EXHIBIT 99.1
Coyote Sports, Inc.
0000 Xxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxxx 00000
January 18, 1999
CONFIDENTIAL
Royal Precision, Inc.
00000 Xxxxx Xxxxxx Xxxx
Xxxxxxxxxx, Xxxxxxx 00000
Ladies and Gentlemen:
This will confirm the mutual understanding between Coyote Sports, Inc.
("Coyote") and Royal Precision, Inc. ("Royal") regarding the proposed business
combination (the "Transaction") between Royal and a newly formed wholly owned
subsidiary of Coyote ("Newco"), or, at Coyote's option, Coyote itself.
1. Transaction. In the Transaction, Royal will combine with Newco (or,
at Coyote's option, Royal will combine directly with Coyote). The parties will
endeavor to structure the Transaction on a tax-free basis to the extent
practicable consistent with the other terms of their understanding.
2. Consideration. Pursuant to the Transaction, each share of Royal
common stock outstanding at the time of the combination will be converted into
the right to receive one share of a new class of Coyote Convertible Preferred
Stock (the "Preferred Stock").
3. Preferred Stock. The Preferred Stock (a) shall have a liquidation
preference and redemption price of $6.00 per share; (b) shall be entitled to a
quarterly cumulative cash dividend at a rate equal to 6% per annum; (c) shall be
convertible into Coyote common stock initially representing an aggregate of 50%
of the common stock outstanding at the effective time of the combination on a
primary share basis (before dilution for warrants attached to subordinated debt,
if any, or otherwise issued in connection with any financing, equity issued in a
contemplated further acquisition or agreed-upon employee stock options); and (d)
shall otherwise have substantially the terms set forth in the Summary of Terms
attached as Annex A hereto.
4. Definitive Agreement. The parties shall negotiate in good faith with
a view to entering into a definitive agreement on terms and conditions mutually
acceptable to Coyote and to Royal (the "Definitive Agreement") as promptly as
possible, with the intention of doing so prior to January 28, 1999.
5. Shareholder Agreements. Holders of Royal common stock who are
directors, officers or affiliates represented on the Board of Directors,
representing a percentage of such common stock acceptable to Coyote's Board of
Directors, shall enter into agreements (the "Shareholder Agreements") mutually
acceptable to Coyote and such holders to vote all Royal shares beneficially
owned by them in favor of the Transaction and take certain related action. All
holders of Coyote common stock who are directors of Coyote shall enter into
similar agreements to vote all Coyote shares beneficially owned by them in favor
of the Transaction and take certain related action.
6. Timing. The parties anticipate seeking to (a) execute the Definitive
Agreement and the Shareholder Agreements within 10 days after the date hereof;
(b) file a joint proxy statement/prospectus with respect to the Transaction with
the SEC within 20 days after the date hereof; and (c) hold meetings of their
respective shareholders to approve the Transaction and consummate the
Transaction within 80 days after the date hereof.
7. Financing. It shall be a condition to the obligations of both Coyote
and Royal to complete the Transaction that Coyote have received sufficient
financing to satisfy ongoing working capital needs of Coyote and Royal following
the Transaction and to refinance existing indebtedness of both companies. Coyote
will use its reasonable best efforts to obtain such financing, and Royal will
use its reasonable best efforts to assist Coyote in doing so.
8. Due Diligence. Prior to entering into a Definitive Agreement, each
party hereto shall have been afforded the opportunity to conduct a due diligence
investigation of the other party hereto and each party hereto shall have been
satisfied, in the good faith exercise of its sole discretion, with its due
diligence investigation of the other party hereto.
9. Fairness Opinion. Prior to entering into a Definitive Agreement,
each of the Board of Directors of Coyote and the Board of Directors of Royal
shall have received an opinion of an investment bank acceptable to such Board (a
"Financial Advisor") that the consideration to be received by the stockholders
of such party (other than the other party and its subsidiaries and affiliates)
in the Transaction is fair to such stockholders from a financial point of view.
Such opinion shall be in form and substance satisfactory to such Board of
Directors.
10. Board Composition. The parties hereby agree that the Board of
Directors of Coyote following the Transaction shall consist of 8 individuals
including 4 individuals designated by directors of Coyote immediately prior to
the Transaction and
Royal Precision, Inc.
January 18, 1999
Page 6
4 individuals designated by directors of Royal immediately prior to the
Transaction. Thereafter, there shall be a shareholders agreement with respect to
certain matters of corporate governance including composition of the Board of
Directors.
11. Public Announcements. To the extent practicable, Coyote and Royal
will consult with each other prior to issuing any press release or otherwise
making any public statements regarding this letter or the Transaction; provided
that after such consultation or attempted consultation as is reasonable under
the circumstances, any party hereto may make any statement or issue any press
release that is required by applicable law or by any applicable rule or
regulation (including, without limitation, the rules and regulations of the
National Association of Securities Dealers, Inc. or any other applicable
self-regulatory organization).
12. Standstill. Each party agrees that (except as specifically
contemplated by this letter or as otherwise agreed by the Board of Directors of
the other party) for a period of two years after the date hereof, such party
shall not, directly or indirectly, (a) acquire or offer or propose to acquire
any common stock or other security, or all or any significant portion of the
assets (other than in the ordinary course of business), of the other party, (b)
effect or offer or propose to effect any merger, acquisition, consolidation or
similar transaction involving the other party, (c) propose, participate in any
solicitation of proxies or consents with respect to, or otherwise initiate or
support any proposal regarding election of directors or other action to be taken
by shareholders or directors of the other party, or (d) attempt to induce,
advise or otherwise influence any other person with respect to any of the
foregoing.
13. Termination. This letter shall terminate and have no further force
and effect (except as to Section 12 hereof, which shall remain in effect in
accordance with its terms) unless the Definitive Agreement is entered into
within 90 days after the date hereof. In addition, this letter may be terminated
by either party hereto upon written notice to the other party to this letter at
any time after February 28, 1999. In the event that this letter is terminated
each party shall bear its own expenses in connection herewith.
14. Binding Effect. This letter is only a statement of the present
intentions of the parties and it is understood that this letter is not deemed
self-executing, that this letter is subject to the negotiation, execution and
delivery of the Definitive Agreement and that, subject to the proviso to this
sentence, the parties' respective legal obligations shall arise solely from the
Definitive Agreement, when and if executed; provided that
Royal Precision, Inc.
January 18, 1999
Page 7
the provisions of Sections 4, 7, 11, and 12 hereof shall be binding on the
parties in accordance with their terms from and after the date hereof.
If the foregoing correctly reflects the mutual understanding between
us, please so indicate by signing and returning the enclosed copy of this
letter.
Very truly yours,
COYOTE SPORTS, INC.
By: /s/ Xxxxx X. Xxxxxx
--------------------
Xxxxx X. Xxxxxx
President and Chief Executive
Officer
Agreed and Accepted:
ROYAL PRECISION, INC.
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------
Xxxxxxx X. Xxxxxxx
Chairman
SUMMARY OF TERMS OF C PREFERRED STOCK
Issuance One share of new C preferred stock to be
issued for each share of R common stock
outstanding prior to C/R combination.
Liquidation Preference $6 per share, plus any accrued and
unpaid dividends.
Dividends Cumulative, payable quarterly in cash at
a rate equal to 6% per annum. To the
extent cash dividends are restricted by
terms of other financing, dividends
accrue until payment permitted.
Redemption Redeemable at Company's option at any
time or from time to time through third
anniversary of issue date, at redemption
price equal to $6 per share, plus any
accrued and unpaid dividends.
Determinations as to redemption and
other matters relating to preferred
stock shall be made by C board without
participation of directors designated by
holders of preferred. Notice of
redemption to be given in time
sufficient to permit conversion prior
thereto.
Conversion Rights Convertible at option of holder at any
time or from time to time into C common
stock representing, in the aggregate,
50% of the C common stock outstanding
after giving effect to such conversion
(but before dilution for warrants
attached to subordinated debt, if any,
or otherwise issued in connection with
any financing, equity issued in
contemplated further acquisition or
agreed-upon employee stock options). Any
accrued and unpaid dividends at time of
conversion will remain a liability of
Company, to be paid when permitted and
to bear interest at 6% per annum until
paid.
Voting Rights Preferred stock to vote (separately as a
class) as to matters materially
adversely affecting holders of preferred
stock, or to the extent otherwise
required by law. Notice of matters to be
submitted to vote of common stock to be
given in time sufficient to permit
conversion prior to
record date for such vote. The parties
shall negotiate in good faith with
regard to such matters as to which the
common and preferred shall vote together
as a class.
Registration Rights Common stock issuable upon conversion
will be registered to extent necessary
for conversion and re-sale, subject to
customary limitations.
Affirmative Covenants Affirmative covenants will include
maintenance of corporate existence,
compliance with laws, payment of taxes,
and provision of annual and quarterly
financial information.
Negative Covenants Negative covenants will include
prohibition of issuance of additional
preferred stock senior to this class of
preferred stock or modification of terms
of preferred stock without consent of
holders of at least 66 2/3% of the
preferred stock then outstanding.
Anti-Dilution Protection Customary anti-dilution protection in
the event of recapitalizations, stock
splits, stock dividends and the like.
