. PRINCIPAL. The Borrower fails to pay any outstanding principal amount under this Note as and when such shall become due and payable and such failure is not remedied within three Business Days after the date such payment is due. 6.3. REPRESENTATIONS. Any representation or warranty made by the Borrower in this Note or any information contained in any financial statement or any material certificate, report, or other document delivered to the Lender by the Borrower contains any untrue statement of a material fact or omits to state a -3- material fact required by this Note or law to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided that any Event of Default susceptible of cure which is described in this Section 6.3 can be cured by the presentation, within three Business Days after the Borrower knows or should know of such Event of Default, of a revised financial statement, certificate, report or other document which itself does not cause any Event of Default. 6.4. COVENANTS. The Borrower fails to perform any of its obligations under or fails to comply with any covenant contained in this Note and such failure continues unremedied for a period of 10 Business Days. 6.5. FINANCIAL DISTRESS. The Borrower: 6.5.1. makes an assignment for the benefit of creditors; 6.5.2. enters into any composition, compromise or arrangement with its creditors in general; 6.5.3. generally does not pay its debts as such debts become due; or 6.5.4. conceals, removes, or permits to be concealed or removed, any part of its property, with intent to hinder, delay or defraud its creditors or any of them, or makes or suffers a transfer of any of its property, fraudulent under the provisions of any bankruptcy, fraudulent conveyance or similar law, or makes or suffers a transfer of its property to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid. 6.6. CROSS-DEFAULT. There is a default in the payment (either on maturity or acceleration) of any other obligation of the Borrower or any subsidiary of the Borrower, for borrowed money (which excludes trade debt incurred in the ordinary course of business or severance obligations) having a principal amount in excess of $25,000 in the aggregate. 6.7. JUDGMENTS. The rendering of any judgments for the payment of money in excess of $25,000 in the aggregate against the Borrower or any subsidiary of the Borrower, and such judgments shall remain unpaid, unvacated, or unstayed by appeal or otherwise on or before three Business Days prior to the earliest date on which proceedings for the enforcement thereof may be instituted under the applicable rules or statutes of the jurisdiction in which said judgments are rendered. 6.8. INVALIDITY. Any governmental authority asserts that the making of the loan evidenced by this Note is in any way an illegal or improper act of the Holder; provided that no Event of Default shall occur under this Section 6.8 if (a) such assertion is being contested by the Lender in good faith by appropriate means, and (b) under the circumstances of such contest, such repayment does not, in the reasonable opinion of counsel to the Lender, result in any detriment to the Lender. -4- SECTION 7. DEFAULT REMEDIES. 7.1. ACCELERATION. If an Event of Default exists, the outstanding unpaid principal balance of this Note, together with all (a) interest accrued thereon, (b) any unpaid fees or expenses, (c) penalties assessed against the Lender as a result of the making of the loan by the Lender to the Borrower (including, without limitation, penalties assessed by the Internal Revenue Service) or (d) other amounts due to the Lender under this Note, is immediately due and payable, at the Lender's election, without presentment, demand, protest or notice of any kind, all of which are hereby waived. 7.2. REMEDIES CUMULATIVE. No right or remedy conferred upon the Lender by this Note or legally available to the Lender if an Event of Default exists is intended to be exclusive of any other right or remedy, and each such right or remedy is cumulative and in addition to every other such right or remedy. 7.3. OPTION. If all amounts due hereunder are not paid in full, including all interest due thereon, as and when such sums are due and payable, or earlier if there is an Event of Default, then the Lender shall have the option (the "Option") to convert all or any part of the unpaid principal and interest thereon into shares of Common Stock of the Borrower (the "Shares") at the rate of one Share for each $0.25 of unpaid principal and interest thereon as of the date when such sums are due and payable (the "Exercise Price"). Exercise of the Option shall be considered payment by the Borrower and thus reduce any outstanding balance owed by the Borrower by the amount of Shares received by the Lender. 7.3.1. The Option may be exercised at one or more times by the Lender sending a written notice to the Borrower indicating the number of shares to be acquired, which must be in minimum amounts of 25,000 shares, unless it is an exercise of the remaining shares subject to the Option, and the amount of principal and interest thereon being converted. 7.3.2. As soon as practicable after each such exercise, the Borrower shall issue to the Lender a certificate for the number of Shares to which the Lender is entitled. 7.3.3. If, after the date of this Note, the number of outstanding Shares is increased by a share dividend payable in Shares or by a split of Shares or other similar event, then, on the date following the date fixed for the determination of holders of Shares entitled to receive such share dividend or split, the number of Shares issuable on exercise of the Option shall be increased in proportion to such increase in outstanding Shares and the then applicable Exercise Price shall be correspondingly decreased. 7.3.4. If, after the date of this Note, the number of outstanding Shares is decreased by a consolidation, combination or reclassification of Shares or other similar event, then, after the effective date of such consolidation, combination or reclassification, the number of Shares issuable on -5- exercise of the Option shall be decreased in proportion to such decrease in outstanding Shares and the then applicable Exercise Price shall be correspondingly increased. 7.3.5. If, after the date of this Note, any capital reorganization or reclassification of the Shares, or consolidation or merger of the Borrower with another corporation for a consideration other than cash or the assumption of debt, or the sale of all or substantially all of its assets to another corporation for a consideration other than cash or the assumption of debt or other similar event shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, or sale, lawful and fair provision shall be made whereby the Lender shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions specified in this Note and in lieu of the Shares immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby, such shares, securities, or assets as may be issued or payable with respect to or in exchange for a number of outstanding Shares equal to the number of Shares immediately theretofore purchasable and receivable upon the exercise of Option had such reorganization, reclassification, consolidation, merger, or sale not taken place, and in such event appropriate provision shall be made with respect to the rights and interests of the Lender to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of Shares purchasable upon the exercise of the Option) shall thereafter be applicable, as nearly as may be in relation to any share, securities, or assets thereafter deliverable upon the exercise hereof. 7.3.6. Upon the occurrence of any event specified in this Section 7.3, the Borrower shall give written notice of the record date for such dividend, distribution, or subscription rights, or the effective date of such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding up or issuance. Such notice shall also specify the date as of which the holders of Shares of record shall participate in such dividend, distribution, or subscription rights, or shall be entitled to exchange their Shares for shares, securities, or other assets deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation, winding up or issuance. Failure to give such notice, or any defect therein shall not affect the legality or validity of such event. SECTION 8. WARRANT. The Borrower shall cause to be issued to the Lender a warrant to purchase 12,000 Shares, which, when issued, shall be fully vested, exercisable for a period of 10 years from the issuance date, and have a strike price equal to $0.25 per share, receipt of which is hereby acknowledged by execution of this Note. SECTION 9. MISCELLANEOUS. 9.1. MODIFICATIONS AND WAIVERS. No modification or waiver of any term or provision contained in this Note and no consent to any departure by the Borrower therefrom shall in any event be effective unless the same is in writing and signed by the waiving party. Such waiver or consent shall be effective only in the specific instance and for the purpose for which it is given. -6- 9.2. NOTICES. Except where specific provisions of this Note provide for some other form of notice or require receipt as a condition of notice, any consent, waiver, notice, demand or other instrument required or permitted to be given under this Note shall be deemed to have been properly received when in writing and delivered in person or sent by certified or registered United States mail, return receipt requested, postage prepaid, addressed, if to the Borrower: P.O. Box 298, 535 Migeon Avenue, Torrington, Connecticut 06790 Attn: President; and if to the Lender: 5567 Caplestone Lane, Dublin, Ohio 43017. Either party may change its address for notices by notice in the manner set forth above. 9.3. PARTIAL INVALIDITY. If any term or provision of this Note or the application thereof to any person, firm or corporation or any circumstance, shall be invalid or unenforceable, the remainder of this Note, or the application of such term or provision to any person, firm or corporation or any circumstances, other than those as to which it is held invalid, shall both be unaffected thereby and each term or provision of this Note shall be valid and be enforced to the fullest extent permitted by law. 9.4. NO IMPLIED RIGHTS OR WAIVERS. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in the same, similar or other circumstances. Neither any failure nor any delay on the part of the Lender in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall a single or partial exercise thereof preclude any other or further exercise of the same or the exercise of any other right, power or privilege. The Borrower hereby waives presentment, demand, notice, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note. 9.5. SUCCESSORS AND ASSIGNS. This Note shall be binding upon and inure to the benefit of the respective heirs, successors and assigns of the Lender and the Borrower; provided that the Borrower shall have no right to assign or transfer its rights under this Note voluntarily or by operation of law without first obtaining the written consent of Lender, and any attempted assignment or transfer in the absence of such consent shall be void and of no effect. To the extent that this Note remains unpaid, the Lender may only assign its registration rights (contained in a separate agreement executed simultaneously with this Note) without an assignment of this Note (a) with the consent of the Borrower, which consent will not be unreasonably or untimely withheld, or (b) to any Affiliate of the Lender. An Affiliate of the Lender shall mean Kenneth J. Warren, Karen L. Warren, any child of Kenneth J. and Karen L. Warren, and any corporation, trust, limited liability company, partnership or company under the direct or indirect control of Kenneth J. or Karen L. Warren. 9.6. SURVIVAL OF PROVISIONS. All covenants, agreements, representations, warranties and statements made in this Note or in any certificate, statement, or other instrument given pursuant to this Note shall survive the execution and delivery to the Lender of this Note and the making of the loan and shall continue in full force and effect so long as any obligation of the Borrower under this Note is outstanding and unpaid. -7- 9.7. CAPTIONS. The captions and section numbers appearing in this Note are inserted only as a matter of convenience; they do not define, limit, construe or describe the scope or intent of the provisions of this Note. 9.8. GOVERNING LAW. This Note shall be governed and construed by the provisions hereof and in accordance with the laws of the State of Delaware applicable to instruments to be performed in the State of Delaware. 9.9. DEFINITIONS. Terms not otherwise defined herein shall have the definitions set forth below: "Business Day" means any day except a Saturday, Sunday or other day on which commercial banks in the City of New York are authorized by law to close. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. 9.10. WAIVER. The Borrower and each endorser of this Note hereby waives presentment for payment, demand, protest and notice of protest and notice of dishonor and nonpayment of this Note and agrees that no obligation hereunder shall be discharged by reason of any extension, indulgence, release, or forbearance granted by any Holder of this Note to any party now or hereafter liable hereon or any present or subsequent owner of any property, real or personal, which is now or hereafter security for this Note. Any transferees of, or endorser, guarantor or surety paying this Note in full shall succeed to all rights of the Holder, and the Holder shall be under no further responsibility for the exercise thereof or the loan evidenced hereby. Nothing herein shall limit any right granted to the Holder by other instrument or by law. 9.11. EXPENSES. The Borrower hereby agrees to pay on demand all reasonable costs and expenses of the Lender in connection with the preparation, execution and delivery of this Note and other documents to be delivered in connection herewith, including, without limitation, the reasonable fees and out of pocket expenses of counsel to the Lender with respect thereto. Lastly, all costs, including attorney fees, incurred by the Holder in revising, protecting, exercising or enforcing any of its rights hereunder and under the other documents delivered hereunder, or otherwise incurred by the Holder in connection with an Event of Default or incurred by the Holder in connection with the enforcement hereof, including by way of description and not limitation, such charges in any court or bankruptcy proceedings or arising out of any claim or action by any person, firm or corporation against the Holder which would not have been asserted were it not for the Holder's relationship with the Borrower, shall also be paid by the Borrower. 9.12. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT. -8- 9.12.1. This Note shall not be transferable except upon compliance with the provisions of the Securities Act and the state securities and Blue Sky laws. 9.12.2. This Note and the Shares into which it can be converted or any other note issued in replacement of this Note, shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SALE OR OTHER TRANSFER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER. 9.13. INVESTMENT REPRESENTATIONS. If the exercise of the Option is not covered by a registration - statement effective under the Securities Act, by acceptance of this Note, the Lender represents at each time that the Option is exercised that: 9.13.1. The Lender is acquiring the Shares for investment for its own account, not as nominee or agent, and not with a view to the distribution thereof, and the Lender has not signed any agreement or otherwise arranged for the selling, granting any participation in, or otherwise distributing the same; 9.13.2. The Lender has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the Lender's investment in the Shares; 9.13.3. The Lender has received all of the information the Lender has requested from the Borrower and considers necessary or appropriate for deciding whether to purchase the Shares; 9.13.4. The Lender has the ability to bear the economic risks of its prospective investment; 9.13.5. The Lender is able, without materially impairing its financial condition, to hold the Shares for an indefinite period of time and to suffer complete loss on its investment; 9.13.6. The Lender understands and agrees that (a) it may be unable to readily liquidate its investment in the Shares and that the Shares must be held indefinitely unless a subsequent disposition thereof is registered or qualified under the Securities Act and applicable state securities or Blue Sky laws or is exempt from such registration or qualification, and that the Borrower, while -9- obligated to register the same, may not be in any position to do so or to take any action or make such an exemption available and (b) the exemption from registration under the Securities Act afforded by Rule 144 promulgated by the SEC ("Rule 144") depends upon the satisfaction of various conditions by the Lender and the Borrower that, if applicable, Rule 144 affords the basis for sales under certain circumstances in limited amount, and that if such exemption is utilized by the Lender, such conditions must be fully complied with by the Lender and the Borrower, as required by Rule 144; 9.13.7. The Lender either (a) is familiar with the definition of and the Lender is an "accredited investor" within the meaning of such term under Rule 501 of Regulation D promulgated under the Securities Act, or (b) is providing representations and warranties reasonably satisfactory to the Borrower and its counsel, to the effect that the sale and issuance of Shares upon exercise of the Option may be made without registration under the Securities Act or any applicable state securities and Blue Sky law; and 9.13.8. The address set forth in Section 9.2 for the Lender is the true and correct address of the Lender's principal office. This Note was executed in Torrington, Connecticut as of the date first written above. ROYAL PRECISION, INC. By: ------------------------------------- Name: John C. Lauchnor Title: President -10- EX-8 10 ex8.txt WARRANT TO PURCHASE SHARES OF COMMON STOCK EXHIBIT 8 THE SALE OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER. No. 005 February 28, 2002 WARRANT TO PURCHASE SHARES OF COMMON STOCK OF ROYAL PRECISION, INC. This certifies that DEAN WITTER REYNOLDS, CUSTODIAN F/B/O KENNETH J. WARREN VP PLUS PROFIT-SHARING ACCOUNT (the "Holder"), is entitled, subject to the adjustment and to the other terms set forth below, to purchase from ROYAL PRECISION, INC., a Delaware corporation (the "Company"), 12,000 fully paid and nonassessable shares of the Company's $.001 par value Common Stock (the "Stock") at a price of $0.25 per share (the "Stock Purchase Price") at any time or from time to time but not earlier than the Commencement Date (as defined below) or later than 5:00 p.m. (New York Time) on the Expiration Date (as defined below), upon surrender to the Company at its principal office at 535 Migeon Avenue, Torrington, Connecticut 06790, Attention: Chief Financial Officer (or at such other location as the Company may advise Holder in writing) of this Warrant properly endorsed with the Form of Subscription Agreement attached hereto duly filled in and signed and upon payment in cash or cashier's check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. This Warrant is issued in exchange for the Holder agreeing to lend to the Company up to $50,000 pursuant to the terms of a Subordinated Promissory Note of even date herewith between the Company and the Holder. The Stock Purchase Price and, in some cases, the number of shares of Stock purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant and all rights hereunder, to the extent not exercised in the manner set forth herein shall terminate and become null and void on the Expiration Date. "Commencement Date" shall mean the date of execution of this Warrant. "Expiration Date" shall mean the tenth anniversary of the Commencement Date. This Warrant is subject to the following terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. This Warrant is exercisable at the option of Holder at any time or from time to time but not earlier than the Commencement Date or later than 5:00 p.m. (New York Time) on the Expiration Date for all of the shares of Stock which may be purchased hereunder. This Warrant may not be exercised for fewer than 5,000 shares of Stock, or all of the shares of Stock which may be purchased hereunder. The Company agrees that the shares of Stock purchased under this Warrant shall be and are deemed to be issued to Holder as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered and payment made for such shares. Subject to the provisions of -1- Section 2, certificates for the shares of Stock so purchased, together with any other securities or property to which Holder is entitled upon such exercise, shall be delivered to Holder by the Company's transfer agent at the Company's expense within a reasonable time after the rights represented by this Warrant have been exercised. Each stock certificate so delivered shall be in such denominations of Stock as may be requested by Holder and shall be registered in the name of Holder or such other name as shall be designated by Holder, subject to the limitations contained in Section 2. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all pre-emptive rights of any stockholder and free of all taxes, liens, and charges with respect to the issue thereof. The Company covenants that it will reserve and keep available a sufficient number of shares of its authorized but unissued Stock for such exercise. The Company will take all such reasonable action as may be necessary to assure that such shares of Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange or automated quotation system upon which the Stock may be listed. 3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and, in some cases, the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. 3.1 SUBDIVISION OR COMBINATION OF STOCK AND STOCK DIVIDEND. In case the Company shall at any time subdivide its outstanding shares of Stock into a greater number of shares or declare a dividend upon its Stock payable solely in shares of Stock, the Stock Purchase Price in effect immediately prior to such subdivision or declaration shall be proportionately reduced, and the number of shares issuable upon exercise of the Warrant shall be proportionately increased. Conversely, in case the outstanding shares of Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased, and the number of shares issuable upon exercise of the Warrant shall be proportionately reduced. 3.2 NOTICE OF ADJUSTMENT. Promptly after adjustment of the Stock Purchase Price or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, the Company shall give written notice thereof, by first class mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the effective date of the adjustment and the Stock Purchase Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. 3.3 OTHER NOTICES. If at any time: -2- (a) the Company shall declare any cash dividend upon its Stock; (b) the Company shall declare any dividend upon its Stock payable in stock (other than a dividend payable solely in shares of Stock) or make any special dividend or other distribution to the holders of its Stock; (c) there shall be any consolidation or merger of the Company with another corporation, or a sale of all or substantially all of the Company's assets to another corporation; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then, in any one or more of said cases, the Company shall give, by certified or registered mail, postage prepaid, addressed to the registered holder of this Warrant at the address of such holder as shown on the books of the Company, (i) at least 30 days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution or subscription rights or for determining rights to vote in respect of any such dissolution, liquidation or winding-up; (ii) at least 10 days' prior written notice of the date on which the books of the Company shall close or a record shall be taken for determining rights to vote in respect of any such reorganization, reclassification, consolidation, merger or sale, and (iii) in the case of any such reorganization, reclassification, consolidation; merger, sale, dissolution, liquidation or winding-up, at least 30 days' written notice of the date when the same shall take place. Any notice given in accordance with clause (i) above shall also specify, in the case of any such dividend, distribution or option rights, the date on which the holders of Stock shall be entitled thereto. Any notice given in accordance with clause (iii) above shall also specify the date on which the holders of Stock shall be entitled to exchange their Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, dissolution, liquidation or winding-up, as the case may be. If the Holder does not exercise this Warrant prior to the occurrence of an event described above, except as provided in Section 3.1 and 3.4, the Holder shall not be entitled to receive the benefits accruing to existing holders of the Stock in such event. 3.4 CHANGES IN STOCK. In case at any time prior to or following the Commencement Date, the Company shall be a party to any transaction (including, without limitation, a merger, consolidation, sale of all or substantially all of the Company's assets or recapitalization of the Stock) in which the previously outstanding Stock shall be changed into or exchanged for different securities of the Company or common stock or other securities of another corporation or interest in a noncorporate entity or other property (including cash) or any combination of any of the foregoing (each such transaction being herein called the "Transaction" and the date of consummation of the Transaction being herein called the "Consummation Date"), then, as a condition of the consummation of the Transaction, lawful and adequate provisions shall be made so that each Holder, upon the exercise hereof at any time on or after the Consummation Date, shall be entitled to receive, and this Warrant shall thereafter represent the right to receive, in lieu of the stock issuable upon such exercise prior to the Consummation Date, the highest amount of securities or other property to which -3- each Holder would actually have been entitled as a stockholder upon the consummation of the Transaction if such Holder had exercised such Warrant immediately prior thereto. The provisions of this Section 3.4 shall similarly apply to successive Transactions. 4. ISSUE TAX. The issuance of certificates for shares of Stock upon the exercise of the Warrant shall be made without charge to the holder of the Warrant for any issue tax in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then holder of the Warrant being exercised. 5. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the Holder the right to vote or to consent or to receive notice as a stockholder in respect of meetings of stockholders for the election of directors of the Company or any other matters or any rights whatsoever as a stockholder of the Company. Except for the adjustment to the Stock Purchase Price pursuant to Section 3.1 in the event of a dividend on the Stock payable in shares of Stock, no dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such holder for the Stock Purchase Price or as a stockholder of the Company whether such liability is asserted by the Company or by its creditors. 6. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; COMPLIANCE WITH SECURITIES ACT. 6.1 RESTRICTIONS ON TRANSFERABILITY. This Warrant and the Stock issuable upon exercise hereof (collectively, the "Securities"), shall not be transferable except upon compliance with the provisions of the Securities Act and the state securities and Blue Sky laws. 6.2 RESTRICTIVE LEGEND. Each certificate representing the Securities or any other securities issued in respect of the Securities upon any stock split, stock dividend, recapitalization, merger consolidation or similar event, shall be stamped or otherwise imprinted with a legend substantially in the following form (in addition to any legend required under applicable state securities laws): THE SALE OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("ACT"), OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT OR SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER. -4- 7. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 8. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified or registered mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant. 9. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The descriptive headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of Delaware. 10. LOST WARRANTS OR STOCK CERTIFICATES. The Company represents and warrants to Holder that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant or stock certificate and, in the case of any such loss, theft or destruction, upon receipt of an indemnity and, if requested, bond reasonably satisfactory to the Company, or in the case of any such mutilation, upon surrender and cancellation of such Warrant or stock certificate, the Company at its expense will make and deliver a new Warrant or stock certificate, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant or stock certificate. 11. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share pay the holder entitled to such fraction a sum in cash equal to the fair market value of any such fractional interest as it shall appear on the public market, or if there is no public market for such shares, then as shall be reasonably determined by the Company. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its President thereunto duly authorized. ROYAL PRECISION, INC. ---------------------------------------- By: John C. Lauchnor Its: President -5- FORM OF SUBSCRIPTION AGREEMENT (To be signed and delivered upon exercise of Warrant) Royal Precision, Inc. Attention: Chief Financial Officer 535 Migeon Avenue Torrington, Connecticut 06790 The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, ______ shares of common stock, par value $0.001 per share (the "Stock"), of ROYAL PRECISION, INC. (the "Company") and herewith makes payment of $_______ therefor and requests that the certificates for such shares be issued in the name of, and delivered to,____________________________________, whose address is ______________________________________________________________. If the exercise of this Warrant is not covered by a registration statement effective under the Securities Act of 1933, as amended (the "Securities Act"), the undersigned represents that: (i) the undersigned is acquiring such Stock for investment for his/its own account, not as nominee or agent, and not with a view to the distribution thereof, and the undersigned has not signed any agreement or otherwise arranged for the selling, granting any participation in, or otherwise distributing the same; (ii) the undersigned has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the undersigned's investment in the Stock; (iii)the undersigned has received all of the information the undersigned has requested from the Company and considers necessary or appropriate for deciding whether to purchase the shares of Stock; (iv) the undersigned has the ability to bear the economic risks of his/its prospective investment; (v) the undersigned is able, without materially impairing his/its financial condition, to hold the shares of Stock for an indefinite period of time and to suffer complete loss on his/its investment; (vi) the undersigned understands and agrees that (A) he/it may be unable to readily liquidate his/its investment in the shares of Stock and that the shares must be held indefinitely unless a subsequent disposition thereof is registered or qualified under the Securities Act and applicable state securities or Blue Sky laws or is exempt from such registration or qualification, and that the Company, while obligated to register the same, may not be in a position to do so -6- or to take any action or make such an exemption available and (B) the exemption from registration under the Securities Act afforded by Rule 144 promulgated by the Securities and Exchange Commission ("Rule 144") depends upon the satisfaction of various conditions by the undersigned and the Company that, if applicable, Rule 144 affords the basis for sales under certain circumstances in limited amount, and that if such exemption is utilized by the undersigned, such conditions must be fully complied with by the undersigned and the Company, as required by Rule 144; (vii)the undersigned either (A) is familiar with the definition of and the undersigned is an "accredited investor" within the meaning of such term under Rule 501 of Regulation D promulgated under the Securities Act, or (B) is providing representations and warranties reasonably satisfactory to the Company and its counsel, to the effect that the sale and issuance of Stock upon exercise of such Warrant may be made without registration under the Securities Act or any applicable state securities and Blue Sky law; and (viii) the address set forth below is the true and correct address of the undersigned's residence. DATED:____________________ ________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) ________________________________________ ________________________________________ (Address) -7- -----END PRIVACY-ENHANCED MESSAGE-----